CHEVRON PHILLIPS CHEMICAL CO LLC (Form: 10 ... - Annual Reportpdf.secdatabase.com/35/0001104659-06-012282.pdf · This annual report contains certain forward-looking statements

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SECURITIES AND EXCHANGE COMMISSION

FORM 10-KAnnual report pursuant to section 13 and 15(d)

Filing Date: 2006-02-27 | Period of Report: 2005-12-31SEC Accession No. 0001104659-06-012282

(HTML Version on secdatabase.com)

FILERCHEVRON PHILLIPS CHEMICAL CO LLCCIK:1127399| IRS No.: 731590261 | State of Incorp.:DE | Fiscal Year End: 1231Type: 10-K | Act: 34 | File No.: 333-59054-01 | Film No.: 06647591SIC: 2800 Chemicals & allied products

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UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ýý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2005

or

oo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File No. 333-59054-01

Chevron Phillips Chemical Company LLC(Exact name of Registrant as specified in its charter)

Delaware 73-1590261(State or other jurisdiction of (I.R.S. Employerincorporation or organization) Identification Number)

10001 Six Pines DriveThe Woodlands, TX 77380-1498

(Address of principal executive offices, including zip code)

(832) 813-4100(Registrant�s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes oo No ýý



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ýý No oo

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes oo No ýý

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrant�s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of�accelerated filer and large accelerated filer� in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer oo Accelerated filer oo Non-accelerated filer ýý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes oo No ýý

The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the registrant at June 30, 2005:

None

DOCUMENTS INCORPORATED BY REFERENCE:

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is incorporated:

None

TABLE OF CONTENTS

PART IItem 1. Business 2Item 1A. Risk Factors 16Item 1B. Unresolved Staff Comments 19Item 2. Properties 19Item 3. Legal Proceedings 19Item 4. Submission of Matters to a Vote of Security Holders 20

PART IIItem 5. Market for Registrant�s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 20Item 6. Selected Financial Data 21



Item 7. Management�s Discussion and Analysis of Financial Condition and Results of Operations 22Item 7A. Quantitative and Qualitative Disclosures About Market Risk 31Item 8. Financial Statements and Supplementary Data 32Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 105Item 9A. Controls and Procedures 105Item 9B. Other Information 105

PART IIIItem 10. Directors and Executive Officers of the Registrant 105Item 11. Executive Compensation 108Item 12. Security Ownership of Certain Beneficial Owners and Management 113Item 13. Certain Relationships and Related Transactions 113Item 14. Principal Accounting Fees and Services 114

PART IVItem 15. Exhibits, Financial Statement Schedules 115

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This annual report contains certain �forward-looking statements.� Such statements can generally be identified with words and phrases such as�believes,� �expects,� �anticipates,� �should,� �estimates� or other words and phrases of similar meaning. Where Chevron Phillips ChemicalCompany LLC (CPChem) expresses an expectation or belief as to future events or results, there can be no assurance that the expectation orbelief will result, be achieved or be accomplished. Where any such forward-looking statement includes a statement of the assumptions orbases underlying such forward-looking statement, CPChem believes such assumptions or bases to be reasonable and to be made in good faith.Assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can bematerial, depending on the circumstances. Significant assumptions that, if erroneous, could cause actual results to differ materially from thoseexpressed relate to the following factors, among others: the timing and duration of periods of expansion and contraction within the chemicalsbusiness; plans for the construction, modernization, start-up or de-bottlenecking of domestic and foreign chemical plants; prices of feedstocks,energy and products; force majeure events; severe weather; accidents; labor relations; political risks; terrorist acts; war; changes in foreign anddomestic laws, rules and regulations and the interpretation and enforcement thereof; the effects of accounting rule changes under generallyaccepted accounting principles promulgated by various rule-setting bodies; regulatory decisions relating to taxes, the environment and humanresources; results of operations and the

financial condition of equity affiliates; the global economy; results of financing efforts; and overall financial market conditions. All forward-looking statements and risk factors in this annual report are qualified in their entirety by the cautionary statements contained herein.Unpredictable or unknown factors not discussed herein could also have material adverse effects on such forward-looking statements. CPChemdoes not undertake to update, revise or correct any of the forward-looking information.

PART I

Item 1. Business

Chevron Phillips Chemical Company LLC, a limited liability company formed under Delaware law, manufactures and markets a wide rangeof petrochemicals on a worldwide basis through its subsidiaries and equity affiliates, with manufacturing facilities located in the United States,Puerto Rico, Singapore, China, South Korea, Saudi Arabia, Qatar, Mexico and Belgium. Chevron Corporation (�Chevron,� formerlyChevronTexaco Corporation) and ConocoPhillips (collectively, the �members� or the �owners�) each own 50% of CPChem.


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CPChem is governed by its Board of Directors (the �Board�), comprised of six representatives, under the terms of a limited liability companyagreement. Chevron and ConocoPhillips each have two voting representatives, and the chief executive officer and the chief financial officer ofCPChem are non-voting representatives. Certain major decisions and actions require the approval of the Board. All decisions and actions ofthe Board require the approval of at least one representative of both Chevron and ConocoPhillips.

CPChem is a �voluntary filer� of quarterly, annual and other periodic reports with the Securities and Exchange Commission (the �SEC�).These reports are available to the public at no charge through CPChem�s website at www.cpchem.com., or alternatively, through the SEC�swebsite at www.sec.gov. Information contained on CPChem�s website is not considered part of this Annual Report on Form 10-K.

CPChem�s business is structured around three primary operating segments: Olefins & Polyolefins, Aromatics & Styrenics, and SpecialtyProducts. For a list of the principal products of these segments, see the tables included in each segment�s discussion. See also �Part II - Item8. Financial Statements and Supplementary Data - Note 16. Segment and Geographic Information� for financial data by segment andgeographic location. Capacity information presented in this report is as of December 31, 2005 unless otherwise indicated.

Olefins & Polyolefins

This segment produces and markets ethylene, propylene, and other olefin products which are primarily consumed internally for the productionof polyethylene, normal alpha olefins (NAO), polypropylene and polyethylene pipe. CPChem has five olefin and/or polyolefin productionfacilities located in Texas, eight domestic pipe production facilities and one domestic pipe fittings production facility. CPChem also has onepipe production facility in Mexico. In addition, CPChem owns interests in a polypropylene facility located at the Pasadena Plastics Complexin Texas, a high-density polyethylene plant located at CPChem�s Cedar Bayou facility in Baytown, Texas, an ethylene, polyethylene and1-hexene facility in Qatar, and polyethylene facilities in Singapore and China.

An ethylene plant at the Sweeny facility in Old Ocean, Texas, idle since 2001, was restarted in the second quarter of 2005, and theWaxahachie, Texas pipe production facility was permanently closed in the third quarter of 2005.

2

Olefins & Polyolefins (continued)

Product

Approximate

Net Capacity Primary Uses

(million pounds per year)

Ethylene 8,139 (1) Basic building block for plastics and elastomers, and also a raw material forchemicals used to make paints, detergents and antifreeze.

Polyethylene 6,110 (1) Thermoplastic polymer used in various applications, including:

� high-density polyethylene (HDPE), which is a resin used to make detergentbottles, pails, plastic pipe and conduit, shopping bags, geomembrane and filmapplications;

� linear low-density polyethylene (LLDPE), which is a resin used to make plasticfilm and containers; and

� low-density polyethylene (LDPE), which is a resin used to make plastic film,paper coating, surgical gloves and containers.

Polyethylene pipe,conduit and pipefittings

558 Rigid and flexible plastic pipe used in a wide variety of industries, such aselectrical, energy, gas distribution, geothermal, mining, municipal projects andtelecommunications.



Propylene 2,880 Basic building block for various fibers and plastics, such as polypropylene, andused as a raw material for chemicals used to make paints and detergents.

Polypropylene 486 (1) Thermoplastic polymer used in fibers, films, automobiles and housewares.

Normal alpha olefins 1,549 (1) A group of chemicals used in plasticizer alcohols, polyethylene, surfactants andsynthetic lubricants and additives.

Polyalphaolefins 104 Base stock for synthetic lubricants.

(1) Includes CPChem�s share of equity affiliates� capacities

Competition. Olefins and polyolefins are delivered into the worldwide commodity chemical markets. Competitive factors include price,product quality and performance, product deliverability and customer service. CPChem generally ranks within the top ten ethylene andpolyethylene producers worldwide based on published production capacities. Other major producers include Dow Chemical Company (Dow),Equistar Chemicals LP (Equistar), ExxonMobil Chemical Company (ExxonMobil), Ineos Group Holdings plc (Ineos) and Shell ChemicalCompany (Shell). CPChem�s NAO technology allows it to produce a wide range of hydrocarbon products that compete in many differentmarkets. Other significant producers of NAO are Ineos, Shell and Sasol Ltd. Major producers of polyalphaolefins (PAO) include Ineos andExxonMobil.

Distribution. Depending on the particular product and location of the production facility, Olefins & Polyolefins� products are shipped bytrucks, railcars, barges, parcel tankers, ships and CPChem and third-party pipelines.

3

Ethylene

By volume, ethylene is the most widely consumed petrochemical product in the world, according to Chemical Market Associates, Inc., acompany that specializes in petrochemical industry data and consulting services. Domestically, ethylene is produced at CPChem�s Sweenyfacility in Old Ocean, Texas, at its Cedar Bayou facility in Baytown, Texas and at its Port Arthur, Texas facility. Internationally, CPChemproduces ethylene through its 49%-owned joint venture, Qatar Chemical Company Ltd. (Q-Chem), located in Mesaieed, Qatar. CPChem�sshare of the combined ethylene capacity of its domestic and international facilities is approximately 8.1 billion pounds per year.

Supply/Feedstock Sources. Ethylene can be produced from ethane, propane, butane, natural gasoline or certain refinery liquids such as naphthaand gas oil. The two most common ethylene feedstocks are ethane, because of its high ethylene yield, and naphtha, because of its availabilityand transportability. Much of CPChem�s ethylene production is based on ethane/propane feedstock, however certain domestic facilities havevarying degrees of flexibility to process butane and naphtha. The price of ethane tends to correlate with the price of natural gas, while theprices of the other feedstocks tend to correlate more with the price of crude oil.

CPChem has market-based purchase contracts with Duke Energy Field Services, LLC (an affiliate of ConocoPhillips) and TargaResources, Inc., which together cover over 75% of CPChem�s expected domestic ethylene feedstock needs. The agreement with Duke EnergyField Services, LLC expires in 2014 and the agreement with Targa Resources, Inc. expires in 2008. Contracts with other suppliers provide theremainder of feedstock needs. These contracts can be long-term or monthly, or daily contracts made on a spot basis.

Marketing. Polyethylene accounts for more than one-half of all global ethylene consumption. CPChem uses approximately 80% of its U.S.ethylene in its production of polyethylene, NAO and styrene. The remainder of domestic ethylene production is sold on the merchant market,largely under long-term contracts. CPChem�s ethylene storage capacity is approximately one billion pounds at its Texas cavern storagefacilities in Clemens and Mont Belvieu. Internationally, all of the ethylene produced by Q-Chem is consumed internally in its production ofpolyethylene and 1-hexene.

Polyethylene



Domestically, polyethylene is produced at the Pasadena Plastics Complex and the Orange and Cedar Bayou facilities, all located in Texas.Internationally, CPChem produces polyethylene through its joint venture facilities in Qatar, Singapore and Jinshanwei, China. CPChem�sshare of the combined polyethylene capacity of its domestic and international facilities is approximately 6.1 billion pounds per year.

Supply/Feedstock Sources. The primary raw material for polyethylene production is ethylene, which typically represents the majority ofpolyethylene manufacturing costs. CPChem produces ethylene in excess of its polyethylene production requirements. Butene and 1-hexene,also used in the production of polyethylene, are produced at the Cedar Bayou facility. The complex in Qatar produces all of the ethylene and1-hexene required for the production of polyethylene at that location.

Marketing. At December 31, 2005, approximately 80% of CPChem�s net polyethylene capacity was located in the United States, along theTexas Gulf Coast. CPChem markets most of its production from this area in the United States, with the remainder exported to Canada,Mexico, Central and South America, Europe and Asia. Production from CPChem�s plants in Singapore and China is marketed primarily in theFar East. CPChem acts as an agent for the sale of substantially all of Q-Chem�s polyethylene production. The polyethylene is sold in WesternEurope, Australia, Africa and Asia through CPChem�s established marketing network.

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CPChem�s largest polyethylene customer is its Performance Pipe division. This division manufactures polyethylene pipe, fittings and conduitin nine plants located throughout the United States and one plant in Mexico.

In addition, CPChem sells a significant amount of HDPE to customers who are suppliers of bottles to large consumer product manufacturers,dairies and bottled water suppliers. CPChem also supplies HDPE for rigid product applications such as pails, paint cans, margarine tubs andstadium cups. Durable applications include pipe, sheeting for landfill liners and automotive fuel tanks.

LDPE and LLDPE products are sold mainly to flexible packaging suppliers, who produce coated cardboard juice cartons, food packaging,plastic wrap, plastic bags and other products. Some customers also produce pallet stretch wrap and container liners.

Propylene

CPChem produces propylene at its Cedar Bayou, Port Arthur and Sweeny facilities. The combined propylene capacity of these facilities isapproximately 2.9 billion pounds per year.

Supply/Feedstock Sources. Approximately one-half of CPChem�s propylene is produced as a co-product of ethylene production, the amountof which varies with the type of feedstock used. The remainder of CPChem�s propylene production comes from the processing of refinery-grade propylene, which is converted into polymer-grade product. CPChem purchases approximately 30% of its refinery-grade propylene fromCPChem�s owners and the remainder from a variety of suppliers, both under short-term and long-term contracts.

Marketing. Polymer-grade propylene is sold to major chemical manufacturers, the majority of which are polypropylene producers.Approximately 25% of CPChem�s propylene is sold to Phillips Sumika Polypropylene Company, a CPChem joint venture with productionfacilities located at the Pasadena Plastics Complex. Propylene is also sold to external U.S. customers under long-term contracts and on thespot market, and to international contract and spot customers through a third-party export facility located in Deer Park, Texas.

Alpha Olefins

All of CPChem�s domestic NAO is produced at the Cedar Bayou facility. Internationally, CPChem produces 1-hexene, an NAO used as acomonomer in the production of polyethylene, through its joint venture in Qatar. CPChem�s share of the combined NAO capacity of itsdomestic and international facilities is approximately 1.5 billion pounds per year.

Supply/Feedstock Sources. CPChem converts ethylene into NAO using a proprietary CPChem process. CPChem produces substantially all ofthe ethylene required in its domestic production of NAO. Ethylene is produced at the Sweeny, Cedar Bayou and Port Arthur facilities.CPChem�s joint venture in Qatar produces all of the ethylene required for its production of 1-hexene. PAO is produced from fractions ofNAO produced at the Cedar Bayou facility.



Marketing. CPChem sells NAO and PAO primarily to other chemical companies who use them to produce a broad range of intermediateproducts. CPChem also uses a portion of its own production of NAO in the manufacturing of polyethylene and PAO. North America andEurope are the largest geographic markets for NAO and PAO.

5

Aromatics & Styrenics

This segment manufactures and markets aromatics products such as benzene, styrene, paraxylene and cyclohexane. This segment alsomanufactures and markets polystyrene as well as styrene-butadiene copolymers (SBC) sold under the trademark K-Resin®. Productionfacilities are located in Mississippi, Louisiana, Texas, Ohio, Puerto Rico and China. CPChem also owns equity interests in an aromaticsfacility in Saudi Arabia and in a K-Resin® SBC facility in South Korea. In October 2005, CPChem sold its Port Arthur, Texas cumeneproduction unit, which was idled in 2003.

Product

Approximate



Benzene 2,130 (1) An aromatic primary building block chemical used in the production ofethylbenzene, cumene and cyclohexane.

Styrene 2,100 Aromatic monomer used to produce a wide variety of polymers with very diverseend-uses that include packaging, automotive applications, electronic parts, rubberproducts, paper, housewares, construction materials, carpeting and toys.

Polystyrene 990 Thermoplastic polymer used to make a variety of products, including packagingmaterials, cups and media enclosures.

Paraxylene 1,715 Used almost exclusively to make terephthalic acid or dimethyl terephthalateintermediates in the production of polyester and packaging resins such aspolyethylene terephthalate (PET).

Cyclohexane 1,230 (1) Predominantly used in intermediates for the manufacture of nylon.

K-Resin®

styrene-butadienecopolymers

269 (1,2) A high quality, clear copolymer material used to make a variety of productsincluding medical components, toys, candy wrap, food packaging, cups andgarment hangers.

(1) Includes CPChem�s share of an equity affiliate�s capacity(2) Excludes 70 million pounds of idled capacity at the Pasadena Plastics Complex

Competition. Aromatics & Styrenics� products are sold into global commodity chemical markets. Competitive factors include price, productquality and performance, product deliverability and customer service. CPChem generally ranks within the top ten producers and competeswith other large producers including Dow, Equistar, ExxonMobil, Ineos and Shell.

Distribution. Depending on the particular product and location of the production facility, Aromatics & Styrenics� products are shipped bytrucks, railcars, barges, ships and pipelines.

Benzene



Domestically, benzene is produced at CPChem�s Pascagoula, Mississippi facility. Internationally, CPChem produces benzene through its jointventure facility in Al Jubail, Saudi Arabia. CPChem�s share of the combined benzene capacity of its domestic and international facilities isapproximately 2.1 billion pounds per year. CPChem uses its proprietary Aromax® technology for its benzene production.

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Supply/Feedstock Sources. The two main feedstocks for benzene production are pyrolysis gasoline and reformate, both of which areintermediate products of petroleum refining and petrochemical plants. These two feedstocks account for over 75% of benzene productionworldwide. Domestically, CPChem purchases benzene feedstocks from its owners� refineries, located in proximity to CPChem�s benzeneplant, and from various other sources. In Saudi Arabia, CPChem�s 50%-owned affiliate has a long-term feedstock agreement with a producerthat owns a refining complex located near the Al Jubail facility.

Marketing. CPChem is a net consumer of benzene in the U.S. Gulf Coast region. This allows CPChem to routinely operate its benzene plant atfull capacity, preserving a low-cost position, even during times of reduced demand for derivatives. At CPChem�s joint venture plant in SaudiArabia, approximately 60% of the benzene produced is consumed by the joint venture�s cyclohexane plant located at the same facility. Thebalance of benzene is sold under short-term and long-term contracts.

Styrene

Styrene is produced at CPChem�s St. James, Louisiana facility, which has a capacity of approximately 2.1 billion pounds per year.

Supply/Feedstock Sources. Styrene is made from benzene and ethylene. Most of the benzene used at CPChem�s styrene plant is producedinternally at CPChem�s Pascagoula facility, with the remainder acquired through contract purchases. All of the ethylene required at the St.James plant is supplied internally.

Marketing. CPChem currently uses about one-third of its annual styrene production in the production of polystyrene at its Marietta, Ohio plantand a smaller amount in its production of K-Resin® SBC. The balance of production is sold in the merchant market. CPChem generallymarkets styrene in all regions of the world and sells almost all of its styrene production through short-term and long-term contracts.

Polystyrene

Polystyrene is produced at CPChem�s facilities in Marietta, Ohio and Zhangjiagang, China. The combined polystyrene capacity of thesefacilities is approximately 1.0 billion pounds per year. Both plants have the ability to produce high-impact and general purpose polystyrene.

Supply/Feedstock Sources. Polystyrene is manufactured primarily from styrene. The styrene consumed at Marietta is normally supplied byCPChem�s St. James styrene facility. The China plant is supplied by styrene from the St. James plant and from third parties.

Marketing. CPChem sells a variety of polystyrene grades. Most of CPChem�s polystyrene business in the U.S. is conducted on a short-termand long-term contract basis, while business in China follows the local practice of being conducted primarily in the spot market.

Paraxylene

CPChem has a production capacity of approximately 1.0 billion pounds of paraxylene per year at its Pascagoula plant. The Guayama, PuertoRico plant, which has a capacity of approximately 715 million pounds of paraxylene per year, became operational in 2003 after being idled in2001 for economic reasons. The plant is currently being utilized in a campaign mode due to market conditions.

7

Supply/Feedstock Sources. Mixed xylenes are the feedstock for the production of paraxylene. Mixed xylenes are the end product of eitherreforming operations that are part of the motor fuels production process in refineries, or the end product of the conversion of toluene, anotherintermediate refining product, into benzene and xylenes. Mixed xylenes are available on the merchant market in the forms of both gasolineblending stocks and paraxylene feedstocks. CPChem purchases mixed xylenes from its owners and other suppliers on a contract basis. Duringperiods of high paraxylene demand, mixed xylenes are also purchased on the spot market.



Marketing. In North America, a few very large consumers buy most of the paraxylene available in the market. CPChem currently sells itsparaxylene production to major producers of polyester in North America and Europe under long-term contracts, and also periodically sells intothe Asian market.

Cyclohexane

CPChem is the largest marketer of cyclohexane in the world. Marketed volumes include those produced at the Port Arthur and Saudi Arabianplants, of which CPChem�s share of the combined capacity is approximately 1.2 billion pounds per year, as well as certain volumes producedby ConocoPhillips for which CPChem has marketing rights. CPChem owns a 50% interest in the Saudi Arabian facility and has an obligationto market all of the cyclohexane exported outside of the Middle East from that facility. CPChem also has the exclusive right to market thecyclohexane produced by ConocoPhillips at its Sweeny refinery.

Supply/Feedstock Sources. The raw materials for cyclohexane are benzene and hydrogen. CPChem consumes more benzene than it produces.Remaining benzene requirements are met through short-term and long-term contracts and spot purchases. Hydrogen is currently obtained fromCPChem�s Port Arthur facility and outside sources.

Marketing. Most of CPChem�s cyclohexane is sold in North America and Europe through sales contracts that are typically long-termarrangements. CPChem also has access to the Asian market through its joint venture plant in Saudi Arabia.

K-Resin® Styrene-Butadiene Copolymer

CPChem produces an SBC sold under the trademark K-Resin®. Production comes from the Pasadena Plastics Complex and CPChem�s K RCopolymer Co., Ltd. joint venture plant located in Yochon, South Korea. CPChem�s share of the combined K-Resin® SBC capacity of thefacilities is approximately 269 million pounds per year.

Supply/Feedstock Sources. The main feedstocks for K-Resin® SBC are styrene and butadiene. CPChem produces styrene at its St. Jamesfacility for domestic production, and secures butadiene on a long-term contract basis from a single producer. Other sources of butadiene areavailable if necessary. In South Korea, feedstocks are secured through long-term contracts with a company in which CPChem�s joint venturepartner, Daelim Industrial Co., Ltd., has a 50% interest.

Marketing. CPChem conducts its K-Resin® SBC marketing primarily by working with customers to create new K-Resin® SBC applications,to improve existing applications and to improve customers� processing capabilities. CPChem has a sales and technical support organization,comprised of direct representatives, and third-party agents and distributors, that is active in North America and internationally. Some productis sold under multi-year agreements. The majority of K-Resin® SBC, however, is sold based on individual sales orders.

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Specialty Products

This segment manufactures and markets a variety of specialty chemical products, including organosulfur chemicals, solvents, catalysts,drilling chemicals, mining chemicals and high-performance polyphenylene sulfide polymers and compounds sold under the trademarkRyton®. Production and/or compounding facilities are located in Texas, Belgium and Singapore.

Product

Approximate



Ryton® polyphenylenesulfide polymerand compounds

44 High-performance engineering polymers and compounds used in electronic,automotive and appliance applications.



High-purityhydrocarbonsand solvents

140 High-purity chemicals including performance-proven normal paraffins,cycloparaffins and isoparaffins, including Soltrol® isoparaffin solvents, used invarious pharmaceutical, industrial and consumer applications.

Organosulfur chemicals 270 Chemical intermediates, primarily mercaptans, used in agricultural andpharmaceutical intermediates and polymerization modifiers.

Performance andreference fuels

120 Specialty fuels for calibration standards and high-performance service, such asautomobile and boat racing.

Drilling specialtychemicals, includingSoltex® additives andSoltex® potassiumadditives

29 Additives used in water-based drilling fluids for controlling unstable shaleformations and increasing hole lubricity during oil and gas well drilling.

Competition. This segment�s products compete in smaller, niche markets with fewer producers as compared with other CPChem products.

Distribution. Depending on the particular product and location of the production facility, product is shipped by trucks, railcars and ships.

Specialty Chemicals

Specialty chemicals consist of a variety of organosulfur chemicals, fine chemicals and other specialties. Volumes of any given product are notlarge when compared to the basic commodity chemical products like ethylene and polyethylene. However, in the aggregate, specialtychemicals can account for a significant portion of the earnings of the Specialty Products segment. Production facilities are located in Borgerand Conroe, Texas, and Tessenderlo, Belgium.

Supply/Feedstock Sources. Specialty chemicals production depends on the availability of a number of specialized streams of products and co-products that are the result of petroleum refining and petrochemical production processes. Feedstocks include hydrogen sulfide and a varietyof olefins and other hydrocarbon streams. In many cases, CPChem acquires these feedstocks through long-term arrangements with its ownersfrom facilities that are integrated with CPChem�s production facilities.

9

Marketing. Specialty chemicals are generally sold into smaller, niche markets, as compared to other products produced or marketed byCPChem. The number of suppliers and consumers of any given product can be limited. As a result, many of CPChem�s products are soldunder long-term contracts. Because both the customer and application bases are diverse, the specialty chemicals business is generally lesscyclical than the commodity chemicals business.

Specialty chemicals are sold through CPChem�s global marketing network. This network provides sales, distribution and technical services tocustomers.

Ryton® Polyphenylene Sulfide

CPChem produces high-performance polyphenylene sulfide (PPS) polymers and compounds sold under the trademark Ryton®. Compoundsare combinations of Ryton® polymer and various additives, designed to have specific properties. CPChem currently has an annual productioncapacity of approximately 22 million pounds of Ryton® polymer at its Borger, Texas facility. Substantially all Ryton® polymer produced atthe Borger facility is currently used to produce Ryton® compounds at CPChem�s compounding facility in La Porte, Texas, its plasticscompounds and development center in Singapore and its Kallo compounding facility in Kallo-Beveren, Belgium. Ryton® compounds are soldto third parties. The combined capacity of the facilities is approximately 44 million pounds of Ryton® compounds per year.



CPChem�s Board has granted preliminary approval to construct a new 22 million pound-per-year Ryton® PPS plant next to CPChem�sexisting PPS plant in Borger, Texas. It is expected that final Board approval will be sought in 2006, with operational start-up anticipated inearly 2008.

Supply/Feedstock Sources. The feedstocks for Ryton® polymer are substances such as caustic, sodium hydrosulfide, paradichlorobenzene andother chemicals and solvents that are generally available in substantial quantities on the open market. CPChem has a number of suppliers whoprovide these materials under either long-term or renewable contracts. The additives used in the compounding process are generally purchasedat locations close to CPChem�s compounding facilities.

Marketing. Ryton® PPS polymers and compounds are sold through CPChem�s global marketing network. CPChem�s compounding facilitiesare regionally located, enhancing global sales and distribution efforts. The customer base includes automotive, appliance and consumerelectronics manufacturers. Products are generally sold based on individual sales orders.

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Properties and Manufacturing Facilities

CPChem currently leases the office space for its headquarters located in The Woodlands, Texas and also owns or leases administrative,technical and sales office space in various other locations. CPChem, including its equity affiliates, has 31 manufacturing facilities located ineight countries. The following table provides information regarding principal manufacturing facilities, business segments served, principalproducts and approximate gross annual production capacities at December 31, 2005.

Facility / Location Segment Served Product

Approximate

Gross Capacity


Pasadena Plastics Complex Aromatics & Styrenics K-Resin® SBC 200 (1)Pasadena, Texas Olefins & Polyolefins High-density polyethylene 2,240

Sweeny Facility Olefins & Polyolefins Ethylene 4,100Old Ocean, Texas Olefins & Polyolefins Propylene 1,100

Borger Facility Specialty Products Organosulfur chemicals 200Borger, Texas Specialty Products Ryton® PPS polymer 22

Specialty Products Performance and reference fuels 120Specialty Products High-purity hydrocarbons and

solvents140

Cedar Bayou Facility Olefins & Polyolefins Ethylene 1,750Baytown, Texas Olefins & Polyolefins Propylene 1,000

Olefins & Polyolefins Normal alpha olefins 1,500Olefins & Polyolefins Polyalphaolefins 104Olefins & Polyolefins Linear-low, low- and high-

density polyethylene1,900

Orange Chemical Facility Olefins & Polyolefins High-density polyethylene 930Orange, Texas

Port Arthur Facility Olefins & Polyolefins Ethylene 1,750Port Arthur, Texas Olefins & Polyolefins Propylene 780

Aromatics & Styrenics Cyclohexane 920



Drilling Specialties Specialty Products Drilling specialty chemicals 29Conroe, Texas

Houston Compounding Specialty Products Ryton® PPS compounds 15Facility

La Porte, Texas

St. James Facility Aromatics & Styrenics Styrene 2,100St. James, Louisiana

Pascagoula Facility Aromatics & Styrenics Paraxylene 1,000Pascagoula, Mississippi Aromatics & Styrenics Benzene 1,540

Marietta Facility Aromatics & Styrenics Polystyrene 770Marietta, Ohio

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Facility / Location Segment Served Product

Approximate

Gross Capacity


Puerto Rico Facility Aromatics & Styrenics Paraxylene 715Guayama, Puerto Rico

Performance Pipe Division Olefins & Polyolefins Polyethylene pipe, conduit 558Nine locations in the United and pipe fittingsStates and one in Mexico

Plastics Compounds & Specialty Products Ryton® PPS compounds 9Development Center

Singapore

Zhangjiagang, China Facility Aromatics & Styrenics Polystyrene 220Zhangjiagang, China

Tessenderlo Chemicals Facility Specialty Products Organosulfur chemicals 70Tessenderlo, Belgium

Kallo Compounding Facility Specialty Products Ryton® PPS compounds 20Kallo-Beveren, Belgium

Joint Venture Facilities:

Qatar Chemical Company Olefins & Polyolefins Ethylene 1,100Ltd. (Q-Chem) Olefins & Polyolefins High-density polyethylene 1,000

Mesaieed, Qatar Olefins & Polyolefins 1-hexene 100

Chevron Phillips Singapore Olefins & Polyolefins High-density polyethylene 860Chemicals (Private) Limited



Singapore

Shanghai Golden Phillips Olefins & Polyolefins High-density polyethylene 300Petrochemical Co., Ltd.

Jinshanwei, China

Phillips Sumika Olefins & Polyolefins Polypropylene 810Polypropylene Company

Pasadena, Texas

Saudi Chevron Aromatics & Styrenics Benzene 1,180Phillips Company Aromatics & Styrenics Cyclohexane 620

Al Jubail, Saudi Arabia

K R Copolymer Co., Ltd. Aromatics & Styrenics K-Resin® SBC 115Yochon, South Korea

(1) Excludes 70 million pounds of idled capacity

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Projects

JCP Project. Jubail Chevron Phillips Company (JCP), a 50%-owned joint venture company with Saudi Industrial Investment Group (SIIG),was formed in 2003 to develop an integrated styrene facility in Al Jubail, Saudi Arabia. The 1.6 billion-pound-per-year facility, being built ona site adjacent to the existing aromatics complex owned by Saudi Chevron Phillips Company (SCP), will include feed fractionation, an olefinscracker, and ethylbenzene and styrene monomer processing units. Construction of the JCP facility will be in conjunction with an expansion ofSCP�s benzene plant, together called �the JCP project.� Financial closing of the estimated $1.2 billion JCP Project occurred in July 2004.Construction began in the fourth quarter of 2004 and operational start-up is anticipated in late 2007. It is estimated that project completion, asdefined in the JCP project�s financing agreements, will be achieved in the first half of 2008.

Q-Chem II Project. CPChem and Qatar Petroleum announced plans in 2001 for the development of a petrochemical project in Mesaieed,Qatar, designed to produce polyethylene (770 million pounds per year) and normal alpha olefins (760 million pounds per year). These plantswill be owned by Qatar Chemical Company II Ltd. (Q-Chem II), an equity affiliate that is owned 49% by CPChem and 51% by QatarPetroleum. Both plants will be located on a site adjacent to the existing complex owned by Qatar Chemical Company Ltd. (Q-Chem). Inconnection with this project, CPChem and Qatar Petroleum (the �co-venturers�) entered into a separate agreement in 2002 with TotalPetrochemicals and Qatar Petrochemical Company Ltd., establishing a joint venture to develop a 2.9 billion-pound-per-year ethylene crackerin Ras Laffan Industrial City, Qatar. The cracker will provide ethylene feedstock via pipeline to the planned polyethylene and normal alphaolefins plants.

The ethylene cracker and pipeline will be owned by Ras Laffan Olefins Company, a joint venture of Q-Chem II and Qatofin CompanyLimited (Qatofin). Q-Chem II will own 53.85% of the capacity rights to the ethylene cracker and pipeline, and the balance will be held byQatofin. Collectively, Q-Chem II�s interest in the ethylene cracker and pipeline, and the polyethylene and normal alpha olefins plants arereferred to as �the Q-Chem II project.� Financial closing of the Q-Chem II project occurred in November 2005. Construction began in late2005, with start-up anticipated in late 2008. The project will be financed through limited recourse loans from commercial banks and an exportcredit agency (collectively, �senior debt�), and equity contributions and subordinated loans from the co-venturers.

NCP Project. CPChem received authorization from its Board in the fourth quarter of 2005 for the continued development of a third majorproject in Saudi Arabia. Preliminary studies are focused on the construction of a world-scale ethane/propane cracker and a metathesis unit toproduce ethylene and propylene, as well as downstream units to produce polyethylene, polypropylene, 1-hexene and polystyrene. The requestfor final Board approval of the project is expected in 2007.



Employees

Chevron Phillips Chemical Company LLC and its wholly owned subsidiaries employed approximately 5,150 people at December 31, 2005.About 89% of the workforce was employed in North America, 6% in Asia, 4% in Europe and 1% in the Middle East. Almost one-fifth of allemployees are covered under collective bargaining agreements, and of those covered, none are subject to collective bargaining agreements thatwill expire by December 31, 2006. Overall, CPChem believes that its relations with its employees are good.

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Intellectual Property

CPChem�s business is, to a considerable extent, technology driven. CPChem aggressively develops and protects the intellectual propertynecessary to conduct its operations via a combination of patent, trademark, copyright and trade secret laws, as well as confidentialityprocedures and contractual provisions. Where CPChem does not possess a necessary technology, it obtains or licenses it from third parties.CPChem owned or licensed from its owners the rights to approximately 2,850 patents and/or patent applications in the United States andabroad at December 31, 2005.

CPChem periodically grants licenses to its technology to third parties. Two of the more significant processes that it licenses are CPChem�sloop slurry polyethylene and Aromax® aromatics production processes. Licenses granted for these processes typically provide for royaltypayments from third parties based on the actual or anticipated volume of product that they may produce, payable either in advance ofproduction or as a �running royalty.� The licenses for these processes generally provide that any technologies developed by the licenseerelated to such process shall be licensed to CPChem with the right to sublicense such developments to third parties. This technique, commonin technology licensing, enhances CPChem�s ability to provide customers and licensees with the most current technology available.

CPChem relies on confidentiality agreements and contractual provisions to protect its technology that is provided to third parties. CPChem�slicenses to third parties contain restrictions on disclosure, and contractors involved in the detailed design or construction of CPChem�s or itslicensees� facilities are required to execute nondisclosure agreements. Third parties are not allowed to inspect or photograph facilities withoutpermission, and even then only under close supervision. Appropriate actions are taken to prevent third parties from disclosing proprietary data,or otherwise using intellectual property, without proper authorization.

CPChem is the owner of numerous trademarks, including the Marlex®, Ryton®, Aromax® and K-Resin® trademarks, which are each used inconnection with CPChem�s businesses. Also, CPChem licenses its trade name on a nonexclusive basis from its owners. Appropriate actionsare taken to maintain, renew, protect and enforce CPChem�s trademarks to prevent infringement, dilution or misappropriation by third partiesin the United States and abroad.

Research and Development

CPChem has scientists, process engineers and technical service experts at six technical centers. The Bartlesville, Oklahoma site provides basicresearch, pilot plants and product development for polyethylene, specialty chemicals, Ryton® PPS polymers and compounds and K-Resin®

SBC, and a plastics technical center for all polymer products. The Kingwood, Texas technology center focuses on process engineering insupport of all manufacturing as well as all phases of research and process development for aromatics, NAO, PAO and specialty catalysts. Thetechnology center at Orange, Texas provides a plastics technical center and technical services for polyethylene. Polystyrene research andtechnical services are located at Marietta, Ohio. International technical support and product development are provided by the Belgium andSingapore technical centers.

Research and development expense totaled $41 million in 2005, $42 million in 2004 and $55 million in 2003. Included in 2003 expense was a$9 million charge related to the permanent closure of a research and technology pilot plant in Orange, Texas.

Environmental Regulation



CPChem must comply with, and is subject to liability under, environmental laws and regulations in the jurisdictions in which it conductsbusiness. Under some laws, CPChem may be subject to joint and several liability regarding environmental contamination on or fromproperties that it previously owned or

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operated or currently owns or operates. CPChem may also be subject to liability for contaminated properties where it has disposed of orarranged for disposal of hazardous substances, or where feedstocks or products that contained hazardous substances have been accidentallyspilled or released. For further discussion, see �Item 1A. Risk Factors - Extensive environmental, health and safety laws and regulationsimpact our operations and assets; compliance with, and/or liability under, these laws and regulations could adversely affect our results ofoperations.�

CPChem incurs, and expects to continue to incur, significant costs for capital improvements and general compliance under applicableenvironmental laws, including costs to acquire, maintain and repair equipment dealing with pollution control. By 2007, industrial facilities inthe eight counties in and around Houston, Texas, including certain facilities that CPChem owns, must comply with new nitrogen oxide (NOx)emission standards. These new standards are being phased in between 2003 and 2007. Modifications to existing equipment and the installationof additional control equipment are required to meet these new NOx standards. CPChem expects that total capital expenditures ofapproximately $100 million will be required during this period to comply with these standards. To date, CPChem has invested approximately$78 million of such expenditures ($3 million in 2005).

In addition, new regulations were issued in 2004 concerning emissions of highly reactive volatile organic compounds (HRVOCs). CPChemexpects that total capital expenditures of approximately $25 million will be required to comply with the monitoring aspects of theseregulations. To date, CPChem has invested approximately $17 million of such expenditures ($15 million in 2005). While CPChem cannotdetermine if additional expenditures will be required until monitoring capabilities are in place, CPChem currently believes that additionalexpenditures required, if any, will not have a material adverse effect on consolidated results of operations, financial position or liquidity.

CPChem is aware that there is or may be soil or groundwater contamination at some facilities and that remediation of soil and groundwatercontaminated with hazardous substances will be required. Undiscounted accrued environmental liabilities totaled $5 million at December 31,2005 and $6 million at December 31, 2004. There were no accrued environmental costs associated with discontinued or sold operations, siteswhere CPChem had been named a potentially responsible party, or environmental litigation at December 31, 2005 or 2004. Based on availableinformation, CPChem believes that the costs that may be incurred to investigate and remediate known contamination will not have a materialadverse effect on consolidated results of operations, financial position or liquidity.

International Operations

International operations are exposed to different political, economic and regulatory risks that are not faced by businesses that operate solely inthe United States. Some of CPChem�s operations, including certain of its equity affiliates, are outside the continental United States, withmanufacturing facilities in Puerto Rico, Singapore, China, South Korea, Saudi Arabia, Qatar, Mexico and Belgium. Domestic assets totaled$5.455 billion as of December 31, 2005 and net sales from domestic operations were $9.135 billion in 2005. Assets located outside of the U.S.as of December 31, 2005 totaled $1.505 billion and net sales from non-U.S. operations were $1.572 billion in 2005. Asset and net salescalculations were determined based on location of the operation. CPChem�s international operations are subject to risks similar to thoseaffecting its U.S. operations in addition to a number of other risks, including difficulties in enforcing contractual and intellectual propertyrights, and impositions or increases of withholding and other taxes on remittances and other payments by subsidiaries and affiliates. Otherrisks include, but are not limited to, exposure to different legal standards, fluctuations in currency exchange rates, impositions or increases ofinvestment and other restrictions by foreign governments, the requirements of a wide variety of foreign laws, political and economicinstability, terrorist acts, war and difficulties in staffing and managing operations, particularly in remote locations.

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Item 1A. Risk Factors

Unless otherwise indicated, �we,� �our,� and �us� as used in this section refer to Chevron Phillips Chemical Company LLC and itsconsolidated subsidiaries. Discussed below are the more significant risk factors relating to our business.

Our industry is cyclical and volatile. Profitability may be adversely affected by some external factors beyond our control.

The petrochemicals industry is both cyclical and volatile. Cyclicality occurs when periods of tight supply, resulting in increased prices andprofit margins, are followed by periods of capacity expansion, resulting in oversupply and declining prices and profit margins. Volatilityoccurs as a result of changes in supply and demand for products, changes in energy prices and changes in various other economic conditionsaround the world. Consequently, our sales volumes and profit margins may fluctuate, not only from year to year, but also from quarter toquarter.

Feedstock costs and some other external factors beyond our control can cause wide fluctuations in margins. Due to the commodity nature ofmost of the products we sell, market position cannot necessarily be protected by product differentiation or by passing on cost increases tocustomers. Accordingly, price increases in raw materials and other costs may not correlate with changes in the prices received for ourproducts. Feedstock prices can fluctuate widely for a variety of reasons, including changes in worldwide energy prices, changes in availabilityor significant facility operating problems. Other external factors that can cause volatility in feedstock prices, as well as changes in demand forproducts, product prices and volumes, and margin deterioration, include:

� general economic conditions;� levels of business activity and the creditworthiness of industries and companies that use our products;� competitors� actions;� domestic and international events and circumstances;� severe weather;� product and process technology changes;� currency fluctuations; and� governmental regulation in the United States and abroad.

Although we gather, transport and fractionate feedstocks to meet a portion of our demand and have certain long-term feedstock supplycontracts with affiliates of our owners and others, we are still subject to volatile feedstock prices. Extreme price volatility, such as thatexperienced during various times over the past five years, can result in the need to temporarily idle or curtail production units. In addition,sustained or projected periods of high feedstock costs, coupled with the inability to raise prices to sufficiently maintain margins, could resultin a significant deterioration of projected cash flows which may necessitate the need to recognize asset impairment charges, some of whichcould be material.

Extensive environmental, health and safety laws and regulations impact our operations and assets; compliance with, and/or liability under,these laws and regulations could adversely affect our results of operations.

The petrochemicals business is highly regulated, subject to increasingly stringent laws and regulations addressing environmental, health andsafety matters. Such matters include, but are not limited to, air pollutant emissions, discharges of treated wastewater, stormwater runoff, solidwaste management, workplace safety, and contamination. Violations of these laws and regulations often result in monetary penalties andcorrective action, but depending on the severity of the violation, could result in substantial fines, criminal sanctions, permit revocation and/orfacility shutdowns.

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Under some laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (�Superfund�), theResource Conservation and Recovery Act of 1976 and the laws of many states, we may be subject to joint and several liability regarding



environmental contamination on or from properties that we previously owned or operated or currently own or operate. We may also be subjectto liability for contaminated properties where we have disposed of or arranged for disposal of hazardous substances, or where feedstocks orproducts that contained hazardous substances may have been spilled or released. Depending on the circumstances, such liabilities mayinvolve, for example, investigation or clean-up costs, claims for damages to natural resources or punitive damage claims. In addition, we maybe the subject of third-party tort claims seeking compensatory and punitive damages for alleged impacts on human health or the environment.These liabilities and claims could result in substantial costs.

We incur, and expect to continue to incur, significant costs for capital improvements and general compliance under applicable environmentallaws, including costs to acquire, maintain and repair equipment dealing with pollution control. In addition, we are aware that there is or maybe soil or groundwater contamination at some facilities and that remediation of soil and groundwater contaminated with hazardous substanceswill be required. See �Item 1. Business - Environmental Regulation� for further discussion.

