April 2010, an accident occurred on the Transocean Deepwater Horizon, a deepwater drilling rig in the Gulf of Mexico, resulting in a loss of life, the sinking of the rig and a significant oil spill. The rig was drilling an exploratory well at the BP-operated Macondo prospect. Chevron was not a participant in the well. Subsequent to the event, the U.S. Department of the Interior put in place a moratorium on the drilling of wells using subsea blowout preventers (BOPs) or surface BOPs on a floating facility in the Gulf of Mexico and the Pacific regions. In October 2010, the Secretary of the Interior lifted the drilling moratorium, provided that operators certify compliance with all the newly expanded rules and requirements, and demonstrate the availability of adequate blowout containment resources.

     The moratorium and the ensuing slowdown in issuing drilling permits since the moratorium was lifted have resulted in delays in shallow water drilling activity, delayed the drilling of exploratory deepwater wells and impacted development drilling on both operated and nonoperated projects in the Gulf of Mexico. The company’s daily net oil-equivalent production in the Gulf of Mexico was reduced by about 10,000 barrels per day for the full year. The company has submitted several deepwater drilling permit applications and plans to submit additional applications in 2011. Two deepwater drillships are on stand-by, pending issuance of permits from the U.S. Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), to drill wells in the Gulf of Mexico. A third deepwater drillship is drilling a water injection well at the Tahiti Field. Additionally, the completion of previously drilled wells has recommenced at the nonoperated Perdido and Caesar/Tonga projects. The future effects of this incident, including any new or additional regulations that may be adopted and the timing of BOEMRE issuing drilling permits, are not fully known at this time. Chevron remains committed to deepwater exploration and development in the Gulf of Mexico and other deepwater basins around the world.

     During the moratorium, Chevron participated in a number of industry efforts to identify opportunities to improve industry standards in prevention, intervention and spill response. In July 2010, Chevron and several other companies announced plans to build and deploy a rapid response system that will be available to capture and contain crude oil in the unlikely event of a future well blowout in the deepwater Gulf of Mexico. The new system will be engineered to be used in water depths up to 10,000 feet and designed to have capacity to contain 100,000 barrels per day, with potential for expansion. The companies committed to equally fund the initial $1 billion investment in the system. There will be additional ongoing costs for operations and maintenance of the system components. An initial agreement to secure containment equipment has been announced, and other equipment is expected to be secured and available in the coming months, with the new system targeted for completion in early 2012. The companies have formed an organization, the Marine Well Containment Company, to