Chevron 2006 Annual Report Download - page 28

26 CHEVRON CORPORATION 2006 ANNUAL REPORT
KEY FINANCIAL RESULTS
Millions of dollars, except per-share amounts 2006 2005 2004
Net Income $ 17,138 $ 14,099 $ 13,328
Per Share Amounts:
Net Income – Basic $ 7.84 $ 6.58 $ 6.30
– Diluted $ 7.80 $ 6.54 $ 6.28
Dividends $ 2.01 $ 1.75 $ 1.53
Sales and Other
Operating Revenues $ 204,892 $ 193,641 $ 150,865
Return on:
Average Capital Employed 22.6% 21.9% 25.8%
Average Stockholders’ Equity 26.0% 26.1% 32.7%
INCOME FROM CONTINUING OPERATIONS BY MAJOR
OPERATING AREA
Millions of dollars 2006 2005 2004
Income From Continuing Operations
Upstream – Exploration and Production
United States $ 4,270 $ 4,168 $ 3,868
International 8,872 7,556 5,622
Total Upstream 13,142 11,724 9,490
Downstream – Refi ning, Marketing
and Transportation
United States 1,938 980 1,261
International 2,035 1,786 1,989
Total Downstream 3,973 2,766 3,250
Chemicals 539 298 314
All Other (516) (689) (20)
Income From Continuing Operations $ 17,138 $ 14,099 $ 13,034
Income From Discontinued
Operations – Upstream – – 294
Net Income* $ 17,138 $ 14,099 $ 13,328
*Includes Foreign Currency Effects: $ (219) $ (61) $ (81)
Refer to the “Results of Operations” section beginning on
page 30 for a detailed discussion of fi nancial results by major
operating area for the three years ending December 31, 2006.
BUSINESS ENVIRONMENT AND OUTLOOK
Chevron’s current and future earnings depend largely on the
profi tability of its upstream (exploration and production)
and downstream (refi ning, marketing and transportation)
business segments. The single biggest factor that affects the
results of operations for both segments is movement in the
price of crude oil. In the downstream business, crude oil is
the largest cost component of refi ned products. The overall
trend in earnings is typically less affected by results from the
company’s chemicals business and other activities and invest-
ments. Earnings for the company in any period may also be
infl uenced by events or transactions that are infrequent and/
or unusual in nature. Chevron and the oil and gas industry
at large are currently experiencing an increase in certain costs
that exceeds the general trend of infl ation in many areas of
the world. This increase in costs is affecting the company’s
operating expenses for all business segments and capital
expenditures, particularly for the upstream business.
To sustain its long-term competitive position in the
upstream business, the company must develop and replenish
an inventory of projects that offer adequate fi nancial returns
for the investment required. Identifying promising areas for
exploration, acquiring the necessary rights to explore for and
to produce crude oil and natural gas, drilling successfully,
and handling the many technical and operational details in
a safe and cost-effective manner are all important factors in
this effort. Projects often require long lead times and large
capital commitments. Changes in economic, legal or political
circumstances can have signifi cant effects on the profi tability
of a project over its expected life. In the current environ-
ment of higher commodity prices, certain governments have
sought to renegotiate contracts or impose additional costs
on the company. Other governments may attempt to do so
in the future. The company will continue to monitor these
developments, take them into account in evaluating future
investment opportunities, and otherwise seek to mitigate any
risks to the company’s current operations or future prospects.
In late February 2007, the President of Venezuela issued a
decree announcing the government’s intention for the state-
owned company, Petróleos de Venezuela S.A., to increase
its ownership later this year in all Orinoco Heavy Oil Asso-
ciations, including Chevron’s 30 percent-owned Hamaca
project, to a minimum of 60 percent. The impact on
Chevron from such an action is uncertain but is not expected
to have a material effect on the company’s results of opera-
tions, consolidated fi nancial position or liquidity.
The company also continually evaluates opportunities to
dispose of assets that are not key to providing suffi cient long-
term value, or to acquire assets or operations complementary
to its asset base to help augment the company’s growth. Dur-
ing the fi rst quarter 2007, the company authorized the sale
of its 31 percent ownership interest in the Nerefco Refi nery
and the associated TEAM Terminal in the Netherlands.
The transaction is subject to signing of the sales agreement
and obtaining necessary regulatory approvals. The company
expects to record a gain upon close of the sale. In early 2007,
the company was also in discussions regarding the possible sale
of its fuels marketing operations in the Netherlands, Belgium
and Luxembourg. Neither the refi ning nor marketing assets
were classifi ed as held-for-sale as of December 31, 2006,
in accordance with the held-for-sale criteria of Financial
Accounting Standards Board (FASB) Statement No. 144,
Impairment or Disposal of Long-Lived Assets. Other asset dis-
positions and restructurings may occur in future periods and
could result in signifi cant gains or losses.
Comments related to earnings trends for the company’s
major business areas are as follows:
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS