the net cash settlement will be based on the difference between fixed interest rates and floating interest rates.

The company has outstanding public bonds issued by Chevron Corporation Profit Sharing/Savings Plan Trust Fund, Chevron Canada Funding Company (formerly Chevron Texaco Capital Company), Texaco Capital Inc. and Union Oil Company of California. All of these securities are guaranteed by Chevron Corporation and are rated AA by Standard and Poor’s Corporation and Aa2 by Moody’s Investors Service. The company’s U.S. commercial paper is rated A-1+ by Standard and Poor’s and P-1 by Moody’s, and the company’s Canadian commercial paper is rated R-1 (middle) by Dominion Bond Rating Service. All of these ratings denote high-quality, investment-grade securities.

     The company’s future debt level is dependent primarily on results of operations, the capital-spending program and cash that may be generated from asset dispositions. The company believes that it has substantial borrowing capacity to meet unanticipated cash requirements and that during periods of low prices for crude oil and natural gas and narrow margins for refined products and commodity chemicals, it has the flexibility to increase borrowings and/or modify capital-spending plans to continue paying the common stock dividend and maintain the company’s high-quality debt ratings.

     Common stock repurchase program   A $5 billion stock repurchase program initiated in December 2005 was completed in November 2006. During 2006, about 78.5 million common shares were repurchased under this program at a total cost of $4.9 billion.

     In December 2006, the company authorized the acquisition of up to an additional $5 billion of its common shares from time to time at prevailing prices, as permitted by securities laws and other legal requirements and subject to market conditions and other factors. The program is for a period of up to three years and may be discontinued at any time. Under this program, the company acquired approximately 1.3 million shares in the open market for $100 million during December 2006 and through mid-February 2007 increased the total shares acquired to 8.2 million at a cost of $592 million.

     Capital and exploratory expenditures   Total reported expenditures for 2006 were $16.6 billion, including $1.9 billion for the company’s share of affiliates’ expenditures, which did not require cash outlays by the company. In 2005 and 2004, expenditures were $11.1 billion and $8.3 billion, respectively, including the company’s share of affiliates’ expenditures of $1.7 billion and $1.6 billion in the cor-

responding periods. The 2005 amount excludes the $17.3 billion acquisition of Unocal Corporation.

     Of the $16.6 billion in expenditures for 2006, about three-fourths, or $12.8 billion, related to upstream activities. Approximately the same percentage was also expended for upstream operations in 2005 and 2004. International upstream accounted for about 70 percent of the worldwide upstream investment in each of the three years, reflecting the company’s continuing focus on opportunities that are available outside the United States.

     In 2007, the company