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1995
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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, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number 1-368-2
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CHEVRON CORPORATION
(Exact name of registrant as specified in its charter)
575 Market Street,
Delaware 94-0890210 San Francisco, California 94105
- ---------------- --------------------- ------------------------- -----------
(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
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225 Bush Street, San Francisco, California 94104
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(Former name or former address, if changed since last report.)
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 $1.50 per share New York Stock Exchange, Inc.
Preferred stock purchase rights Chicago 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. [ ]
Aggregate market value of the voting stock held by nonaffiliates
of the Registrant
As of February 29, 1996 - $36,190 million
Number of Shares of Common Stock outstanding
as of February 29, 1996 - 652,640,311
DOCUMENTS INCORPORATED BY REFERENCE
(To The Extent Indicated Herein)
Notice of Annual Meeting and Proxy Statement Dated March 22, 1996 (in Part III)
TABLE OF CONTENTS
Page(s)
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Item Year 1995 March 22, 1996
- ---- 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 ........................... 5 -
(c) Description of Business and Properties ..... 6 -
Capital and Exploratory Expenditures ..... 6 -
Petroleum - Exploration .................. 7 -
Petroleum - Oil and Natural
Gas Production ........................... 11 -
Production Levels ...................... 11 -
Development Activities ................. 12 -
Petroleum - Natural Gas Liquids .......... 16 -
Petroleum - Reserves and
Contract Obligations ..................... 17 -
Petroleum - Refining ..................... 17 -
Petroleum - Refined Products Marketing ... 18 -
Petroleum - Transportation ............... 20 -
Chemicals ................................ 21 -
Coal and Other Minerals .................. 22 -
Research and Environmental Protection .... 23 -
2. Properties ....................................... 25 -
3. Legal Proceedings ................................ 25 -
4. Submission of Matters to
a Vote of Security Holders ....................... 27 -
Executive Officers of the Registrant ............. 27 -
PART II
5. Market for the Registrant's Common Equity
and Related Stockholder Matters .................. 29 -
6. Selected Financial Data .......................... 29 -
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations .... 29 -
8. Financial Statements ............................. 29 -
8. Supplementary Data - Quarterly Results ........... 29 -
- Oil and Gas
Producing Activities ........ 29 -
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ........... 29 -
PART III
10. Directors and Executive
Officers of the Registrant ....................... 29 2-4
11. Executive Compensation ........................... 29 10-13
12. Security Ownership of Certain
Beneficial Owners and Management ................. 29 5
13. Certain Relationships and Related Transactions ... 29 -
PART IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K .......................... 30 -
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
SUMMARY DESCRIPTION OF CHEVRON
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Chevron Corporation(1), a Delaware corporation, provides administrative,
financial and management support for, and manages its investments in, U.S. and
foreign subsidiaries and affiliates, which engage in fully integrated petroleum
operations, chemical operations and coal mining in the United States and
approximately 95 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. U.S. integrated petroleum
operations are conducted primarily through three divisions of the company's
wholly owned Chevron U.S.A. Inc. subsidiary. Exploration and production
("upstream") operations in the United States are carried out through Chevron
U.S.A. Production Company. U.S. refining and marketing ("downstream") activities
are performed by Chevron Products Company (formerly Chevron U.S.A. Products
Company). Warren Petroleum Company engages in all phases of the U.S. natural gas
liquids business. In January 1996, the company announced that it had entered
into exclusive negotiations to merge certain operations of Chevron U.S.A.
Production Company and Warren Petroleum Company with those of NGC Corporation.
Additional details of this proposed merger are disclosed on pages 4 and 16 of
this Annual Report on Form 10-K.
A list of the company's major subsidiaries is presented on page E-2 of this
Annual Report on Form 10-K. As of December 31, 1995, Chevron had 43,019
employees, 76 percent of whom were employed in U.S. operations.
OVERVIEW OF PETROLEUM INDUSTRY
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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 and natural gas 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
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Crude oil prices trended upwards throughout most of the first half of 1995 due
to concerns of possible U.S. sanctions against certain oil producing countries,
low crude oil inventories (caused by U.S. refiners' purchases of crude oil in
anticipation of the upcoming driving season) and strong demand in Asia. At
OPEC's June meeting,
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(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 -
members agreed to maintain their 24.5 million barrels per day production quota
for the remainder of 1995. However, the cartel also signaled its desire to
regain market-share from non-OPEC producers in 1996, which the market perceived
as a change in OPEC's focus from price support to volume gains. This perception
caused crude prices to weaken until late November when unusually cold weather in
the northern United States increased demand. The company's average crude oil
realizations in the United States for 1995 finished $1.48 per barrel higher than
in the previous year.
Continued concerns of high storage levels coupled with a mild winter in most
parts of the United States resulted in depressed U.S. natural gas prices for the
first half of 1995. Prices began to rebound in late August due to hot summer
weather in some key gas-consuming regions in the United States and fears of
platform damages during 1995's active hurricane season. Gas prices continued to
rise dramatically in November and December as cold weather in the northern
United States increased demand for heating fuel. For the month of December, the
Henry Hub, Louisiana spot price for natural gas, a common benchmark for natural
gas prices, averaged $2.45 per thousand cubic feet (MCF), its highest December
level for Gulf Coast gas in more than 10 years. However, this late surge was
unable to reverse the effects of low gas prices earlier in the year and the
Henry Hub spot price for natural gas averaged $1.69 per MCF in 1995, a decrease
of 17 cents from 1994.
The company's average realization from U.S. crude oil production increased to
$15.34 per barrel in 1995 from $13.86 in 1994 while average liquids realizations
from international liftings, including equity affiliates, increased $1.24 per
barrel to $16.10. Average U.S. natural gas realizations from production
decreased to $1.51 per MCF in 1995 from $1.77 in 1994.
The following table compares the high, low and average Chevron posted prices for
West Texas Intermediate (WTI), an industry benchmark light crude oil, for each
of the quarters during 1995 and for the full years of 1995, 1994, and 1993:
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WEST TEXAS INTERMEDIATE CRUDE OIL
CHEVRON POSTED PRICES
(Dollars per Barrel)
1995
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1st Q 2nd Q 3rd Q 4th Q Year 1994 1993
----- ----- ----- ----- ----- ----- -----
High 18.25 19.50 18.00 18.75 19.50 19.75 20.25
Low 16.50 16.50 16.00 16.00 16.00 13.00 13.00
Average 17.36 18.33 16.76 17.16 17.40 16.18 17.68
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For the first two months of 1996, average natural gas realizations for the
company's U.S. operations were $2.23 per MCF. During this period, the company's
posted price for WTI ranged from $16.50 per barrel to $19.25, with an average of
$17.73. On March 20, 1996 the company's posted price for WTI was $22.00 per
barrel.
Chevron's refining and marketing operations in the United States were hampered
by extensive refinery downtime and weak industry refinery margins in 1995.
Unscheduled downtime and major maintenance turnarounds at the company's three
largest refineries required the company to purchase higher cost refined products
from third parties to supply the company's marketing system. In addition, the
company's Richmond, California, refinery was down for an extended period of time
late in the year for upgrades required to produce cleaner-burning gasoline that
meets California's stringent emission requirements. By June 1, 1996 gasoline
sold at service stations in California must meet this new requirement. The
company's average sales price per barrel of refined product was $26.19 per
barrel in 1995, an increase of $1.82 per barrel over 1994. However, most of this
increase reflected higher crude oil feedstock cost and the added cost of
producing federally mandated reformulated gasoline as industry refining margins
remained weak throughout much of the year due to ample product availability.
- 2 -
The company's chemical operations reported record earnings for the year as
improving worldwide economies continued to spur demand for the company's
commodity chemicals through the first half of 1995. However, industry conditions
softened during the second half of 1995 as the industry began to strike a
balance between supply and demand. The company does not expect that 1996
chemicals results will be as strong as 1995's. Sales and other operating
revenues from the company's chemical operations, including sales to other
Chevron companies, totaled $3.953 billion, an increase of $591 million over the
$3.362 billion recorded in 1994.
CHEVRON STRATEGIC DIRECTION
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Since 1992, the company has developed and implemented certain strategies to
improve its financial performance and to support Chevron's mission to create
superior value for its stockholders, customers and employees. The company
periodically reviews and modifies these "strategic intents" to reflect Chevron's
current operating environment. The eight "strategic intents" for 1996 are:
- - BUILD A COMMITTED TEAM TO ACCOMPLISH THE CORPORATE MISSION. The success of
the other seven strategic intents is strongly linked to the level of
commitment and dedication that Chevron employees bring to their jobs. In
1995, the company issued a new document to each employee. This document, "The
Chevron Way," contains the company's Mission and Vision and other key
statements - Committed Team Values, Total Quality Management, Protecting
People and the Environment and Vision Metrics - that establish a vision and
standard of excellence for each employee. The company has also made efforts
to measure employees' attitudes about the company and diagnose areas of
employee concerns over the past four years by the use of the Worldwide
Employee Survey. As a result, many programs, including leadership training,
upward feedback and the process of filling open jobs, have been developed or
revamped to address those concerns. In addition, the company has put an
increased emphasis on people skills in supervisor positions.
The company is also fostering employee commitment by sharing its success. In
January 1995 the company announced a new program called "Chevron Success
Sharing," that provides eligible employees with a cash bonus if the company
achieves certain financial goals. The total payout opportunity under the
program is 8 percent of the employee's salary. No payout was made in 1995. As
an extra enticement to achieve 1994 through 1998 financial targets, the
company announced that each eligible employee on the payroll as of January
31, 1996 has been awarded 150 special performance stock options. The grant
price was set at $51-7/8 and the options are exercisable, after a six-month
holding period, on the business day after the stock price hits $75 or higher
for three consecutive days or Chevron ranks number one in total shareholder
return versus its five major U.S. competitors for the period 1994 through
1998. If neither criteria is met, the options expire and have no value.
- - FOCUS ON REDUCING COSTS ACROSS ALL ACTIVITIES. Operating expenses, adjusted
for special items, declined about $300 million in 1995 from 1994. Compared to
1991, the base measurement year established when Chevron undertook an
extensive cost-cutting and work force reduction program in early 1992,
operating expenses in 1995 have declined about $1.3 billion. Although a
portion of the cost reduction is related to divested operations, the company
believes the majority is the result of a permanent reduction in the company's
ongoing cost structure.
The company is currently implementing reorganizations that will reduce the
costs of two of its operating companies, Chevron Products Company and Chevron
Chemical Company, and two of its departments, Human Resources and Finance, by
consolidating support functions and regional offices and outsourcing certain
job functions. Chevron also sold its office building in Denver in January
1996 as part of the company's efforts to cut costs and reduce surplus office
space. A corporatewide "breakthrough" initiative aimed at reducing corporate
energy costs has saved approximately $440 million since 1992. An additional
$100 million has been saved since 1994 through a breakthrough initiative
focusing on reducing goods and services costs by working more efficiently
with fewer suppliers. Two other breakthrough initiatives have saved
additional millions by creating a uniform project management process that is
used to evaluate and administer large capital projects and improving
inventory management in order to avoid tying up working capital in excessive
inventories.
- - CONTINUE EXPLORATION AND PRODUCTION GROWTH IN INTERNATIONAL AREAS. The
company continues to believe that its most promising area of financial and
operational growth is in its international upstream activities. As a result,
- 3 -
the company has focused its exploration and production (E&P) efforts outside
the United States. Between 1990 and 1995, total capital and exploratory (C&E)
expenditures for E&P activities grew by 19 percent, however during this same
time period, international expenditures grew by 68 percent while U.S.
expenditures declined by 25 percent. In 1990, international expenditures were
less than half (48 percent) of the total C&E expenditures related to E&P
activities. By 1995 that number had climbed to 68 percent and is estimated at
65 percent in 1996. As a measure of its success in growing its international
upstream business, the company's year end 1995 international net proved
reserves of crude oil, natural gas liquids and natural gas have almost
doubled since 1990, while international production has increased
approximately 36 percent during this same time period.
- - GENERATE CASH FROM NORTH AMERICAN UPSTREAM OPERATIONS WHILE MAINTAINING VALUE
THROUGH SUSTAINED PRODUCTION LEVELS. For 1995, this strategic intent was to
"Generate greater than $800 million a year in cash from U.S. exploration and
production." Net cash flow, after capital and exploratory expenditures, for
U.S. E&P operations of $672 million in 1995 fell short of the goal as higher
crude oil prices were more than offset by lower production volumes, lower
natural gas prices and increased capital spending. The company has several
projects under way, including major development projects in the Gulf of
Mexico, Texas and California that are expected to stabilize the company's
U.S. oil and gas production. Recognizing that opportunities to discover and
develop major new reserves in the United States are limited due to regulatory
barriers and drilling prohibitions in many of the most promising areas of
development, the company nonetheless believes that it should be able to
maintain its U.S. production through the development of attractive growth
opportunities within the company's current portfolio of assets, such as the
acceleration and expansion of deepwater projects in the Gulf of Mexico, and,
if attractive opportunities arise, through acquisitions and trades.
Accordingly, the company has increased its U.S. capital and exploratory
budget in this area and has reduced its cash generation goal for North
American operations.
In January 1996, as part of the company's efforts to enhance the value of its
North American upstream assets, the company announced that it had entered
into exclusive negotiations to merge certain gas gathering, processing, and
marketing operations of Chevron U.S.A. Production Company's Natural Gas
Business Unit and Warren Petroleum Company with those of NGC Corporation. The
company believes the merger will reduce costs through economies of scale and
will position these activities for greater growth.
- - ACHIEVE TOP FINANCIAL PERFORMANCE IN U.S. REFINING AND MARKETING. Over the
past few years, the company has focused its attention on reshaping its
refining portfolio by selling refineries in Port Arthur, Texas and
Philadelphia, Pennsylvania and spending over $1 billion on its two California
refineries in order to produce cleaner-burning fuels and to increase their
efficiency and reliability. In 1995, refinery downtime due to these upgrades,
as well as unscheduled refinery downtime and weak industry margins, caused a
77 percent drop in earnings, excluding special items. With the reshaping of
its refinery portfolio largely completed in 1995, the company expects U.S.
refining and marketing results to improve in 1996 with improved refinery
utilization. The company will be shifting the majority of its 1996 investment
spending to marketing projects aimed at meeting customers' needs and
improving the company's competitive market position.
- - GROW CALTEX IN ATTRACTIVE MARKETS WHILE ACHIEVING SUPERIOR COMPETITIVE
FINANCIAL PERFORMANCE. The company believes that the Asia-Pacific region will
continue to be an area of strong demand growth for petroleum products.
Chevron's 50 percent owned Caltex affiliate, a leading competitor in these
areas, has and is continuing to make significant capital investments to
expand and upgrade its refining capacity and its retail marketing systems. A
large refinery upgrade and expansion project is continuing in Korea, and
first production from a new refinery in Thailand is expected in mid-1996. In
China, Caltex formed a joint venture with a state-owned enterprise to build
the country's largest liquid petroleum gas terminal and blending and storage
facility. Many of Caltex's 4,200 branded service stations will receive a new
retail image over the next five years in order to build a stronger brand
identity.
In 1995, Caltex merged the refining and marketing assets of Caltex Australia
Limited, a 75 percent owned subsidiary, with those of Ampol Limited to form
Australian Petroleum Pty. Limited. The merger is expected to improve
efficiencies, reduce costs and increase market share in Australia. Caltex has
a 37.5 percent equity interest in the new company. In December 1995, Caltex
also announced that it is selling its 50 percent interest
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in Nippon Petroleum Refining Company, Limited in Japan to its partner, Nippon
Oil Company, Limited for $2 billion as part of the company's efforts to
restructure in mature markets and to provide capital for investments in
higher growth areas in the Asia-Pacific region.
- - CONTINUE TO IMPROVE COMPETITIVE FINANCIAL PERFORMANCE IN CHEMICALS WHILE
DEVELOPING ATTRACTIVE OPPORTUNITIES FOR GROWTH. Financial results for the
company's chemical operations continued to improve significantly in 1995 as
the demand for chemicals outpaced supplies in the first half of 1995 before
industry conditions began to soften later in the year. Chevron Chemical
Company reported record operational earnings of $524 million in 1995, more
than doubling 1994 earnings. In 1996 the company will be restructuring its
businesses along geographic lines to facilitate growth of its U.S. and
international operations. The company has expansion plans for its ethylene,
paraxylene and polystyrene facilities in the U.S. and has international
projects planned for Saudi Arabia and Singapore in 1996.
- - BE SELECTIVE IN NON-CORE BUSINESSES. Chevron operates four units that are
outside the corporation's core focus. These four units are Chevron Canada
Limited (CCL) and Gulf Oil Great Britain (GOGB) whose primary operations are
the refining and marketing of petroleum products in Canada and the United
Kingdom, respectively; The Pittsburg & Midway Coal Mining Co. (P&M), operator
of the company's coal interests; and Chevron Land and Development Co. (CL&D),
manager of the company's surplus fee production properties and other real
estate operations in California. These businesses are managed for cash flow
and profitability, and for growth when attractive opportunities exist.
Chevron announced in March 1995 that it was exiting the real estate
development business and was seeking prospective purchasers for its real
estate assets in California. Bids for a significant portion of these real
estate properties were received and evaluated in the third quarter of 1995.
As a result, Chevron entered into exclusive negotiations with potential
buyers for the sale of these properties and a $168 million provision for the
estimated loss from exiting the business was recorded in the third quarter.
It is anticipated that the sale of these properties will be completed in
1996.
(B) INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION
The company's largest business is its integrated petroleum operations. Other
operations include chemicals and coal mining. The petroleum activities of the
company are widely distributed geographically, with major operations in the
United States, Canada, Australia, United Kingdom, Congo, Angola, Nigeria, Papua
New Guinea, Indonesia, China and Zaire. The company's Caltex affiliate, through
its subsidiaries and affiliates, conducts exploration and production and
geothermal operations in Indonesia and refining and marketing activities in the
Eastern Hemisphere, with major operations in Japan, Korea, Australia, the
Philippines, Singapore, Thailand and South Africa. Tengizchevroil (TCO), a 50/50
joint venture with a subsidiary of the national oil company of the Republic of
Kazakstan, conducts production activities in Kazakstan, a former Soviet
republic.
The company's chemicals operations are concentrated in the United States, but
include operating facilities in France, Japan and Brazil. The company's coal
operations are located 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 10 to the
Consolidated Financial Statements beginning on page FS-20 of this Annual Report
on Form 10-K.
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(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 continues to closely monitor the civil unrest and
political uncertainty in Angola, 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.
The company utilizes various derivative instruments to manage its exposure to
price risk stemming from its integrated petroleum activities. Some of the
instruments may be settled by delivery of the underlying commodity, whereas
others can only be settled in cash. All these instruments are commonly used in
the global trade of petroleum products and, with the exception of certain long-
term natural gas swaps, are of a short-term duration. The proposed merger of
certain natural gas operations of the company with NGC Corporation will result
in NGC assuming most of the natural gas derivative activities.
The company enters into forward exchange contracts as a hedge against some of
its foreign currency exposures. Interest rate swaps are entered into as part of
the company's overall strategy to manage the interest rate risk on its debt. All
commodity and financial derivative instruments used by the company are
relatively straightforward and involve little complexity. Their impact on the
company's results of operations has not been material.
CAPITAL AND EXPLORATORY EXPENDITURES
Chevron's capital and exploratory expenditures during 1995 and 1994 are
summarized in the following table:
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CAPITAL AND EXPLORATORY EXPENDITURES
(Millions of Dollars)
1995 1994
------ ------
Exploration and Production $2,579 $2,586
Refining, Marketing and Transportation 969 1,105
Chemicals 198 135
Coal and Other Minerals 33 44
All Other 109 103
------ ------
Total Consolidated Companies 3,888 3,973
Equity in Affiliates 912 846
------ ------
Total Including Affiliates $4,800 $4,819
====== ======
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Total consolidated expenditures of $3.888 billion in 1995 decreased 2 percent
when compared to 1994. This reduction was the result of a drop in Refining,
Marketing and Transportation expenditures of $136 million due largely to the
completion in 1994 of the company's program to construct new vessels that began
in 1989. This was
- 6 -
partially offset by a $63 million increase in chemical expenditures, primarily
due to the expansion of the linear low-density polyethylene manufacturing plant
at the company's Cedar Bayou, Texas, chemical facility.
Consolidated Exploration and Production (E&P) expenditures were relatively flat
at 66 percent and 65 percent of the company's total consolidated expenditures in
1995 and 1994, respectively. Major international E&P expenditures in 1995
included the acquisition of additional exploration and development interests in
the Republic of Congo and exploration and development activities associated with
the Britannia Field in the U.K. North Sea, the North West Shelf Project in
Australia, the Hibernia Project offshore Newfoundland, various waterflood and
steamflood projects in Indonesia, Areas B and C in Angola and the Escravos Gas
Project in Nigeria. Major U.S. E&P expenditures included development projects in
the Gulf of Mexico, Texas and California. Refining, marketing and transportation
outlays in 1995 included expenditures to upgrade the company's two California
refineries to produce cleaner-burning gasoline that complies with new California
emission regulations scheduled to be effective in mid-1996 and other projects
intended to upgrade and increase efficiencies at the refineries.
The company's share of capital and exploratory expenditures by its affiliates
was $912 million in 1995, an increase of 8 percent from $846 million in 1994.
The company's Caltex affiliate accounted for the vast majority of affiliates'
expenditures, which were primarily comprised of ongoing refinery
expansion/upgrade projects in Korea, Singapore and Japan and the construction of
the new Star Petroleum refinery in Thailand, scheduled for start-up in mid-1996.
The company's 1996 capital and exploratory expenditures, including its share of
equity affiliates' expenditures, is expected to increase 10 percent to $5.3
billion. Both consolidated and affiliated expenditures are forecasted to
increase by 10 percent over 1995 levels to $4.3 billion and $1 billion,
respectively.
Worldwide E&P expenditures in 1996 are expected to total $3 billion, of which
approximately 65 percent will be for international projects. These projects
include the continued development of the Hibernia Field, expansion of the North
West Shelf Project, enhanced recovery projects in Indonesia, development of the
Britannia Field in the North Sea, development of the Boscan Field in Venezuela,
development of the N'Kossa and Kitina projects and delineation work at the Moho
discovery in Congo and other exploration and development projects in West
Africa. In the U.S., major E&P expenditures include various development projects
in the Gulf of Mexico, including the deep water development of Green Canyon 205.
Worldwide refining, marketing and transportation expenditures in 1996 are
estimated at $1.5 billion. After several years of major investments in the
company's refineries to produce gasoline that meets federal, state and local
emission requirements, in 1996 the company expects to significantly reduce its
U.S. refining, marketing and transportation expenditures and concentrate the
majority of these expenditures on marketing projects aimed at meeting consumers'
needs and improving the company's market position. International refining and
marketing expenditures in 1996 include the continuation of refinery construction
and expansion/upgrade projects by the company's Caltex affiliate to meet growing
product demand in the Pacific Rim areas, and a major program to improve retail
marketing operations.
Worldwide chemical expenditures are expected to more than double in 1996 to
approximately $530 million. Forecasted expenditures include the expansion and
modernization of the company's Port Arthur, Texas, ethylene facilities and a
paraxylene expansion at the company's Pascagoula, Mississippi, refinery.
Internationally, the company expects to begin the initial phases for the joint
venture construction of a new aromatics complex using Chevron's Aromax
technology in Saudi Arabia and a fuel and lube oil additives plant in Singapore.
The actual expenditures for 1996 will depend on various conditions affecting the
company's operations, including crude oil and natural gas prices, and may differ
significantly from the company's forecast.
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, 1995. "Exploratory wells" include
delineation wells, which are wells drilled to find a new reservoir in a field
previously found to be productive
- 7 -
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 12/31/95 1995 1994 1993
--------------- ----------- ----------- -----------
Gross(2) Net(2) Prod. Dry Prod. Dry Prod. Dry
------- ------ ----- ----- ----- ----- ----- -----
United States 60 52 101 24 53 17 32 14
------- ------ ----- ----- ----- ----- ----- -----
Africa 13 5 3 4 5 2 3 4
Other International 8 5 22 27 55 42 27 35
------- ------ ----- ----- ----- ----- ----- -----
Total International 21 10 25 31 60 44 30 39
------- ------ ----- ----- ----- ----- ----- -----
Total Consolidated Companies 81 62 126 55 113 61 62 53
Equity in Affiliates 8 4 1 - - 1 1 1
------- ------ ----- ----- ----- ----- ----- -----
Total Including Affiliates 89 66 127 55 113 62 63 54
======= ====== ===== ===== ===== ===== ===== =====
(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, 1995, the company owned or had under lease or similar agreements
undeveloped and developed oil and gas properties located throughout the world.
Undeveloped acreage includes undeveloped proved acreage. The geographical
distribution of the company's acreage is shown in the next table.
- --------------------------------------------------------------------------------
ACREAGE* AT DECEMBER 31, 1995
(Thousands of Acres)
Developed
Undeveloped Developed and developed
--------------- --------------- ---------------
Gross Net Gross Net Gross Net
------- ------- ------- ------- ------- -------
United States 3,358 2,157 6,013 2,547 9,371 4,704
------- ------ ------- ------- ------- -------
Canada 18,623 10,669 572 360 19,195 11,029
Africa 25,250 17,892 144 56 25,394 17,948
Asia 42,384 21,939 49 19 42,433 21,958
Europe 2,928 1,405 115 29 3,043 1,434
Other International 11,945 4,327 54 15 11,999 4,342
------- ------- ------- ------- ------- -------
Total International 101,130 56,232 934 479 102,064 56,711
------- ------- ------- ------- ------- -------
Total Consolidated Companies 104,488 58,389 6,947 3,026 111,435 61,415
Equity in Affiliates 3,205 1,603 229 114 3,434 1,717
------- ------- ------- ------- ------- -------
Total Including Affiliates 107,693 59,992 7,176 3,140 114,869 63,132
======= ======= ======= ======= ======= =======
*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.
- --------------------------------------------------------------------------------
- 8 -
The company had $250 million of suspended exploratory wells included in
properties, plant and equipment at year-end 1995. The wells are suspended
pending a final determination of the commercial potential of the related oil and
gas fields. The ultimate disposition of these well costs is dependent on the
results of future drilling activity and development decisions.
During 1995, the company explored for oil and gas in the United States and about
24 other countries. The company's 1995 exploratory expenditures, including
affiliated companies' expenditures but excluding unproved property acquisitions,
were $667 million compared with $526 million in 1994. U.S. expenditures
represented approximately 47 percent of the consolidated companies' worldwide
exploration expenditures, a 7 percent increase from the prior year. Significant
activities in Chevron's exploration program during 1995 include the following
(number of wells are on a "gross" basis):
UNITED STATES: Exploratory expenditures, excluding unproved property
acquisitions, were $312 million in 1995, compared to $209 million spent in 1994.
In addition, the company incurred costs of $31 million for unproved property
acquisitions in 1995. Exploration efforts in 1995 were concentrated in the Gulf
of Mexico and several onshore basins in Texas, California, Alaska and the Rocky
Mountains. Chevron participated in 17 exploratory wells that were completed in
1995, resulting in three discoveries in the Gulf of Mexico.
In 1995, Chevron received $65 million from the Department of Interior as
settlement for costs incurred by the company for federal offshore leases in
Florida and Alaska that remain undrilled due to state, federal, and private
objections to drilling. The company continues to pursue its claims with the U.S.
government over offshore leases in North Carolina.
AFRICA: In Africa, the company spent $103 million during 1995 on exploratory
efforts, excluding the acquisition of unproved properties, compared with $81
million in 1994. The company also acquired $8 million of unproved properties in
1995.
In Nigeria, the company's operations are managed by three subsidiaries. Chevron
Nigeria Limited (CNL) operates and holds a 40 percent interest in concessions
totaling approximately 3,450 square miles in the onshore and offshore regions of
the Niger Delta. Chevron Oil Company Nigeria Limited (COCNL) holds a 20 percent
interest in six concessions covering about 940 square miles with six offshore
oil fields operated by a partner. Chevron Petroleum Nigeria Limited (CPNL) has a
30 percent interest in two deepwater Niger Delta blocks and three inland Benue
Basin blocks and an additional sole interest in six other Benue Basin blocks.
CNL drilled 10 exploratory and appraisal wells in 1995, resulting in three new
oil field discoveries, including two significant oil discoveries in the Gbodoka
and Dibi fields in the Benin River area. Other exploration activities in 1995
included the acquisition and interpretation of 2-D and 3-D seismic data.
