UNITED STATES SECURITIES AND EXCHANGE COMMISSION
For the fiscal year ended December 31, 2003
OR
For the transition period from to
Commission File Number 1-368-2
ChevronTexaco Corporation
Registrant’s telephone number, including area code (925) 842-1000
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).þ
Aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter — $71,712,298,891 (As of June 30, 2003)
Number of Shares of Common Stock outstanding as of February 29, 2004 — 1,069,736,866
DOCUMENTS INCORPORATED BY REFERENCE
Notice of the 2004 Annual Meeting and 2004 Proxy Statement, to be filed pursuant to Rule 14a-6(b) under the Securities Exchange Act of 1934, in connection with the company’s 2004 Annual Meeting of Stockholders (in Part III)
TABLE OF CONTENTS
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CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K of ChevronTexaco Corporation contains forward-looking statements relating to ChevronTexaco’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,” “estimates” 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 our 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. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Unless legally required, ChevronTexaco undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Among the factors that could cause actual results to differ materially are crude oil and natural gas prices; refining margins and marketing margins; chemicals prices and competitive conditions affecting supply and demand for aromatics, olefins and additives products; actions of competitors; the competitiveness of alternate energy sources or product substitutes; technological developments; the results of operations and financial condition of equity affiliates; Dynegy Inc.’s ability to successfully complete its recapitalization and restructuring plans; inability or failure of the company’s joint-venture partners to fund their share of operations and development activities; potential failure to achieve expected production from existing and future oil and gas development projects; potential delays in the development, construction or start-up of planned projects; potential disruption or interruption of the company’s production or manufacturing facilities due to war, accidents, political events, civil unrest or severe weather; potential liability for remedial actions under existing or future environmental regulations and litigation; significant investment or product changes under existing or future environmental regulations (including, particularly, regulations and litigation dealing with gasoline composition and characteristics); potential liability resulting from pending or future litigation; the company’s ability to successfully implement the restructuring of its worldwide downstream organization and other business units; the company’s ability to sell or dispose of assets or operations as expected; and the effects of changed accounting rules under generally accepted accounting principles promulgated by rule-setting bodies. In addition, such statements could be affected by general domestic and international economic and political conditions. Unpredictable or unknown factors not discussed herein also could have material adverse effects on forward-looking statements.
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PART I
Item 1. Business
(a) General Development of Business
Summary Description of ChevronTexaco
ChevronTexaco Corporation,1 a Delaware corporation, manages its investments in subsidiaries and affiliates and provides administrative, financial and management support to U.S. and foreign subsidiaries that engage in fully integrated petroleum operations, chemicals operations, coal mining, power and energy services. The company operates in the United States and in more than 180 other countries. Petroleum operations consist of exploring for, developing and producing crude oil and natural gas; refining crude oil into finished petroleum products; marketing crude oil, natural gas and the many products derived from petroleum; and transporting crude oil, natural gas and petroleum products by pipeline, marine vessel, motor equipment and rail car. Chemicals operations include the manufacture and marketing, by an affiliate, of commodity petrochemicals for industrial uses, and the manufacture and marketing, by a consolidated subsidiary, of fuel and lubricating oil additives.
In this report, exploration and production of crude oil, natural gas liquids and natural gas may be referred to as “E&P” or “upstream” activities. Refining, marketing and transportation may be referred to as “RM&T” or “downstream” activities. A list of the company’s major subsidiaries is presented on pages E-4 and E-5 of this Annual Report on Form 10-K. As of December 31, 2003, ChevronTexaco had 61,533 employees (including 10,951 service station employees), down about 4,500 from year-end 2002. Approximately 26,000, or 42 percent, of the company’s employees were employed in U.S. operations, of which approximately 3,400 were unionized.
Overview of Petroleum Industry
Petroleum industry operations and profitability are influenced by many factors, over some of which individual petroleum companies have little control. Governmental policies, particularly in the areas of taxation, energy and the environment, have a significant impact on petroleum activities, regulating where and how companies conduct their operations and formulate their products and, in some cases, limiting their profits directly. Prices for crude oil and natural gas, petroleum products and petrochemicals are determined by supply and demand for these commodities. The members of the Organization of Petroleum Exporting Countries (OPEC) are typically the world’s swing producers of crude oil, and their production levels are a major factor in determining worldwide supply. Demand for crude oil and its products and for natural gas is largely driven by the conditions of local, national and worldwide economies, although weather patterns and taxation relative to other energy sources also play a significant part. Variations in the components of refined products sales due to seasonality are not primary drivers of changes in the company’s overall earnings.
Strong competition exists in all sectors of the petroleum and petrochemical industries in supplying the energy, fuel and chemical needs of industry and individual consumers. ChevronTexaco competes with fully integrated major petroleum companies, as well as independent and national petroleum companies for the acquisition of crude oil and natural gas leases and other properties, and for the equipment and labor required to develop and operate those properties. In its downstream business, ChevronTexaco also competes with fully integrated major petroleum companies and other independent refining and marketing entities in the sale or purchase of various goods or services in many national and international markets.
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Operating Environment
Refer to pages FS-2 through FS-4 of this Annual Report on Form 10-K in Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion on the company’s current business environment and outlook.
ChevronTexaco Strategic Direction
ChevronTexaco’s primary objective is to achieve sustained financial returns from its operations that will enable it to outperform its competitors. The company has set as a goal to generate the highest total stockholder return among a designated peer group for the five-year period 2000-2004. BP, ExxonMobil and Royal Dutch Shell — among the world’s largest integrated petroleum companies — comprise the company’s designated competitor peer group for this purpose. The company had the highest total stockholder return in this peer group for the 2000-2003 period.
As a foundation for attaining this goal, the company has established four key priorities:
Supporting these four priorities is a focus on:
The Corporate Strategic Plan builds on this framework with strategies focused on appropriately balancing financial returns and growth. As a result of a rigorous evaluation of its entire portfolio of assets, the company is exploring potential asset transactions — sales, acquisitions or trades — to increase the efficiency and profitability of continuing operations and to enhance the economic value of its asset base. The company expects that its worldwide exploration and production business will continue to be its most important business, with development of its large worldwide proved and unproved natural gas reserves as a primary strategy to expand the company’s base of production and to capture economic value from emerging natural gas market opportunities. The company is also seeking to deliver improved and competitive returns from its worldwide downstream businesses. In January 2004, the company’s global downstream organization began operating along global functional lines rather than geographical functional lines in order to lower costs, improve efficiency and achieve sustained improvements in financial performance.
Texaco Merger Transaction
On October 9, 2001, Texaco Inc. (Texaco) became a wholly owned subsidiary of Chevron Corporation (Chevron) pursuant to a merger transaction, and Chevron changed its name to ChevronTexaco Corporation. The combination was accounted for as a pooling of interests, and each share of Texaco common stock was converted on a tax-free basis into the right to receive 0.77 shares of ChevronTexaco common stock. In the merger, ChevronTexaco issued approximately 425 million shares of common stock, representing about 40 percent of the outstanding ChevronTexaco common stock after the merger. Further discussion of the Texaco merger transaction is contained on page FS-5 and in Note 2 on page FS-30 of this Annual Report on Form 10-K.
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The company’s largest business segments are exploration and production (upstream) and refining, marketing and transportation (downstream). Chemicals is also a significant segment, conducted mainly by the company’s 50 percent-owned affiliate — Chevron Phillips Chemical Company LLC (CPChem). The petroleum activities of the company are widely dispersed geographically. The company has petroleum operations in North America, South America, Europe, Africa, Middle East, Central and Far East Asia, and Australia.
CPChem has operations in the United States, Puerto Rico, Singapore, China, South Korea, Saudi Arabia, Qatar, Mexico and Belgium. ChevronTexaco’s wholly owned Oronite fuel and lubricating oil additives business has operations in the United States, Mexico, France, the Netherlands, Singapore, India, Japan and Brazil.
ChevronTexaco owns an approximate 26 percent equity interest in the common stock of Dynegy Inc. (Dynegy), an energy merchant engaged in power generation, natural gas liquids processing and marketing, and regulated energy delivery. The company also holds investments in Dynegy notes and preferred stock. During 2003, the company exchanged its $1.5 billion aggregate principal amount of Dynegy Series B preferred Stock, which was due for redemption at par value in November 2003, for cash and new Dynegy securities. Refer to pages FS-10 and FS-11 for further information relating to the company’s investment in Dynegy.
Tabulations of segment sales and other operating revenues, earnings, income taxes and assets, by United States and International geographic areas, for the years 2001 to 2003 may be found in Note 9 to the consolidated financial statements beginning on page FS-34 of this Annual Report on Form 10-K. In addition, similar comparative data for the company’s investments in and income from equity affiliates and property, plant and equipment are contained in Notes 14 and 15 on pages FS-38 to FS-40.
The company’s worldwide operations can be affected significantly by changing economic, tax, regulatory and political environments in the various countries in which it operates, including the United States. Environmental regulations and government policies concerning economic development, energy and taxation may have a significant effect on the company’s operations. Management evaluates the economic and political risk of initiating, maintaining or expanding operations in any geographical area. The company monitors political events worldwide and the possible threat these may pose to its activities — particularly the company’s oil and gas exploration and production operations — and the safety of the company’s employees. Political and community unrest has disrupted the company’s production in the past, most recently in Nigeria and Venezuela.