New laws and regulations, changes to existing laws and regulations, the discovery of previously unknown contamination or the imposition ofnew disposal or cleanup requirements could in the future require us to incur costs, or affect our production or revenues, in ways that couldhave a negative effect on our financial condition or results of operations. Therefore, there can be no assurance that material capitalexpenditures, costs, or operating expenses beyond those currently anticipated will not be required under applicable environmental, health, andsafety laws and regulations, or that developments with respect to such laws and regulations, will not adversely affect production or revenues.

The nature of our operations subjects us to hazards which could expose us to the risk of significant liabilities, lost revenues or increasedexpenses.

While we incorporate extensive safety controls and processes within our business, there are risks inherent with the production ofpetrochemicals and the related storage and transportation of raw materials and products, such as operational hazards and unforeseeninterruptions caused by events beyond our control. These include, but are not limited to, accidents, explosions, fires, breakdowns or failures ofequipment or processes, acts of terrorism and severe weather. These events can result in injury or loss of life and extensive property orenvironmental damage. In addition, the handling of chemicals has the potential for serious impacts on human health and the environment fromsuch events as chemical spills and unintentional discharges or releases of toxic or hazardous substances or gases. Liabilities incurred andinterruptions in operations caused by such events have the potential to materially impact our consolidated results of operations, financialposition and liquidity. While we maintain general liability, property and business interruption insurance coverage, insurance proceeds may notbe adequate to fully cover significant liabilities incurred, lost revenues or increased expenses.

Our relationships with Chevron and ConocoPhillips are important to our business and a change or termination of such relationship mayaffect our strategic direction or our financial and operating practices and our financial results may thereby be adversely affected.

Chevron and ConocoPhillips, through their ownership interests in us and their membership on our Board, play an active role in setting ourstrategic and financial policies and in providing management oversight. Should either or both of them dispose of their interests in us, andthereby cease or diminish their participation, we cannot guarantee that our strategic plans, our financial policies or other aspects of ourbusiness will remain the same. Our financial performance may be adversely affected if either or both of

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Chevron and ConocoPhillips dispose of their interest in us. Moreover, in view of the unanimous consent provisions of our governancestructure, any transfer of an interest in us, or any change in our control, may affect our governance.

We purchase substantial portions of our feedstocks from Chevron, ConocoPhillips, an affiliate of ConocoPhillips and one other supplier. Overtime, these suppliers may cease or decrease production of the feedstocks we purchase.

Substantial quantities of feedstocks for certain of our domestic plants are acquired under agreements with Chevron, ConocoPhillips, anaffiliate of ConocoPhillips and one other supplier. Portions of these feedstocks come from certain plants connected to pipelines we own or towhich we have access. Over time, these suppliers may rationalize their feedstock production by closing plants or consolidating production innew or existing plants to which we do not have access. While we have no indication at present that we will lose access to such supplies, we



cannot guarantee that our feedstock supplies will not be affected as markets evolve. While we believe we could replace any lost supplies withnew supply arrangements, we cannot guarantee that the terms of those arrangements would be as favorable as the terms of current contracts.

Our international operations expose us to political, economic and regulatory risks not normally faced by businesses that operate only in theUnited States.

International operations are exposed to different political, economic and regulatory risks that are not faced by businesses that operate solely inthe United States. Some of our operations, including certain of our equity affiliates, are outside the continental United States, withmanufacturing facilities in Puerto Rico, Singapore, China, South Korea, Saudi Arabia, Qatar, Mexico and Belgium. Our internationaloperations are subject to risks similar to those affecting our U.S. operations in addition to a number of other risks, including:

� difficulties in enforcing contractual and intellectual property rights;� impositions or increases of withholding and other taxes on remittances and other payments by subsidiaries and affiliates;� exposure to different legal standards;� fluctuations in currency exchange rates;� impositions or increases of investment and other restrictions by foreign governments;� the requirements of a wide variety of foreign laws;� political and economic instability;� terrorist acts;� war; and� difficulties in staffing and managing operations, particularly in remote locations.

We depend on proprietary technologies to maintain our competitive position.

Proprietary technology rights are important to our success and competitive position. The use of similar technology by others or themisappropriation and wrongful use of our technology by third parties could reduce or eliminate competitive advantages we have developed,cause us to lose sales or otherwise harm our business.

Although we own, or license from our owners, numerous U.S. and foreign patents and have numerous pending patents that relate to ourtechnology, we cannot assure that any patents, issued or pending, will provide us with any competitive advantage or will not be challenged bythird parties.

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We have entered into confidentiality and assignment of invention agreements with our employees and nondisclosure agreements withcustomers, suppliers and potential strategic partners, among others; however, we cannot assure that we have done so on a uniform basis or inall instances. If any party to these agreements were to violate their agreement with us and disclose our proprietary technology to a third party,we may be unable to prevent the third party from using this information. Our trade secrets may otherwise become known or independentlydeveloped by others, and trade secret laws provide no remedy against independent development or discovery.

We have registered and applied for some service marks and trademarks, and will continue to evaluate the registration of additional servicemarks and trademarks, as we deem appropriate. A failure to obtain trademark registrations in the United States and in other countries couldlimit our ability to use our trademarks and impede our marketing efforts in those jurisdictions.

We depend on multiple third parties to assist us in executing our capital program around the world on a timely, cost-effective basis.

We enter into third-party contracts for certain engineering, procurement, construction and maintenance services for various facilities aroundthe world. Some of these contracts are on a cost-plus basis, a reimbursable basis or require the completion of work in a specified time framefor a lump sum price, subject to adjustments for changes in scope and other defined variables. Recently, construction costs have risen sharplyin certain markets due to increased material and labor costs, lack of contractor and subcontractor availability, equipment shortages, logistics



issues and other factors. As a result, anticipated construction costs for certain projects in the planning stage may increase to the level where theprojects may be delayed or even terminated. In those instances, costs incurred and previously capitalized for ongoing projects that might beterminated or indefinitely postponed may need to be expensed, which could have a material impact on our financial results in the periodrecorded. In addition, contractors may request additional compensation on existing projects or even default in rare instances, potentiallyexposing us to project delays and additional project completion and financing costs including the repayment of loans as required under projectcompletion guarantees. We often include project milestone payment schedules, delay damage provisions and performance guarantees in ourlargest contracts to mitigate potential losses should any of these occur.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

See �Item 1. Business.�

Item 3. Legal Proceedings

Governmental Agency Proceedings

The following are descriptions of reportable legal proceedings involving governmental authorities under federal, state and local lawsregulating the discharge of materials into the environment. While it is not possible to predict with certainty the outcome of an unresolvedproceeding, if the proceedings described below were decided adversely to CPChem, CPChem expects that there would be no material adverseeffect on consolidated results of operations, financial position or liquidity. Nevertheless, such proceedings are reported pursuant to the SEC�sregulations.

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As previously reported, in July and August 2004, the Texas Commission for Environmental Quality (the �TCEQ�) conducted an annual aircompliance inspection at CPChem�s facility in Port Arthur, Texas. By letter dated December 30, 2004, the TCEQ issued a Notice ofEnforcement letter to CPChem with a proposed Agreed Order and recommended penalty amount. In June 2005, CPChem and the TCEQagreed to settle this matter by entering into an Agreed Order providing for the payment of a penalty and performance of a SupplementalEnvironmental Project for a combined value of $278,250. CPChem also agreed to submit a permit application to authorize emissions from thecyclohexane unit that were originally authorized under a permit by rule.

As previously reported, in late 2001, CPChem received a Notice of Violation from the TCEQ following an inspection of the solid wastemanagement program at CPChem�s Cedar Bayou facility in Baytown, Texas. The Notice of Violation pertained to the historical managementof an on-site impoundment. CPChem agreed to conduct an investigation of the unit and, in late June 2004, completed the investigation. Theinvestigation characterized the contents of the impoundment and identified a small groundwater contamination plume, adjacent to andunrelated to the operation of the impoundment. In November 2004, CPChem and TCEQ representatives agreed to move forward on addressingthe groundwater plume. TCEQ and CPChem are presently in discussions regarding the final disposition of the impoundment and themanagement of the materials contained within the impoundment.

Other Proceedings

CPChem is a party to certain asbestos lawsuits for which the financial responsibility between CPChem and ConocoPhillips is disputed.CPChem, ConocoPhillips and Chevron are attempting to resolve whether ConocoPhillips or CPChem has financial responsibility for theselawsuits. In the meantime, ConocoPhillips is managing and defending these lawsuits. In the event the financial responsibility for theselawsuits is ultimately determined to rest with CPChem, CPChem may be required to record a charge to operations that could be material to theperiod reported. However, CPChem believes that any such charge, if required, would not have a material adverse effect on financial positionor liquidity.



CPChem is a party to a number of other legal proceedings that arose in the ordinary course of business for which, in many instances, noprovision has been made in the financial statements. While the final outcome of these proceedings cannot be predicted with certainty,CPChem believes that none of these individual proceedings, when resolved, will have a material adverse effect on consolidated results ofoperations, financial position or liquidity.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Market For Registrant��s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

There is no established public trading market for the ownership interests of CPChem. See �Part III - Item 12. Security Ownership of CertainBeneficial Owners and Management� for a listing of the holders of ownership interests in CPChem.

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PART IIItem 6. Selected Financial Data

The following selected financial data should be read in conjunction with �Item 7. Management�s Discussion and Analysis of FinancialCondition and Results of Operations� and �Item 8. Financial Statements and Supplementary Data.�

Years ended December 31,

Millions 2005 2004 2003 2002 2001

Net sales $ 10,707 $ 9,165 $ 6,838 $ 5,328 $ 5,804Net income (loss) 853 626 7 (30) (480)

December 31,

Millions 2005 2004 2003 2002 2001

Total assets $ 6,960 $ 6,872 $ 6,242 $ 6,109 $ 5,860Long-term debt,

less current maturities 1,186 1,390 1,189 1,190 1,507Members� preferred interests � 75 250 250 �

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Item 7. Management��s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

An accounting policy is deemed to be �critical� if it is important to a company�s results of operations and financial condition, and requiressignificant judgment and estimates on the part of management in its application. The preparation of financial statements and relateddisclosures in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions thataffect certain amounts reported in the financial statements and related disclosures. Actual results could differ from these estimates andassumptions.

CPChem believes that the estimates and assumptions used in connection with the amounts reported in its financial statements and relateddisclosures are reasonable and were made in good faith. CPChem further believes the following represent its most critical accounting



policies. For a summary of all of CPChem�s significant accounting policies, see �Part II - Item 8. Financial Statements and SupplementaryData - Note 2. Summary of Significant Accounting Policies.�

Impairment of Assets � Long-lived assets used in operations are assessed for possible impairment when events or changes in circumstancesindicate a potential significant deterioration in future cash flows projected to be generated by an asset group. Individual assets are grouped forimpairment purposes at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of othergroups of assets � generally at a product line level. If the estimated fair value of an asset or group of assets is less than the respective carryingvalue, the carrying value is written down to estimated fair value. Since there are usually no quoted market prices available to determine thefair values of CPChem�s long-lived assets, if upon review, the sum of the projected undiscounted pre-tax cash flows is less than the carryingvalue of the asset group, the carrying value is written down to estimated fair value. Fair values of impaired assets are usually determinedbased on the present value of projected future cash flows using discount rates commensurate with the risks involved in the asset group. Thisarea often requires management to make complex and subjective judgments covering extended periods of time, involving significant variablessuch as asset lives, future product demand, and future product, feedstock and energy prices in order to estimate projected future cash flows.Should the outlook for projected cash flows change unfavorably, material charges for impairments could occur.

Inventories � For U.S. operations, cost of product inventories is primarily determined using the dollar-value, last-in, first-out (LIFO) method.These inventories are valued at the lower of cost or market, aggregated at the segment level. Lower-of-cost-or-market write-downs for LIFO-valued inventories are generally considered temporary. However, deterioration of market prices for prolonged periods of time could result inwrite-downs determined to be permanent in nature.

Contingencies � As facts concerning contingent liabilities become known, CPChem reassesses its position with respect to accrued liabilitiesand other potential exposures. Estimates that are particularly sensitive to future change include legal matters and contingent liabilities forenvironmental remediation. Estimated future environmental remediation costs are subject to change due to such factors as the unknownmagnitude of cleanup costs, prospective changes in laws and regulations, the unknown timing and extent of remedial actions that may berequired and the determination of CPChem�s liability in proportion to those of other responsible parties. Estimated future costs related tolegal matters are subject to change as events occur and as additional information becomes available.

22

Results of Operations

Overview

CPChem�s business, and the chemicals industry in general, is cyclical in nature and is impacted by, among other things, product demand andthe prices of raw materials, feedstocks and energy. CPChem is particularly impacted by the prices of natural gas and natural gas liquids(NGLs). During periods of significant natural gas and NGL price volatility and corresponding spikes in natural gas and NGL prices such asthose experienced during various times over the past five years, CPChem is less able to fully recover such increased costs through productsales price increases than it could had there been steady, sustained prices, even at elevated levels. CPChem is also affected by overalldomestic and global economic conditions, which drive consumer spending for durable goods. In addition, capacity expansions or contractionscontribute to the cyclical and volatile nature of the commodity chemicals industry.

CPChem�s results continued to improve in 2005 as margins were higher, due in part to healthier U.S. economic conditions. Results improveddespite the negative impact of hurricane activity in the Gulf Coast during the second half of the year. In the third quarter of 2005, HurricanesKatrina (August 29) and Rita (September 24) made landfall and disrupted to varying degrees industry operations located along the Texas,Louisiana and Mississippi Gulf Coast. CPChem�s Pascagoula, Mississippi facility and St. James, Louisiana operations were shut down forHurricane Katrina. The St. James facility sustained minimal damage and promptly resumed operations. However, portions of the Pascagoulafacility sustained more substantial damage. CPChem�s Cedar Bayou, Conroe, La Porte, Pasadena and Sweeny facilities, all located in Texas,as well as its St. James facility, were temporarily shut down due to Hurricane Rita, but did not experience any significant property damage.The Orange and Port Arthur, Texas facilities, however, experienced more significant damage and extended power outages. CPChem resumedoperations at all of its affected facilities by the first week in October, except at Orange and Port Arthur. Those two facilities resumedoperations in November at various operating rates, and achieved normal operating rates in December. As a result of these force majeureevents, certain product lines encountered varying degrees of production shortfalls, resulting in product allocations to customers and decreasedoverall production.



Condensed Consolidated Statement of Operations


Millions 2005 2004 2003

Net sales $ 10,707 $ 9,165 $ 6,838Equity in income of affiliates, net 185 218 41Other income 146 111 75

Total revenues 11,038 9,494 6,954Cost of goods sold 9,601 8,324 6,390Other costs and expenses 503 463 488Income before interest and taxes 934 707 76Net interest expense (61) (66) (64)Income taxes (20) (15) (5)

Net income $ 853 $ 626 $ 7

2005 compared with 2004

Net income in 2005 was $853 million, compared with $626 million in 2004. Consolidated net sales revenues increased in 2005 as a result ofhigher overall sales prices, which was partially offset by lower sales volumes largely due to the hurricane-related plant shutdowns. Lowerequity

23

earnings from affiliates in 2005, primarily from Saudi Chevron Phillips Company (SCP), were offset by an increase in other income resultingprimarily from approximately $30 million in proceeds received in the fourth quarter related to a technology agreement. Cost of Goods Soldrose due to higher feedstock prices, and in addition, to increased insurance costs primarily resulting from 2005 hurricane activity. Other Costsand Expenses were higher in 2005, attributable to increased Selling, General and Administrative (SG&A) expenses related to distributioncosts and foreign currency transaction losses.


Net income in 2004 was $626 million, representing a $619 million improvement over the $7 million of net income recorded in 2003.Consolidated net sales revenue rose significantly in 2004 on higher overall sales prices and volumes. Equity earnings from affiliatesimproved, primarily on improved results from SCP and Qatar Chemical Company Ltd. (Q-Chem). Cost of Goods Sold rose in the 2004period, attributable to increased feedstock costs and higher sales volumes.

Income (Loss) Before Interest and Taxes by Segment

Millions

Olefins &

Polyolefins

Aromatics &

Styrenics

Specialty

Products

Corporate

& Other Consolidated

Year ended December 31, 2005 $ 831 $ 99 $ 43 $ (39) $ 934Year ended December 31, 2004 428 251 58 (30) 707Year ended December 31, 2003 41 27 34 (26) 76

Included in 2005 results was an $11 million net benefit (a $13 million benefit recorded to Other Income and a $2 million charge to SG&Aexpense) from a legal settlement related to a styrene column collapse at the St. James facility in 2001 and a $9 million benefit recorded to Costof Goods Sold to recognize unit/line fill inventory at various manufacturing facilities.



Included in 2003 results were charges related to CPChem�s share of certain Chevron and ConocoPhillips legal settlements and accrualsrelating to CPChem�s facilities, asset retirements, a pilot plant closure, employee termination benefit costs related to workforce reductions anda benefit recorded as a result of a sales and use tax audit. These and other similar types of net charges totaled $36 million in the aggregate in2003. See subsequent segment-level discussions for additional information.

Olefins & Polyolefins


Millions 2005 2004 2003

Income before interest and taxes $ 831 $ 428 $ 41


Olefins & Polyolefins� income before interest and taxes totaled $831 million in 2005 compared with $428 million in 2004. Significantlyhigher earnings from olefins and polyethylene on higher margins were the main drivers of the improved results. Revenues increased fromhigher average realized sales prices, partially offset by lower sales volumes resulting from the hurricane-related shutdowns. Net equityearnings from affiliates were higher on improved results from Phillips Sumika Polypropylene Company, and other income increased fromapproximately $30 million in proceeds received in the fourth quarter related to a technology agreement. Feedstock and utility costs increasedlargely due to higher energy prices. The improvement in Olefins & Polyolefins�

24

earnings was also attributable to lower turnaround costs, partially offset by costs associated with the 2005 restart of an ethylene plant at theSweeny facility. Overall earnings were also negatively impacted by hurricane-related activity. Earnings in 2004 included a gain of $4 millionrelated to reductions in certain LIFO-valued inventories.


Income before interest and taxes for Olefins & Polyolefins totaled $428 million in 2004, compared with $41 million in 2003, driven primarilyby higher earnings from the olefins and polyethylene product lines. Higher revenues from increased sales prices and volumes were partiallyoffset by higher feedstock costs. Equity earnings from affiliates increased significantly, largely from improved results of Q-Chem. Earningsin 2004 and 2003 included gains of $4 million and $10 million, respectively, related to reductions in certain LIFO-valued inventories.

Results in 2003 also included $13 million of charges to SG&A expense for the Chevron and ConocoPhillips legal settlements and accrualsrelating to CPChem�s facilities, a $9 million charge to Research and Development depreciation related to the permanent closure of theresearch and technology pilot plant facility in Orange, Texas, and a $5 million net benefit resulting from the sales and use tax audit.

Aromatics & Styrenics


Millions 2005 2004 2003



Income before interest and taxes for Aromatics & Styrenics totaled $99 million in 2005 compared with $251 million in 2004. The decrease inearnings in 2005 was driven primarily by lower earnings from the benzene product line. Overall revenues were down slightly in 2005 aslower sales volumes across most product lines, including benzene, were mostly offset by higher sales prices. CPChem�s Pascagoula benzenefacility was down through most of the third quarter of 2005 due to turnaround and operational issues, and also from the impact of Hurricane



Katrina�s landfall in late August. Equity earnings from affiliates decreased on lower earnings from SCP. Feedstock costs increased primarilydue to higher prices, while higher utility costs also contributed to the lower overall results. Overall earnings were also negatively impacted byhurricane-related activity. Earnings in 2005 included a $14 million gain related to reductions in certain LIFO-valued inventories. Earnings in2005 also included an $11 million net benefit from a legal settlement related to the St. James styrene column collapse in 2001 and a $7 millionbenefit to recognize unit/line fill inventory.


Aromatics & Styrenics� income before interest and taxes totaled $251 million in 2004 compared with $27 million in 2003. Results in 2004improved primarily from higher benzene earnings, including significantly higher equity earnings from SCP. Sales revenues increased acrossall product lines as a result of higher sales prices, partially offset by lower sales volumes in benzene and paraxylene, and higher feedstockcosts in most product lines. Improved results in 2004 were also partially attributable to the actions taken in 2003 to close the UDEX benzeneextraction unit and idle the cumene plant, both of which are located at the Port Arthur, Texas facility. Earnings in 2003 included $10 millionof accelerated depreciation related to the closure of the UDEX benzene extraction unit, partially offset by a $3 million gain related toreductions in certain LIFO-valued inventories.

25

Specialty Products


Millions 2005 2004 2003



Specialty Products� income before interest and taxes totaled $43 million in 2005 compared with $58 million in 2004 due to lower earningsfrom both Specialty Chemicals and Ryton® polyphenylene sulfide (Ryton® PPS). Lower sales volumes and higher feedstock costs ofRyton® PPS were partially offset by higher sales prices. Earnings from Specialty Chemicals declined on lower margins, partially driven bythe impact of a feedstock supply interruption that occurred earlier in the year at the Borger facility. Higher sales prices and volumes wereoffset by higher feedstock costs. Earnings from Ryton® PPS and Specialty Chemicals were also affected by a fire at the Borger, Texasfacility in the third quarter of 2005. Earnings in 2005 included a $4 million charge from the adjustment of the economic life of certainleasehold improvements at a third-party tolling facility.


Income before interest and taxes for Specialty Products was $58 million in 2004 compared with $34 million in 2003, as earnings from bothSpecialty Chemicals and Ryton® PPS increased. Earnings from Ryton® PPS rose primarily on higher sales volumes, partially offset byhigher feedstock costs. Earnings from Specialty Chemicals increased as a result of higher sales volumes and prices, partially offset byincreased feedstock costs primarily due to the higher sales volumes. Results for Specialty Products in 2003 included a $2 million net benefitfrom the sales and use tax audit.

Corporate and Other


Millions 2005 2004 2003

Income (loss) before interest and taxes $ (39) $ (30) $ (26)



Corporate and Other reported losses before interest and taxes of $39 million in 2005, $30 million in 2004 and $26 million in 2003. Theincreased loss in 2005 was largely due to higher project expenditures and employee incentive plan expenses held at the corporate level in2005. Results in 2003 included $11 million of employee termination benefit costs related to workforce reductions.

Interest expense. Interest expense totaled $78 million in 2005, $75 million in 2004 and $72 million in 2003. The increase in 2005 comparedwith 2004 was attributable to higher interest rates on variable-rate based debt, partially offset by lower average debt balances and highercapitalized interest in 2005. The increase in 2004 compared with 2003 was primarily attributable to higher interest rates on variable-ratebased debt.

Interest income. Interest income totaled $17 million in 2005, $9 million in 2004 and $8 million in 2003. The improvement in 2005 wasattributable to higher interest income on outstanding advances to Q-Chem due to higher average interest rates.

Income Taxes. Income tax expense totaled $20 million in 2005, $15 million in 2004 and $5 million in 2003. The increase in 2005 wasprimarily due to higher foreign withholding taxes. The increase in 2004 compared with 2003 was due to taxes on higher overall foreignincome.

26

CPChem is treated as a flow-through entity for federal income tax and for most state income tax purposes, whereby each member is taxable onits respective share of income and losses. However, CPChem is directly liable for federal and state income taxes and franchise taxes oncertain separate legal entities and for any foreign taxes incurred.

Outlook

In 2005, CPChem posted its fourth consecutive year of improved earnings, based on the strong performance of its Olefins & Polyolefinssegment and CPChem�s Middle East joint ventures. However, earnings for the year were negatively impacted by lower sales volumes, mostlythe result of plant downtime caused by two hurricanes in the Gulf of Mexico, and elevated energy prices. CPChem continues to maintain itsfocus on safety, environmental stewardship, operational reliability, cost management, project execution and increasing sales volumes in orderto sustain profitable and responsible growth.

Chemical industry sales volumes and earnings are expected to improve in 2006 as industrial production remains strong. Prices and marginsfor certain products could decline from recent levels, however, due to various factors including uncertain energy and feedstock prices, foreigncurrency exchange rates, imbalances in international trade and geopolitical pressures.

At this time, the amount and timing of reimbursement for business interruption and property damage insurance claims from 2005 hurricaneactivity is uncertain. However, such reimbursements may have a material positive impact to the period or periods when recorded.

Liquidity and Capital Resources

Cash balances were $40 million at December 31, 2005 and $63 million at December 31, 2004, of which $21 million and $48 million,respectively, was held by foreign subsidiaries. CPChem�s objective is to minimize cash balances in its worldwide operations while utilizingthe commercial paper program to meet its daily operating requirements.

Operating Activities

Cash provided by operating activities totaled $1.031 billion in 2005, $459 million in 2004 and $280 million in 2003. The increases primarilyreflect a trend of improved earnings in each of the years. Cash from operations for 2004 was negatively impacted by a $235 million increasein operating working capital.

Investing Activities



Capital and investment expenditures

Millions

Olefins &

Polyolefins

Aromatics &

Styrenics

Specialty

Products

Corporate

& Other Consolidated

Year ended December 31, 2005 $ 121 $ 27 $ 20 $ 9 $ 177Year ended December 31, 2004 138 34 12 7 191Year ended December 31, 2003 127 53 17 6 203

In addition to the capital and investment expenditures shown above, CPChem subscribed to additional shares of and advanced Q-Chem(Olefins & Polyolefins), a total of $28 million in 2004 and $103 million in 2003, and made investments in and advances towards the JCPProject (Aromatics & Styrenics) totaling $35 million in 2005, $10 million in 2004 and $20 million in

27

2003. In 2005, Q-Chem repaid $25 million of such advances. In addition, SCP (Aromatics & Styrenics) made advance repayments toCPChem totaling $9 million in 2005 and $32 million in 2004.

CPChem currently expects to invest a total of approximately $270 million in capital and investment expenditures in 2006. It is expected that$131 million will be invested in Olefins & Polyolefins, $83 million in Aromatics & Styrenics, and $40 million in Specialty Products, with theremainder to be spent at the corporate level. Included in estimated 2006 capital and investment expenditures are $39 million in investments inand advances towards the JCP Project.

JCP Project. Jubail Chevron Phillips Company (JCP), a 50%-owned joint venture company with Saudi Industrial Investment Group (SIIG),was formed in 2003 to develop an integrated styrene facility in Al Jubail, Saudi Arabia. The 1.6 billion-pound-per-year facility, being built ona site adjacent to the existing aromatics complex owned by SCP, will include feed fractionation, an olefins cracker, and ethylbenzene andstyrene monomer processing units. Construction of the JCP facility will be in conjunction with an expansion of SCP�s benzene plant, togethercalled �the JCP project.� Financial closing of the estimated $1.2 billion JCP Project occurred in July 2004. Construction began in the fourthquarter of 2004 and operational start-up is anticipated in late 2007. It is estimated that project completion, as defined in the JCP project�sfinancing agreements, will be achieved in the first half of 2008. The JCP project is being financed through equity contributions andsubordinated loans from the co-venturers, in proportion to their equal ownership interests, and limited recourse loans from commercial banksand two Saudi Arabian governmental agencies.

Q-Chem II Project. CPChem and Qatar Petroleum announced plans in 2001 for the development of a petrochemical project in Mesaieed,Qatar, designed to produce polyethylene and normal alpha olefins. In connection with this project, CPChem and Qatar Petroleum entered intoa separate agreement in 2002 with Total Petrochemicals and Qatar Petrochemical Company Ltd., establishing a joint venture to develop anethylene cracker in Ras Laffan Industrial City, Qatar. The project will be financed through limited recourse loans from commercial banks andan export credit agency (collectively, �senior debt�), and equity contributions and subordinated loans from the co-venturers. It is expectedthat 2006 funding requirements for the Q-Chem II project will be satisfied from drawdowns on the senior debt facilities.

Financing Activities

Cash provided by (used in) financing activities totaled $(891) million in 2005, $(260) million in 2004 and $49 million in 2003. Commercialpaper balances outstanding decreased $203 million during 2005 compared to a $201 million increase in 2004, while borrowing outstandingunder the accounts receivable securitization program decreased $100 million in both 2005 and 2004. CPChem voluntarily redeemed $175million of members� preferred interests in 2004 and the remaining $75 million in 2005, and paid distributions on those interests of $55 millionin 2004 and $2 million in 2005. Financing activities in 2005 also included $263 million of distributions to members to fund their estimatedtax liabilities attributable to CPChem, compared with $118 million of such distributions in 2004. Discretionary distributions paid to memberstotaled $250 million in 2005. At December 31, 2005, accrued discretionary distributions to members totaled $180 million and accrueddistributions to fund the members� estimated tax liabilities totaled $122 million. These accrued distributions to members were paid in the firstquarter of 2006.

28



In 2004, CPChem entered into an $800 million five-year credit facility with various banks that provides committed credit support for thecommercial paper program and concurrently terminated its existing credit facilities. There were no borrowings under any of the current orprior credit facilities during 2005, 2004 or 2003.

Notes issued under CPChem�s commercial paper program are in the tier-2 commercial paper market with maturities of 90 days or less. Thesecommercial paper borrowings totaled $182 million at December 31, 2005 and were classified as Long-Term Debt since CPChem�s intent is torefinance or replace the obligations on a long-term basis and CPChem has a committed backup credit facility in effect.

CPChem had $100 million of short-term borrowings outstanding at December 31, 2005 under a trade receivables securitization program. Theagreement allows for borrowings of up to $300 million for which CPChem grants a security interest in certain of its trade receivables ascollateral for any amounts outstanding. The trade receivables securitization agreement expires in May 2006. CPChem intends to request anextension of the current agreement to May 2007.

CPChem believes cash requirements over the next twelve months will be funded through a combination of cash on hand, cash flows fromoperations and commercial paper. CPChem is not aware of any conditions that exist as of the date of this report that would cause any of itsdebt obligations to be in or at risk of default. In addition, a change in CPChem�s credit ratings would not result in the acceleration of anyexisting debt obligation maturities.

Contractual Obligations

Contractual obligations, including debt obligations, at December 31, 2005 were as follows:

Payments Due

Millions Total 2006 2007-2008 2009-2010 Thereafter

Secured borrowings $ 100 $ 100 $ � $ � $ �

Commercial paper 182 � � 182 �

Long-term debt 1,000 � 500 � 500Other debt, including current portions 12 5 2 3 2Other long-term liabilities included in the

consolidated balance sheet 72 � 47 8 17Operating lease obligations 195 31 40 60 64Purchase obligations 3,796 1,522 2,112 97 65

Total $ 5,357 $ 1,658 $ 2,701 $ 350 $ 648

See also �Part II - Item 8. Financial Statements and Supplementary Data - Note 8. Debt� for further discussion related to debt obligations and�Part II - Item 8. Financial Statements and Supplementary Data - Note 13. Operating Leases� for a discussion related to operating leaseobligations.

Secured Borrowings. This represents borrowings related to the accounts receivable securitization program.

Commercial Paper. The payments due period corresponds with the expiration date of the $800 million bank credit facility that providescommitted credit support for the commercial paper program.

29

Other Long-term Liabilities Included in the Consolidated Balance Sheet. The amounts consist primarily of obligations related to variousemployee benefit plans, excluding pension plans.



Purchase Obligations. This represents obligations to purchase goods or services which contain: fixed or minimum quantities to be purchased;fixed, minimum or variable price provisions; and the approximate timing of the transaction. Estimated future market rates based onCPChem�s long-term forecast were used to calculate obligation amounts that contain variable price provisions. Obligations with no fixed orminimum purchase requirements for products or services were not included. In addition, for obligations that include rights to terminate, theamounts calculated assumed invocation of those rights.

The above contractual obligations do not include CPChem�s anticipated funding under its pension plans. Based on internal and actuarialassumptions used in conjunction with the determination of future projected benefit obligations, it is estimated that annual funding ofapproximately $45 million into CPChem�s existing pension plans would be sufficient for the plans to achieve fully funded status over a tenyear planning horizon. This level of funding would be in excess of future expected minimum regulatory funding requirements. Actual annualfunding levels may differ from this estimate due to, among other things, economic conditions, actual pension asset returns and changes inbusiness conditions.

In addition, the above contractual obligations do not include any anticipated funding by CPChem towards the JCP or Q-Chem II Projects. See�Part II - Item 8. Financial Statements and Supplementary Data - Note 5. Investments in and Advances to Affiliates� for further discussion.

Off-Balance Sheet Arrangements

An off-balance sheet arrangement is generally any transaction, agreement or other contractual arrangement involving an unconsolidated entityof a company under which such company has (1) made certain guarantees, (2) a retained or a contingent interest in assets transferred to anunconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, (3) an obligation, including acontingent obligation, under derivative instruments classified as equity or (4) any obligation, including a contingent obligation, arising out of amaterial variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, orthat engages in leasing, hedging or research and development arrangements with the company. Other than certain guarantees related to itsequity affiliates and a residual guarantee related to a lease, CPChem has no material off-balance sheet arrangements of this nature. See�Part II - Item 8. Financial Statements and Supplementary Data - Note 5. Investments in and Advances to Affiliates� for a discussion ofcertain guarantees related to CPChem�s equity affiliates and �Part II - Item 8. Financial Statements and Supplementary Data - Note 10.Guarantees, Commitments and Indemnifications� for a discussion of the residual guarantee.

Other

New Accounting Pronouncements. See �Part II � Item 8. Financial Statements and Supplementary Data - Note 2. AccountingPronouncements.�

Contingencies. See �Part II - Item 8. Financial Statements and Supplementary Data - Note 11. Contingent Liabilities.�

30

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Risk. Internationally, CPChem, including its equity affiliates, operates facilities in eight countries and sells product in manyother countries, resulting in transactions denominated in various currencies. As such, CPChem is exposed to foreign currency risk to theextent there are devaluations and fluctuations in the exchange rates of those countries against the U.S. dollar and other foreign currencieswhich may adversely affect revenues and margins. The potential foreign currency transaction gain/loss from a hypothetical 10% decrease (orincrease) in the value of the U.S. dollar relative to those local currencies was approximately $5 million in the aggregate at December 31, 2005.

Interest Rate Risk. Because CPChem�s commercial paper obligations have maturities of 90 days or less and are generally reissued uponmaturity, the debt is considered variable-rate based. The secured debt issued in connection with the accounts receivable securitizationprogram is also variable-rate based. A hypothetical one percentage point change in the weighted average interest rates of the outstandingbalances at December 31, 2005 of these debt instruments would impact interest expense by approximately $3 million annually in theaggregate.

31



Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

PageChevron Phillips Chemical Company LLC

Report of Independent Registered Public Accounting Firm 33

Consolidated Statement of Operations for the years ended December 31, 2005, 2004 and 2003 34

Consolidated Balance Sheet at December 31, 2005 and 2004 35

Consolidated Statement of Members� Equity for the years ended December 31, 2005, 2004 and 2003 36

Consolidated Statement of Cash Flows for the years ended December 31, 2005, 2004 and 2003 37

Notes to Consolidated Financial Statements 38

Selected Quarterly Financial Data (Unaudited) 68

The following financial statements are presented in accordance with the Securities and ExchangeCommission��s rules pertaining to equity affiliates deemed to be ��significant.��

Saudi Chevron Phillips Company

Auditors� Report 69

Balance Sheet at December 31, 2005, 2004 and 2003 70

Income Statement for the years ended December 31, 2005, 2004 and 2003 71

Statement of Cash Flows for the years ended December 31, 2005, 2004 and 2003 72

Statement of Changes in Partners� Equity for the years ended December 31, 2005, 2004 and 2003 73

Notes to the Financial Statements 74

Qatar Chemical Company Ltd. (Q-Chem)

Report of the Auditors 83

Auditors� Report 84

Balance Sheet at December 31, 2005, 2004 and 2003 85

Statement of Income for the years ended December 31, 2005, 2004 and 2003 86

Statement of Changes in Shareholders� Equity for the years ended December 31, 2005, 2004 and 2003 87

Statement of Cash Flows for the years ended December 31, 2005, 2004 and 2003 88

Notes to the Financial Statements 89

32

Report of Independent Registered Public Accounting Firm


http://edgar.secdatabase.com/35/110465906012282/a06-1858_110k.htm#AuditorsReportToThePartnersOf_214822

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http://edgar.secdatabase.com/35/110465906012282/a06-1858_110k.htm#StatementOfChangesInPartnersEquit_131222

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http://edgar.secdatabase.com/35/110465906012282/a06-1858_110k.htm#NotesToTheFinancialStatements_131233


http://edgar.secdatabase.com/35/110465906012282/a06-1858_110k.htm#ReportOfTheAuditors_055029

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http://edgar.secdatabase.com/35/110465906012282/a06-1858_110k.htm#StatementOfIncome_173918

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To the Board of Directors of Chevron Phillips Chemical Company LLC:

We have audited the accompanying consolidated balance sheets of Chevron Phillips Chemical Company LLC (the Company) as of December31, 2005 and 2004, and the related consolidated statements of operations, members� equity, and cash flows for each of the three years in theperiod ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financialstatements and schedule are the responsibility of the Company�s management. Our responsibility is to express an opinion on these financialstatements and schedule based on our audits. The financial statements of Qatar Chemical Company Ltd. (Q-Chem), a joint venture company inwhich the Company has a 49% interest, as of December 31, 2005 and 2004 and for each of the two years then ended, have been audited byother auditors whose report has been furnished to us, and our opinion on the consolidated financial statements, insofar as it relates to theamounts included for Q-Chem, is based solely on the report of the other auditors. In the consolidated financial statements, the Company�sinvestment in Q-Chem is stated at $398 million and $387 million, respectively, at December 31, 2005 and 2004, and the Company�s equity inthe net income of Q-Chem is stated at $58 million and $57 million, for the years then ended.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. We were not engaged to perform an audit of the Company�s internal control over financial reporting. Our audit includedconsideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the Company�s internal control over financial reporting. Accordingly,we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overallfinancial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Chevron Phillips Chemical Company LLC at December 31, 2005 and 2004, and theconsolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformitywith U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relationto the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

Ernst & Young LLP

Houston, TexasFebruary 20, 2006

33

Chevron Phillips Chemical Company LLCConsolidated Statement of Operations


Millions 2005 2004 2003

RevenueNet sales $ 10,707 $ 9,165 $ 6,838Equity in income of affiliates, net 185 218 41Other income 146 111 75

Total revenue 11,038 9,494 6,954

Costs and ExpensesCost of goods sold 9,601 8,324 6,390Selling, general and administrative 462 421 433



Research and development 41 42 55Total costs and expenses 10,104 8,787 6,878

Income Before Interest and Taxes 934 707 76

Interest income 17 9 8Interest expense (78) (75) (72)

Income Before Taxes 873 641 12

Income taxes (20) (15) (5)

Net Income 853 626 7

Distributions on members� preferred interests (2) (21) (23)

Income (Loss) Attributed to Members� Interests $ 851 $ 605 $ (16)

See Notes to Consolidated Financial Statements.

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Chevron Phillips Chemical Company LLCConsolidated Balance Sheet

December 31,

Millions 2005 2004

ASSETSCurrent assets

Cash and cash equivalents $ 40 $ 63Accounts receivable, net � trade 1,227 1,140Accounts receivable, net � affiliates 166 126Inventories 776 784Other current assets 66 43

Total current assets 2,275 2,156

Property, plant and equipment 7,897 7,903Less: accumulated depreciation 4,317 4,135

Net property, plant and equipment 3,580 3,768

Investments in and advances to affiliates 1,057 893Other assets and deferred charges 48 55

Total Assets $ 6,960 $ 6,872

LIABILITIES AND MEMBERS� EQUITY

Current liabilitiesAccounts payable � trade $ 767 $ 665



Accounts payable � affiliates 250 219Accrued income and other taxes 64 60Accrued salaries, wages and benefits 118 102Secured borrowings and other debt 105 201Accrued distributions to members 302 39Other current liabilities and deferred credits 51 55

Total current liabilities 1,657 1,341

Long-term debt 1,186 1,390Other liabilities and deferred credits 87 91

Total liabilities 2,930 2,822

Members� preferred interests � 75

Members� capital 4,000 3,925Accumulated other comprehensive income 30 50

Total members� equity 4,030 3,975

Total Liabilities and Members� Equity $ 6,960 $ 6,872


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Chevron Phillips Chemical Company LLCConsolidated Statement of Members� Equity

Millions

Members��

Capital

Accumulated Other

Comprehensive

Income (Loss)

Total

Members��

Equity

Balance on December 31, 2002 $ 3,494 $ 7 $ 3,501

Net income 7 � 7Foreign currency translation adjustments � 25 25

Total comprehensive income 32Distributions on members� preferred interests (23) � (23)

Balance on December 31, 2003 3,478 32 3,510

Net income 626 � 626Foreign currency translation adjustments � 21 21Minimum pension liability adjustments � (3) (3)

Total comprehensive income 644Distributions on members� preferred interests (21) � (21)Other distributions to members (158) � (158)

Balance on December 31, 2004 3,925 50 3,975



Net income 853 � 853Foreign currency translation adjustments � (20) (20)

Total comprehensive income 833Distributions on members� preferred interests (2) � (2)Other distributions to members (776) � (776)

Balance on December 31, 2005 $ 4,000 $ 30 $ 4,030


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Chevron Phillips Chemical Company LLCConsolidated Statement of Cash Flows


Millions 2005 2004 2003

Cash Flows From Operating ActivitiesNet income $ 853 $ 626 $ 7Adjustments to reconcile net income to net cash flows provided by operating

activitiesDepreciation, amortization and retirements 283 281 298Undistributed equity in income of affiliates, net (115) (197) (28)Changes in operating working capital (6) (235) (14)Other operating cash flow activity 16 (16) 17

Net cash flows provided by operating activities 1,031 459 280

Cash Flows From Investing ActivitiesCapital and investment expenditures (177) (191) (203)Investments in and advances towards JCP Project (35) (10) (20)Advance repayments from (investments in and advances to) Qatar Chemical

Company Ltd. (Q-Chem) 25 (28) (103)Advance repayments from Saudi Chevron Phillips Company 9 32 �

Proceeds from the sale of assets 15 18 1Net cash flows used in investing activities (163) (179) (325)

Cash Flows From Financing ActivitiesIncrease (decrease) in commercial paper, net (203) 201 (1)Increase (decrease) in secured borrowings, net (100) (100) 10Increase (decrease) in other debt, net 2 (13) 8Redemptions of members� preferred interests (75) (175) �

Distributions on members� preferred interests (2) (55) �

Other distributions to members (513) (118) �

Contributions from members � � 32Net cash flows provided by (used in) financing activities (891) (260) 49

Net Increase (Decrease) in Cash and Cash Equivalents (23) 20 4Cash and Cash Equivalents at Beginning of Period 63 43 39



Cash and Cash Equivalents at End of Period $ 40 $ 63 $ 43

Supplemental Disclosures of Cash Flow InformationChanges in operating working capital

Increase in accounts receivable $ (132) $ (408) $ (100)Decrease (increase) in inventories (4) (77) 13Increase in other current assets (25) (13) (5)Increase in accounts payable 138 216 70Increase in accrued income and other taxes 5 6 1Increase in other current liabilities 12 41 7

Total $ (6) $ (235) $ (14)

Cash paid for interest $ 76 $ 70 $ 70

Cash paid for income taxes $ 22 $ 18 $ 5


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Chevron Phillips Chemical Company LLCNotes to Consolidated Financial Statements

Index Page

1. Nature of Operations 382. Summary of Significant Accounting Policies 383. Transactions with Affiliates 414. Inventories 425. Investments in and Advances to Affiliates 436. Property, Plant and Equipment 477. Environmental Liabilities 488. Debt 489. Members� Preferred Interests 49

10. Guarantees, Commitments and Indemnifications 4911. Contingent Liabilities 5012. Credit Risk 5113. Operating Leases 5114. Benefit Plans 5115. Taxes 5516. Segment and Geographic Information 5717. Fair Values of Financial Instruments 5918. Consolidating Financial Statements 60

Note 1. Nature of Operations

Chevron Phillips Chemical Company LLC, through its subsidiaries and equity affiliates, manufactures and markets a wide range ofpetrochemicals on a worldwide basis, with manufacturing facilities in the United States, Puerto Rico, Singapore, China, South Korea,Saudi Arabia, Qatar, Mexico and Belgium. Chevron Phillips Chemical Company LLC is a limited liability company formed underDelaware law, owned 50% each by Chevron Corporation (�Chevron,� formerly ChevronTexaco Corporation) and ConocoPhillips(collectively, the �members�).



