particularly for the upstream business.

     To sustain its long-term competitive position in the upstream business, the company must develop and replenish an inventory of projects that offer adequate financial returns for the investment required. Identifying promising areas for exploration, acquiring the necessary rights to explore for and to produce crude oil and natural gas, drilling successfully, and handling the many technical and operational details in a safe and cost-effective manner are all important factors in this effort. Projects often require long lead times and large capital commitments. Changes in economic, legal or political circumstances can have significant effects on the profitability of a project over its expected life. In the current environment of higher commodity prices, certain governments have sought to renegotiate contracts or impose additional costs on the company. Other governments may attempt to do so in the future. The company will continue to monitor these developments, take them into account in evaluating future investment opportunities, and otherwise seek to mitigate any risks to the company’s current operations or future prospects. In late February 2007, the President of Venezuela issued a decree announcing the government’s intention for the state-owned oil company, Petróleos de Venezuela S.A., to increase its ownership later this year in all Orinoco Heavy Oil Associations, including Chevron’s 30 percent-owned Hamaca project, to a minimum of 60 percent. The impact on Chevron from such an action is uncertain but is not expected to have a material effect on the company’s results of operations, consolidated financial position or liquidity.

     The company also continually evaluates opportunities to dispose of assets that are not key to providing sufficient long-term value, or to acquire assets or operations complementary to its asset base to help augment the company’s growth. During the first quarter 2007, the company authorized the sale of its 31 percent ownership interest in the Nerefco Refinery and the associated TEAM Terminal in the Netherlands. The transaction is subject to signing of the sales agreement and obtaining necessary regulatory approvals. The company expects to record a gain upon close of the sale. In early 2007, the company was also in discussions regarding the possible sale of its fuels marketing operations in the Netherlands, Belgium and Luxembourg. Neither the refining nor marketing assets were classified as held-for-sale as of December 31, 2006, in accordance with the held-for-sale criteria of Financial Accounting Standards Board (FASB) Statement No. 144, Impairment or Disposal of Long-Lived Assets. Other asset dispositions and restructurings may occur in future periods and could result in significant gains or losses.

     Comments related to earnings trends for the company’s major business areas are as follows:

     Upstream   Earnings for the upstream segment are closely aligned with industry price levels for crude oil and natural gas. Crude oil and natural gas prices are subject to external factors over which the company has no control, including product demand connected with global