2009 Annual Meeting Remarks by John S. Watson
John S. Watson, Vice Chairman
Opening Remarks and Corporate Overview
San Ramon, California, May 27, 2009
Good morning and welcome.
And thank you for joining us to hear about our 2008 performance. You will also hear how we're managing through this economic downturn, how we're building for the future and how we're committed to creating value for our stockholders.
Slide: Annual Meeting Title Slide
And now I will introduce our nominees for the Board of Directors. Would you please stand as I call your name and remain standing until you have all been introduced.
- Sam Armacost, chairman of SRI International.
- Linnet Deily, former Deputy U.S. Trade Representative and retired vice chairman of Charles Schwab Corporation.
- Bob Denham, partner in the law firm of Munger, Tolles and Olson.
- Bob Eaton, retired chairman of the board of management of DaimlerChrysler.
- Frank Jenifer, president emeritus of The University of Texas at Dallas.
- Senator Sam Nunn, co-chairman and CEO of the Nuclear Threat Initiative and former senator from Georgia.
- Don Rice, former chairman and current president and CEO of Agensys.
- Kevin Sharer, chairman, president and CEO of Amgen.
- Dick Shoemate, retired chairman, president and CEO of Bestfoods.
- Ron Sugar, chairman and CEO of Northrop Grumman Corporation.
- Carl Ware, retired executive vice president of The Coca-Cola Company.
- Not present but participating by phone in our board meeting immediately following is Enrique Hernandez, president and CEO of Inter-Con Security Systems.
- Me, John Watson, vice chairman of Chevron Corporation.
- And finally, Dave O'Reilly, chairman and CEO of Chevron.
Thank you all for serving as directors of our great company.
Dave will join me in today's presentation, along with George Kirkland, executive vice president of Upstream and Gas, and Mike Wirth, executive vice president of Global Downstream. We have several corporate officers here today. Would you please stand and be recognized.
Thank you. Now I'd like to introduce:
- Alan Page and John Gross, partners from PricewaterhouseCoopers.
- And Douglas Czarnecki, the Inspector of Election.
Thanks to all of you.
I'm very happy to report that 2008 was an outstanding year for Chevron. Let's take a look at a video highlighting some of our accomplishments.
I think you will agree, 2008 was a very strong year for Chevron. Let's take a closer look.
Slide: Getting Results
First, our financial results — 2008 was another year of record earnings. Our reported net income was $23.9 billion — 28 percent higher than the year before. That record income helped boost our return on capital employed to 26.6 percent. We ended 2008 with a total debt ratio of 9.3 percent and total debt of about $9 billion.
Slide: Operational Excellence Safety
Now let's talk about safety. 2008 was the safest year in our history and one of the best in our industry.
Now this is a chart in which down is good. As you can see, we closed the gap in that shaded band, which represents our competitors' safety performance. We are now among the safest operators in the industry.
This month we published our seventh Corporate Responsibility Report. Copies are available just outside the auditorium. The report includes our environmental achievements that have been widely recognized by respected organizations. For instance, Lloyds Register, an independent auditor, confirmed that Chevron's environmental management systems meet all applicable international standards.
We've also met our greenhouse gas emissions goals every year since 2004. And we are ranked No. 1 among U.S. oil and gas companies, and No. 2 worldwide, in the 2008 Carbon Disclosure Leadership Index. The index ranks companies taking “best in class” actions to measure and report carbon emissions.
Slide: Returning Cash to Stockholders
Last year, our strong earnings and cash flow enabled us to fund a robust capital program and, at the same time, return cash to stockholders. We repurchased $8 billion of our common shares and increased our quarterly dividend by 12 percent, marking our 21st consecutive year of increased annual dividend payouts.
Slide: 5-Year Total Stockholder Return
In total stockholder return, 2008 was a difficult year for all of us.
But looking over the sweep of time, stockholder return provides the most meaningful measure of our success. If we look at the five years ending Dec. 31, our total stockholder return averaged 14.8 percent. That's 17 percentage points better than the S&P 500 over the same period.
Slide: Long-Term Oil Supply Challenge
Today's global recession may be the most severe since WWII. And while we don't know the timing of recovery, we know that recovery will come.
And when it does, the world will need more oil. Even if demand were to remain flat until 2015, offsetting natural production declines from today's existing fields will require 30 million more barrels of oil per day.
Think of that as the production from three more Saudi Arabias. To offset those declines, energy producers must continue investing for the long term. But with margins and cash flows low, global investments to increase oil supplies have been declining.
Chevron's investments to provide future supplies haven't. We invest for the long term and continue to invest even when margins and cash flow are low.
Slide: Investing for the Long Term
Our capital and exploratory budget is a good case in point.
In 2009 we plan on investing $22.8 billion — the same amount as in 2008. This money will fund large, multiyear projects that will increase energy supplies and help meet long-term demand.
In other words, we're looking beyond this downturn. We're investing for the future.
About 75 percent of our budget funds oil and gas exploration and production — our upstream business. Another 20 percent funds refining, marketing and transportation — our downstream business.
Slide: Advantages for Challenging Times
Chevron is in a strong position — and better than most of our peers — to succeed through this downturn. This is no accident. We use periods of high oil prices to strengthen our balance sheet and reduce our debt. When oil prices are low, we live within our means and maintain a strong balance sheet.
Having a strong balance sheet is one advantage in today's economy. We have others, too.
- Our portfolio is less exposed to sectors that are more affected by this downturn, such as chemicals and downstream.
- We have strong relationships with host governments. That's a vital advantage in all market cycles.
- And we can sustain investment through the down part of the cycle — where we find ourselves today.
Slide: Right Strategies, Consistent Strategies
These advantages are the result of our four consistent strategies. They are:
- Grow upstream profitably in core areas
- Commercialize our natural gas resources
- Improve downstream returns and selectively grow
- And invest in renewable energy technologies.
Now we'll describe how we advance these strategies.
To start that off, I'd like to introduce George Kirkland, who will highlight our upstream and natural gas activities.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This press release 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 press release. 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 crude-oil and natural-gas prices; 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 OPEC (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 pending or future litigation; the company's acquisition or disposition of assets; 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 rule-setting bodies; and the factors set forth under the heading "Risk Factors" on pages 30 and 31 of the company's 2008 Annual Report on Form 10-K. In addition, such statements could be affected by general domestic and international economic and political conditions. Unpredictable or unknown factors not discussed in this press release could also have material adverse effects on forward-looking statements.
U.S. Securities and Exchange Commission (SEC) rules permit oil and gas companies to disclose only proved reserves in their filings with the SEC. Certain terms, such as "resources," "undeveloped gas resources," "oil in place," "recoverable reserves," and "recoverable resources," among others, may be used in this presentation to describe certain oil and gas properties that are not permitted to be used in filings with the SEC. In addition, SEC regulations define oil-sands reserves as mining-related and not a part of conventional oil and gas reserves.
Published: May 2009