The company is governed by its Board of Directors (the �Board�), comprised of six representatives, under the terms of a limitedliability company agreement. Chevron and ConocoPhillips each have two voting representatives, and the chief executive officer andthe chief financial officer of the company are non-voting representatives. Certain major decisions and actions require the approval ofthe Board. All decisions and actions of the Board require the approval of at least one representative of both Chevron andConocoPhillips.

Note 2. Summary of Significant Accounting Policies

Basis of Financial Statements � The accompanying consolidated financial statements include the accounts of Chevron PhillipsChemical Company LLC and its wholly owned subsidiaries (collectively, �CPChem�). All significant intercompany investments,accounts and transactions have been eliminated in consolidation. Investments in affiliates in which CPChem has 20% to 50% of thevoting control are accounted for using the equity method. Other securities and investments are carried at the lower of cost or market.Certain amounts for prior periods have been reclassified in order to conform to the current reporting presentation.

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Estimates, Risks and Uncertainties � The preparation of financial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affect certain amounts reported in the financial statementsand accompanying notes. Actual results could differ from these estimates and assumptions.

There are varying degrees of risk and uncertainty in each of the countries in which CPChem operates. CPChem insures its businessand assets against material insurable risks in a manner it deems appropriate. Because of the diversity of its operations, CPChembelieves any loss incurred from an uninsured event in any one business or country, other than a terrorist act directed at CPChemoperations, would not have a material adverse effect on operations as a whole. However, any such loss could have a material impacton financial results in the period recorded.

Revenue Recognition � Sales of petrochemicals, natural gas liquids and other items, including by-products, are recorded when titlepasses to the customer. Revenues from royalties for licensed technology are recorded as the associated services are rendered whenroyalties are paid in advance, and as volumes are produced by the licensee when royalties are paid based on a licensee�s production.Sales are presented net of discounts and allowances. Freight costs billed to customers are recorded as a component of revenue.

Cash and Cash Equivalents � Cash equivalents are highly liquid, short-term investments readily convertible to known amounts ofcash that have original maturities of three months or less from date of purchase.

Accounts receivable � Accounts receivable is shown net of a $14 million allowance for estimated non-recoverable amounts atDecember 31, 2005 and net of a $7 million allowance at December 31, 2004.

Inventories � For U.S. operations, cost of product inventories is primarily determined using the dollar-value, last-in, first-out (LIFO)method. These inventories are valued at the lower of cost or market, aggregated at the segment level. Lower-of-cost-or-market write-downs for LIFO-valued inventories are generally considered temporary. For operations outside the United States, product inventoriesare valued using a combination of the first-in, first-out (FIFO) and weighted average methods. Materials and supplies inventories arecarried at average cost.

Property, Plant and Equipment � Property, plant and equipment is stated at cost. Property, plant and equipment is comprised ofassets, defined as property units, with an initial expected economic life beyond one year. Asset categories are used to computedepreciation and amortization using the straight-line method over the associated estimated future useful lives.

Impairment of Assets � Long-lived assets used in operations are assessed for possible impairment when events or changes incircumstances indicate a potential significant deterioration in future cash flows projected to be generated by an asset group.Individual assets are grouped for impairment purposes at the lowest level for which there are identifiable cash flows that are largelyindependent of the cash flows of other groups of assets � generally at a product line level. If, upon review, the sum of the projectedundiscounted pre-tax cash flows is less than the carrying value of the asset group, the carrying value is written down to estimated fairvalue. The fair values of impaired assets are usually determined based on the present value of projected future cash flows usingdiscount rates commensurate with the risks involved in the asset group, as quoted market prices in active markets are generally notavailable.



The expected future cash flows used for impairment reviews and related fair value calculations are based on projected productionvolumes, sales volumes, prices and costs, considering available information at the date of review.

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Maintenance and Repairs �Maintenance and repair costs, including turnaround costs of major producing units, are expensed asincurred.

Research and Development Costs � Research and development costs are expensed as incurred.

Property Dispositions � Assets that are no longer in service and for which there is no contemplated future use by CPChem are retired.When assets are retired or sold, the asset cost and related accumulated depreciation are eliminated, with any gain or loss reflected inincome.

Environmental Costs � Environmental expenditures are expensed or capitalized as appropriate, depending on future economicbenefit. Expenditures that relate to an existing condition caused by past operations and that do not have future economic benefit areexpensed. Liabilities for expenditures are recorded on a discounted basis when environmental assessments or claims are probable andthe costs can be reasonably estimated. Expenditures that create future benefits or that contribute to future revenue generation arecapitalized.

Capitalization of Interest � Interest costs incurred to finance projects of at least $75 million and that are longer than one year induration, and interest costs associated with investments in equity affiliates that have their planned principal operations underconstruction, are capitalized until commercial production begins. Capitalized interest is generally amortized over the life of theassociated asset. Unamortized capitalized interest totaled $42 million at both December 31, 2005 and December 31, 2004. Interestcosts capitalized totaled $3 million in 2005, $1 million in 2004 and $3 million in 2003.

Income Taxes � CPChem is treated as a flow-through entity for federal income tax and for most state income tax purposes wherebyeach member is taxable on its respective share of income and loss. However, CPChem is directly liable for federal and state incometaxes and franchise taxes on certain separate legal entities and for any foreign taxes incurred. CPChem follows the liability method ofaccounting for these income taxes.

Accounting Pronouncements � The Financial Accounting Standards Board (the �FASB�) issued Interpretation No. 46 (revisedDecember 2003), �Consolidation of Variable Interest Entities� (FIN No. 46(R)), which provides guidance as to when a company isrequired to include in its financial statements the assets, liabilities and activities of a variable interest entity (a �VIE�). A VIE isgenerally a corporation, partnership, trust, or any other legal structure used for business purposes that either does not have equityinvestors with voting rights or that has equity investors that do not provide sufficient financial resources for the entity to support itsactivities. FIN No. 46(R) requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of lossfrom the activities of the VIE or is entitled to receive a majority of the residual returns of the VIE. FIN No. 46(R) also requiresdisclosures about VIEs that are not required to be consolidated by a company, but in which the company has a significant variableinterest. The consolidation requirements of FIN No. 46(R) became effective January 1, 2005 for CPChem. FIN No. 46(R) did notrequire the consolidation of any existing VIE into CPChem�s consolidated financial statements.

In November 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151, �Inventory Costs, anAmendment of ARB No. 43, Chapter 4.� The statement amends the guidance in Accounting Research Bulletin (ARB) No. 43,Chapter 4, �Inventory Pricing,� to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs andspoilage, requiring that such costs be recognized as current-period charges. It also requires that allocation of fixed productionoverheads to the costs of conversion be based on the normal capacity of the production facilities. For CPChem, the provisions ofSFAS No. 151 are effective January 1, 2006. CPChem believes that implementation of this standard will not have a material impacton consolidated results of operations, financial position or liquidity.

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In December 2004, the FASB issued SFAS No. 153, �Exchanges of Non-Monetary Assets, an Amendment of APB Opinion No.29.� The guidance in Accounting Principles Board (APB) Opinion No. 29, �Accounting for Non-Monetary Transactions,� is basedon the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged, withcertain exceptions. This statement amends APB Opinion No. 29 to eliminate the exception for non-monetary exchanges of similarproductive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercialsubstance. A non-monetary exchange does not have commercial substance if the future cash flows of the entity are not expected tochange significantly as a result of the exchange. For CPChem, the provisions of SFAS No. 153 were effective July 1, 2005.Implementation of this standard did not have a material impact on consolidated results of operations, financial position or liquidity.

In 2003, CPChem adopted SFAS No. 143, �Accounting for Asset Retirement Obligations,� which addresses the accounting andreporting requirements for legal obligations associated with retirement of long-lived assets. On December 31, 2005, CPChem adoptedFASB Interpretation No. 47, �Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No.143� (FIN No. 47), which mainly clarifies the timing of the recording of certain asset retirement obligations. CPChem has enteredinto certain right of way agreements with landowners, some of which require removal of pipelines if they are idled for a specifiedperiod of time. In addition, certain CPChem facilities contain amounts of asbestos that may require abatement in the future. CPChemperforms periodic reviews of its long-lived assets for, among other things, changes in facts and circumstances that might require therecognition of a retirement obligation. Implementation of SFAS No. 143 and FIN No. 47 did not have a material impact onconsolidated results of operations, financial position or liquidity.

In September 2005, the Emerging Issues Task Force (EITF) of the FASB reached a consensus on Issue No. 04-13, �Accounting forPurchases and Sales of Inventory with the Same Counterparty.� In situations in which one inventory transaction is entered into incontemplation of another inventory transaction in the same line of business with the same counterparty, the two inventorytransactions are deemed to be a single non-monetary exchange transaction. It was determined that such transactions should generallybe recognized at the carrying amount of the inventory transferred. For CPChem, the provisions of EITF Issue No. 04-13 are effectiveApril 1, 2006. CPChem believes that implementation of EITF Issue No. 04-13 will not have a material impact on consolidated resultsof operations, financial position or liquidity.

Note 3. Transactions with Affiliates

Significant transactions with affiliated parties, including equity affiliates, were as follows:


Millions 2005 2004 2003

Net sales (a) $ 1,291 $ 1,085 $ 789Other income 63 54 33Cost of goods sold (b),(c),(d) 2,560 2,440 1,573Selling, general and administrative (c),(d) 5 8 11

(a) CPChem sells ethylene residue gas to ConocoPhillips� crude oil refining operations; specialty chemicals, alpha olefin productsand aromatics and styrenics by-products to Chevron; and feedstocks and various services to non-consolidated equity companies,all at prices that approximate market.

41

(b) CPChem purchases various feedstocks and finished product from Chevron and ConocoPhillips, and also purchases finishedproduct from certain non-consolidated equity companies. In addition, Chevron and ConocoPhillips provide CPChem certaincommon facility and manufacturing services at some of CPChem�s facilities.

(c) ConocoPhillips and Chevron provide various services to CPChem under services agreements, including engineeringconsultation, research and development, laboratory services, procurement services and pipeline operating services.



(d) Cost of goods sold amounts include billings to certain non-consolidated equity companies for non-core services provided at cost,totaling $94 million in 2005, $73 million in 2004 and $68 million in 2003, that were credited to expense. Selling, general andadministrative amounts include similar credits totaling $40 million in 2005, $32 million in 2004 and $33 million in 2003.

In 2005, CPChem made discretionary distributions to its members totaling $250 million. See Note 9 for a discussion of members�preferred interests and Note 15 for a discussion of tax distributions to members.

The K-Resin® styrene-butadiene copolymer (SBC) plant at the Pasadena Plastics Complex in Pasadena, Texas, while still owned byConocoPhillips, was idled in March 2000 due to a fire. The contribution agreement that was entered into upon the formation ofCPChem contained certain provisions related to pre-established K-Resin® SBC plant earnings and production targets. In accordancewith those provisions, ConocoPhillips made member contributions of $22 million in 2003.

Note 4. Inventories

Inventories were as follows:

December 31,

Millions 2005 2004

LIFO inventoriesOlefins & Polyolefins $ 294 $ 267Aromatics & Styrenics 133 169Specialty Products 55 48

Total LIFO inventories 482 484Non-LIFO inventories

Olefins & Polyolefins 119 111Aromatics & Styrenics 83 91Specialty Products 36 47

Total non-LIFO inventories 238 249Materials, supplies and other 56 51Total inventories $ 776 $ 784

The excess of replacement cost over book value of product inventories valued under the LIFO method was $552 million at December31, 2005 and $396 million at December 31, 2004.

CPChem recorded gains of $14 million in 2005 (Aromatics & Styrenics), $4 million in 2004 (Olefins & Polyolefins) and $13 millionin 2003 ($10 million in Olefins & Polyolefins and $3 million in Aromatics & Styrenics) related to reductions in certain LIFO-valuedinventories.

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Note 5. Investments in and Advances to Affiliates

CPChem�s investments in its affiliates are accounted for using the equity method. These affiliates are also engaged in themanufacturing and marketing of petrochemicals. The carrying amounts of these investments were as follows:

December 31,

Millions Ownership 2005 2004

Qatar Chemical Company Ltd. (Q-Chem) 49% $ 398 $ 387



Saudi Chevron Phillips Company 50% 353 303Jubail Chevron Phillips Company 50% 72 27Phillips Sumika Polypropylene Company 60%* 62 52Chevron Phillips Singapore Chemicals (Private) Limited 50% 58 58K R Copolymer Co., Ltd. 60% 41 42Shanghai Golden Phillips Petrochemical Company Limited 40% 23 24Qatar Chemical Company II Ltd. (Q-Chem II) 49% 50 �

Total investments $ 1,057 $ 893

* Profit/loss sharing percentage.

Dividends received from equity affiliates totaled $70 million in 2005, $21 million in 2004 and $13 million in 2003. CPChem�smembers� capital included $184 million of undistributed net earnings from equity affiliates at December 31, 2005 and $69 million atDecember 31, 2004.

Phillips Sumika Polypropylene Company and K R Copolymer Co., Ltd. are not consolidated because CPChem does not have votingcontrol of these entities.

Qatar Chemical Company Ltd. (Q-Chem)

Qatar Chemical Company Ltd. (Q-Chem) is a joint venture company that owns a petrochemical complex in Qatar. Prior to achievingproject completion, CPChem made certain advances to Q-Chem under a subordinated loan agreement. In addition, CPChem agreed toprovide up to $75 million of loans to Q-Chem if there is insufficient cash to pay the minimum debt service payments on Q-Chem�ssenior bank financing. CPChem also agreed to loan funds to Q-Chem through December 2006 if there is insufficient cash to make Q-Chem�s targeted debt service payments. This loan would be limited to the amount of lost operating margins resulting from salesvolumes being less than design capacity, or the actual cash deficiency, whichever is less. CPChem believes it is unlikely that fundingunder these support agreements will be required.

CPChem is party to an agency agreement with Q-Chem to act as an agent for the sale of substantially all of Q-Chem�s production.CPChem is also party to an offtake and credit risk agreement with Q-Chem, under which CPChem is required to purchase, at marketprices, specified amounts of production if CPChem fails to sell that product under the terms of the agency agreement. CPChem hasno exposure to price risk for volumes it may be obligated to purchase under the terms of the offtake agreement. CPChem alsoguarantees the customer payments to Q-Chem for all sales arranged by CPChem under the agency agreement. The offtake and creditrisk agreement expires upon the earlier of the repayment in full by Q-Chem of its outstanding bank financing, currently scheduled tomature in 2012, or any refinancing thereof. CPChem expects that it will be able to sell all the production under the terms of theagency agreement, and further expects that reimbursements to Q-Chem for customer payment defaults, if any, would be minimal.

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CPChem�s rights under the subordinated loan agreement and the other loan agreements described above are subordinate to Q-Chem�s senior bank debt. Security interests in the notes related to such loans have been granted to the banks to support the terms ofsubordination. Advances to Q-Chem under the subordinated loan agreement totaled $273 million at December 31, 2005 and $310million at December 31, 2004. As it applies to CPChem, Q-Chem is not considered to be a VIE under the provisions of FIN No.46(R).

Qatar Chemical Company II Ltd. (Q-Chem II)

CPChem and Qatar Petroleum announced plans in 2001 for the development of a petrochemical project in Mesaieed, Qatar, designedto produce polyethylene (770 million pounds per year) and normal alpha olefins (760 million pounds per year). These plants will beowned by Qatar Chemical Company II Ltd. (Q-Chem II), an equity affiliate that is owned 49% by CPChem and 51% by Qatar



Petroleum. Both plants will be located on a site adjacent to the existing complex owned by Qatar Chemical Company Ltd. (Q-Chem).In connection with this project, CPChem and Qatar Petroleum (the �co-venturers�) entered into a separate agreement in 2002 withTotal Petrochemicals and Qatar Petrochemical Company Ltd., establishing a joint venture to develop a 2.9 billion-pound-per-yearethylene cracker in Ras Laffan Industrial City, Qatar. The cracker will provide ethylene feedstock via pipeline to the plannedpolyethylene and normal alpha olefins plants.

The ethylene cracker and pipeline will be owned by Ras Laffan Olefins Company, a joint venture of Q-Chem II and QatofinCompany Limited (Qatofin). Q-Chem II will own 53.85% of the capacity rights to the ethylene cracker and pipeline, and the balancewill be held by Qatofin. Collectively, Q-Chem II�s interest in the ethylene cracker and pipeline, and the polyethylene and normalalpha olefins plants are referred to as �the Q-Chem II project.� Construction began in late 2005, with start-up anticipated in late2008. The project will be financed through limited recourse loans from commercial banks and an export credit agency (collectively,�senior debt�), and equity contributions and subordinated loans from the co-venturers. As it applies to CPChem, Q-Chem II is notconsidered to be a VIE under the provisions of FIN No. 46(R).

Financial closing of the Q-Chem II project occurred on November 16, 2005. Effective with the financial closing, the followingcommitments and guarantees were granted:

Under the terms of the financing agreements, funding available from the senior debt is limited to 70% of project costs, as defined, or$1.478 billion, whichever is lower. Principal and accrued interest outstanding under the commercial bank loans and the loan from theexport credit agency totaled $48 million at December 31, 2005. The co-venturers are obligated to each fund their pro rata ownershipshare of Q-Chem II�s share of project costs that are not funded by senior debt and operating cash flow through equity contributionsand non-interest-bearing subordinated loans, subject to stated maximum amounts for each co-venturer. After these amounts arereached, additional project costs, if any, related to Q-Chem II�s share of total project costs will be funded by an interest-bearingsubordinated loan from CPChem. These funding obligations terminate upon achieving project completion, as defined in the financingagreements.

Under the terms of a completion guarantee in the financing agreements, if project completion has not occurred by June 30, 2010, thesenior debt lenders will have the right to demand from each co-venturer, on a pro rata basis, funds to cover the quarterly senior debtservice requirements that are due after June 30, 2010, until project completion is achieved. If the project is not completed by June 30,2011, they will further have the right to demand from each co-venturer, on a pro rata basis, repayment of all outstanding principal andinterest on the senior debt. CPChem believes it is unlikely that performance under these guarantees will be required.

44

Each co-venturer has also agreed to provide loans to Q-Chem II, on a pro rata basis and for a period of three years after projectcompletion, if there is insufficient cash available to pay the targeted quarterly principal amounts due on the senior debt. These loans(a) are limited to the amount of lost operating margins directly resulting from any shortfalls in feedstock supplies, or the actual cashdeficiency, whichever is less, and (b) are capped at $50 million for the co-venturers, combined. CPChem believes that any fundingrequired under this support agreement is unlikely to have a material adverse effect on CPChem�s consolidated results of operations,financial position or liquidity.

CPChem is party to an agency agreement with Q-Chem II to act as an agent for the sale of substantially all of Q-Chem II�spolyethylene and all of its normal alpha olefins production. CPChem is also party to an offtake and credit risk agreement with Q-Chem II under which CPChem is required to purchase, at market prices, specified amounts of production if CPChem fails to sell thatproduct under the terms of the agency agreement. CPChem has no exposure to price risk for any volumes it may be obligated topurchase under the terms of the offtake agreement. CPChem also guarantees the customer payments to Q-Chem II for all salesarranged by CPChem under the agency agreement. The offtake and credit risk agreement expires the earlier of (a) 12 years aftercommencement of the commercial operation date, as defined, or (b) the cessation of Q-Chem II as a joint venture. CPChem expectsthat it will be able to sell all the production under the terms of the agency agreement, and further expects that reimbursements to Q-Chem II for customer payment defaults, if any, would be minimal.



The total carrying amount of liabilities recorded, discounted and weighted for probability, for the aforementioned guarantees relatedto Q-Chem II totaled $3 million at December 31, 2005. The liabilities are recorded as Other Liabilities and Deferred Credits, with anoffsetting increase to Investments in and Advances to Affiliates.

Saudi Chevron Phillips Company

Saudi Chevron Phillips Company (SCP) is a joint venture company that owns an aromatics complex in Al Jubail, Saudi Arabia. Thesubsidiary of Chevron Phillips Chemical Company LLC which directly owns the 50% interest in SCP, along with the other co-venturer, have each guaranteed their respective 50% share of certain loans to SCP from a Saudi Arabian governmental agency. Theseloans totaled $12 million (gross) at December 31, 2005 and $69 million at December 31, 2004. CPChem believes it is unlikely thatfunding under this guarantee will be required. Chevron Phillips Chemical Company LLC is not a party to this guarantee. As it appliesto CPChem, SCP is not considered to be a VIE under the provisions of FIN No. 46(R).

Under the terms of a sales and marketing agreement that runs through 2026, CPChem is obligated to purchase, at market prices,100% of production from the plant less any quantities sold by SCP in the Middle East. CPChem has no exposure to price risk forvolumes it may be obligated to purchase and believes that it will continue to be able to sell all the purchased production requiredunder the terms of the sales and marketing agreement.

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Jubail Chevron Phillips Company

Jubail Chevron Phillips Company (JCP), a joint venture company, was formed in 2003 to develop an integrated styrene facility in AlJubail, Saudi Arabia. The 1.6 billion-pound-per-year facility, to be built on a site adjacent to the existing aromatics complex ownedby SCP, will include feed fractionation, an olefins cracker, and ethylbenzene and styrene monomer processing units. Construction ofthe JCP facility will be in conjunction with an expansion of SCP�s benzene plant, together called �the JCP project.� Constructionbegan in the fourth quarter of 2004 and operational start-up is anticipated in late 2007. It is estimated that project completion, asdefined in the JCP project�s financing agreements, will be achieved in the first half of 2008. As it applies to CPChem, JCP is notconsidered to be a VIE under the provisions of FIN No. 46(R).

The $1.2 billion JCP project is being financed through equity contributions and subordinated loans from the co-venturers, inproportion to their equal ownership interests, and limited recourse loans from commercial banks and two Saudi Arabiangovernmental agencies (collectively, called �senior debt�). Principal and accrued interest outstanding under the commercial bankloans and the loan from the first governmental agency totaled $266 million at December 31, 2005 and $92 million at December 31,2004. No amounts were outstanding under the loan agreements with the second governmental agency.

Under the terms of the commercial bank facilities, funding available from the senior debt is limited to 75% of the estimated projectcost, as defined. The JCP co-venturers are obligated to each fund their respective 50% share of the remaining estimated project costthrough equity contributions and subordinated loans. In addition, the co-venturers are obligated to each fund their respective 50%share, through equity contributions or subordinated loans, of any project costs incurred in excess of the estimated project cost and ofany project costs not funded by senior debt. These funding obligations terminate upon achieving project completion.

Under the terms of completion guarantees, if project completion has not occurred by March 31, 2009, the commercial bank lendersand the first Saudi Arabian governmental agency will have the right to demand from each JCP co-venturer, on a pro rata basis, fundsto cover the debt service requirements associated with the JCP project that are due after March 31, 2009 until project completion isachieved. Furthermore, if the project is not completed by March 31, 2010, they will have the right to demand from each co-venturer,on a pro rata basis, repayment of all outstanding principal and interest.

The subsidiary of CPChem which directly owns the 50% interest in JCP, along with the other co-venturer, have each guaranteed theirrespective 50% share of certain loans payable by JCP to the second Saudi Arabian governmental agency for the duration of the loans.



In addition to the above guarantees, each co-venturer guaranteed their respective 50% share of payment to a contractor for certainconstruction costs of the project, limited to a maximum of $103 million each. The guarantee remains in effect until payment for thoseconstruction costs is made.

The total carrying amount of liabilities recorded, discounted and weighted for probability, for the aforementioned guarantees relatedto the JCP project totaled $11 million at December 31, 2005 and $4 million at December 31, 2004. The liabilities are recorded asOther Liabilities and Deferred Credits, with an offsetting increase to Investments in and Advances to Affiliates. CPChem believes itis unlikely that performance under any of the guarantees will be required. However, should such performance be required, CPChembelieves it would not have a material adverse effect on consolidated results of operations, financial position or liquidity.

46

Equity Investments� Financial Information

In accordance with the Securities and Exchange Commission�s rules pertaining to equity investments that are deemed to be�significant� in any of the periods presented, summarized financial information for CPChem�s equity investments, shown at 100%,follows:

Qatar Chemical

Company Ltd. (Q-Chem)

Saudi Chevron

Phillips Company

Years ended December 31, Years ended December 31,

Millions 2005 2004 2003 2005 2004 2003

Revenues $ 437 $ 324 $ 73 $ 618 $ 665 $ 392Income (loss) before income

taxes 182 129 (40) 218 304 115Net income (loss) 128 117 (40) 218 304 115

December 31, December 31,

2005 2004 2003 2005 2004 2003

Current assets $ 323 $ 265 $ 111 $ 373 $ 388 $ 197Noncurrent assets 848 880 940 489 460 475Current liabilities 143 110 104 125 137 87Noncurrent liabilities 772 889 974 43 135 294

All Others

in the Aggregate


Millions 2005 2004 2003

Revenues $ 1,130 $ 951 $ 682Income before income taxes 44 33 13Net income 39 28 10

December 31,

2005 2004 2003

Current assets $ 330 $ 295 $ 196Noncurrent assets 871 412 357Current liabilities 225 134 105Noncurrent liabilities 519 191 90

Note 6. Property, Plant and Equipment



Property, plant and equipment was as follows:

December 31,

Millions 2005 2004

Olefins & Polyolefins $ 5,113 $ 5,086Aromatics & Styrenics 2,019 2,060Specialty Products 587 589Other 178 168

Gross property, plant and equipment, at cost 7,897 7,903Accumulated depreciation 4,317 4,135

Net property, plant and equipment $ 3,580 $ 3,768

47

Approximately $6.4 billion of gross property, plant and equipment at December 31, 2005 consisted of chemical plant assetsdepreciated on estimated useful lives of approximately 25 years. Other non-plant items, such as furniture, fixtures, buildings andautomobiles, have estimated useful lives ranging from 5 to 45 years, with a weighted average of 27 years. Assets under constructiontotaled $115 million at December 31, 2005 and $136 million at December 31, 2004.

In October 2005, CPChem sold its Port Arthur, Texas cumene production unit, which was idled in 2003. CPChem will continue toprovide certain operational and maintenance services related to the cumene unit.

Note 7. Environmental Liabilities

CPChem is subject to federal, state and local environmental laws and regulations that may result in obligations to mitigate or removethe effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances atits sites. Discounted accrued environmental liabilities totaled $5 million at December 31, 2005 and $6 million at December 31, 2004.There were no material differences between accrued discounted environmental liabilities and the associated undiscounted amounts. Inaddition, there were no accrued environmental costs associated with discontinued or sold operations.

Note 8. Debt

Long-term debt, net of applicable debt discounts, was as follows:

December 31,

Millions 2005 2004

5 3/8% notes due 2007 $ 500 $ 5007% notes due 2011 500 500Commercial paper 182 385Other 7 9

Subtotal 1,189 1,394Unamortized debt discount (3) (4)

Total long-term debt $ 1,186 $ 1,390

In addition to the information presented, CPChem had secured borrowings outstanding totaling $100 million at December 31, 2005and $200 million at December 31, 2004 under a trade receivables securitization agreement. These borrowings are classified as short-term and were secured by $821 million and $665 million of trade receivables, respectively. The agreement allows CPChem to borrowup to $300 million for which CPChem grants a security interest in certain of its trade receivables as collateral for any amountsoutstanding. Borrowings under the agreement are reduced or security interests in new trade receivables are granted as the receivables



are collected by CPChem. The trade receivables securitization agreement expires in May 2006. CPChem intends to request anextension of the current agreement to May 2007. The interest rate of borrowings outstanding under the agreement was 4.33% atDecember 31, 2005 and 2.20% at December 31, 2004, and averaged 3.24% in 2005, 1.37% in 2004 and 1.21% in 2003.

In 2002 and 2001, respectively, Chevron Phillips Chemical Company LLC and its wholly owned subsidiary, Chevron PhillipsChemical Company LP, jointly and severally issued $500 million of senior unsecured 5 3/8% notes that mature in 2007, and $500million of senior unsecured 7% notes that mature in 2011. Both series of notes contain certain covenants, such as limitations on liens,sale/leaseback transactions, sales of assets and business combinations, which CPChem does not consider to be restrictive to normaloperations. Interest is payable semiannually on both series of notes.

48

Notes issued under CPChem�s commercial paper program are in the tier-2 commercial paper market with maturities of 90 days orless. These commercial paper borrowings are classified as Long-Term Debt since CPChem�s intent is to refinance or replace theobligations on a long-term basis and CPChem has a committed backup credit facility in effect. The weighted average interest rate ofcommercial paper borrowings outstanding was 4.38% at December 31, 2005 and 2.35% at December 31, 2004, and averaged 3.28%in 2005, 1.54% in 2004 and 1.23% in 2003.

In 2004, CPChem entered into an $800 million five-year credit facility with various banks that provides committed credit support forthe commercial paper program and concurrently terminated its existing credit facilities. The current agreement contains covenantsand events of default typical of bank revolving credit facilities, such as restrictions on liens. The agreement also contains a provisionrequiring the maintenance of ownership of CPChem by Chevron and ConocoPhillips of at least 50% in the aggregate. Provisionsunder this agreement are not considered to be restrictive to normal operations. There were no borrowings under any of the current orprior credit facilities during 2005, 2004 or 2003.

CPChem is not aware of any conditions that exist as of the date of this report that would cause any of its debt obligations to be in orat risk of default. In addition, a change in CPChem�s credit ratings would not result in the acceleration of any existing debt obligationmaturities.

Note 9. Members� Preferred Interests

On July 1, 2002, CPChem sold $250 million of members� preferred interests, purchased 50% each by Chevron and ConocoPhillips.Preferred distributions were cumulative at 9% per annum and were payable quarterly from cash earnings, as defined in CPChem�sSecond Amended and Restated Limited Liability Company Agreement. In 2004, CPChem voluntarily redeemed $175 million ofmembers� preferred interests and paid $55 million of distributions on members� preferred interests. In 2005, CPChem voluntarilyredeemed the remaining $75 million of members� preferred interests and paid $2 million of distributions. There were no redemptionsor preferred distributions paid in 2003.

Note 10. Guarantees, Commitments and Indemnifications

Guarantees

CPChem�s headquarters building is leased under a synthetic lease agreement, entered into in 2002 and subsequently extended inMarch 2005, which contains a fixed price purchase option and a residual guarantee. The purchase option price was considered to bethe fair market value of the building at the time of the extension of the lease. If CPChem does not extend the lease or exercise thepurchase option upon the current expiration of the lease in 2010, CPChem has an obligation to pay the lessor the shortfall, if any, inthe proceeds realized from the sale of the building to a third party relative to the purchase option price, not to exceed $27 million.CPChem is entitled to receive any proceeds from the sale of the building that are in excess of the purchase option price. While it isnot possible to predict with certainty the amount, if any, that CPChem would be required to pay or be entitled to receive should thebuilding be sold to a third party upon the expiration of the lease, CPChem believes that the amount paid or received would not bematerial to consolidated results of operations, financial position or liquidity.



See Note 5 for a discussion of certain guarantees related to Q-Chem, Q-Chem II, SCP and JCP.

Commitments

See Note 13 for a discussion of commitments under non-cancelable operating leases.

49

Indemnifications

As part of CPChem�s ongoing business operations and consistent with generally accepted and recognized industry practice, CPChementers into numerous agreements with other parties which apportion future risks between the parties to the transaction or relationshipgoverned by the agreements. One method of apportioning risk is the inclusion of provisions requiring one party to indemnify theother party against losses that might be incurred in the future. Many of CPChem�s agreements, including technology licenseagreements, contain indemnities that require CPChem to perform certain acts, such as defending certain licensees against patentinfringement claims of others, as a result of the occurrence of a triggering event or condition.

The nature of these indemnity obligations are diverse and numerous and each has different terms, business purposes, and triggeringevents or conditions. In addition, the indemnities in each agreement vary widely in their definitions of both the triggering event andthe resulting obligation, which is contingent upon that triggering event. Because many of CPChem�s indemnity obligations are notlimited in duration or potential monetary exposure, CPChem cannot reasonably calculate the maximum potential amount of futurepayments that could possibly be paid under the indemnity obligations stemming from all of CPChem�s existing agreements. In thecase of known contingent liabilities, however, CPChem records an undiscounted liability when a loss is probable and the amount canbe reasonably estimated.

CPChem is not aware of the occurrence of any triggering event or condition that would have a material adverse impact onconsolidated results of operations, financial position or liquidity as a result of an indemnity obligation arising from such triggeringevent or condition.

Note 11. Contingent Liabilities

In the case of known contingent liabilities, CPChem records an undiscounted liability when a loss is probable and the amount can bereasonably estimated. These liabilities are not reduced for potential insurance recoveries. If applicable, undiscounted receivables arerecorded for probable loss recoveries from insurance or other parties. As facts concerning contingent liabilities become known,CPChem reassesses its position with respect to accrued liabilities and other potential exposures. Estimates that are particularlysensitive to future change include legal matters and contingent liabilities for environmental remediation. Estimated futureenvironmental remediation costs are subject to change due to such factors as the unknown magnitude of cleanup costs, prospectivechanges in laws and regulations, the unknown timing and extent of remedial actions that may be required and the determination ofCPChem�s liability in proportion to those of other responsible parties. Estimated future costs related to legal matters are subject tochange as events occur and as additional information becomes available.

Other than those matters discussed below and based on currently available information, CPChem believes it is remote that futurecosts related to known contingent liabilities will exceed current accruals by an amount that would have a material adverse effect onconsolidated results of operations, financial position or liquidity.

Legal Matters

CPChem is a party to certain asbestos lawsuits for which the financial responsibility between CPChem and ConocoPhillips isdisputed. CPChem, ConocoPhillips and Chevron are attempting to resolve whether ConocoPhillips or CPChem has financial



responsibility for these lawsuits. In the meantime, ConocoPhillips is managing and defending these lawsuits. In the event thefinancial responsibility for these lawsuits is ultimately determined to rest with CPChem, CPChem may be required to record a chargeto operations that could be material to the period reported. However, CPChem believes that any such charge, if required, would nothave a material adverse effect on financial position or liquidity.

50

CPChem is a party to a number of other legal proceedings that arose in the ordinary course of business for which, in many instances,no provision has been made in the financial statements. While the final outcome of these proceedings cannot be predicted withcertainty, CPChem believes that none of these individual proceedings, when resolved, will have a material adverse effect onconsolidated results of operations, financial position or liquidity.

Electricity Deregulation

Legislation for electricity deregulation enacted in 1999 allowed utilities to file an application with the Public Utility Commission ofTexas (the �PUCT�) for the determination and reimbursement of certain costs associated with utility asset devaluation that may haveoccurred due to that legislation. CenterPoint Energy Houston Electric LLC (CenterPoint), which previously provided electricity toCPChem�s Cedar Bayou manufacturing facility and Kingwood research center, both located in Texas, filed its application for suchdetermination with the PUCT on March 31, 2004. Following the initial determination and appeals, CenterPoint was permitted torecover certain costs in the form of securitized transition charges and unsecuritized competitive transition charges. Theimplementation of these charges is expected to increase the monthly cost of electricity by approximately 3% to 4%. The actualincrease could change depending on the outcome of the ongoing legal proceedings challenging these charges.

Note 12. Credit Risk

Financial instruments that potentially subject CPChem to concentrations of credit risk consist primarily of cash equivalents and tradereceivables. Cash equivalents are currently comprised of bank accounts and short-term investments with several financial institutionsthat have high credit ratings. CPChem�s policy for short-term investments both diversifies and limits its exposure to credit risk.Trade receivables are dispersed among a broad customer base, both U.S. and foreign, which generally results in limitedconcentrations of credit risk. However, increased economic pressures on CPChem�s customers and the continuing overallconsolidation and reorganization of customers in the industry has resulted in more customers with significant financial leverage andhas increased overall credit risk and exposure. CPChem maintains and follows credit policies and procedures designed to controlsuch credit risk and exposure.

Note 13. Operating Leases

CPChem leases tank and hopper railcars, office buildings and certain other facilities and equipment. Total operating lease rentalexpense was $47 million in 2005, and $44 million in both 2004 and 2003. Aggregate future minimum lease payments under non-cancelable leases at December 31, 2005 totaled $31 million, $22 million, $18 million, $17 million and $43 million in the years 2006through 2010, respectively, and $64 million thereafter. Included in aggregate future minimum lease payments in 2010 is CPChem�smaximum exposure of $27 million under the contingent obligation associated with the lease agreement for CPChem�s headquartersbuilding.

Note 14. Benefit Plans

The majority of CPChem employees are former employees of Chevron Corporation or Phillips Petroleum Company (Phillips), nowConocoPhillips. Certain CPChem benefit plans provide that employees who were employed by CPChem on January 1, 2001 and who



were employed by Chevron Corporation or Phillips, or any of their affiliates, immediately prior to that date receive enhancedbenefits, including credit for service while employed by Chevron Corporation or Phillips.

51

Pension and Other Postretirement Health Care

CPChem�s retirement plan is a defined benefit plan that covers most U.S.-based employees. Eligible employees automaticallyparticipate in the plan and begin accruing benefits from January 1, 2001 or their first day of employment if employed after that date.Eligible employees become fully vested in their retirement benefits after five years of service with CPChem, including prior servicewith Chevron Corporation or Phillips or their affiliates, if applicable. Retirement benefits are based on two types of credits: a careeraverage pay benefit and a variable annuity account benefit. Both benefits are based on an employee�s compensation over the yearsand the number of years that an employee is qualified to receive benefit credits.

CPChem also offers health care benefits to eligible employees, mostly U.S.-based, upon their retirement. A retiree flexible spendingaccount is established by CPChem for eligible retirees at the time of retirement based on years of service and marital status times afixed dollar amount. Retirees may use funds in their account to purchase medical and/or dental coverage from CPChem or fromprivate health care plans, or to pay eligible out-of-pocket health care expenses. Retirees� flexible spending accounts earn interestupon inception at market-based rates. Any changes in future health care cost rates for retirees would not impact future CPChemearnings as health care benefits for retirees are solely based on years of service and marital status.

A January 1 measurement date is used in the determination of pension and other postretirement net periodic benefit costs. ADecember 31 measurement date is used in the determination of pension and other postretirement benefit obligations and plan assets.

Included in the pension plan tables presented is an unfunded supplemental retirement plan covering key executives. The primarypurpose of the plan is to provide compensating benefits to those employees affected by federally mandated limits on eligiblecompensation levels contained in CPChem�s normal retirement plan or as a result of certain incentive bonus amounts or deferrals notbeing recognized as compensation under the retirement plan. The benefit obligation associated with this plan was $20 million at bothDecember 31, 2005 and December 31, 2004. Also included are separate pension plans for employees at CPChem�s Puerto Rico andBelgium facilities, and employees of certain bargaining units within the Performance Pipe division of CPChem.

Net periodic benefit costs for pension and other postretirement benefits included the following:

Pension Benefits Other Benefits

Millions 2005 2004 2003 2005 2004 2003

Service cost benefits earned during the year $ 23 $ 22 $ 21 $ 2 $ 2 $ 3Interest cost on projected benefit obligations 20 18 17 5 3 5Expected return on plan assets (17) (12) (9) (2) (1) �

Amortization of prior service costs 11 12 12 3 3 3Net actuarial loss 1 1 1 1 � 1

Net periodic benefit cost $ 38 $ 41 $ 42 $ 9 $ 7 $ 12

52

The pension and other postretirement benefit plans� funded status and related amounts follow:

Pension Benefits Other Benefits




Millions 2005 2004 2005 2004

Change in Benefit ObligationBenefit obligation at beginning of year $ 358 $ 321 $ 92 $ 75Service cost 23 22 2 2Interest cost 20 18 5 3Actuarial loss (gain) (11) 1 4 15Foreign currency exchange loss (gain) (3) 2 � �

Plan amendment 2 � (5) (1)Benefits paid (12) (6) (2) (2)Benefit obligation at end of year 377 358 96 92

Change in Plan AssetsFair value of plan assets at beginning of year 219 151 26 12Actual return on plan assets 22 17 2 2Employer contributions 57 56 7 14Foreign currency exchange gain (loss) (3) 1 � �

Benefits paid (12) (6) (2) (2)Fair value of plan assets at end of year 283 219 33 26

Funded Status of PlanExcess obligation (94) (139) (63) (66)Unrecognized net actuarial loss 24 37 29 26Unrecognized transition obligation � 1 � �

Unrecognized prior service cost 94 105 22 31Total recognized $ 24 $ 4 $ (12) $ (9)

Components of Total RecognizedPrepaid asset $ 35 $ 12 $ � $ �

Intangible asset 5 5 � �

Accrued liability (19) (16) (12) (9)Accumulated comprehensive loss 3 3 � �

Total recognized $ 24 $ 4 $ (12) $ (9)

CPChem expects to fund approximately $40 million to its pension plans and $7 million to its other postretirement benefits plans in2006.

The weighted average amortization period for the unrecognized prior service costs at December 31, 2005 was approximately eightyears for the retirement plans and approximately nine years for other postretirement benefits plans. Unrecognized net actuarial lossesat December 31, 2005 related to CPChem�s retirement and other postretirement benefits plans are being amortized on a straight-linebasis over approximately 12 years, which represents the average remaining service period of employees expected to receive benefitsunder the plans.

53

The accumulated benefit obligation for all pension plans was $260 million at December 31, 2005 and $222 million at December 31,2004. Certain information for pension plans with accumulated benefit obligations in excess of plan assets at December 31, 2005follows:

December 31,



Millions 2005 2004

Projected benefit obligation $ 43 $ 42Accumulated benefit obligation 36 33Fair value of plan assets 17 18

CPChem�s investment strategy with respect to pension plan assets is to maintain a diversified portfolio of domestic and internationalequities, fixed income securities and cash equivalents. Target asset allocations are chosen based on an analysis of the historicalreturns and volatilities of various asset classes. The plan investments are periodically rebalanced to maintain the target assetallocation. Rates of return for the investment funds comprising each asset class are monitored quarterly against benchmarks and peerfund results.

Asset allocations for CPChem�s pension plans, along with target allocations for 2006, follow:

Target

Allocation

Plan Assets

at December 31,

Category 2006 2005 2004

Equity 67% 52% 43%Debt 32 36 34Real estate � 9 8Other 1 3 15

Total 100% 100% 100%

Weighted average rate assumptions used in determining estimated benefit obligations were as follows:


2005 2004

Pension

Benefits

Other

Benefits

Pension

Benefits

Other

Benefits

Discount rate 5.5% 5.5% 5.8% 5.8%Expected return on plan assets 7.5 � 8.0 �

Rate of increase in compensation levels 3.7 � 4.0 �

Weighted average rate assumptions used in determining periodic benefit costs for pension and other postretirement benefits follow:

2005 2004 2003

Pension

Benefits

Other

Benefits

Pension

Benefits

Other

Benefits

Pension

Benefits

Other

Benefits

Discount rate 5.8% 5.8% 6.0% 6.0% 6.5% 6.5%Expected return on plan assets 8.0 � 8.0 � 8.0 �

Rate of increase in compensation levels 4.0 � 4.0 � 4.0 �

54

The expected return on plan assets were developed through, among other things, analysis of historical market returns for the plans�investment classes and current market conditions.

