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2010 Chevron Annual Report


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The 2010 Chevron Annual Report looks at a year of achievements in exploration, technology and refineries.

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2010 Chevron Annual Report

  1. 1. 2010 Annual Report
  2. 2. Contents2 Letter to Stockholders 8 Glossary of Energy and Financial Terms 89 Chevron History4 Chevron Financial Highlights 9 Financial Review 90 Board of Directors5 Chevron Operating Highlights 72 Five-Year Financial Summary 91 Corporate Officers6 Chevron at a Glance 73 Five-Year Operating Summary 92 Stockholder and Investor Information
  3. 3. Chevron is developing a portfolio of major capital projectsthat include some of the largest and most pioneering venturesin the industry. To be successful, we must perform at thehighest possible level and deliver results the right way. Thatis why we are sharply focused on three enterprise strategiesthat define our priorities around people, execution and growth.We are investing in our people so that we recruit, develop andmaintain a world-class workforce. We are following rigorousprocesses to ensure that we operate responsibly, makedisciplined decisions and execute our projects with excellence.And we are using our competitive advantages to grow ourcompany profitably.In addition to the printed Annual Report, we have developedan online version that contains additional information aboutour company, as well as videos you can watch to learn moreabout our projects. We invite you to visit our website strong base business: 2010 not only was an excellent year for moving our major capital projects forward, but it also was an excellentyear for our base business. It is our base business — the performance of our existing assets — that enables us to fund new opportunities forgrowth. Through the expertise of our people and their application of innovative technology, we are better managing reservoirs, slowingproduction declines, and producing more crude oil and natural gas from mature fields. Chevron Corporation 2010 Annual Report 1
  4. 4. To Our Stockholders 2010 was an outstanding year for Chevron. Once again our people delivered strong results in a challenging environment. We made significant advances in our queue of major capital projects, exceeded our goals for production growth, restructured our downstream business to enhance competitive performance and maintained our long-term leadership in total stockholder return. The company’s performance was grounded in a strong safety culture, which resulted in our safest year ever. The Macondo incident in the U.S. Gulf of Mexico underscored that safe operations are fundamental to our ability to operate. Following Macondo, we led the industry in working with regulators to enhance operating standards in the Gulf. We remain vigilant about safety, reliability and environmental stewardship wherever we operate. Our financial performance in 2010 contributed to a very strong balance sheet and competitive returns for investors. Net income in 2010 was $19 billion on sales and other operating revenues of $198 billion. We increased our annual dividend in 2010 for the 23rd consecutive year, initiated a stock repurchase program and maintained leadership in two key measures of financial perform- ance. Return on capital employed was 17.4 percent — a direct outcome of disciplined capital investment — and the company led our major competitors in total stockholder return over the past five years. Our upstream business continues to deliver major capital projects from our industry-leading queue. Tahiti, our world-class deepwater project in the Gulf of Mexico, marked the first full year of production, and we continued ramp-ups of several new projects, including Frade in Brazil, Tombua-Landana in Angola and our Tengizchevroil joint venture in Kazakhstan. In 2010, total net oil- equivalent production in our upstream business increased 2 percent over 2009, after increasing 7 percent the previous year. We continued to build for future growth by sanctioning development of four large deepwater projects — Jack/St. Malo, Big Foot and Tahiti 2 in the Gulf of Mexico, and Papa-Terra in Brazil. We also continued building a high-impact natural gas business, most notably in Australia with two world-class liquefied natural gas (LNG) projects, Gorgon and Wheatstone. Construction of the Gorgon facility on Barrow Island progressed toward 2014 startup while Wheatstone engineering work continued. A majority of our equity natural gas resources in both Gorgon and Wheatstone has been
  5. 5. committed under long-term LNG sales stockholders. Some key focus areas social investments reflect our belief thatcontracts. Almost half of our natural gas include our i-field ™ program, which our success as a business is tied directlyportfolio is located in the Asia-Pacific applies information technology to to the economic vitality and health ofregion, positioning us as a long-term improve production from mature fields; the communities where we operate.supplier to growing Asian markets. enhanced heavy oil recovery through advanced steamflood and thermal In 2010, we enhanced our core busi-Our exploration and business develop- management; and implementation ness strategies with three enterprisement programs created significant of our next-generation reservoir strategies: People, Execution andgrowth opportunities in 2010. We added simulation technology. Growth. We are focused on recruitingnew resource opportunities in China, and developing the best people in theLiberia, the Black Sea, eastern Europe Technological innovation underpins business, flawlessly executing ourand Canada. In addition, we acquired our renewable energy strategy. We projects and developing opportunitiesAtlas Energy in February 201 1 to develop are investing in research projects that will create long-term growth for theshale gas reserves in the prolific U.S. with industry and university partners company. Above all else, the men andMarcellus Shale in Pennsylvania, bringing to explore promising pathways for women of Chevron will continue to beour total acreage additions since late renewables that may have the potential guided by our company’s values — getting2009 to 14 million acres. to be developed profitably at commercial results the right way — and our vision scale. Our energy efficiency business, to be the company most admired for itsIn our downstream business, we Chevron Energy Solutions, continues people, partnership and performance.responded to challenging market to apply advanced solar and otherconditions by restructuring to achieve energy-saving technologies to lower I am confident that as we continuesustained improvement in competitive costs for institutional customers. We to produce the energy required forperformance. We concluded sales of also are exploring growth opportunities economic growth and human progress,nonstrategic assets and implemented to develop new geothermal prospects our enduring values and provena leaner, more focused and lower-cost in Indonesia and the Philippines. strategies will continue to benefitdownstream organization. We started our stockholders, our employees, ourup projects at our refinery in Pascagoula, In addition to operating capabilities, business partners and our communities.Mississippi, our affiliate refinery in South our success going forward is tied toKorea, and at a chemicals facility in Qatar. the partnerships we build with our host Thank you for investing in Chevron. communities. We focus our communityChevron enters 201 1 with a $26 billion partnerships and investments in threecapital and exploratory budget — a 19 areas — health, education and economicpercent increase over 2010 levels and a development. We believe these areas arereflection of our financial strength and among the most promising avenues forunparalleled growth opportunities. Our creating mutual benefits for communitiesspending will focus largely on executing and our company. In 2010, we deployedupstream crude oil and natural gas approximately $180 million in community John S. Watsonexploration and production projects investments worldwide. Notable among Chairman of the Board andworldwide. Downstream spending will our partnerships in 2010 was the Chief Executive Officerfocus on increasing refinery flexibility, launch of the Niger Delta Partnership February 24, 201 1product yields and energy efficiency. Initiative, an innovative and multipartner approach to support sustained economicAt Chevron, technology is directly development and conflict resolution inlinked to creating value for our the Niger Delta region. These types of Chevron Corporation 2010 Annual Report 3