In Angola, the company is the operator of a 2,700 square mile concession off the
coast of Angola's Cabinda exclave. The concession is divided into three areas:
Area A, which commenced production in late 1960, includes two major areas,
Malongo and Takula; Area B, which started production in late 1994, includes the
Kokongo, Nemba and Lomba fields; and Area C, which is expected to start
production in early 1997, includes the N'Dola and Sanha fields. Chevron has a 39
percent interest in the concession. "Deepwater" Block 14, located due west of
Areas B and C, was awarded to Chevron (31 percent interest) and its partners in
February 1995. Significant exploration activities in 1995 included the
acquisition of a 3-D seismic survey covering approximately 1,330 square miles
over prospective parts of Areas A, B, and C as well as Block 14 concessions. Two
exploratory wells were drilled in Area A in 1995, resulting in an oil discovery.
Negotiations were completed to renew the Exploration Extensions in Areas B and C
through February 2000. As a part of this agreement, the drilling of two
exploratory wells is planned for late 1997 and early 1998. Interpretation of the
seismic survey for Block 14 is continuing and the drilling of an exploratory
well is planned for mid-1996.
Offshore Congo, the company has a 29.25 percent interest in the Agip operated
Marine VII license, which includes the Kitina Field and a 30 percent interest in
the Haute Mer license, which is operated by Elf Congo and includes the N'Kossa
Field. In late 1995, the Moho Marine-1 well, located 9 miles west of N'Kossa,
tested oil at a rate of over 5,700 barrels per day. An appraisal well to further
evaluate the results is planned for mid-1996. Chevron reached an agreement with
the Congolese government in December 1995 to participate in the Marine IV
license, located
- 9 -
offshore northern Congo, as operator with an 85 percent interest. If final
approval is granted, Chevron will conduct seismic studies in 1996.
In Zaire, the company has a 50 percent interest in, and is the operator of, a
390 square mile offshore concession. Approximately 90 square miles of 3-D
seismic data were acquired in the western part of the offshore Zaire concession
in 1995. Exploration drilling activity in 1995 consisted of one exploratory
well, which resulted in a dry hole that was plugged and abandoned. The drilling
of three exploratory wells is planned for 1996.
OTHER INTERNATIONAL INCLUDING AFFILIATED COMPANIES: Exploration expenditures,
excluding unproved property acquisitions, were $252 million in 1995, an increase
of $16 million from the 1994 amount of $236 million. In addition, unproved
properties of $12 million were acquired in 1995.
In Europe, Chevron participated in drilling six wells offshore the U.K. and
Ireland in 1995. In addition, during the U.K.'s 16th licensing round, the
company was awarded two blocks in the Tertiary trend west of Shetlands, three
blocks in Cardigan Bay, offshore Wales and a block adjacent to Chevron's Bressay
heavy oil discovery in the North Sea. Six blocks offshore Ireland were also
awarded to Chevron in 1995 in the Porcupine Basin Frontier Licensing Round.
In Canada, exploration efforts in 1995 continued to be concentrated in the
western part of the country near existing infrastructures that would allow any
reserves to be brought on production quickly. A total of 22 exploratory wells
were drilled in 1995, resulting in two oil, three gas and two oil and gas
discoveries.
In Indonesia, Chevron's interests in 12 contract areas are managed by its 50
percent owned P.T. Caltex Pacific Indonesia (CPI) and Amoseas Indonesia (AI)
affiliates. Four of five exploratory wells drilled by CPI in 1995 resulted in
discoveries that are currently being evaluated for their reserve potential. One
of these discoveries, Besar, was tied into existing infrastructure and placed
into production in November 1995. CPI continues its exploration efforts off the
west coast of Sumatra in search of natural gas for use in its enhanced oil
recovery efforts and will be acquiring 2-D and 3-D seismic data to support that
evaluation. In 1995, the company negotiated a 100 percent interest in a new
production sharing contract in the Lariang block, covering 1,540 square miles,
in west-central Sulawesi that will be operated by AI on behalf of Chevron. CPI
has begun negotiations for a 20 year extension of the Coastal Plains block in
Central Sumatra, currently set to expire in 2001.
In Australia, Chevron's primary interests are in two non-operated joint
ventures, with a 16.7 percent interest in the North West Shelf (NWS) Project and
a 25.7 to 50 percent interest in permits within the West Australian Petroleum
Pty. Ltd. (WAPET) joint venture. In addition, Chevron recently acquired a 25
percent interest in two Browse Basin permits and a 17.3 percent interest in one
Carnarvon Basin permit. NWS exploration activities in 1995 included the drilling
of the Perseus-1 well between the North Rankin and Goodwyn fields, which
resulted in a major gas discovery and the Sculptor-1 well, which added gas and
condensate reserves to the Echo/Yodel fields. Interpretation of the East Dampier
3-D seismic survey continued in 1995 and exploration drilling in several
prospects is planned for mid-1996. WAPET's Chrysaor-1 well was confirmed as a
significant gas discovery after tests were performed in early 1995. A 3-D
seismic survey was also shot over the Chrysaor structure in 1995.
In Papua New Guinea, Chevron and its partners drilled three exploratory wells in
the PPL-161 license. One well near the Kutubu facilities recovered oil. Further
evaluation of this well will continue into early 1996.
In China, Chevron was awarded sole interest in a production-sharing contract in
Block 62/23 and a geophysical agreement in Block 50/20, both south of Hainan
Island in the South China Sea. Seismic data was acquired for both blocks and one
well is planned for 1996. Exploration drilling in East China Sea Block 33/08
resulted in two dry holes and no further activity is planned. The company also
submitted bids for acreage in Liaodong Bay, offshore northeast China, and South
China Sea Block 63/15 in 1995.
Other areas where exploration activities occurred in 1995 include Bolivia where
the company acquired seismic data over some prospects in the southern half of
the Caipipendi Exploration Block, Colombia where evaluation of the Rio Blanco
Exploration Block continued in 1995 with the drilling of an exploratory well,
and Peru where the
- 10 -
company obtained a 100 percent interest in exploration block 52, which is
adjacent to the Camisea gas-condensate field.
PETROLEUM - OIL AND NATURAL GAS PRODUCTION
The following table summarizes the company's and its affiliates' 1995 net
production of crude oil, natural gas liquids and natural gas.
- -------------------------------------------------------------------------------
1995 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 119,870 125,410
-Gulf of Mexico 112,480 923,750
-Texas 65,670 411,520
-Colorado 13,470 -
-Wyoming 9,260 145,300
-New Mexico 8,240 101,990
-Louisiana 4,590 50,030
-Other States 15,800 109,950
--------- ---------
Total United States 349,380 1,867,950
--------- ---------
Africa 261,220 -
United Kingdom (North Sea) 71,160 28,210
Canada 48,290 242,560
Australia 25,100 208,430
Papua New Guinea 23,620 -
Indonesia 22,620 590
China 9,040 -
Other International 10,290 3,460
--------- ---------
Total International 471,340 483,250
--------- ---------
Total Consolidated Companies 820,720 2,351,200
Equity in Affiliates 179,990 81,600
--------- ---------
Total Including Affiliates 1,000,710 2,432,800
========= =========
* Net production excludes royalty interest owned by others.
- -------------------------------------------------------------------------------
PRODUCTION LEVELS:
In 1995, net crude oil and natural gas liquids production, including affiliates,
increased for the third year in a row, rising from 992,510 barrels per day in
1994 to 1,000,710 barrels per day in 1995. The increase was due to higher
production in Africa, primarily in Angola where the Kokongo Field began
producing in late 1994 and Australia, where the Goodwyn development began
production in early 1995. These production increases were partially offset by
production declines in the United States due primarily to normal field declines.
Net production of natural gas, including affiliates, decreased 8 percent from
2,630,570 thousand cubic feet per day in 1994 to 2,432,800 thousand cubic feet
per day in 1995. The decline was due to lower U.S. production, primarily
- 11 -
in the Gulf of Mexico due to normal field declines, partially offset by higher
production in Australia and in the company's affiliates' operations in Kazakstan
and Indonesia. The company has several projects under way, including major long-
term development projects in the Gulf of Mexico, which are expected to stabilize
its U.S. oil and gas production.
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 1995, 1994 and 1993 are
reported in Table III on pages FS-31 and FS-32 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 1995.
---------------------------------------------------------------------
PRODUCTIVE OIL AND GAS WELLS AT DECEMBER 31, 1995
Productive(1) Productive(1)
Oil Wells Gas Wells
----------------- ------------------
Gross(2) Net(2) Gross(2) Net(2)
-------- -------- -------- --------
United States 25,673 12,690 4,173 1,763
-------- -------- -------- --------
Canada 1,443 892 379 171
Africa 931 355 13 2
United Kingdom (North Sea) 211 35 - -
Other International 1,052 384 56 15
-------- -------- -------- --------
Total International 3,637 1,666 448 188
Total Consolidated Companies 29,310 14,356 4,621 1,951
Equity in Affiliates 4,706 2,353 31 15
-------- -------- -------- --------
Total Including Affiliates 34,016 16,709 4,652 1,966
======== ======== ======== ========
Multiple completion
wells included above: 469 227 21 11
(1)Includes wells producing or capable of producing and injection
wells temporarily functioning as producing wells. 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 $1,765 million in 1995 and $1,508
million in 1994.
The table below summarizes the company's net interest in productive and dry
development wells completed in each of the past three years and the status of
the company's development wells drilling at December 31, 1995. (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.)
