DBRS Confirms Chevron at AA & R-1(middle)

Dominion Bond Rating Service (“DBRS”) has confirmed the ratings of Chevron Corporation (“CVX” or the “Company”) and its subsidiaries as indicated above. The trends remain Stable.

Chevron Corporation (“CVX” or the “Company”) anticipates completing its proposed acquisition of Unocal Corporation (“Unocal”) following a scheduled vote by the latter’s shareholders on August 10, 2005. On April 4, 2005, DBRS confirmed CVX’s ratings following its proposal to acquire Unocal in a 75% stock/25% cash transaction valued at US$16.4 billion, plus assumed net debt of US$1.6 billion (as at year-end 2004). However, on June 22, 2005, China National Offshore Oil Corporation (“CNOOC”) proposed to acquire Unocal for US$18.5 billion in cash, plus assumption of Unocal’s net debt (US$1.047 billion at March 31, 2005). While the resolution of the CVX-Unocal transaction is uncertain, DBRS expects that any potential counter-offer from CVX would be managed within the context of CVX’s current ratings. (For example, DBRS estimates that a US$2.0 billion increase in the cash component of CVX’s offer would increase pro forma net debt-to-capital from 7.6% to 10.4% as at March 31, 2005.)

Key considerations for CVX with respect to the Unocal acquisition are as follows: (1) Pro forma combined production would be expected to rise from 2.369 million barrels of oil equivalent per day (“mmboe/d”) in 2004 to 3.0 mmboe/d in 2006 (rather than in 2008 for CVX on a stand-alone basis). Pro forma combined production would rise by 410,000 boe/d (up 17%) in 2004, with a reduction in liquids weighting (from 72% to 67%) and an increase in Asia-Pacific weighting (from 25% to 29%). The acquisition would offset CVX’s long-term declining trend in production. (2) Pro forma combined reserves would increase by 1.754 billion boe (up 16%), while liquids weighting would decline (from 71% to 66%). CVX’s overall reserve profile would be improved by the higher exposure to the prolific Asia-Pacific basin (from 21% to 26%). (3) The purchase price equates to US$9.50 per boe, which is high relative to CVX’s costs historically, but reasonable in the context of recent acquisitions, rising finding and development costs, and high oil prices. (4) CVX expects more than US$2 billion in proceeds from the sale of assets following the close of the transaction, as well as US$325 million of pre-tax operational savings within one year of closing. CVX expects to accelerate its common share buyback program following the closing of the transaction, which DBRS expects would be managed within the context of CVX’s current ratings.

Excluding Unocal, CVX continues to benefit from very strong industry conditions in its key exploration and production (E&P) and refining, marketing, and transportation (RM&T) segments. CVX has a very strong financial profile, with cash balances exceeding debt at March 31, 2005. However, CVX’s per-unit production costs are rising, similar to industry trends, while a poor reserves replacement performance in 2004 resulted in above average reserve replacement costs, especially in the U.S. However, over the medium term, CVX expects production to rise 3% annually, reaching 3.0 mmboe/d in 2008, mainly due to major projects in Kazakhstan, Angola, Nigeria, deepwater Gulf of Mexico, and Australia.