  6. 6. Chevron Financial Highlights Millions of dollars, except per-share amounts 2010 2009 % Change Net income attributable to Chevron Corporation $ 19,024 $ 10,483 81.5 % Sales and other operating revenues $ 198,198 $ 167,402 18.4 % Noncontrolling interests income $ 112 $ 80 40.0 % Interest expense (after tax) $ 41 $ 22 86.4 % Capital and exploratory expenditures* $ 21,755 $ 22,237 (2.2)% Total assets at year-end $ 184,769 $ 164,621 12.2 % Total debt at year-end $ 11,476 $ 10,514 9.2 % Noncontrolling interests $ 730 $ 647 12.8 % Chevron Corporation stockholders’ equity at year-end $ 105,081 $ 91,914 14.3 % Cash provided by operating activities $ 31,359 $ 19,373 61.9 % Common shares outstanding at year-end (Thousands) 1,993,313 1,993,554 0.0 % Per-share data Net income – diluted $ 9.48 $ 5.24 80.9 % Cash dividends $ 2.84 $ 2.66 6.8 % Chevron Corporation stockholders’ equity $ 52.72 $ 46.11 14.3 % Common stock price at year-end $ 91.25 $ 76.99 18.5 % Total debt to total debt-plus-equity ratio 9.8% 10.3% Return on average stockholders’ equity 19.3% 11.7% Return on capital employed (ROCE) 17.4% 10.6% *Includes equity in affiliates Net Income Attributable Chevron Year-End to Chevron Corporation Annual Cash Dividends Common Stock Price Return on Capital Employed Billions of dollars Dollars per share Dollars per share Percent 25.0 3.00 100 30 $2.84 $91.25 20.0 2.40 80 24 $19.0 15.0 1.80 60 18 17.4 10.0 1.20 40 12 5.0 0.60 20 6 0.0 0.00 0 0 06 07 08 09 10 06 07 08 09 10 06 07 08 09 10 06 07 08 09 10 The increase in 2010 was due to The company’s annual dividend The company’s stock price rose Higher earnings improved Chevron’s higher earnings for both upstream increased for the 23rd consecutive 18.5 percent in 2010. return on capital employed to and downstream, as a result of year. 17.4 percent. higher prices for crude oil, natural gas and refined products.4 Chevron Corporation 2010 Annual Report
  7. 7. Chevron Operating Highlights 1 2010 2009 % ChangeNet production of crude oil and natural gas liquids (Thousands of barrels per day) 1,923 1,846 4.2 %Net production of natural gas (Millions of cubic feet per day) 5,040 4,989 1.0 %Net production of oil sands (Thousands of barrels per day) — 26 (100.0)%Total net oil-equivalent production (Thousands of oil-equivalent barrels per day) 2,763 2,704 2.2 %Refinery input (Thousands of barrels per day) 1,894 1,878 0.9 %Sales of refined products (Thousands of barrels per day) 3,113 3,254 (4.3) %Net proved reserves of crude oil, condensate and natural gas liquids2 (Millions of barrels) — Consolidated companies 4,270 4,610 (7.4) % — Affiliated companies 2,233 2,363 (5.5) %Net proved reserves of natural gas2 (Billions of cubic feet) — Consolidated companies 20,755 22,153 (6.3) % — Affiliated companies 3,496 3,896 (10.3) %Net proved oil-equivalent reserves2 (Millions of barrels) — Consolidated companies 7,729 8,302 (6.9) % — Affiliated companies 2,816 3,012 (6.5) %Number of employees at year-end3 58,267 59,963 (2.8) %1 Includes equity in affiliates, except number of employees2 At the end of the year3 Excludes service station personnel Five-Year Cumulative Total ReturnsPerformance Graph (Calendar years ended December 31)The stock performance graph at right shows how 200an initial investment of $100 in Chevron stock 180would have compared with an equal investment in 160the S&P 500 Index or the Competitor Peer Group.The comparison covers a five-year period begin- 140 Dollarsning December 31, 2005, and ending December 31, 1202010, and for the peer group is weighted by marketcapitalization as of the beginning of each year. It 100includes the reinvestment of all dividends that an 80investor would be entitled to receive and is adjusted 60for stock splits. The interim measurement points 2005 2006 2007 2008 2009 2010show the value of $100 invested on December 31,2005, as of the end of each year between 2006and 2010. Chevron S&P 500 Peer Group* 2005 2006 2007 2008 2009 2010 Chevron 100 133.82 174.61 142.55 154.10 189.36 S&P 500 100 115.80 122.09 76.92 97.26 111.90 Peer Group* 100 125.18 154.51 117.63 121.25 128.16 *Peer Group: BP p.l.c.-ADS, ExxonMobil, Royal Dutch Shell-ADR and ConocoPhillips Five-Year Cum. Total Returns – v1 Chevron Corporation 2010 Annual Report 5
  8. 8. Chevron at a GlanceChevron is one of the world’s leading integrated energy companies, withsubsidiaries that conduct business worldwide. Our success is driven byour people and their unrelenting focus on delivering results the rightway — by operating responsibly, executing with excellence, applyinginnovative technologies and capturing new opportunities for profitablegrowth. We are involved in virtually every facet of the energy industry.We explore for, produce and transport crude oil and natural gas; refine,market and distribute transportation fuels and lubricants; manufactureand sell petrochemical products; generate power and produce geothermalenergy; provide energy efficiency solutions; and develop the energyresources of the future, including biofuels.Above, left to right:Tengizchevroil Second Generation Plant, Tengiz, Kazakhstan; Tricia Padilla, environmental specialist, and Charles Odumah, process engineer, Richmond, California, refinery.6 Chevron Corporation 2010 Annual Report
  9. 9. Upstream Strategy: Upstream explores for and produces crude oil and natural gas. At the end of 2010, Grow profitably in worldwide net oil-equivalent reserves for consolidated operations and affiliated opera- core areas and build tions were 7.7 and 2.8 billion barrels, respectively. In 2010, net oil-equivalent production new legacy positions. averaged 2.8 million barrels per day. Major producing areas include Angola, Australia, Azerbaijan, Bangladesh, Brazil, Canada, Denmark, Indonesia, Kazakhstan, Nigeria, the Partitioned Zone between Kuwait and Saudi Arabia, Thailand, the United Kingdom, the United States, and Venezuela. Major exploration areas include the U.S. Gulf of Mexico and the offshore areas of northwestern Australia and western Africa. Additional areas include the Gulf of Thailand, Black Sea, South China Sea, and the offshore areas of Canada, the United Kingdom, Norway, Brazil and Liberia. Shale gas exploration areas include Canada, Poland and Romania. Gas and Midstream We are engaged in every aspect of the natural gas business — production, liquefaction, Strategy: regasification, pipeline and marine transport, marketing and trading, power generation, Commercialize our equity and gas-to-liquids. We hold the largest natural gas resource position in Australia through gas resource base while the Gorgon, Wheatstone and Browse Basin projects; the North West Shelf Venture; and growing a high-impact other deepwater blocks. We also have significant natural gas resources in western Africa, global gas business. Bangladesh, Canada, China, Indonesia, Kazakhstan, the Philippines, South America, Thailand, the United Kingdom, the United States and Vietnam. Additionally, we have significant positions in shale gas in the United States.Downstream Strategy: Our downstream operations include refining, fuels and lubricants marketing, petro-and Chemicals Improve returns and chemicals manufacturing and marketing, supply and trading, and transportation. In 2010, grow earnings across we processed 1.9 million barrels of crude oil per day and averaged 3.1 million barrels per the value chain. day of refined product sales worldwide. Our most significant areas of operations are the west coast of North America, the U.S. Gulf Coast, Southeast Asia, South Korea, Australia, South Africa and the United Kingdom. We hold interests in 16 fuel refineries and market under the Chevron, Texaco and Caltex motor fuel and lubricants brands. Products are sold through a network of approximately 20,000 retail stations, including those of affiliated companies. Our chemicals business includes Chevron Phillips