Capital and Exploratory Expenditures
A discussion of the company’s capital and exploratory expenditures is contained on pages FS-11 and FS-12 of this Annual Report on Form 10-K.
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Petroleum — Exploration and Production
Liquids and Natural Gas Production
The following table summarizes the company’s and affiliates’ net production of crude oil and natural gas liquids, natural gas, and oil-equivalent production for 2003 and 2002.
Net Production1 of Crude Oil and Natural Gas Liquids and Natural Gas
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In 2003, ChevronTexaco conducted its exploration and production operations in the United States and approximately 25 other countries. Worldwide net crude oil and natural gas liquids production, including that of affiliates but excluding volumes produced under operating service agreements, decreased by about 5 percent from the 2002 levels. Net worldwide production of natural gas, including affiliates, decreased about 2 percent in 2003.
Net liquids and natural gas production in the United States were both down about 7 percent compared with 2002. The decline in U.S. production in 2003 was primarily attributable to declines in mature fields. In addition to normal field declines in 2003, oil-equivalent production decreased from the absence of 10,000 to 15,000 barrels per day of production the company deemed uneconomic to restore following storm damages in the Gulf of Mexico in late 2002.
International net liquids production, including affiliates, decreased about 4 percent, whereas net natural gas production increased about 5 percent from 2002. In Indonesia, about 29,000 barrels per day of the year-to-year decline was related to the effect of lower cost-oil recovery volumes under production-sharing terms during 2003 and the expiration of a production sharing arrangement in the third quarter of 2002.
For the past five years, the company’s worldwide oil-equivalent production has followed a downward trend with 2003 production at 89 percent of 1999 levels, equivalent to an average annual decline rate of slightly more than 2 percent. During this time period, increases in international oil-equivalent production were more than offset by decreases in the United States.
For 2004, the company currently anticipates lower oil-equivalent production rates in the United States as a result of normal field declines, the effect of property sales and opportunity limitations. The ultimate level of worldwide production in 2004 remains uncertain due to the potential for constraints imposed by the Organization of Petroleum Exporting Countries (OPEC), and disruptions caused by weather, local civil unrest and other economic factors.
Acreage
At December 31, 2003, the company owned or had under lease or similar agreements undeveloped and developed oil and gas properties located throughout the world. The geographical distribution of the company’s acreage is shown in the following table.
Acreage1 At December 31, 2003
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Refer to Table IV on page FS-56 of this Annual Report on Form 10-K for data about the company’s average sales price per unit of oil and gas produced, as well as the average production cost per unit for 2003, 2002 and 2001. The following table summarizes gross and net productive wells at year-end 2003 for the company and its affiliates.
Productive Oil and Gas Wells at December 31, 2003
Reserves and Contract Obligations
Table V on page FS-57 of this Annual Report on Form 10-K sets forth the company’s net proved oil and gas reserves, by geographic area, as of December 31, 2003, 2002 and 2001. During 2004, the company will file estimates of oil and gas reserves with the Department of Energy, Energy Information Agency, consistent with the reserve data reported on page FS-57 of this Annual Report on Form 10-K.
In 2003, ChevronTexaco’s worldwide oil and oil-equivalent gas barrels of net proved reserves additions exceeded production, with a replacement rate of 108 percent of net production, including sales and acquisitions. Excluding sales and acquisitions, the replacement rate was 114 percent of net production. Reserve additions included extensions of the Guajira Contract in Colombia and the Danish Underground Consortium Contract in Denmark; initial booking of the Tahiti Field in the Gulf of Mexico; reservoir studies and analyses at the Tengiz and Karachaganak fields in Kazakhstan; and improved recovery activity primarily in Indonesia and the United States. The following table summarizes the company’s net additions to net proved reserves of crude oil and natural gas liquids and natural gas compared with net production during 2003.
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Reserves Replacement — 2003
The company sells crude oil and natural gas from its producing operations under a variety of contractual arrangements. Most contracts generally commit the company to sell quantities based on production from specified properties, but certain gas sales contracts specify delivery of fixed and determinable quantities. During 2002, Dynegy purchased substantially all natural gas and natural gas liquids produced by the company in the United States, excluding Alaska, and supplied natural gas and natural gas liquids feedstocks to the company’s U.S. refineries and chemical plants. The company reached an agreement with Dynegy to terminate the natural gas purchase and sale contracts and other related contracts at the end of January 2003. See pages FS-10 and FS-11 for further information on Dynegy.
In the United States, the company is contractually committed to deliver to third parties and affiliates approximately 160 billion cubic feet of natural gas through 2006 from United States reserves. The company believes it can satisfy these contracts from quantities available from production of the company’s proved developed U.S. reserves. These contracts include variable-pricing terms.
Outside the United States, the company is contractually committed to deliver to third parties approximately 600 billion cubic feet of natural gas through 2006 from Australian, Canadian, Colombian and Philippine reserves. The sales contracts contain variable pricing formulas that are generally referenced to the prevailing market price for crude oil, natural gas or other petroleum products at the time of delivery and that in some cases consider inflation or other factors.
The company believes it can satisfy these contracts from quantities available from production of the company’s proved developed Australian, Canadian, Colombian and Philippine reserves.
Development Activities
Details of the company’s development expenditures and costs of proved property acquisitions for 2003, 2002 and 2001 are presented in Table I on page FS-53 of this Annual Report on Form 10-K.
The table below summarizes the company’s net interest in productive and dry development wells completed in each of the past three years and the status of the company’s development wells drilling at December 31, 2003. A “development well” is a well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive. “Wells drilling” includes wells temporarily suspended.
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Development Well Activity
Exploration Activities
The following table summarizes the company’s net interests in productive and dry exploratory wells completed in each of the last three years and the number of exploratory wells drilling at December 31, 2003. “Exploratory wells” are wells drilled to find and produce oil or gas in unproved areas and include delineation wells, which are wells drilled to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir or to extend a known reservoir beyond the proved area. “Wells drilling” includes wells temporarily suspended. Refer to the suspended wells discussion in “Litigation and Other Contingencies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations on page FS-17 and Note 1, Summary of Significant Accounting Policies; “Properties, Plant and Equipment” on pages FS-28 and FS-29 for further discussion. Increases in the United States, Nigeria and Australia were partially offset by decreases in China and Angola. The wells are suspended pending a final determination of the commercial potential of the related oil and gas deposits. The ultimate disposition of these well costs is dependent on: (1) decisions on additional major capital expenditures, (2) the results of additional exploratory drilling that is under way or firmly planned, and (3) in some cases, securing final regulatory approvals for development.
Exploratory Well Activity
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Details of the company’s exploration expenditures and costs of unproved property acquisitions for 2003, 2002 and 2001 are presented in Table I on page FS-53 of this Annual Report on Form 10-K.
Review of Ongoing Exploration and Production Activities in Key Areas
ChevronTexaco’s 2003 key upstream activities not discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page FS-2 of this Annual Report on Form 10-K are presented below. The comments include reference to “net production,” which excludes partner shares and royalty interests. “Total production” includes these components. In addition to the activities discussed, ChevronTexaco was active in other geographic areas, but these activities were less significant.
Consolidated Operations
a) United States
The United States exploration and production activities are concentrated in the Gulf of Mexico, California, Louisiana, Texas, New Mexico and the Rocky Mountains. As part of the ongoing effort to improve competitive performance and increase operating efficiency, the company announced plans in 2003 to sell interests in non-strategic producing properties in the United States. The majority of these properties are located in 15 states and the Outer Continental Shelf of the Gulf of Mexico. The company expects to retain about 400 core fields and anticipates the divestment program will be substantially completed in 2004.
Gulf of Mexico:Combining the shelf and deepwater interests in the Gulf of Mexico, average daily net production during 2003 were 169,000 barrels of crude oil, 1 billion cubic feet of natural gas and 19,700 barrels of natural gas liquids.
In deepwater, the company has an interest in three significant developments: Petronius, Genesis and Typhoon. Petronius, 50 percent-owned and operated, maintained a daily production of approximately 30,000 barrels of net oil-equivalent in 2003. The 57 percent-owned and operated Genesis averaged production of approximately 20,000 barrels of net oil-equivalent per day in 2003. Typhoon, which is 50 percent-owned and operated, had average production of approximately 14,000 barrels of net oil-equivalent per day in 2003, including production from the Boris field that utilizes the Typhoon production facility.
In exploration, there were four new deepwater discoveries in 2003 — Sturgis and Perseus, in which the company has a 50 percent interest in each, and Tubular Bells and Saint Malo, which the company’s interest is 30 percent and 12.5 percent, respectively. The company drilled a well in the Tonga prospect in 2003. The data from this well is under evaluation. Additionally, under terms of an agreement with BP, ChevronTexaco earned the right to operate the Blind Faith discovery and increased its ownership to 50 percent. Appraisal work was completed in the Tahiti discovery.
Mid-Continent:Onshore operations in the mid-continent United States are concentrated in Texas, Oklahoma, Kansas, Alabama and the Rocky Mountain states. Net production of natural gas averaged 822 million cubic feet per day through development drilling activity, combined with a focus on maintaining base production with workovers, artificial lift and facility optimization. Net production of crude oil and natural gas liquids averaged 32,000 barrels per day during the year. Capital spending was focused on natural gas development with major programs in the Rockies, East Texas and South Texas.
Permian: Permian operations are located predominantly in southeastern New Mexico and West Texas. During 2003, daily net production averaged 110,500 barrels of crude oil and natural gas liquids and 257 million cubic feet of natural gas.
