Chevron 2005 Annual Report Download - page 4

2005 was a year
of unprecedented
accomplishment
and challenge for
our company.
We reported record earnings and completed the acquisi-
tion and integration of Unocal. We made major new
discoveries of crude oil and natural gas and took sig-
nifi cant steps to expand our global natural gas business.
Although our employees and facilities sustained damage
from back-to-back hurricanes in the U.S. Gulf Coast, we
are recovering with remarkable resilience and effi ciency.
Our fi nancial performance refl ects the capital discipline
that is necessary to create sustained value and growth.
Net income in 2005 was $14.1 billion on sales and other
operating revenues of $194 billion – representing record
levels in both categories. Return on capital employed for
the year was a strong 21.9 percent. We increased our divi-
dend in 2005 for the 18th consecutive year, completed the
purchase of $5 billion of the company’s shares in the open
market under a program started in 2004 and initiated a
new program to acquire up to an additional $5 billion of
shares over a period of up to three years. A critical mea-
sure of our performance, total stockholder return (TSR),
was 11.3 percent for 2005. From 2001 through 2005,
TSR averaged 9.7 percent, among the highest of our larger
peer companies.
MAINTAINING MOMENTUM We executed strongly
against our key business strategies in 2005, enhancing
our foundation for current and future growth. The suc-
cessful integration of Unocal’s operations strengthened
our competitive profi le in key markets, par ticularly in
Southeast Asia, where we are in the top tier of natural
gas producers. Unocal’s world-class assets in Asia, the Cas-
pian and the U.S. Gulf of Mexico are a superb strate gic
fi t with Chevron’s portfolio and capabilities. In addition,
Unocal provided us with a deep source of talent and lead-
ing-edge technology, particularly with the drill bit, that
we are integrating throughout our enterprise.
We enhanced our position in the deep water with dis-
coveries at Big Foot and Knotty Head in the U.S. Gulf of
Mexico and at Manatee offshore Trinidad and Tobago,
among others. Our combination of experience and applied
technology resulted in a total of 31 successful exploration
wells in 2005 and an exploration success rate of 58 percent,
one of the best in the industry.
We reached key milestones in our queue of major
capital projects, most notably the Benguela Belize-Lobito
Tomboco deepwater project in Angola, which is the fi rst
of our “Big 5” projects to begin production. We began
construction of production facilities for the Tahiti (U.S.)
and Agbami (Nigeria) deepwater projects, as well as the
Escravos gas-to-liquids plant in Nigeria. Our global gas
business reached key agreements with Japanese utility
companies for future sales of liquefi ed natural gas (LNG)
from the Gorgon project in Australia into Japan, the
world’s largest LNG market.
Refi ning and marketing operations benefi ted from
strong margins in Asian and U.S. markets, and we moved
forward with expansion plans at our largest U.S. refi n-
eries. In Asia, we approved a major upgrade of the Yeosu
Refi nery in South Korea, the world’s fourth-largest refi n-
ery, to enable heavy oil processing.
Our planned capital and exploratory spending pro-
gram for 2006 is $14.8 billion, a 34 percent increase over
2005. This level of investment is aligned with our strong
queue of growth projects and our commitment to bring
new energy supplies to market.
COMPETITIVE ADVANTAGE The operating environ-
ment for the energy industry continues to be challenging.
With a sustained increase in global demand, tight supplies
and a dynamic geopolitical situation, we continue to
believe our industry is dealing with a fundamentally new
energy equation. To some extent, risk in our industry has
shifted from below ground – where Chevron has proved
ex treme ly effective at fi nding and producing hydrocarbons
– to above ground, where challenges include access to
re sources, barriers to the free fl ow of capital investment
to produce those resources and the economic develop-
ment of infrastructure needed to connect energy supplies
to markets.
In this environment, the competitive advantage will go
to companies that demonstrate sustained performance and
operating excellence, apply new technology in ways that
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TO OUR STOCKHOLDERS