Chemical Company LLC, a 50 percent-owned affiliate that is one of the world’s leading manufacturers of commodity petrochemicals. Our subsidiary Chevron Oronite Company LLC also is part of our chemi- cals business. It develops, manufactures and markets quality additives that improve the performance of fuels and lubricants.Technology Strategy: Technology advancements enable us to continue to overcome new and difficult business Differentiate performance challenges. Our three technology companies — Energy Technology, Technology Ventures through technology. and Information Technology — support our base businesses and enable our most promising future opportunities. We have technology centers in Australia, Scotland and in California and Texas in the United States. Together they provide strategic research, technology development, and technical and computing infrastructure services to our global businesses.Renewable Strategy: We are the largest producer of geothermal energy in the world, with leading positionsEnergy and Invest in profitable in Indonesia and the Philippines. We are involved in developing emerging renewableEnergy renewable energy sources of energy for the future, including advanced biofuels from nonfood sources.Efficiency and energy efficiency Our subsidiary Chevron Energy Solutions develops and builds sustainable energy projects solutions. for internal and external clients that increase efficiency and renewable power, reduce costs, and ensure high-quality energy.Operational Operational excellence (OE) is a critical driver for business success. We define OE asExcellence the systematic management of process safety, personal safety and health, environment, reliability and efficiency to achieve world-class performance. 2010 was our safest year ever. For the ninth consecutive year, we improved our safety performance, reducing the rate of injuries severe enough to require days away from work by 28 percent, compared with the previous year. Safety is our highest priority, and we will not be satisfied until we have zero incidents — no one injured. We also continue to make progress in energy efficiency, which has improved by 33 percent since 1992, the year we began tracking our efficiency progress. Chevron Corporation 2010 Annual Report 7
  10. 10. Glossary of Energy and Financial TermsEnergy Terms Oil sands Naturally occurring mixture of bitumen (a heavy, viscous form of crude oil), The company only discloses proved reserves in its filings with the SEC. Certain terms, such as water, sand and clay. Using hydroprocessing “probable” or “possible” reserves, “potentiallyAdditives Chemicals to control engine deposits technology, bitumen can be refined to yield recoverable” volumes, and “resources,” amongand improve lubricating performance. synthetic oil. others, may be used to describe certain oil andBarrels of oil-equivalent (BOE) A unit of measure gas properties in sections of this document that Petrochemicals Compounds derived fromto quantify crude oil, natural gas liquids and natural are not filed with the SEC. These other terms are petroleum. These include aromatics, which aregas amounts using the same basis. Natural gas used because they are common to the industry, used to make plastics, adhesives, synthetic fibersvolumes are converted to barrels on the basis are measures considered by management to be and household detergents; and olefins, which areof energy content. See oil-equivalent gas and important in making capital investment and used to make packaging, plastic pipes, tires, batteries,production. operating decisions, and provide some indication household detergents and synthetic motor oils. to stockholders of the potential ultimate recoveryBiofuel Any fuel that is derived from biomass — Production Total production refers to all the of oil and gas from properties in which the companyrecently living organisms or their metabolic crude oil (including synthetic oil), natural has an interest. In that regard, potentially recov-byproducts — from sources such as farming, gas liquids and natural gas produced from a erable volumes are those that can be producedforestry, and biodegradable industrial and property. Gross production is the company’s using all known primary and enhanced recoverymunicipal waste. See renewables. share of total production before deducting both methods.Condensate Hydrocarbons that are in a gaseous royalties paid to landowners and a government’s Shale gas Natural gas produced from shalestate at reservoir conditions but condense into agreed-upon share of production under a (clay-rich, very fine-grained) formations whereliquid as they travel up the wellbore and reach production-sharing contract. Net production the gas was sourced from within the shale itselfsurface conditions. is gross production minus both royalties paid to and is trapped in rocks with low porosity and landowners and a government’s agreed-uponDevelopment Drilling, construction and related extremely low permeability. Production of shale share of production under a production-sharingactivities following discovery that are necessary gas requires the use of hydraulic fracturing contract. Oil-equivalent production is the sumto begin production and transportation of crude (pumping a fluid-sand mixture into the formation of the barrels of liquids and the oil-equivalentoil and natural gas. under high pressure) to help produce the gas. barrels of natural gas produced. See barrelsEnhanced recovery Techniques used to increase of oil-equivalent and oil-equivalent gas. Synthetic oil A marketable and transportableor prolong production from crude oil and natural hydrocarbon liquid, resembling crude oil, that is Production-sharing contract (PSC) An agree-gas fields. produced by upgrading highly viscous or solid ment between a government and a contractor hydrocarbons, such as extra-heavy crudeExploration Searching for crude oil and/or (generally an oil and gas company) whereby oil or oil sands.natural gas by utilizing geologic and topographical production is shared between the parties in astudies, geophysical and seismic surveys, and prearranged manner. The contractor typicallydrilling of wells. incurs all exploration, development and produc-Gas-to-liquids (GTL) A process that converts tion costs that are subsequently recoverable out of an agreed-upon share of any future PSC Financial Termsnatural gas into high-quality transportation fuels production, referred to as cost recovery oil and/ Cash flow from operating activities Cashand other products. or gas. Any remaining production, referred to as generated from the company’s businesses; an profit oil and/or gas, is shared between the partiesGreenhouse gases Gases that trap heat in Earth’s indicator of a company’s ability to pay dividends on an agreed-upon basis as stipulated in the PSC.atmosphere (e.g., water vapor, ozone, carbon and fund capital and common stock repurchase The government also may retain a share of PSCdioxide, methane, nitrous oxide, hydrofluorocar- programs. Excludes cash flows related to the production as a royalty payment, and thebons, perfluorocarbons and sulfur hexafluoride). company’s financing and investing activities. contractor may owe income taxes on its portionIntegrated energy company A company of the profit oil and/or gas. The contractor’s Earnings Net income attributable to Chevronengaged in all aspects of the energy industry, share of PSC oil and/or gas production and Corporation as presented on the Consolidatedincluding exploring for and producing crude reserves varies over time as it is dependent Statement of Income.oil and natural gas; refining, marketing and on prices, costs and specific PSC terms. Goodwill An asset representing the futuretransporting crude oil, natural gas and refined economic benefits arising from the other assets Renewables Energy resources that are notproducts; manufacturing and distributing acquired in a business combination that are not depleted when consumed or converted intopetrochemicals; and generating power. individually identified and separately recognized. other forms of energy (e.g., solar, geothermal,Liquefied natural gas (LNG) Natural gas that ocean and tide, wind, hydroelectric power, Margin The difference between the cost ofis liquefied under extremely cold temperatures biofuels and