Chevron's Second Quarter Net Income Up 18%

Chevron Corporation (NYSE: CVX) reported net income of $4.4 billion ($1.97 per share - diluted) for the second quarter 2006, compared with $3.7 billion ($1.76 per share - diluted) in the year-ago period. For the first six months of 2006, net income was $8.3 billion ($3.77 per share - diluted), compared with $6.4 billion ($3.04 per share - diluted) in the 2005 first half.

Sales and other operating revenues in the second quarter 2006 were $52 billion, up $5 billion from the same period in 2005. The increase was mainly attributable to higher prices for crude oil and refined products and the inclusion of revenues related to the former Unocal operations acquired in August 2005. Partially offsetting these effects in the 2006 period was the impact of an accounting-rule change beginning in the second quarter for certain purchase and sale contracts. Six-month 2006 sales and other operating revenues were $106 billion, up from $88 billion in the 2005 first half.

                               Earnings Summary

                                        Three Months          Six Months
                                       Ended June 30         Ended June 30
    Millions of Dollars               2006       2005       2006       2005
    Income by Business Segment -
      Upstream - Exploration and
       Production                   $3,272     $2,772     $6,730     $5,151
      Downstream - Refining,
       Marketing and Transportation    998        976      1,578      1,385
      Chemicals                         94         84        247        221
    All Other                          (11)      (148)      (206)      (396)
        Net Income*                 $4,353     $3,684     $8,349     $6,361
    * Includes foreign
      currency effects                $(56)       $54      $(164)       $33

Quarterly Results

"The earnings improvement in the second quarter was driven mainly by our upstream business outside the United States," said Chairman and CEO Dave O'Reilly. "Worldwide upstream results in this year's quarter benefited from both higher prices for crude oil and a 10 percent increase in oil-equivalent production." O'Reilly noted that U.S. upstream results in the 2006 quarter included charges of about $300 million ($0.13 per share) for uninsured costs associated with the dismantlement or repair of infrastructure damaged by last year's hurricanes in the Gulf of Mexico.

For the company's downstream business, O'Reilly said profits of approximately $1 billion were up slightly from the second quarter 2005 on improved results in the United States. Contributing to the U.S. earnings improvement were higher average margins for refined products and a higher refinery-utilization rate. The company's U.S. fuels refinery network operated at 100 percent of its crude oil capacity in the 2006 quarter.

Sustained Financial Performance

"Our recurring strong cash flows from operations funded $4 billion of capital and exploratory expenditures in the second quarter of this year," O'Reilly remarked. "We also retired $1.7 billion of debt during the quarter that was assumed with last year's acquisition of Unocal and purchased $1.3 billion of our common shares in the open market. We expect to complete our $5 billion stock buyback program by the end of the year. Earnings for the past 12 months resulted in a 24 percent return on capital employed for the period."

Strategic Focus

O'Reilly also noted recent achievements by the company's upstream operations and initiatives related to investments in alternative fuels:

    -- Angola - Production of first crude oil from the offshore Lobito Field.
       The Benguela, Belize, Lobito and Tomboco fields form the 31 percent-
       owned and operated BBLT Development.  As additional fields and wells
       are added over the next two years, BBLT's maximum production is
       expected to reach approximately 200,000 barrels of oil per day.
    -- United Kingdom - Production of first crude oil from the 85 percent-
       owned and operated Area C Project in the Captain Field.  Eventual
       maximum production for the project is estimated at 15,000 barrels per
       day.
    -- Azerbaijan - Participation in the first shipment of crude oil through
       the 8.9 percent-owned Baku-Tbilisi-Ceyhan (BTC) pipeline.  The initial
       crude oil is being supplied by the Azerbaijan International Oil
       Company, in which Chevron has a 10.3 percent interest.
    -- Brazil - Commitment to develop the 52 percent-owned and operated
       offshore Frade Field.  Initial production is targeted by early 2009,
       with a maximum annual rate for the project estimated at 85,000 oil-
       equivalent barrels per day.
    -- Nigeria - Discovery of crude oil in the 20 percent-owned offshore Oil
       Prospecting License 214.
    -- Australia - Discovery of natural gas at the Chandon-1 exploration well
       offshore northwest Australia in the Greater Gorgon development area.
       Chevron's interest in the property will be 50 percent.
    -- Vietnam - Signing of a 30-year production-sharing contract with Vietnam
       Oil and Gas Corporation for a 50 percent interest in Block 122 offshore
       eastern Vietnam. The company has a 3-year work program for seismic
       acquisition and drilling of an exploratory well.
    -- Biofuels - Acquisition completed of a 22 percent interest in Galveston
       Bay Biodiesel L.P., which is building one of the first large-scale
       biodiesel plants in the United States.  Chevron also entered into a
       partnership with the Georgia Institute of Technology to pursue advanced
       technology aimed at making cellulosic biofuels and hydrogen into viable
       transportation fuels.

UPSTREAM - EXPLORATION AND PRODUCTION

Worldwide net oil-equivalent production, including volumes produced from oil sands and production under an operating service agreement, was 2,669,000 barrels per day in the second quarter 2006, an increase of 10 percent from the corresponding period in 2005. The increase was associated with the production from the former Unocal operations.

Average U.S. prices for crude oil and natural gas liquids in the second quarter 2006 increased by $16 to $60 per barrel. Outside the United States, prices were up by more than $17 per barrel to $62. The average U.S. natural gas sales price decreased about 7 percent to $5.90 per thousand cubic feet, while outside the United States the average natural gas price of $3.80 per thousand cubic feet was 27 percent higher than a year earlier.

