"We are making progress on more than 30 oil and gas development projects that represent a Chevron investment of at least $1 billion each," Chairman and CEO Dave O'Reilly said. "This excellent queue of projects and our successful exploratory program are expected to contribute to an average proved-reserves replacement rate of more than 100 percent for the next five years."
O'Reilly also remarked that the company is investing to increase the capacity of its refinery network and to enhance the flexibility of its refineries to process lower-quality crude oils. "Chevron is building competitive integrated positions in the world's major growth markets," O'Reilly said. "We have the financial strength and a track record of investment discipline and operational excellence to continue adding value for our stockholders," added O'Reilly.
Upstream - Exploration and Production
Bobby Ryan, vice president of Global Exploration, and George Kirkland, executive vice president of Upstream and Gas, provided an overview of Chevron's exploration program and oil and gas development projects.
Ryan said the company drilled 42 successful exploration and appraisal wells in 2006 and had an average drilling success rate of 45 percent over the past five years. During that period, the company added over 5 billion oil- equivalent barrels to its resource base.
"This is a result that cannot be easily or quickly duplicated," Ryan said. "It takes years to build the technical competency, do the basin geology and develop the integrated technologies that give Chevron a competitive advantage, and it will not be easily eroded."
Commenting on the company's oil and gas development projects, Kirkland said, "These projects deliver significant organic growth, and given where they are in the development cycle, we are confident of achieving an average annual production growth of at least 3 percent through 2010. Not only is the outlook positive for near-term production growth, but our exploration success continues to fill our development pipeline," Kirkland said.
In remarks on rising industry costs and base-business performance, Kirkland said, "We've experienced cost increases the past few years, but we are extremely disciplined in our spending on our capital projects and daily operations. In addition, given our focus on reservoir management and subsurface delineation, we have been able to mitigate production declines from existing assets and, in some cases, actually boost production."
Downstream - Refining, Marketing and Transportation
Mike Wirth, executive vice president of Downstream, outlined Chevron's recent success and future commitment to enhance the reliability and utilization rates of the company's refinery network.
"Improving and sustaining reliability is a lot less expensive than building new capacity or acquiring new facilities," Wirth said. "Safe and reliable operations are my top priorities."
Wirth added that the company is selectively investing to add flexibility to process heavier and higher sulfur crude oils. These projects, and other investments that add scale, are targeted at improving margins. The company also is selectively divesting assets to improve returns on capital employed. This will result in a more focused footprint, where the company position is stronger but in fewer locations.
"Industry forecasts show road-transportation fuel demand growing by about 6 million barrels per day by 2015. Two-thirds of this growth will be located in North America and Asia," Wirth said. "The good news for Chevron is that 75 percent of our refining capacity is located in these regions, and we are well- positioned to capitalize on this significant growth opportunity. Not only do we have a stronger position geographically, but we also have stronger assets relative to industry in these areas."
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