hydrogen). purchasing, producing and/or marketing ato facilitate storage or transportation in specially product and its sales price. Reserves Crude oil or natural gas contained indesigned vessels. underground rock formations called reservoirs Return on capital employed (ROCE) RatioNatural gas liquids (NGL) Separated from and saleable hydrocarbons extracted from calculated by dividing earnings (adjusted fornatural gas, these include ethane, propane, oil sands, shale, coalbeds or other nonrenew- after-tax interest expense and noncontrollingbutane and natural gasoline. able natural resources that are intended to interests) by the average of total debt, non- be upgraded into synthetic oil or gas. Proved controlling interests and Chevron CorporationOil-equivalent gas (OEG) The volume of natural reserves are the estimated quantities that stockholders’ equity for the year.gas needed to generate the equivalent amount geoscience and engineering data demonstrateof heat as a barrel of crude oil. Approximately Return on stockholders’ equity Ratio calcu- with reasonable certainty to be economically6,000 cubic feet of natural gas is equivalent lated by dividing earnings by average Chevron producible in the future from known reservoirsto one barrel of crude oil. Corporation stockholders’ equity. Average under existing economic conditions, operating Chevron Corporation stockholders’ equity methods and government regulations. Estimates is computed by averaging the sum of the change as additional information becomes beginning-of-year and end-of-year balances. available. Oil-equivalent reserves are the sum of the liquids reserves and the oil-equivalent Total stockholder return (TSR) The return to gas reserves. See barrels of oil-equivalent and stockholders as measured by stock price appre- oil-equivalent gas. ciation and reinvested dividends for a period of time.8 Chevron Corporation 2010 Annual Report
  11. 11. Financial Table of Contents10 40Management’s Discussion and Analysis of Notes to the Consolidated Financial StatementsFinancial Condition and Results of Operations Note 1 Summary of Significant Accounting Policies 40Key Financial Results 10 Note 2 Agreement to Acquire Atlas Energy, Inc. 42Earnings by Major Operating Area 10 Note 3 Noncontrolling Interests 42Business Environment and Outlook 10 Note 4 Information Relating to the ConsolidatedOperating Developments 14 Statement of Cash Flows 43Results of Operations 15 Note 5 Summarized Financial Data – Chevron U.S.A. Inc. 44Consolidated Statement of Income 18 Note 6 Summarized Financial Data –Selected Operating Data 19 Chevron Transport Corporation Ltd. 44Liquidity and Capital Resources 20 Note 7 Summarized Financial Data – Tengizchevroil LLP 44Financial Ratios 21 Note 8 Lease Commitments 45Guarantees, Off-Balance-Sheet Arrangements and Contractual Note 9 Fair Value Measurements 45 Obligations, and Other Contingencies 22 Note 10 Financial and Derivative Instruments 47Financial and Derivative Instruments 23 Note 11 Operating Segments and Geographic Data 49Transactions With Related Parties 24 Note 12 Investments and Advances 51Litigation and Other Contingencies 24 Note 13 Properties, Plant and Equipment 53Environmental Matters 27 Note 14 Litigation 53Critical Accounting Estimates and Assumptions 28 Note 15 Taxes 55New Accounting Standards 31 Note 16 Short-Term Debt 57Quarterly Results and Stock Market Data 32 Note 17 Long-Term Debt 57 Note 18 New Accounting Standards 58 Note 19 Accounting for Suspended Exploratory Wells 58 Note 20 Stock Options and Other Share-Based Compensation 59 Note 21 Employee Benefit Plans 6033 Note 22 Equity 66 Note 23 Restructuring and Reorganization 67Consolidated Financial Statements Note 24 Other Contingencies and Commitments 67Report of Management 33 Note 25 Asset Retirement Obligations 70Report of Independent Registered Public Accounting Firm 34 Note 26 Other Financial Information 70Consolidated Statement of Income 35 Note 27 Earnings Per Share 71Consolidated Statement of Comprehensive Income 36Consolidated Balance Sheet 37Consolidated Statement of Cash Flows 38 Five-Year Financial Summary 72Consolidated Statement of Equity 39 Five-Year Operating Summary 73 Supplemental Information on Oil and Gas Producing Activities 74Cautionary Statement Relevant to Forward-Looking Informationfor the Purpose of “Safe Harbor” Provisions of the Private SecuritiesLitigation Reform Act of 1995This Annual Report of Chevron Corporation contains forward-looking state- venture partners to fund their share of operations and development activities;ments relating to Chevron’s operations that are based on management’s the potential failure to achieve expected net production from existingcurrent expectations, estimates and projections about the petroleum, and future crude oil and natural gas development projects; potential delayschemicals and other energy-related industries. Words such as “anticipates,” in the development, construction or start-up of planned projects; the potential“expects,” “intends,” “plans,” “targets,” “projects,” “believes,” “seeks,” disruption or interruption of the company’s net production or manufacturing“schedules,” “estimates,” “budgets” and similar expressions are intended to facilities or delivery/transportation networks due to war, accidents, politicalidentify such forward-looking statements. These statements are not guarantees events, civil unrest, severe weather or crude oil production quotas that mightof future performance and are subject to certain risks, uncertainties and other be imposed by the Organization of Petroleum Exporting Countries; thefactors, some of which are beyond the company’s control and are difficult to potential liability for remedial actions or assessments under existing or futurepredict. Therefore, actual outcomes and results may differ materially from environmental regulations and litigation; significant investment or productwhat is expressed or forecasted in such forward-looking statements. The reader changes under existing or future environmental statutes, regulations andshould not place undue reliance on these forward-looking statements, which litigation; the potential liability resulting from other pending or futurespeak only as of the date of this report. Unless legally required, Chevron under- litigation; the company’s future acquisition or disposition of assets and gainstakes no obligation to update publicly any forward-looking statements, whether and losses from asset dispositions or impairments; government-mandatedas a result of new information, future events or otherwise. sales, divestitures, recapitalizations, industry-specific taxes, changes in fiscal Among the important factors that could cause actual results to differ terms or restrictions on scope of company operations; foreign currencymaterially from those in the forward-looking statements are: changing crude movements compared with the U.S. dollar; the effects of changed accountingoil and natural gas prices; changing refining, marketing and chemical margins; rules under generally accepted accounting principles promulgated by rule-actions of competitors or regulators; timing of exploration expenses; timing of setting bodies. In addition, such statements could be affected by generalcrude oil liftings; the competitiveness of alternate-energy sources or product domestic and international economic and political conditions. Unpredictable orsubstitutes; technological developments; the results of operations and financial unknown factors not discussed in this report could also have material adversecondition of equity affiliates; the inability or failure of the company’s joint- effects on forward-looking statements. Chevron Corporation 2010 Annual Report 9
