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1993
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-368-2
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CHEVRON CORPORATION
(Exact name of registrant as specified in its charter)
225 Bush Street,
Delaware 94-0890210 San Francisco, California 94104
- ---------------- --------------------- ------------------------- -----------
(State or other (I.R.S. Employer (Address of principal (Zip Code)
jurisdiction of Identification Number) executive offices)
incorporation or
organization)
Registrant's telephone number, including area code (415) 894-7700
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- --------------------------------------------- -----------------------------
Common stock par value $3.00 per share New York Stock Exchange, Inc.
Preferred stock purchase rights Midwest Stock Exchange
Pacific Stock Exchange
Sinking fund debentures: 9-3/8%, due 2016 New York Stock Exchange, Inc.
Securities guaranteed by Chevron Corporation:
Chevron Capital U.S.A. Inc.
Sinking fund debentures: 9-3/4%, due 2017 New York Stock Exchange, Inc.
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 X No
----- -----
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. [X]
Aggregate market value of the voting stock held by nonaffiliates
of the Registrant
As of February 28, 1994 - $28,168 million
Number of Shares of Common Stock outstanding as of
February 28, 1994 - 325,825,185
DOCUMENTS INCORPORATED BY REFERENCE
(To The Extent Indicated Herein)
Notice of Annual Meeting and Proxy Statement
Dated March 25, 1994 (in Part III)
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TABLE OF CONTENTS
PAGE
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ITEM YEAR 1993 MARCH 25, 1994
- ---- FORM 10-K PROXY STMT.
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PART I
1. Business . . . . . . . . . . . . . . . . . . . . 1 -
(a) General Development of Business . . . . . 1 -
(b) Industry Segment and Geographic
Area Information . . . . . . . . . . . . . 4 -
(c) Description of Business and Properties . . 4 -
Capital and Exploratory Expenditures . . . 5 -
Petroleum - Exploration . . . . . . . . . 6 -
Petroleum - Oil and Natural Gas Production 9 -
Production Levels . . . . . . . . . . . 9 -
Development Activities . . . . . . . . . 10 -
Petroleum - Natural Gas Liquids . . . . . 15 -
Petroleum - Reserves and
Contract Obligations . . . . . . . . . . . 16 -
Petroleum - Refining . . . . . . . . . . . 16 -
Petroleum - Refined Products Marketing . . 18 -
Petroleum - Transportation . . . . . . . . 19 -
Chemicals . . . . . . . . . . . . . . . . 21 -
Coal and Other Minerals . . . . . . . . . 22 -
Real Estate . . . . . . . . . . . . . . . 22 -
Research and Environmental Protection . . 23 -
2. Properties . . . . . . . . . . . . . . . . . . . 25 -
3. Legal Proceedings . . . . . . . . . . . . . . . 25 -
4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . 28 -
Executive Officers of the Registrant . . . . . . 28 -
PART II
5. Market for the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . 30 -
6. Selected Financial Data . . . . . . . . . . . . 30 -
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 30 -
8. Financial Statements . . . . . . . . . . . . . . 30 -
8. Supplementary Data - Quarterly Results . . . . . 30 -
Supplementary Data - Oil and
Gas Producing Activities . 30 -
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . 30 -
PART III
10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . 30 4-6
11. Executive Compensation . . . . . . . . . . . . . 30 15-17
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . 30 2-3
13. Certain Relationships and Related Transactions . 30 -
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . 31 -
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
SUMMARY DESCRIPTION OF CHEVRON
- ------------------------------
Chevron Corporation (1), a Delaware corporation, is a major international oil
company. It provides administrative, financial and management support for,
and manages its investments in, domestic and foreign subsidiaries and
affiliates, which engage in fully integrated petroleum operations, chemical
operations, real estate development and other mineral and energy related
activities in the United States and approximately 100 other countries.
Petroleum operations consist of exploring for, developing and producing crude
oil and natural gas; transporting crude oil, natural gas and petroleum
products by pipelines, marine vessels and motor equipment; refining crude oil
into finished petroleum products; and marketing crude oil, natural gas and the
many products derived from petroleum. Chemical operations include the
manufacture and marketing of a wide range of chemicals for industrial uses.
Incorporated in Delaware in 1926 as Standard Oil Company of California, the
company adopted the name Chevron Corporation in 1984. Domestic integrated
petroleum operations are conducted primarily through three divisions of the
company's wholly owned Chevron U.S.A. Inc. subsidiary. Exploration and
production operations in the United States are carried out through Chevron
U.S.A. Production Company. U.S. refining and marketing activities are
performed by Chevron U.S.A. Products Company. Warren Petroleum Company
engages in all phases of the domestic natural gas liquids business. A list
of the company's major subsidiaries is presented on page 40 of this Annual
Report on Form 10-K. As of December 31, 1993, Chevron had 47,576 employees,
78 percent of whom were employed in U.S. operations.
OVERVIEW OF PETROLEUM INDUSTRY
- ------------------------------
Petroleum industry operations and profitability are influenced by a large
number of factors, over some of which individual oil and gas companies have
little control. Governmental attitudes and 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.
OPEC member countries are the world's swing producers of crude oil and their
production levels are the primary driver in determining worldwide supply.
Demand for crude oil and its products is largely driven by the health of
local, national and worldwide economies, although weather patterns and
taxation relative to other energy sources also play a significant part.
Natural gas is generally produced and consumed on a country or regional
basis. Its largest use is for electrical generation, where it competes with
other energy fuels.
CURRENT OPERATING ENVIRONMENT
- -----------------------------
Crude oil prices rose slightly in the first quarter of 1993 and remained
steady through the second quarter before trending downward for the remainder
of the year. The decline was particularly prominent during the last two
months of 1993, with prices reaching their lowest level in five years by year
end. The weak global economy has dampened the demand for petroleum and
petroleum related products. Increased production from non-OPEC countries,
particularly from the North Sea, and OPEC's failure to adjust their
production levels accordingly has further exacerbated the decline in crude
oil prices. Partially mitigating the effects of
- ------------------
(1) As used in this report, the term "Chevron" and such terms as "the
company," "the corporation," "our," "we," and "us" may refer to Chevron
Corporation, one or more of its consolidated subsidiaries, or to all of
them taken as a whole, but unless the context clearly indicates
otherwise, should not be read to include "affiliates" of Chevron
(those companies owned approximately 50 percent or less).
As used in this report, the term "Caltex" may refer to the Caltex Group
of companies, any one company of the group, any of their consolidated
subsidiaries, or to all of them taken as a whole and also includes the
"affiliates" of Caltex.
All of these terms are used for convenience only, and are not intended
as a precise description of any of the separate companies, each of which
manages its own affairs.
- 1 -
lower crude oil prices were higher natural gas prices. Unseasonable weather
patterns, low gas storage levels, the loss of three nuclear power plants in
the Southeast for a portion of the year, and the environmentally preferred
attributes of natural gas all contributed to the stronger natural gas prices.
In the United States, the Henry Hub, Louisiana spot price for natural gas, a
common benchmark for natural gas prices, averaged $2.21 per thousand cubic
feet (MCF) in 1993, an increase of $.41 per MCF over 1992. Strong refined
product prices, which did not decline as rapidly as crude oil prices, also
helped to dampen the effects of lower crude oil prices. However, product
prices in the United States fell late in the year and have remained low into
1994. If both crude oil and refined product prices continue at their low
levels, the company's earnings and cash flow from ongoing operations may be
negatively affected. Widely fluctuating prices have become characteristic of
the petroleum industry for the past several years.
Chevron's average realization from U.S. crude oil production declined from
$16.50 per barrel in 1992 to $14.58 per barrel in 1993 while average liquids
realizations from international liftings, including equity affiliates,
declined by $1.84 per barrel to $16.09 per barrel. Average U.S. natural gas
realizations from production increased to $1.99 per MCF in 1993 from $1.70
per MCF in 1992.
The following table compares the high, low and average company posted prices
for West Texas Intermediate (WTI), an industry benchmark light crude oil, for
each of the quarters during 1993 and for the full years of 1993, 1992, and
1991:
- ----------------------------------------------------------------------
WEST TEXAS INTERMEDIATE CRUDE OIL
CHEVRON POSTED PRICES
(Dollars per Barrel)
1993
-------------------------------------
1st Q 2nd Q 3rd Q 4th Q Year 1992 1991
----- ----- ----- ----- ----- ----- -----
High 20.25 19.75 18.00 18.00 20.25 21.75 29.50
Low 17.50 18.00 16.00 13.00 13.00 16.50 16.75
Average 19.09 19.10 17.01 15.58 17.68 19.71 20.20
- ----------------------------------------------------------------------
For the first two months of 1994, average natural gas realizations for the
company's U.S. operations were $2.14 per MCF. During this period, the
company's posted price for WTI ranged from $13.00 per barrel to $15.00 with
an average of $13.86. On March 21, 1994, the company's posted price for WTI
was $14.25 per barrel.
CHEVRON STRATEGIC DIRECTION
- ---------------------------
To improve financial performance and to compete more effectively, Chevron
developed and began implementing seven "strategic intents" in 1992. These are
to:
- - SHIFT EXPLORATION AND PRODUCTION EMPHASIS TO INTERNATIONAL OPPORTUNITIES.
The company believes opportunities to discover and develop major new
reserves in the United States are limited due to regulatory barriers and
drilling prohibitions on many of the most promising areas of development.
In 1993, 68 percent of the exploration and production capital spending,
including affiliates, was allocated to international operations. In 1994,
that number is expected to increase to 75 percent. As recently as 1990,
U.S. exploration and production capital spending was approximately 50
percent of the total. As an important example of this new emphasis, in
April 1993, the company entered into a joint venture agreement with the
Republic of Kazakhstan to develop the massive Tengiz oil field in that
country.
- 2 -
- - GENERATE $1 BILLION IN CASH ANNUALLY FROM U.S. EXPLORATION AND PRODUCTION
OPERATIONS. Chevron is emphasizing a steady cash flow from a core group of
approximately 400 oil and gas fields concentrated in California, Texas,
the Rocky Mountains and the Gulf of Mexico. In 1993, net cash flow after
capital and exploratory expenditures for U.S. exploration and production
operations was more than $1.2 billion. Lower operating expenses and an
improved natural gas market helped to mitigate the effects of lower crude
oil prices. If crude oil prices do not rebound, this goal may be difficult
to achieve in 1994.
- - RESHAPE THE U.S. REFINING AND MARKETING COMPANY INTO A TOP COMPETITOR.
Chevron is currently the leading U.S. marketer of refined products and has
the largest refining capacity in the nation. The company is seeking to
strengthen its competitive position by investing in core refineries,
reducing the size of its refining system and concentrating on specific
marketing regions. Major projects are continuing at the company's Richmond
and El Segundo, California refineries in order to produce reformulated
fuels to meet the January 1995 emission requirements of the Clean Air Act
Amendments of 1990 and the 1996 requirements of the California Air
Resources Board. The company expects to complete the sale of its
Philadelphia, Pennsylvania and Port Arthur, Texas refineries in 1994,
thereby reducing its refining capacity about 25 percent.
