Human Energy 2005 Annual Report “WHAT WE’RE MADE OF” Hurricanes Katrina and Rita interrupted crude oil and transportation and marketing operations and to natural gas production in the U.S. Gulf of Mexico and deliver critically needed emergency fuel to the region. temporarily shut down one of our largest refi neries. “There wasn’t a barrier we couldn’t overcome,” says Chevron employees throughout the region responded Roland Kell, general manager of the Pascagoula, to the storms with exceptional courage, compassion Mississippi, refi nery, which was damaged by the and commitment. They rescued neighbors, located storms. “We truly found out what we’re made of.” colleagues and provided urgently needed food, water, ON THE COVER: Roland Kell, general manager, Pascagoula Refi nery. clothing and medical aid to local communities. At ON THE BACK COVER: The employee team who led relief efforts the same time, they launched a massive, around- and the safe startup of the refi nery: (left to right) Val Vialpando, Darin Matthews, Amy Brandenstein, Amy Jones, Brian Beech, Marisa the-clock effort to restore production, refi ning, Jackson, Bob Phillips and Christine Sims. GROWING ENERGY DEMAND IS ONE OF THE WORLD’S GREAT CHALLENGES. Together, we must continue to fi nd innovative ways to provide the energy that will fuel economic development and improve the quality of life for people everywhere. At Chevron, we are relentlessly focused on producing safe, reli- able energy now and for the future. How are we doing it? By applying the energy we have most in abundance: human energy — our own and that of our partners around the world. TABLE OF CONTENTS Letter to Stockholders 2 Ultraclean Fuel for the Future 15 2005 was a year of unprecedented With our joint-venture partner, we accomplishment and challenge. are applying leading-edge technol- ogy that turns natural gas into an Skyscraper at Sea 7 ultraclean transportation fuel. The fi rst phase of the Benguela Belize-Lobito Tomboco development, Drilling for Success 17 offshore Angola, was completed. The Unocal merger gave us excel- lent assets and talent. Exploring for Growth 9 Tahiti is one of the largest, deepest Human Energy — In Abundance 18 and most signifi cant discoveries made Human energy is evident every- to date in the U.S. Gulf of Mexico. where at Chevron — take a look at the people who are generating it. Technology That Drives Results 11 State-of-the-art injection technology Operating Highlights 20 is expected to signifi cantly increase Milestones were achieved that are production capacity from the giant building a platform for future success. Tengiz Field in Kazakhstan. Glossary of Energy and Financial Delivering the Promise of Terms 24 Natural Gas 13 Financial Review 25 2005 was a year of milestones for Five-Year Operating Summary 87 developing Chevron’s vast natural Five-Year Financial Summary 88 gas resources offshore Western Board of Directors 103 Australia. Corporate Offi cers 104 TO OUR STOCKHOLDERS We enhanced our position in the deep water with dis- 2005 was a year coveries at Big Foot and Knotty Head in the U.S. Gulf of Mexico and at Manatee offshore Trinidad and Tobago, of unprecedented among others. Our combination of experience and applied technology resulted in a total of 31 successful exploration accomplishment wells in 2005 and an exploration success rate of 58 percent, one of the best in the industry. and challenge for We reached key milestones in our queue of major capital projects, most notably the Benguela Belize-Lobito our company. We reported record earnings and completed the acquisi- Tomboco deepwater project in Angola, which is the fi rst tion and integration of Unocal. We made major new of our “Big 5” projects to begin production. We began discoveries of crude oil and natural gas and took sig- construction of production facilities for the Tahiti (U.S.) nifi cant steps to expand our global natural gas business. and Agbami (Nigeria) deepwater projects, as well as the Although our employees and facilities sustained damage Escravos gas-to-liquids plant in Nigeria. Our global gas from back-to-back hurricanes in the U.S. Gulf Coast, we business reached key agreements with Japanese utility are recovering with remarkable resilience and effi ciency. companies for future sales of liquefi ed natural gas (LNG) from the Gorgon project in Australia into Japan, the world’s largest LNG market. Our fi nancial performance refl ects the capital discipline Refi ning and marketing operations benefi ted from that is necessary to create sustained value and growth. strong margins in Asian and U.S. markets, and we moved Net income in 2005 was $14.1 billion on sales and other forward with expansion plans at our largest U.S. refi n- operating revenues of $194 billion – representing record