States   The company initiated a project to increase the capacity of the Pascagoula, Mississippi, refinery’s fluid catalytic cracking unit by approximately 25 percent, from a current capacity of 63,000 barrels per day. This project is designed to enable the refinery to increase its production of gasoline and other light products and is expected to be completed by late 2006.

     South Korea   The company’s 50 percent-owned GS Caltex affiliate announced a major upgrade project at its 650,000-barrel-per-day Yeosu refining complex. At an estimated total cost of $1.5 billion, the facilities will increase the yield of high-value refined products and reduce feedstock costs through the processing of heavy crude oil. Start-up is expected by the end of 2007.

Chemicals

Qatar   The company’s 50 percent-owned affiliate, Chevron Phillips Chemical Company LLC (CPChem), has obtained approvals and completed the financial closing for the Q-Chem II complex to be located next to the existing Q-Chem I complex in Mesaieed, Qatar. The Q-Chem II complex will include a 350,000-metric-ton-per-year polyethylene plant and a 345,000-metric-ton-per-year normal alpha olefins plant. The project also includes a separate joint venture to develop a 1,300,000-metric-ton-per-year ethylene cracker at Qatar’s Ras Laffan Industrial City. CPChem and its partners expect to start-up the cracker and derivatives plants in late 2008. CPChem owns a 49 percent interest of Q-Chem II.

Other

Common Stock Dividends and Stock Repurchase Program   In April 2005, the company increased its quarterly common stock dividend by 12.5 percent to $0.45 per share. The company completed an authorized $5 billion of stock buybacks in November 2005 under a repurchase program initiated in April 2004. Upon completion of this program, the company then authorized the acquisition of up to $5 billion of additional shares over a period of up to three years. Purchases under this authorization totaled $481 million through mid-February 2006.

RESULTS OF OPERATIONS

Major Operating Areas   The following section presents the results of operations for the company’s business segments – upstream, downstream and chemicals – as well as for “all other,” which includes mining operations of coal and other minerals, power generation businesses, and the various companies and departments that are managed at the corporate level. 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-40, for a discussion of the company’s “reportable segments,” as defined in FAS 131, “Disclosures About Segments of an Enterprise and Related Information.”)

 To aid in the understanding of changes in income between periods, the discussion, when applicable, is in two parts – first on underlying trends, and second on special-item gains and charges. The special items are identified separately because of their nature and amount and also to help discern the underlying trends for the company’s businesses. 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.