The determination of CPChem�s projected benefit obligations for its pension plans affects the amounts of related expense recorded inthe current period and also impacts the level and timing of contributions into the plans. Due to the specialized nature of thesecalculations, CPChem utilizes outside actuarial firms to assist in the calculation of these obligations. An actuarial determination of



projected benefit obligations and company contribution requirements involves significant estimates regarding future unknown events,which include estimated future rates of return on pension plan assets, discount rates applied to pension plan obligations, estimatedemployee retirement dates and salary levels at retirement, and mortality rates. Estimates of these future unknown events arejudgmentally determined based on factors such as, among other things, historical returns on pension plan assets and outside actuarialadvice. However, a 1% decrease in the estimated future returns on pension plan assets or a 1% decrease in the discount rates appliedto pension plan obligations would not have a material adverse effect on consolidated results of operations, financial position orliquidity.

It is anticipated that benefit payments, which reflect expected future service, will be paid as follows:

Millions

Pension

Benefits

Other

Benefits

2006 $ 14 $ 32007 18 32008 21 42009 25 42010 31 52011-2015 252 35

Contribution Plans

Defined contribution plans are available for most employees, whereby CPChem matches a percentage of the employee�scontribution. CPChem�s contributions to the plans are expensed and funded on a current basis, and totaled $27 million in 2005, $17million in 2004 and $13 million in 2003.

Share-Based Compensation

CPChem does not currently utilize any share-based employee compensation plans.

Note 15. Taxes

CPChem is treated as a flow-through entity for federal income tax and for most state income tax purposes whereby each member istaxable on its respective share of income and loss. However, CPChem is directly liable for federal and state income taxes andfranchise taxes on certain separate legal entities and for any foreign taxes incurred.

CPChem has a U.S. subsidiary operating in Puerto Rico that is subject to U.S. federal income tax, but has been granted an exemptionfrom certain Puerto Rico taxes, including income taxes. All Puerto Rico tax exemptions related to this subsidiary expire in 2017.Limited tax incentives, in the form of reduced income tax rates, also exist in South Korea, China, Singapore, Saudi Arabia and Qatar.CPChem is subject to state income tax in certain jurisdictions.

55

CPChem is required to make quarterly distributions to its members in amounts representing the liability for combined federal andstate income taxes calculated at specified rates based on CPChem�s estimate of federal taxable income. Tax distributions paid tomembers totaled $263 million in 2005 and $118 million in 2004. Accrued tax distributions totaled $122 million at December 31,2005 and $39 million at December 31, 2004.

The components of income (loss) before taxes follow:




Millions 2005 2004 2003

Domestic $ 600 $ 301 $ (98)Foreign 273 340 110Total income before taxes $ 873 $ 641 $ 12

The components of income tax expense follow:


Millions 2005 2004 2003

State � current $ 1 $ � $ �

Foreign � current 19 15 5Total income tax expense $ 20 $ 15 $ 5

Deferred income tax assets and liabilities follow:

December 31,

Millions 2005 2004

Deferred income tax assets � federal $ 193 $ 191Valuation allowance (193) (191)Total � �

Deferred income tax liabilities � foreign (1) (1)Net deferred income tax liability $ (1) $ (1)

At December 31, 2005 and 2004, the deferred tax assets of CPChem�s Puerto Rico subsidiary were fully offset by valuationallowances. A valuation allowance was established to reduce the deferred tax assets of the subsidiary�s net operating losscarryforwards and tax depreciation differences to amounts that would more likely than not be realized. Uncertainties that may affectthe realization of these assets include tax law changes and the future profitability of operations.

Net deferred income tax assets and liabilities related to the following:

December 31,

Millions 2005 2004

Deferred income tax assetsLoss carryforward (expires 2011- 2025) $ 176 $ 171Depreciation and amortization 13 15Other 4 5

Gross deferred income tax assets 193 191Valuation allowance (193) (191)

Deferred income tax assets � �

Deferred tax liabilities � foreign (1) (1)Net deferred income tax liability $ (1) $ (1)

56

Note 16. Segment and Geographic Information

CPChem�s reporting structure is based on the grouping of similar products, resulting in three primary operating segments � Olefins& Polyolefins (O&P), Aromatics & Styrenics (A&S), and Specialty Products.



Olefins & Polyolefins � This segment produces and markets ethylene, propylene, and other olefin products which are primarilyconsumed internally for the production of polyethylene, normal alpha olefins, polypropylene and polyethylene pipe. CPChem hasfive olefin and/or polyolefin production facilities located in Texas, eight domestic pipe production facilities and one domestic pipefittings production facility. CPChem also has one pipe production facility in Mexico. In addition, CPChem owns interests in apolypropylene facility located at the Pasadena Plastics Complex in Texas, a high-density polyethylene plant located at CPChem�sCedar Bayou facility in Texas, an ethylene, polyethylene and 1-hexene facility in Qatar, and polyethylene facilities in Singapore andChina.

Aromatics & Styrenics � This segment manufactures and markets aromatics products such as benzene, styrene, paraxylene andcyclohexane. This segment also manufactures and markets polystyrene as well as styrene-butadiene copolymers sold under thetrademark K-Resin®. Production facilities are located in Mississippi, Louisiana, Texas, Ohio, Puerto Rico and China. CPChem alsoowns an equity interest in an aromatics facility in Saudi Arabia and in a K-Resin® SBC facility in South Korea.

Specialty Products � This segment manufactures and markets a variety of specialty chemical products, including organosulfurchemicals and high-performance polyphenylene sulfide polymers and compounds sold under the trademark Ryton®. Productionfacilities are located in Texas, Belgium and Singapore.

�Corporate and Other� (Other) includes items not directly attributable to CPChem�s operating segments. Interest expense, certaincharges for employee incentive plans and charges related to domestic workforce reductions are generally retained within Other.

Financial information follows. Inter-segment transactions are billed at prevailing market rates.

Millions O&P A&S

Specialty

Products

Other and

Eliminations Consolidated

Year ended December 31, 2005Net sales � external $ 7,027 $ 3,146 $ 534 $ � $ 10,707Net sales � inter-segment 330 2 3 (335) �

Equity in income of affiliates 78 107 � � 185Other income 104 41 1 � 146(a)

Total revenue 7,539 3,296 538 (335) 11,038Operating and selling costs 6,533 3,118 467 (297) 9,821(b)Depreciation and amortization 175 79 28 1 283(c)Income (loss) before interest & taxes 831 99 43 (39) 934Interest income (expense), net 14 1 � (76) (61)Income taxes (4) (7) (7) (2) (20)Net income (loss) 841 93 36 (117) 853Distributions on members� preferred

interests � � � (2) (2)Income (loss) attributed to members�

interests $ 841 $ 93 $ 36 $ (119) $ 851

57

Millions O&P A&S

Specialty

Products

Other and

Eliminations Consolidated


Equity in income of affiliates 73 145 � � 218Other income 76 33 2 � 111

Total revenue 5,945 3,366 481 (298) 9,494



Operating and selling costs 5,343 3,032 400 (269) 8,506Depreciation and amortization 174 83 23 1 281Income (loss) before interest & taxes 428 251 58 (30) 707Interest income (expense), net 7 1 � (74) (66)Income taxes (5) (3) (7) � (15)Net income (loss) 430 249 51 (104) 626Distributions on members� preferred


interests $ 430 $ 249 $ 51 $ (125) $ 605


Equity in income (loss) of affiliates (14) 55 � � 41Other income 53 17 5 � 75(d)

Total revenue 4,321 2,653 397 (417) 6,954Operating and selling costs 4,098 2,533 342 (393) 6,580(e)Depreciation and amortization 182 93 21 2 298(f)Income (loss) before interest & taxes 41 27 34 (26) 76Interest income (expense), net 6 1 � (71) (64)Income taxes � � (5) � (5)Net income (loss) 47 28 29 (97) 7Distributions on members� preferred


interests $ 47 $ 28 $ 29 $ (120) $ (16)

The following charges or benefits were related to items such as asset retirements and plant closures, legal and other settlements,employee severance costs and other items of that nature.

(a) Includes a $13 million benefit in A&S from a legal settlement.(b) Includes $7 million of net benefits, primarily related to the recognition of inventory: $5 million in A&S and $2 million in

O&P.(c) Includes a $4 million charge in Specialty Products related to the adjustment of the economic life of certain leasehold

improvements.(d) Includes a $10 million benefit related to a sales and use tax audit: $7 million in O&P and $3 million in Specialty Products.(e) Includes $27 million of charges, mostly related to legal settlements and accruals, and employee severance costs: $16 million

in O&P, $10 million in Other and $1 million in Specialty Products.(f) Includes $19 million in asset retirements and plant closures: $10 million in A&S and $9 million in O&P.

58

Millions O&P A&S

Specialty

Products Other Consolidated

Investments in and advances to affiliatesDecember 31, 2005 $ 591 $ 466 $ � $ � $ 1,057December 31, 2004 520 373 � � 893

Total assetsDecember 31, 2005 4,333 1,997 504 126 6,960



December 31, 2004 4,108 2,125 508 131 6,872

Capital and investment expenditures*Year ended December 31, 2005 121 27 20 9 177Year ended December 31, 2004 138 34 12 7 191Year ended December 31, 2003 127 53 17 6 203

* Excludes investments in and advances to Q-Chem (O&P) of $28 million in 2004 and $103 million in 2003, and investments in andadvances towards the JCP project (A&S) of $35 million in 2005, $10 million in 2004 and $20 million in 2003.

Geographic information was as follows. Net sales were determined based on location of the operation generating the sale.

Millions

United

States

Foreign

Countries Total

Net sales - externalYear ended December 31, 2005 $ 9,135 $ 1,572 $ 10,707Year ended December 31, 2004 7,681 1,484 9,165Year ended December 31, 2003 5,752 1,086 6,838

Investments in and advances to affiliatesDecember 31, 2005 62 995 1,057December 31, 2004 52 841 893

Property, plant and equipment, netDecember 31, 2005 3,446 134 3,580December 31, 2004 3,586 182 3,768

Foreign currency transaction losses were $5 million in 2005 and foreign currency transaction gains were $5 million in each of 2004and 2003.

Note 17. Fair Values of Financial Instruments

The carrying amounts of cash and cash equivalents, trade and affiliated receivables, and trade and affiliated payables approximate fairvalues. The carrying amount of secured borrowings outstanding also approximates fair value due to the short-term nature of theborrowings. The carrying amount of commercial paper outstanding also approximates fair value due to the variable interest ratefeature. The carrying amount of other long-term debt outstanding was $1.004 billion at December 31, 2005 and $1.005 billion atDecember 31, 2004, with fair values of $1.050 billion and $1.094 billion, respectively, based on quoted market prices.

59

Note 18. Consolidating Financial Statements

Consolidating financial statements follow. This information is presented in accordance with the Securities and ExchangeCommission�s rules and regulations as they relate to the debt jointly and severally issued by Chevron Phillips Chemical CompanyLLC and Chevron Phillips Chemical Company LP.

The LLC is the non-operating parent holding company. The LP is the primary U.S. operating company. �Other Entities� isprincipally comprised of foreign operations and the holding companies that have direct ownership of the LP. These consolidatingfinancial statements were prepared using the equity method of accounting for investments.



Chevron Phillips Chemical Company LLCConsolidating Statement of OperationsFor the Year ended December 31, 2005

Millions LLC LP

Other

Entities Eliminations Total

RevenueNet sales $ � $ 9,606 $ 1,746 $ (645) $ 10,707Equity in income of affiliates 925 � 807 (1,547) 185Other income � 105 126 (85) 146Total revenue 925 9,711 2,679 (2,277) 11,038

Costs and ExpensesCost of goods sold � 8,580 1,634 (613) 9,601Selling, general and administrative 1 472 106 (117) 462Research and development � 41 � � 41Total costs and expenses 1 9,093 1,740 (730) 10,104

Income Before Interest & Taxes 924 618 939 (1,547) 934

Interest income � 19 17 (19) 17Interest expense (71) (1) (25) 19 (78)

Income Before Taxes 853 636 931 (1,547) 873

Income taxes � (3) (17) � (20)

Net Income 853 633 914 (1,547) 853

Distributions on members� preferredinterests (2) � � � (2)

Income Attributed to Members� Interests $ 851 $ 633 $ 914 $ (1,547) $ 851

60

Note 18. Consolidating Financial Statements (continued)


Millions LLC LP

Other


RevenueNet sales $ � $ 8,071 $ 1,688 $ (594) $ 9,165Equity in income of affiliates 716 4 591 (1,093) 218Other income � 85 92 (66) 111Total revenue 716 8,160 2,371 (1,753) 9,494



Costs and ExpensesCost of goods sold � 7,341 1,538 (555) 8,324Selling, general and administrative � 429 97 (105) 421Research and development � 42 � � 42Total costs and expenses � 7,812 1,635 (660) 8,787

Income Before Interest & Taxes 716 348 736 (1,093) 707


Income Before Taxes 626 373 735 (1,093) 641

Income taxes � (2) (13) � (15)

Net Income 626 371 722 (1,093) 626


Income Attributed to Members� Interests $ 605 $ 371 $ 722 $ (1,093) $ 605

61



Millions LLC LP

Other


RevenueNet sales $ � $ 6,034 $ 1,247 $ (443) $ 6,838Equity in income of affiliates 86 7 17 (69) 41Other income � 80 80 (85) 75Total revenue 86 6,121 1,344 (597) 6,954

Costs and ExpensesCost of goods sold � 5,641 1,157 (408) 6,390Selling, general and administrative � 457 96 (120) 433Research and development � 55 � � 55Total costs and expenses � 6,153 1,253 (528) 6,878

Income (Loss) Before Interest & Taxes 86 (32) 91 (69) 76




Income (Loss) Before Taxes 7 (19) 93 (69) 12

Income taxes � � (5) � (5)

Net Income (Loss) 7 (19) 88 (69) 7


Income (Loss) Attributed to Members�Interests $ (16) $ (19) $ 88 $ (69) $ (16)

62


Chevron Phillips Chemical Company LLCConsolidating Balance Sheet

December 31, 2005

Millions LLC LP

Other


Current assetsCash and cash equivalents $ � $ 19 $ 21 $ � $ 40Accounts receivable, net 58 1,104 1,000 (769) 1,393Inventories � 613 163 � 776Other current assets 1 57 8 � 66

Total current assets 59 1,793 1,192 (769) 2,275

Property, plant and equipment, net � 3,322 258 � 3,580Investments in and advances to affiliates 5,485 69 5,028 (9,525) 1,057Other assets and deferred charges 19 37 20 (28) 48

Total Assets $ 5,563 $ 5,221 $ 6,498 $ (10,322) $ 6,960

Current liabilitiesAccounts payable $ 63 $ 913 $ 810 $ (769) $ 1,017Secured borrowings and other debt � 1 104 � 105Other current liabilities and deferred

credits 314 198 23 � 535Total current liabilities 377 1,112 937 (769) 1,657

Long-term debt 1,179 7 � � 1,186Other liabilities and deferred credits 7 70 38 (28) 87

Total liabilities 1,563 1,189 975 (797) 2,930

Members� capital 4,000 4,033 5,492 (9,525) 4,000



Accumulated other comprehensiveincome (loss) � (1) 31 � 30

Total Liabilities and Members� Equity $ 5,563 $ 5,221 $ 6,498 $ (10,322) $ 6,960

63


Chevron Phillips Chemical Company LLCConsolidating Balance Sheet

December 31, 2004

Millions LLC LP

Other


Current assetsCash and cash equivalents $ � $ 15 $ 48 $ � $ 63Accounts receivable, net 16 986 1,013 (749) 1,266Inventories � 601 183 � 784Other current assets 2 34 7 � 43

Total current assets 18 1,636 1,251 (749) 2,156

Property, plant and equipment, net � 3,453 315 � 3,768Investments in and advances to affiliates 5,537 32 5,009 (9,685) 893Other assets and deferred charges 20 32 31 (28) 55

Total Assets $ 5,575 $ 5,153 $ 6,606 $ (10,462) $ 6,872

Current liabilitiesAccounts payable $ 141 $ 710 $ 782 $ (749) $ 884Secured borrowings and other debt � 1 200 � 201Other current liabilities and deferred

credits 50 181 25 � 256Total current liabilities 191 892 1,007 (749) 1,341

Long-term debt 1,381 9 � � 1,390Other liabilities and deferred credits 3 85 31 (28) 91

Total liabilities 1,575 986 1,038 (777) 2,822

Members� preferred interests 75 � � � 75Members� capital 3,925 4,168 5,517 (9,685) 3,925Accumulated other comprehensive

income (loss) � (1) 51 � 50

Total Liabilities and Members� Equity $ 5,575 $ 5,153 $ 6,606 $ (10,462) $ 6,872

64




Chevron Phillips Chemical Company LLCConsolidating Statement of Cash FlowsFor the Year ended December 31, 2005

Millions LLC LP

Other


Cash Flows From Operating ActivitiesNet income $ 853 $ 633 $ 914 $ (1,547) $ 853Adjustments to reconcile net income to

net cash flows provided by operatingactivities

Depreciation, amortization andretirements � 262 21 � 283

Undistributed equity in income ofaffiliates, net (112) � (8) 5 (115)

Changes in operating workingcapital (115) 133 (24) � (6)

Other operating cash flow activity 2 (18) 32 � 16Net cash flows provided by

operating activities 628 1,010 935 (1,542) 1,031

Cash Flows From Investing ActivitiesCapital and investment expenditures � (158) (19) � (177)Investments in and advances towards

JCP project � � (35) � (35)Advance repayments from Q-Chem � � 25 � 25Advance repayments from SCP � � 9 � 9Proceeds from the sale of assets � 13 2 � 15Decrease (increase) in other investments 165 (38) 93 (220) �

Net cash flows provided by(used in) investing activities 165 (183) 75 (220) (163)

Cash Flows From Financing ActivitiesDecrease in commercial paper, net (203) � � � (203)Decrease in secured borrowings, net � � (100) � (100)Increase (decrease) in other debt, net � (1) 3 � 2Redemptions of members� preferred

interests (75) � � � (75)Distributions on members� preferred

interests (2) � � � (2)Other distributions to parents/members,

net (513) (822) (940) 1,762 (513)Net cash flows used in financing

activities (793) (823) (1,037) 1,762 (891)

Net Increase (Decrease) in Cash and CashEquivalents � 4 (27) � (23)



Cash and Cash Equivalents at Beginningof Year � 15 48 � 63

Cash and Cash Equivalents at End of Year $ � $ 19 $ 21 $ � $ 40

65



Millions LLC LP

Other


Cash Flows From Operating ActivitiesNet income $ 626 $ 371 $ 722 $ (1,093) $ 626Adjustments to reconcile net income to net cash

flows provided by (used in) operating activitiesDepreciation, amortization and retirements � 259 22 � 281Undistributed equity in income of affiliates,

net (668) (4) (112) 587 (197)Changes in operating working capital 279 (468) (46) � (235)Other operating cash flow activity (1,106) 1,099 (9) � (16)

Net cash flows provided by (used in)operating activities (869) 1,257 577 (506) 459

Cash Flows From Investing ActivitiesCapital and investment expenditures � (163) (28) � (191)Investments in and advances to Q-Chem � � (28) � (28)Investments in and advances towards JCP Project � � (10) � (10)Advance repayment from SCP � � 32 � 32Proceeds from the sale of assets � 6 12 � 18Decrease in other investments 1,016 � 637 (1,653) �

Net cash flows provided by (used in)investing activities 1,016 (157) 615 (1,653) (179)

Cash Flows From Financing ActivitiesIncrease in commercial paper, net 201 � � � 201Decrease in secured borrowings, net � � (100) � (100)Decrease in other debt, net � (1) (12) � (13)Redemptions of members� preferred interests (175) � � � (175)Distributions on members� preferred interests (55) � � � (55)Other distributions to parents/members, net (118) (1,096) (1,063) 2,159 (118)

Net cash flows used in financing activities (147) (1,097) (1,175) 2,159 (260)

Net Increase in Cash and Cash Equivalents � 3 17 � 20Cash and Cash Equivalents at Beginning of Year � 12 31 � 43




66



Millions LLC LP

Other


Cash Flows From Operating ActivitiesNet income (loss) $ 7 $ (19) $ 88 $ (69) $ 7Adjustments to reconcile net income (loss) to net

cash flows provided by operating activitiesDepreciation, amortization and retirements � 281 17 � 298Undistributed equity in income of affiliates,

net (79) (7) (4) 62 (28)Changes in operating working capital 10 64 (88) � (14)Other operating cash flow activity 165 (147) (1) � 17

Net cash flows provided by operatingactivities 103 172 12 (7) 280

Cash Flows From Investing ActivitiesCapital and investment expenditures � (169) (34) � (203)Investments in and advances to Q-Chem � � (103) � (103)Investments in and advances towards JCP Project � � (20) � (20)Proceeds from the sale of assets � 1 � � 1Increase in other investments (134) � � 134 �

Net cash flows used in investing activities (134) (168) (157) 134 (325)

Cash Flows From Financing ActivitiesDecrease in commercial paper, net (1) � � � (1)Increase in secured borrowings, net � � 10 � 10Increase (decrease) in other debt, net � (1) 9 � 8Contributions from parents/members, net 32 � 127 (127) 32

Net cash flows provided by (used in)financing activities 31 (1) 146 (127) 49

Net Increase in Cash and Cash Equivalents � 3 1 � 4Cash and Cash Equivalents at Beginning of Year � 9 30 � 39


67

Chevron Phillips Chemical Company LLC



Selected Quarterly Financial DataFor the Years ended December 31, 2005 and 2004

(Unaudited)

Net Sales Income

Millions

As Previously

Reported Adjustment As Revised

Before Interest

and Taxes

Net Income

(Loss)

2005First quarter $ 2,658 $ (18) $ 2,640 $ 409 $ 389Second quarter 2,503 (19) 2,484 195 173Third quarter 2,624 (20) 2,604 17 (1)Fourth quarter 2,979 313 292

Total $ 10,707 $ 934 $ 853

2004First quarter $ 1,993 $ (17) $ 1,976 $ 127 $ 108Second quarter 2,091 (18) 2,073 117 97Third quarter 2,534 (18) 2,516 227 205Fourth quarter 2,620 (20) 2,600 236 216

Total $ 9,238 $ (73) $ 9,165 $ 707 $ 626

Net Sales in 2005 and 2004 were revised to reflect CPChem billings to a non-consolidated equity company for non-core services, provided atcost, as reductions of expense.

Income before interest and taxes in 2005 included a second quarter net benefit totaling $20 million related to a legal settlement and anadjustment to inventory.

See �Part I � Item 7. Management�s Discussion and Analysis of Financial Condition and Results of Operations� and �Part II � Item 8.Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements� for further discussions.

68

ERNST & YOUNG P.O. Box 3795 Phone: 88254144th Floor Fax: 8827224

DR. ABDULLAH A. BAESHEN - COUNTRY CO-ORDINATING PARTNER Fluor Building www.ey.com/meAlkhobar 31952 Registration No. 45Saudi Arabia

AUDITORS�� REPORT TO THE PARTNERS OFSAUDI CHEVRON PHILLIPS COMPANY LIMITED

We have audited the accompanying balance sheet of Saudi Chevron Phillips Company Limited, expressed in United States Dollars, as of 31December 2005, 31 December 2004 and 31 December 2003 and the related statements of income, cash flows and changes in partners� equityfor the years then ended. These financial statements are the responsibility of the company�s management. Our responsibility is to express anopinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in the Kingdom of Saudi Arabia, which are substantially thesame as those followed in the United States of America. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence



supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Saudi ChevronPhillips Company Limited as of 31 December 2005, 31 December 2004, 31 December 2003 and the results of its operations and its cash flowsfor the years then ended in conformity with accounting standards generally accepted in the Kingdom of Saudi Arabia.

Accounting principles generally accepted in the Kingdom of Saudi Arabia vary in certain significant respects from accounting principlesgenerally accepted in United States of America. The significant differences between the accounting principles generally accepted in theKingdom of Saudi Arabia and those generally accepted in the United States of America so far as concerns the financial statements referred toare summarised in note 18 to the accompanying financial statements.

for Ernst & Young

[stamp affixed]

Abdulaziz Saud AlshubaibiCertified Public AccountantRegistration No. 339

8 February 2006

Alkhobar

Dr. Abdullah A. Baeshen (66) Abdulaziz A. Alsowailim (277)Abdulaziz Alshubaibi (339)

Offices in the Kingdom : Alkhobar, Jeddah, Riyadh

69

Saudi Chevron Phillips Company LimitedBALANCE SHEETAs of 31 December 2005

Note 2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

ASSETS EMPLOYED

PROPERTY, PLANT AND EQUIPMENT 3 485,920 456,374 469,625

DEFERRED CHARGES 4 12,193 15,499 18,804

CURRENT ASSETSInventories 5 78,422 63,764 60,185Accounts receivable and prepayments 6 71,889 103,839 57,955Bank balances and cash 7 222,237 220,492 78,833

372,548 388,095 196,973



CURRENT LIABILITIESAccounts payable and accruals 9 85,297 83,377 46,013Current portion of term loans 13 31,490 53,894 40,693Current portion of subordinated partners� loans 14 8,000 � �

124,787 137,271 86,706

NET CURRENT ASSETS 247,761 250,824 110,267

745,874 722,697 598,696

FUNDS EMPLOYED

PARTNERS�� EQUITYCapital 11 174,667 174,667 162,667Statutory reserve 12 69,407 47,838 17,731Retained earnings 459,140 365,635 124,700

703,214 588,140 305,098

NON CURRENT LIABILITIESTerm loans 13 40,000 106,156 201,905Subordinated partners� loans 14 �� 25,733 89,834Employees� terminal benefits 2,660 2,668 1,859

42,660 134,557 293,598

745,874 722,697 598,696

The attached notes 1 to 18 form part of these financial statements.

70

Saudi Chevron Phillips Company LimitedINCOME STATEMENTYear Ended 31 December 2005

Note 2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

Sales 617,849 664,559 392,131Cost of sales (398,447) (351,128) (269,333)

GROSS PROFIT 219,402 313,431 122,798

EXPENSESSelling and distribution 15 (3,392) (4,456) (1,880)Amortization of deferred charges 4 (3,306) (3,305) (3,306)



INCOME FROM MAIN OPERATIONS 212,704 305,670 117,612

Income from bank deposits 5,937 1,535 335Loss on sale of equipment �� (435)Financial charges 16 (2,948) (6,136) (5,397)

NET INCOME FOR THE YEAR 215,693 301,069 112,115


71

Saudi Chevron Phillips Company LimitedSTATEMENT OF CASH FLOWSYear Ended 31 December 2005

2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

OPERATING ACTIVITIESNet income for the year 215,693 301,069 112,115Adjustments for:

Depreciation 30,320 29,809 29,797Amortization 3,306 3,305 3,306Employees� terminal benefits (net) (8) 809 668Income from bank deposits (5,937) (1,535) (335)Financial charges 2,948 6,136 5,397Loss on sale of equipment �� 435

246,322 339,593 151,383Changes in operating assets and liabilities:

Inventories (14,658) (3,579) (9,232)Receivables 31,950 (45,884) (23,555)Payables 1,920 37,364 3,016

Cash from operations 265,534 327,494 121,612

Financial charges paid (2,948) (6,136) (5,729)

Net cash from operating activities 262,586 321,358 115,883

INVESTING ACTIVITIESPurchase of property, plant and equipment (59,866) (16,558) (1,871)Proceeds from sale of equipment �� 35Income from bank deposits 5,937 1,535 335

Net cash used in investing activities (53,929) (15,023) (1,501)

FINANCING ACTIVITIESIssue of share capital � 12,000 �

Proceeds from term loans 40,000 � �



Repayment of term loans (128,560) (82,548) (46,371)Repayment of subordinated partners� loans (17,733) (64,101) �

Dividends paid (100,619) (30,027) (19,894)

Net cash used in financing activities (206,912) (164,676) (66,265)

INCREASE IN BANK BALANCES AND CASH 1,745 141,659 48,117

Bank balances and cash at the beginning of the year 220,492 78,833 30,716

BANK BALANCES AND CASH AT THE END OF THE YEAR 222,237 220,492 78,833


72

Saudi Chevron Phillips Company LimitedSTATEMENT OF CHANGES IN PARTNERS� EQUITYYear Ended 31 December 2005

Capital

Statutory

reserve

Retained

earnings Total

US $ ��000 US $ ��000 US $ ��000 US $ ��000

Balance at 31 December 2002 162,667 6,519 43,691 212,877

Net income for the year � � 112,115 112,115

Provision for zakat (note 10) � � (1,097) (1,097)

Zakat reimbursable by a partner � � 1,097 1,097

Transfer to statutory reserve � 11,212 (11,212) �

Dividends paid � � (19,894) (19,894)






Dividends paid � � (30,027) (30,027)

Issue of capital 12,000 � � 12,000








Dividends paid � � (100,619) (100,619)



73

Saudi Chevron Phillips Company LimitedNOTES TO THE FINANCIAL STATEMENTS31 December 2005

1 ACTIVITIES

The company is a limited liability company registered in Jubail - Saudi Arabia under Commercial Registration number 2055003839 dated 22Safar 1417H, corresponding to 8 July 1996 with a branch in Jubail under Commercial Registration number 2055003839/001. The companywas established to develop, construct and operate a petrochemical plant in Jubail, Saudi Arabia, to produce aromatics, solvents andCyclohexane. It is owned 50% by Saudi and 50% by non-Saudi partners.

These financial statements have been presented in United States Dollars (USD).

2 SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with accounting standards generally accepted in the Kingdom of Saudi Arabia. Thesignificant accounting policies adopted are as follows:

Accounting conventionThe financial statements are prepared under the historical cost convention.

Fixed assets/depreciationAll property, plant and equipment are recorded at cost. The cost of property, plant and equipment is depreciated on a straight line basis overthe estimated useful lives of the assets.

Expenditure for repair and maintenance are charged to income. Improvements that increase the value or materially extend the life of therelated assets are capitalized.

Deferred charges/amortization



Deferred charges comprise total pre-production costs net of pre-production income, and Saudi Industrial Development Fund (SIDF) loanappraisal fees and are amortized in equal annual installments from the date of commencement of commercial production over the estimatedperiod of benefit.

InventoriesInventories are stated at the lower of cost and market value. Cost is determined as follows:

Raw materials, spares and catalysts � purchase cost on a weighted average basis.

Finished goods � cost of direct materials and labor plus attributableoverheads based on a normal level of activity.

Zakat and income taxZakat and income tax are provided for in accordance with Saudi Arabian fiscal regulations. The provision is charged to retained earnings.Reimbursements by the partners of such zakat and income tax are credited to retained earnings.

Employees�� terminal benefitsProvision is made for amounts payable to comply with the Saudi Arabian labor law applicable to employees� accumulated periods of serviceat the balance sheet date.

SalesSales represent the invoiced value of goods supplied by the company during the year net of shipping, distribution and selling and marketingcosts.

Foreign currenciesTransactions in foreign currencies are recorded in US Dollars at the rate ruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to theincome statement.

ExpensesSelling and distribution expenses comprise expenses that specifically relate to the delivery of products. All other period expenses, other thanamortization of deferred charges and financial charges, are classified as cost of sales.

74

Saudi Chevron Phillips Company LimitedNOTES TO THE FINANCIAL STATEMENTS - continued31 December 2005

3 PROPERTY, PLANT AND EQUIPMENT

The estimated useful lives of the assets for the calculation of depreciation are as follows:

Office buildings 20 yearsPlant and equipment 6-20 yearsFurniture and office equipment 8-10 yearsMotor vehicles 4 years



Office

buildings

Plant and

equipment

Furniture and

office

equipment Motor vehicles

Construction

work in

progress

Total

2005

Total

2004

Total

2003

US $ ��000 US $ ��000 US $ ��000 US $ ��000 US $ ��000 US $ ��000 US $ ��000 US $ ��000

Cost:At the beginning of

the year 18,923 561,360 4,837 1,602 17,260 603,982 587,424 586,297Additions � � � � 59,866 59,866 16,558 1,871Disposals � � � � � � � (744)Transfers � 1,663 51 235 (1,949) � � �

At the end of theyear 18,923 563,023 4,888 1,837 75,177 663,848 603,982 587,424

Depreciation:At the beginning of

the year 4,669 138,231 3,746 962 � 147,608 117,799 88,276Charge for the year 946 28,577 554 243 � 30,320 29,809 29,797Disposals � � � � � � � (274)At the end of the

year 5,615 166,808 4,300 1,205 � 177,928 147,608 117,799Net book amounts:

At 31December 2005 13,308 396,215 588 632 75,177 485,920

At 31December 2004 14,254 423,129 1,091 640 17,260 456,374

At 31December 2003 15,130 450,839 1,454 130 2,072 469,625

The buildings and plant and equipment are situated on land leased from the Royal Commission for Jubail and Yanbu. The lease is initially fora period of 30 years commencing from 20 Rajab 1417H (corresponding to 1 December 1996) and is renewable for further periods thereafter.

All plant and equipment are mortgaged to the Saudi Industrial Development Fund as security for certain term loans (note 13 (b)). Theseinclude finance charges of US $18.9 million (2004 and 2003: US $18.9 million) capitalized during construction phase in respect of the loanfacilities disclosed in note 13 (b).

Construction work in progress mainly represents costs incurred on certain civil and mechanical projects currently under construction (also seenote 17) and includes capitalized borrowing costs of US $1.1 million.

75


4 DEFERRED CHARGES

2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

Costs at the beginning and end of the year 31,545 31,545 31,545



Amortization:At the beginning of the year 16,046 12,741 9,435Provided during the year 3,306 3,305 3,306At the end of the year 19,352 16,046 12,741

Net book amounts 12,193 15,499 18,804

Deferred charges consist of pre-production costs of US $22.2 million (2004 and 2003: US $22.2 million) and appraisal fees on the SIDF andcommercial loans of US $9.3 million (2004 and 2003: US $9.3 million).

In 2003, in order to comply with the SOCPA�s standard on �Intangible Assets�, with effect from 1 January 2003, the company reduced thepre-production costs amortization period of ten years. The balance outstanding at 1 January 2003 is now being amortized over 7 years.

Appraisal fees on the SIDF and commercial loans are amortized over the period of the related loans.

5 INVENTORIES

2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

Raw materials 2,954 2,389 1,953Finished goods 32,834 14,484 17,602Spares 3,387 3,684 3,566Catalyst 39,247 43,207 37,064

78,422 63,764 60,185

6 ACCOUNTS RECEIVABLE AND PREPAYMENTS

2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

Trade accounts receivable 36,676 59,827 37,638Amounts due from partners (note 8) 3,172 3,773 2,026Amount due from an affiliate (note 8) 23,940 29,726 12,391Other receivables 5,710 8,125 3,614Prepaid expenses 2,391 2,388 2,286

71,889 103,839 57,955

Three customers account for the entire trade accounts receivable balance as of 31 December 2005 (2004 and 2003: four customers).

7 BANK BALANCES AND CASH

Bank balances amounting to US $222.2 million (2004: US $220.5 million) are assigned as security against loan facilities from a consortium ofbanks (note 13 (a)).

76

Saudi Chevron Phillips Company LimitedNOTES TO THE FINANCIAL STATEMENTS - continued



31 December 2005

8 RELATED PARTY TRANSACTIONS AND BALANCES

Purchases amounting to approximately US $8.7 million were made from the foreign partner�s parent company and its affiliates during 2005(2004: approximately US $11.4 million and 2003: approximately US $3.2 million).

Approximately 45% (2004: approximately 48% and 2003: approximately 38%) of the company�s sales are made through a marketing affiliateof the foreign partner under a marketing agreement. Upon delivery of the product to the marketing affiliate, sales are recorded at provisionalprices calculated on the basis of a methodology approved by the board of directors. The provisional prices are subsequently adjusted to actualselling prices, as received by the marketer from its customers, after deducting shipping, distribution and selling costs, and a marketing fee (inaccordance with the above marketing contract) to cover all other marketing expenses. Adjustments are recorded on a quarterly basis as theyare reported by the marketer and become known to the company.

The prices and terms of the transactions are approved by the management. Amounts due from partners and an affiliate and amounts payable toaffiliates are shown under notes 6 and 9, respectively. Subordinated loans from the partners are disclosed in note 14 to these financialstatements.

9 ACCOUNTS PAYABLE AND ACCRUALS

2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

Trade accounts payable 32,006 28,584 19,434Amounts due to affiliates (note 8) 4,437 19,563 4,672Zakat payable (note 10) 3,058 3,773 1,410Accrued expenses 45,796 31,457 20,497

85,297 83,377 46,013

10 ZAKAT AND INCOME TAX

a) Zakat

Charge for the year

The zakat charge relating to the Saudi partner consists of:

2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

Provision for the year 3,058 3,773 1,410Adjustment for previous year � � (313 )

Charge for the year 3,058 3,773 1,097

77




10 ZAKAT AND INCOME TAX (continued)

The Saudi partner�s provision is based on his share as follows:

2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

Equity 247,761 150,402 96,492Opening provisions and other adjustments 37,079 80,984 166,811Book value of long term assets (232,020) (259,412) (264,529)

52,820 (28,026) (1,226)

Zakatable profit for the year 69,488 150,939 56,392Zakat base 122,308 150,939 56,392

The differences between the financial and the zakatable profit are mainly due to adjustments for certain costs/claims based on the relevantfiscal regulations.

Movement in provision

The movement in the zakat provision was as follows:

2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

At the beginning of year 3,773 1,410 870Provided during the year 3,058 3,773 1,097Payments during the year (3,773) (1,410) (557)

At the end of year 3,058 3,773 1,410

b) Income tax

Under the provisions of the Foreign Capital Investment Code, the non-Saudi partner is exempt from income tax on its share of income for tenyears from the date of commencement of commercial production (1 March 2000). The non-Saudi partner�s cumulative share of net incomesince the commencement of the tax holiday is US $302 million (2004: US $233 million and 2003: US $82 million).

Status of assessments

The Department of Zakat and Income Tax (DZIT) raised assessments for the year 1997 to 2002 with additional zakat, tax and delay fineliabilities of US $1.5 million, US $2.3 million and US $0.6 million, respectively. The company has filed an appeal against the DZIT�sassessments with the Preliminary Appeals Committee. Management is confident that the committee�s decision will be in favor of thecompany. Accordingly no provision for the additional liabilities, as assessed by DZIT, has been made in the books as of 31 December 2005.The zakat and income tax assessments for the years ended 31 December 2003 and 2004 have not yet been received by the company.

11 CAPITAL

Capital is divided into 6,550,000 shares (2004: 6,550,000 and 2003: 6,100,000 shares) of US $26.67 (100 Saudi Riyals) each.

78

Saudi Chevron Phillips Company Limited



NOTES TO THE FINANCIAL STATEMENTS - continued31 December 2005

12 STATUTORY RESERVE

As required by Saudi Arabian Regulations for Companies, 10% of the net income for the year has been transferred to the statutory reserve.The company may resolve to discontinue such transfers when the reserve totals 50% of the capital. The reserve is not available fordistribution.

13 TERM LOANS

2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

Consortium 59,667 91,000 146,189SIDF 11,823 69,050 96,409

71,490 160,050 242,598

Less: Current portion:Consortium 19,667 30,000 20,000SIDF 11,823 23,894 20,693

31,490 53,894 40,693

40,000 106,156 201,905

a) The term loan facilities from consortium of banks (the consortium) consist of:

i) US $101 million term loan facility restructured in 2004. The facility was repayable in 7 half yearly installments increasingfrom US $10 million to US $20 million. The company accelerated its repayment of the loan and repaid an additional US$41.3 million during the year 2005. The board of directors, after considering the company�s cash flow requirements, intendsto repay the remaining portion of the loan in 2006 and accordingly, the remaining balance has been classified as currentliabilities.

ii) US $40 million term loan facility. The facility is repayable in 18 half yearly installments commencing six months after theexpansion project completion date.

iii) US $38 million as a revolving credit facility. As of 31 December 2005, no amount has been drawn from this loan facility(2004: No amount drawn).

The loans are secured by assignment of residual proceeds of the plant and equipment of the company, assignment of receipts from allmaterial and significant contracts, charge and assignment over offshore project accounts and pledge and assignment over onshoreproject accounts. The facilities are subject to commission at LIBOR plus 1% (2004 and 2003: same terms and conditions).

b) The total amount of term loans facilities with the SIDF is US $215 million of which US $150 million (2004 and 2003: US $150million) has been drawn as of the balance sheet date. After restructuring in 2004, the repayment of the remaining balance commencedon 15 Sha�aban 1425H (corresponding to 30 September 2004). The company accelerated its repayment of the loans and repaidadditional US $41.3 million during the year 2005. The board of directors, after considering the company�s cash flow requirements,intends to repay the remaining portion of the loans in 2006 and accordingly, the remaining balance has been classified as currentliabilities. The loans are secured by a mortgage on the company�s plant and equipment and assignment of insurance proceeds andtechnology rights. The loans carry appraisal fees which are being amortized over the term of the loans (note 4).

79




13 TERM LOANS - continued

Following are the combined aggregate amounts of next five years� maturities of the term loans:

US $ ��000

2006 31,4902007 1,1202008 2,2402009 2,7602010 3,280

14 SUBORDINATED PARTNERS�� LOANS

Subordinated partners� loans are commission free and are repayable subject to the minimum level required to be maintained by the terms ofthe SIDF loan agreement disclosed in note 13. The board of directors intends to repay the balance as of 31 December 2005 during the year2006, after the repayment of SIDF term loans (see note 13 (b)).

15 SELLING AND DISTRIBUTION EXPENSES

2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

Inspection charges 3,392 4,456 1,880

16 FINANCIAL CHARGES

2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

Term loans borrowing costs 1,987 2,847 4,009Bank charges 961 3,289 1,388

2,948 6,136 5,397

17 CAPITAL COMMITMENTS

The directors have authorized future capital expenditure amounting to US $162 million as of 31 December 2005 (2004: US $122 million) inconnection with certain projects.

80




18 SUMMARY OF SIGNIFICANT DIFFERENCES (BOTH AMOUNTS AND DISCLOSURES) BETWEEN ACCOUNTINGPRINCIPLES FOLLOWED BY THE COMPANY AND UNITED STATES GENERALLY ACCEPTED ACCOUNTINGPRINCIPLES

The financial statements of the company have been prepared in accordance with accounting standards generally accepted in the Kingdom ofSaudi Arabia. For the purpose of these financial statements, following are the differences between the accounting standards generally acceptedin the Kingdom of Saudi Arabia and United States Generally Accepted Accounting Principles (US GAAP).

a) Reconciliation of net income with US GAAP

2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

Net income per financial statements (Saudi accounting standards) 215,693 301,069 112,115US GAAP adjustment:Add back pre production costs amortization 2,275 2,275 2,275Net income under US GAAP (see note below) 217,968 303,344 114,390

For each year presented in the table above, it has been assumed that pre production costs were expensed when originally incurred.

b) Reconciliation of partners�� equity with US GAAP

2005 2004 2003

US $ ��000 US $ ��000 US $ ��000

Partners� equity per financial statements (Saudi AccountingStandards) 703,214 588,140 305,098

US GAAP adjustment:Difference in net income (9,102) (11,377) (13,652)Partners� equity under US GAAP 694,112 576,763 291,446

c) Estimated future aggregate amortization expense

The estimated aggregate amortization expense during the next four years would be in the region of US $3 million toUS $5 million per annum as no more deferred charges are expected to be incurred during the next four years.

d) Related party transactions

The amounts of the company�s sales made through a marketing affiliate of the foreign partner as described in note 8 were 2005: US $277.6million, 2004: US $320.1 million and 2003: US $150.5 million.

e) Source of raw materials

The company purchases its raw materials primarily from one supplier in the Kingdom of Saudi Arabia.

f) Dividends paid

Cash dividends during the year were US $100.6 million (2004: US $30 million and 2003: US $19.9 million) and constitute 57.6% of thecapital (2004: 17.19% and 2003: 12.23%).

