of operations for the company’s business segments – upstream, downstream and chemicals – as well as for “all other,” which includes mining, power generation businesses, the various companies and departments that are managed at the corporate level, and the company’s investment in Dynegy prior to its sale in May 2007. Income is also presented for the U.S. and international geographic areas of the upstream and downstream business segments. (Refer to Note 8, beginning on page FS-37, for a discussion of the company’s “reportable segments,” as defined in FASB No. 131, Disclosures About Segments of an Enterprise and Related Information.) 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 income of $4.5 billion in 2007 increased approximately $260 million from 2006. Results in 2007 benefited approximately $700 million from higher prices for crude oil and natural gas liquids. This benefit to income was partially offset by the effects of a decline in oil-equivalent production and an increase in depreciation, operating and exploration expenses.

     Income of $4.3 billion in 2006 increased approximately $100 million from 2005. Earnings in 2006 benefited about $850 million from higher average prices on oil-equivalent production and the effect of seven additional months of production from the Unocal properties that were acquired in August 2005. Substantially offsetting these benefits were increases in operating, exploration and depreciation expenses. Included in the operating expense increases were costs associated with the carryover effects of hurricanes in the Gulf of Mexico in 2005.

     The company’s average realization for crude oil and natural gas liquids in 2007 was $63.16 per barrel, compared with $56.66 in 2006 and $46.97 in 2005. The average natural gas realization was $6.12 per thousand cubic feet in 2007, compared with $6.29 and $7.43 in 2006 and 2005, respectively.

 Net oil-equivalent production in 2007 averaged 743,000 barrels per day, down 2.6 percent from 2006 and up 2 percent from 2005, which included only five months of production from the Unocal properties acquired in August of that year. The net liquids component of oil-equivalent production for 2007 averaged 460,000 barrels a day, which was essentially flat compared with 2006, and an increase of 1 percent from 2005. Net natural gas production averaged 1.7 billion cubic feet per day in 2007, down 6 percent from 2006 and up 4 percent from 2005.  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 income of $10.3 billion in 2007 increased $1.4 billion from 2006. Earnings in 2007 benefited approximately $1.6 billion from higher prices, primarily for crude oil, and $300 million from increased liftings. Non-recurring income tax items also benefited earnings between periods. These benefits to income were partially offset by the impact of higher operating and depreciation