San Joaquin Valley:ChevronTexaco is the largest producer in California. In 2003, average daily net production was 225,500 barrels of crude oil, 112 million cubic feet of natural gas and 4,800 barrels of natural gas liquids. Approximately 85 percent of the crude oil production is considered heavy oil (typically
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Global Natural Gas Projects:In November 2003, ChevronTexaco received approval for a Deepwater Port License by U.S. government authorities to construct, own and operate a liquefied natural gas (LNG) receiving and regasification terminal, Port Pelican, to be located offshore Louisiana to serve the North American market. Efforts are under way in 2004 to obtain project approval. The company also filed permits to construct an LNG receiving and regasification terminal to be located approximately eight miles off the coast of Baja California, Mexico. ChevronTexaco is working with Mexican authorities to secure permit approvals for the project.
b) Africa
Nigeria:ChevronTexaco’s principal subsidiary in Nigeria, Chevron Nigeria Limited (CNL), operates and holds a 40 percent interest in 11 concessions, predominantly in the onshore and near-offshore regions of the Niger Delta. CNL operates under a joint venture arrangement with the Nigerian National Petroleum Corporation (NNPC), which owns the remaining 60 percent interest. ChevronTexaco’s subsidiaries Chevron Oil Company Nigeria Limited (COCNL) and Texaco Overseas Nigeria Petroleum Company Unlimited (TOPCON) each hold a 20 percent interest in six additional concessions. TOPCON operates these concessions under a joint venture agreement with NNPC, which owns the remaining 60 percent interest.
In 2003, daily net production from the 33 CNL-operated fields averaged 113,100 barrels of crude oil, 2,400 barrels of liquefied petroleum gas (LPG) and 50 million cubic feet of natural gas. Net production from five TOPCON operating fields during the year averaged approximately 7,200 barrels of crude oil per day. Onshore operations in the western Niger Delta were suspended in March 2003 as a result of community disturbance. Net onshore production capacity of about 45,000 barrels of oil per day remained shut-in at year-end while the company continued to evaluate options for safe and secure restoration of production.
The onshore and offshore engineering, procurement and construction bids were received in 2003 for Phase 3 of the Escravos Gas Project, which includes adding a second gas plant and expanding processing capacity to 680 million cubic feet per day and is targeted for completion in 2007. ChevronTexaco holds a 40 percent working interest in the Escravos Gas Project, which has the capacity to process 285 million cubic feet of natural gas per day.
Front-end engineering and design and site preparations have been completed for the planned gas-to-liquids (GTL) facility at Escravos. This proposed 33,000-barrel-per-day GTL project is the company’s first project to use the Sasol Chevron Global Joint Venture’s technology and operational expertise. Project start-up is expected to be in 2007. ChevronTexaco will ultimately hold about a 38 percent beneficial interest.
The company also continued activities in the deepwater Agbami development. In 2003, a pre-unitization agreement was completed between ChevronTexaco and the Blocks 216 and 217 participants. Initial production is expected in 2007.
Successful results were achieved in 2003 from the Aparo-3 appraisal well and the Nsiko-1 wildcat well in the deepwater Block OPL-249, in which the company is entitled to a variable equity interest over the life of the field.
OPL-222 activities continued in 2003 with the successful completion of appraisal programs involving Usan-3, Usan-4 and Ukot-2, in which ChevronTexaco holds a 30 percent interest. Exploration activities on the shelf included the completion of the Okagba-2 appraisal well along with the successful Sonam-4 appraisal well.
The company and its partners in the Brass River Consortium agreed to advance plans for the front-end engineering and design work for a new LNG facility at Brass River in Nigeria.
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Angola:ChevronTexaco is the largest producer of crude oil and natural gas in Angola and the first to produce in the deepwater. Cabinda Gulf Oil Company Limited (CABGOC), a wholly owned subsidiary of ChevronTexaco, is operator of two concessions, Blocks 0 and 14, off the west coast of Angola, north of the Congo River. Block 0, in which CABGOC has a 39 percent interest, is a 2,155-square-mile concession adjacent to the Cabinda coastline. Block 14, in which CABGOC has a 31 percent interest, is a 1,580-square-mile deepwater concession located west of Block 0.
In Block 0, the company operates in three areas — A, B and C — composed of 21 fields producing 128,000 barrels per day of net liquids in 2003. Area A, comprising 16 fields that are currently producing, averaged daily net production of approximately 82,000 barrels of crude oil and 1,000 barrels of LPG in 2003. Area B, which has three fields producing, averaged net production of 37,000 barrels of crude oil per day. Area C averaged net production of 8,000 barrels of crude oil per day from two producing fields.
In Block 14, net production in 2003 from the Kuito Field, Angola’s first deepwater producing area, averaged approximately 19,000 barrels of crude oil per day. The Benguela Belize-Lobito Tomboco development includes a phased development of the Benguela, Belize, Lobito and Tomboco fields, with Phase 1 currently estimated to start up by the end of 2005. Phase 2 involves the installation of subsea systems, pipelines and wells for the Lobito and Tomboco fields. The company is the operator and holds a 31 percent interest in Block 14. The Negage prospect is currently under evaluation for commerciality, and feasibility studies continue for the Gabela heavy oil field.
ChevronTexaco has two other concessions in Angola. Block 2, in which the company operates and has a 20 percent interest, and Block FST, in which the company has a 16 percent nonoperated interest, had a combined net production of 7,100 barrels of crude oil per day in 2003.
The Angola LNG Project is an integrated gas utilization project. ChevronTexaco and Sonangol, the state oil company of Angola, are co-leading the project in which the company has a 36 percent interest.
Republic of Congo:ChevronTexaco has a 30 percent interest in NKossa, Nsoko and Moho-Bilondo exploitation permits and a 29 percent interest in the Marine VII Kitina and Sounda exploitation permits, all of which are in offshore Congo and adjacent to the company’s concessions in Cabinda. Net production from ChevronTexaco’s concessions in the Republic of Congo averaged 13,300 barrels of crude oil per day in 2003. An assessment of the Moho and Bilondo discoveries progressed during 2003, and a development decision is expected in 2004.
Chad-Cameroon:ChevronTexaco is partner in a project to develop landlocked oil fields in southern Chad and transport crude oil by pipeline to the coast of Cameroon for export to world markets. At the end of 2003, the overall development project was substantially complete. The company’s first sales of Chad production occurred in late 2003. ChevronTexaco has a 25 percent interest in the upstream operations and has approximately a 23 percent interest in the pipeline.
Equatorial Guinea:ChevronTexaco is a 45 percent partner and operator of Block L offshore the Republic of Equatorial Guinea. The first exploration well, Ballena-1, was completed in April 2003, and the partnership is currently progressing with the evaluation of the block.
c) Asia-Pacific
China: ChevronTexaco has a 33 percent interest in Block 16/08, located in the Pearl River Delta Mouth Basin. Daily net production from the six fields in this block averaged 14,700 barrels of crude oil per day in 2003. The company has a 25 percent interest in QHD-32-6 in Bohai Bay, which had 2003 average net production of 8,300 barrels of crude oil per day.
Indonesia:ChevronTexaco’s interests in Indonesia are managed by two wholly owned subsidiaries, P.T. Caltex Pacific Indonesia (CPI) and Amoseas Indonesia (AI). CPI accounts for about 40 percent of Indonesia’s total crude oil output and holds an interest in five production-sharing contracts (PSCs). AI is a power generation company that operates the Darajat geothermal contract area in West Java and a
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ChevronTexaco’s share of net production during 2003 was 251,000 barrels of oil-equivalent per day. CPI continues to execute projects that are designed to optimize production from its existing reservoirs. The Duri Field in the Rokan Block, under steamflood since 1985, is the largest steamflood project in the world, with net production averaging 116,000 barrels of crude oil per day in 2003. ChevronTexaco’s net production from South Natuna Sea Block B in 2003 was about 15,400 barrels of oil-equivalent per day.
Thailand:ChevronTexaco operates Block B8/32 in the Gulf of Thailand with a 52 percent interest. During 2003, the company was awarded the exploration and production rights to two additional offshore concessions. The company’s interests in the newly acquired Blocks G4/43 and 9A are 85 percent and 52 percent, respectively. The company also holds a 33 percent interest in exploration Blocks 7, 8 and 9, which are currently inactive pending resolution of border issues between Thailand and Cambodia.
Block B8/32 produces crude oil and natural gas from three fields: Tantawan, Maliwan and Benchamas. Daily net production in 2003 from these fields was 104 million cubic feet of natural gas and 24,600 barrels of crude oil. During the year, the company drilled 44 development wells and installed three platforms in Block B8/32. In early 2004, the company completed an upgrade of processing capacity at the Benchamas Field, increasing total capacity to approximately 65,000 barrels of crude oil per day (34,000 net barrels of crude oil per day). During 2004, an exploration program is planned to continue to evaluate the remaining areas of Block B8/32 and the recently acquired concessions.
Cambodia:ChevronTexaco operates and holds a 70 percent interest in Block A, located offshore Cambodia in the Gulf of Thailand. Efforts are under way to reduce the company’s working interest in the block to 55 percent. The concession covers approximately 1 million net acres. In 2003, ChevronTexaco drilled one exploration well without commercial success. New 3D seismic data has been acquired and processed over a portion of the block, and the drilling of additional exploration wells is planned for 2004.