- 12 -
- --------------------------------------------------------------------------------
DEVELOPMENT WELL ACTIVITY
NET WELLS COMPLETED(1)
WELLS DRILLING -----------------------------------
At 12/31/95 1995 1994 1993
--------------- ----------- ----------- -----------
Gross(2) Net(2) Prod. Dry Prod. Dry Prod. Dry
------- ------ ----- ----- ----- ----- ----- -----
United States 133 123 281 6 194 5 293 11
------- ------ ----- ----- ----- ----- ----- -----
Africa 25 9 20 1 9 - 10 -
Other International 43 8 28 2 48 4 57 12
------- ------ ----- ----- ----- ----- ----- -----
Total International 68 17 48 3 57 4 67 12
------- ------ ----- ----- ----- ----- ----- -----
Total Consolidated Companies 201 140 329 9 251 9 360 23
Equity in Affiliates 38 19 135 - 98 - 93 -
------- ------ ----- ----- ----- ----- ----- -----
Total Including Affiliates 239 159 464 9 349 9 453 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.
- --------------------------------------------------------------------------------
Significant 1995 development activities include the following:
UNITED STATES: Chevron's U.S. development expenditures were $453 million in
1995, an increase of $37 million from the 1994 figure of $416 million.
Expenditures for proved reserve acquisitions amounted to $21 million in 1995
compared to $95 million in 1994, which included the company's acquisition of
certain gas properties in West Texas from Wes-Tex Drilling Company. Additions to
proved reserves during 1995 from extensions, discoveries and improved recovery,
before revisions, were 94 million barrels of crude oil and natural gas liquids
and 616 billion cubic feet of natural gas.
In the Gulf of Mexico, significant development activities in 1995 included the
evaluation of alternative development concepts for the Green Canyon 205 Field
located in 2,600 feet of water. The project execution plan calls for initial
production in 1998, with peak production expected to reach 55,000 barrels per
day and 72 million cubic feet of gas per day. Eleven wells drilled in the Eugene
Island 238 Field were successful, resulting in seven gas and four oil
discoveries. Three wells in the South Marsh Island 66 Field were drilled in
1995, with all three resulting in either a gas or oil discovery. In the Norphlet
trend, which stretches some 80 miles from the Destin Dome area (offshore
Florida) to the Mobile Block 861 area (offshore Mississippi), production from
three wells in the Mobile Block 916 Area offshore Alabama commenced in April
1995. Chevron's percentage interests in these fields vary from 33 to 100 percent
Offshore California, Chevron owns approximately 25 percent of the Point Arguello
project and operates two offshore platforms (Hermosa and Hidalgo), the onshore
Gaviota oil and gas plant and the interconnecting pipelines. Production from the
project averaged 59,000 barrels of oil per day in 1995, down from 78,000 in
1994. In addition, the percentage of water produced approximately doubled
between periods. Chevron's share of proved oil and gas reserves declined by 31
percent in 1995 due to production and reserve revisions, partially offset by
reserve additions resulting from two redrills on the Hermosa platform. The
company and its partners are currently reviewing options to address these
issues. About two-thirds of current production is delivered via pipeline to
various California locations. However, due to a shortage of adequate
transportation facilities to Los Angeles, the balance of production is shipped
via pipeline to markets in Texas, resulting in increased transportation costs.
Partners in the Pacific Pipeline Project, in which Chevron has a minority
interest, continue to work on the development of a 130-mile pipeline that would
carry Point Arguello oil production to Los Angeles refineries.
- 13 -
Other development projects in the U.S. included the employment of enhanced
recovery methods using steam and water to increase both the production rate and
the amount of oil ultimately recoverable from fields in California's San Joaquin
Valley, the drilling of 56 new wells in the Laredo and Terrell County areas of
Texas, which increased proved gas reserves by a combined 114 billion cubic feet,
and the signing of an agreement with the Osage Tribe and Davis Brothers Oil
Producers to begin 3-D seismic evaluation of more than 400,000 acres of tribal
land in Osage County, Oklahoma.
AFRICA: Developmental expenditures in Africa were $640 million in 1995, compared
to $276 million in 1994. The increase was primarily due to higher expenditures
in Congo, Nigeria and Angola, with Congo expenditures accounting for
approximately 55 percent of the increase. Expenditures for proved reserve
acquisitions amounted to $56 million in 1995. Additions to proved reserves from
extensions, discoveries and improved recovery, before revisions, were 173
million barrels of crude oil and natural gas liquids and 22 billion cubic feet
of natural gas.
In Nigeria, total production from 29 CNL-operated fields averaged 384,000
barrels of oil per day, an increase of about 15,000 barrels per day from 1994.
This increase was primarily due to the addition of three fields, Mejo, Ojumole
and Omuro, that were put into production in 1995. Production from non-operated
fields averaged approximately 54,000 barrels of oil per day in 1995. On-site
construction for the Escravos Gas Project began in May 1995. Fabrication of the
floating storage and offloading vessel, the offshore compression platform, and
the onshore LPG extraction plant will continue in 1996. The project is expected
to start-up in mid-1997 and will utilize gas currently being flared from the
Okan and Mefa fields.
In Angola, fifteen development wells were drilled in Area A fields during 1995.
Five were in the Malongo Area and ten were in the Takula Area. The company
expects that the combination of exploratory discoveries, infill drilling,
workovers and facility modernization should maintain production from Area A in
the near future. Areas B and C continue to be the primary focus of major
development activities, which included work on an early production system in the
Nemba Field that commenced production in January 1996.
In Congo, seven development wells have been drilled in the Kitina Field to date,
with further development drilling to continue in 1996. A platform, tied via
pipeline to processing and export facilities at the onshore Djeno terminal, is
planned for late 1997, with first oil in early 1998. Appraisal drilling at the
Kitina South structure in 1995 confirmed the existence of a separate oil pool.
At the N'Kossa Field, 14 wells have been drilled to date and two platforms were
installed that will allow a second phase of development drilling to continue
through 1996. First oil is planned for mid-1996 and the field is expected to
reach peak production of 110,000 barrels per day in late 1997.
In Zaire, four development wells, two water injection wells and one workover
were completed in 1995. In 1996, the Tshiala Field development will continue
with four wells planned. To date, 78 exploratory and development wells have been
drilled and forty-one are currently on stream. Crude oil production from eight
offshore fields averaged 19,600 barrels per day in 1995.
OTHER INTERNATIONAL INCLUDING AFFILIATED COMPANIES: Development expenditures in
1995 were $672 million compared to $816 million in 1994. The decrease was
largely due to lower expenditures by the company's Tengizchevroil affiliate.
Additions to proved reserves from extensions, discoveries and improved
recoveries were 122 million barrels of crude oil and natural gas liquids and 204
billion cubic feet of natural gas.
In Europe, the company has interests in over 60 blocks in the U.K. and Ireland,
which total approximately 2.4 million gross acres, including six producing
fields in the North Sea where the company's interest varies from 4.8 to 33.3
percent. The company also has interests to the west of Shetlands, offshore Wales
and in Liverpool Bay. Offshore Ireland, Chevron has acreage in the Celtic Sea
and the Porcupine Basin. The company's share of production from these fields
averaged 71,000 barrels of crude oil and natural gas liquids and 28 million
cubic feet of gas per day in 1995. Production from Phase I of the North Sea's
Alba Field, in which Chevron has a 33.2 percent interest, averaged 69,100
barrels of oil per day in 1995. Modifications to four of the platform's well
slots, allowing the well slots to house two rather than one well, has eliminated
the need for a stand alone second platform during Phase II of the project to
develop the southern area of the reservoir. Phase II development commenced in
November 1995 when the first of eighteen development wells was spudded from the
Alba Northern platform into the southern area of the reservoir. Detailed design
engineering was started on a $46 million oil capacity upgrade, from 75,000 to
- 14 -
over 100,000 barrels per day, for the Alba Northern platform, in anticipation of
added production from Phase II. The Britannia gas field development in the North
Sea, which lies underneath the Alba Field 130 miles northeast of Aberdeen,
proceeded with the drilling of nine pre-development wells and the start of
fabrication of the steel jacket and topsides. Peak production is expected to be
approximately 740 million cubic feet of gas and 70,000 barrels of condensate per
day with initial production expected to commence in late 1998.
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. The
company drilled 26 wells that were targeted at new reserves around existing
infrastructures along with 87 development wells in existing fields. The Hibernia
Development project, in which Chevron has a 26.9 percent interest, proceeded on
schedule in 1995. The five main topsides have been interconnected. Plans for
mating the topsides to the Gravity Base Structure on which they will sit and the
towout from its fabrication site at Bull Arm, Newfoundland to the Hibernia
Field, 200 miles offshore Newfoundland, in mid-1997 are under way. Oil
production is expected to begin in late 1997 or early 1998. The company's
capitalized investment in this project was $806 million at year-end 1995. The
company streamlined its Canadian oil and gas subsidiary, Chevron Canada
Resources, by reducing its business unit structure from eight to five and
reducing its workforce by 20%, or 200 employees.
In Indonesia, the Duri Steamflood Project, begun in 1985 to assist the difficult
production process for the relatively heavy, waxy Duri crude, is being completed
in 13 stages (Areas 1-13) with seven areas currently on production. The field
has two billion barrels of recoverable oil, with total production averaging over
300,000 barrels per day in 1995. A waterflood project involving 21 fields in
Central Sumatra continued in 1995 as water injection at the Minas Field moved
into phase three of a four phase pattern waterflood project that started in
December 1993. Expansion of the waterflood efforts in 1995 included the start-up
of a new project in the Beruk Field and government approval for a similar
project in the Bekasap Field. Delivery of steam from the Darajat I plant in the
Darajat geothermal field, located 115 miles southeast of Jakarta, continued at a
steady pace in 1995. Government approval for the Darajat II plant, for which AI
has acquired an Indonesian partner, was received in January 1996. The 70
megawatt plant is expected to be operational in late 1998.