81




18 SUMMARY OF SIGNIFICANT DIFFERENCES (BOTH AMOUNTS AND DISCLOSURES) BETWEEN ACCOUNTINGPRINCIPLES FOLLOWED BY THE COMPANY AND UNITED STATES GENERALLY ACCEPTED ACCOUNTINGPRINCIPLES - continued

g) Deferred taxation

There is no deferred tax liability or asset as of the balance sheet date because the non�Saudi partner is enjoying a tax holiday as mentionedunder note 10 to the financial statements.

h) Fair value

The fair values of the company�s financial assets and liabilities approximate their book values.

i) Comprehensive income

Comprehensive income under US GAAP is substantially the same as the net income under US GAAP.

j) Employees�� terminal benefits

Provision for employees� terminal benefits is made for amounts payable to comply with the Saudi Arabian labor law applicable toemployees� accumulated periods of service at the balance sheet date and therefore, does not require actuarial calculation.

k) Statement of cash flows

Statement of cash flows as presented in the financial statements complies, in all material respects, with the International Financial ReportingStandard on �Cash Flow Statements�.

l) Provision for tax

Provision for zakat is charged to the statement of partners� equity in accordance with Saudi Accounting Standards as it is considered to be acharge on the Saudi partner. Had the provision for zakat been charged to the income statement, and subsequently been reimbursed by thepartner, there would have been no impact on the net income for the years 2005, 2004 and 2003.

m) Average borrowing costs

The weighted average rate of borrowing cost during the construction period was 4.47% (2004: nil).

82

Report of the Auditors

ToThe ShareholdersQatar Chemical Company Limited, Q.S.C



Doha,Qatar

We have audited the accompanying financial statements of Qatar Chemical Company Limited, Q.S.C (the �Company�) on pages 2 to 21 as ofand for the year ended 31 December 2005. The financial statements of the Company as of 31 December 2003 were audited by another auditorwhose report thereon dated 24 March 2004, expressed an unqualified opinion on those statements with an emphasis of matter relating to goingconcern assumption of the financial statements resulting from accumulated losses as at 31 December 2003.

Respective responsibilities of the Company��s directors and auditorsThese financial statements are the responsibility of the Company�s directors. Our responsibility is to express an opinion on these financialstatements based on our audit.

Basis of opinionWe conducted our audit in accordance with the International Standards on Auditing. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, ona test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for our opinion.

OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of 31 December 2005,the results of its operations, changes in its shareholders� equity and its cash flows for the year then ended in accordance with InternationalFinancial Reporting Standards.

Other mattersIn addition, in our opinion, the Company has maintained proper accounting records and the financial statements are in agreement therewithand a physical count of the inventories was carried out in accordance with the established principles. We have obtained all the information andexplanations we required for the purpose of our audit and are not aware of any violations of the provisions of the Company�s Articles ofAssociation and Qatar Commercial Companies� Law No. 5 of 2002 to the extent applicable having occurred during the year which might havehad a material adverse effect on the business of the Company or its financial position.

20 February 2006 Abdul Hakim Al-AdhamyDoha KPMGState of Qatar Qatar Auditors� Registry No. 105

83

AUDITORS�� REPORT TO THE SHAREHOLDERS OFQATAR CHEMICAL COMPANY LTD. (Q-CHEM), Q.S.C.

We have audited the accompanying balance sheet of Qatar Chemical Company Ltd. (Q-Chem), a Qatari Shareholding Company (Q.S.C.), asof 31 December 2003, and the related statements of income, cash flows and changes in equity for the year then ended. These financialstatements are the responsibility of the Company�s management. Our responsibility is to express an opinion on these financial statementsbased on our audit. These financial statements are presented together with the financial statements for the years ended 31 December 2004 and31 December 2005 which are audited by another auditor whose report dated 20 February 2006, expressed an unqualified opinion on thesefinancial statements.



We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the auditto obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believethat our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of 31 December 2003and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Furthermore, in our opinion, proper books of account have been kept by the Company and the financial statements comply with the QatarCommercial Companies� Law No. 5 of 2002 and the Company�s Articles of Association. We have obtained all the information andexplanations we required for the purpose of our audit, and are not aware of any violations of the above mentioned law or the Articles ofAssociation having occurred during the year which might have had a material effect on the business of the Company or its financial position.

In our report dated 24 March 2004, we expressed an unqualified opinion on the individual financial statements for the year ended 31December 2003 with an emphasis of matter relating to the going concern assumption of the financial statements resulting from accumulatedlosses as at 31 December 2003.

T. F. Sextonof Ernst & YoungAuditor�s Registration No. 114

Date : 20 February 2006Doha

84

Qatar Chemical Company Limited, Q.S.C 2

Balance Sheetas at 31 December 2005

Notes 2005 2004 2003

US$��000 US$��000 US$��000

ASSETS

Non-current assetsProperty, plant and equipment 4 848,467 880,156 939,639Long- term receivables 5 68 220 616

848,535 880,376 940,255Current assetsInventories 6 33,122 32,416 23,953Other receivables and prepayments 7 6,101 5,536 5,354Due from related parties 8(a) 59,085 65,824 27,985Trade accounts receivable 9 58,960 57,201 16,691Cash and bank 10 165,308 104,047 37,507

322,576 265,024 111,490



TOTAL ASSETS 1,171,111 1,145,400 1,051,745

SHAREHOLDERS�� EQUITY AND LIABILITIES

Shareholders�� EquityShare capital 11 112,800 112,800 56,300Legal reserve 24,495 11,676 �

Retained earnings / (Accumulated losses) 118,513 22,329 (82,756)255,808 146,805 (26,456)

Non- current liabilitiesNon-current portion of syndicated loan 12 465,524 574,430 644,700Subordinated loan 13 273,042 310,184 303,181Provision for employees� end of service benefits 14 2,728 1,833 1,236Deferred liability 15 1,642 1,870 25,000Deferred tax liability 16(a) 22,528 370 �

Due to a related party 8(b) 6,481 � �

771,945 888,687 974,117Current liabilitiesCurrent portion of syndicated loan 12 70,500 65,925 61,650Provision for taxation 16(b) 31,696 11,859 �

Due to related parties 8(b) 22,800 15,761 11,679Accounts payable and accrued expenses 17 18,362 16,363 30,755

143,358 109,908 104,084TOTAL SHAREHOLDERS�� EQUITY AND

LIABILITIES 1,171,111 1,145,400 1,051,745

The attached notes on pages 6 to 21 form an integral part of these financial statements.

85


Statement of Incomefor the year ended 31 December 2005

Note 2005 2004 2003

US$��000 US$��000 US$��000

Sales 437,329 323,872 72,996Cost of goods sold (184,902) (153,984) (86,467)Gross profit 252,427 169,888 (13,471)

Other income 5,450 412 72Selling and administration expenses (26,599) (21,406) (12,978)Profit / (loss) from operations 231,278 148,894 (26,377)Foreign exchange gain/(loss) (7,846) 3,388 977Interest expense (41,429) (23,292) (14,398)



Net profit / (loss) for the year before provision fortaxation 182,003 128,990 (39,798)

Income taxesCurrent 16(b) (31,649) (11,859) �

Deferred 16(a) (22,158) (370) �

Net profit / (loss) for the year 128,196 116,761 (39,798)


86


Statement of Changes in Shareholders�� Equityfor the year ended 31 December 2005

Share

Capital

Legal

reserve

Retained

earnings/

(Accumulated

losses) Total

US$��000 US$��000 US$��000 US$��000

Balance at 1 January 2003 20,000 � (42,958) (22,958)

Share capital issued during 2003 36,300 � � 36,300Net loss for the year � � (39,798) (39,798)Balance at 31 December 2003 56,300 � (82,756) (26,456)

Share capital issued during 2004 56,500 � � 56,500Net profit for the year � � 116,761 116,761Transfer to legal reserve � 11,676 (11,676) �


Dividend paid during the year � � (19,193) (19,193)Net profit for the year � � 128,196 128,196Transfer to legal reserve � 12,819 (12,819) ��


Legal reserve

In accordance with the regulations of Qatar Commercial Companies Law No. 5 of 2002, 10% of the net profit for the year is required to betransferred to the Legal Reserve until the balance in the Reserve equals 50% of the paid up capital. This Reserve is not normally available fordistribution except in circumstances specified in the Qatar Commercial Companies Law No. 5 of 2002.

Dividend

During the year, the Company paid a dividend of USD 170.2 per share amounting to USD 19.19 million out of the profits earned up to 31December 2004.




87


Statement of cash flowsfor the year ended 31 December 2005

2005 2004 2003

US$��000 US$��000 US$��000

Operating activitiesNet profit/(loss) for the year 128,196 116,761 (39,798)Adjustments for :Depreciation 41,469 41,261 26,634Interest income (4,852) (803) (146)Interest expense 41,429 23,292 14,398Unrealised foreign exchange (gain)/loss 132 7 (45)Loss on disposal of property, plant and equipment 40 � 80Provision for employees� end of service benefits 1,178 834 684Operating profit before changes in working capital 207,592 181,352 1,807

Working capital changesIncrease in inventories (706) (8,463) (13,790)(Increase)/decrease in other receivables and prepayments (565) (182) 660Decrease/(Increase) in due from related parties 6,739 (37,839) (27,890)Increase in trade accounts receivables (1,759) (40,510) (16,691)Increase in provision for taxation 41,578 12,229 �

Increase in due to related parties-Current 7,039 4,082 5,147Increase in due to related parties-Non-current 6,481 �

Increase/(Decrease) in accounts payable and accrued expenses 2,001 (14,866) 18,099Cash from/(used in) operating activities 268,400 95,803 (32,658)

Decrease in long term receivables 152 396 302Employees� end of service benefits paid (283) (237) (98)Decrease in deferred credit (228) (23,130) 25,000Net cash from/(used in) operating activities 268,041 72,832 (7,454)

Investing activitiesPayments for purchase of property, plant and equipment (9,820) (7,093) (2,491)Additions to accumulated plant cost � � (21,895)Deferred credit adjustment and write off of plant and equipment 170 25,315 �

Proceeds from disposal of property, plant and equipment 26 � 693Interest received 4,583 803 146Interest paid (41,021) (15,815) (15,127)Deposits maturing beyond 90 days (20,500) � �

Net cash (used in) / from investing activities (66,562) 3,210 (38,674)



Financing activitiesMovement in subordinated loan (37,142) � 84,900Repayment of syndicated loan (104,331) (65,995) (43,650)Dividend paid (19,193) � �

Proceeds from issue of Share capital � 56,500 36,300Net cash (used in)/from financing activities (160,666) (9,495) 77,550

Net Increase in cash and cash equivalents 40,813 66,547 31,422

Cash and cash equivalents at 1 January 104,009 37,462 6,040

Cash and cash equivalents at 31 December (Note 10) 144,822 104,009 37,462


88


Notes to the financial statementsfor the year ended 31 December 2005

1 LEGAL STATUS AND PRINCIPAL ACTIVITIES

Qatar Chemical Company Limited (�the Company�) was formed by the enactment of Emiri decree no. 20 issued on 6 October 1998 and wasregistered in Qatar as a Qatari Shareholding Company (Q.S.C). The activities of the Company are governed by a joint venture agreementdated 16 November 1997 between Qatar General Petroleum Corporation (now doing business under the name of Qatar Petroleum), ChevronPhillips Chemical International Qatar Holdings LLC (�CPCIQH�, as successor to Phillips Investment Company) and Chevron PhillipsChemical Company LLC (�CPChem�, as successor to Phillips Petroleum Company), as amended and is valid for a period of 25 years. TheCompany is owned by Qatar Petroleum (51%) and Chevron Phillips Chemical International Qatar Holdings LLC (49%).

The principal objectives of the Company are to own, operate and maintain a complex for the production, storage and sale of polyethylene,hexene-1 and other petrochemical products. The Company commenced production on 8 April 2003.

2 BASIS OF PREPARATION

These financial statements have been prepared in accordance with the International Financial Reporting Standards. The financial statementshave been prepared under the historical cost convention.

3 SIGNIFICANT ACCOUNTING POLICIES

The following significant accounting policies are consistent with those used in the previous year.

3.1 Functional currencyThe currency of the State of Qatar, in which the Company is domiciled, is Qatari Riyals. However these financial statements have beenpresented in United States Dollars in accordance with the amended Joint Venture Agreement between the shareholders.

3.2 Revenue recognition



Sales of petrochemicals including by-products, are recorded when title passes to the customer. Revenue is reported net of freight andinsurance. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due or associated costs orpossible return of goods.

Interest income and expenses are recognised on accrual basis using the effective interest rate.

3.3 Income taxIncome tax is the expected tax payable on taxable income for the year in accordance with Qatar Income Tax Regulations applying the tax ratesspecified in Law No.8 of 1999 related to the incorporation of the Company.

Deferred income tax is provided for using the liability method on all temporary differences at the balance sheet date. Deferred income taxassets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled,based on the laws that have been enacted at the balance sheet date.

3.4 Operating leasesOperating lease payments are recognised as an expense in the income statement on payment basis over the lease term.

89



3.5 Property, plant and equipmentProperty, plant and equipment have been recorded at cost less accumulated depreciation and impairment losses, if any (refer accounting policy3.11).

Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately is capitalised and thenet book value of the replaced component is written-off. Other subsequent expenditure is capitalised only when it increases the futureeconomic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in the statement of income as anexpense as incurred. Capital work in progress is transferred to property, plant and equipment on completion of the work.

Shutdown costs incurred by the Company are normally expensed except when a design change to an item of plant and equipment is carried outas part of the shutdown which is capitalised.

3.6 DepreciationDepreciation is provided on all property, plant and equipment on a straight-line basis over the assets� estimated useful lives at the followingannual rates:

Plant facilities 25 yearsBuildings 25 yearsLand improvements 25 yearsFurniture, fixtures and equipment 5 yearsComputer hardware and software 3-10 yearsMobile plant equipment and Vehicles 4-10 years

The depreciation method and the useful lives of the property, plant and equipment are re-assessed annually by the management.

3.7 Inventories



Inventories are stated at the lower of cost and net realisable value (NRV). Costs are those expenses incurred in bringing each product to itspresent location and condition, as follows:

Raw materials, consumables, spare parts and packaging supplies -moving weighted average costWork in progress and finished goods -moving weighted average cost which comprised of direct materials,

direct labour, other direct costs, plus attributable overheads basedon normal level of capacity.

NRV is the estimated selling price in the ordinary course of business less the estimated costs of disposition.

3.8 Accounts receivable and other receivablesReceivables are stated at the amortised cost less a provision for any estimated uncollectible amounts. An estimate for doubtful debts is madewhen collection of the full amount is no longer probable. Bad debts are written off as incurred.

3.9 Cash and cash equivalentsCash and cash equivalents comprise of cash on hand, balances with banks under current and call accounts and short term deposits withmaturity of 90 days or less.

3.10 Accounts payable and accrualsLiabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

3.11 ImpairmentThe carrying amounts of the Company assets, other than inventories (refer accounting policy 3.7) are reviewed at each balance sheet date todetermine whether there is any indication of impairment. If any such indication exists, the asset�s recoverable amount is estimated. Animpairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.Impairment losses are recognised in the statement of income.

90



3.12 ProvisionsProvisions are recognised when the Company has a legal or constructive obligation arising from a past event, and the costs to settle theobligation are both probable and can be reliably measured.

3.13 LoansLoans are carried on the balance sheet at its principal amount plus accrued interest. Instalments due within one year are shown as a currentliability. Interest due under the syndicated loan is included in �accounts payable and accruals�.

3.14 Borrowing costsBorrowing costs that are attributable to the construction of the Company�s plant and equipment (qualifying assets) are capitalised as part ofthe asset costs up to the start up date of the assets. Other borrowing costs are recognised as an expense in the period in which they areincurred.

3.15 End of service benefits



The Company provides for end of service benefits to its employees based upon the employees� length of service and the completion of aminimum service period. The Company has no expectation of settling all its employees� end of service benefits within the next 12 monthperiod and hence has classified the same as a non-current liability.

Under Law No. 24 of 2002 on Retirement and Pension, the Company makes contribution to a government pension scheme for Qatariemployees calculated as a percentage of the Qatari employees� salaries. The Company�s obligations are limited to these contributions, whichare expensed on accrual basis.

3.16 Foreign currenciesThe books of account are maintained in United States Dollars. Transactions in foreign currencies are translated to US Dollars at the rates ofexchange prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies other than US Dollars aretranslated at rates ruling at the balance sheet date. Foreign exchange differences arising on translation are recognised in the income statement.

91



4 PROPERTY, PLANT AND EQUIPMENT

Plant

facilities Buildings

Land

improvements

Furniture,

fixtures and

equipment

Computer

hardware &

software

Mobile

Plant

Equipment

and

Vehicles Capital spares

Capital work

in progress Total

US$��000 US$��000 US$��000 US$��000 US$��000 US$��000 US$��000 US$��000 US$��000

Cost:

At 1 January 2004 862,726 47,552 21,358 3,861 16,471 4,939 4,968 5,441 967,316

Additions 104 90 6 606 6 31 � 6,250 7,093

Transfer from CWIP 8,247 � � � � � � (8,247) �

Deferred credit adjustment (23,080) (1,246) (541) � � � (133) � (25,000)

Reclassification 347 � � � � � (347) � �

Disposals & write offs (315) � � � � � � � (315)

At 01 January 2005 848,029 46,396 20,823 4,467 16,477 4,970 4,488 3,444 949,094

Additions 7,080 89 � 99 220 24 � 2,308 9,820

Transfer from CWIP 1,592 211 � 68 869 31 � (2,771) �

Disposals & write offs (66) � � � (170) � � � (236)

At 31 December 2005 856,635 46,696 20,823 4,634 17,396 5,025 4,488 2,981 958,678

Accumulated depreciation:

At 1 January 2004 23,000 1,268 569 1,060 762 885 133 � 27,677

Charge 33,908 1,867 838 759 2,988 706 195 � 41,261

Reclassification 24 � � � � � (24) � �

At 01 January 2005 56,932 3,135 1,407 1,819 3,750 1,591 304 � 68,938

Charge 34,043 1,861 833 844 2,999 710 179 � 41,469

Transfer from CWIP � � � � � � � � �



Disposals & write offs (26) � � � (170) � � � (196)

At 31 December 2005 90,949 4,996 2,240 2,663 6,579 2,301 483 �� 110,211

Net book value:

at 31 December 2005 765,686 41,700 18,583 1,971 10,817 2,724 4,005 2,981 848,467

at 31 December 2004 791,097 43,261 19,416 2,648 12,727 3,379 4,184 3,444 880,156

at 31 December 2003 839,726 46,284 20,789 2,801 15,709 4,054 4,835 5,441 939,639

92



4 PROPERTY, PLANT AND EQUIPMENT (Continued)

2005 2004 2003

US$��000 US$��000 US$��000

The depreciation charge has been allocated as follows:Accumulated plant costs � � 200Cost of production 40,277 39,977 25,914Selling and administration expenses 1,192 1,284 520

41,469 41,261 26,634

ACCUMULATED PLANT COSTS

2005 2004 2003

US$��000 US$��000 US$��000

Balance as at 1 January � � 929,052Additions during the year � � 28,563

� � 957,615Transferred to property, plant and equipment � � (957,615)

Balance as at 31 December � � �

Included in the accumulated plant costs of 2003 was capitalised interest of US$68.9 million. Interest capitalised during the year was nil (2004:Nil; 2003: US$5.2 million). The accumulated plant costs were transferred to property, plant and equipment upon the assets being put to use on8 April 2003.

The unamortized capital interest cumulative balance as of 31 December 2005 was US$61.5 million (2004: US$64.3 million; 2003: US$67.1million).

5 LONG TERM RECEIVABLES



Long term receivables represent furniture allowances recoverable from employees and prepayments.

6 INVENTORIES

2005 2004 2003

US$��000 US$��000 US$��000

Finished goods 9,587 12,977 7,489Work in progress 188 169 145Raw materials 4,277 3,992 3,340Packaging supplies 564 387 339Spare parts and consumables 18,506 14,891 12,640

33,122 32,416 23,953

Material consumption of US$ 66.6 million (2004: US$ 54.2 million; 2003: US$ 23.6 million) is included under cost of goods sold.

7 OTHER RECEIVABLES AND PREPAYMENTS

2005 2004 2003

US$��000 US$��000 US$��000

Prepayments 3,064 2,580 1,267Receivables from employees 1,319 1,440 1,485Other receivables 1,718 1,516 2,602

6,101 5,536 5,354

93



8 TRANSACTIONS WITH RELATED PARTIES

A significant portion of the Company�s costs have been charged by the shareholders. In accordance with the specific agreements entered intoby the shareholders, the shareholders provide support services, feedstock, fuel gas, catalysts and other goods and services to the Company.Also, the Company sells some of its products to the related affiliates.

QChem entered into an Agency Agreement with CPChem to act as an agent for the sale of substantially all of QChem�s production. QChemhas also entered into an Offtake and Credit Risk Agreement with CPChem, under which the latter is required to purchase at market prices,specified amounts of production if CPChem fails to sell that product under the terms of the Agency Agreement. As of the balance sheet dateno transaction has been executed under the Offtake and Credit Risk Agreement. The Offtake and Credit Risk Agreement expires upon theearlier of the repayment in full by QChem of its outstanding bank financing, currently scheduled to mature in 2012, or any refinancing thereof.

QChem entered into an Agency Agreement with QAPCO to act as an agent for the sale of QChem�s products, primarily in the Middle Eastregion to a maximum of 10% of QChem�s polyethylene production.



QChem and Qatar Petroleum entered into a Feedstock Supply Agreement for the duration of the amended Joint Venture Agreement, where QPagreed to provide ethane gas to meet QChem�s production requirement.

Transactions with significant related parties during the year are summarised as follows:

Nature of transaction 2005 2004 2003

US$��000 US$��000 US$��000

Chevron Phillips Chemical Company LLC (CPChem) (Shareholder)and affiliates:� Purchases & services 30,238 11,647 17,453� Sales & marketing commission 112,974 55,700 33,215

Qatar Petroleum (QP)(Shareholder):� Purchases, services & marketing commission 54,799 42,647 24,971

Qatar Petrochemical Company Ltd (Q.S.C) (QAPCO) (a joint venturewith Industries Qatar, a subsidiary of Qatar Petroleum)� Sales & marketing commission 26,161 18,519 3,560

(a) Due from related parties

2005 2004 2003

US$��000 US$��000 US$��000

CPChem and affiliates 49,828 58,609 24,698QAPCO 9,257 7,215 3,287

59,085 65,824 27,985

(b) Due to related parties

2005 2004 2003

US$��000 US$��000 US$��000

Current:CPChem and affiliates 4,095 4,650 4,893QP 18,705 11,111 6,786

22,800 15,761 11,679Non-current:QP 6,481 � �

6,481 ��

Refer to note 14 for disclosure of the subordinate loan payable to an affiliate.

94





8 TRANSACTIONS WITH RELATED PARTIES (continued)

2005 2004 2003

US$��000 US$��000 US$��000

(c) Compensation paid to key management personnel 765 640 604

9 TRADE ACCOUNTS RECEIVABLE

2005 2004 2003

US$��000 US$��000 US$��000

Trade accounts receivable 58,960 57,084 16,691Advances paid to suppliers � 117 �

58,960 57,201 16,691

The Company is engaged in the sale of polyethylene, hexene-1 and other petrochemical products to a large number of customers. Its fivelargest customers account for 49% of outstanding accounts receivable at 31 December 2005 (2004: 52%; 2003: 32%).

10 CASH AND BANK

2005 2004 2003

US$��000 US$��000 US$��000

Petty cash 5 5 5Bank Balances

Current account 12 (794) (196)Call account 165,291 104,836 37,698

165,308 104,047 37,507Effects of exchange rates on cash and cash equivalents 14 (38) (45)Deposits maturing beyond 90 days (20,500) � �

Cash and cash equivalents as per statement of cash flows 144,822 104,009 37,462

The call deposits of US$165.3 million (2004: US$104.8 million; 2003: US$ 37.7 million) are maintained in the United States in accordancewith the terms of the senior debt agreements.

11 SHARE CAPITAL

2005 2004 2003

US$��000 US$��000 US$��000

Authorised:900,000 shares of US$1,000 each 900,000 900,000 900,000

Issued and fully paid:112,800 shares of US$1,000 each 112,800 112,800 56,300

During 2004, the Board of Directors had approved the issue of 56,500 shares with a par value of US$ 1,000 per share. The issue wassubscribed by the shareholders according to their proportion of shareholding.



95



12 SYNDICATED LOAN

2005 2004 2003

US$��000 US$��000 US$��000

Syndicated loan 536,024 640,355 706,350Classified in the balance sheet as follows:Current liability 70,500 65,925 61,650Non-current liability 465,524 574,430 644,700

536,024 640,355 706,350

The Company signed a facility credit agreement with a syndicate of banks on 27 August 1999 for a project finance loan of US$ 750 million.The Company had drawn down the entire loan by the end of year 2001. The loan carries interest at LIBOR plus pre-determined mark-ups.

According to the terms of the agreement, the loan is repayable in quarterly instalments that commenced on 15 June 2003. During the year, thetotal amount repaid was US$ 104.3 million (2004: US$ 66 million; 2003: US$ 43.6 million). Fixed repayment amounts are due in the amountof US$ 70.5 million in 2006, US$ 75.2 million in 2007, US$ 80.6 million in 2008, US$ 86.2 million in 2009 and US$ 92.2 million in 2010.

13 SUBORDINATED LOANS

2005 2004 2003

US$��000 US$��000 US$��000

Tranche A 269,825 294,500 294,500Tranche B � 13,479 7,399Accrued interest 3,217 2,205 1,282

273,042 310,184 303,181

The Company signed a subordinated loan agreement with Chevron Phillips Chemical International Qatar Holdings LLC (CPCIQH) on 16September 1999 as amended in accordance with the QChem Joint Venture Agreement. Excluding the accrued interest, the balance of the loanwas US$ 270 million (2004: US$ 308 million; 2003: US$ 302 million) as of 31 December 2005. The subordinated loan carries interest asfollows:

� The outstanding principal amount of each subordinated loan shall bear interest until repayment in full at a rate equal to the rate payableunder the syndicated loan.

� Any amounts outstanding, after the syndicated loan terminates, shall bear interest at a rate equal to LIBOR plus the margin over LIBORpayable under the syndicated loan on the termination date.

According to the terms of this agreement, there is no schedule of repayment and the principal balance of all outstanding subordinated loansand interest thereon shall be repayable each quarter from available cash flows after the payment of all priority dividends. With respect to anyinterest due and payable at the end of each quarter not paid from available cash flows, an amount equal to such interest shall be deemed tohave been advanced to the Company as a Tranche B Subordinated loan in accordance with the agreement. During the year, repayment ofsubordinated loans, including accrued interest, was US$ 50.8 million.



CPChem has agreed to provide up to US$ 75 million of loans to QChem if there is insufficient cash to pay the minimum debt servicepayments on the bank financing. CPChem has also agreed to provide loans to QChem through December 2006 if there is insufficient cash tomake QChem�s target debt service payments. These loans are limited to an amount not greater than the operating margin loss resulting fromsales volumes being less than the design capacity of the plant. CPChem�s rights under the Subordinated Loan Agreement and the othercontingent loan agreements related to QChem previously described are subordinated to QChem�s senior bank debt.

14 PROVISION FOR EMPLOYEES�� END OF SERVICE BENEFITS

2005 2004 2003

US$��000 US$��000 US$��000

At 1 January 1,833 1,236 650Provided during the year 1,178 834 684Less: paid during the year (283) (237) (98)At 31 December 2,728 1,833 1,236

96



14 PROVISION FOR EMPLOYEES�� END OF SERVICE BENEFITS (continued)

The Company has created a provision for its estimated obligation for pension contributions for Qatari staff in accordance with therequirements of Qatari Retirement and Pension Law No. 24 of 2002. The provision of US$ 0.15 million as of 31 December 2005 (2004: US$0.5 million; 2003: US$ 0.3 million) is included in accounts payable and accrued expenses.

15 DEFERRED LIABILITY

The deferred liability as at 31 December 2005 represents a premium amount payable to an insurance company. Since QChem doesn�t expectthis amount to be paid within the next one year, the same has been classified as non-current.

16 TAXATION

(a) DEFERRED TAXATION

Deferred income tax is provided for temporary differences existing between the financial statement and the tax basis of the Company�s assetsand liabilities and relate primarily to depreciation on property, plant and equipment.

2005 2004 2003

US$��000 US$��000 US$��000

At 1 January 370 � �

Provided during the year 22,158 370 �

Less: recovered during the year � � �

At 31 December 22,528 370 �

The deferred liability comprises of the following types of temporary differences:



2005 2004 2003

US$��000 US$��000 US$��000

Net taxable temporary differences (63,309) (1,059) �

Deferred tax expense relating to the origination of temporary differences @ 35% (22,158) (370) �

(b) CURRENT TAX PROVISION

2005 2004 2003

US$��000 US$��000 US$��000

Profit / (loss) as per financial statement before tax 182,003 128,990 (39,798)

Add: Depreciation as per books 41,470 41,261 26,634Others � 1,870 92

Less: Depreciation as per form 3 (at income tax depreciation rates) (102,906) (102,150) (1,817)Profit / (loss) as per tax declaration 120,567 69,971 (14,889)

Carried forward loss � (24,794) (9,905)Net taxable profit / (loss) 120,567 45,177 (24,794)

Current tax payable @ 26.25% 31,649 11,859 �

Add: Net opening balance after payment of income tax pertaining to 2004 47 � �

31,696 11,859 �

97



16 TAXATION (continued)

(c) EFFECTIVE INCOME TAX RATE RECONCILIATION

2005 2004 2003 2005 2004 2003

US$��000 US$��000 US$��000 % % %

Income / (loss) from continuingoperations before income taxes 182,003 128,990 (39,798) 29.6 9.5 �

Statutory income tax 47,776 33,860 � 26.3 26.3 �

Deferred tax (asset) � (21,723) � � (16.9) �

Deferred tax rate difference 6,031 92 � 3.3 0.1 �

53,807 12,229 �� 29.6 9.5 �



17 ACCOUNTS PAYABLE AND ACCRUED EXPENSES

2005 2004 2003

US$��000 US$��000 US$��000

Trade payables 9,137 9,938 5,326Advances received from customers 1,673 450 232Accrued expenses and other payables 4,643 3,702 23,937Bonus payable to employees 1,357 742 357Pension liability for Qatari employees 148 464 310Interest payable 1,404 1,067 593

18,362 16,363 30,755

The amount recognised for 2005 as an expense for the pension liability for Qatari employees is US$ 0.56 million (2004: US$ 0.05 million;2003: US$ 0.1 million).

18 NET PROFIT / (LOSS) FOR THE YEAR

2005 2004 2003

US$��000 US$��000 US$��000

The net profit / (loss) for the year is stated after the charges of:Staff cost 39,479 33,623 28,331Rental � operating lease 549 535 523

19 EXPENDITURE COMMITMENTS

The Company has the following outstanding contractual commitments:

2005 2004 2003

US$��000 US$��000 US$��000

Capital expenditure commitments: �� 1,407 1,442

98



19 EXPENDITURE COMMITMENTS (continued)

Operating lease commitments: 2005 2004 2003

US$��000 US$��000 US$��000

Future minimum lease payments:Within one year 544 488 488After one year but not more than five years

2005 � � 4872006 � 487 488



2007 544 488 4882008 544 488 4882009 544 488 �

2010 544 � �

Total 2,176 1,951 1,951

More than five years 7,616 7,317 7,805Total operating lease expenditure contracted for at the balance sheet date 10,336 9,756 10,244

Land on which the plant is constructed, located at Mesaieed Industrial area, has been leased from Qatar Petroleum under a land leaseagreement signed on 25 August 1999.

20 FINANCIAL INSTRUMENTS

A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument ofanother enterprise.

Accounting policies for financial assets and liabilities are set out in note 3.

Financial instruments comprise of cash and bank balances, accounts receivables, other receivables, due from / to related parties, term loans,accounts payable and accrued expenses.

a) Fair values

Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable willing parties on an arm�s lengthbasis. Differences can therefore arise between the book values under the historical cost method and fair value estimates.

Underlying the definition of fair value is a presumption that an enterprise is a going concern without any intention or need to liquidate, curtailmaterially the scale of its operations or undertake a transaction on adverse terms.

The fair values of financial assets and liabilities are not materially different from their carrying values at the balance sheet date.

b) Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financialloss. The Company exposure to credit risk is as indicated by the carrying amount of its financial assets which consist primarily of currentbalances with banks and accounts receivable, net of provision for doubtful accounts, if any.

The Company manages its exposure to balances with banks through the selection of reputed local and international banks for placing its funds.The Company seeks to limit its credit risk with respect to customers by setting credit limits for individual customers and monitoringoutstanding receivables. Further more, Chevron Phillips Chemical Company LLC guarantees certain credit sales of it�s agents.

c) Liquidity risk

The Company is not exposed to significant liquidity risk. The Company�s terms of sales require amounts to be paid within 30-150 days of thedate of sale. Trade payables are normally settled within 30-45 days of the date of purchase.

99





20 FINANCIAL INSTRUMENTS (continued)

d) Currency risk

The Company is exposed to significant currency risk on a portion of its trade accounts receivable. Trade accounts receivable include US$ 36.2million (2004: US$ 46.2 million; 2003: US$ 13.19 million) receivable in foreign currencies, mainly Euro.

The balances in Qatari Riyal are not considered to represent significant currency risk since the US Dollar is pegged to Qatari Riyal.

Trade accounts payable include US$ 4.4 million (2004: US$ 4.2 million; 2003: US$ 3.2 million) due in foreign currencies, mainly QatariRiyal.

100




e) Interest rate risk

A significant portion of the Company�s financial assets and liabilities as of 31 December 2005 is exposed to interest rate fluctuations.

The Company�s exposure to interest rate risk and the effective interest rates on its financial assets and liabilities are summarised below:

Up to 3-12 1-5 More than Non-interest

Effective

interest

3 months months Years 5 years sensitive Total Rate %

As at 31 December 2005

Financial assets: � � � � 68 68 �

Long-term receivables � � � � 6,101 6,101 �

Other receivables and prepayments � � � � 59,085 59,085 �

Due from related parties � � � � 58,960 58,960 �

Accounts receivable � � � � � � �

Cash and cash equivalents 165,308 � � � � 165,308 2.3

165,308 � � � 124,214 289,522

Financial liabilities:Syndicated loan 17,175 53,325 334,350 131,174 � 536,024 4.59Subordinated loan � � � 273,042 � 273,042 4.44Provision for employees� end of service benefit � � � � 2,728 2,728 �

Deferred liability � � � � 1,642 1,642 �



Deferred tax liability � � � � 22,528 22,528 �

Provision for taxation � � � � 31,696 31,696 �

Due to related parties � � � � 29,281 29,281 �

Accounts payable and accrued expenses � � � � 18,362 18,362 �

17,175 53,325 334,350 404,216 106,237 915,303

Net financial assets / (liabilities) 148,133 (53,325) (334,350) (404,216) 17,977 (625,781)

101






Effective

interest

3 months months years 5 years sensitive Total Rate %


Financial assets:Long-term receivables � � � � 220 220 �



Accounts receivable � � � � 57,201 57,201 �

Cash and cash equivalents 104,047 � � � � 104,047 1.04

104,047 � � � 128,781 232,828



Deferred tax liability � � � � 370 370 �

Provision for taxation � � � � 11,859 11,859 �



16,050 49,875 404,850 479,764 48,056 998,595

Net financial assets / (liabilities) 87,997 (49,875) (404,850) (479,764) 80,725 (765,767)

102








Effective

interest

3 months months years 5 years sensitive Total Rate %


Financial assets:Long-term receivables � � � � 616 616 �



Accounts receivable � � � � 16,691 16,691 �

Cash and cash equivalents 37,507 � � � � 37,507 0.6937,507 � � � 50,646 88,153





15,000 50,995 378,525 565,011 68,670 1,078,201

Net financial assets / (liabilities) 22,507 (50,995) (378,525) (565,011) (18,024) (990,048)

103



21 COMPARATIVE FIGURES

The corresponding figures presented for 2004 and 2003 have been reclassified and restated where necessary to preserve consistency with the2005 figures. However, such reclassification did not have an effect on the total assets or total liabilities or the net profit of the previous years.

104

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



On July 12, 2004, Qatar Chemical Ltd. (Q-Chem), with the approval of its Audit Committee, appointed the accounting firm of KPMG as itsnew principal accountants (auditors). The appointment of KPMG was necessitated by a Qatari law which mandates that audit firms be rotatedat least once every five years. Q-Chem, a 49%-owned equity affiliate of CPChem, is deemed to be a "significant subsidiary" under SEC rules.

Item 9A. Controls and Procedures

As of the end of the period covered by this report, and with the participation of management, CPChem�s Chief Executive Officer and ChiefFinancial Officer carried out an evaluation of the effectiveness of the design and operation of CPChem�s disclosure controls and procedures(as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer have concluded that CPChem�s disclosure controls and procedures are effective in providing them with timely materialinformation that is required to be disclosed in reports CPChem files under Section 13 or Section 15(d) of the Securities Exchange Act. Therewere no changes in CPChem�s internal control over financial reporting (as defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f))that occurred during CPChem�s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect,CPChem�s internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

Directors and Officers. Directors, executive officers and certain other officers of Chevron Phillips Chemical Company LLC are set forth in thefollowing table. All of CPChem�s directors are elected in accordance with the terms of its limited liability company agreement.

On February 10, 2006, James L. Gallogly submitted his resignation as President and Chief Executive Officer of the Company, effectiveMarch 31, 2006. In conjunction with his resignation and in accordance with the terms of CPChem's limited liability company agreement,Mr. Gallogly will also cease to be non-voting director of CPChem effective March 31, 2006. Mr. Gallogly will rejoin ConocoPhillips asExecutive Vice President, Refining, Marketing and Transportation, effective April 1, 2006.

On February 10, 2006, CPChem�s Board of Directors elected Raymond I. Wilcox as President and Chief Executive Officer of the Company,effective April 1, 2006.

Name Age Position

James L. Gallogly 53 President and Chief Executive Officer; Non-voting DirectorGreg G. Maxwell 49 Senior Vice President, Chief Financial Officer and Controller; Non-voting DirectorGreg C. Garland 48 Senior Vice President, Planning & Specialty ProductsCraig B. Glidden 48 Senior Vice President, Legal and Public Affairs, General Counsel and SecretaryJ. Mike Parker 59 Senior Vice President, Aromatics & StyrenicsRick L. Roberts 51 Senior Vice President, ManufacturingTim G. Taylor 52 Senior Vice President, Olefins & PolyolefinsJoe M. McKee 55 Vice President and TreasurerPatricia E. Yarrington 49 Class C DirectorGary G. Yesavage 53 Class C DirectorJohn E. Lowe 47 Class P DirectorJim W. Nokes 59 Class P Director

105



James L. Gallogly: Mr. Gallogly has been President and Chief Executive Officer, and has served as a non-voting director of CPChem, sinceits inception in July 2000. He previously served as Senior Vice President of Chemicals for Phillips Petroleum Company (Phillips), a positionhe accepted in 1999.

Greg G. Maxwell: Mr. Maxwell has been Senior Vice President, Chief Financial Officer and Controller, and has served as a non-votingdirector of CPChem, since August 2003. From July 2000 to August 2003, Mr. Maxwell was Vice President and Controller. From 1998 toJuly 2000, he served as General Auditor for Phillips.

Greg C. Garland: Mr. Garland has been Senior Vice President, Planning & Specialty Products of CPChem since October 2001. FromJuly 2000 to October 2001, Mr. Garland was Senior Vice President, Planning and Strategic Transactions. From 1997 to July 2000, he servedas General Manager, Qatar/Middle East for Phillips.

Craig B. Glidden: Mr. Glidden has been Senior Vice President, Legal and Public Affairs, General Counsel and Secretary of CPChem sinceApril 2004. From July 2000 to April 2004, Mr. Glidden was Vice President, General Counsel and Secretary. In 1996, Mr. Glidden founded thelaw firm of Glidden Partners LLP and was managing partner of the firm until joining CPChem in 2000.

J. Mike Parker: Mr. Parker has been Senior Vice President, Aromatics & Styrenics of CPChem since October 2001. From July 2000 toOctober 2001, Mr. Parker was Senior Vice President of Aromatics. He served Chevron Chemical Company LLC (Chevron Chemical) asGeneral Manager, Olefins and Plastics, from 1999 to July 2000.

Rick L. Roberts: Mr. Roberts has been Senior Vice President, Manufacturing of CPChem since October 2001. From July 2000 toOctober 2001, Mr. Roberts was Vice President of Manufacturing for Olefins & Polyolefins. He served Chevron Chemical as Plant Manager atCedar Bayou from 1999 to July 2000.

Tim G. Taylor: Mr. Taylor has been Senior Vice President, Olefins & Polyolefins of CPChem since July 2000. He served Phillips asPolyolefins Manager from 1999 to July 2000.

Joe M. McKee: Mr. McKee has been Vice President and Treasurer of CPChem since July 2000. Prior to assuming his current position, heserved as Finance Manager for the Americas Division of Phillips Exploration and Production, a position to which he was appointed in 1993.

Patricia E. Yarrington: Ms. Yarrington was elected a director of CPChem in July 2001. She currently serves as Vice President, Policy,Government and Public Affairs at Chevron Corporation (Chevron), a position to which she was named in 2002. Ms. Yarrington previouslyserved Chevron as Vice President, Strategic Planning, a position to which she was appointed upon the merger of Chevron Corporation andTexaco Inc. into ChevronTexaco Corporation (now Chevron) in 2001. Prior to that merger, she served Chevron in a similar position, VicePresident of Strategic Planning, a position she assumed in 2000. In 1998, she was appointed President of Chevron Canada Ltd.

Gary G. Yesavage: Mr. Yesavage was elected a director of CPChem in June 2003. He currently serves as General Manager of the ChevronProducts Company El Segundo refinery, a position to which he was appointed in 1999.

106

John E. Lowe: Mr. Lowe has served as a director of CPChem since its inception in July 2000. He currently serves as Executive VicePresident, Planning, Strategy and Corporate Affairs for ConocoPhillips, a position to which he was appointed in 2002. Mr. Lowe previouslyserved as Senior Vice President, Corporate Strategy and Development for Phillips, a position to which he was appointed in 2001, and asSenior Vice President of Planning and Strategic Transactions in 2000. In 1999, he served as Vice President, Planning and StrategicTransactions and Manager of Strategic Growth Projects for Phillips. Mr. Lowe also serves as a Director of Duke Energy Field Services, LLCand a Director of DCP Midstream Partners, LP.

Jim W. Nokes: Mr. Nokes was elected a director of CPChem in October 2002. He currently serves as Executive Vice President, Refining,Marketing, Supply and Transportation for ConocoPhillips, a position to which he was appointed in 2002. Mr. Nokes previously servedConoco Inc. as Executive Vice President, Worldwide Refining, Marketing, Supply and Transportation, a position to which he was named in1999.

Raymond I. Wilcox: On February 10, 2006, CPChem�s Board of Directors elected Raymond I. Wilcox as President and Chief ExecutiveOfficer of CPChem, effective April 1, 2006. Mr. Wilcox, 59, currently serves as Vice President of Chevron and President of Chevron NorthAmerica Exploration and Production Company, an affiliate of Chevron, where he is responsible for managing Chevron�s oil and gas



exploration and production activities and its resource base in North America. Mr. Wilcox assumed his current positions on January 1, 2002and prior to that time served for two years as Chairman and Managing Director of Chevron Nigeria, Ltd., an affiliate of Chevron.

Audit Committee Financial Expert. CPChem�s Board of Directors has established an audit committee of the Board of Directors (the �AuditCommittee�), the members of which are Ms. Yarrington and Mr. Lowe, and has determined that Mr. Lowe qualifies, and has so designatedhim, as the �Audit Committee financial expert.� Mr. Lowe is not considered to be �independent� as defined in the applicable SEC rules andregulations.

Code of Ethics. CPChem has adopted a code of ethics that applies to its principal executive officer and principal financial officer. A copy ofthis code is available to any person upon request and at no charge. Requests should be directed to the Office of the General Counsel atCPChem�s principal executive office at the address and phone number as shown on the cover of this report.

107

Item 11. Executive Compensation

Summary Compensation Table

The table below provides information regarding compensation earned by CPChem�s Chief Executive Officer and the next four most highlycompensated executive officers for the year ended December 31, 2005 (collectively, the �named executive officers�). Information for thenamed executive officers is also presented for the years ended December 31, 2004 and 2003.

