In 2004, our company delivered the strongest financial performance in its 125-year history. Net income was $13.3 billion. We outperformed our peers in return on capital employed, a key measure of overall company performance. We strengthened our balance sheet, reducing our debt level by $1.3 billion and ending the year with cash and marketable securities of $10.7 billion. Most significant, we achieved a total stockholder return for the year of 25.5 percent and accomplished our five-year goal to be a leader among our three largest peers in this measure, posting an annualized return of 7.4 percent for 2000 through 2004. This was 9.7 percentage points higher than Standard & Poor's 500 return over the same five-year period.
We increased our annual dividend payments for the 17th consecutive year and returned value to stockholders through the launch of a common stock buyback program of up to $5 billion by 2007. At the end of 2004, we had repurchased shares in the open market totaling more than $2 billion.
We accomplished all of this while having our safest year ever — a core value at ChevronTexaco.
Right Strategies
Our performance was driven by executing well against the right strategies at the right time. In upstream, our strategic focus is on growing profitability in core areas and building new legacy positions. Our natural gas strategy targets the commercialization of our significant international resource base for delivery to North American and Asian markets. In downstream, our strategic priority is to enhance returns by focusing on areas of market and supply strength.
Oil demand has been stronger than predicted, and spare capacity has been reduced. With almost 75 percent of our production in crude oil, we are well positioned to benefit from higher prices. At the same time, refining margins have been particularly strong in Asia and the U.S. West Coast and Sun Belt, where the company has a majority of its refining capacity.
Strong Focus, Execution, Growth
While the industry benefited from high commodity prices this past year, ChevronTexaco's performance was enhanced by strong execution against its strategic objectives. Specific achievements included strong exploration results, with potentially significant new crude oil and natural gas discoveries in North America, Europe, Australia, Africa and Latin America. We also continued our portfolio rationalization through the sale of nonstrategic production assets at a time when we could take advantage of high market prices. In 2004, our downstream operations were aligned functionally across the globe. This resulted in operating and efficiency gains and produced significant earnings improvements. We also made solid progress toward commercializing our equity natural gas resource base, most notably by securing long-term regasification capacity in the U.S. Gulf of Mexico and obtaining key permits for a planned Baja California, Mexico, liquefied natural gas import terminal.
We continued to focus on integrating our operations across the enterprise to capture efficiencies and create new value. For example, we modified our Pembroke Refinery in the United Kingdom to process market-disadvantaged equity crude oil from our Chad operations in Africa into high-quality gasoline blendstocks for North America. We have combined separate groups to create a single organization to manage technology for upstream and downstream. This approach, which is unique in the industry, allows us to optimize technology solutions across the enterprise, from the reservoir to the retail pump.
Looking forward, our growth opportunities are excellent. We are aggressively managing production decline rates in mature fields, adding exploration acreage in key areas and building a world-class portfolio of capital projects — Benguela Belize-Lobito Tomboco in Angola, Agbami in Nigeria, Tahiti in the Gulf of Mexico and the Tengizchevroil expansion in Kazakhstan. All of these projects are scheduled to come online over the next four years, contributing to our oil-equivalent production goal of 3 million barrels a day by 2008.
A New Equation
We are at a strategic inflection point in our industry. The convergence of growing demand, challenging resource locations such as the deep water and oil sands, a need for greater diversity of energy supplies, a complex geopolitical environment, and a shifting competitive landscape have created a fundamentally new energy equation.
ChevronTexaco is strongly positioned to succeed in this new environment. We have robust strategies that have been tested under a variety of market conditions. We are committed to achieving and maintaining world-class levels of operating and capital discipline. We are leveraging technology to create operating efficiencies in the near term and develop promising new energy sources for the long term. We are continuing to build on our efforts to be the partner of choice in strategic energy regions of the world.
A strong reflection of our commitment to partnership occurred in 2004 when our Board of Directors held a meeting in Angola to review our business operations, witness our community engagement projects and visit with the country's leadership. It was one of the first times a Board from a major multinational company has met in sub-Saharan Africa, and it was an affirmation of our continuing commitment to this continent.
Even with sound strategies and a strong balance sheet, the critical factor for success is having the right people in the right positions doing the right things. ChevronTexaco's people performed superbly in 2004, and we are continuing to enhance the capabilities and commitment of our global work force. We have a strong management team with a proven track record and a dedicated, experienced Board. We look forward to the opportunities we face in the coming year to increase competitive returns and stockholder value and to deliver the energy needed to fuel economic development and growth around the world.
Thank you for your continued support.
Chairman of the Board and Chief Executive Officer
March 2, 2005
Chairman of the Board and Chief Executive Officer