In Kazakstan, Tengizchevroil increased its production capacity to 95,000 barrels
a day at the end of 1994 with the completion of a second processing plant.
However, during most of 1995 production was constrained by the lack of
sufficient export capability and averaged only 58,000 barrels per day in 1995,
up from 46,000 barrels per day in 1994. The pace of further field development is
dependent on the availability of additional export capacity or the securing of
other marketing alternatives. The partners remain committed to realizing the
full potential of the project and continue to explore alternatives and
opportunities for the export of Tengiz crude oil.
In Australia, production from the Goodwyn Field, which is being developed as
part of the North West Shelf (NWS) Project, came on stream in February 1995 and
reached 70,000 barrels per day of condensate and 400 million cubic feet of gas
per day by year end. Development drilling will continue in 1996. The
Wanaea/Cossack development also came on stream in November 1995 and reached peak
production of 115,000 barrels of oil per day shortly thereafter. WAPET
development activities included the start of a 20 well infill drilling program
on Barrow Island in November 1995 and evaluation of alternatives for the
development of the Gorgon Field's gas reserves as either a stand-alone project
or as a co-operative expansion of the existing NWS liquefied natural gas (LNG)
project.
In Papua New Guinea, Chevron (19 percent interest) and its partners completed
engineering work on the Gobe fields in the southeastern portion of the PPL-161
license in anticipation of the submission of a Petroleum Development License
application to the Papua New Guinea government in early 1996. Evaluations for
the development of gas discoveries in the PPL-101 license (P'nyang and Juha gas
fields) and the PDL-2 license (Hedinia field gas cap) are continuing. An active
development drilling program designed to accelerate production and develop new
reserves for the Kutubu Area fields continued in 1995 and has allowed production
from these fields to remain at a rate in excess of 100,000 barrels of oil per
day throughout the year.
In China, work to develop the HZ/32-2 and HZ/32-3 fields concluded in June 1995,
bringing the total number of producing fields in the 16/08 contract area of the
Pearl River Mouth Basin in the South China Sea to four. Total output at year end
1995 from these four fields was 120,000 barrels of oil per day with Chevron's
share at 16.33 percent. The first stage of an enhanced oil recovery pilot
project using Chevron's Microbial Profile Modification
- 15 -
technology was completed at Daqing, China's largest oil field, with the
completion of the pilot area wells. The next stage, involving microbe injection
in these wells, will occur in 1996.
In Venezuela, Chevron and Maraven S.A. formed an alliance in late 1995 to
further develop the Boscan oil field. In mid-1996, Chevron will become
responsible for the operations and production of this field under a fee
arrangement, whereby Chevron will be compensated on the basis of barrels
produced. Boscan production is currently about 80,000 barrels per day. In
addition, the alliance calls for the supply of Venezuelan crude oil to Chevron
refineries in the U.S. and a Chevron/Maraven partnership that will market
asphalt and other related products in the western U.S.
PETROLEUM - NATURAL GAS LIQUIDS
Chevron's wholly owned Warren Petroleum Company is engaged in all phases of the
U.S. natural gas liquids (NGL's) business and is the largest U.S. wholesale
marketer of NGL's, selling to customers in 46 states.
Warren's business encompasses: 1) extraction, which includes 15 processing
plants with a total processing capacity of 3.3 billion cubic feet of gas per day
and equity interests in an additional 14 plants, 2) fractionation, which
includes a 220,000 barrel per day capacity fractionation plant at Mont Belvieu,
Texas and 3) distribution, which includes the Warrengas Terminal, located on the
Houston Ship Channel and linked to the Mont Belvieu complex by dedicated
pipelines. Warren also conducts Chevron's international liquefied petroleum gas
(LPG) trading and sales activities. Sales in 1995 totaled 283,000 barrels per
day (including sales of 80,000 barrels per day to other Chevron companies).
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)
1995 1994 1993
---- ---- ----
United States - Warren 203 209 208
United States - Other 10 6 3
---- ---- ----
Total United States 213 215 211
Canada 40 27 30
Other International 7 7 7
---- ---- ----
Total Consolidated Companies 260 249 248
==== ==== ====
-----------------------------------------------------
In January 1996, Chevron announced that it had entered into exclusive
negotiations with NGC Corporation to combine certain gas gathering, processing
and marketing operations of Chevron U.S.A. Production Company's Natural Gas
Business Unit and Warren Petroleum Company with the operations of NGC
Corporation. The transaction, expected to be finalized in the second quarter of
1996, will result in a Houston-based company that will operate under the name of
NGC Corporation with a natural gas sales division operating under the name of
Natural Gas Clearinghouse and an NGL division operating under the name of Warren
Petroleum Company. Chevron will have, through common and preferred stock
holdings, an approximate 28 percent equity interest in the resulting company,
which is expected to be the largest natural gas marketer in North America as
well as the largest processor and marketer of natural gas liquids in North
America. Warren's Venice, Louisiana processing complex is not part of the
proposed merger, but may be involved in a joint venture between the merged
company and Chevron. A possible second joint venture could involve Chevron's
Canadian natural gas and NGL operations.
- 16 -
PETROLEUM - RESERVES AND CONTRACT OBLIGATIONS
Table IV on pages FS-32 and FS-33 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, 1995, 1994, and 1993. During 1995, the company filed estimates of
oil and gas reserves with the Department of Energy, Energy Information Agency.
Those estimates were consistent with the reserve data reported on page FS-33 of
this Annual Report on Form 10-K.
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 is committed to deliver
approximately 279 billion cubic feet of natural gas through 2013 in Australia
and approximately 30 billion cubic feet of natural gas through 1998 in Canada.
The company believes it can satisfy these contracts from quantities available
from production of the company's proved developed Australian and Canadian
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, 1995
----------------- Refinery Inputs
Operable ---------------------
Locations Number Capacity 1995 1994 1993
- ------------------------------------- ------ -------- ----- ----- ----
Pascagoula, Mississippi 1 295 282 324 283
El Segundo, California 1 258 221 227 233
Richmond, California 1 230 202 220 228
Port Arthur, Texas(1) - - 26 158 177
Philadelphia, Pennsylvania(1) - - - 94 184
Other(2) 6 261 194 190 202
------ -------- ----- ----- -----
Total United States 9 1,044 925 1,213 1,307
------ -------- ----- ----- -----
Burnaby, B.C., Canada 1 50 47 47 43
Milford Haven, Wales United Kingdom 1 115 100 116 120
------ -------- ----- ----- -----
Total International 2 165 147 163 163
------ -------- ----- ----- -----
Total Consolidated Companies 11 1,209 1,072 1,376 1,470
Equity in Affiliate Various
Locations 15 514 451 460 435
------ -------- ----- ----- -----
Total Including Affiliate 26 1,723 1,523 1,836 1,905
====== ======== ===== ===== =====
(1)The company sold the Philadelphia, Pennsylvania refinery in August 1994 and
the Port Arthur, Texas refinery in February 1995.
(2)Refineries in El Paso, Texas; Honolulu, Hawaii; Salt Lake City, Utah; Perth
Amboy, New Jersey; Portland, Oregon; and Richmond Beach, Washington. Capacity
and input amounts for El Paso represent Chevron's share.
- --------------------------------------------------------------------------------
Based on refinery statistics published in the December 18, 1995 issue of The Oil
and Gas Journal, Chevron had the largest U.S. refining capacity and ranked among
the top ten in worldwide refining capacity including its share of affiliate's
refining capacity. The company wholly owned and operated nine refineries in the
United States and one
- 17 -
each in Canada and the United Kingdom. At year-end 1995, the company's Caltex
Petroleum Corporation affiliate owned or had interests in 15 operating
refineries in Japan (4), Australia (2), Korea, the Philippines, New Zealand,
Bahrain, Singapore, Pakistan, Thailand, Kenya and South Africa. In 1995, Caltex
merged its Australian refining and marketing assets with those of Ampol Limited,
acquiring a 37.5 percent equity interest in a refinery in Brisbane, Australia
and reducing its interest in a Sydney, Australia refinery from 75 percent to
37.5 percent. In December 1995 Caltex announced that it is selling its 50
percent interest in Nippon Petroleum Refining Company, Limited, which includes
two refineries in Japan, to its partner, Nippon Oil Company, Limited. The
company's share of refining capacity for these two refineries totaled 255
thousand barrels per day at year end 1995.
Distillation operating capacity utilization in 1995 averaged 82 percent in the
United States and 85 percent worldwide (including affiliate), compared with 93
percent in the United States and 94 percent worldwide in 1994. Chevron's
capacity utilization of its U.S. cracking and coking facilities, which are the
primary facilities used to convert heavier products to gasoline and other light
products, averaged 79 percent in 1995, down from 90 percent in 1994. The company
imports crude oil for its U.S. refining operations. Imported crude oil accounted
for almost half of U.S. refinery inputs in 1995.
In 1995, the company concluded work on various expansion/upgrade projects at its
Richmond and El Segundo, California, refineries. Over the past few years,
approximately $700 million was spent at each refinery on projects aimed at
meeting regional clean air requirements and to produce cleaner-burning motor
gasoline and diesel fuel as required by the California Air Resources Board and
the Federal Clean Air Act Amendments of 1990. These projects also included the
upgrading of key processing units to improve yields of high value light
products, and to improve their reliability and cost efficiency.
At the Milford Haven, Wales refinery, a $27 million upgrade project to comply
with legislation on gasoil sulfur is scheduled to be completed by the end of May
1996, with the objective of supplying low sulfur diesel fuel by August.