  12. 12. Management’s Discussion and Analysis of of Management’s Discussion and Analysis Financial Condition and Results of Operations Financial Condition and Results of OperationsKey Financial Results Saudi Arabia and Kuwait, the Philippines, Republic of theMillions of dollars, except per-share amounts 2010 2009 2008 Congo, Singapore, South Africa, South Korea, Thailand,Net Income Attributable to Trinidad and Tobago, the United Kingdom, the United Chevron Corporation $ 19,024 $ 10,483 $ 23,931 States, Venezuela and Vietnam.Per Share Amounts: Earnings of the company depend mostly on the profit- Net Income Attributable to ability of its upstream and downstream business segments. Chevron Corporation The single biggest factor that affects the results of operations – Basic $ 9.53 $ 5.26 $ 11.74 – Diluted $ 9.48 $ 5.24 $ 11.67 for both segments is movement in the price of crude oil. In Dividends $ 2.84 $ 2.66 $ 2.53 the downstream business, crude oil is the largest cost com-Sales and Other ponent of refined products. The overall trend in earnings is Operating Revenues $ 198,198 $ 167,402 $ 264,958 typically less affected by results from the company’s otherReturn on: activities and investments. Earnings for the company in any Capital Employed 17.4% 10.6% 26.6% Stockholders’ Equity 19.3% 11.7% 29.2% period may also be influenced by events or transactions that are infrequent or unusual in nature.Earnings by Major Operating Area The company’s operations, especially upstream, can also be affected by changing economic, regulatory and politicalMillions of dollars 2010 2009 2008 environments in the various countries in which it operates,Upstream1 including the United States. Civil unrest, acts of violence or United States $ 4,122 $ 2,262 $ 7,147 strained relations between a government and the company or International 13,555 8,670 15,022 other governments may impact the company’s operations orTotal Upstream 17,677 10,932 22,169 investments. Those developments have at times significantlyDownstream1 United States 1,339 (121) 1,369 affected the company’s operations and results and are care- International 1,139 594 1,783 fully considered by management when evaluating the levelTotal Downstream 2,478 473 3,152 of current and future activity in such countries.All Other (1,131) (922) (1,390) To sustain its long-term competitive position in theNet Income Attributable to upstream business, the company must develop and replen- Chevron Corporation 2,3 $ 19,024 $ 10,483 $ 23,931 ish an inventory of projects that offer attractive financial1 2009 and 2008 information has been revised to returns for the investment required. Identifying promising conform with the 2010 segment presentation.2 Includes foreign currency effects: $ (423) $ (744) $ 862 areas for exploration, acquiring the necessary rights to explore3 Also referred to as “earnings” in the discussions that follow. for and to produce crude oil and natural gas, drilling suc- cessfully, and handling the many technical and operational The activities reported in Chevron’s upstream and down- details in a safe and cost-effective manner are all importantstream operating segments have changed effective January 1, factors in this effort. Projects often require long lead times2010. Results for the chemicals businesses are now reported and large capital commitments. From time to time, certainas part of the downstream segment. In addition, the com- governments have sought to renegotiate contracts or imposepany’s significant upstream-enabling operations, primarily a additional costs on the company. Governments may attemptgas-to-liquids project and major international export pipe- to do so in the future. The company will continue to moni-lines, have been reclassified from the downstream segment tor these developments, take them into account in evaluatingto the upstream segment. Prior period information in this future investment opportunities, and otherwise seek to miti-report has been revised to conform to the 2010 presentation. gate any risks to the company’s current operations or future Refer to the “Results of Operations” section beginning prospects.on page 15 for a discussion of financial results by major The company also continually evaluates opportunities tooperating area for the three years ended December 31, 2010. dispose of assets that are not expected to provide sufficient long-term value or to acquire assets or operations comple-Business Environment and Outlook mentary to its asset base to help augment the company’sChevron is a global energy company with substantial busi- financial performance and growth. Refer to the “Results ofness activities in the following countries: Angola, Argentina, Operations” section beginning on page 15 for discussionsAustralia, Azerbaijan, Bangladesh, Brazil, Cambodia, of net gains on asset sales during 2010. Asset dispositions andCanada, Chad, China, Colombia, Democratic Republic of restructurings may also occur in future periods and couldthe Congo, Denmark, Indonesia, Kazakhstan, Myanmar, the result in significant gains or losses.Netherlands, Nigeria, Norway, the Partitioned Zone between10 Chevron Corporation 2010 Annual Report
  13. 13. In recent years, Chevron and the oil and gas indus- the company’s production capacity in an affected region. Thetry generally experienced an increase in certain costs that company monitors developments closely in the countries inexceeded the general trend of inflation in many areas of the which it operates and holds investments and seeks to man-world. This increase in costs affected the company’s operating age risks in operating its facilities and businesses. Besides theexpenses and capital programs for all business segments, but impact of the fluctuation in prices for crude oil and naturalparticularly for Upstream. Softening of these cost pressures gas, the longer-term trend in earnings for the upstreamstarted in late 2008 and continued through most of 2009. segment is also a function of other factors, including theIndustry costs began to level out in fourth quarter 2009 company’s ability to find or acquire and efficiently produceand rose slightly in 2010. The company continues to actively crude oil and natural gas, changes in fiscal terms of contractsmanage its schedule of work, contracting, procurement and and changes in tax laws and activities to effectively manage costs. Price levels for capital and exploratory costs and operat- The company closely monitors developments in the ing expenses associated with the production of crude oil andfinancial and credit markets, the level of worldwide economic natural gas can also be subject to external factors beyondactivity and the implications for the company of movements the company’s control. External factors include not only thein prices for crude oil and natural gas. Management takes general level of inflation, but also commodity prices andthese developments into account in the conduct of daily prices charged by the industry’s material and service provid-operations and for business planning. The company remains ers, which can be affected by the volatility of the industry’sconfident of its underlying financial strength to address own supply-and-demand conditions for such materials andpotential challenges presented in the current environment. services. Capital and exploratory expenditures and operating(Refer also to the “Liquidity and Capital Resources” section expenses can also be affected by damage to production facili-beginning on page 20.) ties caused by severe weather or civil unrest. The chart at the left shows the trend in benchmark WTI Crude Oil and Henry Hub Natural Gas Spot Prices — prices for West Texas Intermediate (WTI) crude oil and U.S. Quarterly Average Henry Hub natural gas. The WTI price averaged $79 per WTI $/bbl HH $/mcf barrel for the full-year 2010, compared to $62 in 2009. As of 150 WTI 25 mid-February 2011, the WTI price was about $85. HH A differential in crude oil prices exists between high 120 20 quality (high-gravity, low-sulfur) crudes and those of lower quality (low-gravity, high-sulfur). The amount of the dif- 90 15 ferential in any period is associated with the supply of heavy crude available versus the demand, which is a function of the 60 10 number of refineries that are able to process this lower quality 30 5 feedstock into light products (motor gasoline, jet fuel, avia- tion gasoline and diesel fuel). The differential widened during 0 0 2010 primarily due to both strong diesel prices and relatively weaker fuel oil prices. 