2006 was an exceptional year for our company. We continued to deliver value to our stockholders and to make strategic investments that will drive sustained, superior performance over the long term.

We reported record net income of $17.1 billion on sales and other operating revenues of approximately $205 billion. For the year, total stockholder return was 33.8 percent, which was more than double the rate of return delivered by the S&P 500. Return on capital employed was a strong 22.6 percent. We continued to return cash to stockholders through our stock buyback program, purchasing $5 billion worth of shares in the open market, and we increased our annual dividend for the 19th year in a row. We are committed to exercising the capital discipline necessary to balance current returns with investments for future profitable growth.

Delivering Results

We completed the successful integration of Unocal after acquiring the company in 2005 and reached a number of milestones for our major capital projects, including first production at fields in Angola, Azerbaijan, Trinidad and Tobago, and the United Kingdom. Overall, we increased year-over-year production volumes by nearly 6 percent.

Our exploration program in 2006 was outstanding, reflecting the discipline and efficiency of our processes. We announced a number of discoveries, most notably in Australia, Nigeria and the U.S. Gulf of Mexico. We achieved our fifth successful year of exploration results and added more than 1 billion barrels of potentially recoverable oil and gas resources.

In the U.S. Gulf of Mexico, we completed the Jack well test, which set more than a half-dozen world records for pressure, depth and duration in the deep water. Jack clearly demonstrates the power of advanced technology to discover significant new energy resources. Chevron is one of the largest leaseholders in the deepwater Gulf of Mexico and is competitively positioned to benefit as the long-term potential of this frontier area for crude oil and natural gas exploration plays out.

In Australia, where we hold the leading natural gas resource position, significant steps were made toward securing environmental regulatory approvals necessary for the development of the Greater Gorgon Area natural gas project. We also delivered the first commissioning cargo of Australian liquefied natural gas to China aboard the Chevron-operated Northwest Swan vessel.

Our global refining operations delivered record earnings in 2006, due in part to high reliability and utilization. We completed a major expansion at our Mississippi refinery that increased gasoline production capacity by approximately 10 percent, and we acquired an interest in a large new export refinery under construction in India, enhancing our presence in the fast-growing Asia-Pacific region.

We set a new safety record in 2006, our fifth consecutive year of improvement. However, we will never be satisfied until we reduce the number of safety-related incidents to zero.

Chevron's Energy Portfolio

We expect global demand for energy to continue growing. At the same time, increased competition for resources and heightened geopolitical risks are challenging customary supply growth options. In this kind of environment, energy portfolio diversification is an increasingly important means for supplying consumers around the globe with affordable, reliable energy.

Our current asset and investment portfolio is diverse. We have a strong queue of capital projects in progress, and our capital and exploratory budget for 2007 of $19.6 billion reflects the concentrated development phases of many of these key projects. Our investments are focused on creating new legacy positions in key conventional energy basins, expanding our assets and capabilities in unconventional resources, and investing in emerging sources of energy such as gas-to-liquids and biofuels. This portfolio, with investments balanced by location, by energy source and by time to first production, offers a strong foundation for sustained growth in even the most challenging of environments.

Human Energy

At the center of our energy portfolio are the men and women of Chevron, our "human energy." They run our operations safely, reliably and efficiently, in even the toughest conditions. They develop technology that improves our operations today and creates new business opportunities for tomorrow. They ensure we contribute to a better quality of life in every community where we operate.

The people of Chevron have a pioneering and ingenious spirit that enables the company to continue expanding the boundaries of energy. They understand the importance of energy to global economic growth and human progress, and they are committed to securing the energy the world needs in innovative and value-creating ways. I am proud to be part of the team.

Dave O'Reilly
Chairman of the Board and Chief Executive Officer
February 28, 2007