Approximately 90 percent of this amount related to the effects of higher prices on heritage-Chevron production. These benefits were substantially offset by the adverse effects of lower production, higher operating expenses and higher depreciation expense associated with the heritage Chevron properties.

     The company’s average realization for crude oil and natural gas liquids in 2006 was $56.66 per barrel, compared with $46.97 in 2005 and $34.12 in 2004. The average natural gas realization was $6.29 per thousand cubic feet in 2006, compared with $7.43 and $5.51 in 2005 and 2004, respectively.

     Net oil-equivalent production in 2006 averaged 763,000 barrels per day, up 5 percent from 2005 and down 7 percent from 2004. The increase between 2005 and 2006 was due to the full-year benefit of production from the former Unocal properties. The decrease from 2004 was associated mainly with the effects of hurricanes, property sales and normal field declines, partially offset by additional volumes from the former Unocal properties.

     The net liquids component of oil-equivalent production for 2006 averaged 462,000 barrels per day, an increase of approximately 2 percent from 2005 and a decrease of 9 percent from 2004. Net natural gas production averaged 1.8 billion cubic feet per day in 2006, up 11 percent from 2005 and down 3 percent from 2004.

     Refer to the “Selected Operating Data” table, on page FS-11, for the three-year comparative production volumes in the United States.

International Upstream – Exploration and Production

     International upstream income of approximately $8.9 billion in 2006 increased $1.3 billion from 2005. Earnings in 2006 benefited approximately $3.0 billion from higher prices for crude oil and natural gas and an additional seven months of production from the former Unocal properties. About 70 percent of this benefit was associated with the impact of higher prices. Substantially offsetting these benefits were increases in depreciation expense, operating expense and exploration expense. Also adversely affecting 2006 income were higher taxes related to an increase in tax rates in the U.K. and Venezuela and settlement of tax claims and other tax items in Venezuela, Angola and Chad. Foreign currency effects reduced earnings by $371 million in 2006, but increased income $14 million in 2005.

     Income in 2005 was approximately $7.5 billion, compared with $5.8 billion in 2004, which included gains of approximately $850 million from property sales. Higher prices for crude oil and natural gas in 2005 and five months of earnings from the former Unocal operations increased income approximately $2.9 billion between periods. About 80 percent of this benefit arose from the effects of higher prices on heritage-Chevron production. Partially offsetting these benefits were higher expenses between periods for certain income tax items, including the absence of a $200 million benefit in 2004 relating to changes in income tax laws. Foreign currency effects increased income $14 million in 2005 but reduced income $129 million in 2004.

     The company’s average realization for crude oil and natural gas liquids in 2006 was $57.65