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Chevron produces or shares in the production of heavy 2008 2009 2010 crude oil in California, Chad, Indonesia, the Partitioned Zone between Saudi Arabia and Kuwait, Venezuela and in certain fields in Angola, China and the United Kingdom Comments related to earnings trends for the company’s sector of the North Sea. (See page 19 for the company’smajor business areas are as follows: average U.S. and international crude oil realizations.) Upstream Earnings for the upstream segment are closely In contrast to price movements in the global marketaligned with industry price levels for crude oil and natural for crude oil, price changes for natural gas in many regionalgas. CrudeCrude Oil Prices 2008 are subject2010 – v1 markets are more closely aligned with supply-and-demand #009 – oil and natural gas prices through to external conditions in those markets. In the United States, prices atfactors over which the company has no control, includingproduct demand connected with global economic conditions, Henry Hub averaged about $4.50 per thousand cubic feetindustry inventory levels, production quotas imposed by the (MCF) during 2010, compared with about $3.80 duringOrganization of Petroleum Exporting Countries (OPEC), 2009. As of mid-February 2011, the Henry Hub spot priceweather-related damage and disruptions, competing fuel was about $4.20 per MCF. Fluctuations in the price forprices, and regional supply interruptions or fears thereof that natural gas in the United States are closely associated withmay be caused by military conflicts, civil unrest or political customer demand relative to the volumes produced in Northuncertainty. Moreover, any of these factors could also inhibit America and the level of inventory in underground storage. Chevron Corporation 2010 Annual Report 11
  14. 14. Management’s Discussion and Analysis of Financial Condition and Results of Operations tainties, including additional quotas that may be imposed Net Liquids Production* Net Natural Gas Production* by OPEC, price effects on production volumes calculated Thousands of barrels per day Millions of cubic feet per day under production sharing and variable-royalty provisions of 2000 1,923 6000 certain agreements, changes in fiscal terms or restrictions on the scope of company operations, delays in project startups, 5,040 5000 fluctuations in demand for natural gas in various markets, 1500 4000 weather conditions that may shut in production, civil unrest, changing geopolitics, delays in completion of maintenance 1000 3000 turnarounds, greater-than-expected declines in production from mature fields, or other disruptions to operations. The 2000 500 outlook for future production levels is also affected by the 1000 size and number of economic investment opportunities and, for new large-scale projects, the time lag between initial 0 0 06 07 08 09 10 06 07 08 09 10 exploration and the beginning of production. Investments in upstream projects generally begin well in advance of the start United States United States of the associated crude oil and natural gas production. A sig- International International nificant majority of Chevron’s upstream investment is made Net liquids production increased Net natural gas production increased 4 percent in 2010 mainly due to new 1 percent in 2010. International outside the United States. projects in the United States, Brazil production increase more than offset and Nigeria, expansion of capacity decline in United States. Refer to the “Results of Operations” section on pages at TCO in Kazakhstan and inclusion * Includes equity in affiliates. 15 through 16 for additional discussion of the company’s of Canada synthetic oil in 2010. upstream business. * Includes equity in affiliates. Refer to Table V beginning on page 79 for a tabu- lation of the company’s proved net oil and gas reserves by geographic area, at the beginning of 2008 and each year-end Certain international natural gas markets in which the from 2008 through 2010, and an accompanying discussioncompany operates have different supply, demand and regula- of major changes to proved reserves by geographic area fortory circumstances, which historically have resulted in lower Production– v1 #011B – Net Natural Gas the three-year period ending December 31, 2010.average sales prices for the company’s production of natural Gulf of Mexico Update In April 2010, an accidentgas in these locations.Oil & Nat Gas locations Chevron#10B – Net Crude In some of these occurred on the Transocean Deepwater Horizon, a deepwateris investing in long-term projectsv6 install infrastructure toLiquids Production (back) – to drilling rig in the Gulf of Mexico, resulting in a loss of life,produce and liquefy natural gas for transport by tanker to the sinking of the rig and a significant oil spill. The rig wasother markets where greater demand results in higher prices. drilling an exploratory well at the BP-operated MacondoInternational natural gas realizations averaged about $4.60 prospect. Chevron was not a participant in the well. Subse-per MCF during 2010, compared with about $4.00 per MCF quent to the event, the U.S. Department of the Interior putduring 2009. These realizations reflect a strong demand in place a moratorium on the drilling of wells using subseafor energy in certain Asian markets. (See page 19 for the blowout preventers (BOPs) or surface BOPs on a floatingcompany’s average natural gas realizations for the U.S. and facility in the Gulf of Mexico and the Pacific regions. Ininternational regions.) October 2010, the Secretary of the Interior lifted the drilling The company’s worldwide net oil-equivalent production moratorium, provided that operators certify compliance within 2010 averaged 2.763 million barrels per day. About one- all the newly expanded rules and requirements, and dem-fifth of the company’s net oil-equivalent production in 2010 onstrate the availability of adequate blowout containmentoccurred in the OPEC-member countries of Angola, Nigeria, resources.Venezuela and the Partitioned Zone between Saudi Arabia The moratorium and the ensuing slowdown in issuingand Kuwait. OPEC quotas had no effect on the company’s net drilling permits since the moratorium was lifted have resultedcrude oil production in 2010, while production in 2009 was in delays in shallow water drilling activity, delayed the drill-reduced by an average of 20,000 barrels per day due to quo- ing of exploratory deepwater wells and impacted developmenttas imposed by OPEC. All of the imposed curtailments took drilling on both operated and nonoperated projects in theplace during the first half of 2009. At the December 2010 Gulf of Mexico. The company’s daily net oil-equivalent pro-meeting, members of OPEC supported maintaining produc- duction in the Gulf of Mexico was reduced by about 10,000tion quotas in effect since December 2008. barrels per day for the full year. The company has submit- The company estimates that oil-equivalent production ted several deepwater drilling permit applications and plansin 2011 will average approximately 2.790 million barrels to submit additional applications in 2011. Two deepwaterper day. This estimate is subject to many factors and uncer- drillships are on stand-by, pending issuance of permits from12 Chevron Corporation 2010 Annual Report
  15. 15. the U.S. Bureau of Ocean Energy Management, Regulation America, Asia, southern Africa and the United Kingdom.and Enforcement (BOEMRE), to drill wells in the Gulf of Chevron operates or has significant ownership interests inMexico. A third deepwater drillship is drilling a water injec- refineries in each of these areas except Latin America. In thirdtion well at the Tahiti Field. Additionally, the completion of quarter 2010, the company completed its exit from the Districtpreviously drilled wells has recommenced at the nonoperated of Columbia, Delaware, Indiana, Kentucky, North Carolina,Perdido and Caesar/Tonga projects. The future effects of this New Jersey, Maryland, Ohio, Pennsylvania, South Carolina,incident, including any new or additional regulations that Virginia, West Virginia and parts of Tennessee, where the com-may be adopted and the timing of BOEMRE issuing drilling pany sold Chevron- and Texaco-branded motor fuels to retailpermits, are not fully known at this time. Chevron remains customers through approximately 1,100 stations, and to com-committed to deepwater exploration and development in the mercial and industrial customers through supply arrangements.Gulf of Mexico and other deepwater basins around the world. Sales in these markets represented approximately 8 percent of During the