Australia:ChevronTexaco has a one-sixth interest in the North West Shelf (NWS) Project in offshore Western Australia. Daily net production from the project during 2003 averaged 18,100 barrels of condensate, 282 million cubic feet of natural gas, 17,900 barrels of crude oil and 3,700 barrels of liquefied petroleum gas. Approximately 60 percent of the natural gas was sold, primarily under long-term contracts, in the form of liquefied natural gas (LNG) to major utilities in Japan and South Korea. The remaining natural gas was sold to the Western Australia domestic market. The Train 4 LNG expansion project, which is planned to increase LNG capacity by about 50 percent, is under construction and is expected to have first gas sales by September 2004. The NWS Venture was selected by the People’s Republic of China to be the supplier of LNG for the proposed Guangdong LNG Terminal Project. A 25-year LNG Sale and Purchase Agreement (SPA) for approximately 3.9 trillion cubic feet of natural gas is being negotiated, with first LNG cargoes expected in late 2006 or 2007. In parallel with the execution of the SPA, China National Offshore Oil Corporation (CNOOC) will have the opportunity to acquire participating interest in NWS reserves and production that will supply gas to Guangdong.
The company is operator of and has a 57 percent interest in the undeveloped Gorgon area gas fields offshore northwest Australia. ChevronTexaco is actively pursuing long-term gas sales from Gorgon to Australian industrial customers and in international LNG markets, including China, Japan, South Korea and the west coast of North America. In 2003, the Western Australian government granted in-principle approval, through an act of parliament, for the development and construction of a multibillion-dollar gas processing facility on Barrow Island. This represented one of several milestones toward enabling production of natural gas resources in this area. Additionally, ChevronTexaco signed a Memorandum of Understanding with the Gorgon joint venture partners for the supply of LNG to the North America west coast, over a 20-year period (approximately 1.9 trillion cubic feet in total) beginning in 2008. In October 2003, the Gorgon joint venture partners announced an agreement with CNOOC to negotiate the sale of Gorgon LNG to the People’s Republic of China. The agreement, which is subject to the completion of formal contracts, enables CNOOC to purchase an equity stake in the Gorgon gas development project and to facilitate the sale of LNG into the Chinese market.
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In 2003, ChevronTexaco participated in the drilling of the Jansz-3 appraisal well in the Io-Jansz gas field discovery, offshore Western Australia, in which the company holds a 50 percent interest.
Philippines: The company holds a 45 percent interest in the Malampaya natural gas field located about 50 miles offshore Palawan Island. The Malampaya gas-to-power project represents the first offshore production of natural gas in the Philippines. Daily net production was 140 million cubic feet of natural gas and 7,600 barrels of condensate.
Middle East: Saudi Arabia Texaco Inc., a ChevronTexaco affiliate, holds a 60-year concession, originally signed in 1949, to produce onshore crude oil from the Partitioned Neutral Zone (PNZ), located between the Kingdom of Saudi Arabia and the State of Kuwait. The Kingdom of Saudi Arabia and the State of Kuwait each own an undivided 50 percent interest in the PNZ’s hydrocarbon resources. The company, by virtue of its concession, has the rights to the Kingdom’s undivided 50 percent interest in the hydrocarbon resources located in the onshore PNZ, on which it pays a royalty and other taxes on hydrocarbons produced. During 2003, average net production was 133,700 barrels of crude oil per day and 15 million net cubic feet of natural gas per day. The company also has an exploration agreement in Bahrain. The exploration concessions in Qatar expired in mid-2003.
Kazakhstan:ChevronTexaco holds a 20 percent interest in the Karachaganak project. Phase 2 of the field development, which included construction of gas injection and liquids processing facilities, as well as a 400-mile pipeline that provides access to world markets, was substantially completed at year-end 2003. When fully operational in mid-2004, daily net production is expected to increase to approximately 40,000 barrels of liquids, including 27,900 barrels of processed liquids that will be exported via the company’s 15 percent-owned Caspian Pipeline. Daily net natural gas production is expected to increase to approximately 140 million cubic feet of natural gas. During 2003, Karachaganak net production averaged 21,400 barrels of liquids and 101 million cubic feet of natural gas per day. Also in 2003, ChevronTexaco sold its interest in the North Buzachi oil and gas field.
Papua New Guinea: In 2003, ChevronTexaco sold its interests in Papua New Guinea and resigned operatorship of the Kutubu, Gobe and Moran oil fields.
d) Other International Areas
Europe:ChevronTexaco holds producing interests in 26 fields in Denmark, Norway and the United Kingdom with a combined daily net production of 167,900 barrels of crude oil and 477 million cubic feet of gas. In the United Kingdom, the daily net production was 115,600 barrels of crude oil and 378 million cubic feet of natural gas in 2003. This includes daily net production of 46,600 barrels of crude oil at the Captain Field, ChevronTexaco is the operator with an 85 percent interest. At Britannia, where ChevronTexaco holds a 32 percent interest and shares operatorship, daily net production averaged 10,300 barrels of crude oil and 204 million cubic feet of natural gas. At the Alba Field in the North Sea, where ChevronTexaco holds a 21 percent interest and operatorship, daily net production averaged 17,500 barrels of crude oil and 4 million cubic feet of natural gas. The Erskine Field, the first high-pressure/ high-temperature gas condensate field developed in the North Sea, reported net crude oil production of 9,400 barrels per day, and net natural gas production averaged 52 million cubic feet per day. ChevronTexaco is the operator and holds a 50 percent interest. In early 2004, the company reached agreements to sell its interests in the Galley, Orwell and Statfjord fields. Daily net production from the three fields in 2003 was 14,000 barrels of crude oil and 37 million cubic feet of natural gas.
At the Draugen Field in Norway, ChevronTexaco’s 8 percent share of production during 2003 was 10,300 barrels of crude oil per day. The daily net production from the Danish Underground Consortium was 42,000 barrels of crude oil and 99 million cubic feet of gas. An agreement was announced in October 2003 extending the concession term from 2012 to 2042 and revising other terms of the concession. The agreement was subsequently ratified by the Danish parliament in December 2003.
Canada: As part of ChevronTexaco’s portfolio optimization process, the company intends in 2004 to evaluate opportunities to divest selected mature producing fields — currently producing about 35,000 net
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In December 2003, ChevronTexaco was the successful bidder on a 50 percent working interest in eight new exploration licenses totaling 5.2 million acres in the Orphan Basin offshore Newfoundland.
Excluding Athabasca, which is discussed separately on page 21 of this Annual Report on Form 10-K, daily net production in 2003 from the company’s Canadian operations was 73,100 barrels of crude oil and 110 million cubic feet of natural gas.
Venezuela: The company operates the onshore Boscan Field under an Operating Services Agreement and receives operating expense reimbursement and capital recovery, plus interest and an incentive fee. Despite a general strike affecting the entire country in early 2003, total Boscan production averaged 98,900 barrels of crude oil per day for the year. In February 2003, ChevronTexaco was awarded the license for offshore Block 2 in the northeastern Plataforma Deltana, including Loran Field, an undeveloped natural gas discovery. The company plans to begin an exploration and delineation program in Block 2 in 2004. Currently the company holds a 60 percent interest.
Argentina:ChevronTexaco operates in Argentina through its subsidiary Chevron San Jorge S.R.L. Chevron San Jorge holds more than 3.8 million exploration and production acres in the Neuquén and Austral basins with working interests ranging from approximately 19 percent to 100 percent in operated license areas. Farm-out agreements are under negotiation in three blocks. Net production in 2003 averaged 64,800 barrels of oil-equivalent per day.
Brazil:ChevronTexaco holds working interests ranging from 20 to 68 percent in six deepwater blocks totaling 1.6 million acres at year-end 2003. Exploration is concentrated in the Campos and Santos basins. During 2003, one block was fully relinquished, and two blocks entered into an assessment phase to further evaluate the commercial potential. In the Frade Field, where the company has a 42.5 percent interest, front-end engineering and design work commenced in the fourth quarter of 2003.
Colombia:ChevronTexaco currently operates three natural gas fields under two related contracts — the Guajira Association contract and the Build-Operate-Maintain-Transfer (BOMT) contract. The Guajira Association Contract, a 50-50 joint venture production-sharing agreement with the Colombian national oil company, Ecopetrol, expires in December 2004. A contract extension was signed in December 2003 whereby in 2005 ChevronTexaco will continue to operate the fields and receive 43 percent of the production for the economic life of the fields, as well as continue to operate the BOMT contract until it expires in 2016. Total natural gas production averaged 470 million cubic feet per day in 2003.
e) Affiliate Operations
Kazakhstan: The company’s 50 percent owned affiliate, Tengizchevroil (TCO), reached agreement with the Republic of Kazakhstan in September 2003 to expand operations at the Tengiz and Korolev fields. The agreement formalizes earlier understandings relating to the Sour Gas Injection/ Second Generation project. The project is expected to increase TCO’s crude oil production capacity from about 285,000 barrels per day to between 430,000 and 500,000 barrels per day in the second half of 2006. TCO 2003 total crude oil production of 280,000 barrels per day was marginally below 2002 production levels, which was attributable to TCO’s largest-ever planned maintenance turnaround during the year.
Venezuela:ChevronTexaco has a 30 percent interest in the Hamaca integrated oil production and upgrading project located in Venezuela’s Orinoco Belt. Development drilling and major facility construction at Hamaca continued through 2003. Upon completion in third quarter 2004, the facility is expected to have upgrade capacity to 190,000 barrels per day of heavy crude oil, creating a lighter, higher-value crude oil.
