associated with the decline in value of the Dynegy shares. The company’s equity share of Dynegy’s reported earnings is adjusted quarterly when appropriate to recognize a portion of the difference between these allocated values and Dynegy’s historical book values. The market value of the company’s investment in Dynegy’s common stock at December 31, 2006, was approximately $700 million.

     Investments in Dynegy Preferred Stock   In May 2006, the company’s investment in Dynegy Series C preferred stock was redeemed at its face value of $400 million. Upon redemption of the preferred stock, the company recorded a before-tax gain of $130 million ($87 million after tax).

     Dynegy Proposed Business Combination with LS Power Group   Dynegy and LS Power Group, a privately held power plant investor, developer and manager, announced in September 2006 that the companies had executed a definitive agreement to combine Dynegy’s assets and operations with LS Power Group’s power-generation portfolio and for Dynegy to acquire a 50 percent ownership interest in a development joint venture with LS Power. Upon close of the transaction, Chevron will receive the same number of shares of the new company’s Class A common stock that it currently holds in Dynegy. Chevron’s ownership interest in the combined company will be approximately 11 percent. The transaction is subject to specified conditions, including the affirmative vote of two-thirds of Dynegy’s common shareholders and the receipt of regulatory approvals.

LIQUIDITY AND CAPITAL RESOURCES

     Cash, cash equivalents and marketable securities   Total balances were $11.4 billion and $11.1 billion at December 31, 2006 and 2005, respectively. Cash provided by operating activities in 2006 was $24.3 billion, compared with $20.1 billion in 2005 and $14.7 billion in 2004.

     The 2006 increase in cash provided by operating activities mainly reflected higher earnings in the upstream and downstream segments, including a full year of earnings from the former Unocal operations that were acquired in August 2005. Cash provided by operating activities was net of contributions to employee pension plans of $0.4 billion, $1.0 billion and $1.6 billion in 2006, 2005 and 2004, respectively. Cash provided by investing activities included proceeds from asset sales of $1.0 billion in 2006, $2.7 billion in 2005 and $3.7 billion in 2004.

     Cash provided by operating activities and asset sales during 2006 was sufficient to fund the company’s $13.8 billion capital and exploratory program, pay $4.4 billion of dividends to stockholders, repay approximately $2.9 billion in debt and repurchase $5 billion of common stock.

     Dividends   The company paid dividends of approximately $4.4 billion in 2006, $3.8 billion in 2005 and $3.2 billion in 2004. In April 2006, the company increased its quarterly common stock dividend by 15.5 percent to 52 cents per share.

     Debt, capital lease and minority interest obligations   Total debt and capital lease balances were $9.8 billion at December 31, 2006, down from $12.9 billion at year-end 2005. The company also had minority interest obligations of $209 million, up from $200 million at