moratorium, Chevron participated in a num- the company’s total 2009 U.S. retail fuel sales volumes.ber of industry efforts to identify opportunities to improve The company’s refining and marketing margins in 2010industry standards in prevention, intervention and spill improved over 2009, but remain relatively weak due to the eco-response. In July 2010, Chevron and several other companies nomic slowdown, excess refined product supplies and surplusannounced plans to build and deploy a rapid response system refining capacity. Expecting these conditions to continue forthat will be available to capture and contain crude oil in the several years, in first quarter 2010 the company announced thatunlikely event of a future well blowout in the deepwater Gulf its downstream businesses would be restructured to improveof Mexico. The new system will be engineered to be used in operating efficiency and achieve sustained improvement inwater depths up to 10,000 feet and designed to have capacity financial performance. As part of this restructuring, employee-to contain 100,000 barrels per day, with potential for expan- reduction programs were announced for the United Statession. The companies committed to equally fund the initial and international downstream operations. The initial estimate$1 billion investment in the system. There will be additional included approximately 3,200 employees. Due to redeploy-ongoing costs for operations and maintenance of the system ment efforts within the company, it is currently expected thatcomponents. An initial agreement to secure containment approximately 2,800 employees in the downstream operationsequipment has been announced, and other equipment is will be terminated under these programs before the end ofexpected to be secured and available in the coming months, 2011. About 1,100 of the affected employees are located in thewith the new system targeted for completion in early 2012. United States. During 2010, 1,400 employees were terminatedThe companies have formed an organization, the Marine worldwide. Refer to Note 23 of the Consolidated FinancialWell Containment Company, to operate and maintain this Statements, beginning on page 67, for further discussion. Insystem. Other companies have been invited and encouraged 2010, the company solicited bids for 13 U.S. terminals andto participate in this organization. certain operations in Europe (including the company’s Pem- broke Refinery), the Caribbean, and select Central America and Downstream Earnings for the downstream segment are Africa markets. These sales are part of the company’s ongoingclosely tied to margins on the refining, manufacturing and effort to concentrate downstream resources and capital on stra-marketing of products that include gasoline, diesel, jet fuel, tegic global assets. These potential market exits, dispositions oflubricants, fuel oil, fuel and lubricant additives, and petro- assets, and other actions may result in gains or losses in futurechemicals. Industry margins are sometimes volatile and can periods. Through fourth quarter 2010, the company completedbe affected by the global and regional supply-and-demand the sale of six U.S. terminals and certain marketing businessesbalance for refined products and petrochemicals and by in Africa, which resulted in gains that were not material tochanges in the price of crude oil, other refinery and petro- the company. Also, in late 2010 the company completed thechemical feedstocks, and natural gas. Industry margins can sale of its 23.4 percent ownership interest in the Colonialalso be influenced by inventory levels, geopolitical events, Pipeline Company, which resulted in a gain on sale of nearlycost of materials and services, refinery or chemical plant $400 million.capacity utilization, maintenance programs and disruptions Refer to the “Results of Operations” section on pageat refineries or chemical plants resulting from unplanned out- 17 for additional discussion of the company’s downstreamages due to severe weather, fires or other operational events. operations. Other factors affecting profitability for downstreamoperations include the reliability and efficiency of the com- All Other consists of mining operations, power generationpany’s refining, marketing and petrochemical assets, the businesses, worldwide cash management and debt financingeffectiveness of the crude oil and product supply functions activities, corporate administrative functions, insurance opera-and the volatility of tanker-charter rates for the company’s tions, real estate activities, alternative fuels, and technologyshipping operations, which are driven by the industry’s companies. In first quarter 2010, employee-reduction programsdemand for crude oil and product tankers. Other factors were announced for the corporate staffs. As of year-end, it wasbeyond the company’s control include the general level of expected that approximately 400 employees from the corpo-inflation and energy costs to operate the company’s refining, rate staffs will be terminated under the programs by the endmarketing and petrochemical assets. of 2011, including approximately 100 who were terminated in The company’s most significant marketing areas are the 2010. Refer to Note 23 of the Consolidated Financial State-West Coast of North America, the U.S. Gulf Coast, Latin ments, beginning on page 67, for further discussion. Chevron Corporation 2010 Annual Report 13
  16. 16. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperating Developments and Sappho prospect in 50 percent-owned Block WA-392-P.Key operating developments and other events during 2010 In February 2011, the company announced a natural gas dis-and early 2011 included the following: covery in the Orthrus prospect in 50 percent-owned Block WA-24-R. These discoveries are expected to contribute to fur-Upstream ther growth at company-operated LNG projects in Australia.Australia Construction activities on Barrow Island and other Cambodia The company completed three successfulactivities for the Gorgon Project progressed on schedule exploration wells during 2010. In the first-half 2011, a 30-yearduring 2010 with the award of approximately $25 billion of production permit for the production sharing contract iscontracts for materials and services, clearing of the plant site, expected to be approved by the government. A final investment completion of the first stage decision for construction of a wellhead platform and a floating of the construction village, storage and offloading vessel is expected in 2011. Net Proved Reserves commencement of module Canada First production was achieved from the Jack- Billions of BOE* fabrication, and progression pine Mine in third quarter 2010 as a result of Athabasca Oil 12.0 of studies on the possible Sands Project Expansion 1 activities. In addition, through 10.5 expansion of the project. 2010 the company acquired approximately 200,000 acres of 10.0 In early 2011, the company shale gas leasehold in western Canada. The appraisal of this 8.0 signed an additional bind- acreage is expected to begin by the second-half 2011. ing liquefied natural gas China The company acquired a 100 percent interest in 6.0 (LNG) Sales and Purchase Blocks 53-30 and 64-18, and a 59 percent interest in Block 4.0 Agreement (SPA) with an 42-05, covering a combined total exploratory acreage of Asian customer. The com- approximately 5.2 million acres in the South China Sea’s 2.0 pany has signed five binding Pearl River Mouth Basin. LNG SPAs with Asian cus- Indonesia A final investment decision was reached for 0.0 06 07 08 09 10 tomers for delivery of about Development Area 13 of the Duri Field, where Chevron 4.7 million metric tons of holds a 100 percent working interest. United States LNG per year. Negotiations The company awarded FEED contracts in December Other Americas Africa continue to finalize the 2010 for the Gendalo-Gehem natural gas development in Asia two remaining nonbind- the Makassar Strait offshore East Kalimantan, Indonesia. Australia Europe ing Heads of Agreement Contracts for floating production units, subsea and flowline Affiliates (HOAs) as binding SPAs, systems, export pipelines, and an onshore receiving facility Net proved reserves for both which would bring LNG were awarded for the project. consolidated companies and