- - GROW CALTEX IN ATTRACTIVE MARKETS. Management believes that the demand for
petroleum products will continue to grow in the Asia Pacific region and
Chevron's 50 percent owned Caltex affiliate, a leading competitor in these
areas, has made significant capital investments to expand and upgrade its
refining capacity. Refinery upgrade projects are currently underway in
Singapore and Korea, as well as the construction of a new refinery in
Thailand.
- - EXPLOIT COMPETITIVE STRENGTHS IN CHEMICALS. The petrochemical industry is
highly cyclical. In order to improve its competitive position, the company
is concentrating on areas of the petrochemical business in which it holds
a competitive advantage, such as in its proprietary Aromax (R) process used
to produce high value benzene from low value by-products of the oil
refining process. The first Aromax (R) plant in the U.S., located at the
company's Pascagoula, Mississippi, refinery, was completed in 1993. The
company also announced, in January 1994, a cost reduction plan intended to
reduce annual operating expense by approximately $100 million by 1996. An
integral part of the plan is to divest or close non-core assets and
sharpen the company's focus on the remaining core businesses.
- - BE SELECTIVE IN NON-CORE BUSINESSES. In 1993, Chevron continued to dispose
of marginally performing or non-strategic assets, including various oil
and gas properties located in the United States and Indonesia. The company
also divested its ORTHO lawn and garden products business, retail
marketing operations in Guatemala, Nicaragua and El Salvador, certain
undeveloped coal properties in the U.S., and its Vinwood Cellars Winery in
California. Properties currently for sale include the company's 52.5
percent interest in some zinc-lead prospects in Ireland, refineries
located in Philadelphia, Pennsylvania and Port Arthur, Texas, and the
company's headquarters building located in San Francisco, California.
- - FOCUS ON REDUCING COSTS ACROSS ALL ACTIVITIES. Chevron undertook an
extensive cost-cutting and work force reduction program in early 1992.
These efforts, in combination with the company's continuing program to
dispose of non-core or underperforming assets, reduced 1993 operating
costs, adjusted for special items, by approximately 5 percent or 40 cents
a barrel from 1992 levels. When compared to the base year of 1991, ongoing
operating, selling and administrative expenses have dropped by 11 percent,
or 94 cents a barrel. To remain competitive, the company's management has
set a number of new goals, including a new cost-reduction target of an
additional 25 cents a barrel by the end of 1994.
In 1993, the company established a new "strategic intent:"
- - BUILD A COMMITTED TEAM TO ACCOMPLISH THE CORPORATE MISSION. The company
believes the success of the other seven strategic intents is dependent on
the commitment and dedication that Chevron employees bring to their jobs.
In a 1992 employee survey and a 1993 update, Chevron measured employee
- 3 -
commitment using a model that assesses employee's willingness to expend
discretionary effort on the job, combined with how strongly they feel the
company deserves that effort. The surveys highlighted employee concerns
on issues that the company is addressing. Due, in part, to the results
of the survey, the company has initiated a number of work and family
programs to help employees improve their productivity and commitment,
such as flexible schedules, part-time work, job sharing and various leave
programs. The company also presented commemorative wristwatches to its
employees and a one time cash bonus equal to 5 percent of their annual
salaries in appreciation for their efforts in meeting the company's five
year goal, established in 1989, to be number one in stockholders' return
among five peer U.S. oil companies. In February 1994, the company took
delivery of a new vessel, the Chevron Employee Pride, named in honor of
its worldwide workforce.
(b) INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION
The company's primary business is its integrated petroleum operations.
Secondary operations include chemicals and minerals. The petroleum
activities of the company are widely distributed geographically, with major
operations in the United States, Australia, United Kingdom, Canada, Nigeria,
Angola, Papua New Guinea, China, Indonesia and Zaire. The company's Caltex
affiliate, through its subsidiaries and affiliates, conducts exploration and
production operations in Indonesia and refining and marketing activities in
the Eastern Hemisphere, with major operations in Japan, Korea, Australia, the
Philippines, Thailand and South Africa. Tengizchevroil (TCO), a 50/50 joint
venture with a subsidiary of the national oil company of the Republic of
Kazakhstan conducts production activities in Kazakhstan, a former Soviet
republic.
The company's and its affiliates' chemicals operations are concentrated in
the United States, but include operating facilities in France, Japan and
Brazil. The company's and its affiliates' principal minerals activities
include both coal and platinum and palladium operations in the United States.
Tabulations setting forth three years' identifiable assets, operating income,
sales and other operating revenues for the company's three industry segments,
by United States and International geographic areas, may be found in Note 9
to the Consolidated Financial Statements beginning on page FS-22 of this
Annual Report on Form 10-K.
(c) DESCRIPTION OF BUSINESS AND PROPERTIES
The petroleum industry is highly competitive in the United States and
throughout most of the world. This industry also competes with other
industries in supplying the energy needs of various types of consumers.
The company's operations can be affected significantly by changing economic,
regulatory and political environments in the various countries, including the
United States, in which it operates. The company evaluates the economic and
political risk of initiating, maintaining or expanding operations in any
geographical area.
In the United States, environmental regulations and federal, state and local
actions and policies concerning economic development, energy and taxation
may have a significant effect on the company's operations.
Internationally, the company is monitoring closely the civil unrest in Angola
and the political uncertainty in Nigeria and Zaire and the possible threat
these may pose to the company's oil and gas exploration and production
operations and the safety of the company's employees located in those
countries.
The company attempts to avoid unnecessary involvement in partisan politics
in the communities in which it operates but participates in the political
process to safeguard its assets and to ensure that the community benefits
from its operations and remains receptive to its continued presence.
- 4 -
CAPITAL AND EXPLORATORY EXPENDITURES
Chevron's capital and exploratory expenditures during 1993 and 1992 are
summarized in the following table:
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CAPITAL AND EXPLORATORY EXPENDITURES
(Millions of Dollars)
1993 1992
------ ------
Exploration and Production $2,217 $2,097
Refining, Marketing and Transportation 1,166 1,263
Chemicals 224 251
Coal and Other Minerals 42 79
All Others 90 112
------ ------
Total Consolidated Companies 3,739 3,802
Equity in Affiliates 701 621
------ ------
Total Including Affiliates $4,440 $4,423
====== ======
-------------------------------------------------------
Total consolidated expenditures in 1993 were essentially flat when compared
to 1992, declining less than 2 percent between periods. An increase in
exploration and production (E&P) expenditures of $120 million was more than
offset by lower expenditures in the company's other operations.
Exploration and production expenditures amounted to 59 percent of the
company's consolidated expenditures, a 4 percent increase over 1992 levels.
The increase was due solely to increased expenditures in international E&P as
U.S. E&P expenditures continued to decline, down 4 percentage points to 34
percent of consolidated E&P expenditures in 1993. This decrease reflects
the continued shift in the company's emphasis from U.S. exploration and
production activities to international opportunities. Major international
E&P expenditures in 1993 included development of the Alba Field in the U.K.
North Sea, the North West Shelf Project in Australia, the Hibernia Project
offshore Newfoundland, the Duri steamflood project in Indonesia, Areas B and
C in Angola and the Tengiz project in Kazakhstan. Refining, marketing and
transportation outlays in 1993 included expenditures for upgrading U.S.
refineries to produce fuels, such as low aromatics and ultra low sulfur
diesel fuel and reformulated gasoline, to comply with current and future
federal, state and local air quality regulations.
In 1994, the company expects to spend approximately $4.9 billion, including
its share of equity affiliates' expenditures, an increase of approximately 11
percent over 1993 levels. Equity affiliate spending, primarily Caltex
expenditures in the high growth Pacific Rim areas, account for this increase
as consolidated expenditures in 1994 are expected to remain flat at $3.7
billion. E&P expenditures are expected to total $2.4 billion, of which
approximately 75 percent will be for international projects such as the
continued development of the Hibernia Field, expansion of the North West
Shelf Project, enhanced recovery projects in Indonesia, the Tengiz project
in Kazakhstan, and other development projects in West Africa. Refining,
marketing and transportation expenditures are estimated at $2.1 billion,
with U.S. expenditures of about $1 billion, including continued upgrades to
U.S. refineries to produce reformulated gasoline in order to comply with the
Clean Air Act Amendments of 1990 and California Air Resources Board
regulations.
The actual expenditures for 1994 will depend on various conditions affecting
the company's operations and may differ significantly from the company's
forecast. If low oil prices persist, expenditures, particularly for
exploration and production, may be lower than forecast. Significant
expenditures are expected over the next few years at the company's
manufacturing facilities to comply with federal, state and local
environmental regulations and to enable these facilities to produce cleaner
fuels for industrial and consumer use.
- 5 -
PETROLEUM - EXPLORATION
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, 1993. "Exploratory
wells" 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" include wells temporarily suspended.
- -----------------------------------------------------------------------------
EXPLORATORY WELL ACTIVITY
NET WELLS COMPLETED (1)
WELLS DRILLING ---------------------------------------
AT 12/31/93 1993 1992 1991
------------------- ----------- ---------- -----------
GROSS (2) NET (2) PROD. DRY PROD. DRY PROD. DRY
--------- ------- ---- ---- ---- ---- ---- ----
United States 37 33 32 14 42 16 39 25
--------- ------- ---- ---- ---- ---- ---- ----
Canada 13 11 27 26 10 - 24 21
Africa 13 5 3 4 3 3 2 5
Other
International 35 10 - 9 5 4 1 5
--------- ------- ---- ---- ---- ---- ---- ----
Total
International 61 26 30 39 18 7 27 31
--------- ------- ---- ---- ---- ---- ---- ----
Total
Consolidated
Companies 98 59 62 53 60 23 66 56
Equity in
Affiliate - - 1 1 1 - 1 1
--------- ------- ---- ---- ---- ---- ---- ----
Total Including
Affiliates 98 59 63 54 61 23 67 57
========= ======= ==== ==== ==== ==== ==== ====
(1) Indicates the number of wells completed during the year regardless of
when drilling was initiated. Completion refers to the installation of
permanent equipment for the production of oil or gas or, in the case of
a dry well, the reporting of abandonment to the appropriate agency.
(2) Gross wells include the total number of wells in which the company has
an interest. Net wells are the sum of the company's fractional interests
in gross wells.
- -----------------------------------------------------------------------------
At December 31, 1993, the company owned or had under lease or similar agree-
ments undeveloped and developed oil and gas properties located throughout
the world. Undeveloped acreage includes undeveloped proved acreage. The geo-
graphical distribution of the company's acreage is shown in the next table.