Long-term

Annual Payouts All Other

Name and Principal Position Year Salary Bonus LTIP (a ) Compensation (b)

James L. Gallogly 2005 $ 526,750 $ 649,490 $ 984,500 $ 41,643President and 2004 504,200 505,479 1,343,400 31,240Chief Executive Officer 2003 483,750 309,200 967,700 24,503

Greg G. Maxwell 2005 287,037 210,864 247,100 21,574Senior Vice President, 2004 252,588 203,775 387,200 15,379Chief Financial Officer and Controller 2003 231,196 120,256 204,200 11,531

Greg C. GarlandSenior Vice President,Planning & Specialty Products

200520042003

312,125295,175279,107

230,033243,838157,618

254,700444,400288,100

19,90818,14814,071

Craig B. GliddenSenior Vice President,Legal and Public Affairs,General Counsel and Secretary

200520042003

319,292308,710298,637

237,362214,848116,042

275,100487,000352,300

25,43019,20915,162

Tim G. TaylorSenior Vice President,Olefins & Polyolefins

200520042003

317,958303,762291,284

294,175229,424126,994

321,600572,400414,700

25,14118,81414,797

(a) Information for 2005 represents Strategic Performance (SP) awards earned in 2005 for the completed 2003-2005 performance cycle thatwill be paid in 2006. As of the date of this report, Relative Performance (RP) awards earned and payable for the 2003-2005 performancecycle have not been determined and are not included in the table. Information for 2004 represents RP and SP awards earned in 2004 forthe completed 2002-2004 performance cycle that were paid in 2005 (information for 2004 as presented in the 2004 Annual Report onForm 10-K included only SP awards, as the RP award amounts had not been determined). Information for 2003 represents RP and SPawards earned in 2003 for the completed 2001-2003 performance cycle that were paid in 2004.



(b) During 2005, Messrs. Gallogly, Maxwell, Garland, Glidden and Taylor received company contributions to their savings plan accounts of$40,957, $21,206, $19,502, $25,014 and $24,727, respectively, and life insurance premiums of $686, $368, $406, $416 and $414,respectively, were paid on their behalf.

Option Grants and Options Exercised During 2005

CPChem does not grant options to purchase securities of CPChem to its employees or directors. Accordingly, there were no such optionsgranted or exercised during 2005 nor were any such options outstanding as of December 31, 2005.

108

Long-Term Incentive Plans

In December 2005, the Long-Term Incentive Plan of Chevron Phillips Chemical Company LLC (the �LTIP�) for selected key employees wasamended and restated, effective January 1, 2005. Prior to the amendment and restatement, participants were eligible for two types of awards:Relative Performance (RP) awards and Strategic Performance (SP) awards. After the amendment and restatement, grants of RP awards are nolonger available under the LTIP for performance cycles beginning on or after January 1, 2006. The amendment and restatement had no effecton participants� rights or CPChem�s obligations with respect to grants of RP awards then outstanding.

In lieu of RP award grants that will no longer be available under the LTIP, the Relative Performance Value Plan of Chevron Phillips ChemicalCompany LLC (the �RPV Plan�) was adopted effective January 1, 2006. The RPV Plan provides for the granting of Relative PerformanceValue (RPV) awards to certain key eligible employees of the Company. Any final RPV award amount earned by a participant will beautomatically deferred into the Chevron Phillips Chemical Company LP Executive Deferred Compensation Plan (the �Deferred CompensationPlan�). The Compensation Committee of the Board of Directors of CPChem (the �Compensation Committee�) has the sole discretion todetermine which employees receive RPV and SP awards.

The Compensation Committee sets target RPV and SP award amounts for a performance cycle at the time the annual RPV and SP awards aregranted. RPV awards are generally based on the Company�s relative performance during the performance cycle and the stock prices ofChevron and ConocoPhillips (collectively, the �members�) at the end of the performance cycle, as adjusted by the Compensation Committeeat its discretion. SP awards are based on CPChem�s strategic performance as compared to defined strategic objectives as selected by theCompensation Committee. Amounts paid under each type of award are determined at the end of each performance cycle, which is typicallythree years. The Compensation Committee has the sole discretion to determine the amounts payable, if any, under each type of award.

LTIP Awards in 2005

Award Target

Performance

Period Until

Estimated Future Payouts

Under Non-Stock-Price-Based Plans

Name Type Award Payout Threshold Target Maximum

James L. Gallogly RP $ 644,900 12/31/2007 $ � $ 644,900 $ 1,289,800SP 644,900 12/31/2007 � 644,900 1,289,800

Greg G. Maxwell RP 178,100 12/31/2007 � 178,100 356,200SP 178,100 12/31/2007 � 178,100 356,200

Greg C. Garland RP 189,900 12/31/2007 � 189,900 379,800SP 189,900 12/31/2007 � 189,900 379,800

Craig B. Glidden RP 196,000 12/31/2007 � 196,000 392,000



SP 196,000 12/31/2007 � 196,000 392,000

Tim G. Taylor RP 233,100 12/31/2007 � 233,100 466,200SP 233,100 12/31/2007 � 233,100 466,200

109

Relative Performance Awards for the 2003 - 2005 Performance Cycle Under the LTIP

On August 11, 2003, the Compensation Committee approved the grant of RP awards to certain executives, including the named executiveofficers. According to the terms of the grant, each of those executives is entitled to earn between 0% and 200% of such executive�s respectivetarget RP award depending on performance measures achieved during the three year performance cycle beginning January 1, 2003 and endingDecember 31, 2005, as determined by the Compensation Committee at the end of the performance cycle. Target RP awards are set as apercentage of such executive�s base salary at the time of the grant, with the percentage differing based upon the executive�s grade level. Thepayment of any RP award amount, once determined, will be made in 2006.

The performance measures for the RP awards consist of: (1) earnings before interest, taxes and depreciation (EBITDA) divided by total assets;(2) a comparison of CPChem�s financial performance relative to a peer group of companies; and/or (3) economic value added.

2006 Executive Compensation Awards

Relative Performance Value Awards for the 2006 - 2008 Performance Cycle Under the LTIP

On February 24, 2006, the Compensation Committee approved the grant of RPV awards to certain executives, including the named executiveofficers. According to the terms of the grant, each of those executives is entitled to earn between 0% and 200% of such executive�s respectivetarget RPV award depending on performance measures achieved during the three year performance cycle beginning January 1, 2006 andending December 31, 2008 and the members� stock prices, as adjusted by the Compensation Committee at their discretion at the end of theperformance cycle. Target RPV awards are set as a percentage of such executive�s base salary at the time of the grant, with the percentagediffering based upon the executive�s grade level. Any RPV award amount, once determined, will be automatically deferred into the DeferredCompensation Plan in 2009.

The performance measures for the RPV awards consist of: (1) EBITDA divided by total assets; (2) a comparison of CPChem�s financialperformance relative to a peer group of companies; and/or (3) economic value added.

Strategic Performance Awards for the 2006 - 2008 Performance Cycle Under the LTIP

On February 24, 2006, the Compensation Committee approved the grant of SP awards to certain executives, including the named executiveofficers. According to the terms of the grant, each of those executives is entitled to earn between 0% and 200% of such executive�s respectiveSP award depending on performance measures achieved during the three year performance cycle beginning January 1, 2006 and endingDecember 31, 2008, as determined by the Compensation Committee at the end of the performance cycle. Target SP awards are set as apercentage of such executive�s base salary at the time of the grant, with the percentage differing based upon the executive�s grade level. Thepayment of any SP award amount, once determined, will be made in 2009.

The performance measures for the SP awards consist of: (1) gap closure/synergies; (2) major project management; (3) portfolio management;(4) effective management of capital projects; (5) unit cost reductions versus baseline measurements; (6) reliability versus baselinemeasurements, and/or (7) achievement of effective growth goals.

110



2006 Target Awards Pursuant to the Annual Incentive Plan

On February 24, 2006, the Compensation Committee approved the grant of target awards to certain executives, including the named executiveofficers. Target awards are measured as a percentage of such executive�s base salary at December 31, 2006, with the percentage differingbased upon the executive�s grade level. Each of those executives is entitled to earn between 0% and 200% of such executive�s target awarddepending on performance measures achieved under CPChem�s Employee Incentive Program (EIP) during the year ending December 31,2006, as determined by the Compensation Committee. The payment of any target award amount, once determined, will be made in 2007.

The performance measures for the EIP consist of corporate-wide measures and award unit measures. Corporate wide-measures consist of:(1) safety; (2) EBITDA; and (3) operating expenses. Award unit measures, which may vary depending on the executive, consist of (1) safety;(2) earnings; (3) expenses; (4) key projects; and (5) customer satisfaction.

Pension Plans

Retirement Plan

CPChem�s retirement plan is a defined benefit plan and covers most U.S.-based employees. Eligible employees automatically participate inthe plan and began accruing benefits from January 1, 2001 or their first day of employment if employed after that date. Eligible employeesbecome fully vested in their retirement benefits after five years of service with CPChem, including prior service with Chevron orConocoPhillips or their affiliates, if applicable. Retirement benefits are based on two types of credits: a career average pay benefit and avariable annuity benefit. For the career average pay benefit, each year employees receive an annual credit equal to 1.5% of eligiblecompensation for that year. The variable annuity benefit is the second component of the retirement plan and is made up of a monthly creditequal to 1% of each eligible employee�s compensation for that month. Discretionary increases to the career average pay benefit and/or thevariable annuity benefit may be approved by the Compensation Committee from time to time provided CPChem�s performance metricssupport the additional cost. Upon retirement, the accrued benefit may be paid as a lump sum payment or converted to a monthly benefit. If alump sum payment is elected, that payment may be rolled over to an individual retirement account or individual retirement annuity of anotheremployer�s plan.

If an employee leaves CPChem for any reason prior to retirement and is vested, the accrued benefit may either be paid out at that time inaccordance with the options described above or remain in the plan until the individual�s early or normal retirement date, at which time theaccrued benefit may be paid out as a lump sum or converted to a monthly benefit. Eligible employees that joined CPChem from eitherChevron or ConocoPhillips on January 1, 2001 may receive certain adjustments, or �uplifts,� to their retirement benefit which are intended to(1) make up for pay increases that would have been added to their retirement benefit had they stayed at Chevron or ConocoPhillips, and(2) approximate the extent to which their continued employment at Chevron or ConocoPhillips would have resulted in a more favorable earlyretirement factor.

111

Supplemental Executive Retirement Plan

The supplemental executive retirement plan applies to designated officers and key executives who receive a retirement benefit under theretirement plan and who have had the amount of that benefit reduced due to required limitations under the Internal Revenue Code, or byreason of deferral of compensation under CPChem�s executive deferred compensation plan, or as a result of management incentive bonusamounts not being recognized as compensation under the retirement plan. The eligible employee�s benefit under this plan is equal to thedifference between (1) the amount the employee would have received under the retirement plan had the amount been calculated (a) withoutregard to the limitations imposed by the Internal Revenue Code; (b) as if amounts deferred by the employee under CPChem�s executivedeferred compensation plan had been paid, (c) by treating management incentive bonus amounts as compensation; and (d) with respect to anemployee that came from ConocoPhillips on January 1, 2001, by �decoupling� that employee�s compensation payable as bonus and theamount payable as base pay for purposes of determining highest average earnings under the retirement plan; and (2) the amount of theemployee�s retirement benefit payable under the retirement plan.



Estimated Retirement Benefits

The estimated annual benefits payable upon retirement at normal retirement age (defined in the retirement plans as age 65) for each of thenamed executive officers are as follows:

Name

Estimated Annual

Retirement Benefits

James L. Gallogly $ 268,435Greg G. Maxwell 161,603Greg C. Garland 179,713Craig B. Glidden 110,485Tim G. Taylor 144,848

Director Compensation

No director of CPChem receives any additional compensation for their service as directors.

Employment Agreements

None of the named executive officers have employment, termination of employment, or change in control agreements with CPChem.

Compensation Committee Interlocks and Insider Participation

Mr. Lowe, who currently serves as Executive Vice President, Planning, Strategy and Corporate Affairs for ConocoPhillips, served as a votingmember of the Compensation Committee during 2005. Ms. Yarrington, who currently serves as Vice President, Policy, Government andPublic Affairs at Chevron, also served as a voting member of the Compensation Committee during 2005. Mr. Gallogly and Mr. Don F.Kremer, Vice President, Human Resources, served as non-voting members of the Compensation Committee during 2005. Neither Mr. Lowenor Ms. Yarrington has served as an officer or employee of CPChem or any of its subsidiaries.

112

Item 12. Security Ownership of Certain Beneficial Owners and Management

CPChem is a limited liability company, owned 50% each by Chevron and ConocoPhillips either directly or indirectly through their whollyowned subsidiaries. The ownership interests in CPChem as of the date of this report are as follows:

Name and Address of Owner

Title

of Class

Percentage

of Ownership

Chevron

Chevron U.S.A. Inc.6001 Bollinger Canyon RoadSan Ramon, California 94583

Class C 50.0%

ConocoPhillipsConocoPhillips Company

600 North Dairy AshfordHouston, Texas 77079

Class P 38.0%



Phillips Petroleum International Corporation600 North Dairy AshfordHouston, Texas 77079

Class P 9.5%

WesTTex 66 Pipeline Company600 North Dairy AshfordHouston, Texas 77079

Class P 2.1%

Phillips Chemical Holdings Company600 North Dairy AshfordHouston, Texas 77079

Class P 0.4%

Item 13. Certain Relationships and Related Transactions

CPChem believes that all of the related transactions described below are on terms substantially no more favorable than those that would havebeen agreed upon with third parties on an arm�s-length basis. See Part II - Item 8. Financial Statements and Supplementary Data � Notes 3, 9and 15 for information regarding aggregate amounts paid in transactions with affiliated parties.

Services Agreements. CPChem is a party to agreements with Chevron and ConocoPhillips, under which they provide CPChem with personnel,equipment and technology primarily for research, technology development, laboratory services, and engineering and project managementsupport. Chevron and ConocoPhillips charge CPChem for these services according to the rates agreed upon in these services agreements.CPChem has also entered into other agreements with affiliates of Chevron and ConocoPhillips that cover the provision of additional servicesincluding, but not limited to, procurement and pipeline operating services.

Intellectual Property Agreements. In connection with the formation of the company, CPChem entered into a Tradename License Agreementwith Chevron and ConocoPhillips, a General Trademark Assignment Agreement with ConocoPhillips, and separate Intellectual PropertyAgreements with each, assigning or exclusively licensing rights to certain intellectual property owned by Chevron and ConocoPhillips.

Common Facility Operating Agreements. CPChem is a party to common facilities operating agreements with ConocoPhillips and Chevronrelated to the operation of the chemical facilities located within or near their refineries at Sweeny, Borger and Pascagoula.

113

Supply and Feedstock Agreements. CPChem is a party to supply agreements with Chevron and ConocoPhillips under which CPChempurchases various products produced in certain of their refineries. In addition, CPChem is a party to agreements with ConocoPhillips andDuke Energy Field Services LLC (an affiliate of ConocoPhillips) under which they supply CPChem with certain natural gas liquid feedstocks.Chevron and ConocoPhillips also purchase various products that CPChem produces in its chemical facilities.

Sales Agency Agreements. CPChem is a party to sales agency agreements with ConocoPhillips under which it markets and sells certainchemical products produced by ConocoPhillips at its Borger and Sweeny refineries.

Polyethylene Pipe. CPChem�s Performance Pipe division sells polyethylene pipe to Chevron and ConocoPhillips.

Specialty Products. CPChem�s Specialty Chemicals division sells specialty and reference fuels, gas odorants, sulfiding agents and extractivesolvents to Chevron and ConocoPhillips.

Item 14. Principal Accounting Fees and Services

Fees. Aggregate fees for professional services rendered by CPChem�s independent auditor, Ernst & Young LLP, were as follows:


Dollars 2005 2004



Audit fees (a) $ 1,058,115 $ 872,100Audit-related fees (b) 141,391 160,397Tax fees (c) 92,411 72,895All other fees (d) � 243Total fees $ 1,291,917 $ 1,105,635

(a) Audit fees represent fees billed for professional services rendered for the audits of CPChem�s annual consolidated financialstatements, statutory audits of CPChem�s subsidiaries, reviews of documents filed with the SEC and comfort letters.

(b) Audit-related fees represent fees billed for professional services rendered for audits of employee benefit plans, attest services andcertain accounting consultations.

(c) Tax fees represent fees billed for professional services rendered for tax planning, tax advice and tax compliance.

(d) All other fees represent charges for training seminars sponsored by Ernst & Young LLP.

CPChem and its Audit Committee are committed to ensuring the independence of its independent auditor as related to CPChem. As such, it isCPChem�s policy that all engagements of Ernst & Young LLP by CPChem be pre-approved by the Audit Committee, with the exception thatthe Audit Committee has granted CPChem�s Senior Vice President, Chief Financial Officer and Controller the pre-approval authority toengage Ernst & Young LLP for certain non-audit services in an amount of up to $5,000 per engagement, limited to a maximum of $50,000 peryear in the aggregate.

114

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)(1) The financial statements listed in the Index to Financial Statements on page 32 are filed as part of this annual report.

(a)(2) The following schedule is presented as required. All other schedules are omitted because the information is not applicable, notrequired or has been furnished in the Consolidated Financial Statements or Notes thereto.

Chevron Phillips Chemical Company LLCSchedule II � Valuation and Qualifying Accounts

Millions

Allowance

for Doubtful

Accounts (a,b)

Deferred Income

Tax Valuation

Allowance (a,c)

Balance on December 31, 2002 $ 7 $ 181Additions 4 9Deductions (4) �

Balance on December 31, 2003 7 190Additions 3 1Deductions (3) �

Balance on December 31, 2004 7 191Additions 8 2Deductions (1) �

Balance on December 31, 2005 $ 14 $ 193

(a) Additions were charged to expense.



(b) Deductions represent receivables written off less recoveries, if any.(c) Additions were generally offset by tax benefits of related losses.

(a)(3) The exhibits listed in the Index of Exhibits on pages 117 and 118 are filed as part of this annual report.

115

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

Date: February 27, 2006 /s/ Greg G. MaxwellGreg G. Maxwell

Senior Vice President,Chief Financial Officer and Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed as of February 27, 2006 by the followingpersons on behalf of the registrant and in the capacities indicated.

Signature Title

/s/ James L. Gallogly President and Chief Executive OfficerJames L. Gallogly

/s/ Greg G. Maxwell Senior Vice President,Greg G. Maxwell Chief Financial Officer and Controller

/s/ John E. Lowe DirectorJohn E. Lowe

/s/ Jim W. Nokes DirectorJim W. Nokes

/s/ Patricia E. Yarrington DirectorPatricia E. Yarrington

/s/ Gary G. Yesavage DirectorGary G. Yesavage



116

Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Securities Exchange Act of 1934 byRegistrants which have not Registered Securities Pursuant to Section 12 of the Securities Exchange Act of 1934:

No annual report to security holders covering the Registrant�s last fiscal year has been sent to the Registrant�s security holders and no proxystatement, form of proxy or other proxy soliciting material has been sent to more than ten of the Registrant�s security holders with respect toany annual or other meeting of security holders. No such report or proxy material is expected to be furnished to security holders subsequent tothe filing of this Annual Report on Form 10-K.

INDEX OF EXHIBITS

Exhibit No. Document

3.1 Certificate of Formation of Chevron Phillips Chemical Company LLC, dated May 23, 2000 (Exhibit No. 3.1 to CPChem�sRegistration Statement on Form S-4 dated April 16, 2001)

3.2 Certificate of Limited Partnership of Chevron Phillips Chemical Company LP, dated April 26, 2000 (Exhibit No. 3.2 toCPChem�s Registration Statement on Form S-4 dated April 16, 2001)

3.3 Certificate of Amendment to Certificate of Limited Partnership of Chevron Phillips Chemical Company LP, dated May 23, 2000(Exhibit No. 3.3 to CPChem�s Registration Statement on Form S-4 dated April 16, 2001)

3.4 Second Amended and Restated Limited Liability Company Agreement of Chevron Phillips Chemical Company LLC, datedJuly 1, 2002, by and between ChevronTexaco Corporation, Phillips Petroleum Company, Chevron U.S.A. Inc., PhillipsChemical Holdings Company, WesTTex 66 Pipeline Company and Phillips Petroleum International Corporation(Exhibit No. 3.4 to CPChem�s Registration Statement on Form S-4 dated August 6, 2002)

3.5 Agreement of Limited Partnership of Chevron Phillips Chemical Company LP, dated April 26, 2000 (Exhibit No. 3.5 toCPChem�s Registration Statement on Form S-4 dated April 16, 2001)

4.1 Indenture, dated as of March 19, 2001 between Chevron Phillips Chemical Company LLC and Chevron Phillips ChemicalCompany LP, as Issuers, and The Bank of New York as Trustee (Exhibit No. 4.1 to CPChem�s Registration Statement onForm S-4 dated April 16, 2001)

10.1 Contribution Agreement by and among Phillips Petroleum Company, Chevron Corporation and Chevron Phillips ChemicalCompany LLC, dated May 23, 2000 (Exhibit No. 10.1 to CPChem�s Registration Statement on Form S-4/A dated May 10,2001)

10.2 Letter Agreement dated July 5, 2001, amending the Contribution Agreement, dated May 23, 2000, between ChevronCorporation, Phillips Petroleum Company and Chevron Phillips Chemical Company LLC (Exhibit No. 10.1 to CPChem�sQuarterly Report on Form 10-Q for the quarter ended June 30, 2001)

10.3 Letter Agreement dated February 24, 2003, amending the Contribution Agreement, dated May 23, 2000, between ChevronCorporation, Phillips Petroleum Company and Chevron Phillips Chemical Company LLC (Exhibit No. 10.3 to CPChem�sAnnual Report on Form 10-K for the year ended December 31, 2002)



*+10.4 Chevron Phillips Chemical Company LP Executive Deferred Compensation Plan (As Amended and Restated Effective January1, 2005)

117

INDEX OF EXHIBITS (continued)

Exhibit No. Document

*+10.5 Chevron Phillips Chemical Company LP Supplemental Executive Retirement Plan (As Amended and Restated EffectiveJanuary 1, 2005)

*+10.6 Long-Term Incentive Plan of Chevron Phillips Chemical Company LLC (as Amended and Restated Effective January 1, 2005)

*+10.7 Annual Incentive Plan of Chevron Phillips Chemical Company LLC (As Amended and Restated Effective January 1, 2005)

10.8 Credit Agreement among Chevron Phillips Chemical Company LLC and Chevron Phillips Chemical Company LP, asBorrowers, and Barclays Bank Plc, The Royal Bank of Scotland Plc, Sumitomo Mitsui Banking Corporation, The Bank of NovaScotia, The Bank of Tokyo-Mitsubishi Ltd., and certain lenders from time to time thereto, dated as of July 30, 2004(Exhibit No. 10.1 to CPChem�s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004)

+10.9 Chevron Phillips Chemical Company LP Executive Financial Planning Program (Exhibit No. 10.9 to CPChem�s Annual Reporton Form 10-K for the year ended December 31, 2004)

*+10.10 Relative Performance Value Plan of Chevron Phillips Chemical Company LLC (As Amended)

*+10.11 Offer of Employment Letter, dated as of February 8, 2006, between Chevron Phillips Chemical Company LP and Raymond I.Wilcox

*21.1 Subsidiaries of the Registrant

*31.1 Certification of Chief Executive Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934

*31.2 Certification of Chief Financial Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934

* Filed herewith.+ Represents a management contract or compensatory plan or arrangement.

118



fExhibit 10.4

CHEVRON PHILLIPS CHEMICAL COMPANY LP

EXECUTIVE DEFERRED COMPENSATION PLAN

(As Amended and RestatedEffective January 1, 2005)

TABLE OF CONTENTS

Page

ARTICLE 1 - INTERPRETATION AND DEFINITIONS 21.1 Interpretation 21.2 Definitions 3

ARTICLE 2 - PARTICIPATION 62.1 Date of Participation 62.2 Termination of Participation 6

ARTICLE 3 - CONTRIBUTIONS 73.1 Participant Contributions 73.2 Employer Matching Contributions 8

ARTICLE 4 - PARTICIPANT ACCOUNT 94.1 Individual Accounts 9

ARTICLE 5 - INVESTMENT OF CONTRIBUTIONS 95.1 Adjustment of Accounts 9

ARTICLE 6 - RIGHT TO BENEFITS 96.1 Vesting 96.2 Death 10

ARTICLE 7 - DISTRIBUTION OF BENEFITS 117.1 Amount of Benefits 117.2 Determination of Method of Distribution to Participants 117.3 Distribution on Disability 117.4 Notice to Trustee 127.5 Unforeseeable Emergency 127.6 Cashouts of Amounts Not Exceeding $10,000 137.7 Effect of Early Taxation 137.8 Permitted Delays 137.9 Adjustment of Investment Experience 13

ARTICLE 8 - AMENDMENT AND TERMINATION 138.1 Amendment by the Company 13



8.2 Retroactive Amendments 148.3 Plan Termination 148.4 Distribution upon Termination of the Plan 14

i

Page

ARTICLE 9 - THE TRUST 149.1 Establishment of Trust 149.2 Investment of Trust Funds 149.3 Information Between Employer and Trustee 14

ARTICLE 10 - MISCELLANEOUS 1510.1 Unsecured General Creditor of the Employer 1510.2 Employer�s Liability 1510.3 Limitation of Rights 1510.4 No Assignment of Benefits 1510.5 Facility of Payment 1610.6 Notices 1610.7 Governing Law 1610.8 Successors and Mergers, and/or Consolidation 1610.9 Employment Not Affected by the Plan 1610.10 Severability 16

ARTICLE 11 - PLAN ADMINISTRATION 1711.1 Powers and Responsibilities the DCP Committee 1711.2 Claims and Review Procedures 1711.3 Plan Administrative Costs 19

ARTICLE 12 - PARTICIPATING EMPLOYERS 2012.1 Adoption of the Plan 2012.2 Termination of Plan Participation 20

APPENDIX A 21

ii

PREAMBLE

The purpose of the Chevron Phillips Chemical Company LP Executive Deferred Compensation Plan (the �Plan�) is to provide to keyemployees of the Company an opportunity to defer the receipt of incentive Bonuses and/or other compensation as a means of saving for theirretirement or other purposes.

It is intended that this Plan be a plan that is an unfunded deferred compensation program maintained �for a select group of management orhighly compensated employees� within the meaning of the Employee Retirement Income Security Act of 1974, as amended (�ERISA�), andshall be implemented and administered in a manner consistent with this intention. Thus, the Plan is subject to Title I of ERISA, but is exemptfrom Parts 2, 3 and 4 thereof. It is also intended that the Plan comply with the requirements of Section 409A of the Internal Revenue Code, asadded by the American Jobs Creation Act of 2004 (�Section 409A�).



This Plan was originally effective as of January 1, 2001, and was amended and restated effective January 1, 2003.

The Plan is, except as otherwise set forth in the document, amended and restated effective January 1, 2005.

1

ARTICLE 1 - INTERPRETATION AND DEFINITIONS

1.1 Interpretation

(a) General. Unless a clear contrary intention appears, for purposes of construction of this Plan:

(i) the singular number includes the plural number and vice versa;

(ii) reference to any person includes such person�s successors and assigns but, if applicable, only if such successorsand assigns are permitted by the Plan, and reference to a person in a particular capacity excludes such person in anyother capacity or individually;

(iii) reference to any gender includes the other gender;

(iv) reference to the Plan means the Plan or such other agreement, document or instrument as amended or modified andin effect from time to time in accordance with the terms thereof;

(v) reference to any law means such law as amended, modified, codified, replaced or reenacted, in whole or in part,and in effect from time to time, including rules and regulations promulgated thereunder, and reference to anysection or other provision of any law means that provision of such law from time to time in effect and constitutingthe substantive amendment, modification, codification, replacement or reenactment of such section or otherprovision;

(vi) reference in the Plan to any article, section, appendix, schedule or exhibit means such article or section thereof orappendix, schedule or exhibit thereto;

(vii) �hereunder�, �hereof�, and words of similar import shall be deemed references to a Plan Document as a whole andnot to any particular article, section or other provision thereof;

(viii) �including� (and with the correlative meaning �include�) means including without limiting the generality of anydescription preceding such term;

(ix) �or� is not exclusive;

(x) relative to the determination of any period of time, �from� means �from and including� and �to� means �to butexcluding;� and

(xi) references to days, weeks, months, quarters and years are references to such periods as determined by theGregorian calendar.

2

(b) Accounting Terms. Unless expressly otherwise provided, accounting terms shall be construed and interpreted, andaccounting determinations and computations shall be made, in accordance with generally accepted accounting principles.



1.2 Definitions

Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context:

(a) ��Account��means an account established for the purpose of recording amounts credited on behalf of a Participant and anyincome, expenses, gains, losses or distributions included thereon. The Account shall be a bookkeeping entry only and shallbe utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant pursuant tothe Plan.

(b) ��Affiliated Employer��means an entity that is treated as an �Affiliated Employer� under the terms of the CPChem 401(k)Plan.

(c) ��AIP Bonus��means a Participant�s managerial incentive bonus approved for payment under the Annual Incentive Programof Chevron Phillips Chemical Company LLC.

(d) ��Base Compensation��means �Compensation� as defined in the CPChem 401(k) Plan for purposes of making pre-taxdeferrals to this Plan, but including amounts deferred pursuant to Section 3.1(a) of this Plan, and disregarding the limitationsimposed by section 401(a)(17) of the Code.

(e) ��Beneficiary��means the person or persons, trusts, estates or other entities entitled under Section 6.2 to receive benefitsunder the Plan upon the death of a Participant.

(f) ��Bonus��means any AIP Bonus, LTIP Bonus, synergy bonus or any other bonus plan or arrangement designated by theCompany as eligible for deferral pursuant to the terms of this Plan.

(g) ��Bonus Deferral��means the portion of a Bonus payment that a Participant elects to defer in accordance with Section 3.1(b)of this Plan.

(h) ��Bonus Deferral Agreement��means the Deferral Agreement filed in accordance with Section 3.1 with respect to anyBonus payment.

(i) ��Chevron��means Chevron Corporation, or such entity as may be controlled by Chevron, that directly or indirectly holds amembership interest in the Company.

(j) ��Code��means the Internal Revenue Code of 1986, as amended.

(k) ��Company��means Chevron Phillips Chemical Company LP.

3

(l) ��Compensation Deferral��means the portion of Base Compensation that a Participant elects to defer in accordance withSection 3.1(a).

(m) ��ConocoPhillips��means ConocoPhillips Corporation, or such entity as may be controlled by ConocoPhillips, that directlyor indirectly holds a membership interest in the Company.

(n) ��Compensation Deferral Agreement��means the Deferral Agreement filed in accordance with Section 3.1 with respect tothe Participant�s Base Compensation.

(o) ��CPChem 401(k) Plan��means Chevron Phillips Chemical Company LP 401(k) Savings and Profit Sharing Plan.



(p) ��CPChem 401(k) Plan Limits��means the limits imposed under (a) section 402(g) of the Code, (b) the actual deferralpercentage test under section 401(k) of the Code, (c) the actual contribution percentage test under section 401(m) of theCode, and (d) annual addition limit under section 415(c) of the Code.

(q) ��DCP Committee��means two (2) or more individuals designated by the Company to oversee the administration of thePlan.

(r) ��Deferral Agreement��means either a Bonus Deferral Agreement or a Compensation Deferral Agreement, or both if thecontext so requires. A Deferral Agreement shall be a completed agreement between the Participant and the Employer underwhich the Participant agrees to a Bonus Deferral or a Compensation Deferral as the case may be. It also means a completedagreement between the Participant and the Employer under which the Participant selects the time and form of payment foran RPV Award and Matching Contribution. The Deferral Agreement shall be on a form prescribed by the Company andshall include any amendments, attachments or appendices.

(s) ��Disability�� or ��Disabled��means that a Participant is eligible for, and continuously receiving disability insurancepayments under the Social Security Act and/or the Company�s long-term disability plan. However, for purposes of Section7.3, �Disability� or �Disabled� means a Participant who is unable to engage in any substantial gainful activity by reason ofany medically determinable physical or mental impairment which can be expected to result in death or can be expected tolast for a continuous period of not less than twelve (12) months.

(t) ��Eligible Employee��means an employee of the Employer who satisfies each of the following criteria: (i) is determined bythe Employer to be a member of a select group of management or highly compensated employees within the meaning ofsections 201(2), 301(a)(3) and 401(a)(1) of ERISA; and (ii) is designated by the Employer as an employee who mayparticipate in the Plan.

(u) ��Employer��means the Company and any one of the entities listed in Appendix A hereto, and any other entity which isauthorized by the Company to

4

participate in and, which in fact, does adopt the Plan in accordance with Section 12.1. The term �Employer� shall in eachinstance refer to any one of the foregoing entities and in no case shall refer to the entities collectively or to more than onesuch entity.

(v) ��Entry Date��means the first day of each Plan Year, or such other dates established by the DCP Committee, including, butnot limited to the day immediately following the due date for the filing of any Deferral Agreement with the Company, ifsuch dates are in accordance in Section 409A. Entry Date shall also mean the date that is thirty (30) days after the date onwhich a newly hired employee first becomes an Eligible Employee.

(w) ��ERISA��means the Employee Retirement Income Security Act of 1974, as from time to time amended.

(x) ��Long-Term Incentive Plan�� or ��LTIP��means the Long-Term Incentive Plan of Chevron Phillips Chemical CompanyLLC.

(y) ��LTIP Bonus��means an amount paid to a Participant pursuant to the Long-Term Incentive Plan. An LTIP Bonus may takethe form of a Relative Performance Award and/or Strategic Performance Award.

(z) ��Matching Contribution��means an employer contribution under this Plan that is based on the rate (the �Matching Rate�)of Matching and Profit-sharing Contributions (as such terms are defined in the CPChem 401(k) Plan) that the Employermakes to the CPChem 401(k) Plan.

(aa) ��Participant��means any Eligible Employee who participates in the Plan in accordance with Article 2.

(bb) ��Payment Date��means the first business day of the month following an event triggering a payment, provided that if theevent occurs after the fifteenth day of a month, the �Payment Date� shall be the first business day of the second monthfollowing the event.



(cc) ��Plan��means the Chevron Phillips Chemical Company LP Executive Deferred Compensation Plan as set forth herein andas it may be amended from time to time.

(dd) ��Plan Year��means the 12-consecutive month period beginning January 1 and ending December 31.

(ee) ��Relative Performance Award��means that portion of an LTIP Bonus which is based on a reward earned due toperformance relative to a peer group of companies. Effective for Performance Cycles (as that term is defined in the LTIP)beginning on or after January 1, 2006, grants of Relative Performance Awards will no longer be available under the LTIP.

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(ff) ��RPV Plan��means the Relative Performance Value Plan of Chevron Phillips Chemical Company LLC.

(gg) ��Relative Performance Value Award�� or ��RPV Award�� means an award under the RPV Plan that is earned due toperformance relative to peer group of companies.

(hh) ��Strategic Performance Award��means that portion of an LTIP Bonus which is based on performance measured againstdefined strategic objectives.

(ii) ��Termination of Employment��means the termination of a Participant�s employment with his or her Employer and allother Affiliated Employers that meets the definition of a �separation from service� under Section 409A.

(jj) ��Trust��means the trust fund (if any) established pursuant to the terms of the Plan.

(kk) ��Trustee��means the corporation or individuals named in the agreement establishing the Trust (if any) and such successorand/or additional trustees as may be named in accordance with the Trust agreement.

(ll) ��Valuation Date��means the last day of the Plan Year and such other date(s) as designated by the DCP Committee.

ARTICLE 2 - PARTICIPATION

2.1 Date of Participation. Each Participant on the effective date of the amendment and restatement of this Plan who was an EligibleEmployee and a Participant on such date shall continue as a Participant. In the case of an Employer that adopts this Plan after theeffective date of the amended and restated Plan, in accordance with Section 12.1, an Eligible Employee shall become a Participant inthe Plan on the first Entry Date next following such Employer�s adoption of the Plan, provided the Eligible Employee files a DeferralAgreement with the DCP Committee in accordance with Article 3. Each Eligible Employee not described in the foregoing sentencesof this Section 2.1 shall become a Participant in the Plan on the Entry Date next following the date the Participant files a DeferralAgreement with the DCP Committee in accordance with Article 3. If the Eligible Employee does not file a Deferral Agreementpursuant to Article 3 prior to his or her first Entry Date, the Eligible Employee will become a Participant in the Plan as of the EntryDate next following the date the Eligible Employee files a Deferral Agreement pursuant to Article 3.

2.2 Termination of Participation. A Participant�s participation in the Plan shall cease upon his or her Termination of Employment withthe Employer for any reason or the Participant ceasing to qualify as a �management� or �highly compensated� employee within themeaning of sections 201(2), 301(a)(3) or 401(a)(1) of ERISA. In addition, the DCP Committee may terminate a Participant�sparticipation in the Plan at the direction of the Employer or the Employer may cease to exist or operate and may thereby terminate itsparticipation in the Plan in accordance with Section 12.2 of this Plan, but such

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termination may not reduce the obligation of the Employer to the Participant below the amount to which the Participant would havebeen entitled under the Plan as in effect immediately prior to such termination of participation had the Plan then terminated.

ARTICLE 3 - CONTRIBUTIONS



3.1 Participant Contributions.

(a) Each Participant may elect, in accordance with rules and procedures established by the DCP Committee and Section 409A,to defer Base Compensation otherwise payable to the Participant for the Plan Year by executing a Compensation DeferralAgreement within the time period prescribed by the DCP Committee. The Compensation Deferral Agreement will specify inwhole number multiples of 1% the amount the Participant elects to defer of his Base Compensation. The maximum amountof any Base Compensation deferral that is permissible under this Section 3.1(a) shall be 50% of the Participant�s BaseCompensation.

To the extent permitted by the Code and Treasury Regulations, the Deferral Agreement may, but need not, coordinatedeferrals under the Plan with elective deferrals within the meaning of Section 402(g) of the Code that the Participant makesunder the CPChem 401(k) Plan. This election, called the �wrap� election, provides for all the Participant�s deferrals to befirst made to the Plan, and then, to the extent that the CPChem 401(k) Plan Limits permit these contributions to be made tothe CPChem 401(k) Plan, they are automatically transferred to the CPChem 401(k) Plan. This election is irrevocable and theParticipant cannot change his deferral elections under the CPChem 401(k) Plan for such Plan Year once this �wrap� electionhas been made.

(b) Each Participant may elect, in accordance with rules and procedures established by the DCP Committee, to defer up toninety-five percent (95%) of any Bonus by executing a Bonus Deferral Agreement within the time period established by theDCP Committee. The Bonus Deferral Agreement will specify in whole number multiples of 1% the amount the Participantelects to defer of his or her Bonus (and, for the LTIP Bonus, a flat dollar amount can be deferred instead). With regard toany Bonus Deferral elections relating to LTIP Bonuses which were made prior to September 1, 2003, such elections shallapply to both the Relative Performance Award and Strategic Performance Award portions of the LTIP Bonus. Effective onor after September 1, 2003, the DCP Committee, in its discretion, may permit Participants to make separate elections withrespect to the Relative Performance Award and Strategic Performance Award portions of the LTIP Bonus.

(c) One hundred percent (100%) of the RPV Award that any Eligible Employee may receive will be deferred automatically intothe Plan. A Deferral Agreement must be timely executed and delivered to the DCP Committee no later than the date that issix (6) months before the end of the applicable �Performance Cycle� (as defined in the RPV Plan) in accordance with theProposed Treasury Regulation

7

section 1.409A-2(a)(7) (and any final regulations or other guidance that supersedes such Proposed Regulation) in order for aParticipant to select the time and form of payment of the RPV Award under this Plan.

(d) A new Deferral Agreement must be timely executed and delivered to the DCP Committee for each Plan Year during whichthe Participant desires to defer Base Compensation and/or Bonus. Amounts credited to a Participant�s Account prior to theeffective date of a new Deferral Agreement will not be affected by any subsequent agreement or agreements and will be paidin accordance with the prior election or elections. A Participant who does not timely deliver a properly executed DeferralAgreement to the DCP Committee shall be deemed to have elected zero deferral of Base Compensation and/or Bonus forsuch Plan Year. Notwithstanding the maximum deferral limits set forth in Sections 3.1(a) and (b), no Participant shall bepermitted to defer Base Compensation or Bonus which the DCP Committee reasonably determines is required to pay theParticipant�s payroll taxes, contributions toward benefits, or other payroll obligations. Under no circumstances may aDeferral Agreement be adopted retroactively. A Participant may not revoke a Deferral Agreement for a Plan Year duringsuch year. Notwithstanding the foregoing, if a Participant receives a hardship withdrawal from the CPChem 401(k) Plan,such Participant�s Base Compensation deferral election and Bonus deferral election (to the extent as yet unpaid) under thePlan shall be terminated for the Plan Year in which the hardship withdrawal is received.

In order to elect to defer Base Compensation and Bonuses earned during a Plan Year, a Participant must file an irrevocableDeferral Agreement with the DCP Committee before the beginning of such Plan Year. Notwithstanding the foregoing, (1) ifthe DCP Committee determines that a Bonus qualifies as �performance-based compensation� under Section 409A, aParticipant may elect to defer a portion of the Bonus by filing a Bonus Deferral Agreement at such later time as permitted bythe DCP Committee in accordance with Section 409A, and (2) in the first year in which an Employee becomes eligible toparticipate in the Plan, a deferral election may be made with respect to compensation for services to be performed



subsequent to the election within thirty (30) days after the date the Employee becomes eligible to participate in the Plan tothe extent permitted under Section 409A.

3.2 Employer Matching Contributions. An Eligible Employee will receive a Matching Contribution allocation with respect to a PlanYear if that Eligible Employee has deferred the maximum pre-tax amount he or she is eligible to defer under the CPChem 401(k)Plan with respect to that Plan Year. The amount of this allocation shall equal the difference between (a) the Matching Rate multipliedby the Eligible Employee�s Base Compensation; and (b) the amount actually allocated to the 401(k) Plan as Matching and/or Profit-sharing Contributions on behalf of that Eligible Employee.

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ARTICLE 4 - PARTICIPANT ACCOUNT

4.1 Individual Accounts. The DCP Committee will establish and maintain an Account for each Participant which will reflectcontributions made pursuant to Section 3.1 and, if applicable, Section 3.2 along with earnings, expenses, gains and losses creditedthereto, attributable to the investments made with the amounts in the Participant�s Account as provided in Article 5. The amount aParticipant elects to defer pursuant to Section 3.1(a) and 3.1(b) shall be credited ratably to the Participant�s Account at the time theBase Compensation and/or Bonus would otherwise have been payable to the Participant but for his or her election to defer.Contributions made in accordance with Section 3.1(c) shall be credited to the Participant�s Account at the time the RPV Awardbecomes payable to the Participant. Contributions made in accordance with Section 3.2 shall be credited to the Participant�s Accountat such time as the Employer, in its sole discretion, determines. The DCP Committee will establish and maintain such other accountsand records as it decides in its discretion to be reasonably required or appropriate to discharge its duties under the Plan.

ARTICLE 5 - INVESTMENT OF CONTRIBUTIONS

5.1 Adjustment of Accounts. The amount in a Participant�s Account shall be adjusted for hypothetical investment earnings or losses inan amount equivalent to the gains or losses reported by the measuring fund or funds selected by the Participant or Beneficiary fromamong the measuring funds designated by the Company for this purpose. A Participant may, in accordance with rules and proceduresestablished by the DCP Committee, change the measuring fund or funds to be used for the purpose of calculating future hypotheticalinvestment adjustments to the Participant�s Account. The Account of each Participant shall be adjusted as of each Valuation Date toreflect: (a) the hypothetical investment earnings and/or losses described above; (b) Compensation Deferrals; (c) Bonus Deferrals;(d) RPV Awards; (e) Matching Contributions; and (f) distributions from the Account.

