downtime at its three largest U.S. refineries.

     Industry margins in the future may be volatile and are influenced by changes in the price of crude oil used for refinery feedstock and by changes in the supply and demand for crude oil and refined products. The industry supply and demand balance can be affected by disruptions at refineries resulting from maintenance programs and unplanned outages, including weather-related disruptions; refined-product inventory levels; and geopolitical events.

     Refer to page FS-7 through FS-8 for additional discussion of the company’s downstream operations.

     Chemicals  Earnings in the petrochemicals business are closely tied to global chemical demand, industry inventory levels and plant capacity utilization. Feedstock and fuel costs, which tend to follow crude oil and natural gas price movements, also influence earnings in this segment.

Operating Developments

Key operating developments and other events during 2007 and early 2008 included the following:

Upstream

Angola  Discovered crude oil at the 31 percent-owned and operated Malange-1 well in offshore Block 14. Additional drilling and geologic and engineering studies are planned to appraise the discovery. The company and partners also made the final investment decision to construct a liquefied natural gas (LNG) plant that will be owned 36 percent by Chevron. The plant will be designed with a capacity to process 1 billion cubic feet of natural gas per day and produce 5.2 million metric tons a year of LNG and related gas liquids products.

     Australia  Received federal and state environmental approvals for development of the 50 percent-owned and operated Gorgon LNG project located off the northwest coast. The approvals represented a significant milestone towards the development of the company’s natural gas resources offshore Australia.

     Bangladesh  Began production at the 98 percent-owned Bibiyana natural gas field. The field’s total production is expected to increase to a maximum of 500 million cubic feet per day by 2010.

     China  Signed a 30-year production-sharing contract with China National Petroleum Corporation to assume operatorship and hold a 49 percent interest in the development of the Chuandongbei natural gas area in central China. Design input capacity of the proposed gas plants is expected to be 740 million cubic feet of natural gas per day.

     Indonesia  Began commercial operation of the 1l0-megawatt Darajat III geothermal power plant in Garut, West Java. The plant increased Darajat’s total capacity to 259 megawatts.

     Kazakhstan  Initiated production from the first phase of the Sour Gas Injection and Second Generation Plant expansion projects at the 50 percent-owned Tengiz Field. This phase increased production capacity by 90,000 barrels of crude oil per day to approximately 400,000. Full facility expansion is expected to occur during the second-half 2008, increasing production capacity to 540,000 barrels per day.

     Republic of the Congo  Confirmed two crude oil discoveries in the offshore Moho-Bilondo permit. Evaluation and development studies were undertaken to appraise the discoveries, in which Chevron