- -----------------------------------------------------------------------------
ACREAGE* AT DECEMBER 31, 1993
(Thousands of Acres)
DEVELOPED
UNDEVELOPED DEVELOPED AND UNDEVELOPED
---------------- -------------- ----------------
GROSS NET GROSS NET GROSS NET
------- ------ ----- ----- ------- ------
United States 3,994 3,123 4,626 2,841 8,620 5,964
------- ------ ----- ----- ------- ------
Canada 18,213 10,374 528 383 18,741 10,757
Africa 17,147 12,726 135 53 17,282 12,779
Asia 54,297 23,944 61 21 54,358 23,965
Europe 3,231 1,195 58 11 3,289 1,206
Other International 9,656 3,257 57 16 9,713 3,273
------- ------ ----- ----- ------- ------
Total International 102,544 51,496 839 484 103,383 51,980
------- ------ ----- ----- ------- ------
Total Consolidated
Companies 106,538 54,619 5,465 3,325 112,003 57,944
Equity in Affiliates 3,202 1,601 233 116 3,435 1,717
------- ------ ----- ----- ------- ------
Total Including
Affiliates 109,740 56,220 5,698 3,441 115,438 59,661
======= ====== ===== ===== ======= ======
* Gross acreage includes the total number of acres in all tracts in which
the company has an interest. Net acreage is the sum of the company's
fractional interests in gross acreage.
- -----------------------------------------------------------------------------
- 6 -
The company had $222 million of suspended exploratory wells included in
properties, plant and equipment at year-end 1993. The wells are suspended
pending drilling of additional wells to determine if commercially
producible quantities of oil or gas reserves are present. The ultimate
disposition of these well costs is dependent on the results of this future
activity.
During 1993, the company explored for oil and gas in the United States and
about 21 other countries. The company's 1993 exploratory expenditures,
including affiliated companies' expenditures but excluding unproved
property acquisitions, were $533 million compared with $547 million in
1992, a 3 percent decrease. Domestic expenditures represented approximately
34 percent of the consolidated companies' worldwide exploration
expenditures, essentially unchanged from the prior year. Significant
activities in Chevron's exploration program during 1993 include the
following (number of wells are on a "gross" basis):
UNITED STATES: Domestic exploratory expenditures, excluding unproved
property acquisitions, were $183 million in 1993, compared to $189 million
spent in 1992. In addition, the company incurred costs of $11 million for
unproved property acquisitions in 1993. The company continued to focus its
1993 exploratory efforts in the Gulf of Mexico and in other areas where it
has existing production. Fifteen exploratory wells were initiated in 1993.
Seven of these exploratory wells were completed in 1993, resulting in two
discoveries located in the Houston Salt Basin and in the Gulf of Mexico.
Plans to spud a well in the Norphlet Trend prospect in Destin Dome 97,
located in the Gulf of Mexico, were deferred until March 1994 due to delays
in the permit process.
Exploration efforts in high-potential areas, including Alaska's Arctic
National Wildlife Refuge (ANWR) and parts of offshore Florida, California
and North Carolina have been blocked by legal restrictions and drilling
moratoria.
Chevron and other oil companies have sued the Department of Interior to
recover bonus payments, lease rentals and certain geophysical costs for
federal offshore leases that remain undrilled due to state, federal, and
private objections to drilling. The company is seeking to recover
approximately $126 million, plus interest, spent on leases off Florida,
North Carolina and Alaska.
AFRICA: In Africa, the company spent $104 million during 1993 on
exploratory efforts, excluding the acquisition of unproved properties,
compared with $108 million in 1992. The company also acquired $9 million of
unproved properties in 1993. In Nigeria, the company drilled six
exploratory and appraisal wells in 1993, with all six either having proved
reserves assigned or assignment deferred pending further exploration or
evaluation work. The company also acquired 3-D seismic data covering
Nigerian acreage of 1,410 square kilometers in 1993 and separately entered
into a farm-in arrangement for the exploration of three offshore
concessions. In Angola, the company is the operator of a 7,000 square
kilometer concession off the coast of Angola's Cabinda exclave. The
concession is divided into Areas A, B, and C, with Area A generating all
current production. One successful exploration well was drilled in Area A
during 1993 resulting in the discovery of the Numbi South East field which
was brought on stream in 1993 by linking it to the existing Numbi Field
facilities. Two exploratory wells were drilled in Areas B and C and a third
was drilled at the end of the year. These resulted in the discovery of the
M'Bili Field in Area C and a non-commercial accumulation in Area B. The
third well was tested in Area B as a discovery well, N'Sangui, in January
1994. Options for the development of M'Bili are currently being evaluated.
The current Exploration Period for Areas B and C was to expire at the end
of February 1994 with a provision to fulfill all obligations by the end of
August 1994. The company has requested an extension of the Exploration
Period. Under the existing agreement, two exploratory wells will be drilled
in Areas B and C in 1994. An additional well may be drilled if the
extension is granted. Chevron (operator) and its partners are currently
negotiating a Production Sharing Agreement for the recently awarded
Deepwater Block 14, located due west of Areas B and C. The agreement is
expected to be completed and signed in 1994. In the Congo, a regional 3-D
survey was acquired in 1993 covering the southern part of the Marine VII
Block which includes both the Kitina and Kitina South discoveries, as well
as several additional exploration prospects. In Namibia, the company has
been conducting a detailed seismic evaluation of the offshore Namibia Block
2815, where Chevron is the operator. In 1993, Chevron farmed-out a portion
of its interest in the concession, reducing its share from 60 percent to 40
percent.
- 7 -
OTHER INTERNATIONAL INCLUDING AFFILIATED COMPANIES: Exploration
expenditures, excluding unproved property acquisitions, were $246 million
in 1993, a decrease of $4 million from the 1992 amount of $250 million. In
addition, unproved properties of $430 million, primarily related to the
company's investment in Tengizchevroil (TCO), were acquired in 1993.
In the North Sea, Chevron participated in four wildcat wells in the U.K.
sector in 1993. A discovery was made in the Paleocene Parliament prospect,
to the northeast of Alba and Britannia, thereby establishing area
potential. During the U.K.'s 14th licensing round, the company was awarded
operatorship of four blocks in the coastal waters to the west of Britain.
In Canada, exploration efforts in 1993 continued to be concentrated in the
western part of the country. A total of 23 wildcat wells were drilled in
1993 which reflected an increase in drilling activity as a share of total
exploratory expenditures.
In Indonesia, Chevron and its partners drilled nine exploratory wells in
1993, three of which resulted in oil discoveries.
In Australia, Chevron and its partners in West Australia Petroleum Pty.,
Ltd. (WAPET) participated in the drilling of the North West Shelf
exploration well West Dixon-1, which proved unsuccessful. A preliminary
interpretation of the Gorgon 3-D seismic survey was completed in 1993 and
WAPET has approved the exploratory drilling for gas of North Gorgon-2 in
1994. WAPET also acquired a 519,000 acre block north of Gorgon in 1993. The
new permit, WA-253-P, will be issued to WAPET in early 1994.
In Papua New Guinea, the government has agreed to grant Chevron and its
partners an extension of its exploratory license. The extension
significantly extends the time remaining for exploration of a large area of
the Papuan Fold and Thrust Belt. Exploration efforts continue to be
concentrated near the Kutubu project facilities and export system. The Gobe
4X well was drilled before year-end at a location approximately 15
kilometers northwest of the SE Gobe field, resulting in an additional oil
and gas discovery on this 40 kilometer-long anticline.
In China, Chevron was awarded sole interest in Block 33/08 in the East
China Sea in December. Seismic studies are planned for the second quarter
1994 to determine the optimum location for exploratory drilling. All
exploration and drilling activities will be coordinated from Chevron's
newly-opened Shanghai office. The HZ/32-4-1 exploratory well in the Pearl
River Mouth Basin of the South China Sea was abandoned as a dry hole in
1993.
Other areas where exploration activities occurred in 1993 include Bolivia
where the first exploratory well (Cuevo West) was completed in March 1994
as a dry hole, Trinidad and Tobago where the first of four exploratory
wells (Rocky Palace #1) was spudded in late 1993, Colombia where evaluation
of the Rio Blanco Block in the Llanos foothills continued in 1993 with the
acquisition of a seismic program, Yemen where the exploratory well Al Harsh
#1 was unsuccessful, and Azerbaijan where Chevron and the State Oil Company
of the Azerbaijan Republic (SOCAR) signed an agreement to jointly study oil
and gas reserve potential in the southern third of the Caspian Sea.
- 8 -
PETROLEUM - OIL AND NATURAL GAS PRODUCTION
The following table summarizes the company's and its affiliate's 1993 net
production of crude oil, natural gas liquids and natural gas.
- -----------------------------------------------------------------------------
1993 NET PRODUCTION* OF CRUDE OIL AND NATURAL GAS LIQUIDS AND NATURAL GAS
CRUDE OIL & NATURAL GAS
NATURAL GAS LIQUIDS (THOUSANDS OF
(BARRELS PER DAY) CUBIC FEET PER DAY)
----------------- -------------------
United States
-California 130,330 139,110
-Gulf of Mexico 127,500 1,134,910
-Texas 73,420 403,620
-Louisiana 5,790 30,060
-Wyoming 10,610 155,120
-Colorado 16,560 -
-New Mexico 8,630 94,720
-Other States 21,380 98,460
------- ---------
Total United States 394,220 2,056,000
------- ---------
Africa 217,600 -
Canada 49,510 217,650
United Kingdom (North Sea) 49,430 27,670
Indonesia 31,730 1,050
Australia 17,780 163,580
Papua New Guinea 31,040 -
China 8,200 -
Other International 7,750 6,110
------- ---------
Total International 413,040 416,060
------- ---------
Total Consolidated
Companies 807,260 2,472,060
------- ---------
Equity in Affiliates 142,890 53,370
------- ---------
Total Including
Affiliates 950,150 2,525,430
======= =========
* Net production excludes royalties owned by others.
- -----------------------------------------------------------------------------
PRODUCTION LEVELS:
In 1993, net crude oil and natural gas liquids production, including
affiliates, increased by about one percent to 950,150 barrels per day from
943,940 barrels per day in 1992. Production increases were noted in Papua
New Guinea due to full year production and additional wells being brought
on stream in 1993 from the Kutubu project, in Kazakhstan due to the startup
of a new joint venture partnership in April 1993, and in Indonesia due to
production increases as the result of application of enhanced recovery
methods in certain fields. These production increases were partially offset
by production declines in the United States due to divestments of producing
properties in 1992 and normal field declines.
Net production of natural gas, including affiliates, declined 250,920
thousand cubic feet per day, or 9 percent, in 1993 from 1992. The decrease
was primarily due to normal field declines and 1992 divestitures of
producing properties in the United States and the Netherlands. The decline
was partially offset by production from the startup of the company's new
joint venture in Kazakhstan.
In the United States, natural gas producers have traditionally sold their
production to pipeline companies, who in turn distribute the product to
their customers. As a result of FERC Order 636, producers now can sell
directly to customers and provide many of the services previously provided
by the pipeline companies. Chevron has concentrated its natural gas
marketing efforts on the longer term contract market. These customers,
which include local distribution companies and industrials, require premium
bearing services and marketing arrangements that Chevron can fulfill. The
company's sales to these customers have risen significantly, while sales to
pipeline companies have correspondingly declined.
- 9 -
Data on the company's average sales price per unit of oil and gas
produced, as well as the average production cost per unit for 1993, 1992
and 1991 are reported in Table III on pages FS-32 to FS-33 of this Annual
Report on Form 10-K. The following table summarizes the company's and its
affiliates' gross and net productive wells at year-end 1993.
