Turning to the story in downstream, income declined yearly in this segment by 12% due to lower refining margins over the fourth quarter. The 25% increase in international downstream income (13% of income) over the year was offset by the 5% decline in U.S. downstream income (5% of income) over the same period. Revenue declined by 3.8% in this segment over the year, while refinery input declined by 7.8%.

The difference between fourth-quarter and full-year trends was especially marked in this segment. For instance, over the fourth quarter, downstream income declined by 79%, most of that driven by a 116% decline in U.S. downstream income. A $30 million decline in U.S. downstream volumes was offset by a $280 million volume increase internationally in the ultimate quarter of 2007.

Additionally, Chevron's reserve replacement ratio declined to the 10% to 15% range due to sales and acquisitions and the rising price of oil over the year. An upgrade to the company's South Korean refinery operations should increase earnings somewhat in this segment over 2008.

Chevron's chemicals division (2% of income) continued to weather a decline, as profits decreased over the year by 26.5% due mostly to lower margins on olefins.

Despite the fact that cash declined by 35%, Chevron's debt-to-capitalization ratio declined by 390 basis points, to 8.6%.

Overall, the outlook for 2008 depends crucially on Chevron's ability to stabilize upstream production.

CVX Preview: The Price/Production Dilemma