in Dynegy prior to its sale in May 2007. Earnings are also presented for the U.S. and international geographic areas of the upstream and downstream business segments. (Refer to Note 11, beginning on page FS-40, for a discussion of the company’s “reportable segments,” as defined in accounting standards for segment reporting (Accounting Standards Codification (ASC) 280)). This section should also be read in conjunction with the discussion in “Business Environment and Outlook” on pages FS-2 through FS-5.

U.S. Upstream – Exploration and Production

     U.S upstream earnings of $2.2 billion in 2009 decreased $4.9 billion from 2008. Lower prices for crude oil and natural gas reduced earnings by about $5.2 billion between periods, and gains on asset sales declined by approximately $900 million. Partially offsetting these effects was a benefit of about $1.3 billion resulting from an increase in net oil-equivalent production. An approximate $600 million benefit to income from lower operating expenses was more than offset by higher depreciation expense. The benefit from lower operating expenses was largely associated with absence of charges for damages related to the 2008 hurricanes in the Gulf of Mexico.

     U.S upstream earnings of $7.1 billion in 2008 increased $2.6 billion from 2007. Higher average prices for crude oil and natural gas increased earnings by $3.1 billion between periods. Also contributing to the higher earnings were gains of approximately $1 billion on asset sales, including a $600 million gain on an asset-exchange transaction. Partially offsetting these benefits were adverse effects of about $1.6 billion associated with lower oil-equivalent production and higher operating expenses, which included approximately $400 million of expenses resulting from damage to facilities in the Gulf of Mexico caused by hurricanes.

     The company’s average realization for crude oil and natural gas liquids in 2009 was $54.36 per barrel, compared with $88.43 in 2008 and $63.16 in 2007. The average natural-gas realization was $3.73 per thousand cubic feet in 2009, compared with $7.90 and $6.12 in 2008 and 2007, respectively.

     Net oil-equivalent production in 2009 averaged 717,000 barrels per day, up 6.9 percent from 2008 and down 3.5 percent from 2007. The increase between 2008 and 2009 was mainly due to the start-up of the Blind Faith Field in late 2008 and the Tahiti Field in the second quarter 2009. The decrease between 2007 and 2008 was mainly due to normal field declines and the adverse impact of the hurricanes. The net liquids component of oil-equivalent production for 2009 averaged 484,000 barrels per day, up approximately 15 percent from 2008 and 5 percent compared with 2007. Net natural-gas production averaged 1.4 billion cubic feet per day in 2009, down approximately 7 percent from 2008 and about 18 percent from 2007.

     Refer to the “Selected Operating Data” table on page FS-10 for the three-year comparative production volumes in the United States.

International Upstream – Exploration and Production

     International upstream earnings of $8.2 billion in 2009 decreased $6.4 billion from 2008. Lower prices for crude oil and