- -----------------------------------------------------------------------------
PRODUCTIVE OIL AND GAS WELLS AT DECEMBER 31, 1993
PRODUCTIVE (1) PRODUCTIVE (1)
OIL WELLS GAS WELLS
------------------ -------------------
GROSS (2) NET(2) GROSS (2) NET (2)
--------- ------ --------- -------
United States 27,155 12,460 3,164 1,569
--------- ------ --------- -------
Canada 2,042 1,017 330 146
Africa 830 320 4 2
United Kingdom (North Sea) 180 24 - -
Other International 968 350 54 15
--------- ------ --------- -------
Total International 4,020 1,711 388 163
--------- ------ --------- -------
Total Consolidated Companies 31,175 14,171 3,552 1,732
Equity in Affiliates 4,311 2,156 28 14
Total Including Affiliates 35,486 16,327 3,580 1,746
========= ====== ========= =======
Multiple completion wells
included above: 388 183 20 14
(1) Includes wells producing or capable of producing. Wells that produce
both oil and gas are classified as oil wells.
(2) Gross wells include the total number of wells in which the company has
an interest. Net wells are the sum of the company's fractional interests
in gross wells.
- -----------------------------------------------------------------------------
DEVELOPMENT ACTIVITIES:
The company's development expenditures, including affiliated companies but
excluding proved property acquisitions, were $1,451 million in 1993 and
$1,525 million in 1992.
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 developmental wells drilling at December 31, 1993.
(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" include wells temporarily suspended.)
- -----------------------------------------------------------------------------
DEVELOPMENT WELL ACTIVITY
NET WELLS COMPLETED (1)
WELLS DRILLING --------------------------------------
AT 12/31/93 1993 1992 1991
------------------- ----------- ---------- -----------
GROSS (2) NET (2) PROD. DRY PROD. DRY PROD. DRY
--------- ------- ---- ---- ---- ---- ---- ----
United States 97 80 293 11 217 5 445 6
--------- ------- ---- ---- ---- ---- ---- ----
Canada 14 12 41 12 45 4 66 5
Africa 6 2 10 - 10 1 13 1
Other
International 51 16 16 - 10 - 17 1
--------- ------- ---- ---- ---- ---- ---- ----
Total
International 71 30 67 12 65 5 96 7
--------- ------- ---- ---- ---- ---- ---- ----
Total
Consolidated
Companies 168 110 360 23 282 10 541 13
Equity in
Affiliates 45 22 93 - 159 5 171 10
--------- ------- ---- ---- ---- ---- ---- ----
Total Including
Affiliates 213 132 453 23 441 15 712 23
========= ======= ==== ==== ==== ==== ==== ====
(1) Indicates the number of wells completed during the year regardless of
when drilling was initiated. Completion refers to the installation of
permanent equipment for the production of oil or gas or, in the case of
a dry well, the reporting of abandonment to the appropriate agency.
(2) Gross wells include the total number of wells in which the company has
an interest. Net wells are the sum of the company's fractional interests
in gross wells.
- -----------------------------------------------------------------------------
- 10 -
Significant 1993 development activities include the following:
UNITED STATES: Chevron's U.S. development expenditures were $475 million
in 1993, a decrease of $8 million from the 1992 figure of $483 million.
Additions to proved reserves during 1993 from extensions, discoveries and
improved recovery, before revisions, were 98 million barrels of crude oil
and natural gas liquids and 356 billion cubic feet of natural gas.
The development of the San Joaquin Valley diatomite reserves in California
continued in 1993. Forty one new wells were drilled and 45 older wells were
reworked using reservoir fracturing techniques. A four year water injection
project, initiated in 1992, to sustain reservoir pressure and further boost
production continued into its second year with the drilling of 42 injection
wells and the conversion of 18 producing wells to injection. The
combination of reservoir fracturing and water injection is expected to
increase both the production rate and the amount of oil ultimately
recoverable from this resource.
Production in the Point Arguello project, offshore California, averaged
74,000 barrels of oil per day in 1993. Chevron owns approximately 25
percent of the project and operates two offshore platforms (Hermosa and
Hidalgo), the onshore Gaviota oil and gas plant and the interconnecting
pipelines. A workover and drilling program, designed to add proved reserves
and abate the decline in production rate, commenced in August 1993 on the
two offshore platforms. Five workovers and two new wells, improving
Chevron's lease production by 4,300 barrels of oil per day, were completed
in 1993. Three additional wells are planned to be drilled in 1994. Chevron
and its partners began double-hulled tankering to Los Angeles of some
250,000 barrels of oil three to four times per month from the field's
processing plant at Gaviota in August 1993 under an agreement with the
California Coastal Commission. Previously, production was limited to
approximately 60,000 barrels per day or 70 percent of full capacity of
85,000 barrels per day due to limited onshore pipeline capacity. Fourth
quarter production averaged 80,700 barrels per day. The terms of the permit
granted by the California Coastal Commission allowed tankering to continue
until January 1, 1996 but required suspension of tankering from February 1,
1994 until such time that Chevron and its partners sign an agreement with a
pipeline developer that the developer could use to finance construction of
a new line. In late January 1994, Chevron approached the California Coastal
Commission to permit short-term tankering beyond February 1 due to damage
to a key crude oil pipeline system to Los Angeles caused by the Northridge
earthquake. The request was not acted upon by January 31 and short-term
tankering was subsequently suspended on February 1. Although production was
initially maintained by routing to alternate markets, the shortage of
adequate transportation facilities has subsequently resulted in reduced
production. In March 1994, the company announced that an agreement had been
reached on building a new 130 mile pipeline in Southern California that
would carry Point Arguello oil production to Los Angeles. The company
anticipates construction on the Pacific Pipeline will commence in early 1995
and be operational in early 1996. Pending the construction of this new
pipeline, the company is seeking to resume limited tanker shipments through
1995.
Natural gas production from Garden Banks Block 191 in the Gulf of Mexico
started in late 1993. Daily production should reach 150 million cubic feet
per day during the first quarter of 1994. During 1994, six additional wells
will be drilled under simultaneous drilling and production operations.
Chevron is the operator and holds a 50 percent interest in this block.
In the Gulf of Mexico's Norphlet Trend, which stretches some 80 miles from
the Destin Dome area (offshore Florida) to the Mobile Block 861 area
(offshore Mississippi), two wells, Mobile Block 861 #8 (Chevron 50 percent
interest) and Mobile Block 917 #2 (Chevron 91.3 percent interest), were
completed and tested in 1993. Production from 861 #8, which tested at 57
million cubic feet per day (total), commenced in February 1994 while
production from 917 #2, which tested at 46 million cubic feet per day
(total), will commence in 1995. The company and its partners are currently
drilling or planning to drill additional exploratory wells in Mobile Blocks
863, 864, and 916 and Destin Dome 97 in 1994.
A new platform was installed in Chevron's wholly owned Main Pass 299 Field
in July 1993. Ten development wells are planned with three wells having
been completed and placed in production in December 1993. Production is
expected to peak at 3,000 barrels per day late in 1994.
- 11 -
Chevron continued to aggressively develop "tight gas" (gas which is
produced from a tight, low-permeability formation) in the Laredo, Texas
area. In 1993, twenty-five wells were drilled with twenty-three successes,
adding net proved reserves of 70 billion cubic feet of gas. Production
averaged 135 million cubic feet of gas per day in 1993. The S. Uribe No. 11
well was completed in 1993 with a sustained flow rate of 23 million cubic
feet of gas per day.
AFRICA: Developmental expenditures in Africa were $239 million in 1993,
compared to $189 million in 1992. Additions to proved reserves were 105
million barrels of crude oil and natural gas liquids. In Angola, where
Chevron's equity interest is 39 percent, ten development wells were added
in Area A fields in 1993. In order to sustain production, six existing
wells in Area A were reworked and three offshore processing platforms in
the Malongo and Takula Fields were revamped and modernized in 1993.
Production from the N'Sano Field, discovered in 1992, was tied back to
existing Takula facilities. A new production platform to fully develop
N'Sano reserves is under construction for installation later this year.
Areas B and C continued to be the major focus of development programs in
1993. The first phase of development in these areas involves the
installation of two integrated drilling and production platforms in the
Kokongo Field. The East Kokongo platform will also be the hub for future
phases of development for Areas B and C. A thirty-eight mile pipeline
linking the platforms to onshore terminal facilities was completed in the
fourth quarter of 1993. Platform construction will be completed in Brazil
and delivered to Angola with oil production scheduled to begin in late
1994. The second phase of development is scheduled for the Sanha and N'Dola
fields and will consist of two production platforms and related pipelines
and facilities for which contracts were awarded in 1993. Commencement of
work has been delayed by partner financing issues. Preliminary development
plans for the third phase involving development of the Nemba and Lomba
fields have been submitted for governmental approval.
In Nigeria, Chevron is operator and has a 40 percent interest in
concessions totalling 2.3 million acres in onshore and offshore regions in
the Niger Delta. Producing facilities for three new fields, Opuekeba, Idama
and Inda, were completed and the fields came on stream during the second
half of 1993. Combined production from these new fields, along with
production from the Belma and Belma North unitized field development which
began in October 1993, is expected to add 60,000 barrels per day to the
total production capacity in 1994. Upgrade construction work on two
production platforms, Tapa and Delta South, were completed in 1993. This is
the beginning of a multi-year program which will include all existing
platforms in order to extend the useful life of these facilities and also
enhance safety and environmental performance. Work on the Escravos Gas
Project, Phase I, continued in 1993. This first phase will utilize gas that
is currently being flared in the Okan and Mefa fields. The project will
include offshore gas compression facilities, an onshore Liquified Petroleum
Gas (LPG) extraction plant, and a floating LPG storage unit anchored
offshore. The project will sell gas under a long term contract to the
Nigerian Gas Company in addition to producing approximately fifteen
thousand barrels per day of hydrocarbon liquids for export. The project is
scheduled for start-up in 1997. At year-end, discussions were underway on
the assignment of Chevron as the developer of a West African Gas Pipeline
which would deliver gas to Ghana via Benin and Togo. The company has an
additional subsidiary in Nigeria that holds a 20 percent interest in five
offshore oil fields operated by another partner.
In Zaire, where the company has a 50 percent interest in a 390 square mile
concession off the coast, development and exploration activities resumed in
1993 as political unrest subsided. Two developmental wells and four well
workovers in the Mibale, Motoba and Libwa fields were completed in 1993.
In the Congo, where Chevron has a 29.3 percent interest, the 1991 Kitina
discovery in the offshore Marine VII Block was successfully delineated with
a second appraisal well. Engineering studies are currently underway to
determine the optimal development and reservoir management plan for this
field.
OTHER INTERNATIONAL INCLUDING AFFILIATED COMPANIES: Development
expenditures in 1993 were $737 million compared to $853 million in 1992.
Additions to proved reserves from extensions, discoveries and improved
- 12 -
recoveries were 66 million barrels of crude oil and natural gas liquids
and 46 billion cubic feet of natural gas. Additions to proved reserves from
acquisitions were approximately 1.1 billion barrels of crude oil and
natural gas liquids and 1.5 trillion cubic feet of natural gas.
In the United Kingdom, the company has interests in over 50 blocks on the
U.K. Continental Shelf which totals approximately 1.7 million gross acres.
