the United States.

International Upstream – Exploration and Production

     International upstream earnings of $8.2 billion in 2009 decreased $6.4 billion from 2008. Lower prices for crude oil and natural gas reduced earnings by $7.0 billion, while foreign-currency effects and higher operating and depreciation expenses decreased income by a total of $2.2 billion. Partially offsetting these items were benefits of $2.3 billion resulting from an increase in sales volumes of crude oil and about $500 million associated with asset sales and tax items related to the Gorgon Project in Australia.

     Earnings of $14.6 billion in 2008 increased $4.3 billion from 2007. Higher prices for crude oil and natural gas increased earnings by $4.9 billion. Partially offsetting the benefit of higher prices was an impact of about $1.8 billion associated with a reduction of crude-oil sales volumes due to timing of certain cargo liftings and higher depreciation and operating expenses. Foreign-currency effects benefited earnings by $873 million in 2008, compared with a reduction to earnings of $417 million in 2007.

     The company’s average realization for crude oil and natural gas liquids in 2009 was $55.97 per barrel, compared with $86.51 in 2008 and $65.01 in 2007. The average natural-gas realization was $4.01 per thousand cubic feet in 2009, compared with $5.19 and $3.90 in 2008 and 2007, respectively.

     Net oil-equivalent production of 1.99 million barrels per day in 2009 increased about 7 percent and 6 percent from 2008 and 2007, respectively. The volumes for each year included production from oil sands in Canada. Absent the impact of prices on certain production-sharing and variable-royalty agreements, net oil-equivalent production increased 4 percent in 2009 and 3 percent in 2008, when compared with prior years’ production.

     The net liquids component of oil-equivalent production was 1.4 million barrels per day in 2009, an increase of approximately 11 percent from 2008 and 5 percent from 2007. Net natural-gas production of 3.6 billion cubic feet per day in 2009 was down 1 percent and up 8 percent from 2008 and 2007, respectively.

     Refer to the “Selected Operating Data” table, on page FS-10, for the three-year comparative of international production volumes.

U.S. Downstream – Refining, Marketing and Transportation

     U.S downstream operations lost $273 million in 2009, an earnings decrease of approximately $1.6 billion from 2008. A decline in refined product margins resulted in a negative earnings variance of $1.7 billion. Partially offsetting were lower operating expenses, which benefited earnings by $300 million. Earnings of $1.4 billion in 2008 increased about $400 million from 2007 due mainly to improved margins on the sale of refined products and gains on derivative commodity instruments. Operating expenses were higher between 2007 and 2008.

     Sales volumes of refined products were 1.40 million barrels per day in 2009, a decrease of 1 percent from 2008. The decline was associated with reduced demand for jet fuel and fuel oil, principally associated with the downturn in the U.S. economy. Sales volumes of refined products were