affiliated companies decreased delivery commitments to a Kazakhstan/Russia Approval was obtained from the 7 percent in 2010. combined total of about 90 shareholders and governing bodies of the Caspian Pipeline *2010 and 2009 include barrels of oil-equivalent reserves for percent of Chevron’s share of Consortium for a $5.4 billion expansion of the Caspian Canadian synthetic oil. LNG from the project. Pipeline. The capacity of the 935-mile pipeline, which carries Through the end of crude oil from western Kazakhstan to a dedicated terminal 2010, the company has on the Black Sea, will increase to 1.4 million barrels per day. #14A – Net Proved Reservessigned nonbinding HOAs with three Asian customers for the Liberia The company acquired a 70 percent interest anddelivery of v2b 80 percent of Chevron’s net LNG offtake (front) – about operatorship in three deepwater blocks covering 2.4 millionfrom the Chevron-operated Wheatstone Project. Negotiations acres off the coast of Liberia in western Africa. A three-yearcontinue to move the three HOAs to binding SPAs with exploratory program began in fourth quarter 2010.these customers. These three customers have also agreed to Poland Acquisition work commenced in October 2010acquire a combined 21.8 percent nonoperated working inter- on a 2-D seismic survey across the company’s four shale gasest in the Wheatstone field licenses and a 17.5 percent interest licenses in southeast Poland. Chevron has a 100 percent-in the foundation natural gas processing facilities at the owned and operated interest in these four concessions,time of the final investment decision. The project, currently totalling 1.1 million acres.undergoing front-end engineering and design (FEED), has a Republic of the Congo Discoveries were confirmed atplanned capacity of 8.9 million metric tons per year. the Bilondo Marine 2 and 3 wells within the Moho-Bilondo During 2010, the company announced additional license. Chevron has a 31.5 percent interest in the permit area.deepwater natural gas discoveries, including the Clio and Romania The company successfully bid on three shaleAcme prospects in 67 percent-owned Block WA-205-P, Yel- gas exploration blocks, comprising approximately 670,000lowglen prospect in 50 percent-owned Block WA-268-P, acres, in the southeast region of the country. In FebruaryBrederode prospect in 50 percent-owned Block WA-364-P,14 Chevron Corporation 2010 Annual Report
  17. 17. 2011, the company acquired a 100 percent interest in the South Korea A new, 60,000-barrel-per-day heavy-oilEV-2 Barlad shale gas concession, covering 1.5 million acres hydrocracker was commissioned and reached full capacity inin the northeast region of the country. third quarter 2010 at the 50 percent-owned GS Caltex Yeosu Russia The company signed a nonbinding HOA for a Refinery in South Korea. Also at the Yeosu Refinery, GSdeepwater development partnership on the Shatsky Ridge in Caltex announced plans to construct a 53,000-barrel-per-daythe eastern Black Sea. gas oil fluid catalytic cracking unit. The unit is scheduled for Turkey The company signed a Joint Operation Agree- start-up in 2013. Both units are designed to increase high-ment for an exploration license in the Black Sea. Chevron value product yield and lower feedstock costs.acquired a 50 percent interest in a western portion of License United States In October 2010, the company sold its 23.43921, a 5.6 million-acre block located 220 miles northwest of percent ownership interest in the Colonial Pipeline Company.the capital city of Ankara. In January 2011, the company announced the final United States In March 2010, first oil was achieved at investment decision on a $1.4 billion project to construct athe nonoperated Perdido Regional Development in the Gulf lubricants manufacturing facility at the Pascagoula refinery.of Mexico. Located in nearly 8,000 feet of water, Perdido is The facility will manufacture 25,000 barrels per day of pre-also the world’s deepest offshore oil and gas drilling and pro- mium base oil.duction spar. Chevron has a 37.5 percent working interest inthe Perdido regional host facility. Other The company sanctioned development of the Jack/St. Common Stock Dividends The quarterly common stock divi-Malo project in October 2010, the company’s first operated dend increased by 5.9 percent in April 2010, to $0.72 perproject located in the Lower Tertiary trend in the deepwater common share, making 2010 the 23rd consecutive year thatGulf of Mexico. Seven exploration and appraisal wells have the company increased its annual dividend payment.been successfully and safely drilled at these fields since 2003. Common Stock Repurchase Program In July 2010, theChevron has a working interest of 50 percent in the Jack company terminated the three-year $15 billion share repur-Field and 51 percent in the St. Malo Field. chase program that had been initiated in September 2007. In December 2010, the company sanctioned develop- In its place, the Board of Directors approved a new, ongo-ment of the 60 percent-owned and operated Big Foot project ing share repurchase program with no set term or monetaryin the deepwater Gulf of Mexico. limits. The company began purchases of its common stock in In April 2010, the company successfully bid for new the fourth quarter, and as of December 31, 2010, 8.8 millionexploration acreage in a central Gulf of Mexico lease sale. common shares had been acquired under the program for In February 2011, the company completed the acqui- $750 million.sition of Atlas Energy, Inc., for $4.47 billion includingassumed debt. Atlas holds one of the premier acreage posi- Results of Operationstions in the Marcellus Shale, concentrated in southwestern Major Operating Areas The following section presents thePennsylvania. results of operations for the company’s business segments – Venezuela In February 2010, a Chevron-led consortium Upstream and Downstream – as well as for “All Other.”was named the operator of the Carabobo 3 heavy-oil project, Earnings are also presented for the U.S. and internationalcomposed of three blocks in the Orinoco Oil Belt of eastern geographic areas of the Upstream and Downstream businessVenezuela. A joint operating company, Petroindependencia, segments. (Refer to Note 11, beginning on page 49, for awas formed in May 2010, and work toward commercializa- discussion of the company’s “reportable segments,” as definedtion of the Carabobo 3 project was initiated. The consortium in accounting standards for segment reporting (Accountingholds a combined 40 percent interest in the project. Standards Codification (ASC) 280)). This section should also be read in conjunction with the discussion in “BusinessDownstream Environment and Outlook” on pages 10 through 13.Africa In December 2010 and February 2011, the companycompleted the sale of its marketing businesses in Malawi, U.S. UpstreamMauritius, Réunion, Tanzania and Zambia. Millions of dollars 2010 2009 2008 Caribbean and Central America In November 2010, the Earnings $ 4,122 $ 2,262 $ 7,147company announced an agreement to sell its fuels marketingand aviation fuels businesses in Antigua, Barbados, Belize, U.S. upstream earnings of $4.1 billion in 2010 increasedCosta Rica, Dominica, French Guiana, Grenada, Guade- $1.9 billion from 2009. Higher prices for crude oil and natu-loupe, Guyana, Martinique, Nicaragua, St. Kitts, St. Lucia, ral gas increased earnings by $2.1 billion between periods.St. Vincent, and Trinidad and Tobago. The transactions are Partly offsetting these effects were higher operating expensesexpected to close by third quarter 2011, following receipt of of $200 million, in part due to the Gulf of Mexico drillingrequired local regulatory and government approvals. This sale moratorium. Lower exploration expenses were essentially off-is part of the company’s ongoing effort to concentrate down- set by higher tax items and higher depreciation resources and capital on strategic global assets. U.S. upstream earnings of $2.3 billion in 2009 decreased Europe In February 2011, the company announced an $4.9 billion from 2008. Lower prices for crude oil and naturalagreement to sell its fuels, finished lubricants and aviation gas reduced earnings by about $5.2 billion between periods,fuels businesses in Spain. Chevron Corporation 2010 Annual Report 15