Foreign currency losses were $352 million, $260 million and $60 million in the corresponding years.

     Crude oil and product purchases in 2007 increased from 2006 due to higher prices for crude oil, natural gas, natural gas liquids and refined products. Crude oil and product purchases in 2006 increased from 2005 on higher prices for crude oil and refined products and the inclusion of Unocal-related amounts for the full year 2006 vs. five months in 2005. The increase was mitigated by the effect of the accounting change in April 2006 for buy/sell contracts.

     Operating, selling, general and administrative expenses in 2007 increased 16 percent from a year earlier. Expenses were higher in a number of categories, with the largest increases recorded for the cost of employee payroll and contract labor. Total expenses increased in 2006 from 2005 due mainly to the inclusion of former-Unocal expenses for the full year 2006. Besides this effect, expenses were higher in 2006 for labor, transportation, and uninsured costs associated with the hurricanes in 2005.

     Exploration expenses in 2007 declined from 2006 mainly due to lower amounts for well write-offs and geological and geophysical costs for operations outside the United States. Expenses increased in 2006 from 2005 due to higher amounts for well write-offs and geological and geophysical costs for operations outside the United States, as well as the inclusion of Unocal-related amounts for the full year 2006.

     Depreciation, depletion and amortization expenses increased from 2005 through 2007, reflecting an increase in charges related to asset write-downs and higher depreciation rates for certain crude oil and natural gas producing fields worldwide and the inclusion of Unocal-related amounts beginning in August 2005.

     Taxes other than on income increased in 2007 from a year earlier due to higher duties in the company’s U.K. downstream operations. Taxes other than on income were essentially unchanged in 2006 from 2005, with the effect of higher U.S. refined product sales being offset by lower sales volumes subject to duties in the company’s European downstream operations.

     Interest and debt expense in 2007 decreased from 2006 primarily due to lower average debt balances and higher amounts of interest capitalized. The decrease in 2006 vs. 2005 was mainly due to lower average debt balances and an increase in the amount of interest capitalized, partially offset by higher average interest rates on commercial paper and other variable-rate debt.

Effective income tax rates were 42 percent in 2007, 46 percent in 2006 and 44 percent in 2005. Rates were lower in 2007 compared with the prior year due mainly to the impact of nonrecurring items, including asset sales in 2007 and the absence of 2006 charges related to a tax-law change that increased tax rates on upstream operations in the U.K. North Sea and the settlement of a tax claim in Venezuela. The higher tax rate in 2006 compared with 2005 also reflected these nonrecurring charges in 2006. Refer also to the discussion of income taxes in Note 15 beginning on page FS-43.

Liquidity and Capital Resources

Cash, cash equivalents and