Caltex and its partner completed construction of a 130,000 barrels-per-day
grassroots refinery in Map Ta Phut in March 1996, with full production
commencing in mid-1996. At the Yocheon refinery in South Korea, construction of
a new crude unit and hydrotreater that will increase production of gasoline and
low-sulfur diesel fuel is continuing. The anticipated start-up date of these new
units is late 1996. At the Singapore export refinery, a major expansion/upgrade
project was completed in 1995. This project increased the refinery's capacity by
60,000 barrels per day and enables it to further upgrade low value heavy fuels
to premium distillates.
PETROLEUM - REFINED PRODUCTS MARKETING
PRODUCT SALES: The company and its Caltex Petroleum Corporation affiliate market
petroleum products throughout much of the world. The principal trademarks for
identifying these products are "Chevron," "Gulf" (principally in the United
Kingdom) and "Caltex." U.S. sales volumes of refined products by the company
during 1995 amounted to 1,117 thousand barrels per day, equivalent to
approximately 7 percent of total U.S. consumption. Worldwide sales volumes,
including the company's share of affiliate's sales, averaged 2,086 thousand
barrels per day in 1995, a decrease of about 7 percent from 1994. This decrease
was largely due to the sale of the company's Philadelphia, Pennsylvania,
refinery in August 1994 and its Port Arthur, Texas refinery in February 1995 as
well as refinery downtime in 1995. This decrease was partially offset by higher
sales recorded by the company's Caltex affiliate.
- 18 -
The following table shows the company's and its affiliate's refined product
sales volumes, excluding intercompany sales, over the past three years.
-----------------------------------------------------------
REFINED PRODUCTS SALES VOLUMES
(Thousands of Barrels Per Day)
1995 1994 1993
------ ------ ------
United States
Gasolines 552 615 652
Gas Oils and Kerosene 196 277 325
Jet Fuel 241 260 247
Residual Fuel Oil 38 65 94
Other Petroleum Products* 90 97 105
------ ------ ------
Total United States 1,117 1,314 1,423
------ ------ ------
International
United Kingdom 97 118 111
Canada 58 56 50
Other International 157 140 168
------ ------ ------
Total International 312 314 329
------ ------ ------
Total Consolidated Companies 1,429 1,628 1,752
Equity in Affiliate 657 620 594
------ ------ ------
Total Including Affiliate 2,086 2,248 2,346
====== ====== ======
* Principally naphtha, lubes, asphalt and coke.
-----------------------------------------------------------
The company's Canadian sales volumes consist of refined product sales in British
Columbia and Alberta by the company's Chevron Canada Limited subsidiary. In the
United Kingdom, the reported sales volumes comprise a full range of product
sales by the company's Gulf Oil (Great Britain) Ltd. subsidiary. The 1995
volumes reported for "Other International" relate primarily to international
sales of aviation, marine fuels, gas oils and refined products in Latin America,
the Far East and elsewhere. The equity in affiliate's sales in 1995 consists of
the company's interest in Caltex Petroleum Corporation, which operates in
approximately 60 countries including the Philippines, Thailand, New Zealand,
South Africa and, through Caltex affiliates, in Australia, Japan and Korea.
Due to the global nature and interdependence of the company's oil and petroleum
products trading and marketing businesses, the company realigned the operations
of its principal international trading company, Chevron International Oil
Company, with those of its U.S. counterpart, Chevron Products Company and its
international upstream company, Chevron Overseas Petroleum Inc. in January 1996.
In connection with this realignment, Chevron Products Company's lubricants
division announced that it will reorganize into a Global Business Unit to better
serve international markets.
Retail Outlets: In the United States, the company supplies, directly or through
jobbers, approximately 8,400 motor vehicle, aircraft and marine retail outlets,
including more than 1,900 company-owned or -leased motor vehicle service
stations. The company's gasoline market area is concentrated in the southern,
southwestern and western states. Chevron estimates it is the fifth largest
seller of gasoline in the United States and is among the top three marketers in
14 states.
Non-fuel revenues continue to be an area of growth and opportunities for the
company. After testing consumers' interest in 1994 and 1995, Chevron signed an
agreement with McDonald's to develop a network of retail sites that join Chevron
service stations and convenience stores with McDonald's restaurants in 12
western and southwestern
- 19 -
states. Revenues from direct mail marketing, introduced in 1993, continued to
grow in 1995 as did revenues from convenience stores and enhanced car wash
facilities.
The company expanded its "FastPay" system, increasing the total service stations
with the system to about 3,000 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.
In December 1995, the company announced the realignment of its U.S. gasoline
marketing business, combining several regional offices and consolidating support
functions with the aim of increasing the focus of the organization on customer
service and sales growth. The reorganization will leave service station
operations largely unaffected, but will reduce the number of non-service station
support personnel by 130 positions.
Internationally, the company's branded products are sold in 193 owned or leased
stations in British Columbia, Canada and in 523 (208 owned or leased) stations
in the United Kingdom.
PETROLEUM - TRANSPORTATION
TANKERS: Chevron's controlled seagoing fleet at December 31, 1995 is summarized
in the following table. All controlled tankers were utilized in 1995.
----------------------------------------------------------------------------
CONTROLLED TANKERS AT DECEMBER 31, 1995
U.S. Flag Foreign Flag
---------------------------- ----------------------------
Cargo Capacity Cargo Capacity
Number (Millions of Barrels) Number (Millions of Barrels)
------ --------------------- ------ ---------------------
Owned - - 19 18
Bareboat Charter 6 2 10 14
Time-Charter - - 7 3
--- --- ---- ----
Total 6 2 36 35
=== === ==== ====
----------------------------------------------------------------------------
Federal law requires that cargo transported between U.S. ports be carried in
ships built and registered in the United States, owned and operated by U.S.
entities and manned by U.S. crews. At year-end 1995, 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 1995, 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 above, the company owns
a one-sixth undivided interest in each of six 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 primarily to
various Japanese gas and electric utilities.
Chevron continued to upgrade and "right-size" its fleet of vessels in 1995 by
selling one 2.0 million barrel capacity tanker and one 500,000 barrel capacity
tanker in its international and U.S. fleet, respectively. The company also had a
net reduction in its time-chartered fleet by one tanker and 1.2 million barrels
of capacity during 1995. Four
- 20 -
international tankers were sold for $282 million and leased back in 1995 to
provide fleet management flexibility in the form of charter termination options.
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 crude oil, refined
products and natural gas pipelines in the U.S. The company also has direct or
indirect interests in other U.S. and international pipelines. The company's
ownership interests in pipelines are summarized in the following table:
-------------------------------------------------------------------
PIPELINE MILEAGE AT DECEMBER 31, 1995
Wholly Partially
Owned Owned(1) Total
------ ---------- ------
United States:
Crude oil(2) 5,189 605 5,794
Natural gas 405 32 437
Petroleum products 4,265 1,472 5,737
------ ------ ------
Total United States 9,859 2,109 11,968
------ ------ ------
International:
Crude oil - 772 772
Natural gas - 228 228
Petroleum products 12 84 96
------ ------ ------
Total International 12 1,084 1,096
------ ------ ------
Worldwide 9,871 3,193 13,064
====== ====== ======
(1)Reflects equity interest in lines.
(2)Includes gathering lines related to the transportation function.
Excludes gathering lines related to the U.S. production function.
-------------------------------------------------------------------
The company sold its 50 percent interest in Kenai Pipe Line Company, located in
Alaska, in March 1995 and its 15 percent interest in Platte Pipe Line Company,
located in the central United States, in February 1996.
CHEMICALS
The company's chemicals operation manufactures and markets commodity chemical
products for industrial use and chemical additives for fuels and lubricants. At
year-end 1995, Chevron Chemical Company owned and operated 19 U.S. manufacturing
facilities in 10 states, owned manufacturing facilities in Brazil and France,
and owned a majority interest in a manufacturing facility in Japan. The
principal U.S. plants are located at Cedar Bayou, Orange and Port Arthur, Texas;
St. James and Belle Chasse, Louisiana; Marietta, Ohio; Pascagoula, Mississippi;
and Richmond, California. The company's three major operating divisions in 1995
were "Olefins and Derivatives," "Aromatics and Derivatives," and "Oronite
Additives." Chevron completed its withdrawal from the fertilizer business with
the sale of its remaining fertilizer plant in St. Helens, Oregon in January
1996.
- 21 -
The following table shows, by chemical division, 1995 revenues and the number of
owned or majority owned chemical manufacturing facilities and combined operating
capacities as of December 31, 1995.
- ------------------------------------------------------------------------------
CHEMICAL OPERATIONS
Manufacturing
Facilities
-------------- 1995
Inter- Annual Revenue(1)
Division U.S. national Capacity ($ Millions)
--------------------------- ----- -------- -------------------- ------------
Olefins and Derivatives 10 - 7,035 million lbs. $1,541
Aromatics and Derivatives 5 - 5,126 million lbs. 1,263
Oronite Additives 2 3 181 million gal. 876
Other (including
excise tax)(2) 2 - 89
--- ---- ------
Totals 19 3 $3,769
=== ==== ======
(1)Excludes intercompany sales.
(2)No meaningful common measurement for annual capacity.
- ------------------------------------------------------------------------------
The company is reorganizing its Olefins and Aromatics divisions to take better
advantage of strengths in U.S. markets and to increase the company's focus on
developing international growth opportunities. The former Olefins and Aromatics
divisions will be combined to form one U.S. Chemicals Division that will be
headquartered in Houston, Texas. A new International Group, headquartered in San
Ramon, California, will be responsible for coordination of non-U.S. supply
sources, marketing, and new manufacturing projects overseas. The Oronite
Additives Division, which already operates internationally, is unaffected by the
reorganization.