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Petroleum — Natural Gas and Natural Gas Liquids
The company sells natural gas and natural gas liquids from its producing operations under a variety of contractual arrangements. Prior to February 2003, ChevronTexaco’s equity affiliate, Dynegy, purchased substantially all natural gas and natural gas liquids produced by the company in the United States, excluding Alaska, and supplied natural gas and natural gas liquids feedstocks to the company’s U.S. refineries and chemical plants. At the end of January 2003, the company’s natural gas purchase and sale contracts with Dynegy were terminated. This was preceded by an agreement between ChevronTexaco and Dynegy to discontinue certain commercial arrangements as a result of Dynegy’s decision to exit the gas marketing and trading business. As a result, the company now markets its domestic natural gas production to a variety of third parties through its new unit, ChevronTexaco Natural Gas. The company’s long-term natural gas processing and liquids arrangements with Dynegy were not affected by the early termination of natural gas purchase and sale contracts. During 2003, nearly all of ChevronTexaco’s U.S. natural gas liquids production was sold to Dynegy. Refer to pages FS-10 and FS-11 on Form 10-K in Management’s Discussion and Analysis of Financial Condition and Results of Operations for further comments on Dynegy.
Outside the United States, the majority of the company’s natural gas sales occur in the United Kingdom, Australia, Canada, Latin America, and in the company’s affiliate operations in Kazakhstan. International natural gas liquids sales primarily take place in the company’s Canadian upstream operations, with lower sales levels in Africa, Australia and Europe. Refer to “Selected Operating Data” on page FS-10 of this Annual Report on Form 10-K in Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information on the company’s natural gas and natural gas liquids sales volumes.
Petroleum — Refining
Distillation operating capacity utilization in 2003, adjusted for sales and closures, averaged 91 percent in the United States (including asphalt plants) and 88 percent worldwide (including affiliates), compared with 94 percent in the United States and 89 percent worldwide in the prior year. ChevronTexaco’s capacity utilization at its U.S. fuels refineries averaged 95 percent in 2003, compared with 98 percent in 2002. ChevronTexaco’s capacity utilization of its wholly owned U.S. cracking and coking facilities, which are the primary facilities used to convert heavier products to gasoline and other light products, averaged 86 percent and 85 percent in 2003 and 2002, respectively. The company processed imported and domestic crude oil in its U.S. refining operations. Imported crude oil accounted for about 75 percent of ChevronTexaco’s U.S. refinery inputs in 2003.
Prior to October 2001, the company also had interests in eight U.S. refineries with a combined capacity of about 1.3 million barrels per day through its investments in the Equilon and Motiva affiliates. These investments were sold in February 2002, as required by the U.S. Federal Trade Commission for the merger of Chevron and Texaco.
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The daily refinery inputs over the last three years for the company and affiliate refineries are shown in the following table:
Petroleum Refineries: Locations, Capacities and Inputs
Petroleum — Refined Products Marketing
Product Sales: The company markets petroleum products throughout much of the world. The principal brands for identifying these products are “Chevron,” “Texaco” and “Caltex.”
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The following table shows the company’s and its affiliates’ refined products sales volumes, excluding intercompany sales, over the past three years:
Refined Products Sales Volumes1
In the United States, the company supplies, directly or through dealers and jobbers, more than 7,800 Chevron-branded motor vehicle retail outlets, of which about 1,000 are company-owned or -leased stations. The company’s gasoline market area is concentrated in the southern, southwestern and western states. According to the Lundberg Share of Market Report, ChevronTexaco ranks among the top three gasoline marketers in 14 states.
In Canada — primarily British Columbia — the company’s Chevron-branded products are sold in 165 company-owned or-leased stations.
Outside of the United States and Canada, ChevronTexaco supplies, directly or through dealers and jobbers, approximately 11,600 branded service stations in more than 80 countries. In the Asia-Pacific region, southern and East Africa, and the Middle East, ChevronTexaco uses the Caltex brand name.
In Europe, the company has marketing operations in the United Kingdom, Ireland, the Netherlands, Belgium, Luxembourg and the Canary Islands. The company operates in Denmark and Norway through its 50 percent-owned affiliate, HydroTexaco, using the HydroTexaco brand. In West Africa, the company operates or leases to dealers in Cameroon, Côte d’Ivoire, Nigeria, Republic of Congo, Togo and Benin. In these regions, the company mainly uses the Texaco brand name.
ChevronTexaco operates across the Caribbean, Central America, and South America with a significant presence in Brazil, using the Texaco brand name.
In addition to the above activities, the company manages other marketing businesses globally. In global aviation fuel marketing, the company markets 440,000 barrels per day of aviation fuel in 80 countries, representing a worldwide market share of about 12 percent. The company is the leading marketer of jet fuels in the United States. ChevronTexaco markets residual fuel oils and marine lubricants in more than 65 countries and motor lubricants in more than 180 countries.
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Petroleum — Transportation
Pipelines:ChevronTexaco owns and operates an extensive system of crude oil, refined products, chemicals, natural gas liquids and natural gas pipelines in the United States. The company also has direct or indirect interests in other U.S. and international pipelines. The company’s ownership interests in pipelines are summarized in the following table:
Pipeline Mileage at December 31, 2003
The Caspian Pipeline Consortium (CPC) operates a crude oil export pipeline from the Tengiz Field in Kazakhstan to the Russian Black Sea port of Novorossiysk. Currently, CPC has seven transportation agreements in place which provide the capacity to transport approximately 600,000 barrels of crude oil per day. ChevronTexaco has a 15 percent ownership interest in CPC.
Tankers:ChevronTexaco’s controlled seagoing fleet at December 31, 2003, is summarized in the following table. All controlled tankers were utilized in 2003. In addition, at any given time, the company has approximately 70 vessels under a voyage basis or as time charters of less than one year.
Controlled Tankers at December 31, 2003
Federal law requires that cargo transported between U.S. ports be carried in ships built and registered in the United States, owned and operated by U.S. entities, and manned by U.S. crews. At year-end 2003, the company’s U.S. flag fleet was engaged primarily in transporting refined products between the Gulf Coast
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The international flag vessels were engaged primarily in transporting crude oil from the Middle East, Indonesia, Mexico and West Africa to ports in the United States, Europe and Asia. Refined products also were transported by tanker worldwide.
The Federal Oil Pollution Act of 1990 requires the scheduled phase-out, by year-end 2010, of all single-hull tankers trading to U.S. ports or transferring cargo in waters within the U.S. Exclusive Economic Zone. This has raised the demand for double-hull tankers. During 2003, ChevronTexaco operated a total of 20 double-hull tankers, which includes three additional double-hull tankers that the company took delivery of in 2003. The company is a member of many oil-spill-response cooperatives in areas around the world in which it operates.
Chemicals
Chevron Phillips Chemical Company LLC (CPChem) is a 50-50 joint venture with ConocoPhillips Corporation. CPChem owns or has joint venture interests in 32 manufacturing facilities and six research and technical centers in the United States, Puerto Rico, Belgium, China, Mexico, Saudi Arabia, Singapore, South Korea and Qatar.
A new olefins and polyolefins complex was commissioned in Qatar in 2003. The complex is owned and operated by Qatar Chemical Company Ltd., a joint venture between CPChem, with a 49 percent interest, and Qatar General Petroleum, which owns the remaining 51 percent.
Also during 2003, a 50-50 joint venture with BP Solvay commenced operations of a new high-density polyethylene (HDPE) facility at a CPChem site in the Houston, Texas area. The jointly owned 700-million-pounds per-year HDPE facility is among the largest of its kind in the world and uses CPChem proprietary manufacturing technology.
ChevronTexaco’s Oronite brand fuel and lubricant additives business is a leading developer, manufacturer and marketer of performance additives for fuels and lubricating oils. The company owns and operates facilities in the United States, France, the Netherlands, Singapore, Japan and Brazil and has equity interests in facilities in India and Mexico.
Coal
The company’s coal mining and marketing subsidiary, The Pittsburg & Midway Coal Mining Co. (P&M), owned and operated two surface mines and one underground mine at year-end 2003. In addition, final reclamation activities were under way at two mines that are scheduled to close. P&M also owns an approximate 30 percent interest in Inter-American Coal Holding N.V., which has interests in coal mining operations in Venezuela as well as in trading and transportation activities in Venezuela and Colombia.
Sales of coal from P&M’s wholly owned mines and from its affiliates were 13.4 million tons, a decrease of 10 percent from 2002. The reduction resulted from the absence of sales in 2003 from the company’s mining operations in northeastern New Mexico, where production ceased in late 2002. Lower production from P&M’s surface mine, located near Gallup, New Mexico, also contributed to the decline.
At year-end 2003, P&M controlled approximately 189 million tons of developed and undeveloped coal reserves, including significant reserves of environmentally desirable low-sulfur fuel. The company is contractually committed to deliver approximately 13 million tons of coal per year through the end of 2006 and believes it can satisfy these contracts from existing coal reserves.
Other Activities — Synthetic Crude Oil
In Canada, ChevronTexaco holds a 20 percent interest in the Athabasca Oil Sands Project (AOSP). Bitumen is extracted from oil sands and upgraded into synthetic crude oil using hydroprocessing technology. The integrated operation at AOSP commenced in April 2003 when the Scotford Upgrader
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Global Power Generation
ChevronTexaco’s Global Power Generation (GPG) has more than 20 years’ experience in developing and operating commercial power projects. With 13 power assets located in the United States, Asia and Europe, GPG manages the production of more than 3,500 megawatts of electricity in its facilities. All of the facilities are owned through joint ventures. The company operates efficient gas-fired cogeneration facilities, some of which produce steam for use in upstream operations to facilitate production of heavy oil.