Chevron held interests, varying from 4.9 to 33.3 percent, in five producing
fields in the North Sea during 1993. A sixth field, Alba, started
production in January 1994. At the Ninian Field in the U.K. North Sea,
Chevron increased its interest by 6.5 percent to 23.6 percent in December
1993. Chevron and its partners began processing third party oil and gas in
1992 using available processing capacity at the Ninian facilities. The
Ninian partners receive tariffs for processing and exporting the production
from three subsea produced satellite fields - Staffa, Lyell and Strathspey.
Staffa production was brought on stream in 1992, followed by production
from Lyell (Chevron owns a 33.3 percent interest) in March 1993 and
Strathspey in December 1993. Lyell production peaked at 31,000 barrels per
day and has stabilized at a daily average of 19,000 barrels per day.
Strathspey production is currently averaging 17,000 barrels per day, with
an expected peak of 41,000 barrels per day. In 1993, Chevron and its
partners announced a commercial framework for bringing on future satellite
fields through Ninian. Direct drilling from Ninian Northern platform into
the first of four potential satellite prospects began in December. At the
Alba Field in the North Sea, development of the first phase of that project
was successfully completed with the installation and hook-up of the Alba
Northern platform and the Alba floating storage unit (FSU) in November.
Initial production, expected to peak at 70,000 barrels per day later this
year, began in January 1994 after the FSU was fully commissioned. Work also
began in 1993 on plans for the second phase of Alba which will develop the
southern area of the reservoir. The Alba Field, in which Chevron has a 33
percent interest, is estimated to contain up to 400 million barrels of
recoverable reserves. At the Britannia Field in the North Sea, a 3-D
seismic survey was completed in 1992 and analyzed in 1993 as a guide for
field mapping and development drilling. Delineation drilling results and
technical studies indicate that approximately two and one-half trillion
cubic feet of gas, 175 million barrels of condensate and up to 30 million
barrels of crude oil will be recoverable, with Chevron's share equating to
approximately 30 percent. Preliminary facility engineering studies are
nearing completion and a firm decision on development options and
commercial arrangements is expected in 1994.
In Canada, the company continues to concentrate its development efforts in
six core producing areas in Alberta and one in Manitoba where operating
efficiencies and lower operating costs can be realized using existing
infrastructure.
Chevron increased its ownership in the Hibernia Field, located
approximately 200 miles offshore Newfoundland, by 5 percent to about 27
percent in January 1993 after one of the four original project partners
withdrew. In 1993, construction on the project continued with the awarding
of the supermodule fabrication contracts, the pouring of the base slab for
the Gravity Base Structure, and the completion of supermodule and hook-up
engineering. Hibernia investment is projected to be about $200 million in
1994, an increase of $54 million over 1993 levels. Initial production is
scheduled for 1997. The company's capitalized investment in this project
was $375 million at year-end 1993.
In Indonesia, Chevron's interests in 14 contract areas are managed by its
50 percent owned P.T. Caltex Pacific Indonesia and Amoseas Indonesia
affiliates. The Duri Steamflood project, begun in 1985 to assist the
difficult production process for the relatively heavy, waxy Duri crude, is
being completed in 12 stages (Areas 1-12). Development of Area 7 is
currently underway. More than three billion additional barrels of oil are
expected to be recovered from the Duri Field as a result of steamflooding.
Total production at Duri averaged 247,000 barrels per day in 1993 and is
expected to peak at just over 300,000 barrels per day by the late 1990s. A
waterflood project involving 21 fields in Central Sumatra, including the
Minas field, continued in 1993. Water injection at Minas was initiated in
December 1993 as part of the conversion of the peripheral waterflood to a
pattern waterflood which is designed to improve oil recovery. Chevron sold
its 17.5 percent share in the South Natuna Sea Block B effective January 1,
1994. Chevron's net share of production from this block averaged
approximately 11,300 barrels of oil and natural gas liquids per day in
1993.
- 13 -
In Kazakhstan, the company formed a 50/50 joint venture with
Tengizmunaigaz, a subsidiary of Kazakhstanmunaigaz - the national oil
company of the Republic of Kazakhstan, to develop the Tengiz and Korolev
oil fields on the northeast coast of the Caspian Sea. This joint venture
affiliate, Tengizchevroil (TCO), began operations in April 1993, adding net
proved reserves to Chevron of 1.1 billion barrels of crude oil and natural
gas liquids and 1.5 trillion cubic feet of natural gas. Current production
has averaged about 30,000 barrels per day, which is approximately 46
percent of the rated crude oil production capacity of 65,000 barrels per
day. Production is restricted by limited treatment and transportation
facilities currently available to TCO to bring the oil to world markets.
Tengiz crude oil production is currently exchanged for Russian crude which
is then exported from Russia to world markets. Natural gas, natural gas
liquids and sulfur are being sold into local markets. Over the next three
to five years, plans call for TCO to spend about $1.5 billion on expanding
production capacity and infrastructure. Current capacity is expected to
double to 130,000 barrels per day by 1995 and could reach 260,000 barrels
per day by the late 1990s. The pace of field development from 130,000 to
260,000 barrels per day is predicated on the construction of an export
pipeline system capable of handling the full production from the fields.
Negotiations to agree on terms for a pipeline project, which would be
separate from the TCO joint venture's Tengiz development project, have
proved to be very difficult, and it is currently impossible to predict
the eventual outcome or its impact on the joint venture.
In Australia, the Goodwyn Field, being developed as part of the North West
Shelf Project in which Chevron holds a one-sixth interest, is scheduled to
start production in 1994. Completion of the offshore platform, originally
scheduled for 1993, was delayed due to repair work on the piles. Upon
completion of the repair work, in first quarter 1994, the topside modules
will be installed and commissioned. Production will flow by a 30 inch
diameter pipeline to the nearby North Rankin platform and then by trunkline
to shore. The participants in the North West Shelf Project approved, in
1993, the development of the Wanaea Field, the Cossack Field, and an LPG
extraction and export project. Combined initial production from the two
oilfields is forecast at 115,000 barrels per day starting in late 1995. The
liquids-rich gas from Wanaea will be combined with gas from the North
Rankin and Goodwyn fields and processed at the onshore gas plant at
Karratha, which is being modified to allow the export sale of LPG. Two new
LPG storage tanks and a second product loading jetty are currently under
construction to handle the extra production. Following start-up in early
1996, LPG exports are expected to average 25,000 barrels per day. Drilling
and construction for the Roller/Skate oilfield development progressed
according to schedule in 1993. Production is scheduled to commence in 1994
at a peak rate of 32,000 barrels per day. Associated gas from the
Roller/Skate and Saladin fields will be piped to shore and either sold in
the Perth market or stored in the Dongara field for future sales. The
Roller/Skate development, in which Chevron holds about a 26 percent
interest, is a project of the West Australian Petroleum Pty., Ltd.
In Papua New Guinea, Chevron (19 percent interest) and its partners are
reviewing the feasibility of developing the SE Gobe Field with possible
production commencing in 1994.
In China, projects to develop the HZ/32-2 and HZ/32-3 Fields in the South
China Sea were initiated in 1993 with the awarding of the major contract.
The plan includes two platforms, 12 additional wells and a tie-in to the
existing production facility at the HZ/21-1 Field. Initial production,
expected to peak at 45,000 barrels per day, is scheduled for 1995. Chevron
holds a 16 percent interest in the venture.
Other development projects included the completion of the expanded
development of the Chichimene Field in the Llanos Basin area of Colombia.
The project included development drilling, production facilities and a 35
kilometer pipeline. Expected peak production of 10,000 barrels of oil per
day is expected in 1994. Chevron holds a 50 percent interest in the field.
- 14 -
PETROLEUM - NATURAL GAS LIQUIDS
Chevron's wholly owned Warren Petroleum Company is engaged in all phases
of the domestic natural gas liquids (NGL's) business and is the largest
U.S. wholesale marketer of natural gas liquids, selling to customers in 46
states. Warren also conducts Chevron's international liquefied petroleum
gas (LPG) trading and sales activities. Sales in 1993 totaled 287 thousand
barrels per day (includes sales of 79,000 barrels per day to Chevron
subsidiaries). Warren's business encompasses:
EXTRACTION - Warren operates 18 gas processing plants in Oklahoma, Texas,
Louisiana and New Mexico and holds equity interests in another 25 plants.
Natural gas from Chevron's and other producers' wells is piped to these
plants, where the various liquids are extracted. Gas liquids production
from these plants was 64,000 barrels per day in 1993.
FRACTIONATION - Raw natural gas liquids are collected from Warren's
processing plants, third-party purchases and Warren's gas liquids import
facility on the Houston Ship Channel and transported via pipelines to
Warren's fractionation plant at Mont Belvieu, Texas. The 220,000 barrel per
day capacity facility fractionates raw NGL's into ethane, propane, normal
butane, iso-butane and natural gasoline products. The Mont Belvieu complex
includes a 45 million barrel capacity underground gas liquids storage
facility.
DISTRIBUTION - Gas liquids are distributed to refineries, chemical
producers and independent distributors via terminals supplied by pipelines,
barges, tank cars and trucks. NGL imports and exports are handled at
Warren's marine terminal, the Warrengas Terminal, located on the Houston
Ship Channel and linked to the Mont Belvieu complex by dedicated pipelines.
In 1993, Warren continued its activities in international LPG business
development, marketing LPG for other Chevron companies in Canada, West
Africa, the U.K., and Australia. International sales more than doubled from
13,000 barrels per day in 1992 to 28,000 barrels per day in 1993.
Warren completed the construction of an underground natural gas salt dome
storage facility at Hattiesburg, Mississippi, on behalf of Chevron U.S.A.
Production Company. The five billion cubic feet storage terminal began
receiving gas deliveries in December 1993. A major expansion of the Mont
Belvieu fractionator was also completed in 1993. A new butane hydrotreating
and isomerization unit was added, increasing its fractionation capacity by
20,000 barrels per day.
The company's total third-party natural gas liquids sales volumes over the
last three years are reported in the following table.
---------------------------------------------------
NATURAL GAS LIQUIDS SALES VOLUMES
(Thousands of barrels per day)
1993 1992 1991
---- ---- ----
United States - Warren 208 191 172
United States - Other 3 3 3
---- ---- ----
Total United States 211 194 175
Canada 30 26 21
Other International 7 7 8
---- ---- ----
Total Consolidated Companies 248 227 204
==== ==== ====
---------------------------------------------------
- 15 -
PETROLEUM - RESERVES AND CONTRACT OBLIGATIONS
Table IV on pages FS-33 to FS-34 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, 1993, 1992, and 1991. During 1993, the company filed
estimates of oil and gas reserves with the Department of Energy, Energy
Information Agency. These estimates were consistent with the reserve data
reported on page FS-34 of this Annual Report on Form 10-K.
The quantities of crude oil that the company is obligated to deliver in
the future under existing contracts in the United States and
internationally, which specify delivery of fixed and determinable
quantities, are not significant in relation to the quantities available
from production of the company's proved developed reserves in those areas.
The company sells 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.
