2008



To Our Stockholders 

2008 was a momentous year for Chevron. We reported our fifth consecutive year of record earnings. We had exceptional success finding new sources of crude oil and natural gas. We started up five major capital projects, with more to follow. And as economic challenges gripped the world’s attention in the second half of the year, Chevron people addressed those challenges and focused on the long term — helping to ensure safe, diversified supplies of energy for decades to come. 

Net income of $23.9 billion rep- resented a 28.1 percent increase over the previous year. Capital and exploratory expenditures for 2008 were $22.8 billion, and return on capital employed was 26.6 percent. For the 21st consecutive year, we increased our annual dividend payout. We continued to return cash to our stockholders through stock buyback programs, purchasing $8 billion of our common shares during 2008. In total stockholder return, we outperformed the S&P 500 by nearly 19 percentage points. While our total stockholder return was negative 18.4 percent, our results stood out compared with the market and most peers, underscoring our strength and discipline. 

Our strategies focus on delivering value over time: In 2008, we advanced our queue of 40 major capital projects, each with a net Chevron share of investment exceed- ing $1 billion. We added 1.3 billion barrels of oil-equivalent proved  reserves, replacing 146 percent of oil-equivalent production this year. We also significantly improved our operating reliability at our eight company-operated refineries. 

The people of Chevron managed these achievements while accom- plishing one more: 2008 was our safest year ever. We earned one of the best safety records in our indus- try, making our global operations four times safer than five years ago. 

In the upstream, we brought proj- ects onstream that are as large as they are long-term. 

In the U.S. Gulf of Mexico, we began production at our deepwater Blind Faith Field. In Kazakhstan, Tengizchevroil completed major expansion projects that nearly doubled production capacity from the giant Tengiz Field. In Indonesia, an expansion of our Duri Field started production. In Australia, our fifth liquefied natural gas proc- essing unit came onstream. And in Nigeria, our Agbami deepwater field celebrated first oil. 

The ability to efficiently produce over decades depends as much on strong partnerships as on operational and technical skills. In 2008, we extended our agreement with the Kingdom of Saudi Arabia for 30 years to operate the Kingdom’s 50 percent crude oil and natural gas interests in the Partitioned Neutral Zone between the Kingdom and the State of Kuwait. 

To increase flexibility in refining the world’s full range of crude oils, we upgraded key refineries in 2008. Refineries in California, Mississippi and at our 50 percent-owned Yeosu Refinery in South Korea now trans- form lower-cost, heavier crude oils into premium-value products. These major upgrades also included facilities to improve long-term reliability.

Running efficient, reliable operations also means anticipating the forces of nature. Last summer, Hurricanes Dolly, Gustav and