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 9 for a discussion of the company's "reportable segments," as defined in Financial Accounting Standards Board (FASB) Statement 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 |
2008 |
2007 |
2006 |
| Income |
$7,126 |
$4,532 |
$4,270 |
U.S. upstream income of $7.1 billion in 2008 increased $2.6 billion from 2007. Higher average prices for crude oil and natural gas increased earnings by $3.1 billion between periods. Also contributing to the higher earnings were gains of approximately $1 billion on asset sales, including a $600 million gain on an asset-exchange transaction. Partially offsetting these benefits were adverse effects of about $1.6 billion associated with lower oil-equivalent production and higher operating expenses, which included approximately $400 million of expenses resulting from damage to facilities in the Gulf of Mexico caused by hurricanes Gustav and Ike in September.
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.
The company's average realization for crude oil and natural gas liquids in 2008 was $88.43 per barrel, compared with $63.16 in 2007 and $56.66 in 2006. The average natural gas realization was $7.90 per thousand cubic feet in 2008, compared with $6.12 and $6.29 in 2007 and 2006, respectively.
Net oil-equivalent production in 2008 averaged 671,000 barrels per day, down 9.7 percent and 12.1 percent from 2007 and 2006, respectively. The decrease between 2007 and 2008 was mainly due to normal field declines and the adverse impact of the hurricanes. The decline in 2007 from 2006 was due primarily to normal field declines. The net liquids component of oil-equivalent production for 2008 averaged 421,000 barrels per day, down approximately 8 percent from 2007 and down 9 percent compared with 2006. Net natural gas production averaged 1.5 billion cubic feet per day in 2008, down 12 percent from 2007 and down 17 percent from 2006.
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 |
2008 |
2007 |
2006 |
| $873 |
$(417) |
$(371) |
| Income* |
$14,584 |
$10,284 |
$8,872 |
International upstream income of $14.6 billion in 2008 increased $4.3 billion from 2007. Higher prices for crude oil and natural gas increased earnings by $4.9 billion. Partially offsetting the benefit of higher prices was an impact of about $1.8 billion associated with a reduction of crude-oil sales volumes due to timing of certain cargo liftings and higher depreciation and operating expenses. Foreign currency effects benefited earnings by $873 million in 2008, compared with reductions to earnings of $417 million in 2007 and $371 million in 2006.
Income in 2007 of $10.3 billion 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 incometax items also benefited earnings between periods. These benefits to income were partially offset by the impact of higher operating and depreciation expenses.
The company's average realization for crude oil and natural gas liquids in 2008 was $86.51 per barrel, compared with $65.01 in 2007 and $57.65 in 2006. The average natural gas realization was $5.19 per thousand cubic feet in 2008, compared with $3.90 and $3.73 in 2007 and 2006, respectively.
Net oil-equivalent production of 1.86 million barrels per day in 2008 declined about 1 percent and 2 percent from 2007 and 2006, respectively. The volumes for each year included production from oil sands in Canada. Volumes in 2006 also included production under an operating service agreement in Venezuela until its conversion to a joint-stock company in October of that year. Absent the impact of higher prices on certain production-sharing and variableroyalty agreements, net oil-equivalent production increased between 2007 and 2008. The decline in 2007 from 2006 was associated with the impact of the contract conversion in Venezuela and the impact of higher prices on production sharing agreements.
The net liquids component of oil-equivalent production was 1.3 million barrels per day in 2008, a decrease of 5 percent from 2007 and 9 percent from 2006. Net natural gas production of 3.6 billion cubic feet per day in 2008 was up 9 percent and 15 percent from 2007 and 2006, 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 |
2008 |
2007 |
2006 |
| Income |
$1,369 |
$966 |
$1,938 |
U.S. downstream earnings of $1.4 billion in 2008 increased about $400 million from 2007 due mainly to improved margins on the sale of refined products and gains on derivative commodity instruments. Operating expenses were higher between periods. Income of $966 million in 2007 decreased nearly $1 billion from 2006. The decline was associated mainly with lower refined-product margins and higher planned and unplanned refinery downtime than a year earlier. Operating expenses were also higher in 2007 than in 2006.
Sales volumes of refined products were 1.41 million barrels per day in 2008, a decrease of 3 percent from 2007. The decline was associated with reduced sales of gasoline and fuel oil. Sales volumes of refined products were 1.46 million barrels per day in 2007, a decrease of 3 percent from 2006. The reported sales volume for 2007 was on a different basis than 2006 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. Branded gasoline sales volumes of 601,000 barrels per day in 2008 were down about 4 percent and 2 percent from 2007 and 2006, 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 14, " 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 |
2008 |
2007 |
2006 |
| $193 |
$62 |
$98 |
| Income* |
$2,060 |
$2,536 |
$2,035 |
International downstream income of $2.1 billion in 2008 decreased nearly $500 million from 2007. Earnings in 2007 included gains of approximately $1 billion on the sale of assets, which included an interest in a refinery and marketing assets in the Benelux region of Europe. The $500 million improvement otherwise between years was associated primarily with a benefit from gains on derivative commodity instruments that was only partially offset by the impact of lower margins on the sale of refined products. Foreign currency effects increased earnings by $193 million in 2008, compared with $62 million in 2007. Income in 2007 of $2.5 billion increased $500 million from 2006, largely due to the gains on asset sales. Margins on the sale of refined products in 2007 were up slightly from 2006. Operating expenses were higher, and earnings from the company's shipping operations were lower.
Refined-product sales volumes were 2.02 million barrels per day in 2008, about 1 percent lower than 2007 due mainly to reduced sales of gas oil and fuel oil. Refined product sales volumes were 2.03 million barrels per day in 2007, about 5 percent lower than 2006. The decline in 2007 was largely due to the impact of asset sales and the accounting-standard change for buy/sell contracts. Excluding the accounting change, sales decreased about 4 percent.
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 14, " Accounting for Buy/Sell Contracts," for a discussion of the accounting for purchase-and-sale contracts with the same counterparty.
Chemicals
| Millions of dollars |
2008 |
2007 |
2006 |
| $(18) |
$(3) |
$(8) |
| Income* |
$182 |
$396 |
$539 |
The chemicals segment includes the company's Oronite subsidiary and the 50 percent-owned Chevron Phillips Chemical Company LLC (CPChem). In 2008, earnings were $182 million, compared with $396 million and $539 million in 2007 and 2006, respectively. Earnings declined in 2008 due to lower sales volumes of commodity chemicals by CPChem. Higher expenses for planned maintenance activities also contributed to the earnings decline. Earnings also declined for the company's Oronite subsidiary due to lower volumes and higher operating expenses. In 2007, earnings of $396 million decreased $143 million from 2006 due to the impact of lower margins on the sale of commodity chemicals by CPChem that were only partially offset by improved margins on Oronite's sales of additives for lubricants and fuel.
All Other
| Millions of dollars |
2008 |
2007 |
2006 |
| $(186) |
$6 |
$62 |
| Net Charges* |
$(1,390) |
$(26) |
$(516) |
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 in 2008 increased $1.4 billion from 2007. 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. Results in 2008 included net unfavorable corporate tax items and increased costs of environmental remediation for sites that previously had been closed or sold. Foreign exchange effects also contributed to the increase in net charges between years. Net charges of $26 million in 2007 decreased $490 million from 2006 due mainly to the Dynegy-related gain in 2007.