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, 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 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."
U.S. Upstream — Exploration and Production
| Millions of dollars |
2007 |
2006 |
2005 |
| Income |
$4,532 |
$4,270 |
$4,168 |
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 per 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 for the three-year comparative production volumes in the United States.
International Upstream — Exploration and Production
| Millions of dollars |
2007 |
2006 |
2005 |
| *Includes Foreign Currency Effects: |
$(417) |
$(371) |
$14 |
| Income* |
$10,284 |
$8,872 |
$7,556 |
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. Nonrecurring income tax items also benefited earnings between periods. These benefits to income were partially offset by the impact of higher operating and depreciation expenses.
Income in 2006 of approximately $8.9 billion increased $1.3 billion from 2005. Earnings in 2006 benefited approximately $3 billion from higher prices for crude oil and natural gas and an additional seven months of production from the former Unocal properties. About 70 percent of this benefit was associated with the impact of higher prices. Substantially offsetting these benefits were increases in depreciation expense, operating expense and exploration expense. Also
adversely affecting 2006 income were higher taxes related to an increase in tax rates in the United Kingdom and Venezuela and settlement of tax claims and other tax items in Venezuela, Angola and Chad. Foreign currency effects reduced earnings by $371 million in 2006, but increased income $14 million in 2005.
The company's average realization for crude oil and natural gas liquids in 2007 was $65.01 per barrel, compared with $57.65 in 2006 and $47.59 in 2005. The average natural gas realization was $3.90 per thousand cubic feet in 2007, compared with $3.73 and $3.19 in 2006 and 2005, respectively.
Net oil-equivalent production of 1.88 million barrels per day in 2007 declined about 2 percent from 2006 and increased 5 percent from 2005. The volumes for each year included production from oil sands in Canada and an operating service agreement in Venezuela until its conversion to a joint-stock company in October 2006. The decline between 2006 and 2007 was associated with the impact of this contract conversion in Venezuela and the price effects on production volumes calculated under production-sharing agreements. Partially offsetting the decline was increased production in Bangladesh, Angola and Azerbaijan. The increase from 2005 was due to that year having included only five months of production from the former Unocal properties.
The net liquids component of oil-equivalent production was 1.3 million barrels per day in 2007, a decrease of approximately 4 percent from 2006 and 3 percent from 2005. Net natural gas production of 3.3 billion cubic feet per day in 2007 was up 5.5 percent and 28 percent from 2006 and 2005, respectively.
Refer to the "Selected Operating Data" table for the three-year comparative of international production volumes.
U.S. Downstream — Refining, Marketing and Transportation
| Millions of dollars |
2007 |
2006 |
2005 |
| Income |
$966 |
$1,938 |
$980 |
U.S. downstream earnings of $966 million in 2007 declined nearly $1 billion from 2006 and were essentially the same as 2005. The decline in 2007 from 2006 was associated mainly with weaker refined-product margins due to the effects of higher crude oil prices and the negative impacts of higher planned and unplanned downtime on refinery production volumes at the company's three major refineries. Operating expenses were also higher in 2007. The improvement in 2006 earnings from 2005 was primarily associated with higher average refined-product margins in 2006 and the adverse effect of downtime in 2005 at refining, marketing and pipeline operations that was caused by hurricanes in the Gulf of Mexico.
Sales volumes of refined products were 1.46 million barrels per day in 2007, a decrease of 3 percent and 1 percent from 2006 and 2005, respectively. The reported sales volume for 2007 was on a different basis than 2006 and 2005 due to a change in accounting rules that became effective April 1,
2006, for certain purchase and sale (buy/sell) contracts with the same counterparty. Excluding the impact of this accounting standard, refined-product sales in 2007 decreased 1 percent from 2006 and increased about 5 percent from 2005. Branded gasoline sales volumes of 629,000 barrels per day in 2007 increased about 2 percent from 2006 and 6 percent from 2005, largely due to growth of the Texaco brand.
Refer to the "Selected Operating Data" table for a three-year comparative of sales volumes of gasoline and other refined products and refinery-input volumes. Refer also to Note 13, "Accounting for Buy/Sell Contracts," for a discussion of the accounting for purchase and sale contracts with the same counterparty.
International Downstream — Refining, Marketing and Transportation
| Millions of dollars |
2007 |
2006 |
2005 |
| *Includes Foreign Currency Effects: |
$62 |
$98 |
$(24) |
| Income* |
$2,536 |
$2,035 |
$1,786 |
International downstream income of $2.5 billion in 2007 increased about $500 million from 2006 and $750 million from 2005. Results for 2007 included gains of approximately $1 billion on the sale of assets, including an interest in a refinery and marketing assets in the Benelux region of Europe. Margins on the sale of refined products in 2007 were up slightly from the prior year. Operating expenses were higher, and earnings from the company's shipping operations were lower. The increase in earnings in 2006 compared with 2005 was associated mainly with the benefit of higher refined-product sales margins in the Asia-Pacific area and Canada and improved results from crude-oil and refined-product trading activities.
Refined-product sales volumes were 2.03 million barrels per day in 2007, about 5 percent and 10 percent lower than 2006 and 2005, respectively, due largely to the impact of asset sales and the accounting-standard change for buy/sell contracts. Excluding the accounting change, sales decreased about 4 percent and 5 percent from 2006 and 2005, respectively.
Refer to the "Selected Operating Data" table for a three-year comparative of sales volumes of gasoline and other refined products and refinery-input volumes. Refer also to Note 13, "Accounting for Buy/Sell Contracts," for a discussion of the accounting for purchase and sale contracts with the same counterparty.
Chemicals
| Millions of dollars |
2007 |
2006 |
2005 |
| *Includes Foreign Currency Effects: |
$(3) |
$(8) |
$– |
| Income* |
$396 |
$539 |
$298 |
The chemicals segment includes the company's Oronite subsidiary and the 50 percent-owned Chevron Phillips Chemical Company LLC (CPChem). In 2007, earnings were $396 million, compared with $539 million and $298 million in 2006 and 2005, respectively. Between 2006 and 2007, the benefit of improved margins
on sales of lubricants and fuel additives by Oronite was more than offset by the effect of lower margins on the sale of commodity chemicals by CPChem. In 2006, earnings of $539 million increased about $240 million from 2005 due to higher margins for commodity chemicals at CPChem and for fuel and lubricant additives at Oronite.
All Other
| Millions of dollars |
2007 |
2006 |
2005 |
| *Includes Foreign Currency Effects: |
$6 |
$62 |
$(51) |
| Net Charges* |
$(26) |
$(516) |
$(689) |
All Other includes mining operations, power generation businesses, worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities, alternative fuels and technology companies, and the company's interest in Dynegy prior to its sale in May 2007.
Net charges of $26 million in 2007 decreased $490 million from 2006. Results in 2007 included a $680 million gain on the sale of the company's investment in Dynegy common stock and a loss of approximately $175 million associated with the early redemption of Texaco Capital Inc. bonds. Excluding these items and the effects of foreign currency, net charges decreased about $40 million between periods.
Net charges of $516 million in 2006 decreased $173 million from $689 million in 2005. Excluding the effects of foreign currency, net charges declined $60 million between periods, primarily due to higher interest income and lower interest expense in 2006.