Chevron reported net income of $4.90 billion ($2.44 per share – diluted) for the fourth quarter 2008, up from $4.88 billion ($2.32 per share – diluted) in the year-ago period.

Results for the 2008 fourth quarter included a gain of about $600 million on an upstream asset-exchange transaction. Foreign-currency effects benefited net income by $478 million in the period, compared with a reduction to earnings of $2 million in the 2007 fourth quarter.

Sales and other operating revenues in the fourth quarter 2008 were $43 billion, compared with $60 billion a year earlier. For the year 2008, sales and other operating revenues were $265 billion, versus $214 billion in 2007.

“Fourth-quarter earnings for our downstream business improved as the lower cost of crude-oil feedstocks used in the refining process helped boost margins on the sale of gasoline and other refined products,” said Chairman and Chief Executive Officer, Dave O’Reilly. “Lower quarterly profits for our upstream operations reflected a sharp decline in crude-oil prices from a year ago.

“We achieved much success in 2008,” O’Reilly added. “Record earnings and strong cash flows for the year enabled us to invest $23 billion in an attractive portfolio of capital and exploratory projects, buy back $8 billion of our common stock and increase the dividend payment on our common shares for the 21st consecutive year. We enter 2009 with the financial strength to meet the challenges of a difficult economy and with a continued focus on cost management and capital stewardship.”

O’Reilly also noted other activities of operational and strategic importance in recent months:

— US – Began production at the 75%-owned and operated Blind Faith project in the deepwater Gulf of Mexico. Total volumes are expected to ramp up during the first quarter to about 65,000 barrels of crude oil and 55 million cubic feet of natural gas per day. Blind Faith was the third major project completed in the second half of 2008. In the third quarter, crude-oil production began at the deepwater Agbami field offshore Nigeria, and full facility expansion at Tengiz in Kazakhstan nearly doubled production capacity.

— Indonesia – Achieved first oil at North Duri field area 12, which Chevron operates with a 100% interest. Maximum total crude-oil production of 34,000 barrels per day is expected in 2012.

— Proved Reserves of Oil and Gas – Added 1.34 billion barrels of oil-equivalent proved reserves in 2008. These additions, which are subject to final reviews, equate to 146% of oil-equivalent production for the year. Included in the additions are favorable effects of lower year-end prices on the calculation of reserves associated with production-sharing and variable-royalty contracts. The company will provide additional details relating to 2008 reserve activity in its annual report on form 10-K scheduled for filing with the SEC on February 26, 2009.

Upstream – Exploration and Production:

Worldwide oil-equivalent production averaged 2.54 million barrels per day in the fourth quarter 2008, compared with 2.61 million barrels per day in the corresponding 2007 period. The decline between periods was primarily associated with the ongoing effect of damage to production facilities caused by hurricanes in the Gulf of Mexico in September 2008.

U.S. upstream income of $1.15 billion in the fourth quarter 2008 decreased $229 million from a year earlier. The 2008 period included an approximate $600 million gain on a transaction involving the receipt of Chevron stock in exchange for a producing property, plus cash. Prices for crude oil and natural gas were lower in the 2008 fourth quarter. Oil-equivalent production was also lower, and operating expenses were higher.

The average sales price per barrel of crude oil and natural gas liquids was $49 in the fourth quarter 2008, down from $79 in the corresponding 2007 period. The average sales price per thousand cubic feet of natural gas decreased from $6.08 to $5.23.

Net oil-equivalent production was 619,000 barrels per day in the 2008 fourth quarter, down 111,000 from a year earlier. About 75% of the decline was associated with the continuing effects of production that was shut-in as a result of September hurricanes in the Gulf of Mexico. The net liquids component of production was down 12% at 399,000 barrels per day, and net natural gas production declined 21% to 1.3 billion cubic feet per day.

At the end of 2008, about 50,000 barrels per day of oil-equivalent production remained offline in the Gulf of Mexico due to the hurricanes, with restoration of the volumes to occur as repairs to third-party pipelines and producing facilities are completed.

International upstream earnings of $2 billion in the fourth quarter 2008 decreased $1.46 billion from a year earlier due to lower prices for crude oil, a reduction in sales volumes associated with the timing of certain cargo liftings and higher depreciation expense. Foreign-currency effects benefited earnings by $644 million in the 2008 quarter, compared with an $88 million reduction to income in the 2007 corresponding period.

The average sales price per barrel of crude oil and natural gas liquids was $47 in the 2008 quarter, down from $80 a year earlier. The average sales price per thousand cubic feet of natural gas increased from $4.32 to $5.10.

Net oil-equivalent production was 1.92 million barrels per day in the 2008 fourth quarter, up 38,000 barrels per day from a year earlier. The 2008 period included an increase of about 150,000 barrels per day from the project start-up earlier in the year at Agbami in Nigeria and the ramp-up of production associated with the expansion project at Tengiz in Kazakhstan. Production was lower in Azerbaijan, Thailand and Venezuela. The net liquids component of production increased 2% from a year ago to 1.34 million barrels per day, while natural gas production increased 2% to 3.49 billion cubic feet per day.

US downstream earned about $1.03 billion in the fourth quarter 2008, compared with a loss of $55 million a year earlier. The improvement between periods was mainly the result of significantly higher margins on the sale of refined products, improved refinery operations and gains on commodity derivative instruments.

Refinery crude-input of 930,000 barrels per day in the fourth quarter 2008 was 92,000 higher than the corresponding 2007 period. The increase was primarily due to significantly less planned and unplanned downtime in this year’s fourth quarter.

Refined-product sales volumes declined 1% from the fourth quarter of 2007 to 1.4 million barrels per day, primarily the result of lower gasoline and fuel oil sales. Branded gasoline sales volumes of 606,000 barrels per day were down 2% between quarters. International downstream income of $1.05 billion increased $788 million from the 2007 quarter due largely to gains on commodity derivative instruments and improved margins on the sale of refined products. These benefits were partially offset by lower refined-product sales volumes. Foreign-currency effects reduced earnings by $27 million in the 2008 quarter, compared with a benefit of $87 million a year earlier.

Refinery crude-input was 973,000 barrels per day, about 6% lower than the fourth quarter of 2007 due to an increase in planned and unplanned downtime.

Refined-product sales volumes of 1.9 million barrels per day in the 2008 fourth quarter were about 6% lower than a year earlier due primarily to reduced sales of gasoline, gas oil and fuel oil.

Chemicals:

Chemical operations earned $28 million in the fourth quarter of 2008, compared with $69 million in the year-ago period. Earnings were lower for the company’s 50%-owned Chevron Phillips Chemical Company LLC (CPChem). The decline was partially offset by improved results for Chevron’s Oronite subsidiary.