balance primarily reflects drilling activities in the United States, Nigeria and Indonesia.

     The future trend of the company’s exploration expenses can be affected by amounts associated with well write-offs, including wells that had been previously suspended pending determination as to whether the well had found reserves that could be classified as proved. The effect on exploration expenses in future periods of the $1.1 billion of suspended wells at year-end 2005 is uncertain pending future activities, including normal project evaluation and additional drilling.

     Refer to Note 20, beginning on page FS-49, for additional discussion of suspended wells.

     Equity Redetermination For crude oil and natural gas producing operations, ownership agreements may provide for periodic reassessments of equity interests in estimated crude oil and natural gas reserves. These activities, individually or together, may result in gains or losses that could be material to earnings in any given period. One such equity redetermination process has been under way since 1996 for Chevron’s interests in four producing zones at the Naval Petroleum Reserve at Elk Hills, California, for the time when the remaining interests in these zones were owned by the U.S. Department of Energy. A wide range remains for a possible net settlement amount for the four zones. Chevron currently estimates its maximum possible net before-tax liability at approximately $200 million. At the same time, a possible maximum net amount that could be owed to Chevron was estimated at about $50 million. The timing of the settlement and the exact amount within this range of estimates are uncertain.

     Accounting for Buy/Sell Contracts In the first quarter 2005, the Securities and Exchange Commission (SEC) issued comment letters to Chevron and other companies in the oil and gas industry requesting disclosure of information related to the accounting for buy/sell contracts. Under a buy/sell contract, a company agrees to buy a specific quantity and quality of a commodity to be delivered at a specific location while simultaneously agreeing to sell a specified quantity and quality of a commodity at a different location to the same counterparty. Physical delivery occurs for each side of the transaction, and the risk and reward of ownership are evidenced by title transfer, assumption of environmental risk, transportation scheduling, credit risk and risk of nonperformance by the counterparty. Both parties settle each side of the buy/sell through separate invoicing.

     The company routinely enters into buy/sell contracts, primarily in the United States downstream business, associated with crude oil and refined products. For crude oil, these contracts are used to facilitate the company’s crude oil marketing activity, which includes the purchase and sale of crude oil production, fulfillment of the company’s supply arrangements as to physical delivery location and crude oil specifications, and purchase of crude oil to supply the company’s refining system. For refined products, buy/sell arrangements are used to help fulfill the company’s supply agreements to customer locations and