ARTICLE 6 - RIGHT TO BENEFITS

6.1 Vesting.

(a) A Participant, at all times, has a 100% nonforfeitable interest in the amounts credited to his Account attributable toCompensation and Bonus Deferrals. Amounts credited to a Participant�s Account attributable to Matching Contributionsshall vest only pursuant to such provisions as apply to the vesting of rights to Matching Contributions and Profit-sharingContributions under the CPChem 401(k) Plan. If the Participant terminates employment prior to having three (3) years ofvesting service under the CPChem 401(k) Plan, then such Participant shall forfeit the entire portion of the Participant�sAccount attributable to Matching Contributions (and deemed earnings and losses thereon).

(b) A Participant has a 100% nonforfeitable interest in amounts credited to his Account attributable to RPV Awards (i) upondisability (as that term is defined in the RPV Plan), or (ii) upon the Participant�s termination of service (as that term isdefined in the RPV Plan) due to retirement (as that term is

9

defined in the RPV Plan), layoff, transfer to Chevron or ConocoPhillips, or death. If a Participant terminates employment forany reason other than retirement, layoff, transfer to a Chevron or ConocoPhillips, or death, the Participant shall forfeit theentire portion of the Participant�s Account attributable to RPV Awards (and deemed earnings and losses thereon).Notwithstanding the foregoing, any Participant who is a Participant in the RPV Plan as of January 1, 2006 will become fully



vested in the entire portion of his Account attributable to RPV Awards (and deemed earning and losses thereon) upon hisTermination of Employment, without regard to the cause of the Termination of Employment.

6.2 Death. If a Participant dies before the distribution of his or her Account has commenced, or before such distribution has beencompleted, the Participant�s designated Beneficiary or Beneficiaries will be entitled to receive the balance or remaining balance ofhis or her vested Account, plus any amounts thereafter credited to his or her Account. Distribution to the Beneficiary or Beneficiarieswill be made in a lump sum on the Payment Date following the Participant�s death.

A Participant may designate a Beneficiary or Beneficiaries, or change any prior designation of Beneficiary or Beneficiaries by givingnotice to the DCP Committee on a form designated by the DCP Committee. If more than one person is designated as the Beneficiary,their respective interests shall be as indicated on the designation form. However, if the Participant is married at the time benefitscommence (or upon his death), he must have obtained spousal consent to any non-spouse Beneficiary to become effective.

A copy of the death notice or other sufficient documentation must be filed with and approved by the DCP Committee. If upon thedeath of the Participant there is, in the opinion of the DCP Committee, no designated Beneficiary for part or all of the Participant�svested Account (or the designation is not effective because no spousal consent has been provided), such amount will be paid to theParticipant�s surviving spouse or, if none, to his or her estate (such spouse or estate shall be deemed to be the Beneficiary forpurposes of the Plan). If a Beneficiary dies after benefits to such Beneficiary have commenced, but before they have been completed,and, in the opinion of the DCP Committee, no person has been designated to receive such remaining benefits, then such benefits shallbe paid to the deceased Beneficiary�s estate. In determining whether any person named as a Beneficiary is living at the time of aParticipant�s death, if such person and the Participant died in a common disaster and there is insufficient evidence to determinewhich person died first, then it shall be deemed that the Beneficiary died first.

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ARTICLE 7 - DISTRIBUTION OF BENEFITS

7.1 Amount of Benefits. The vested value of a Participant�s Account shall constitute the basis for the value of benefits payable to theParticipant under the Plan.

7.2 Determination of Method of Distribution to Participants. Distributions under the Plan to a Participant shall be made in a lumpsum in cash or under a systematic withdrawal plan of installments made not less frequently than annually, in cash, over a five (5), ten(10), or fifteen (15) year period certain. Distributions shall commence upon (a) the Payment Date following the Participant�sTermination of Employment, (b) the Payment Date following the Participant�s one year anniversary of his Termination ofEmployment, or (c) a date certain after the completion of a deferral period of at least two (2) years (provided, however, that Section7.2(c) shall not be available for RPV Award distributions). Subject to Section 7.5, the Participant will request the time and method ofdistribution of benefits in accordance with the rules established by the DCP Committee and Section 409A. If the Participant does notproperly request the time or method of distribution, the time and method shall be a lump sum upon the Payment Date following hisTermination of Employment.

Notwithstanding the foregoing, a transfer of employment to ConocoPhillips or Chevron shall not be deemed to constitute a�Termination of Employment� until such subsequent Termination of Employment from ConocoPhillips or Chevron. In such case,payments to the Participant under this Plan shall be made in the form elected under the Deferral Agreement and commence on thePayment Date elected above, if permitted by Section 409A and the applicable guidance thereunder; otherwise, payments shallcommence as of the Payment Date following the Participant�s two (2) year anniversary of his Termination of Employment from theEmployer.

A Participant may make one or more subsequent elections to change the time or form of a distribution for a deferred amount, but anysuch election made on or after January 1, 2006 shall be effective only if the following conditions are satisfied:

(i) The election may not take effect until at least twelve (12) months after the date on which the election is made;



(ii) A distribution may not be made earlier than at least five (5) years from the date the distribution would haveotherwise been made (or commenced to be made for installments); and

(iii) In the case of an election to change the time or form of a distribution under Section 7.2(c), the election must bemade at least twelve (12) months before the date of the first scheduled distribution.

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7.3 Distribution on Disability. Notwithstanding the provisions of Section 7.2, a Participant will receive distributions due to becomingDisabled. Distributions under the Plan to a Disabled Participant shall be made in a lump sum in cash or under a systematicwithdrawal plan of installments made not less frequently than annually, in cash, over a five (5), ten (10), or fifteen (15) year periodcertain as initially elected pursuant to Section 7.2. Distributions shall commence upon (a) the Payment Date following Disability ifthe Participant elected Section 7.2(a) above, (b) the Payment Date following the Participant�s one year anniversary of his Disabilityif the Participant elected Section 7.2(b) above, or (c) a date certain if the Participant elected Section 7.2(c) above. If the Participantdoes not properly elect the time or method of distribution under Section 7.2, the time and method shall be a lump sum upon thePayment Date following his Disability.

7.4 Notice to Trustee. If amounts are held pursuant to a Trust, the DCP Committee will notify the Trustee in writing whenever anyParticipant or Beneficiary is entitled to receive benefits under the Plan. The DCP Committee�s notice shall indicate the form, amountand frequency of benefits that such Participant or Beneficiary shall receive in accordance with Section 7.2 or 7.3.

7.5 Unforeseeable Emergency. Notwithstanding the provisions of Section 7.2, a Participant may request a distribution due to anunforeseeable emergency in accordance with Section 409A. Specifically, an Unforeseeable Emergency is defined as a severefinancial hardship of the Participant resulting from:

(a) An illness or accident of the Participant, the Participant�s spouse or the Participant�s dependent (as defined in Code section152(a));

(b) The loss of the Participant�s property due to casualty; or

(c) Other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of theParticipant.

The request for such a distribution must be in writing and must be submitted to the DCP Committee along with evidence that thecircumstances constitute an unforeseeable emergency and must comply with any other requirements imposed by Section 409A andapplicable guidance thereunder. The DCP Committee has the discretion to require whatever evidence it deems necessary to determinewhether a distribution shall be made. The amounts distributed with respect to an Unforeseeable Emergency may not exceed theamounts necessary to satisfy such unforeseeable emergency plus amounts necessary to pay taxes reasonably anticipated as a result ofthe distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement orcompensation by insurance or otherwise or by liquidation of the Participant�s assets (to the extent the liquidation of such assetswould not itself cause severe financial hardship) or by cessation of deferrals under the Plan. The distribution will be made in the formof a single lump sum. If a Participant who has commenced receiving installment payments requests and is granted an UnforeseeableEmergency distribution, the DCP Committee

12

will accelerate the payments into a single lump sum, provided the lump sum does not exceed the amount reasonably necessary tosatisfy the Unforeseeable Emergency.

7.6 Cashouts of Amounts Not Exceeding $10,000. Any other provision of this Article 7 notwithstanding, if the vested portion of aParticipant�s Account equals $10,000 or less on the date of the Participant�s Termination of Employment or Disability, then theCompany will distribute such amount to the Participant in a single lump sum in cash upon the Payment Date following hisTermination of Employment or Disability.



7.7 Effect of Early Taxation. If a portion of the Participant�s Account balance is includible in income under Section 409A, such portionshall be distributed immediately to the Participant.

7.8 Permitted Delays. Notwithstanding the foregoing, any payment to a Participant under the Plan may be delayed upon the DCPCommittee�s determination that one or more of the following events may occur:

(a) The Employer�s deduction with respect to such payment otherwise would be limited or eliminated by application of Codesection 162(m);

(b) The making of the payment would violate a term of a loan agreement to which the Company or one of its AffiliatedEmployers is a party, or other similar contract to which the Company or one of its Affiliated Employers is a party, and suchviolation would cause material harm to the Company or one of its Affiliated Employers; or

(c) The making of the payment would violate Federal securities laws or other applicable law;

provided, that any payment subject to this Section 7.7 shall ultimately be paid in accordance with Section 409A.

7.9 Adjustment for Investment Experience. If any distribution under this Article 7 is not made in a single payment, the amountremaining in the Account after the distribution will be subject to adjustment until distributed to reflect the income and gain or loss onthe investments in which such amount is treated as invested.

ARTICLE 8 - AMENDMENT AND TERMINATION

8.1 Amendment by the Company. The Company reserves the authority to amend the Plan by executing an amendment or restatement ofthe Plan. Except as otherwise specified, such changes are to be effective on the effective date of such amendment or restated Plandocument. Any such change notwithstanding, the Participant�s Account shall not be reduced by such change below the amount towhich the Participant would have been entitled if he or she had voluntarily left the employ of the Employer immediately prior to thedate of the change. In addition, the Company may from time to time make any amendment to the Plan that may be necessary tosatisfy the Code or ERISA.

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8.2 Retroactive Amendments. An amendment made by the Company in accordance with Section 8.1 may be made effective on a dateprior to the first day of the Plan Year in which it is adopted if such amendment is necessary or appropriate to enable the Plan andTrust to satisfy the applicable requirements of the Code or ERISA or to conform the Plan to any change in federal law or to anyregulations or ruling thereunder. Any retroactive amendment by the Company shall be subject to the provisions of Section 8.1.

8.3 Plan Termination. The Plan has been adopted with the intention and expectation that it will be continued indefinitely. EachEmployer, however, reserves the right to terminate the Plan, in accordance with Section 12.2, with respect to all or certain of itsparticipating Eligible Employees. However, each Employer has no obligation or liability whatsoever to maintain the Plan for anylength of time and may discontinue contributions under the Plan or terminate the Plan at any time by written notice delivered to theTrustee without any liability hereunder for any such discontinuance or termination.

8.4 Distribution upon Termination of the Plan. Upon termination of the Plan, or as to any particular Employer, no furthercontributions shall be made under the Plan, but the Participant�s Account maintained under the Plan at the time of termination shallcontinue to be governed by the terms of the Plan until paid out in accordance with the terms of the Plan.

ARTICLE 9 - THE TRUST

9.1 Establishment of Trust. The Company may establish a Trust between the Company and the Trustee, in accordance with the termsand conditions as set forth in a separate agreement, under which any contributions to the Trust are held, administered and managed,subject to the claims of the Company�s creditors in the event of the Company�s insolvency, until paid to the Participant and/or hisBeneficiaries specified in the Plan. Such a Trust will be intended to be treated as a grantor trust under the Code, and the establishmentof the Trust shall not cause any Participant to realize current income on amounts contributed thereto.



9.2 Investment of Trust Funds. Any amounts contributed to the Trust by the Employer shall be invested by the Trustee in accordancewith the provisions of the Trust and the instructions of the Company. Trust investments need not reflect the hypothetical investmentsselected by Participants under Section 5.1 for the purpose of adjusting Accounts and the earnings or investment results of the Trustshall not affect the hypothetical investment adjustments to Participant Accounts under the Plan.

9.3 Information Between Employer and Trustee. The Employer agrees to furnish the Trustee, and the Trustee agrees to furnish theEmployer with such information relating to the Plan and Trust as may be required by the other in order to carry out their respectiveduties hereunder, including without limitation information required under the Code or ERISA and any regulations issued or formsadopted thereunder.

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ARTICLE 10 - MISCELLANEOUS

10.1 Unsecured General Creditor of the Employer. Participants and their Beneficiaries, heirs, successors and assigns shall have no legalor equitable rights, interests or claims in any property or assets of the Employer. For purposes of the payment of benefits under thePlan, any and all of the Employer�s assets shall be, and shall remain, the general, unpledged, unrestricted assets of the Employer.Each Employer�s obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.

10.2 Employer��s Liability. Each Employer�s liability for the payment of benefits under the Plan shall be defined only by the Plan and/orby the Deferral Agreements entered into between a Participant and the Employer. An Employer shall have no obligation or liability toa Participant under the Plan except as provided by the Plan and/or a Deferral Agreement or agreements. An Employer shall have noliability to Participants employed by other Employers.

10.3 Limitation of Rights. Neither the establishment of the Plan and the Trust, nor any amendment thereof, nor the creation of any fundor account, nor the payment of any benefits, will be construed as giving to the Participant or any other person any legal or equitableright against the Employer, DCP Committee, Company or Trustee, except as provided herein; and in no event will the terms ofemployment or service of the Participant be modified or in any way affected hereby.

10.4 No Assignment of Benefits.

(a) The benefits provided under this Plan may not be alienated, assigned, transferred, pledged or hypothecated by any person, atany time, to any person whatsoever. Except as provided below, the benefits shall be exempt from the claims of creditors orother claimants and from all orders, decrees, levies, garnishment or executions to the fullest extent allowed by law.

(b) Notwithstanding the preceding, benefits payable under the Plan shall be paid to the Participant, the Participant�s spouse orthe Participant�s Beneficiary in accordance with the provisions of this Plan except to the extent that such benefits arerequired to be paid to an alternate payee under the provisions of a qualified domestic relations order (a �QDRO�) whichsatisfies the requirements of section 414(p) of the Code. The provisions set forth in the CPChem Retirement Plan applicableto QDROs shall apply to the determination of whether any such order satisfies the requirements of section 414(p) of theCode. Further, such QDROs shall be administrated in accordance with the rules set forth in the CPChem Retirement Plan,the provisions of which are hereby incorporated by reference; provided, however, a benefit shall be payable to an alternatepayee under this Plan only at the time payment of the Participant�s benefit commences under this Plan pursuant to Article 7.Neither this Plan, the DCP Committee, the Affiliated Employers nor the Company shall be liable in any manner to anyperson,

15

including the Participant, Participant�s spouse, or Participant�s Beneficiary, for complying with any such court order orjudgment.

10.5 Facility of Payment. If the DCP Committee determines, on the basis of medical reports or other evidence satisfactory to the DCPCommittee, that the recipient of any benefit payments under the Plan is incapable of handling his affairs by reason of minority,illness, infirmity or other incapacity, the Employer may disburse (or the Company may direct the Trustee to disburse, if applicable)such payments to a person or institution designated by a court which has jurisdiction over such recipient or a person or institution



otherwise having the legal authority under State law for the care and control of such recipient. The receipt by such person orinstitution of any such payments therefore, and any such payment to the extent thereof, shall discharge the liability of the Employeror the Trust for the payment of benefits hereunder to such recipient.

10.6 Notices. Any notice or other communication in connection with the Plan shall be deemed delivered in writing if addressed asprovided below and if either actually delivered at said address or, in the case of a letter, five business days shall have elapsed after thesame shall have been deposited in the United States mails, first-class postage prepaid and registered or certified.

If it is sent to the Employer or the Company, it will be at the address specified by the Employer. If it is sent to the Trustee, it will besent to the address set forth in the Trust agreement; or, in each case at such other address as the addressee shall have specified bywritten notice delivered in accordance with the foregoing to the addressor�s then effective notice address.

10.7 Governing Law. The Plan will be construed, administered and enforced according to ERISA, and to the extent not preemptedthereby, the laws of the State of Texas.

10.8 Successors and Mergers, and/or Consolidation. The terms and conditions of this Plan shall inure to the benefit of and bind theEmployer and the Participants, their successors, assignees, and personal representatives. If substantially all of the stock, assets orpartnership interests of the Employer are acquired by another corporation or entity or if the Employer is merged into, or consolidatedwith another corporation or entity, then the obligations created hereunder shall be obligations of the acquirer or successor corporationor entity, without the requirement of further action by the acquirer or successor corporation or entity.

10.9 Employment Not Affected by the Plan. Neither the establishment of this Plan, or any modification thereof, nor the payment of anybenefit shall be construed as giving any Participant or any other person any legal or equitable right against the Employer, nor asgiving any Employee or Participant the right to be retained in the employ of the Employer. All Employees shall remain subject todischarge to the same extent as if this Plan had never been adopted.

10.10 Severability. In the event any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shallnot affect the remaining provisions of this

16

Plan, which shall be fully severable, and this Plan shall be construed and enforced as if said illegal or invalid provisions had neverbeen inserted.

ARTICLE 11 - PLAN ADMINISTRATION

11.1 Powers and Responsibilities of the DCP Committee. The DCP Committee has the full power and the full responsibility toadminister the Plan in all of its details, subject, however, to the applicable requirements of ERISA. The DCP Committee�s powersand responsibilities include, but are not limited to, the following:

(a) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan;

(b) To interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits underthe Plan;

(c) To administer the review procedures specified in Section 11.2;

(d) To comply with the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA; and

(e) To retain counsel, employ agents, and provide for such clerical, accounting and consulting services as they may require incarrying out the provisions of the Plan; and may allocate among themselves or delegate to other persons all or such portionof their duties under the Plan as they in their sole discretion, shall decide. Each member of the DCP Committee shall be fullyjustified in relying upon or acting in good faith upon any opinion, report, or information furnished in connection with thePlan by any accountant, counsel, or other specialist so retained (including financial officers of the Company, whether or notsuch persons are Participants in the Plan).



The DCP Committee�s interpretation and construction of the provisions of the Plan and rules and regulations adopted by the DCPCommittee shall be final. No member of the DCP Committee shall be liable for any action taken, or determination made, in respect ofthe Plan in good faith. Notwithstanding any other provision of the Plan, the Plan shall be interpreted, operated and administered inaccordance with Section 409A.

11.2 Claims and Review Procedures.

(a) Filing a Claim. A Participant or his authorized representative may file a claim for benefits under the Plan. Any claim mustbe in writing and submitted to the DCP Committee at such address as may be specified from time to time. Claimants will benotified in writing of approved claims, which will be processed as claimed. A claim is considered approved only if itsapproval is communicated in writing to a claimant.

(b) Denial of Claim. In the case of the denial of a claim respecting benefits paid or payable with respect to a Participant, awritten notice will be furnished to the

17

claimant within ninety (90) days of the date on which the DCP Committee receives the claim. If special circumstances (suchas for a hearing) require a longer period, the claimant will be notified in writing, prior to the expiration of the ninety (90)day period, of the reasons for an extension of time; provided, however, that no extensions will be permitted beyond ninety(90) days after the expiration of the initial ninety (90) day period.

(c) Reasons for Denial. A denial or partial denial of a claim will be dated and signed by the DCP Committee and will clearlyset forth:

(i) the specific reason or reasons for the denial;

(ii) specific reference to pertinent Plan provisions on which the denial is based;

(iii) a description of any additional material or information necessary for the claimant to perfect the claim and anexplanation of why such material or information is necessary; and

(iv) an explanation of the procedure for review of the denied or partially denied claim set forth below, including theclaimant�s right to bring a civil action under ERISA section 502(a) following an adverse benefit determination onreview.

(d) Review of Denial. Upon denial of a claim, in whole or in part, a claimant or his duly authorized representative will have theright to submit a written request to the DCP Committee for a full and fair review of the denied claim by filing a writtennotice of appeal with the DCP Committee within sixty (60) days of the receipt by the claimant of written notice of the denialof the claim. A claimant or the claimant�s authorized representative will have, upon request and free of charge, reasonableaccess to, and copies of, all documents, records, and other information relevant to the claimant�s claim for benefits and maysubmit issues and comments in writing. The review will take into account all comments, documents, records, and otherinformation submitted by the claimant relating to the claim, without regard to whether such information was submitted orconsidered in the initial benefit determination.

If the claimant fails to file a request for review within sixty (60) days of the denial notification, the claim will be deemedabandoned and the claimant precluded from reasserting it. If the claimant does file a request for review, his request mustinclude a description of the issues and evidence he deems relevant. Failure to raise issues or present evidence on review willpreclude those issues or evidence from being presented in any subsequent proceeding or judicial review of the claim.

(e) Decision Upon Review. The DCP Committee will provide a prompt written decision on review. If the claim is denied onreview, the decision shall set forth:



18

(i) the specific reason or reasons for the adverse determination;

(ii) specific reference to pertinent Plan provisions on which the adverse determination is based;

(iii) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, andcopies of, all documents, records, and other information relevant to the claimant�s claim for benefits; and

(iv) a statement describing any voluntary appeal procedures offered by the Plan and the claimant�s right to obtain theinformation about such procedures, as well as a statement of the claimant�s right to bring an action under ERISAsection 502(a).

A decision will be rendered no more than sixty (60) days after the DCP Committee�s receipt of the request for review,except that such period may be extended for an additional sixty (60) days if the DCP Committee determines that specialcircumstances (such as for a hearing) require such extension. If an extension of time is required, written notice of theextension will be furnished to the claimant before the end of the initial sixty (60) day period.

(f) Finality of Determinations; Exhaustion of Remedies. To the extent permitted by law, decisions reached under the claimsprocedures set forth in this Section shall be final and binding on all parties. No legal action for benefits under the Plan shallbe brought unless and until the claimant has exhausted his remedies under this Section. In any such legal action, the claimantmay only present evidence and theories, which the claimant presented during the claims procedure. Any claims, which theclaimant does not in good faith pursue through the review stage of the procedure, shall be treated as having been irrevocablywaived. Judicial review of a claimant�s denied claim shall be limited to a determination of whether the denial was an abuseof discretion based on the evidence and theories the claimant presented during the claims procedure.

(g) Limitations Period. Any suit or legal action initiated by a claimant under the Plan must be brought by the claimant no laterthan one year following a final decision on the claim for benefits by the DCP Committee. The one-year limitation on suitsfor benefits will apply in any forum where a claimant initiates such suit or legal action.

11.3 Plan Administrative Costs. All reasonable costs and expenses (including legal, accounting, and employee communication fees)incurred by the DCP Committee and the Trustee in administering the Plan and Trust shall, unless allocable to the Accounts ofparticular Participants, be charged against the Accounts of all Participants on a pro rata basis or in such other reasonable manner asmay be directed by the DCP Committee. Notwithstanding the foregoing, the Employer may, in its sole discretion, elect to pay allsuch reasonable costs and expenses.

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ARTICLE 12 - PARTICIPATING EMPLOYERS

12.1 Adoption of the Plan. As of January 1, 2005, each entity listed on Appendix A is an Employer. In addition, this Plan may be adoptedby additional Employers provided that any such adoption is with the approval of the Company. Any adoption of this Plan by anadditional Employer shall be pursuant to such authority as is required by such Employer�s governing body, a copy of which shall befiled with the Company.

12.2 Termination of Plan Participation. Each Employer may cease to participate in the Plan with respect to its Employees by executinga resolution adopted pursuant to such authority as is required by such Employer�s governing body, provided, however, that suchtermination may not reduce the obligation of the Employer to any Participant below the amount to which the Participant would havebeen entitled under the Plan as in effect immediately prior to the Employer�s termination of Plan participation. A copy of suchresolution shall be filed with the Company.

IN WITNESS WHEREOF, the Company by its duly authorized officer(s), has caused the Plan to be amended and restated on the24 day of February, 2006.



Chevron Phillips Chemical Company LP

By: /s/ James L. Gallogly

Title: President and Chief Executive Officer

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APPENDIX A

Participating Employers

In addition to the Company, Chevron Phillips International Corporation is an �Employer� within the meaning of Section 1.2(u) of the Plan. Inaddition, such other participating employers may be designated in accordance with rules prescribed by the Company.

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Exhibit 10.5


SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

(As Amended and RestatedEffective January 1, 2005)

CHEVRON PHILLIPS CHEMICAL COMPANY LPSUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

(As Amended and Restated Effective January 1, 2005)

TABLE OF CONTENTS

Section Page

I Purpose 1II Interpretation and Definitions 1III Administration of Plan 5IV Supplemental Retirement Benefits & Supplemental Death Benefits 6V Time and Form of Payment 7VI Source of Payment 8VII Withholding 9VIII Right to Amend, Modify, Suspend or Terminate 9IX Claim Review Procedure 9X Miscellaneous 11

Appendix A 13

i

CHEVRON PHILLIPS CHEMICAL COMPANY LPSUPPLEMENTAL EXECUTIVE RETIREMENT PLAN


SECTION IPurpose

The purpose of this amended and restated Supplemental Executive Retirement Plan (the �Plan�) is to provide retirement benefits to certaineligible employees (�SERP Members�) of Chevron Phillips Chemical Company LP and certain Affiliated Employers that adopt this Plan(collectively, the �Participating Employers�). These benefits are in addition to the retirement benefits that may be payable under the ChevronPhillips Chemical Company LP Retirement Plan (the �Retirement Plan�). To accomplish this, the Participating Employers intend to makesupplemental pension and, if appropriate, survivor benefit payments, under the terms and conditions described below, to those SERP Membersand any beneficiaries of SERP Members whose pension or survivor benefits payable under the Retirement Plan are reduced by reason of (a)the limitations imposed under sections 401(a)(17) and/or 415 of the Code, or (b) their deferral of compensation under the Deferred



Compensation Plan (as defined below). In addition, the benefit payable to a SERP Member may be increased due to the use of the definitionsof �SERP Compensation� and �SERP Highest Average Earnings� set forth below.

The Plan is intended to be an �excess benefit plan� that is an unfunded deferred compensation plan within the meaning of Section 3(36) of theEmployee Retirement Income Security Act of 1974, as amended (�ERISA�), and, to the extent it is not an excess benefit plan, it is anunfunded deferred compensation program maintained �for a select group of management or highly compensated employees� within themeaning of Title I of ERISA, and shall be implemented and administered in a manner consistent with this intention. It is also intended that thePlan comply with the requirements of Section 409A of the Internal Revenue Code, as added by the American Jobs Creation Act of 2004(�Section 409A�), except with respect to SERP Members (or SERP Beneficiaries) covered by Appendix A.

The Plan was originally established effective January 1, 2001.


SECTION IIInterpretation and Definitions

A. Interpretation

(1) General. Unless a clear contrary intention appears, for purposes of construction of this Plan:


(ii) reference to any person includes such person�s successors and assigns but, if applicable, only if such successorsand assigns are permitted by the Plan, and

1

reference to a person in a particular capacity excludes such person in any other capacity or individually;


(iv) reference to the Plan means the Plan as amended or modified and in effect from time to time in accordance with theterms thereof;

(v) reference to any law means such law as amended, modified, codified, replaced or reenacted, in whole or in part,and in effect from time to time, including rules and regulations promulgated thereunder, and reference to anysection or other provision of any law means that provision of such law from time to time in effect and constitutingthe substantive amendment, modification, codification, replacement or reenactment of such section or otherprovision;

(vi) reference in the Plan to any article, section, appendix, schedule or exhibit means such article or section thereof orappendix, schedule or exhibit thereto;

(vii) �hereunder�, �hereof�, and words of similar import shall be deemed references to the Plan as a whole and not toany particular article, section or other provision thereof;

(viii) �including� (and with the correlative meaning �include�) means including without limiting the generality of anydescription preceding such term;




(x) relative to the determination of any period of time, �from� means �from and including� and �to� means �to butexcluding;� and


(2) Accounting Terms. Unless expressly otherwise provided, accounting terms shall be construed and interpreted, andaccounting determinations and computations shall be made, in accordance with generally accepted accounting principles.

B. Definitions

(1) ��Affiliated Employer�� shall have the meaning set forth in the Retirement Plan.

(2) ��Basic Death Benefit��means the benefit payable under the Retirement Plan to the Beneficiary of a SERP Member onaccount of the death of the SERP Member.

(3) ��Basic Retirement Benefit��means the benefit payable under the Retirement Plan to a SERP Member.

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(4) ��Chevron��means Chevron Corporation, or such entity as may be controlled by Chevron Corporation, that directly orindirectly holds a membership interest in the Company.

(5) ��Code��means the Internal Revenue Code of 1986, as amended.

(6) ��Company��means Chevron Phillips Chemical Company LP.

(7) ��ConocoPhillips��means ConocoPhillips, or such entity as may be controlled by ConocoPhillips, that directly or indirectlyholds a membership interest in the Company.

(8) ��Deferred Compensation Plan��means the Chevron Phillips Chemical Company LP Executive Deferred CompensationPlan.

(9) ��Member�� shall have the meaning set forth in the Retirement Plan.

(10) ��Parent Company��means Chevron, ConocoPhillips, and their respective successors.

(11) ��Participating Employer��means the Company or any other Affiliated Employer participating in the Plan as provided inSection III.E.

(12) ��Plan��means the Chevron Phillips Chemical Company LP Supplemental Executive Retirement Plan.

(13) ��Retirement Plan��means the Chevron Phillips Chemical Company LP Retirement Plan.

(14) ��Separation from Service�� (or �Separated from Service�) means a �separation from service� within the meaning ofSection 409A and applicable guidance thereunder. Generally, a separation from service occurs when a SERP Member ceasesto provide services for a Participating Employer and all Affiliated Employers.

(15) ��SERP Beneficiary��means any person, persons, or entity designated by a SERP Member to receive any benefits payablein the event of the SERP Member�s death. If no SERP Beneficiary designation is in effect at the SERP Member�s death orif no person, persons, or entity so designated survives the SERP Member, the SERP Member�s surviving spouse, if any,shall be deemed to be the SERP Beneficiary; otherwise, the SERP Beneficiary shall be the personal representative of theestate of the SERP Member. In determining whether any person named as a SERP Beneficiary is living at the time of aSERP Member�s death, if such person and the SERP Member died in a common disaster and there is insufficient evidence



to determine which person died first, then it shall be deemed that the SERP Beneficiary died first. Beneficiary designationsin accordance with this Section must be in writing and filed with the SERP Committee.

(16) ��SERP Committee��means two or more individuals designated by the Company to oversee the administration of the Plan.

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(17) ��SERP Compensation��means �Compensation� as defined in the Retirement Plan (without regard to Code section401(a)(17) limits), but including management incentive bonuses paid pursuant to the Company�s Annual Incentive Program,which shall be treated as �Compensation� for purposes of this Plan on the date the bonus is paid.

(18) ��SERP Highest Average Earnings��means, with respect to any SERP Member who is a Phillips Member, the SERPMember�s Average Final Compensation determined in the same manner such amount was calculated under the Phillips Planas such plan was in effect on December 31, 2000. Thus, such an individual�s SERP Highest Average Earnings will becalculated by �decoupling� the Phillips Member�s compensation payable as a bonus, and the amount payable as base pay.The bonus amount shall consist of the sum of the 3 highest annual bonus payments during any 11 calendar year period,while the base pay portion shall consist of the Phillips Member�s base compensation based upon any 36 consecutive monthperiod preceding the termination of that Phillips Member�s employment, which produces the highest average. For thispurpose, �Phillips Member�, �Average Final Compensation�, and �Phillips Plan� shall have the meaning set forth in theRetirement Plan. With regard to all other SERP Members, the term �SERP Highest Average Earnings� shall have the samemeaning as �Highest Average Earnings� in the Retirement Plan.

(19) ��SERP Interest Rate��means the rate of return (measured at the end of the preceding calendar year) for the Treasuryconstant maturity 10-year note plus 1% as published by the Federal Reserve Statistical Release � H.15 Selected InterestRates. Should the Federal Reserve discontinue publishing this document, then the SERP Interest Rate shall be based on asuccessor publication as determined by the Company.

(20) ��SERP Member��means an employee of a Participating Employer who has satisfied the eligibility requirements under theRetirement Plan, and who satisfies each of the following criteria: (a) is determined by the Company to be a member of aselect group of management or highly compensated employees within the meaning of sections 201(2), 301(a)(3) and401(a)(1) of ERISA; and (b) is designated by the Company as an employee who may participate in the Plan.

(21) ��Supplemental Death Benefit��means the benefit calculated under Section IV of the Plan and payable to the SERPBeneficiary.

(22) ��Supplemental Retirement Benefit��means the benefit calculated under Section IV of the Plan payable to a SERPMember.

(23) ��Unrestricted Death Benefit��means the benefit that would be payable under the Retirement Plan to the SERP Beneficiaryof a SERP Member on account of death of such SERP Member, calculated: (a) without regard to the limitations of sections401(a)(17) and 415 of the Code; (b) as if amounts deferred by the SERP Member under the Deferred Compensation Planhad been paid to the SERP Member in the year so deferred; (c) utilizing �SERP Compensation� instead of �Compensation�as

4

that term is defined in the Retirement Plan; and (d) utilizing �SERP Highest Average Earnings� instead of �HighestAverage Earnings� as that term is defined in the Retirement Plan.

(24) ��Unrestricted Retirement Benefit��means the benefit that would be payable under the Retirement Plan to a SERPMember, calculated: (a) without regard to the limitations of sections 401(a)(17) and 415 of the Code; (b) as if amountsdeferred by the SERP Member under the Deferred Compensation Plan had been paid to the SERP Member in the calendaryear so deferred; (c) utilizing �SERP Compensation� instead of �Compensation� as that term is defined in the RetirementPlan; and (d) utilizing �SERP Highest Average Earnings� instead of �Highest Average Earnings� as that term is defined inthe Retirement Plan.



SECTION III

Administration of the Plan

A. The Plan shall be administered by the SERP Committee. The SERP Committee will serve as such without additional compensation.

B. Notwithstanding any other provision of the Plan, the Plan shall be interpreted, operated and administered in accordance with Section409A, except with respect to SERP Members (or SERP Beneficiaries) covered by Appendix A.

C. The SERP Committee shall have all discretion and powers necessary to supervise the administration of the Plan and to control itsoperation in accordance with its terms, including, but not by way of limitation, the following powers:

(1) To interpret the provisions of the Plan and to determine, in its sole discretion, any question arising under, or in connectionwith the administration or operation of the Plan;

(2) To establish and revise accounting methods for formulae for the Plan;

(3) To determine the status and rights of SERP Members and SERP Beneficiaries;

(4) To retain counsel, employ agents, and provide for such clerical, accounting and consulting services as they may require incarrying out the provisions of the Plan; and may allocate among themselves or delegate to other persons all or such portionof their duties under the Plan as they in their sole discretion, shall decide. Each member of the SERP Committee shall befully justified in relying upon or acting in good faith upon any opinion, report, or information furnished in connection withthe Plan by any accountant, counsel, or other specialist so retained (including financial officers of the Company, whether ornot such persons are participants in the Plan).

(5) To establish rules for the performance of its powers and duties and for the administration of the Plan;

5

(6) To keep all records and prepare all reports and disclosures necessary to comply with the reporting and disclosurerequirements of ERISA and the Code and to establish from time to time and at any time, subject to the limitations of thePlan as set forth herein, such rules and regulations and amendments supplements thereto, as it deems necessary to complywith applicable law and for the proper administration of the Plan; and

(7) To administer the claims procedures specified in Section IX.

D. The SERP Committee�s interpretation and construction of the provisions of the Plan and rules and regulations adopted by the SERPCommittee shall be final. No member of the SERP Committee shall be liable for any action taken, or determination made, in respectof the Plan in good faith.

E. This Plan may be adopted by Affiliated Employers as the SERP Committee may approve, whereupon such entities shall becomeParticipating Employers.

SECTION IVSupplemental Retirement Benefits & Supplemental Death Benefits

A. Provided a SERP Member is vested in the Retirement Plan, the Supplemental Retirement Benefit for a SERP Member shall be anamount equal to the difference between his Basic Retirement Benefit and his Unrestricted Retirement Benefit. For a SERP Memberwho has a Separation from Service on or after January 1, 2005, the Supplemental Retirement Benefit actually payable to the SERPMember shall be calculated with reference to the SERP Member�s actual Basic Retirement Benefit, determined at the time of theSERP Member�s Separation from Service from the Participating Employer, regardless of whether the SERP Member elects tocommence the receipt of benefits from the Retirement Plan.



B. Each SERP Beneficiary of a SERP Member shall be entitled to a Supplemental Death Benefit as provided in this Section IV.B. if theSERP Beneficiary is entitled to the payment of a death benefit under the terms of the Retirement Plan. The Supplemental DeathBenefit payable to a SERP Beneficiary of a SERP Member shall be an amount equal to the difference between the SERPBeneficiary�s Unrestricted Death benefit and his Basic Death Benefit.

C. For purposes of this Plan, the determination of any amount payable in accordance with the Plan shall, except as specifically set forthin this Plan, be made in the same manner as such determination is made under the Retirement Plan (including, without limitation, thedetermination of the �Equivalent Actuarial Value� (as defined by the Retirement Plan) of any form of benefit payable under thisPlan).

6

SECTION VTime and Form of Payment

A.

(1) Except as otherwise provided herein, payments to a SERP Member under the Plan shall be made in 5 annual installmentscommencing on January 1 of the calendar year following the calendar year of the SERP Member�s Separation from Service.

(2) Notwithstanding the foregoing, for purposes of this Section V only, a transfer of employment to a Parent Company shall notbe deemed to constitute a �Separation of Service� until such subsequent Separation from Service from the Parent Company.In such case, payments to the SERP Member under this Plan shall be made in 5 annual installments commencing on January1 of the calendar year following the calendar year of the SERP Member�s Separation from Service from the ParentCompany if permitted by Section 409A and the applicable guidance thereunder, otherwise payments shall be made in 5annual installments commencing on January 1 immediately following the 2 year anniversary of his Separation from Servicefrom the Participating Employer.

B. Notwithstanding the foregoing, a SERP Member may subsequently elect to receive a lump sum payment of his SupplementalRetirement Benefit under the Plan in accordance with such procedures as may be established by the SERP Committee. In addition tosuch requirements as the SERP Committee may establish, effective January 1, 2006:

(1) The election may not take effect until at least 12 months after the date on which the election is made;

(2) A distribution may not be made earlier than at least 5 years from the date the first Supplemental Retirement Benefit amountwas scheduled to be paid; and

(3) The election must be made at least 12 months before the date of the first scheduled distribution.

C. Notwithstanding the foregoing, payment to a SERP Member shall be made in a lump sum distribution the first business day of themonth following his Separation from Service (or first business day of the second month following his Separation from Service if theseparation occurs after the fifteenth day of the month) if the present value of the SERP Member�s Supplemental Retirement Benefitis less than $10,000; provided, however, that if a SERP Member is described in Paragraph A(2) above, payment to the SERP Membershall be made in a lump sum distribution the first business day of the month following his Separation from Service from the ParentCompany (or first business day of the second month following his Separation from Service if the separation occurs after the fifteenthday of the month) if permitted by Section 409A and the applicable guidance thereunder, otherwise on January 1 immediatelyfollowing his 2 year anniversary of Separation from Service from the Participating Employer. In determining whether the SERPMember�s Supplemental Retirement Benefit is less than $10,000, the same provisions set forth in the Retirement Plan with respect tothe determination of such values shall be utilized.

7

D Payments to a SERP Beneficiary under this Plan shall be made in the same manner, for the same time period and on the same basis aspayments would have been made to a SERP Member under Section V.A. of the Plan (or Section V.B. of the Plan if the SERPMember subsequently changes his SERP election) under the assumption that SERP Member would have Separated from Service on



the last day of the month following the SERP Member�s death. Notwithstanding the foregoing, payment to a SERP Beneficiary shallbe made in a lump sum distribution following a SERP Member�s death if the present value of such Supplemental Death Benefit isless than $10,000, payable at the same time and determined in the same manner as described in Section V.C.

E. If a portion of the SERP Member�s benefit under the Plan is includible in income under Section 409A, such portion shall bedistributed immediately to the SERP Member.

F. Notwithstanding the foregoing, any payment to a SERP Member or a SERP Beneficiary under the Plan may be delayed upon theSERP Committee�s determination that one or more of the following events may occur:

(1) The Participating Employer�s deduction with respect to such payment otherwise would be limited or eliminated byapplication of Code section 162(m);

(2) The making of the payment would violate a term of a loan agreement to which the Company or one of its AffiliatedEmployers is a party, or other similar contract to which the Company or one of its Affiliated Employers is a party, and suchviolation would cause material harm to the Company or one of its Affiliated Employers; or

(3) The making of the payment would violate Federal securities laws or other applicable law;

provided, that any payment subject to this Section V.F. shall ultimately be paid in accordance with Section 409A.

G. For a SERP Member who has a Separation from Service on or after January 1, 2005, during such time (from such Separation ofService) there remains an outstanding balance of the SERP Member�s benefit (or a SERP Beneficiary�s benefit, in the event theSERP Member�s Separation from Service is due to death) under the Plan, such balance shall earn the SERP Interest Rate.

SECTION VISource of Payment

The benefits payable under this Plan to a SERP Member or their SERP Beneficiary shall be paid from the general assets of the ParticipatingEmployer that employed the SERP Member. The SERP Member or their SERP Beneficiary shall be an unsecured general creditor of suchParticipating Employer with no special or prior right to any assets of the Participating Employer for payment of any obligations hereunder.Nothing contained in the Plan shall be deemed to create a trust of any kind for the benefit of the SERP Member or any SERP Beneficiary, orcreate any fiduciary relationship between the Participating Employer or the Company and the SERP Member or any SERP Beneficiary withrespect to any assets of the Participating Employer or the Company.

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SECTION VIIWithholding

Notwithstanding any contrary provision of the Plan, all benefits payable under this Plan to a SERP Member or SERP Beneficiary shall besubject to applicable withholding for federal, state and/or local income tax, FICA, and any other taxes.

SECTION VIIIRight to Amend, Modify, Suspend or Terminate

A. The Company may amend, modify, suspend or terminate this Plan in whole or in part, in such manner as it may determine.

B. Notwithstanding the foregoing, this Plan may not be amended, modified, suspended, or terminated as to a SERP Member who isentitled to receive or has commenced to receive benefits pursuant to this Plan in a manner which would reduce the benefits payable tosuch individual, without the express written consent of such SERP Member or if deceased, such SERP Member�s SERP Beneficiary.

C. No amendment, alteration, modification, or termination shall reduce the accrued Supplemental Retirement Benefit or SupplementalDeath Benefit of any SERP Member or SERP Beneficiary; provided, however, that this Section VIII.C. shall not prevent reductions



on account of the SERP Member�s Basic Retirement Benefit ceasing to be affected (or becoming affected to a lesser degree) by thelimitations of sections 401(a)(17), and/or 415 of the Code, and/or the SERP Member�s deferrals under the Deferred CompensationPlan.

D. Notwithstanding the foregoing, no amendment of the Plan shall apply to amounts paid under Appendix A, unless the amendmentspecifically provides that it applies to such amounts. The purpose of this restriction is to prevent a Plan amendment from resulting inan inadvertent �material modification� to amounts that are exempt from the requirements of Section 409A.

SECTION IXClaim Review Procedure

A. Filing a Claim. A SERP Member or his authorized representative may file a claim for benefits under the Plan. Any claim must be inwriting and submitted to the SERP Committee at such address as may be specified from time to time. Claimants will be notified inwriting of approved claims, which will be processed as claimed. A claim is considered approved only if its approval is communicatedin writing to a claimant.

B. Denial of Claim. In the case of the denial of a claim respecting benefits paid or payable with respect to a SERP Member, a writtennotice will be furnished to the claimant within 90 days of the date on which the SERP Committee receives the claim. If specialcircumstances (such as for a hearing) require a longer period, the claimant will be notified in writing, prior to the expiration of the90-day period, of the reasons for an extension of time; provided,

9

however, that no extensions will be permitted beyond 90 days after the expiration of the initial 90-day period.