U.S. Upstream

                                        Three Months         Six Months
                                        Ended June 30       Ended June 30
    Millions of Dollars                2006       2005      2006      2005

    Income                            $901       $972     $2,115    $1,739

U.S. upstream income of $901 million in the second quarter decreased 7 percent from the 2005 period. Net charges of approximately $300 million were recorded in the 2006 quarter for additional uninsured costs related to the dismantlement or repair of wells and facilities that were damaged in last year's hurricanes in the Gulf of Mexico. Other operating expenses were also higher in this year's quarter. These effects were partially offset by the benefits of higher prices for crude oil and higher oil-equivalent production between periods.

Net oil-equivalent production increased 4 percent to 768,000 barrels per day in the 2006 quarter due to volumes added from the former Unocal operations. The net liquids component of production was down about 1 percent to 463,000 barrels per day. Net natural gas production averaged 1.8 billion cubic feet per day, up 13 percent.

    International Upstream
                                       Three Months           Six Months
                                       Ended June 30         Ended June 30
    Millions of Dollars               2006       2005      2006       2005

    Income*                         $2,371     $1,800     $4,615     $3,412
    *Includes foreign
     currency effects                 $(96)       $57      $(219)       $39

International upstream income of $2.4 billion increased from $1.8 billion in the second quarter 2005. The improvement was due mainly to higher average prices for crude oil and natural gas and increased oil-equivalent production. Foreign currency effects reduced earnings by $96 million in the 2006 quarter, compared with a $57 million benefit to income in the year-ago period.

Net oil-equivalent production, including volumes produced from oil sands and production under an operating service agreement, increased 13 percent to 1,901,000 barrels per day in the 2006 quarter. The net liquids component increased 3 percent to 1,362,000 barrels per day, due to volumes added from former-Unocal operations. This production increase was partially offset by the effects of maintenance activities at the Captain Field in the United Kingdom and the Athabasca oil sands project in Canada, as well as lower cost-oil recovery volumes in Indonesia. Natural gas production was up 50 percent to 3.2 billion cubic feet per day due to the added Unocal-related volumes.

In July 2006, the United Kingdom enacted an increase in the corporation tax on oil and gas companies in the U.K. North Sea, which effectively increased the tax rate from 40 percent to 50 percent. The changes are effective from January 1, 2006. The company will record a one-time charge of approximately $200 million in the third quarter 2006 to adjust deferred taxes as of the effective date and to recognize the effect of the incremental tax for the first half of 2006. The effect of the incremental tax rate on earnings in the second half of 2006 is estimated at $80 million.

             DOWNSTREAM - REFINING, MARKETING AND TRANSPORTATION

    U.S. Downstream
                                        Three Months          Six Months
                                       Ended June 30         Ended June 30
    Millions of Dollars               2006       2005      2006       2005

    Income                            $554       $398      $764       $456

U.S. downstream earnings of $554 million increased $156 million from the 2005 quarter, mainly as a result of higher refined-product margins and increased refinery utilization.

Sales volumes for refined products decreased 3 percent to 1,468,000 barrels per day in the 2006 quarter due to a change in accounting beginning April 1 related to certain purchase and sale contracts. Previously, transactions for these contracts were reported as both a purchase and sale. The new accounting requires the transactions to be netted. Excluding the impact of this new accounting rule, sales of refined products were about 2 percent higher in the 2006 quarter.

    International Downstream
                                        Three Months           Six Months
                                       Ended June 30         Ended June 30
    Millions of Dollars               2006       2005       2006       2005

    Income*                           $444       $578       $814       $929
    *Includes foreign
     currency effects                  $14        $12        $23        $24

International downstream earnings of $444 million decreased $134 million from the year-ago period, as the benefits of higher refined-product margins and improved refinery utilization were more than offset by the effect of higher average income tax rates and an increase in operating expenses.

Refined-product sales volumes of 2,100,000 barrels per day were down 10 percent. Excluding the effect of the new accounting rule, sales were down 4 percent, primarily due to lower gasoline sales in Asia-Pacific and Europe and lower fuel oil sales.


                                  CHEMICALS

                                        Three Months           Six Months
                                       Ended June 30         Ended June 30
    Millions of Dollars                2006       2005      2006       2005

    Income*                            $94        $84       $247       $221
    *Includes foreign
     currency effects                  $(5)       $(1)      $(11)       $(2)

Chemical operations earned $94 million, up 12 percent from the 2005 quarter. Earnings improved for both the 50 percent-owned Chevron Phillips Chemical Company LLC affiliate and the company's Oronite subsidiary. Average income tax rates were also higher between periods.

                                  ALL OTHER
                                        Three Months           Six Months
                                       Ended June 30         Ended June 30
    Millions of Dollars                2006      2005       2006       2005

    Net Charges*                      $(11)     $(148)     $(206)     $(396)
    *Includes foreign
     currency effects                  $31       $(14)       $43       $(28)

All Other consists of the company's interest in Dynegy, mining operations of coal and other minerals, power generation businesses, worldwide cash management and debt financing activities, corporate administrative functions, insurance operations, real estate activities and technology companies.

Net charges were $11 million in the second quarter 2006, compared with net charges of $148 million in the corresponding 2005 period. The decrease in net charges was partly associated with improved Dynegy-related results, which included a gain on the redemption of the company's investment in Dynegy preferred stock. The company also recorded a gain on the retirement of Unocal debt.

CAPITAL AND EXPLORATORY EXPENDITURES

Capital and exploratory expenditures in the first six months of 2006 were $7.4 billion, compared with $4.2 billion in the corresponding 2005 period. Included in these expenditures were approximately $800 million and $700 million for the company's share of equity affiliate expenditures in 2006 and 2005, respectively. Upstream expenditures represented 77 percent of the companywide total in 2006.

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