In the United States, the quantities of natural gas the company is
obligated to deliver in the future under existing contracts is not
significant in relation to the quantities available from the production of
the company's proved developed U.S. reserves in these areas. Outside the
United States, the company has contracts, principally with the State Energy
Commission of Western Australia, which have remaining obligations to
deliver 269 billion cubic feet of natural gas through 2005. The company
believes it can satisfy these contracts from quantities available from
production of the company's proved developed Australian natural gas
reserves.
PETROLEUM - REFINING
The daily refinery inputs over the last three years for the company's and
its affiliate's refineries are shown in the following table.
- -----------------------------------------------------------------------------
PETROLEUM REFINERIES: LOCATIONS, CAPACITIES AND INPUTS
(Inputs and Capacities are in Thousands of Barrels Per Day)
DECEMBER 31, 1993
------------------ REFINERY INPUTS
OPERABLE --------------------
LOCATIONS NUMBER CAPACITY 1993 1992 1991
- ---------------------------- ------ -------- ---- ---- ----
Pascagoula, Mississippi 1 295 283 294 306
Port Arthur, Texas 1 185 177 189 195
Richmond, California 1 235 228 228 221
El Segundo, California 1 226 233 235 180
Philadelphia, Pennsylvania 1 172 184 164 162
Other* 6 282 202 201 214
-- ----- ----- ----- -----
Total United States 11 1,395 1,307 1,311 1,278
-- ----- ----- ----- -----
Burnaby, B.C., Canada 1 45 43 41 41
Milford Haven,
Wales United Kingdom 1 115 120 103 107
-- ----- ----- ----- -----
Total International 2 160 163 144 148
-- ----- ----- ----- -----
Total Consolidated Companies 13 1,555 1,470 1,455 1,426
Equity in Various
Affiliate Locations 14 492 435 399 369
-- ----- ----- ----- -----
Total Including Affiliate 27 2,047 1,905 1,854 1,795
== ===== ===== ===== =====
* Refineries in El Paso, Texas; Barber's Point, Hawaii; Salt Lake City,
Utah; Perth Amboy, New Jersey; Willbridge, Oregon; and Richmond Beach,
Washington. Inputs for the company's Nikiski, Alaska, refinery, closed in
1991, are included in the above data for 1991.
- -----------------------------------------------------------------------------
- 16 -
Based on refinery statistics published in the December 20, 1993 issue of
The Oil and Gas Journal, Chevron had the largest U.S. refining capacity and
had the fifth largest worldwide refining capacity including its share of
affiliate's refining capacity. The company wholly owns and operates 11
refineries in the United States and one each in Canada and the United
Kingdom. The company's Caltex Petroleum Corporation affiliate owns or has
interests in 14 operating refineries in Japan (4), Korea, the Philippines,
Australia, New Zealand, Bahrain, Singapore, Pakistan, Thailand, Kenya and
South Africa.
The company also owns closed refineries in Nikiski, Alaska; Cincinnati,
Ohio; and Baltimore, Maryland. Excluded from the affiliate's refineries are
3 closed refineries in Japan.
Production records were set at all locations in 1993 as refineries focused
on maximizing unit utilization. In 1993, distillation operating capacity
utilization averaged 94 percent in the United States and 95 percent
worldwide (including affiliate), compared with 90 percent in the United
States and 92 percent worldwide in 1992. Chevron's capacity utilization of
its domestic cracking and coking facilities, which are the primary
facilities used to convert heavier products to gasoline and other light
products, averaged 88 percent in 1993, unchanged from 1992.
During 1993, the company completed the first facility to use Chevron's
patented Aromax (R) technology at the Pascagoula, Mississippi refinery. This
process produces high value benzene from lower valued refining feed stock
and will facilitate the company's ability to comply with the requirement to
reduce the benzene content in motor gasoline mandated by the Clean Air Act
Amendments of 1990. At the El Paso, Texas refinery, the company entered
into an operating agreement with a neighboring refinery which allowed
Chevron, as operator, to combine the most efficient units from each
refinery in order to lower costs and increase yields. The company also
completed a $40 million facility at the Salt Lake City, Utah refinery which
will allow the company to economically manufacture ultra low sulfur diesel
fuel, one of the few such facilities in that area.
In August 1993, the company installed its proprietary Isodewaxing (R)
technology at the Richmond lube oil refining plant. This process, which
uses a new catalyst developed by the company, boosted lube oil production
by 1,500 barrels per day.
The U.S. downstream industry is going through massive recapitalization in
order to meet stringent new environmental regulations. This led to the 1993
announcement of a major restructuring of the company's downstream
operations. An integral part of this plan is to divest refineries in
Philadelphia, Pennsylvania and Port Arthur, Texas since these refineries no
longer fit in Chevron's long term plans to have a more strategically
focused U.S. refining operation and will reduce the capital expenditures
that would have been required under the 1990 amendments to the Clean Air
Act. In 1993, the company established an $837 million pre-tax provision for
the divestment of these two refineries. This charge was composed primarily
of a write-down of the refineries' facilities and related inventories to
their estimated realizable values. Also included in the charges were
provisions for environmental site assessments and employee severance. The
company has taken into account probable environmental cleanup obligations
in estimating the realizable value of the refineries. Responsibility for
these obligations will be negotiated with potential buyers. While
negotiations for the refinery sales are ongoing, it is expected that the
reserve will be sufficient to complete the restructuring. In late February
1994, the company signed a letter of intent with Sun Company, Inc. for the
sale of the Philadelphia refinery. In late March 1994, the company
announced it has entered into exclusive negotiations with Clark Refining &
Marketing, Inc. regarding the sale of its Port Arthur, Texas, refinery.
The company will invest nearly $1 billion in its Richmond and El Segundo,
California refineries over the next three years to produce reformulated
gasoline. In addition, a $300 million investment to upgrade key processing
units to improve yields of high value light products is underway at the
Richmond refinery.
At the company's Milford Haven, Wales refinery, a new isomerization unit
was brought on stream in 1993. This $54 million unit will enable the
refinery to produce a higher octane blend stock in response to increased
demand for lead-free gasoline and anticipated benzene reduction in European
gasoline.
- 17 -
In March 1994, the company announced that it will license technology and
provide engineering design for a major upgrade to the Kirishi Refinery,
operated by Kirishinefteexport, in Russia. The key refining process unit
covered by the agreement is a new hydrocracker, scheduled for startup in
mid-1999, which will use Chevron's Isocracking technology to maximize
production of middistillates such as diesel fuel and jet fuel. The company
will also provide technology to remove ammonia and hydrogen sulfide from
water used in the refining process, yielding clean water for reuse.
Caltex and its partners completed front-end engineering design of a
grassroots, 130,000 barrels per day refinery in Thailand. The engineering,
procurement and construction contract was awarded in October and the
project is on target for completion in 1996. Work continued on the
expansion/upgrade project at the Singapore export refinery. Completion of
the project, scheduled for mid-1995, will increase refining capacity by
60,000 barrels per day, increase yield of light products by 33,000 barrels
per day, and enable the refinery to produce oxygenated unleaded gasoline
and low sulfur diesel fuel. A Japanese affiliate of Caltex placed a new
residuum desulfurizer into service at the Negishi, Japan refinery. This
unit, along with the cracker unit installed last year, will allow the
refinery to increase yields of higher-value products and reduce dependence
on low sulfur crudes.
PETROLEUM - REFINED PRODUCTS MARKETING
PRODUCT SALES: The company and its affiliates, primarily Caltex Petroleum
Corporation, sell petroleum products throughout much of the world. The
principal trademarks for identifying these products are "Chevron", "Gulf"
(principally in the United Kingdom) and "Caltex". Domestic sales volumes of
refined products by the company during 1993 amounted to 1,423 thousand
barrels per day, equivalent to approximately nine percent of total U.S.
consumption. Worldwide sales volumes, including the company's share of
affiliates' sales, averaged 2,346 thousand barrels per day in 1993, an
increase of about one percent over 1992.
The following table shows the company's and its affiliates' refined
product sales volumes, excluding intercompany sales, over the past three
years.
--------------------------------------------------------
REFINED PRODUCTS SALES VOLUMES
(Thousands of Barrels Per Day)
1993 1992 1991
----- ----- -----
UNITED STATES
Gasolines 652 646 632
Gas Oils and Kerosene 325 347 312
Jet Fuel 247 252 249
Residual Fuel Oil 94 110 145
Other Petroleum Products* 105 115 106
----- ----- -----
Total United States 1,423 1,470 1,444
----- ----- -----
INTERNATIONAL
United Kingdom 111 108 110
Canada 50 39 38
Other International 168 147 142
----- ----- -----
Total International 329 294 290
----- ----- -----
Total Consolidated
Companies 1,752 1,764 1,734
Equity in Affiliate 594 565 533
----- ----- -----
Total Including
Affiliate 2,346 2,329 2,267
===== ===== =====
* Principally naphtha, lubes, asphalt and coke.
--------------------------------------------------------
- 18 -
The company's Canadian sales volumes consist of refined product sales in
British Columbia and Alberta by the company's Chevron Canada Ltd.
subsidiary. In the United Kingdom, the sales volumes reported comprise a
full range of product sales by the company's Gulf Oil (Great Britain) Ltd.
subsidiary. The 1993 volumes reported for "Other International" relate
primarily to international sales of aviation, marine fuels, and refined
products in Latin America, the Far East and elsewhere. The equity in
affiliates' sales in 1993 consist primarily of the company's interest in
Caltex Petroleum Corporation, which operates in 63 countries including
Australia, the Philippines, New Zealand, South Africa and, through Caltex
affiliates, in Japan and Korea.
The company introduced several new products in 1993. In September, the
company began delivering JP-8, a kerosene-based jet fuel, to the U.S.
military. Over the next two years, JP-8, a safer and more versatile fuel,
capable of powering tanks, trucks and other military vehicles, will phase
out naphtha-based JP-4. In October, low aromatics diesel fuel in California
and ultra low sulfur diesel fuel in the rest of the country were introduced
to comply with various federal and state air quality regulations.
Reformulated heavy duty motor oils that meet the needs of low sulfur diesel
fuel users were also introduced nationwide in October.
RETAIL OUTLETS: In the United States, the company supplies, directly or
through jobbers, over 9,000 motor vehicle, aircraft and marine retail
outlets, including more than 2,400 company-owned or -leased motor vehicle
service stations. The company's gasoline market area is concentrated in the
Southeastern, South Central and Western states. Chevron is among the top
three marketers in 16 states. During 1993, the company completed the
acquisition and brand conversion of 55 service stations in south Florida
that were acquired from Exxon in exchange for comparable properties in the
Baltimore-Washington D.C.-Eastern Virginia areas. Chevron branded retail
fuel sales in Arkansas, Western Kentucky and Western Tennessee were
discontinued in 1993.
In 1993, Chevron introduced a "Direct Mail Marketing" and a "Premium Card"
program to credit card customers. The company also expanded its "Fast Pay"
system by approximately 400 stations in 1993, to a total of over 1,300
stations nationwide. This automated system allows credit card customers to
pay at the pump with credit approvals processed in about five seconds using
satellite data transmission. During 1993, the company outsourced
purchasing, warehousing and distribution responsibilities for its Tire,
Batteries and Accessories business (TBA).
