at refineries resulting from maintenance programs and mishaps and levels of inventory and demand for refined products.

     Other influences on the company’s profitability in this segment include the operating efficiencies and expenses of the refinery network, including the effects of any downtime due to planned and unplanned maintenance, refinery upgrade projects and operating incidents. The level of operating expenses for the downstream segment can also be affected by the volatility of charter expenses for the company’s shipping operations, which are driven by the industry’s demand for crude oil and product tankers. Other factors affecting the company’s downstream profitability that are beyond the company’s control include the general level of inflation and energy costs to operate the refinery network.

     Refer to pages FS-9 through FS-10 for additional discussion of the company’s downstream operations.

     Chemicals   Earnings in the petrochemicals business are closely tied to global chemical demand, industry inventory levels and plant capacity utilization. Additionally, feedstock and fuel costs, which tend to follow crude oil and natural gas price movements, influence earnings in this segment.

     Refer to page FS-10 for additional discussion of chemical earnings for both the company’s Oronite subsidiary and the 50 percent-owned Chevron Phillips Chemical Company LLC.

OPERATING DEVELOPMENTS

Key operating developments and other events during 2005 and early 2006 included:

Upstream

Worldwide Proved Reserves   As a result of the acquisition of Unocal in August 2005, the company increased its net oil-equivalent proved reserves by approximately 1.5 billion barrels. Significant unproved volumes of oil and gas were also added to the company’s resource base. (Refer to pages FS-70 through FS-75 for a detailed discussion of proved reserve changes for 2005 and Note 2 beginning on page FS-36 for a discussion of the Unocal acquisition.)

     North America   In September 2005, the company sold Northrock Resources Limited, a wholly owned Canadian subsidiary of Unocal, for $1.7 billion. The disposition was consistent with Chevron’s divestiture in 2004 of its conventional crude oil and natural gas business in Western Canada, enabling the company’s continued focus on the profitable growth of production of crude oil and natural gas in strategically important core areas of operation.

     In late 2005, the company began construction of the floating production facility to be installed in the Tahiti Field, in the deepwater Gulf of Mexico. Tahiti is anticipated to have a maximum total daily production of 125,000 barrels per day of crude oil and 70 million cubic feet of natural gas. Chevron is the operator and holds a 58 percent working interest in the project that is being developed in phases and expected to come onto production in 2008.

In the same period, the decision was made to proceed with the development of the Blind Faith Field, also in the deepwater Gulf of Mexico. First production is expected in 2008, with initial total daily output estimated at 30,000 barrels of crude oil and 30 million cubic feet of natural gas. Chevron is the operator