Chevron Expects Lower Earnings in Q4

Chevron Corp. late Tuesday issued its interim update for the fourth quarter of 2006. Relative to record third quarter earnings, the company expects results in the fourth quarter to be adversely affected by lower commodity prices, lower Downstream margins and lower refinery utilization attributable to planned maintenance and construction activities worldwide.

The interim update contains certain industry and company operating data for the fourth quarter. The production volumes, realizations, margins, and other identified items in the report are based on a portion of the quarter and are not necessarily indicative of Chevron's quarterly results to be reported on February 2, 2007 in the Fourth Quarter 2006 Earnings Press Release. The reader should not place undue reliance on this data.

Unless noted otherwise, all commentary is based on two months of the fourth quarter 2006 versus full third quarter 2006 results.


The table that follows includes information on production and price indicators for crude oil and natural gas for specific markets. Actual realizations may vary from indicative pricing due to quality and location differentials and the effect of pricing lags. International results are driven by actual liftings, which may differ from production due to the timing of cargoes and other factors.

                                   2005          2006
                                    4Q     1Q     2Q     3Q     4Q       4Q
                                                              through  through
                                                                Nov     Dec 31
    U.S. Upstream
      Net Production:
       Liquids               MBD     444    453    463    464    468
       Natural Gas          MMCFD  1,638  1,782  1,832  1,846  1,788
       BOE                  MBOED    717    750    768    772    766

       Avg. WTI Spot Price  $/Bbl  60.06  63.35  70.57  70.56  59.11    60.06
       Avg. Midway Sunset
        Posted Price        $/Bbl  49.07  51.28  58.71  59.08  47.03    48.20
       Nat. Gas-Henry Hub.
        "Bid Week" Avg.     $/MCF  12.99   8.99   6.81   6.58   5.66     6.56
       Nat. Gas-CA Border
        "Bid Week" Avg.     $/MCF  10.30   7.77   5.65   6.09   5.32     5.82
       Nat. Gas-Rocky Mountain
        "Bid Week" Avg.     $/MCF   9.56   7.17   5.26   5.31   4.20     4.67

      Average Realizations:
       Crude                $/Bbl  52.87  54.99  62.30  63.98  52.26
       Liquids              $/Bbl  52.10  53.45  60.07  61.99  50.27
       Natural Gas          $/MCF  10.22   7.46   5.89   5.93   5.42

      Exploration Expense $ MM, B/T  109    106     86     76    n/a      n/a

    International Upstream:
       Liquids               MBD   1,271  1,228  1,239  1,267  1,315
       Other Produced
        Volumes              MBD     147    138    123    141     36
                     Total   MBD   1,418  1,366  1,362  1,408  1,351

       Natural Gas          MMCFD  3,289  3,165  3,234  3,119  3,071
       BOE - incl. Other
        Produced Volumes    MBOED  1,966  1,894  1,901  1,928  1,863

       Avg. Brent Spot
        Price               $/Bbl  57.02  61.88  69.39  69.72  58.55    59.44

      Average Realizations:
       Liquids              $/Bbl  50.26  55.13  62.24  61.90  50.85
       Natural Gas          $/MCF   3.50   3.78   3.82   3.66   3.73

      Exploration Expense  $MM, B/T  165    162    179    208    n/a      n/a

U.S. liquids and natural gas production declined almost 1 percent from the third quarter, largely due to planned project activity - particularly in the Gulf of Mexico, which continued into December. Combined international liquids and natural gas production volumes were down 3.4 percent versus the third quarter; effective with the fourth quarter production volumes reflect the impact of the conversion to Empresas Mixtas in Venezuela, which is estimated to reduce volumes on the order of 90,000 barrels per day.

U.S. crude realizations decreased by $11.72 per barrel - in line with the decrease in WTI and California heavy crude prices. International liquids realizations declined $11.05 per barrel, in line with the decrease in Brent spot prices.

U.S. natural gas realizations declined $0.51 per thousand cubic feet - less than a composite of bid-week price changes for Henry Hub, Rocky Mountain and California border, due to the mix of production in the various regions and spot sales.


The table that follows includes industry benchmark indicators for refining and marketing margins. Actual margins realized by the company may differ significantly due to location and product mix effects, planned and unplanned shutdown activity and other company-specific and operational factors.