Worldwide Gasification Technology
ChevronTexaco Worldwide Gasification Technology (WGT) is used to convert a wide variety of hydrocarbon feedstocks into clean synthesis gas. The synthesis gas can be used as a feedstock for basic chemicals or to generate electricity in low-emission power plants. ChevronTexaco has licensed its gasification technology to more than 60 plants worldwide.
Gas-to-Liquids
The 50-50 Sasol Chevron Global Joint Venture was established in October 2000 to develop a worldwide gas-to-liquids (GTL) business. Projects to build GTL plants are being considered for Qatar, Nigeria and Australia.
Research and Technology
The company’s core hydrocarbon technology efforts support the upstream, downstream, and power and gasification businesses. These activities include heavy oil recovery and upgrading, deepwater exploration and production, shallow water production operations, gas-to-liquids processing, hydrocarbon gasification to power, and new and improved refinery processes.
Additionally, ChevronTexaco’s Technology Ventures Company focuses on the identification, growth and commercialization of emerging technologies that have the potential to change or transform how energy is produced or consumed. The range of business spans early-stage investing of venture capital in emerging technologies to developing joint venture companies in new energy systems, such as advanced batteries for distributed power and transportation systems and hydrogen fuel storage.
During 2003, the company completed the worldwide implementation of a new information technology infrastructure encompassing computing, data management, security, and connectivity of partners, suppliers and employees. The architecture, known as “Net Ready,” provides the foundation for the company to cost-effectively and rapidly integrate advances in computing and network-based technology.
ChevronTexaco’s research and development expenses were $238 million, $221 million and $209 million for the years 2003, 2002 and 2001, respectively.
Because some of the investments the company makes in the areas described above are in new or unproven technologies and business processes, ultimate success is not certain. Although not all initiatives may prove to be economically viable, the company’s overall investment in this area is not significant to the company’s consolidated financial position.
Environmental Protection
Virtually all aspects of the company’s businesses are subject to various federal, state and local environmental, health and safety laws and regulations. These regulatory requirements continue to change and increase in both number and complexity and to govern not only the manner in which the company conducts its operations, but also the products it sells. ChevronTexaco expects more environmental-related
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In 2003, the company’s U.S. capitalized environmental expenditures were $178 million, representing approximately 8 percent of the company’s total consolidated U.S. capital and exploratory expenditures. These environmental expenditures include capital outlays to retrofit existing facilities, as well as those associated with new facilities. The expenditures are predominantly in the petroleum segment and relate mostly to air-and-water quality projects and activities at the company’s refineries, oil and gas producing facilities, and marketing facilities. For 2004, the company estimates U.S. capital expenditures for environmental control facilities will be $260 million. The future annual capital costs of fulfilling this commitment are uncertain and will be governed by several factors, including future changes to regulatory requirements.
Further information on environmental matters and their impact on ChevronTexaco and on the company’s 2003 environmental expenditures, remediation provisions and year-end environmental reserves are contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages FS-16 to FS-18 of this Annual Report on Form 10-K.
Web Site Access to SEC Reports
The company’s Internet Web site can be found at http://www.chevrontexaco.com/. Information contained on the company’s Internet Web site is not part of this report.
The company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on the company’s Web site, free of charge, as soon as reasonably practicable after such reports are filed with or furnished to the SEC.
Alternatively, you may access these reports at the SEC’s Internet Web site: http://www.sec.gov/.
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Item 2. Properties
The location and character of the company’s oil, natural gas and coal properties and its refining, marketing, transportation and chemicals facilities are described above under Item 1. Business. Information required by the Securities Exchange Act Industry Guide No. 2 (“Disclosure of Oil and Gas Operations”) is also contained in Item 1 and in Tables I through VII on pages FS-53 to FS-59 of this Annual Report on Form 10-K. Note 15, “Properties, Plant and Equipment,” to the company’s financial statements is on page FS-40 of this Annual Report on Form 10-K.
Item 3. Legal Proceedings
Richmond Refinery — Alleged Air Violations
Chevron Products Company, a division of Chevron U.S.A. Inc., paid $228,275 to the Bay Area Air Quality Management District (BAAQMD) and $50,000 to the District Attorney of the County of Contra Costa, California, in settlement of 35 alleged violations of the BAAQMD’s air regulations at the company’s Richmond Refinery.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Executive Officers of the Registrant at March 1, 2004
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The Executive Officers of the Corporation consist of the Chairman of the Board, the Vice Chairman of the Board, and such other officers of the Corporation who are either Directors or members of the Executive Committee or who are chief executive officers of principal business units. Except as noted below, all of the Corporation’s Executive Officers have held one or more of such positions for more than five years.
PART II
The information on ChevronTexaco’s common stock market prices, dividends, principal exchanges on which the stock is traded and number of stockholders of record is contained in the Quarterly Results and Stock Market Data tabulations, on page FS-51 of this Annual Report on Form 10-K.
The selected financial data for years 1999 through 2003 are presented on page FS-52 of this Annual Report on Form 10-K.
The index to Management’s Discussion and Analysis, Consolidated Financial Statements and Supplementary Data is presented on page FS-1 of this Annual Report on Form 10-K.
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The company’s discussion of interest rate, foreign currency and commodity price market risk is contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations — “Financial and Derivative Instruments,” beginning on page FS-15 and Note 8 to the Consolidated Financial Statements, “Financial and Derivative Instruments,” beginning on page FS-33.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
(b) Changes in Internal Control Over Financial Reporting
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PART III
Item 10. Directors and Executive Officers of the Registrant
The information on Directors appearing under the heading “Election of Directors — Nominees For Directors” in the Notice of the 2004 Annual Meeting of Stockholders and 2004 Proxy Statement, to be filed pursuant to Rule 14a-6(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), in connection with the company’s 2004 Annual Meeting of Stockholders, is incorporated by reference in this Annual Report on Form 10-K. See Executive Officers of the Registrant on pages 25 and 26 of this Annual Report on Form 10-K for information about Executive Officers of the company.
The company has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee are Sam Ginn (Chairperson), Franklyn G. Jenifer, Charles R. Shoemate, Thomas A. Vanderslice, and John A. Young, all of whom are independent under the New York Stock Exchange Corporate Governance Rules. Of these Audit Committee members, Sam Ginn, Charles R. Shoemate, Thomas A. Vanderslice, and John A. Young are audit committee financial experts as determined by the Board within the applicable definition of the Securities and Exchange Commission.
The information contained under the heading “Stock Ownership Information — Section 16(a) Beneficial Ownership Reporting Compliance” in the Notice of the 2004 Annual Meeting of Stockholders and 2004 Proxy Statement, to be filed pursuant to Rule 14a-6(b) under the Exchange Act, in connection with the company’s 2004 Annual Meeting of Stockholders, is incorporated by reference in this Annual Report on Form 10-K. ChevronTexaco believes all filing requirements were complied with during 2003.
The company has adopted a code of business conduct and ethics for directors, officers (including the company’s Chief Executive Officer, Chief Financial Officer and Comptroller) and employees, known as the Business Conduct and Ethics Code (the “Code”). The Code is available on the company’s Internet Web site athttp://www.chevrontexaco.com/.
Item 11. Executive Compensation
The information appearing under the headings “Executive Compensation” and “Directors Compensation” in the Notice of the 2004 Annual Meeting of Stockholders and 2004 Proxy Statement, to be filed pursuant to Rule 14a-6(b) under the Exchange Act, in connection with the company’s 2004 Annual Meeting of Stockholders, is incorporated herein by reference in this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing under the headings “Stock Ownership Information — Directors’ and Executive Officers’ Stock Ownership” and “Stock Ownership Information — Other Security Holders” in the Notice of the 2004 Annual Meeting of Stockholders and 2004 Proxy Statement, to be filed pursuant to Rule 14a-6(b) under the Exchange Act, in connection with the company’s 2004 Annual Meeting of Stockholders, is incorporated by reference in this Annual Report on Form 10-K.
The information contained under the heading “Equity Compensation Plan Information” in the Notice of the 2004 Annual Meeting of Stockholders and 2004 Proxy Statement, to be filed pursuant to Rule 14a-6(b) under the Exchange Act, in connection with the company’s 2004 Annual Meeting of Stockholders, is incorporated by reference in this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions
The information appearing under the heading “Board Operations — Certain Business Relationships Between ChevronTexaco and its Directors and Officers” in the Notice of the 2004 Annual Meeting of Stockholders and 2004 Proxy Statement, to be filed pursuant to Rule 14a-6(b) under the Exchange Act, in connection with the company’s 2004 Annual Meeting of Stockholders, is incorporated by reference in this Annual Report on Form 10-K.
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Item 14. Principal Auditor Fees and Services
The information appearing under the headings “Ratification of Independent Auditors — Principal Auditor Fees and Services” and “Ratification of Independent Auditors — Pre-Approval Policies and Procedures” in the Notice of the 2004 Annual Meeting of Stockholders and 2004 Proxy Statement, to be filed pursuant to Rule 14a-6(b) under the Exchange Act, in connection with the company’s 2004 Annual Meeting of Stockholders, is incorporated by reference in this Annual Report on Form 10-K.