Internationally, the company's branded products are sold in 214 owned or
leased stations in British Columbia, Canada and in 467 (230 owned or
leased) stations in the United Kingdom. In 1993, the company completed the
sale of its retail marketing operations in Guatemala, El Salvador and
Nicaragua.
PETROLEUM - TRANSPORTATION
TANKERS: Chevron's controlled seagoing fleet at December 31, 1993 is
summarized in the following table. All controlled tankers were utilized in
1993.
- -----------------------------------------------------------------------------
CONTROLLED TANKERS AT DECEMBER 31, 1993
U.S. FLAG FOREIGN FLAG
----------------------------- ------------------------------
CARGO CAPACITY CARGO CAPACITY
NUMBER (millions of barrels) NUMBER (millions of barrels)
------ --------------------- ------ ---------------------
Owned - - 26 27
Bareboat
Charter 7 2 6 11
Time Charter - - 9 5
---- ---- ---- ----
Total 7 2 41 43
==== ==== ==== ====
- -----------------------------------------------------------------------------
- 19 -
Federal law requires that cargo transported between domestic 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 1993, the
company's U.S. flag fleet was engaged primarily in transporting crude oil
from Alaska and California terminals to refineries on the West Coast and
Hawaii, refined products between the Gulf Coast and East Coast, and refined
products from California refineries to terminals on the West Coast, Alaska
and Hawaii.
At year-end 1993, two of the company's controlled international flag
vessels were being used for floating storage. The remaining international
flag vessels were engaged primarily in transporting crude oil from the
Middle East, Indonesia, Mexico, West Africa and the North Sea to ports in
the United States, Europe, the United Kingdom, and Asia. Refined products
also were transported worldwide.
In addition to the tanker fleet summarized in the table on page 19, the
company owns a one-sixth undivided interest in each of five liquefied
natural gas (LNG) ships that are bareboat chartered to the Australian
North West Shelf Project. These ships, along with two time chartered LNG
vessels, transport LNG from Australia to eight Japanese gas and electric
utilities. One additional LNG ship has been ordered with delivery expected
in late 1994.
In 1993, the company took delivery of one 1.1 million and two 1.0 million
barrel capacity, double hull tankers and sold two 1.2 million and two 3.2
million barrel capacity tankers. The company also took delivery of a 1.0
million barrel capacity tanker, the Chevron Employee Pride, in February
1994 and expects to take delivery of an additional 1.0 million barrel
capacity tanker in October 1994. During 1993, the company reduced its time
chartered fleet by a net one tanker and 1.0 million barrels of capacity.
Page 24 of this Annual Report on Form 10-K contains a discussion of the
effects of the Federal Oil Pollution Act on the company's shipping
operations.
PIPELINES: Chevron owns and operates an extensive system of domestic crude
oil, refined products and natural gas pipelines. The company also has
direct or indirect interests in other domestic and international pipelines.
The company's ownership interests in pipelines are summarized in the
following table:
-----------------------------------------------------------
PIPELINE MILEAGE AT DECEMBER 31, 1993
WHOLLY PARTIALLY
OWNED OWNED (1) TOTAL
----- ----- ------
UNITED STATES:
Crude oil (2) 5,696 624 6,320
Natural gas 569 44 613
Petroleum products 3,709 1,610 5,319
----- ----- ------
Total United States 9,974 2,278 12,252
----- ----- ------
INTERNATIONAL:
Crude oil (2) - 747 747
Natural gas - 197 197
Petroleum products 12 130 142
----- ----- ------
Total International 12 1,074 1,086
----- ----- ------
Worldwide 9,986 3,352 13,338
===== ===== ======
(1) Reflects equity interest in lines.
(2) Includes gathering lines related to the transportation
function. Excludes gathering lines related to the
production function.
-----------------------------------------------------------
- 20 -
CHEMICALS
The company's Chevron Chemical Company subsidiary manufactures and markets
chemical products for industrial use. The chemical industry, historically,
has been cyclical and is highly competitive. Since its last peak in the
late 1980s, industry conditions have deteriorated as ample supplies, caused
by production overcapacity, have exerted downward pressure on prices. In
the past four years, weak demand due to U.S. and worldwide recessions has
further weakened prices.
At year-end 1993, Chevron Chemical Company owned and operated 24 U.S.
manufacturing facilities in 12 states, owned manufacturing facilities in
Brazil and France, and owned a majority interest in a manufacturing
facility in Japan. The principal domestic plants are located at Cedar
Bayou, Orange and Port Arthur, Texas; St. James and Belle Chasse,
Louisiana; Philadelphia, Pennsylvania; Marietta, Ohio; Pascagoula,
Mississippi; St. Helens, Oregon; and Richmond, California. The following
table shows, by chemical division, 1993 revenues and the number of owned or
majority owned chemical manufacturing facilities and combined operating
capacities as of December 31, 1993.
- -----------------------------------------------------------------------------
CHEMICAL OPERATIONS
MANUFACTURING
FACILITIES 1993
------------------- ANNUAL REVENUE (1)
DIVISION U.S. INTERNATIONAL CAPACITY ($ MILLIONS)
- --------------------- ---- ------------- ------------------- ------------
Olefins and
Derivatives 12 - 6,990 million lbs. $1,003
Aromatics and
Derivatives 7 - 6,570 million lbs. 718
Oronite Additives 2 3 160 million gal. 746
Fertilizers 2 - (2) 86
Consumer Products 1 - (2) 133
Other
(including excise
taxes) - - (2) 37
-- - ------
Totals 24 3 $2,723
== = ======
(1) Excludes intercompany sales.
(2) No meaningful common measurement.
- -----------------------------------------------------------------------------
The company divested its last major asset in the agricultural-related
chemical business with the sale of its ORTHO consumer products division, a
leading supplier of lawn and garden products in the United States, to
Monsanto Company in 1993. The sale was the result of studies that concluded
that the company's agricultural-related businesses were non-competitive or
were non-core. The company decided to divest those businesses and focus its
attention on areas of strength - petrochemicals, plastics and additives.
Construction was completed during 1993 on the first U.S. benzene
manufacturing plant using the company's proprietary Aromax (R) technology at
the Pascagoula, Mississippi refinery. This technology will enable Chevron
to produce high-value benzene from certain low-value by-products of the oil
refining process. Benzene is a prime building block for a wide range of
consumer products such as sporting goods, nylon, laundry detergent,
children's toys and automobile tires.
In March 1993, the company announced that a letter of intent had been
signed with the Saudi Venture Capital Group, a consortium of Saudi Arabian
business leaders, to develop an aromatics facility in Jubail, Saudi Arabia,
if necessary Saudi government approval can be obtained. The planned
facility would be owned and operated by a newly formed joint venture
company. This joint company, owned on an equal basis by Chevron and the
Saudi group, would market within Saudi Arabia, while Chevron would market
all products outside Saudi Arabia. The facility will utilize Chevron's
patented Aromax (R) reforming technology and have a capacity of 420,000 tons
of benzene per year and 270,000 tons of cyclohexanes per year. The project
is currently delayed while the Saudi government revises its petrochemical
investment policy. The company is also in the early stages of examining
opportunities to employ the Aromax (R) technology in Asia, where chemical
demand is growing rapidly.
- 21 -
In January 1994, the company announced a cost-reduction plan intended to
reduce annual operating expense by approximately $100 million by 1996.
Major elements of the plan include completing the divestiture of the
company's agricultural businesses, including the closing of the consumer
products plant in Maryland Heights, Missouri and the sale of the fertilizer
plant in St. Helens, Oregon; the sale of Chevron's asphalt business in
Brazil; closing of the company's oil-field chemical business; reorganizing
the Oronite Additives Division into global regions; and streamlining and
reducing costs at the company's three largest plants in Cedar Bayou and
Orange, Texas, and Belle Chasse, Louisiana.
An agreement was reached in March 1994 with Institut Francais du
Petrole to jointly develop a new high-purity paraxylene technology called
Eluxyl. If the demonstration unit using this new technology, to be
constructed and operated at Chevron's Pascagoula, Mississippi, refinery,
proves successful, the company plans to integrate the technology at
Pascagoula and expand its paraxylene activities worldwide.
COAL AND OTHER MINERALS
COAL: The company's wholly-owned coal mining and marketing subsidiary, The
Pittsburg and Midway Coal Mining Co. (P&M), owned and operated four surface
and three underground mines at year-end 1993. Three of the mines are
located in New Mexico and one each in Alabama, Wyoming, Kentucky and
Colorado. All of the mines produce steam coal used primarily for electric
power generation. P&M's strategy is to focus on regional markets in the
United States, capitalizing on major utility growth markets in the West and
Southeast. Approximately 88 percent of P&M's coal sales are made to
electric utilities. Sales of coal from P&M's wholly-owned mines and from
its 50 percent interest in Black Beauty Coal Company were 20.8 million tons
in 1993, an increase of 26 percent over 1992. About 57 percent of these
sales came from two mines, the McKinley Mine in New Mexico and the Kemmerer
Mine in Wyoming. The average selling price for coal from mines owned and
operated by P&M was $24.62 per ton in 1993, contributing $426 million to
Chevron's consolidated sales and other operating revenues. At year-end
1993, P&M controlled approximately 560 million tons of developed and
undeveloped coal reserves.
Demand growth for coal in the U.S. remains largely dependent on the demand
for electric power, which in turn depends on regional and national economic
conditions and on competition from other fuel sources. Although coal-fired
generation of electricity grew during 1993, competition among coal
producers kept downward pressure on regional coal prices during much of the
year. However, in the East, a prolonged strike by United Mine Workers of
America restricted coal production, tightening coal supplies and driving up
spot market prices in the latter half of the year. P&M sells about 88
percent of its coal production under multi-year supply agreements, so it is
not particularly exposed to short-term fluctuations in market prices.
P&M controls a significant inventory of low-sulfur coal reserves, and the
company expects demand for this type of coal to grow as utilities start to
implement programs to comply with the air quality emission standards of the
Clean Air Act Amendments of 1990. In addition, P&M anticipates that the
Energy Policy Act of 1992 will increase competition in the electric power
market and will provide new market opportunities for low-cost coal
producers.
OTHER MINERALS: P&M manages the company's investments in non-coal minerals.
The company expressed its long-term intention to exit the non-coal minerals
business, and most such assets have been sold in recent years. The principal
assets remaining are a 50 percent interest in the Stillwater Mining Company,
a Montana platinum-palladium mining operation, and a 52.5 percent interest in
some zinc-lead prospects in Ireland. The company's share of sales and other
revenues from non-coal operations was approximately $21 million in 1993. The
sale of the company's 52.5 percent holding in the Irish zinc-lead prospects
has been delayed due to legal challenges. The company expects these challenges
to be resolved and the sale completed during 1994.
REAL ESTATE
The company's real estate activities are carried out primarily through its
wholly owned subsidiaries, Chevron Land and Development Company and Huntington
Beach Company (collectively, Chevron Land).
- 22 -
Their activities have concentrated on converting Chevron's surplus fee
production properties in California into residential and commercial real
estate. After making major infrastructure improvements, the properties are
sold to third parties or jointly developed. At the end of 1993, Chevron
Land managed over 26,000 acres of real estate in California.
