Chevron Corp. is bullish on oil and gas prices, according to chief financial officer John Watson, who spoke recently to Wall Street oil analysts and investors. "Our plan going forward is based on $20 or so [oil]. That's the way we're doing our capital budgets." Watson calls the figure "moderate," yet it is higher than some other big oils' $12- to $15-per-barrel budgets. "There has always been a high correlation between economic activity, economic growth and demand for hydrocarbons," Watson says. "When people plug in their computers, they need power, and that's going to come from hydrocarbons or some other form of energy that we can participate in." The major, which hopes to merge with Texaco Inc. next year, reported third-quarter operating earnings of more than $1.6 billion. "There's a tendency to attribute all the improvement to commodity prices. Another way to look at it is that this is our reward," Watson says. "Chevron has been investing heavily in the upstream side of the business for the last five to 10 years. We were once more of a downstream company. We had the highest return on capital employed of all our competitors and that's because of our portfolio and where we're invested."

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