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PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(b) Reports on Form 8-K:
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SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 9th day of March, 2004.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 9th day of March, 2004.
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Index to Management’s Discussion and Analysis,Consolidated Financial Statement and Supplementary Data
FS-1
KEY FINANCIAL RESULTS
INCOME (LOSS) BY MAJOR OPERATING AREA BEFORE CHANGES IN ACCOUNTING PRINCIPLES
SPECIAL ITEMS
BUSINESS ENVIRONMENT AND OUTLOOK
FS-2
Natural gas prices were also higher in 2003 than in 2002. Benchmark prices for Henry Hub U.S. natural gas averaged more than $5 per thousand cubic feet in 2003, versus about $3 in 2002. The 2003 year-end price was nearly $6 per thousand cubic feet, about a dollar higher than the year-earlier level. Prices in the United States are typically highest during the winter period, when demand for heating fuel is greatest. At the end of February 2004, the U.S. benchmark price was about $5 per thousand cubic feet. The trend toward higher U.S. natural gas prices is mainly the result of overall demand based upon the strength of
the economy and the declining levels of industry reserves and production in the United States.
Downstream Refining, marketing and transportation earnings are closely tied to regional supply and demand for refined products and the associated effects on industry refining and marketing margins. The company’s core marketing areas are the western and southeastern United States, western Canada, the Asia-Pacific, northern Europe, Africa and Latin America.
FS-3
Chemicals Earnings of $69 million in 2003 were lower than the year-ago period. Depressed earnings in both years reflected excess-supply conditions for the commodity chemicals industry that have kept product margins at low levels for a protracted period. A significant improvement in earnings is not expected in the near future.
OPERATING DEVELOPMENTS
UpstreamWorldwide Oil and Gas Reserves Approximately 1 billion barrels of oil-equivalent reserves were added during 2003, including sales and acquisitions. These additions equated to 108 percent of production for the
FS-4
Downstream
TEXACO MERGER TRANSACTION
FS-5
RESULTS OF OPERATIONS
U.S. Exploration and Production
The improvement in 2003 segment income from 2002 primarily was the result of higher prices for crude oil and natural
International Exploration and Production
The earnings improvement from 2002 to 2003 included the benefit of higher crude oil and natural gas prices. Partially offsetting the improvements were the effects of lower oil-equivalent production and an unfavorable swing in foreign currency effects. Net foreign currency losses of $319 million in 2003 primarily related to a significant weakening of the U.S. dollar against the
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U.S. Refining, Marketing and Transportation
The U.S. refining, marketing and transportation earnings in 2003 reflected primarily a recovery in industry margins for refined products, especially on the West Coast. Margins in 2002 were very depressed and at one point, hovered near their 12-year lows. Results for 2001 included earnings of $375 million associated with assets that were later sold as a condition of the merger, which included the company’s Equilon and Motiva joint ventures.
sales volumes of 557,000 barrels per day were 4 percent lower than 2002. In 2002, branded gasoline sales increased approximately 4 percent compared with 2001 volumes. The average U.S. refined products sales realization of $39.93 per barrel in 2003 was up from the average of $32.63 per barrel and $36.26 per barrel in 2002 and 2001, respectively.
International Refining, Marketing and Transportation
The international refining, marketing and transportation segment includes the company’s consolidated refining and marketing businesses, international marine operations, international supply and trading activities, and equity earnings of affiliates, primarily in the Asia-Pacific region.
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All Other
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SELECTED OPERATING DATA
INFORMATION RELATED TO INVESTMENT IN DYNEGY INC.
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LIQUIDITY AND CAPITAL RESOURCES
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FINANCIAL RATIOS
Financial Ratios
GUARANTEES, OFF-BALANCE-SHEET ARRANGEMENTS ANDCONTRACTUAL OBLIGATIONS, AND OTHER CONTINGENCIES
Direct or Indirect Guarantees*
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Contractual Obligations
FINANCIAL AND DERIVATIVE INSTRUMENTS
TRANSACTIONS WITH RELATED PARTIES
LITIGATION AND OTHER CONTINGENCIES
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ENVIRONMENTAL MATTERS
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CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
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NEW ACCOUNTING STANDARDS
ACCOUNTING FOR MINERAL INTERESTS INVESTMENT
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REPORT OF MANAGEMENT
To the Stockholders of ChevronTexaco Corporation
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and the Board of Directors of ChevronTexaco Corporation
/s/ PricewaterhouseCoopers LLPSan Francisco, CaliforniaFebruary 25, 2004
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NOTE 1.
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NOTE 2.
NOTE 3.
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NOTE 3. SPECIAL ITEMS AND OTHER FINANCIAL INFORMATION – Continued
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NOTE 4.
NOTE 5.
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NOTE 5. SUMMARIZED FINANCIAL DATA — CHEVRON U.S.A. INC. — Continued
NOTE 6.
NOTE 7.
NOTE 8.
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NOTE 8. FINANCIAL AND DERIVATIVE INSTRUMENTS — Continued
NOTE 9.
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NOTE 9. OPERATING SEGMENTS AND GEOGRAPHIC DATA – Continued
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NOTE 10.
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filed a complaint against Unocal alleging that its conduct during the pendency of the patents was in violation of antitrust law. In November 2003, the Administrative Law Judge dismissed the complaint brought by the FTC. The FTC has appealed the decision.
MTBE Another issue involving the company is the petroleum industry’s use of methyl tertiary butyl ether (MTBE) as a gasoline additive and its potential environmental impact through seepage into groundwater.
NOTE 11.LEASE COMMITMENTS
Rental expenses incurred for operating leases during 2003, 2002 and 2001 were as follows:
Contingent rentals are based on factors other than the passage of time, principally sales volumes at leased service stations. Certain leases include escalation clauses for adjusting rentals to reflect changes in price indices, renewal options ranging from one to 25 years, and/or options to purchase the leased property during or at the end of the initial or renewal lease period for the fair market value or other specified amount at that time.
NOTE 12.RESTRUCTURING AND REORGANIZATION COSTS
An approximate $100 liability remained for employee severance charges recorded in 2002 and 2001. The balance related primarily to deferred payment options elected by certain employees who terminated before the end of 2003 and were paid in January 2004.
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NOTE 13.ASSETS HELD FOR SALE
NOTE 14.INVESTMENTS AND ADVANCES
Equilon Enterprises LLC and Motiva Enterprises LLC Until February 2002, the company had equity interests in Equilon and Motiva – joint ventures engaged in U.S. refining and marketing activities. Under mandate of the FTC as a condition of the merger, the company’s ownership interests were placed in trust on October 9, 2001. The trust completed the dispositions of the company’s investments in Equilon and Motiva in February 2002. See Note 2 on page FS-30 for additional information on Equilon and Motiva.
LG-Caltex Oil Corporation ChevronTexaco owns 50 percent of LG-Caltex, a joint venture formed in 1967 between the LG Group and Caltex to engage in importing, refining and marketing of petroleum products and petrochemicals in South Korea.
Star Petroleum Refining Company Ltd.ChevronTexaco has a 64 percent equity ownership interest in Star Petroleum Refining Company Limited (SPRC), which owns the Star Refinery at Map Ta Phut, Thailand. The Petroleum Authority of Thailand owns the remaining 36 percent of SPRC.
Caltex Australia Ltd. ChevronTexaco has a 50 percent equity ownership interest in Caltex Australia Limited (CAL). The remaining 50 percent of CAL is publicly owned. During 2002, the company wrote down its investment in CAL by $136 to its estimated fair value at September 30, 2002. At December 31, 2003, the fair value of ChevronTexaco’s share of CAL common stock was $465. The aggregate carrying value of the company’s investment in CAL was approximately $90 lower than the amount of underlying equity in CAL net assets.
Chevron Phillips Chemical Company LLCChevronTexaco owns 50 percent of CPChem, formed in July 2000 when Chevron merged most of its petrochemicals businesses with those of Phillips Petroleum Company. Because CPChem is a limited liability company, ChevronTexaco records the provision for income taxes and related tax liability applicable to its share of the venture’s income separately in its consolidated financial statements. At December 31, 2003, the company’s carrying value of its investment in CPChem was approximately $130 lower than the amount of underlying equity in CPChem’s net assets.
Dynegy Inc. ChevronTexaco owns an approximate 26 percent equity interest in the common stock of Dynegy, an energy merchant engaged in power generation, natural gas liquids processing and marketing, and regulated energy delivery. The company also holds investments in Dynegy notes and preferred stock.
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Investment in Dynegy Common Stock At December 31, 2003, the carrying value of the company’s investment in Dynegy common stock was approximately $150. This amount was about $425 below the company’s proportionate interest in Dynegy’s underlying net assets. This difference resulted from write-downs of the investment in 2002 for declines in the market value of the common shares below the company’s carrying value that were deemed to be other than temporary. The approximate $425 difference has been assigned to the extent practicable to specific Dynegy assets and liabilities, based upon the company’s analysis of the various factors giving rise to the decline in value of the Dynegy shares. The company’s equity share of Dynegy’s reported earnings is adjusted quarterly to reflect the difference between these allocated values and Dynegy’s historical book values. The
Other Information “Sales and other operating revenues” on the Consolidated Statement of Income includes $6,308, $6,522 and $15,238 with affiliated companies for 2003, 2002 and 2001, respectively. “Purchased crude oil and products” includes $1,740, $1,839 and $4,069 with affiliated companies for 2003, 2002 and 2001, respectively.
