or Thailand).

     Besides the impact of the fluctuation in price for crude oil and natural gas, the longer-term trend in earnings for the upstream segment is also a function of other factors, including the company’s ability to find or acquire and efficiently produce crude oil and natural gas, changes in fiscal terms of contracts, changes in tax rates on income, and the cost of goods and services.

     Chevron’s worldwide net oil-equivalent production in 2008, including volumes produced from oil sands, averaged 2.53 million barrels per day, a decline of about 90,000 barrels per day from 2007 due mainly to the impact of higher prices on volumes recovered under certain production-sharing and variable-royalty agreements outside the United States and damage to production facilities in September 2008 caused by hurricanes Gustav and Ike in the U.S. Gulf of Mexico. (Refer to the discussion of U.S. upstream production trends in the “Results of Operations” section on page FS-6. Refer also to the “Selected Operating Data” table on page FS-10 for a listing of production volumes for each of the three years ending December 31, 2008.)

     The company estimates that oil-equivalent production in 2009 will average approximately 2.63 million barrels per day. This estimate is subject to many uncertainties, including quotas that may be imposed by OPEC, price effects on production volumes calculated under cost-recovery and variable-royalty provisions of certain contracts, changes in fiscal terms or restrictions on the scope of company operations, delays in project startups, fluctuations in demand for natural gas in various markets, weather conditions that may shut in production, civil unrest, changing geopolitics, or other disruptions to operations. Future production levels also are affected by the size and number of economic investment opportunities and, for new large-scale projects, the time lag between initial exploration and the beginning of production. Most of Chevron’s upstream investment is currently being made outside the United States. Investments in upstream projects generally are made well in advance of the start of the associated production of crude oil and natural gas.

     Approximately 20 percent of the company’s net oil-equivalent production in 2008 occurred in the OPEC-member countries of Angola, Nigeria and Venezuela and in the Partitioned Neutral Zone between Saudi Arabia and Kuwait. (This production statistic excludes volumes produced in Indonesia, which relinquished its OPEC membership at the end of 2008.) At a meeting on December 17, 2008, OPEC announced a reduction of 4.2 million barrels per day, or 14 percent, from actual September 2008 production of 29 million barrels per day. The reduction became effective January 1, 2009. OPEC quotas did not significantly affect Chevron’s production level in 2007 or in 2008. The company’s current and future production levels could be affected by the cutbacks announced by OPEC in December 2008.

     Refer to the “Results of Operations” section on pages FS-6 through FS-7 for additional discussion of the company’s upstream operations.

     Downstream  Earnings for the downstream segment are closely