eries. In Asia, we approved a major upgrade of the Yeosu levels in both categories. Return on capital employed for Refi nery in South Korea, the world’s fourth-largest refi n- the year was a strong 21.9 percent. We increased our divi- ery, to enable heavy oil processing. dend in 2005 for the 18th consecutive year, completed the Our planned capital and exploratory spending pro- purchase of $5 billion of the company’s shares in the open gram for 2006 is $14.8 billion, a 34 percent increase over market under a program started in 2004 and initiated a 2005. This level of investment is aligned with our strong new program to acquire up to an additional $5 billion of queue of growth projects and our commitment to bring shares over a period of up to three years. A critical mea- new energy supplies to market. sure of our performance, total stockholder return (TSR), was 11.3 percent for 2005. From 2001 through 2005, TSR averaged 9.7 percent, among the highest of our larger COMPETITIVE ADVANTAGE The operating environ- peer companies. ment for the energy industry continues to be challenging. With a sustained increase in global demand, tight supplies and a dynamic geopolitical situation, we continue to MAINTAINING MOMENTUM We executed strongly believe our industry is dealing with a fundamentally new against our key business strategies in 2005, enhancing energy equation. To some extent, risk in our industry has our foundation for current and future growth. The suc- shifted from below ground – where Chevron has proved cessful integration of Unocal’s operations strengthened ex treme ly effective at fi nding and producing hydrocarbons our competitive profi le in key markets, par ticularly in – to above ground, where challenges include access to Southeast Asia, where we are in the top tier of natural re sources, barriers to the free fl ow of capital investment gas producers. Unocal’s world-class assets in Asia, the Cas- to produce those resources and the economic develop- pian and the U.S. Gulf of Mexico are a superb strate gic ment of infrastructure needed to connect energy supplies fi t with Chevron’s portfolio and capabilities. In addition, to markets. Unocal provided us with a deep source of talent and lead- In this environment, the competitive advantage will go ing-edge technology, particularly with the drill bit, that to companies that demonstrate sustained performance and we are integrating throughout our enterprise. operating excellence, apply new technology in ways that 2 drive results, and create partnerships that enable the effi - It is our people who develop our strategies, build our cient execution of complex cross-border projects. These partnerships, create new technology, ensure that we oper- are all core capabilities of Chevron. ate safely and ethically, and manage the great risks that are part of our business. It is this “human energy” that HUMAN ENERGY: THE HEART OF CHEVRON Our this year’s Annual Report celebrates. It is at the heart of success in 2005 was defi ned by a number of factors – Chevron. And it will continue to drive our mission to robust strategies, consistent execution, a safety record deliver safe, clean and reliable energy to fuel economic that is among the best in our business, innovative technol- growth and human progress. ogy and strong commodity prices. But the fundamental Thank you for your continued support. contributor to our success is the people of Chevron. Their dedication, resourcefulness and sheer ingenuity were on display throughout the year and were dramatically high- lighted in our response to Hurricanes Katrina and Rita. Whether it was Chevron employees helping each other, Dave O’Reilly assisting the community or working to restore energy Chairman of the Board and supplies to the marketplace as quickly as they did, their Chief Executive Officer actions were truly heroic. February 27, 2006 “ IT IS OUR PEOPLE WHO DEVELOP OUR STRATEGIES, BUILD OUR PARTNERSHIPS, CREATE NEW TECHNOLOGY, ENSURE THAT WE OPERATE SAFELY AND ETHICALLY, AND MANAGE THE GREAT RISKS THAT ARE PART OF OUR BUSINESS. IT IS THIS ‘HUMAN ENERGY’ THAT THIS YEAR’S ANNUAL REPORT CELEBRATES.” 3 CHEVRON FINANCIAL HIGHLIGHTS Millions of dollars, except per-share amounts 2005 2004 % Change Net income $ 14,099 $ 13,328 6 % Sales and other operating revenues $ 193,641 $ 150,865 28 % Capital and exploratory expenditures* $ 11,063 $ 8,315 33 % Total assets at year-end $ 125,833 $ 93,208 35 % Total debt at year-end $ 12,870 $ 11,272 14 % Stockholders’ equity at year-end $ 62,676 $ 45,230 39 % Cash provided by operating activities $ 20,105 $ 14,690 37 % Common shares outstanding at year-end (Thousands) 2,218,519 2,092,952 6 % Per-share data Net income – diluted $ 6.54 $ 6.28 4 % Cash dividends $ 1.75 $ 1.53 14 % Stockholders’ equity $ 28.25 $ 21.61 31