1. © ChevronTexaco 2004 Accelerating the Deployment of Technology to Business Opportunities Kevin Kimber – ChevronTexaco David Matheson - SmartOrg Value-Based Management Systems

2. 2 Exploration & Production Refining Chemicals Power Technology ChevronTexaco ranks among the world’s largest global energy companies ChevonTexaco Headquarters 180 countries 53,000 employees US $8.5 Billion capital 11.9 billion BOE oil and gas reserves 2.6 million BOE daily net production RRR of 114% in 2002 4 th largest publicly traded integrated oil in the world based on reserves and production Global Business – Global Technology

3. 3 Technological advancement and integration are key to future ChevronTexaco opportunities… Heavy oil production and upgrading Deepwater production systems Global gas supply and markets Zero-incident / zero-impact operations Energy systems and fuels of the future

4. 4 Heavy Oil – A Huge Resource but a Real Challenge Upgrading Steamflooding Technology plays a key role in Commercialization of Heavy Oil Reserves Steamflooding has added $ billions in value through increased recovery Upgrading has added $ millions in increased product value CT spends about $30 million per year on R&D in this area Heavy oil is very thick and viscous making it difficult to produce from underground formations and requiring greater processing to refined products Production History of Duri Steamflood

5. 5 Role of Portfolio Optimization Process & Tools for Heavy Oil Technology Like many organizations, we faced significant challenges… Business needs for technology were not being met in a timely fashion Corporate growth objectives demanding more for less Technologists keeping projects alive too long Inconsistent project evaluations Not enough project failures Difficulty comparing projects of different types Limitations of thumbs up / down approach to project prioritization

6. 6 CT Heavy Oil responded by implementing a value-based management process. Project Justifications Business cases Portfolio Decisions Subjective Factors Before: a roll-up event

7. 7 Templates provided a standard basis for evaluation and comparison. We found we could address 40 projects with just three templates: Improvements to oil production efficiency Improvements to upgrading processes Generic Basis for consistent and comparable assessments of technical risk and commercial contribution

8. 8 Explicitly managing project uncertainty helps teams drive the upside. Helped team move away from concerns about capital cost of new technology and focus on acceleration of deployment and maximizing peak production

9. 9 A transparent process helped address the “garbage-in, garbage-out” problem. Historically this was one of the most challenging issues Process and tools key to overcoming Project Comparison Tools

10. 10 Using value as the primary decision criteria helps people make and accept decisions. Portfolio Evaluation Tools CFO Chart Innovation Screen

11. 11 Evidence-based uncertainty tracking gives improved visibility to project changes. Capturing Basis of Assessment Value Tracking

12. 12 The result: acceleration of technology to business opportunity. 20032004Improvement New ideas screened 223560% Projects initiated 6950% Projects Deployed 12100% Projects Terminated 36100%

13. 13 Acceleration is worth tens of millions. Illustrative Scenario: Stopping one project a year earlier than we otherwise would, saves the avoided project cost, but more importantly… — Allows funding & resources to accelerate another project or initiate a new one Annual value of this scenario: — $10 million or 30% of annual budget Targeted improvement in business impact over next 3 years is 100%

14. 14 Summary Goal was to develop a process & tools to: Ensure technology development is aligned with business strategy & intersects opportunity Accelerate development & deployment of technology Optimize technology portfolio value Benefits of a Portfolio Mgt Process for Heavy Oil Technology Consistent & comparable project evaluations Clear commercial benefits & deployment schedules Earlier project “kills” Accelerated initiation & deployment of projects Transparent, value-based portfolio decisions Greater portfolio value

15. 15 For more information… To contact the authors: Kevin Kimber: kevinkimber@chevrontexaco.comkevinkimber@chevrontexaco.com David Matheson: dmatheson@smartorg.comdmatheson@smartorg.com Value-Based Management Systems