2005



TO OUR STOCKHOLDERS 

2005 was a year of unprecedented accomplishment and challenge for our company. 

We reported record earnings and completed the acquisition and integration of Unocal. We made major new discoveries of crude oil and natural gas and took significant steps to expand our global natural gas business. Although our employees and facilities sustained damage from back-to-back hurricanes in the U.S. Gulf Coast, we are recovering with remarkable resilience and efficiency. 

Our financial performance reflects the capital discipline that is necessary to create sustained value and growth. Net income in 2005 was $14.1 billion on sales and other operating revenues of $194 billion – representing record levels in both categories. Return on capital employed for the year was a strong 21.9 percent. We increased our dividend in 2005 for the 18th consecutive year, completed the purchase of $5 billion of the company’s shares in the open market under a program started in 2004 and initiated a new program to acquire up to an additional $5 billion of shares over a period of up to three years. A critical measure of our performance, total stockholder return (TSR), was 11.3 percent for 2005. From 2001 through 2005, TSR averaged 9.7 percent, among the highest of our larger peer companies. 

MAINTAINING MOMENTUM We executed strongly against our key business strategies in 2005, enhancing our foundation for current and future growth. The successful integration of Unocal’s operations strengthened our competitive profile in key markets, particularly in Southeast Asia, where we are in the top tier of natural gas producers. Unocal’s world-class assets in Asia, the Cas- pian and the U.S. Gulf of Mexico are a superb strategic fit with Chevron’s portfolio and capabilities. In addition, Unocal provided us with a deep source of talent and leading-edge technology, particularly with the drill bit, that we are integrating throughout our enterprise. 

We enhanced our position in the deep water with discoveries at Big Foot and Knotty Head in the U.S. Gulf of Mexico and at Manatee offshore Trinidad and Tobago, among others. Our combination of experience and applied technology resulted in a total of 31 successful exploration wells in 2005 and an exploration success rate of 58 percent, one of the best in the industry. 

We reached key milestones in our queue of major capital projects, most notably the Benguela Belize-Lobito Tomboco deepwater project in Angola, which is the first of our “Big 5” projects to begin production. We began construction of production facilities for the Tahiti (U.S.) and Agbami (Nigeria) deepwater projects, as well as the Escravos gas-to-liquids plant in Nigeria. Our global gas business reached key agreements with Japanese utility companies for future sales of liquefied natural gas (LNG) from the Gorgon project in Australia into Japan, the world’s largest LNG market. 

Refining and marketing operations benefited from strong margins in Asian and U.S. markets, and we moved forward with expansion plans at our largest U.S. refineries. In Asia, we approved a major upgrade of the Yeosu Refinery in South Korea, the world’s fourth-largest refinery,