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Jeanette OuradaThanks, Pat. Turning to Slide 4. I will compare results of the second quarter 2010 with the first quarter 2010. As a reminder, our earnings release compares second quarter 2010 with the same quarter a year ago. Second quarter earnings increased about $850 million from the first quarter. Upstream earnings were $180 million lower due to unfavorable tax charges and higher OpEx, partially offset by a favorable foreign currency variance. Second quarter downstream results saw a significant improvement of nearly $780 million. Earnings benefited from stronger U.S. margins, favorable foreign currency and timing variances, as well as the absence of first quarter charges related to planned employee reductions. The other bar largely reflects a favorable swing in corporate tax items and lower corporate charges. On Slide 5, our U.S. upstream earnings for the second quarter were $66 million lower than the first quarter's results. Realizations in the second quarter were down $95 million. Natural gas realizations drove the decline, dropping 24%, slightly higher than the 20% decline in Henry Hub spot prices. U.S. crude oil realizations were essentially flat between quarters. Lower production volumes decreased earnings by $40 million between periods, primarily due to downtime and normal field declines in the Gulf of Mexico. The other bar represents a benefit of $69 million, which is comprised of a number of unrelated items including lower DD&A rates and exploration expenses. Turning to Slide 6. International upstream earnings were down $116 million compared with the first quarter. Higher realizations benefited earnings by $70 million. Liquids realizations rose 2% between quarters, in line with the increase in average Brent Spot Prices. Natural gas realizations were a slight offset, declining 5% between periods. A favorable swing in foreign currency effects benefited earnings by $210 million. First quarter results included a $100 million loss that was effectively offset by a $110 million gain in the second quarter.
An unfavorable swing in tax items across multiple jurisdictions decreased earnings $220 million. Second quarter charges of about $120 million effectively offset a $100 million earnings benefit in the first quarter.OpEx increased $120 million in the second quarter, which included higher turnaround costs in Kazakhstan and Canada. The other bar reflects higher exploration expenses and DD&A rates. Slide 7 summarizes the quarterly change in Chevron's worldwide net oil-equivalent production. Production decreased 37,000 barrels per day between quarters. Price changes had a modest effect on volumes under production-sharing and variable-royalty contracts in the second quarter, about 3,000 barrels per day. Base business production decreased 47,000 barrels per day between quarters, largely due to planned turnarounds in Kazakhstan and Canada, partially offset by higher demand-driven production in Thailand. Incremental production from major capital projects increased second quarter production by 13,000 barrels per day, primarily driven by the continued ramp-up at Frade in Brazil. George will discuss our current year production outlook in a few minutes. Turning to Slide 8. U.S. downstream earnings improved $350 million in the second quarter. Indicator margins strengthened between quarters, increasing earnings by $170 million. Refining margins improved from the depressed levels of the last several quarters. Actual margin capture from advantageous crude mix and product yields increased earnings by an additional $90 million. Chemical results were $50 million higher mainly due to improved margins for olefins and aromatics. The absence of an employee severance charge recorded in the first quarter benefited earnings by $50 million. The other bar is a negative variance of $9 million. On Slide 9, international downstream earnings also improved significantly, increasing about $430 million from first quarter's results. Margins were $45 million higher with improvements in Europe partly offset by declines in Asia. A favorable swing in foreign currency effects benefited earnings by $230 million. First quarter included a $100 million loss compared to a $130 million gain in the second quarter. Timing effects represented a $155 million positive variance between quarters, reflecting favorable mark-to-market effects on derivatives tied to underlying physical positions. Read the rest of this transcript for free on seekingalpha.com