The following table provides summarized financial information on a 100 percent basis for Equilon, Motiva and all other equity affiliates, as well as ChevronTexaco’s total share.
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NOTE 15.PROPERTIES, PLANT AND EQUIPMENT1
NOTE 16.TAXES
In 2003, the before-tax income, including related corporate and other charges, for U.S. operations was $5,701, compared with a before-tax loss of $2,140 in 2002 and before-tax income of $1,778 in 2001. For international operations, before-tax income was $7,069, $6,296 and $6,513 in 2003, 2002 and 2001, respectively. U.S. federal income tax expense was reduced by $196, $208 and $202 in 2003, 2002 and 2001, respectively, for business tax credits.
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In 2003, the effective tax rate was about 42 percent. The decrease in the effective tax rate in 2003 compared with 2002 resulted from a lower proportion of international taxable income, which is taxed at higher rates than U.S. taxable income, and the absence in 2003 of the 2002 tax effects of the capital losses discussed in the next paragraph.
The valuation allowance relates to foreign tax credit carry-forwards, tax loss carryforwards and temporary differences for which no benefit is expected to be realized. The decrease in the valuation allowance relates primarily to the expiration of foreign tax credits and to the release of the valuation allowance on certain net operating losses, which management believes will now be realized. Tax loss carryforwards exist in many foreign jurisdictions and expire at various times beginning 2004 through 2010. However, some of these tax loss carryforwards do not have an expiration date.
NOTE 17.SHORT-TERM DEBT
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NOTE 17. SHORT-TERM DEBT – Continued
Redeemable long-term obligations consist primarily of tax-exempt variable-rate put bonds that are included as current liabilities because they become redeemable at the option of the bondholders during the year following the balance sheet date.
NOTE 18.LONG-TERM DEBT
NOTE 19.NEW ACCOUNTING STANDARDS
NOTE 20.ACCOUNTING FOR MINERAL INTERESTS INVESTMENT
NOTE 21.EMPLOYEE BENEFIT PLANS
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typically fund domestic nonqualified tax-exempt pension plans or international pension plans that are not subject to legal funding requirements because contributions to these pension plans may be less tax efficient and investment returns may be less attractive than the company’s other investment alternatives.
The status of the company’s pension and other postretirement benefit plans for 2003 and 2002 is as follows:
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NOTE 21. EMPLOYEE BENEFIT PLANS – Continued
The accumulated benefit obligations for all U.S. pension plans and pension plans outside the U.S. were $5,374 and $2,372, respectively, at December 31, 2003, and $4,945 and $1,740, respectively, at December 31, 2002.
The U.S. pension plans invest primarily in asset categories with sufficient size, liquidity and cost efficiency to permit investments of reasonable size. The U.S. pension plans invest in asset categories that provide diversification benefits and are easily measured. Maximum and minimum holding ranges for each of these asset categories are set by the ChevronTexaco Board of Directors for the primary U.S. pension plan. Actual asset allocation within these approved ranges is based on a variety of economic and market conditions and consideration of specific asset category risk. To assess the plan’s investment performance, a long-term asset allocation policy benchmark has been established.
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about $50 to the U.S. plans during the remainder of the year. In 2003, contributions to the U.S. plans totaled $1,203. In years subsequent to 2004, the company expects contributions to be approximately $250 per year, about equal to the cost of benefits earned in that year. Contributions in 2004 to the international pension plans are estimated at $200, while 2003 contributions were $214. The actual contribution amounts are dependent upon investment returns, changes in pension obligations, regulatory environments and other economic factors.
Assumed health care cost-trend rates have a significant effect on the amounts reported for retiree health care costs. A one-percentage-point change in the assumed health care cost-trend rates would have the following effects:
Employee Savings Investment Plan Eligible employees of ChevronTexaco and certain of its subsidiaries participate in the ChevronTexaco Employee Savings Investment Plan (ESIP). In 2002, the Employees Thrift Plan of Texaco Inc., Employees Savings Plan of ChevronTexaco Global Energy Inc. (formerly Caltex Corporation), Stock Plan of ChevronTexaco Global Energy Inc. and Employees Thrift Plan of Fuel and Marine Marketing LLC were merged into the ChevronTexaco ESIP. Charges to expense for these plans were $160, $161 and $157 in 2003, 2002 and 2001, respectively.
Employee Stock Ownership Plans (ESOP)Within the Chevron-Texaco Employee Savings Investment Plan, the company has established an employee stock ownership plan. In 1989, Chevron established a leveraged employee stock ownership plan (LESOP) as a constituent part of the ESOP. The LESOP provides partial prefunding of the company’s future commitments to the ESIP, which will result in annual income tax savings for the company.
Benefit Plan Trust Texaco established a benefit plan trust for funding obligations under some of its benefit plans. At year-end 2003, the trust contained 7.1 million shares of ChevronTexaco treasury stock. The company intends to continue to pay its obligations under the benefit plans. The trust will sell the shares or use the dividends from the shares to pay benefits only to the extent that the company does not pay such benefits. The trustee will vote the shares held in the trust as instructed by the trust’s beneficiaries. The shares held in the trust are not considered outstanding for earnings-per-share purposes until distributed or sold by the trust in payment of benefit obligations.
Management Incentive Plans ChevronTexaco has two incentive plans, the Management Incentive Plan (MIP) and the Long-Term Incentive Plan (LTIP) for officers and other regular salaried employees of the company and its subsidiaries who hold positions of significant responsibility. The plans were expanded in 2002 to include former employees of Texaco and Caltex. The MIP is an annual cash incentive plan that links awards to performance results of the prior year. The cash awards may be deferred by conversion to stock units or other investment fund alternatives. Awards under the LTIP may take the form of, but are not limited to, stock options, restricted stock, stock units and nonstock grants. Texaco also had a cash incentive program and a Stock Incentive Plan (SIP) that included stock options, restricted stock and other incentive awards for executives, directors and key employees. Awards under the Caltex LTIP were in the form of performance units and stock appreciation rights. Charges to
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NOTE 21. EMPLOYEE BENEFIT PLANS — Continued
expense for the combined management incentive plans, excluding expense related to LTIP and SIP stock options and restricted stock awards that are discussed in Note 22, below, were $148, $48 and $101 in 2003, 2002 and 2001, respectively.
Other Incentive Plans The company has a program that provides eligible employees with an annual cash bonus if the company achieves certain financial and safety goals. Charges for the program were $151, $158 and $154 in 2003, 2002 and 2001, respectively.
NOTE 22.STOCK OPTIONS
Broad-Based Employee Stock Options In 1998, Chevron granted to all its eligible employees an option that varied from 100 to 300 shares of stock or equivalents, dependent on the employee’s salary or job grade. These options vested after two years in February 2000. Options for 4,820,800 shares were awarded at an exercise price of $76.3125 per share. Outstanding option shares were 2,366,311 at the end of 2001. In 2002, exercises of 295,985 and forfeitures of 61,151 reduced the outstanding option shares to 2,009,175 at the end of the year. In 2003, exercises of 11,630 and forfeitures of 61,050 reduced the outstanding option shares to 1,936,495 at the end of the year. The options expire in February 2008. The company recorded expense (credit) of $2, $(2) and $1 for these options in 2003, 2002 and 2001, respectively.
Long-Term Incentive Plan Stock options granted under the LTIP extend for 10 years from the date of grant. Effective with options granted in June 2002, one third of the options vest on each of the first, second and third anniversaries of the date of grant. Prior to this change, options granted by Chevron vested one year after the date of grant, whereas options granted by Texaco under its SIP vested over a two-year period at a rate of 50 percent each year. The maximum number of shares that may be granted each year is 1 percent of the total outstanding shares of common stock as of January 1 of such year.
The Black-Scholes weighted-average fair value of the ChevronTexaco options granted during 2003, 2002 and 2001 was $11.02, $18.59 and $20.45 per share, respectively, and the weighted-average fair value of the SIP restored options granted during 2003 and 2002 and the Texaco options granted during 2001 was $8.06, $10.29 and $12.90 per share.
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NOTE 23.OTHER CONTINGENCIES AND COMMITMENTS
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NOTE 24.EARNINGS PER SHARE
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NOTE 25.FAS 143 — ASSET RETIREMENT OBLIGATIONS
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TABLE I – COSTS INCURRED IN EXPLORATION, PROPERTY ACQUISITIONS AND DEVELOPMENT1
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TABLE II – CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES1
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TABLE III — RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES1
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TABLE IV – RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES – UNIT PRICES AND COSTS1,2
TABLE V – RESERVE QUANTITY INFORMATION
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TABLE V – RESERVE QUANTITY INFORMATION – Continued
INFORMATION ON CANADIAN OIL SANDS NET PROVED RESERVES NOT INCLUDED ABOVE:
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TABLE VI – STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED TO PROVED OIL AND GAS RESERVES
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TABLE VII – CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS FROM PROVED RESERVES
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EXHIBIT INDEX
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On October 9, 2001, the company changed its name from Chevron Corporation to ChevronTexaco Corporation. Filings with the Securities and Exchange Commission prior to that date may be found under the company’s former name.
Copies of above exhibits not contained herein are available to any security holder upon written request to the Secretary’s Department, ChevronTexaco Corporation, 6001 Bollinger Canyon Road, San Ramon, California 94583.
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