It is forming a worldwide chemicals joint venture with Phillips Petroleum Co., but Chevron Corp. does not plan to take a similar step with its domestic refining and marketing operations, the multinational oil company's new chairman said. "In the U.S. downstream, we feel we have a very good position with a 20% market share west of the Rockies. We see no reason to form a joint venture there," the chairman, Dave O'Reilly, told reporters while in Washington. The company has established a goal of a 12% return on capital employed in refining and marketing as part of its plan to lead its peers in total returns to shareholders within five years. O'Reilly conceded that improving downstream ROCE has been difficult to achieve, but he added that Chevron has made substantial progress; the figure has improved from 5% to 6% in the early 1990s to 9% to 10% now. The company's earnings will need to grow 15% annually during the next three years to reach the goal, O'Reilly said. He listed four key drivers to achieve such growth: safe, reliable operations that also maximize output; continued cost reductions; sound capital stewardship, not merely from making good decisions, but executing projects well; and profitable growth at all levels of the company, enhanced with opportunities. "It is critical that we have a capable, competent organization focused on these four areas," O'Reilly said. Chevron plans to cut its operating costs per barrel to $4.85 in the next year from about $5 currently. Its operating cost per barrel was $7 six or seven years ago, according to O'Reilly. He said that the reductions will come from applying the latest information technology to all areas of the company. Asked if Chevron would consider a megamerger, O'Reilly smiled and said, "Why? We're the second largest U.S. oil company now, behind Exxon Mobil Corp." He added that a megamerger could be considered if the combination would increase shareholder value substantially. But finding such a combination is difficult, O'Reilly emphasized. "The question is not size, but whether you can compete effectively in the areas where you do business," he said. -Nick Snow
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