Chevron Corporation (CVX)

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Chevron (CVX)

Q4 2011 Earnings Call

January 27, 2012 11:00 am ET

Executives

Patricia E. Yarrington - Chief Financial Officer, Principal Accounting Officer and Vice President

Jeanette Ourada -

John S. Watson - Chairman and Chief Executive Officer

Analysts

Evan Calio - Morgan Stanley, Research Division

Paul Y. Cheng - Barclays Capital, Research Division

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Iain Reid - Jefferies & Company, Inc., Research Division

Mark Gilman - The Benchmark Company, LLC, Research Division

Edward Westlake - Crédit Suisse AG, Research Division

Paul Sankey - Deutsche Bank AG, Research Division

Faisel Khan - Citigroup Inc, Research Division

Jason Gammel - Macquarie Research

Presentation

Operator

Good morning, my name is Sean, and I will be your conference facilitator today. Welcome to Chevron's Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the conference call over to the Chairman and Chief Executive Officer of Chevron Corporation, Mr. John Watson. Please go ahead.

John S. Watson

Well, thanks, Sean. And welcome, everyone, to Chevron's Fourth Quarter Earnings Conference Call and Webcast. On the call with me today are Pat Yarrington, you all know our Chief Financial Officer; and Jeanette Ourada, our General Manager of Investor Relations. And we'll refer to the slides that are available on Chevron's website.

Before we get started, as usual, please be reminded that this presentation contains estimates, projections and other forward-looking statements. We ask that you review the cautionary statement on Slide 2.

Turning to Slide 3, I want to begin with safety where we always do. In March of last year, I talked with you at some length about Chevron's safety journey, over 100 years of focus and improvements in our systems and processes. I said we work to improve every day. As a result of our efforts, every key measure of safety and environmental performance has improved dramatically over the last decade. In fact, we just had another very good statistical year in safety. We had world-class low industrial injury rates, we had fewer fires, serious auto and other incidents; some very good performance during the year, but we’re nowhere near where we want to be.

In particular, we had drilling-related incidents in recent months in Brazil and Nigeria, sadly with 2 contract employee fatalities in Nigeria. We have full investigations underway and are doing everything we can to learn from these incidents. There is a great deal of information available on our website, and I'll be happy to answer any questions after we complete our prepared remarks.

Our financial performance in 2011 was outstanding. We achieved record earnings and cash flow, underscoring the strength of our portfolio and strategic direction. Underlying these record financial results is our outstanding upstream earnings per barrel. We invest to generate value for our shareholders, and we like high-value barrels. While our peers have not all reported their fourth quarter results, we fully expect to maintain our wide lead on this critical metric.

I'd like to summarize a few additional accomplishments in the upstream business. We sanctioned 3 major projects. We broke ground in December on Wheatstone, our second legacy LNG project in Australia. We also moved forward on Clair Ridge in the U.K. and Tubular Bells in the Gulf of Mexico. In the Gulf of Thailand, our Platong II project start up and ramped up very quickly. We completed our acquisition of Atlas Energy and supplemented it with some additional acreage acquisitions in the Marcellus.

We continued our string of exploration successes offshore Australia with 4 natural gas discoveries, and we announced the Moccasin oil discovery in the deepwater Gulf of Mexico. And we achieved 171% reserve replacement driven by the initial booking of about 740 million barrels of oil equivalent from our Wheatstone LNG Project.

Looking at our downstream business, we made great progress in the second year of a 3-year plan to improve returns. The completion of the Pembroke Refinery sale marked a significant milestone in our portfolio rationalization process. We also made a final investment decision and began construction on a premium base oil plant at our Pascagoula, Mississippi refinery, which when completed will position Chevron as the world's leading supplier of premium base oils. We're very proud of our performance this past year.

With that, I'll turn it over to Pat, who will take you through our financial results. Pat?

Patricia E. Yarrington

All right. Thanks, John. Slide 4 provides an overview of our financial performance. The company's fourth quarter earnings were $5.1 billion, or $2.58 per diluted share. For the year, earnings were a record $27 billion, or $13.44 per diluted share, over 40% higher than in 2010.

Return on capital employed for the year was nearly 22%, and our debt ratio at year end was 7.7%. Of particular note, 2011 marked our 24th consecutive annual dividend increase. We had 2 dividend increases during the year, which resulted in a combined 12.5% rise in the quarterly rate in 2011. This is significant, indicating not only our superior performance and our financial strength, but also our confidence in our future performance. It is also consistent with our priority of rewarding shareholders with sustained and competitive dividend growth.

In the fourth quarter, we repurchased $1.25 billion of our shares, bringing the full year share repurchase total to $4.25 billion. In the first quarter of 2012, we expect to repurchase $1.25 billion of our shares.

Finally, Chevron's 2011 total shareholder return was 20%. We hold the #1 TSR position versus our peer group for the 1-, 5- and 10-year periods. We are exceptionally proud of this achievement as it demonstrates our history of making wise portfolio investment decisions and executing well.

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