Expansion of the linear low density polyethylene (LLDPE) manufacturing facility
at Cedar Bayou, Texas was completed in the first quarter of 1996. The expansion
increased the plant's production capacity of LLDPE by 340 million pounds per
year. The company announced plans to expand and modernize its ethylene
production facilities at Port Arthur, Texas. The project, expected to begin in
1996 and last through year-end 1997, will increase plant capacity from 1 billion
to 1.7 billion pounds per year. The company's Marietta, Ohio polystyrene plant
is also slated for a $50 million expansion, which is targeted for an April 1997
start-up. At the company's Pascagoula, Mississippi refinery, construction on a
paraxylene facility expansion is scheduled to begin in 1996, with an anticipated
start-up date in 1998. Internationally, in a 50/50 joint venture, the company
expects to begin construction of a $600 million aromatics complex using the
company's Aromax technology in Jubail, Saudi Arabia in 1996. The company has
also contracted to build a fuel and lube oil additives plant in Singapore.
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 three surface and
two underground mines as of year-end 1995. Two of the mines are located in New
Mexico and one each in Wyoming, Alabama and Kentucky. 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 southwest and southeast. P&M also has a 33 percent
interest in the Black Beauty Coal Company whose principal operations are in
Indiana and Illinois.
Sales of coal from P&M's wholly-owned mines and from its interest in the Black
Beauty Coal Company were 17.3 million tons in 1995, a decrease of 15 percent
from 1994 sales of 20.4 million tons. The decrease was primarily due to lower
sales at the McKinley, New Mexico mine (caused by an abundance of hydroelectric
power and high customer coal inventories that led to reduced demand), a
reduction in the company's interest in Black Beauty Coal Company from 50 percent
to 33 percent in late August 1994 and reduced sales from the Edna, Colorado coal
mine that was idled in December 1994. About 60 percent of 1995 sales came from
two mines, the McKinley Mine and the
- 22 -
Kemmerer Mine in Wyoming. The average selling price for coal from mines owned
and operated by P&M was $23.67 per ton in 1995 compared to $24.39 per ton in
1994, contributing $350 million and $414 million to Chevron's consolidated sales
and other operating revenues in 1995 and 1994, respectively. At year-end 1995,
P&M controlled approximately 507 million tons of developed and undeveloped coal
reserves, including significant reserves of environmentally desirable low-sulfur
coal.
Demand growth for coal in the United States 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. In 1995, the
electric utility industry consumed over 80 percent of all coal produced in the
United States. Approximately 88 percent of P&M's coal sales are made to electric
utilities. Of those sales, about 50 percent are under contracts longer than 10
years and 20 percent are under three to ten year contracts based on original
contract terms. Generally, these contracts contain index adjusted pricing
provisions and minimum take requirements that have helped mitigate the effects
of short-term fluctuations in coal prices and consumption levels on P&M.
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 1995
numbered approximately 2,300.
Chevron's research and development expenses were $185 million, $179 million and
$206 million for the years 1995, 1994 and 1993, respectively.
In August 1995 the company agreed to license its Isodewaxing technology to
China's Daqing Petroleum Administrative Bureau for a planned lube base oil plant
750 miles northeast of Bejing. The company's Isodewaxing technology also was
selected by Neste Oy for a new lube oil manufacturing facility at Porvoo
Refinery near Helsinki, Finland. Isodewaxing is a catalytic process that
changes the characteristics of waxy molecules in crude feedstocks, resulting in
a greater yield of high-quality base oils at a lower operating cost than
conventional solvent-based processing.
Licenses under the company's patents are generally made available to others in
the petroleum and chemical industries. However, the company's business is not
dependent upon licensing patents.
ENVIRONMENTAL PROTECTION: One of Chevron's goals is to be recognized worldwide
for environmental excellence. Chevron's revised corporate policy on Health,
Environment and Safety was approved by the stockholders in 1991. In 1992, a
comprehensive program of 102 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 Association's program called "Responsible Care." It is also
similar to the American Petroleum Institute's program called "Strategies for
Today's Environmental Partnership." In 1994, the company published an
environmental, health and safety performance report named "Measuring Progress -
A Report on Chevron's Environmental Performance." This report describes the
company's environmental performance since its last environmental report issued
in 1990 and summarizes the company's policy and approach to environmental
protection.
The company's oil and gas exploration activities, along with those of many other
petroleum companies, have been hampered by drilling moratoria, imposed because
of environmental concerns, in areas where the company has leasehold interests.
Difficulties and delays in obtaining necessary permits, 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
- 23 -
position, its liquidity, or its competitive position relative to other U.S. 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.
Since 1991, the company has spent over $1.6 billion in capital expenditures on
air quality projects at its refining facilities, primarily in order to comply
with federal and state clean air regulations and to provide consumers with fuels
that reduce air pollution and air toxicity. As of January 1, 1995, the Clean Air
Act Amendments of 1990 require that only reformulated gasoline (RFG) may be sold
in the nine worst ozone areas in the United States and other areas have
voluntarily opted into the RFG requirement. In addition, the California Air
Resources Board requires a more stringent reformulated gasoline be sold
statewide in all service stations beginning on June 1, 1996.
The Federal Oil Pollution Act of 1990 (OPA) created federal authority to direct
private responses to oil spills, to improve preparedness and response
capabilities, and to impose monetary damages on spillers for restoration and
loss of use of the resources during restoration. Under OPA, owners or operators
of vessels operating in U.S. waters or transferring cargo in waters within the
U.S. Exclusive Economic Zone are required to possess a Certificate of Financial
Responsibility for each of these vessels. The Certificate is issued by the U.S.
Coast Guard after the owner or operator has demonstrated the ability to meet
Coast Guard guidelines for financial responsibility in the case of an oil spill.
OPA also requires the scheduled phase-out, by year-end 2014, of all single hull
tankers for trading to U.S. ports or transferring cargo in waters within the
U.S. Exclusive Economic Zone, which has and will continue to result in the
utilization of more costly double hull tankers. A separate single hull phase-out
schedule under the International Maritime Organization's Regulation 13 is
leading to the utilization of more costly double hull tankers in Europe and some
other parts of the world. Chevron has been actively involved in the Marine
Preservation Association, a non-profit organization that funds the Marine Spill
Response 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. In addition, the company is a member of many oil-spill
response cooperatives in areas in which it operates around the world.
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.
In 1995, the company's U.S. capitalized environmental expenditures were $607
million, representing approximately 29 percent of the company's total
consolidated U.S. capital and exploratory expenditures. The company's U.S.
capitalized environmental expenditures were $645 million and $620 million in
1994 and 1993, 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 marketing facilities. For 1996,
the company estimates that capital expenditures for environmental control
facilities will be approximately $188 million. The actual expenditures for 1996
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 are expected to stabilize at the estimated
1996 levels with the completion of air quality projects in 1995 to produce
cleaner-burning fuels at the company's two California refineries.
Under provisions of the Superfund law, Chevron has been designated as a
potentially responsible party (PRP) for remediation of a portion of 251
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 1995, the company's
environmental remediation reserve related to Superfund sites amounted to $60
million. Forecasted expenditures for the largest of these sites, located in
California, amounts to approximately 18 percent of the reserve.
- 24 -
The company's 1995 environmental expenditures, remediation provisions and year-
end environmental reserves are discussed on pages FS-2 through FS-3 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, natural gas, coal 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-29 to FS-34 of this Annual Report on Form 10-K.
Note 13, "Properties, Plant and Equipment," to the company's financial
statements contained on page FS-23 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 1995, 1994 and 1993.
ITEM 3. LEGAL PROCEEDINGS
A. CITIES SERVICE TENDER OFFER CASES.
The complaint by Cities Service Co. ("Cities Service") 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 been dismissed.
Plaintiff Cities Service filed its Second Amended Petition on April 25, 1994,
adding Oxy U.S.A. as the successor to plaintiff Cities Service, adding Chevron
U.S.A. Inc. as successor to Gulf Oil Corporation and adding Chevron Corporation
as a new defendant. In addition to the existing claims for breach of contract
and fraud, the amendments added the following causes of action: willful and
malicious breach of contract, negligent misrepresentation, interference with
prospective economic advantage in connection with the 1989 proposed Oxy-Cities
Department of Energy ("DOE") settlement, and the claimed DOE liability as
additional contract damages and as additional fraud damages. The amendment also
added a claim for punitive damages based upon the alleged fraud, negligent
misrepresentation, willful breach and interference claims and requested not less
than $100 million on each of the several claims, together with pre-judgment
interest and punitive damages. It also requested $12 million plus prejudgment
interest for Cities' costs in defending against DOE proceedings since 1989, and
an order entitling Cities Service 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.
Defendants answered, in part, the plaintiff's Second Amended Petition and moved
to dismiss the claims for negligent misrepresentation, malicious breach of
contract and interference with prospective economic advantage. In addition,
defendant Chevron Corporation moved to dismiss the petition for lack of subject
matter jurisdiction.
The motion to dismiss the new tort claim and certain other claims was denied and
an answer to these claims was timely filed. Chevron Corporation's motion to
dismiss for lack of personal jurisdiction was granted on September 7, 1994.
Plaintiff's motion to dismiss defendants' counterclaim was also granted.
The Oklahoma Supreme Court has denied defendants' petition for certiorari on the
trial court's certified interlocutory order concerning the defenses based upon
certain conditions in the contract and alleged misstatements by plaintiff
concerning its potential DOE liability.
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Plaintiff's motion to bifurcate this case for two trials was granted by the
trial court on January 23, 1995. The first, and now only, trial will concern
plaintiff's claims for alleged breach of contract, willful and malicious breach
of contract, and negligent misrepresentation. Jury selection is expected to
begin in late March 1996. The second trial was to have covered plaintiff's
claims for alleged interference with prospective economic advantage in
connection with the proposed 1989 DOE settlement, and the claimed DOE liability
as additional damages under another claim of breach of contract. These claims
were settled in November 1995