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 per barrel, compared with $47.59 in 2005 and $34.17 in 2004. The average natural gas realization was $3.73 per thousand cubic feet in 2006, compared with $3.19 and $2.68 in 2005 and 2004, respectively.

     Net oil-equivalent production of 1.9 million barrels per day in 2006, including about 100,000 net barrels per day from oil sands in Canada and production under an operating service agreement in Venezuela prior to its conversion to a joint stock company, increased about 6 percent from 2005 and 13 percent from 2004. This trend was largely the result of the effects of the Unocal acquisition in August 2005, partially offset by the effect of normal field declines and property sales in 2004.

     The net liquids component of oil-equivalent production was 1.4 million barrels per day in 2006, an increase of approximately 2 percent from 2005 and 2004. Net natural gas production of 3.1 billion cubic feet per day in 2006 was up 21 percent and 51 percent from 2005 and 2004, respectively.

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

U.S. downstream earnings of $1.9 billion in 2006 increased about $1 billion from 2005 and approximately $700 million from 2004. Average refined-product margins in 2006 were higher than in 2005, which in turn were also higher than in 2004. Refinery crude inputs were higher in 2006 than in the other comparative periods and also benefited earnings. However, earnings declined in 2005 from a year earlier due mainly to increased downtime at the company’s refineries, including the shutdown of operations at Pascagoula, Mississippi, for more than a month due to hurricanes in the Gulf of Mexico. The company’s marketing and pipeline operations along the Gulf Coast were also disrupted for an extended period due to the hurricanes. Fuel costs were also higher in 2005 than in 2004.

     Sales volumes of refined products in 2006 were approximately 1.5 million barrels per day, an increase of 1 percent from 2005 and relatively unchanged from 2004. The reported sales volume for 2006 was on a different basis than in 2005 and 2004 due to a change in accounting rules that became effective April 1, 2006, for certain purchase and sale (buy/sell) contracts with the same counterparty. Excluding the impact of the accounting change, refined product sales in 2006 increased by approximately 6 percent and 3 percent from 2005 and 2004, respectively. Branded gasoline sales volumes of approximately 614,000 barrels per day in 2006 increased about 4 percent from 2005, largely due to the growth of the Texaco brand. In 2005, refined-product sales volumes decreased about 2 percent from 2004, primarily due to disruption related to the hurricanes.

     Refer to the “Selected Operating Data” table, on page FS-11, for the three-year comparative refined-product sales volumes in the United States. Refer also to Note 14, Accounting for Buy/Sell Contracts, on page FS-43 for a