Chevron Land participates in residential developments through partnerships
with home builders. During 1993, the company sold approximately 160 homes
in California. Although this represents a 78 percent increase from the 90
homes sold in 1992, the California housing market continues to be weak as
California lags the rest of the nation in realizing significant renewed
economic growth. The company anticipates that the California real estate
market will not begin to recover until late 1994 at the earliest and is
currently positioning itself to take advantage of the recovery when it
occurs by developing properties at a pace that meets market demand while
preserving current real estate development entitlements. Ten residential
housing projects were actively being developed at year-end, eight through
joint venture partnerships.
Although Chevron's current development emphasis is on the residential
sector, the Company also participates in commercial real estate investment
and development activities. The Montebello Town Square in Southern
California, a 250,000 square foot community shopping center situated on 20
acres of a former oil field, was sold by the company in 1993. The company
also leases approximately 70,000 acres of irrigated farmland and 160,000
acres of rangeland to local growers and ranchers in California's San
Joaquin Valley. In 1993, Chevron Land restructured its organization by
reducing its workforce 20 percent and closing or consolidating 5 of its
offices. Currently, Chevron Land's activities are predominately handled by
the company's offices in Newport Beach and San Francisco, California.
RESEARCH AND ENVIRONMENTAL PROTECTION
RESEARCH: The company's principal research laboratories are at Richmond
and La Habra, California. The Richmond facility engages in research on new
and improved refinery processes, develops petroleum and chemical products,
and provides technical services for the company and its customers. The La
Habra facility conducts research and provides technical support in geology,
geophysics and other exploration science, as well as oil production methods
such as hydraulics, assisted recovery programs and drilling, including
offshore drilling. Employees in subsidiaries engaged primarily in research
activities at year-end 1993 numbered approximately 2,400.
In January 1994, the company signed an agreement with China National
Petroleum Corporation to provide enhanced oil recovery technology for
testing in Daqing, China's largest oil field. The technology, called
"microbial profile modification," consists of pumping bacterial spores and
nutrients into a reservoir to plug off highly permeable zones in order to
improve the sweep efficiency of a waterflood. The agreement calls for 15
months of testing in Chevron Petroleum Technology Company's labs in La
Habra, California, followed by a two year pilot program in Daqing.
Chevron's research and development expenses were $206, $229, and $250
million for the years 1993, 1992, and 1991, respectively.
The company owns, controls, or is licensed under numerous patents, but its
business is not dependent upon patents. Licenses under the company's
patents are generally made available to others in the petroleum and
chemical industries.
ENVIRONMENTAL PROTECTION: One of Chevron's ongoing corporate strategies is
to give high priority to environmental, public and governmental concerns.
Chevron's revised corporate policy on Health, Environment and Safety was
approved by the Stockholders in 1991. In 1992, a comprehensive series of
101 management practices was approved by senior management to strengthen
the implementation of the policy. The program is called "Protecting People
and the Environment" and is modeled after the Chemical Manufacturers
Associations' program called "Responsible Care." It is also similar to the
American Petroleum Institute's program called "Strategies for Today's
Environmental Partnership." The program also encompasses previous company
programs to control pollution such as the SMART (Save Money and Reduce
Toxics) program which focuses on routine, process related, hazardous waste.
- 23 -
The company's oil and gas exploration activities, along with many other
petroleum companies, have been hampered by drilling moratoria, imposed
because of environmental concerns, in areas where the company has leasehold
interests, particularly Alaska, offshore Florida and offshore California.
Difficulties and delays in obtaining necessary permits because of
environmental concerns, such as those experienced by Chevron and its
partners in the Point Arguello Field offshore California, can delay or
restrict oil and gas development projects. While events such as these can
impact current and future earnings, either directly or through lost
opportunities, the company does not believe they will have a material
effect on the company's consolidated financial position, its liquidity, or
its competitive position relative to other domestic or international
petroleum concerns. The situation has, however, been a factor, among
others, in the shift of the company's exploration efforts to areas outside
of the United States.
The company will spend an estimated $1.1 billion in capital expenditures
over the next 5 years on its refining facilities in order to comply with
federal and state clean air regulations and to provide consumers with fuels
that reduce air pollution and air toxicity. The Clean Air Act Amendments of
1990 (CAAA) requires the production of reformulated gasoline (RFG).
Beginning in January 1995, only RFG may be sold in the nine worst ozone
areas in the United States. In addition, the California Air Resources Board
(CARB) requires a more stringent reformulated gasoline to be sold statewide
beginning in March 1996. CAAA required a significant decrease in the sulfur
content of diesel fuel sold in U.S. markets beginning October 1993. CARB,
in addition to the federal requirements, also mandated a reduction in the
aromatics content of diesel fuel sold in California. Chevron introduced low
aromatics diesel fuel in California and ultra low sulfur diesel fuel in the
rest of the nation in October 1993.
The Federal Oil Pollution Act of 1990 (OPA) expanded federal authority to
direct responses to oil spills to improve preparedness and response
capabilities and to impose penalties on spillers for restoration costs and
loss of use of the resources during restoration. OPA also requires the
phase out of single hull tankers and the phase in of double hull tankers
for trading to U.S. ports. Many of the coastal states have enacted or are
preparing legislation in these same areas. In 1990, the company began a
fleet modernization program, which included seven double hull tankers for
delivery during the 1992-1994 period. Six of these tankers have been
delivered through the first week of March 1994. The company has been
actively involved in the Marine Preservation Association, a non-profit
organization that funds the Marine Spill Recovery Corporation (MSRC). MSRC
owns the largest stockpile of oil spill response equipment in the nation
and operates five strategically located U.S. coastal regional centers.
The company expects the enactment of additional federal and state
regulations addressing the issue of waste management and disposal and
effluent emission limitations for offshore oil and gas operations. While
the costs of operating in an environmentally responsible manner and complying
with existing and anticipated environmental legislation and regulations,
including loss contingencies for prior operations, are expected to be
significant, the company anticipates that these costs will not have a
material impact on its consolidated financial position, its liquidity, or its
competitive position in the industry.
During 1993, the company's U.S. capitalized environmental expenditures were
$620 million, representing approximately 31 percent of the company's total
consolidated U.S. capital and exploratory expenditures. The company's U.S.
capitalized environmental expenditures were $430 million and $284 million in
1992 and 1991, respectively. 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 service stations.
For 1994, the company estimates that capital expenditures for environmental
control facilities will be approximately $637 million. The actual
expenditures for 1994 will depend on various conditions affecting the
company's operations and may differ significantly from the company's forecast.
The company is committed to protecting the environment wherever it operates,
including strict compliance with all governmental regulations. The future
annual capital costs of fulfilling this commitment are uncertain, but for the
next several years are expected to continue at current levels.
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Under provisions of the Superfund law, Chevron has been designated as a
potentially responsible party (PRP) for remediation of a portion of 223
hazardous waste sites. Since remediation costs will vary from site to site
as well as the company's share of responsibility for each site, the number
of sites in which the company has been identified as a PRP should not be
used as a relevant measure of total liability. At year-end 1993, the
company's environmental remediation reserve related to Superfund sites
amounted to $56 million. The largest of these sites, located in California,
accounts for approximately 20 percent of the reserve.
The company's 1993 environmental expenditures, remediation provisions and
year-end environmental reserves are discussed on pages FS-3 through FS-4 of
this Annual Report on Form 10-K. These pages also contain additional
discussion of the company's liabilities and exposure under the Superfund
law and additional discussion of the effects of the Clean Air Act
Amendments of 1990.
ITEM 2. PROPERTIES
The location and character of the company's oil and gas and minerals and
real estate properties and its refining, marketing, transportation and
chemical facilities are described above under Item 1. Business and
Properties. Information in response to 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 VI on pages FS-30 to FS-35 of this Annual
Report on Form 10-K. Note 12 "Properties, Plant and Equipment" to the
company's financial statements contained on page FS-24 of this Annual
Report on Form 10-K presents information on the company's gross and net
properties, plant and equipment, and related additions and depreciation
expenses, by geographic area and industry segment, for 1993, 1992 and 1991.
ITEM 3. LEGAL PROCEEDINGS
A. Cities Service Tender Offer Cases.
The complaint by Cities Service Co. ("Cities Services") and two individual
plaintiffs was originally filed in August 1982 in Oklahoma state court in
Tulsa. Prior proceedings have effectively eliminated the two individual
plaintiffs as parties. The defendants were initially Gulf Oil Corporation
and GOC Acquisition Corporation. Subsequent filings have identified Chevron
U.S.A. Inc. as the successor in interest to Gulf Oil Corporation. In the
original complaint Cities Service pleaded for damages of not less than $2.7
billion together with legal interest for breach of contract and
misrepresentation. The great bulk of the damages were related to claims on
behalf of shareholders of Cities Service. All of the claims by Cities
Service shareholders have now been resolved and will ultimately be
dismissed.
Plaintiff Cities Service has now made new claims by way of a motion to
amend the petition, which motion was submitted for ruling on February 28,
1994, but has not yet been ruled on by the court. The amended pleading adds
Oxy U.S.A. as the successor to plaintiff Cities Service, adds Chevron
U.S.A. Inc. (as successor to Gulf Oil Corporation) and adds Chevron
Corporation as a new defendant. In addition to the existing claims for
breach of contract and fraud, the amendments add the following causes of
action: for willful and malicious breach of contract, negligent
misrepresentation, interference with prospective economic advantage in
connection with the 1989 proposed Oxy-Cities DOE settlement, and adds the
claimed DOE liability as additional contract damages and as additional
fraud damages. The proposed amendment also adds a claim for punitive
damages based upon the alleged fraud, negligent misrepresentation, willful
breach and interference claims. The new claim requests not less than $100
million on each of the several claims, together with pre-judgment interest
and punitive damages. It also requests $12 million plus prejudgment
interest for Cities' costs in defending against DOE proceedings since 1989,
and an order entitling Cities Services to recover such "restitutionary
obligation" amounts ultimately paid by Oxy U.S.A. to the DOE in excess of
its proposed 1989 DOE settlement, and punitive damages.
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B. In re Gulf Pension Litigation.
In two lawsuits, which were commenced on December 2, 1986 and April 24,
1987 and consolidated on July 17, 1987 in the U.S. District Court for the
Southern District of Texas as In re Gulf Pension Litigation, former
employees of Gulf Oil Corporation who were participants in the Gulf Pension
Plan contend that a partial termination of the Gulf Pension Plan has
occurred and they are entitled to immediate vesting and distribution of
plan benefits and to distribution of alleged excess plan assets, which it
is alleged have been unlawfully seized by Gulf or Chevron. The action is
brought under the Employee Retirement Income Security Act of 1974 and
common law, and is primarily an action for damages. Defendants have filed
an answer denying plaintiffs' allegations. On August 21, 1987, the Court
certified a class on these issues consisting of "all former members of the
Gulf Pension Plan and the spouses or the beneficiaries of such members." On
January 4, 1990, the Court certified a subclass of plaintiffs who also
contend that Chevron unlawfully denied them ben