                                   2005          2006
                                    4Q     1Q     2Q     3Q     4Q       4Q
                                                              through  through
                                                                Nov     Dec 31
      Market Indicators      $/Bbl
       Refining Margins
        USWC - ANS 5-3-1-1         16.00  18.32  29.06  19.36  19.85    20.55
        USGC LHD - Avg of
         Mogas + Dist,
         less Fuel Oil             30.96  25.56  37.04  34.10  26.79    27.58
        Singapore - Dubai
         3-1-1-1                    5.79   4.21   8.77   4.07   2.14     1.96
        N.W. Europe - Brent
         3-1-1-1                    2.79   0.12   1.65  (0.22) (1.18)   (2.06)

       Marketing Margins
        U.S. West - LA Mogas
         DTW to Spot                9.06   1.11   1.65  11.08   4.73     4.32
        U.S. East - Houston
         Mogas Rack to Spot         3.60   2.02   4.96   7.31   4.52     4.64
        Asia-Pacific / Middle
         East / Africa              4.59   4.16   3.27   4.42   6.26
        United Kingdom              5.64   3.95   5.70   7.31   5.00
        Latin America               5.47   6.21   5.28   5.92   5.74

      Actual Volumes:
       U.S. Refinery Input    MBD    896    939    935    967    930
       Int'l Refinery Input   MBD  1,040  1,082  1,063  1,055    936
       U.S. Branded Mogas
        Sales                 MBD    587    595    613    625    619

      Effective April 1, 2006, the company adopted a new accounting standard,
      Emerging Issues Task Force (EITF) Issue No. 04-13, "Accounting for
      Purchases and Sales of Inventory with the Same Counterparty" and
      reported prospectively the net effect of buy/sell transactions that fall
      within the scope of this statement on its Consolidated Statement of
      Income as "Purchased crude oil and products." This accounting change has
      had no effect on Chevron's reported net income but has resulted in a
      reduction in reported "Sales and other operating revenues" and refined
      products sales volumes.

U.S. refinery input volumes and conversion capacity utilization decreased primarily due to planned downtime and a seasonal decline in the production of asphalt volumes. During the quarter the Pascagoula refinery underwent a 75-day planned shutdown of its Fluid Catalytic Cracking (FCC) unit, during which time the announced FCC expansion was completed; the unit returned to normal operations in mid-December. In addition, the El Segundo refinery experienced major planned maintenance. Outside the U.S., refinery input volumes were also lower largely due to sizeable planned maintenance downtime at the Pembroke refinery.

The U.S. Gulf Coast light-heavy-differential marker fell significantly - about $7.30 per barrel, or just over 20 percent. And while the U.S. West Coast industry refining indicator improved slightly relative to the third quarter, the company does not expect to benefit to the full extent indicated given the mix of crudes run at the company's West Coast refineries. Outside the U.S., benchmark refining margins also fell and continued to trend downward in December.

Los Angeles mogas marketing margin indicators declined appreciably (about $6.35 per barrel) and the Houston mogas indicator fell by roughly $2.80 per barrel. For the first two months of the quarter, actual marketing margins realized in the U.S. were lower than indicator margins based on different product and location mix effects. Internationally, indicative marketing margins were generally weaker, except in Asia.


                                   2005          2006
                                    4Q     1Q     2Q     3Q     4Q       4Q
                                                              through  through
                                                                Nov     Dec 31
    Chemicals Source: CMAI Cents/lb
      Ethylene Industry Cash
       Margin                      21.19  20.82  14.22  17.02  18.67    15.68
      HDPE Industry Contract
       Sales Margin                13.20  14.94  12.06  12.79  13.18    11.94
      Styrene Industry Contract
       Sales Margin                12.19  12.31  11.73  11.24  11.65    11.68

      Prices, economics and views expressed by CMAI are strictly the opinion
      of CMAI and Purvin & Gertz and are based on information collected within
      the public sector and on assessments by CMAI and Purvin & Gertz staff
      utilizing reasonable care consistent with normal industry practice. CMAI
      and Purvin & Gertz make no guarantee or warranty and assume no liability
      as to their use.

In the Chemicals segment, industry indicator margins were mixed relative to the third quarter.


Our standard guidance for net after-tax charges for corporate and other activities, excluding the company's equity share of Dynegy's results, is between $160 million and $200 million. For the fourth quarter we expect that actual results will be at or above the high end of that range. Due to the potential for irregularly occurring accruals related to tax items, pension settlements, and other corporate items, actual results may differ.


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Brent Crude Oil : $50.79/BBL 1.30%
Light Crude Oil : $49.96/BBL 1.10%
Natural Gas : $2.77/MMBtu 2.12%
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