Chevron Corp.: Calling Out the Reserves

June 4, 2008
Oil producer reflects on escalating prices, first-quarter results, and a record-setting 2007.

It should come as no surprise, but oil producers are starting to have to defend themselves as the price per barrel continues to break new records practically every day. For Chevron Corp., one of IndustryWeek's 50 Best Manufacturers for 2008, the company's vice chairman Peter Robertson recently addressed the issue in a statement to the U.S. Senate Judiciary Committee on May 21.

Robertson told the committee that massive investment is needed around the world -- by his account, some $22 trillion by 2030 -- and Chevron is doing its part spending aggressively to develop additional oil and natural gas supplies.

"Our capital budget this year is $23 billion for new energy projects -- a record amount for our company and triple what we spent in 2004," Robertson said. "In the previous six years, we invested nearly $73 billion -- an amount greater than what we earned."

Prior to the visit to the Senate floor, Chevron reported a net income of $5.17 billion for its first quarter 2008, compared with $4.72 billion a year earlier. Sales and other operating revenues were $65 billion, up from $46 billion in the first quarter 2007 on higher prices for crude oil, natural gas and refined products.

"Upstream earnings benefited from a significant increase in the price of crude oil from a year ago," said Chevron's chairman and CEO Dave O'Reilly. "However, market conditions prevented our downstream business from fully recovering these higher costs through the price of gasoline and other refined products. Downstream results in the United States were essentially break-even in this year's first quarter."

In the first quarter, Chevron reported capital and exploratory expenditures of $5.1 billion. O'Reilly said continued strong cash flows from operations have enabled the funding of major development projects that are providing the foundation for the company's growth.

O'Reilly reiterated the positive sentiment at Chevron's annual shareholders meeting on May 28, noting the company achieved another year of record earnings in 2007 and continued to build on its financial strength. "We are delivering on our commitments and moving in the right direction," O'Reilly stated. "We have the right strategies to create a strong platform for long-term growth and to deliver value to our stockholders."

The meeting also introduced nine proposals that were voted on by Chevron shareholders. Among them was a proposal to separate the company's CEO and chairman of the board positions, both of which are currently held by O'Reilly. The proposal failed, receiving just 14% of the votes.

Chevron Corp.
At A Glance

Chevron Corp.
San Ramon, California
Primary Industry: Petroleum & Coal Products
Number of Employees: 65,000
2007 In Review
Revenue: $220.9 billion
Profit Margin: 8.62%
Sales Turnover: 1.46
Inventory Turnover: 26.75
Revenue Growth: 5.29%
Return On Assets: 14.09%
Return On Equity: 27.11%

Further investment plans were announced earlier this week, involving Chevron's plans to spend $20 billion over five years to boost production in Africa to help meet global demand for oil, natural gas and cleaner fuels, according to a story on Bloomberg. The amount will be 30% more than was spent during the previous five years, noted Robertson, who said that almost all of the money will be spent in the sub-Sahara's largest oil producers, Nigeria and Angola, where Chevron is developing deposits.

Up to $5 billion will be used for a plant in Escravos in Nigeria's Niger Delta region, which will convert gas to diesel. When completed in 2012, Robertson said the facility will have the capacity to produce about 30,000 barrels a day of a grade of diesel that will have fewer pollutants. The company also plans to start producing up to 125,000 barrels of oil a day in Tombua Landana, Angola, in the next few years at a cost of $3 billion.

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