C. Reasons for Denial. A denial or partial denial of a claim will be dated and signed by the SERP Committee and will clearly set forth:

(1) the specific reason or reasons for the denial;

(2) specific reference to pertinent Plan provisions on which the denial is based;

(3) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation ofwhy such material or information is necessary; and

(4) an explanation of the procedure for review of the denied or partially denied claim set forth below, including the claimant�sright to bring a civil action under ERISA section 502(a) following an adverse benefit determination on review.

D. Review of Denial. Upon denial of a claim, in whole or in part, a claimant or his duly authorized representative will have the right tosubmit a written request to the SERP Committee for a full and fair review of the denied claim by filing a written notice of appeal withthe SERP Committee within 60 days of the receipt by the claimant of written notice of the denial of the claim. A claimant or theclaimant�s authorized representative will have, upon request and free of charge, reasonable access to, and copies of, all documents,records, and other information relevant to the claimant�s claim for benefits and may submit issues and comments in writing. Thereview will take into account all comments, documents, records, and other information submitted by the claimant relating to theclaim, without regard to whether such information was submitted or considered in the initial benefit determination.

If the claimant fails to file a request for review within 60 days of the denial notification, the claim will be deemed abandoned and theclaimant precluded from reasserting it. If the claimant does file a request for review, his request must include a description of theissues and evidence he deems relevant. Failure to raise issues or present evidence on review will preclude those issues or evidencefrom being presented in any subsequent proceeding or judicial review of the claim.

E. Decision Upon Review. The SERP Committee will provide a prompt written decision on review. If the claim is denied on review,the decision shall set forth:

(1) the specific reason or reasons for the adverse determination;



(2) specific reference to pertinent Plan provisions on which the adverse determination is based;

(3) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, alldocuments, records, and other information relevant to the claimant�s claim for benefits; and

10

(4) a statement describing any voluntary appeal procedures offered by the Plan and the claimant�s right to obtain theinformation about such procedures, as well as a statement of the claimant�s right to bring an action under ERISA section502(a).

A decision will be rendered no more than 60 days after the SERP Committee�s receipt of the request for review, except that suchperiod may be extended for an additional 60 days if the SERP Committee determines that special circumstances (such as for ahearing) require such extension. If an extension of time is required, written notice of the extension will be furnished to the claimantbefore the end of the initial 60-day period.

F. Finality of Determinations; Exhaustion of Remedies. To the extent permitted by law, decisions reached under the claimsprocedures set forth in this Section shall be final and binding on all parties. No legal action for benefits under the Plan shall bebrought unless and until the claimant has exhausted his remedies under this Section. In any such legal action, the claimant may onlypresent evidence and theories, which the claimant presented during the claims procedure. Any claims, which the claimant does not ingood faith pursue through the review stage of the procedure, shall be treated as having been irrevocably waived. Judicial review of aclaimant�s denied claim shall be limited to a determination of whether the denial was an abuse of discretion based on the evidenceand theories the claimant presented during the claims procedure.

G. Limitations Period. Any suit or legal action initiated by a claimant under the Plan must be brought by the claimant no later than oneyear following a final decision on the claim for benefits by the SERP Committee. The one-year limitation on suits for benefits willapply in any forum where a claimant initiates such suit or legal action.

SECTION XMiscellaneous

A. No Assignment of Benefits.

(1) The benefits provided under this Plan may not be alienated, assigned, transferred, pledged or hypothecated by any person, atany time, to any person whatsoever. Except as provided below, the benefits shall be exempt from the claims of creditors orother claimants and from all orders, decrees, levies, garnishment or executions to the fullest extent allowed by law.

(2) Notwithstanding the preceding, benefits payable under the Plan shall be paid to the SERP Member, the SERP Member�sspouse or the SERP Beneficiary in accordance with the provisions of this Plan except to the extent that such benefits arerequired to be paid to an alternate payee under the provisions of a qualified domestic relations order (a �QDRO�) whichsatisfies the requirements of section 414(p) of the Code. The provisions set forth in the Retirement Plan applicable toQDROs shall apply to the determination of whether any such order satisfies the requirements of section 414(p) of the Code.Further, such QDROs shall be administrated in accordance with the rules set forth in the Retirement Plan, the provisions ofwhich are hereby

11

incorporated by reference; provided, however, a benefit shall be payable to an alternate payee under this Plan only at thetime payment of the SERP Member�s benefit commences under this Plan pursuant to Section V. Neither this Plan, the SERPCommittee, the Participating Employers nor the Company shall be liable in any manner to any person, including the SERPMember, SERP Member�s spouse, or SERP Beneficiary, for complying with any such court order or judgment.

B. No Enlargement of Employment Rights. Neither the establishment or maintenance of this Plan, the payment of any amount by theParticipating Employers nor any action of the Participating Employers or the SERP Committee shall be held or construed to confer



upon any individual any right to be continued as an employee nor, upon dismissal, any right or interest in the Plan other than asprovided in the Plan. The Participating Employers expressly reserve the right to discharge any employee at any time.

C. Applicable Law; Severability. This Plan hereby created shall be construed, administered and governed in all respects in accordancewith the laws of the State of Texas, and, to the extent applicable, ERISA and the Code. If any provision of this instrument shall beheld invalid or unenforceable by a court of competent jurisdiction, the remaining provisions hereof shall continue to be fullyeffective.

IN WITNESS WHEREOF, Chevron Phillips Chemical Company LP by its duly authorized officer(s), has caused the Plan to be amended and

restated on the 24 day of February, 2006.


/s/ James L. Gallogly

TITLE: President and Chief Executive Officer

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APPENDIX AGRANDFATHERED PARTICIPANTS

Distribution of amounts that were earned and vested (within the meaning of Section 409A) under the Plan prior to January 1, 2005 (andearnings thereon) that are payable to SERP Members (or their SERP Beneficiaries) who Separated from Service prior to January 1, 2005 shallbe made in accordance with the Plan terms as in effect on December 31, 2004.

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Exhibit 10.6

LONG-TERM INCENTIVE PLAN

OF



LONG-TERM INCENTIVE PLANOF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC(As Amended and Restated Effective January 1, 2005)

TABLE OF CONTENTS

Page

1. Interpretation and Definitions 12. Administration of Plan. 63. Eligibility and Participation. 74. Grants and Settlement of Awards 85. Payment of Awards 96. Vesting and Forfeiture. 107. Amendments or Discontinuance 108. Recapitalization, Merger, and Consolidation 119. General Provisions 11

Exhibit A �Peer Companies� 13

i

LONG-TERM INCENTIVE PLANOF


PURPOSE

The purpose of this amended and restated Long-Term Incentive Plan (the �Plan�) is to attract, motivate, and retain qualified managementpersonnel by providing to them a long-term incentive compensation plan that will provide competitive compensation opportunities similar to



those of comparable companies in the chemical industry, align the interests of key management with the interests of the Company�s owners,and encourage the creation of additional owner value.

The Plan is intended to be a �bonus program� within the meaning of Labor Reg. § 2510.3-2(c) and, therefore, is not intended to be subject tothe requirements of ERISA. It is also intended that the Plan comply with the requirements of Section 409A of the Internal Revenue Code, asadded by the American Jobs Creation Act of 2004 (�Section 409A�).

The Plan was amended and restated effective January 1, 2001.


1. Interpretation and Definitions

(a) General.

(1) Interpretation. Unless a clear contrary intention appears, for purposes of construction of this Plan and all relatedPlan Documents:


(ii) reference to any person includes such person�s successors and assigns but, if applicable, only if suchsuccessors and assigns are permitted by the Plan Documents, and reference to a person in a particular capacityexcludes such person in any other capacity or individually;


(iv) reference to any Plan Document or any other agreement, document or instrument means the applicablePlan Document or such other agreement, document or instrument as amended or modified and in effect from timeto time in accordance with the terms thereof;

(v) reference to any law means such law as amended, modified, codified, replaced or reenacted, in whole or inpart, and in effect from time to time, including rules and regulations promulgated thereunder, and

1

reference to any section or other provision of any law means that provision of such law from time to time in effectand constituting the substantive amendment, modification, codification, replacement or reenactment of suchsection or other provision;

(vi) reference in any Plan Document to any article, section, appendix, schedule or exhibit means such article orsection thereof or appendix, schedule or exhibit thereto;

(vii) �hereunder�, �hereof�, and words of similar import shall be deemed references to a Plan Document as awhole and not to any particular article, section or other provision thereof;

(viii) �including� (and with the correlative meaning �include�) means including without limiting the generalityof any description preceding such term;


(x) relative to the determination of any period of time, �from� means �from and including� and �to� means�to but excluding;� and




(2) Accounting Terms. In each Plan Document, unless expressly otherwise provided, accounting terms shall beconstrued and interpreted, and accounting determinations and computations shall be made, in accordance with generally acceptedaccounting principles.

(3) Conflict in Plan Documents. If there is any conflict between any two or more Plan Documents, such PlanDocuments shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to theextent) of such conflict, the Plan Document dealing most specifically with the matter as to which there is a conflict shall prevail andcontrol. If it cannot be determined which Plan Document deals most specifically with a matter as to which there is a conflict then thePlan shall prevail and control.

(b) Definitions.

(1) �Board� means the Board of Directors of the Company.

(2) �Capital Charge� means the economic cost of the Total Assets used in the operations of the Company, asdetermined by the Committee from time to time.

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(3) �Chem Systems Leader� means reports provided by Nexant Company or other relevant third party data that reviewchemical industry performance in various areas such as cash cost margins and cash cost return on investment. The chemical industrymay use this data to illustrate their performance compared to the performance of the rest of the chemical industry, and to identify topperformance in the industry.

(4) �Chevron� means Chevron Corporation, or such entity as may be controlled by Chevron Corporation, that directlyor indirectly holds a membership interest in the Company.

(5) �Committee� means the Compensation Committee of the Board.

(6) �Company� means Chevron Phillips Chemical Company LLC and any successor entity.

(7) �ConocoPhillips� means ConocoPhillips, or such entity as may be controlled by ConocoPhillips, that directly orindirectly holds a membership interest in the Company.

(8) �Date of Grant� means the effective date on which a Relative Performance Award or a Strategic PerformanceAward, as the case may be, is granted to a Participant.

(9) �Date of Termination� means the date on which a Participant ceases to be an Employee.

(10) �Deferred Compensation Plan� means the Chevron Phillips Chemical Company LP Executive DeferredCompensation Plan.

(11) �Disability� means the Participant is eligible for, and is continuously receiving disability insurance benefits underthe Social Security Act or the Participating Employer�s long-term disability plan.

(12) �EBITDA� means earnings before interest, taxes, depreciation, and amortization as reported in the financialrecords of the Company, or the financial records of any other company, or segment thereof, against whom the performance of theCompany is being compared.

(13) �Effective Date� means, for purposes of this Plan, January 1, 2001.

(14) �Eligible Employee� means:



(i) in the case of Strategic Performance Awards, any regular, full-time Employee (including an Employeewho is also a director or an officer) who is a pay grade 90 or above; and

3

(ii) in the case of Relative Performance Awards, any regular, full-time Employee (including an Employeewho is also a director or an officer) who is a pay grade 93 or above.

Notwithstanding anything contained in the Plan to the contrary, any person who, pursuant to a written contract with aParticipating Employer that provides that he is an independent contractor and not an Employee, shall be excluded from the definitionof Eligible Employee and shall not be eligible to participate in the Plan during the period such written contract is in effect regardlessof such person�s reclassification as an Employee for such period by the Internal Revenue Service for tax withholding purposes. If,during any period, a Participating Employer has not treated an individual as an Employee and, for that reason, has not withheldemployment taxes with respect to that individual, then that individual shall not be an Eligible Employee for that period, even in theevent that the individual is determined, retroactively, to have been an Employee during all or any portion of that period.

(15) �Employee� means any employee of a Participating Employer.

(16) �ERISA� means the Employee Retirement Income Security Act of 1974, as amended.

(17) �EVA� or �Economic Value Added� means EBITDA minus any Capital Charge.

(18) �Geographic Differences� means the impact of the location of various assets owned by a Peer Company thatcauses differences in the financial performance, such as assets owned in the United States vs. assets owned in Europe, the MiddleEast or other areas.

(19) �Grant� means the award of a Relative Performance Award or a Strategic Performance Award, as the case may be,subject to such terms and conditions as may be set forth in a Grant Agreement accompanying such award. Notwithstanding theforegoing, effective for Performance Cycles beginning on or after January 1, 2006 Grants of Relative Performance Awards will nolonger be available under the Plan.

(20) �Grant Agreement� or �Agreement� means the agreement accompanying such Grant which sets forth the RelativePerformance Award or Strategic Performance Award, as applicable, target amount, the Performance Cycle, vesting and other termsand conditions pertaining to that Grant, as established by the Committee.

(21) �Parent Company� means Chevron, ConocoPhillips, and their respective successors.

(22) �Participant� means an Eligible Employee to whom a Relative Performance Award and/or a Strategic PerformanceAward, as the case may be, may be granted pursuant to the Plan.

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(23) �Participating Employer� means the Company and any direct or indirect subsidiary entity of the Company which,with the Company�s consent, has adopted the Plan.

(24) �Peer Companies� means those chemical companies, or chemical segments thereof, identified in Exhibit A whichmay be amended from time to time by the Committee in its discretion.

(25) �Performance Cycle� means the continuous period as established in the respective Grant Agreement during whicha Relative Performance Award or a Strategic Performance Award is earned by a Participant.

(26) �Plan� means the Long-Term Incentive Plan of Chevron Phillips Chemical Company LLC.



(27) �Plan Document� means this Plan, any Grant Agreement executed in respect of any award, and any otherdocument defining the rights and liabilities of any Participant.

(28) �Relative Performance� means any measure established by the Committee in its sole and absolute discretion thatcompares the Company�s performance to a group of Peer Companies. Relative Performance measures considered may include butare not limited to EBITDA divided by Total Assets; comparison to Chem Systems Leader or other relevant third party data; and/orEVA. The evaluation by the Committee may consider adjustments to normalize portfolio and Geographic Differences and to accountfor special events.

(29) �Relative Performance Award� or �RPA� means, unless modified by the Committee pursuant to the authoritygranted to it herein, an award under the Plan which will be paid to a Participant that rewards Participants for changes in theCompany�s Relative Performance compared to a group of Peer Companies.

(30) �Retirement� means an Eligible Employee�s Termination of Service in connection with the attainment of anyapplicable early retirement age or normal retirement age as defined in (i) the Chevron Phillips Chemical Company LP RetirementPlan, (ii) any retirement plan of any Participating Employer, or (iii) the retirement plan of any Parent Company or any of itsrespective subsidiaries other than Chevron Phillips Chemical Company LLC. A Participant whose Termination of Service occurswhile eligible to retire under any of such plans, but who does not elect to immediately commence the receipt of benefits thereunder,shall nevertheless be deemed to have retired under such plan for purposes of this Plan.

(31) �Strategic Performance� means any measure established by the Committee in its sole and absolute discretion thatcompares the Company�s performance to the attainment of internal strategic objectives. Strategic Performance measures mayinitially

5

include but are not limited to gap closure/synergies; major projects; portfolio management; effective management of capital projects;unit cost reductions versus baseline measurements; reliability versus baseline measurements; and achievement of effective growthgoals. The Committee will annually review the internal strategic objectives to be measured for each succeeding Performance Cycleand may alter, amend or revise, in its sole and absolute discretion, such measures.

(32) �Strategic Performance Award� or �SPA� means, unless modified by the Committee pursuant to the authoritygranted to it herein, an award which will be paid to a Participant for Company�s Strategic Performance compared to the internalstrategic objectives established by the Committee.

(33) �Termination of Service� occurs when a Participant ceases to serve as an Employee for any reason.

(34) �Total Assets� means the sum of current and long-term assets owned by a company.

2. Administration of the Plan

(a) The Plan shall be administered by the Committee.

(b) Notwithstanding any other provision of the Plan, the Plan shall be interpreted, operated and administered in a mannerconsistent with Section 409A.

(c) The Committee may establish, from time to time and at any time, subject to the limitations of the Plan as set forth herein,such rules and regulations and amendments and supplements thereto, as it deems necessary to comply with applicable law and for theproper administration of the Plan.

(d) The Committee�s interpretation and construction of the provisions of the Plan and rules and regulations adopted by theCommittee shall be final. No member of the Committee or the Board shall be liable for any action taken, or determination made, inrespect of the Plan in good faith.

(e) The members of the Committee may retain counsel, employ agents, and provide for such clerical, accounting and consultingservices as they may require in carrying out the provisions of the Plan; and may allocate among themselves or delegate to other



persons all or such portion of their duties under the Plan as they in their sole discretion, shall decide. Each member of the Committeeand each member of the Board shall be fully justified in relying upon or acting in good faith upon any opinion, report, or informationfurnished in connection with the Plan by any accountant, counsel, or other specialist so retained (including financial officers of theCompany, whether or not such persons are Participants in the Plan).

6

(f) This Plan may be adopted by such subsidiary entities of the Company as the Board or Committee may approve, whereuponsuch entities shall become Participating Employers.

(g) The Committee shall periodically evaluate the effectiveness of the Plan in meeting the purposes for which the Plan wasadopted. Subject to the limitations and requirements of Section 7 and Section 409A, the Committee, based on such an evaluation,may in its sole and absolute discretion, add a new optional form of Grant, eliminate an optional form of Grant, modify the terms of anexisting form of Grant, or offer one form of Grant in exchange for an existing Grant made to a Participant for a Performance Cycle.Any exchange of an existing Grant for a new Grant under the Plan shall be for good and valuable consideration and subject toconsent of the Participant and the provisions of Section 7 and Section 409A.

3. Eligibility and Participation

(a) The Committee, upon its own action, may grant, but shall not be required to grant, Relative Performance Awards and/orStrategic Performance Awards (collectively, the �Award� or �Awards�) to any Eligible Employee. Grants may be made by theCommittee at any time and from time to time to new Eligible Employees, or to then Eligible Employees, or to a greater or lessernumber of Eligible Employees, as the Committee shall determine. Notwithstanding any other provision of this Plan to the contrary,effective for Performance Cycles beginning on or after January 1, 2006 Grants of Relative Performance Awards will no longer beavailable under the Plan.

(b) If, during a Performance Cycle, a regular, full-time Employee is promoted to a pay grade of 90 or above, the Employeebecomes eligible to participate in the Plan. If the Eligible Employee is otherwise selected by the Committee to participate in the Plan,the Eligible Employee will receive a Grant of a Relative Performance Award and/or a Strategic Performance Award for the mostrecent, active Performance Cycle. Such Award will be prorated for the period which begins on the date of promotion and ends as ofthe end of the applicable Performance Cycle. If, during a Performance Cycle, an individual is hired as an Employee in a pay grade of90 or above, the Employee becomes eligible to participate in the Plan. If the Eligible Employee is otherwise selected by theCommittee to participate in the Plan, the Eligible Employee will receive a Grant of a Relative Performance Award and/or a StrategicPerformance Award for the most recent, active Performance Cycle. Such Award will be prorated for the period which begins on thedate of employment and ends as of the end of the applicable Performance Cycle. Notwithstanding the foregoing, when a regular,full-time Employee is hired in a pay grade of 90 or above, the CEO will have the authority to give prorated Awards for all activePerformance Cycles when required for competitive reasons. In the event a Participant is demoted to a pay grade lower than 90,outstanding Strategic Performance Awards will be prorated for all active Performance Cycles to which such outstanding Awardsapply. For this purpose, the proration period will begin as of the Date of Grant for each applicable outstanding Award and will endon the effective date of the

7

Employee�s demotion. Outstanding Relative Performance Awards will not be subject to such proration in the event the Participant isdemoted to a pay grade lower than 93.

4. Grants and Settlement of Awards

(a) Each Grant shall be evidenced by a Grant Agreement executed by the Participant in such form and with such terms andconditions, as the Committee may from time to time determine. The rights of a Participant with respect to any Grant shall at all timesbe subject to the terms and conditions set forth in the Grant Agreement relating thereto and in the Plan Documents. Except asrequired by this Plan, different Grants need not contain terms or conditions similar to any Grant made prior thereto orcontemporaneously therewith. The Committee�s determinations under the Plan (including determinations of which EligibleEmployees, if any, are to receive Grants, the form, amount and timing of such Grants, the terms and provisions of such Grants andthe agreements evidencing same) need not be uniform and may be made by it selectively among Eligible Employees who receive, orare eligible to receive, Grants under the Plan.



(b) Each Performance Cycle, subject to the other limitations set forth in the Plan, may extend for a period of up to three(3) years from the Date of Grant. The length of each Performance Cycle shall be determined by the Committee at the time of Grant;provided, however, if no term is established by the Committee the term of the Performance Cycle shall be three (3) years from theDate of Grant.

(c) With respect to the Relative Performance Award, at the beginning of each Performance Cycle, the Committee shall establishthe Participant�s Relative Performance Award target amount. The Committee shall also determine the Relative Performancemeasures for the Performance Cycle. Moreover, the Relative Performance Award target amount and the Relative Performancemeasures shall be set forth in writing within ninety (90) days of the beginning of each Performance Cycle.

At the end of each Performance Cycle, the Committee shall evaluate the Company�s Relative Performance in comparison tothe group of Peer Companies to establish what percentage of the Participant�s Relative Performance Award target amount will beawarded the Participant. The percentage may range from 0% to 200%. Any resultant Relative Value Award may be further adjustedas a result of the application of the provisions in Section 4(e) or by the Committee in its sole and absolute discretion either inindividual cases or in the aggregate. Notwithstanding anything contained in the Plan to the contrary, in no event shall any RelativePerformance Award be awarded to any Participant for a Performance Cycle if the award is not based on the Company�s favorableperformance as compared with the group of Peer Companies.

(d) With respect to the Strategic Performance Award, at the beginning of each Performance Cycle, the Committee shallestablish the Participant�s Strategic Performance Award target amount. The Committee shall also determine the StrategicPerformance measures for the Performance Cycle. Moreover, the Strategic Performance Award target amount and the StrategicPerformance measures shall be set forth in writing within ninety (90) days of the beginning of each Performance Cycle.

8

At the end of each Performance Cycle, the Committee shall evaluate the Company�s Strategic Performance in comparisonto the Strategic Performance measures established by the Committee to establish what percentage of the Participant�s StrategicPerformance Award target amount will be awarded the Participant. The percentage may range from 0% to 200%. Any resultantStrategic Performance Award may be further adjusted as a result of the application of the provisions in Section 4(e) or by theCommittee in its sole and absolute discretion either in individual cases or in the aggregate. Notwithstanding anything contained inthe Plan to the contrary, in no event shall any Strategic Performance Award be awarded to any Participant for a Performance Cycle ifthe award is not based on the Company�s favorable performance as compared to the Strategic Performance measures established bythe Committee.

(e) Notwithstanding anything contained in this Plan document to the contrary, in the event that any Participant engages in anyactivity which the Committee judges to be detrimental to any Participating Employer, or otherwise fails to perform his obligations asa regular, full-time Employee, the Committee may cancel or reduce the Relative Performance Value Award or Strategic PerformanceValue Award in whole or in part at any time prior to payment of the Award.

5. Payment of Awards

(a) Upon final determination by the Committee of a Participant�s right to receive a distribution of a Relative PerformanceAward or Strategic Performance Award, the distribution shall be paid in cash as a lump sum as soon as practicable after such finaldetermination by the Committee.

For Performance Cycles beginning on or after January 1, 2003, upon final determination by the Committee of aParticipant�s right to receive a distribution of a Relative Performance Award or a Strategic Performance Award (or a pro rata portionthereof), the distribution shall be paid in cash as a lump sum: (1) with respect to the Relative Performance Award, on May 10 of theyear following the end of the Performance Cycle in question; and (2) with respect to the Strategic Performance Award, on March 22of the year following the end of the Performance Cycle in question; provided, however that if a payment date occurs on a Saturday,Sunday or bank holiday, payment will be made the next following business day.

(b) If a Participant is eligible to participate in the Deferred Compensation Plan, then the Participant may voluntarily elect todefer receipt of his Award and to cause such amount to be credited to his account with the Deferred Compensation Plan. The



rules and procedures governing the Deferred Compensation Plan shall govern and be binding upon any Participants who elect tomake such deferrals.

Deferral and distribution elections shall be made in accordance with Section 409A and the terms of the DeferredCompensation Plan. Specifically, irrevocable elections by Participants of the time and form of payment of the Strategic PerformanceAward and

9

Relative Performance Award under the Deferred Compensation Plan shall be made no later than the date that is six (6) months beforethe end of the applicable Performance Cycle in accordance with the Proposed Treasury Regulation section 1.409A-2(a)(7) andsubsequent guidance.

6. Vesting and Forfeiture

(a) A Participant will be vested in his Strategic Performance Award or Relative Performance Award, as the case may be, at theend of the Performance Cycle applicable to said Award provided the Participant is an Eligible Employee at the end of saidPerformance Cycle.

(b) Except as provided in the Plan Document, upon a Participant�s Termination of Service, the Participant�s outstanding Grantsof Strategic Performance Awards or Relative Performance Awards, as the case may be, and all rights thereunder shall terminate onthe Date of Termination; provided, however, that if a Participant�s Termination of Service is due to Retirement, transfer to a ParentCompany, Disability, or death, said forfeiture shall not occur, and the Participant shall be vested on the Date of Termination in eachoutstanding Strategic Performance Award or Relative Performance Award. Each outstanding Strategic Performance Award will beprorated for the active Performance Cycle to which such outstanding Award applies. For this purpose, the proration period will beginas of the Date of Grant for each applicable outstanding Strategic Performance Award and will end on the Participant�s Date ofTermination. Except in the case of Termination of Service due to transfer to a Parent Company, outstanding Relative PerformanceAwards will not be subject to such proration.

(c) Notwithstanding the foregoing, in the event a Participant: (1) takes a leave of absence from the Company for personalreasons or as a result of entry into the Armed Forces of the United States, or (2) terminates employment for reasons which, in thejudgment of the Committee, are deemed to be special circumstances, the Committee may consider such circumstances and may takesuch action (to the extent consistent with Section 409A) in respect of the related Grant and Grant Agreement as it may deemappropriate under the circumstances, including extending the rights of a Participant to continue participation in the Plan beyond hisDate of Termination; provided in no event may participation be extended beyond the term of the Performance Cycle.

7. Amendment or Discontinuance

Subject to the limitations set forth in this Section 7, the Board may at any time and from time to time, without the consent of theParticipants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part. Any such amendment shall, to the extentdeemed necessary or advisable by the Committee, be applicable to any outstanding Grants theretofore awarded under the Plan,notwithstanding any contrary provisions contained in any Grant Agreement. In the event of any such amendment to the Plan, theholder of any Grant outstanding under the Plan shall, upon request of the Committee and as a condition to the exercisability thereof,execute a conforming amendment in the form

10

prescribed by the Committee to any Grant Agreement relating thereto. Notwithstanding anything contained in this Plan to thecontrary, unless required by law, no action contemplated or permitted by this Section 7 shall adversely affect any rights ofParticipants or obligations of the Company to Participants with respect to any Award theretofore granted under the Plan without theconsent of the affected Participant.

8. Recapitalization, Merger, and Consolidation



The existence of this Plan and the Awards granted hereunder shall not affect in any way the right or power of the Company or thoseentities holding membership interests in the Company to make or authorize any or all adjustments, reorganizations, or other changesin the Company�s capital structure and its business, or any merger or consolidation of the Company, or the dissolution or liquidationof the Company, or any sale or transfer of all or part of its assets or business, or any other corporate act or proceeding, whether of asimilar character or otherwise.

9. General Provisions

(a) Strategic Performance Awards and Relative Performance Awards shall be nontransferable and nonassignable, except thatany such Grant may be transferred (1) to such beneficiary as the Participant may designate in the event of death, Disability or otherincapacity, or (2) by testamentary instrument or by the laws of descent and distribution. The Committee shall prescribe the form andmanner in which beneficiary designations shall be made, revoked or amended. Any valid beneficiary designation on file with theCompany shall take priority over any conflicting provision of any testamentary or similar instrument.

(b) The establishment of the Plan shall not confer any legal rights upon any Employee or other person to continuedemployment, nor shall it interfere with the right of any Participating Employer (which right is hereby reserved) to discharge anyEmployee and to treat him without regard to the effect which that treatment might have upon him as a Participant or potentialParticipant.

(c) Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any rightto be granted an award or any other rights except as may be evidenced by a Grant Agreement, or any amendment thereto, dulyauthorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditionsexpressly set forth therein.

(d) The Company shall have the right to deduct from all amounts hereunder paid in cash, any federal, state, local, or other taxesrequired by law to be withheld with respect to such payments.

(e) THE VALIDITY, CONSTRUCTION AND EFFECT OF THE PLAN, ANY PLAN DOCUMENTS, AND ANY ACTIONSTAKEN OR RELATING TO THE PLAN SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE

11

OF TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WITHIN SUCH STATE.

(f) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to allor substantially all of the business and/or assets of the Company, expressly to assume and agree to perform the Company�sobligations under this Plan in the same manner and to the same extent that the Company would be required to perform them if nosuch succession had taken place.

(g) The Plan shall be unfunded. Neither the Company, any Participating Employer, the Committee, nor the Board shall berequired to segregate any assets or secure any liability that may at any time be represented by Grants made pursuant to the Plan.

(h) The Plan shall have a term of ten (10) years from its Effective Date. After termination of the Plan, no future Grants may bemade, but Grants made before that date will continue to be effective in accordance the terms and conditions of the respective GrantAgreement.

12

EXHIBIT A

PEER COMPANIES



The following companies, or the chemicals segments thereof, shall be the initial comparator companies for purposes of Relative PerformanceAwards:

1. The Dow Chemical Company

2. Borealis (polyolefins & chemicals segment)

3. NOVA Chemicals Corporation

4. Equistar Chemicals, LP

5. ExxonMobil Corporation (chemicals segment)

6. BP, p.l.c. (chemicals segment)

7. Royal Dutch/Shell Group (chemicals segment)

Chem Systems Data or other relevant third-party data may also be used to determine relative performance.

THIS EXHIBIT A MAY BE MODIFIED FROM TIME TO TIME BY THE COMMITTEE IN ITS SOLE AND ABSOLUTEDISCRETION.

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AMENDMENT NUMBER ONETO THE

LONG-TERM INCENTIVE PLAN OFCHEVRON PHILLIPS CHEMICAL COMPANY LLC

WHEREAS, effective January 1, 2001, Chevron Phillips Chemical Company LLC (the �Company�) established the Long-TermIncentive Plan of Chevron Phillips Chemical Company LLC (the �Plan�);

WHEREAS, the Plan was subsequently amended and restated effective January 1, 2001, and effective January 1, 2005; and

WHEREAS, pursuant to Section 7 of the Plan, the Company reserves the right at any time and from time to time to amend the Plan inwhole or in part;

NOW, THEREFORE, BE IT RESOLVED,

1. Effective January 1, 2005, Section 6(b) is amended in its entirety as follows:

(b) If a Participant becomes Disabled or has a Termination of Service due to Retirement, transfer to a Parent Company, ordeath, the Participant shall be vested in each outstanding Strategic Performance Award or Relative Performance Award, asthe case may be, when the Participant is placed on Disability or on the Participant�s Date of Termination, as applicable.Each outstanding Strategic Performance Award will be prorated for the active Performance Cycle to which such outstandingaward applies. For this purpose, the proration period will begin as of the Date of Grant for each applicable outstandingStrategic Performance Award and will end when the Participant is placed on Disability or on the Participant�s Date ofTermination, as applicable. Except in the case of Termination of Service due to transfer to a Parent Company, outstandingRelative Performance Awards will not be subject to such proration. If a Participant terminates employment for any reasonother than Retirement, transfer to a Parent Company, or death, then the Participant�s outstanding Grants of StrategicPerformance Awards or Relative Performance Awards, as the case may be, and all rights thereunder shall be forfeited.



IN WITNESS WHEREOF, Chevron Phillips Chemical Company LLC has caused this Amendment Number One to be executed this24 day of February 2006.

CHEVRON PHILLIPS CHEMICALCOMPANY LLC

By: James L. GallogyIts: President and Chief Executive Officer



Exhibit 10.7

ANNUAL INCENTIVE PLAN

OF



ANNUAL INCENTIVE PLANOF


TABLE OF CONTENTS

Page

1. Interpretation and Definitions 12. Administration of Plan. 53. Eligibility and Participation 54. AIP Awards . 65. Payment of AIP Awards 76. Vesting and Forfeiture 77. Amendment and Discontinuance 88. Recapitalization, Merger, and Consolidation 89. General Provisions 8

Schedule A �Administrative Procedures� 10

i

ANNUAL INCENTIVE PLANOF


PURPOSE

The purpose of this amended and restated Annual Incentive Plan (the �Plan�) is to attract, motivate, and retain qualified managementpersonnel by providing to them an annual incentive compensation plan that will provide competitive compensation opportunities similar tothose of comparable companies in the chemical industry, align the interests of key management with the interests of the Company�s owners,and assist the Company in achieving its goals of being the top performer in each of its businesses.



The Plan is intended to be a �bonus program� within the meaning of Labor Reg. § 2510.3-2(c) and, therefore, is not intended to be subject tothe requirements of ERISA. It is also intended to comply with the requirements of Section 409A of the Internal Revenue Code, as added bythe American Jobs Creation Act of 2004 (�Section 409A�), to the extent such provisions apply.

The Plan was originally established effective January 1, 2001.



(a) General.






1

(v) reference to any law means such law as amended, modified, codified, replaced or reenacted, in whole or inpart, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to anysection or other provision of any law means that provision of such law from time to time in effect and constitutingthe substantive amendment, modification, codification, replacement or reenactment of such section or otherprovision;











(b) Definitions.

(1) �Annual Incentive Plan Award� or �AIP Award� means an award of cash made pursuant to the Plan (or anyprorated portion thereof).

2


(3) �Bonus Level Employee� means:

(i) with respect to Employees on the U.S. Dollar payroll of a Participating Employer, any regular, full-timeEmployee (including an Employee who is also a director or an officer) who is a pay grade 90 or above; and

(ii) with respect to Employees who are not on a U.S. Dollar payroll, those Employees who are employedwithin pay grades which are deemed by the Committee to be equivalent to grades 90 or above.

Notwithstanding anything contained in the Plan to the contrary, any person who, pursuant to a written contract with a ParticipatingEmployer that provides that he is an independent contractor and not an Employee, shall be excluded from the definition of BonusLevel Employee and shall not be eligible to participate in the Plan during the period such written contract is in effect regardless ofsuch person�s reclassification as an Employee for such period by the Internal Revenue Service for tax withholding purposes. If,during any period, a Participating Employer has not treated an individual as an Employee and, for that reason, has not withheldemployment taxes with respect to that individual, then that individual shall not be a Bonus Level Employee for that period, even inthe event that the individual is determined, retroactively, to have been an Employee during all or any portion of that period.







3






(13) �Layoff� means termination of employment by reason of layoff pursuant to the Chevron Phillips ChemicalCompany LP�s severance program or similar program adopted by a Participating Employer.


(15) �Participant� means an Employee who has been designated as a participant pursuant to Section 3.


(17) �Plan� means the Annual Incentive Plan of Chevron Phillips Chemical Company LLC.

(18) �Plan Document� means this Plan, any administrative procedures that may from time to time be adopted by theCommittee (including Schedule A), and any other document defining the defining the rights and liabilities of any Participant.

(19) �Plan Year� means a period of twelve (12) months beginning on January 1 of any calendar year.

(20) �Retirement� means a Participant�s Termination of Service in connection with the attainment of any applicableearly retirement age or normal retirement age as defined in the Chevron Phillips Chemical Company LP Retirement Plan or anyretirement plan of any Participating Employer. A Participant whose Termination of Service occurs while eligible to retire under anyof such plans, but who does not elect to immediately commence the receipt of benefits thereunder, shall nevertheless be deemed tohave retired under such plan for purposes of this Plan.

(21) �Salary� means the annualized base rate of a Participant as of December 31 of the Plan Year with respect to whichan AIP Award is made or, in the case of (i) Disability, the base rate of the Participant when he is placed on Disability or (ii)Termination of Service by reason of Retirement, Layoff, death, or transfer to a Parent Company, the base rate of the Participant onhis Date of Termination.

4







(e) The members of the Committee may retain counsel, employ agents, and provide for such clerical, accounting and consultingservices as they may require in carrying out the provisions of the Plan; and may allocate among themselves or delegate to other



persons all or such portion of their duties under the Plan as they, in their sole discretion, shall decide. Each member of the Committeeand each member of the Board shall be fully justified in relying upon or acting in good faith upon any opinion, report, or informationfurnished in connection with the Plan by any accountant, counsel, or other specialist so retained (including financial officers of theCompany, whether or not such persons are Participants in the Plan).



(a) Except as otherwise provided herein, all regular, full time Employees who are Bonus Level Employees as of January 1 of thePlan Year shall be Participants in the Plan.

(b) Notwithstanding anything contained in the Plan Documents to the contrary, the Committee may from time to time selectadditional Employees or classes of Employees for participation in the Plan, and may direct that specific Bonus Level Employees, orclasses of Bonus Level Employees be removed from participation. Any such determination may be made at any time prior to thepayment of AIP Awards with respect to any Plan Year, and may be made with respect to participation during all or any part of anyPlan Year.

5

(c) If, during a Plan Year, a regular, full-time Employee is promoted to a pay grade of 90 or above, the Employee will become aParticipant in the Plan, and will be eligible for an AIP Award for said Plan Year. Such AIP Award will be prorated for the periodwhich begins on the date of promotion and ends as of the end of the applicable Plan Year in question. If, during a Plan Year, anindividual is hired as an Employee in a pay grade of 90 or above, the Employee will become a Participant in the Plan, and will beeligible for an AIP Award for said Plan Year. Such AIP Award will be prorated for the period which begins on the date ofemployment and ends as of the end of the applicable Plan Year. If, during a Plan Year, a Participant is demoted to a pay grade lowerthan 90, his AIP Award for said Plan Year will be prorated for the period which begins on the first day of the applicable Plan Yearand ends on the effective date of the Employee�s demotion.

If during the Plan Year a Participant transfers between pay grade levels for Bonus Level Employee, his AIP Award will bedetermined by: Dividing the number of months in each pay grade level by 12. Multiplying each quotient by the corresponding targetpercentage for the pay grade as set forth in Paragraph 1 of Schedule A. The AIP Award for which the Participant will be consideredis the sum of the products. In this regard, the Participant will receive credit for each month based on the grade level in which theParticipant resides on the first day of each month.

4. AIP Awards

(a) As soon as practicable following the beginning of each Plan Year, the Committee shall (1) make such determinations as itmay deem appropriate with respect to the selection of Participants for such Plan Year; and (2) establish target AIP Awards for eachParticipant which will be measured as a percentage of the Participant�s Salary based upon the Participant�s grade level, as moreparticularly described in the Administrative Procedures document, attached hereto as ScheduleA.

At the end of each Plan Year, the Committee shall evaluate the Company�s performance based upon performance measures approvedby the Committee at the beginning of the applicable Plan Year under the Company�s Employee Incentive Program (�EIP�) todetermine what percentage of the Participant�s AIP Award target amount will be awarded the Participant. The percentage may rangefrom 0% to 200%.

Any resultant AIP Award may be further adjusted as a result of the application of the provisions in Section 4(b) or by the Committeein its sole and absolute discretion whether in individual cases or in the aggregate.

(b) Notwithstanding anything contained in the Plan Documents to the contrary, in the event that any Participant engages in anyactivity which the Committee judges to be detrimental to any Participating Employer, or otherwise fails to perform his obligations asa regular, full-time Employee, the Committee may cancel or reduce the AIP Award in whole or in part at any time prior to paymentof the AIP Award.



6

5. Payment of AIP Awards

(a) AIP Awards for Plan Year 2004 were paid in a lump sum between January 1, 2005 and March 15, 2005. AIP Awards forPlan Years beginning on or after January 1, 2005 will be paid in a lump sum on March 22 of the Plan Year following the end of thePlan Year to which the AIP Award relates; provided, however, that if a payment date occurs on a Saturday, Sunday or bank holiday,payment will be made the next following business day.

(b) If a Participant is eligible to participate in the Deferred Compensation Plan, then the Participant may voluntarily elect todefer receipt of his AIP Award and to cause such amount to be credited to his account with the Deferred Compensation Plan. Therules and procedures governing the Deferred Compensation Plan, including Section 409A, shall govern and be binding upon anyParticipants who elect to make such deferrals.


(a) Except as otherwise provided in the Plan Documents, a Participant will be vested in his AIP Award if the Participant is aregular, full time Employee on the date of payment of the AIP Award.

(b) If a Participant becomes Disabled or has a Termination of Service due to Retirement, Layoff, transfer to a Parent Company,or death prior to the date of payment of the AIP Award, the Participant shall be vested in his AIP Award when the Participant isplaced on Disability or on his Date of Termination, as applicable, in which event the AIP Award payable to the Participant for suchPlan Year shall be prorated. For this purpose, the proration period will begin on January 1 of such Plan Year and will end (1) whenthe Participant is place on Disability or on the Participant�s Date of Termination, as applicable, or (2) December 31 of such PlanYear, whichever occurs first. Any amount payable by reason of a Participant�s death shall be paid to such Participant�s estate or tosuch other individuals or entities as the Committee shall direct. If a Participant terminates employment with the ParticipatingEmployer for any reason other than Retirement, Layoff, transfer to a Parent Company, or death, the Participant�s AIP Award and allrights hereunder shall be forfeited.

(c) Notwithstanding the foregoing, in the event a Participant: (1) takes a leave of absence from the Company for personalreasons or as a result of entry into the Armed Forces of the United States, or (2) terminates employment for reasons which, in thejudgment of the Committee, are deemed to be special circumstances, the Committee may consider such circumstances and may takesuch action (to the extent consistent with Section 409A) as it may deem appropriate under the circumstances, including extending therights of a Participant to continue participation in the Plan beyond his Date of Termination; provided in no event may participation beextended beyond the term of the Plan Year in question.

7


The Company may at any time and from time to time, without the consent of the Participants, alter, amend, revise, suspend, ordiscontinue the Plan in whole or in part. The Committee may amend Schedule A at any time and from time to time. Any suchamendments may be made effective with respect to any Plan Year and with respect to any AIP Awards which, as of the date of theamendment, have not become payable.


The existence of this Plan and the AIP Awards granted hereunder shall not affect in any way the right or power of the Company orthose entities holding membership interests in the Company to make or authorize any or all adjustments, reorganizations, or otherchanges in the Company�s capital structure and its business, or any merger or consolidation of the Company, or the dissolution orliquidation of the Company, or any sale or transfer of all or part of its assets or business, or any other corporate act or proceeding,whether of a similar character or otherwise.




(a) AIP Awards shall be nontransferable and nonassignable, except that any such AIP Awards may be transferred (1) bytestamentary instrument or by the laws of descent and distribution, or (2) to such individual or entity as the Committee may designatein the event of a Participant�s death.

(b) The establishment of the Plan shall not confer any legal rights upon any Employee or other person to continued employment,nor shall it interfere with the right of any Participating Employer (which right is hereby reserved) to discharge any Employee and totreat him without regard to the effect which that treatment might have upon him as a Participant or potential Participant.

(c) Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any rightto receive an AIP Award or any other rights except otherwise specifically provided herein.


(e) THE VALIDITY, CONSTRUCTION AND EFFECT OF THE PLAN, ANY PLAN DOCUMENTS, AND ANY ACTIONSTAKEN OR RELATING TO THE PLAN SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATEOF TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WITHIN SUCH STATE.

8

(f) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to allor substantially all of the business and/or assets of the Company, expressly to assume and agree to perform the Company�sobligations under this Plan in the same manner and to the same extent that the Company would be required to perform them if nosuch succession had taken place.

(g) The Plan shall be unfunded. Neither the Company, any Participating Employer, the Committee, nor the Board shall berequired to segregate any assets or secure any liability that may at any time exist under the Plan.

9

IN WITNESS WHEREOF, Chevron Phillips Chemical Company LLC by its duly authorized officer(s), has caused the Plan to beamended and restated on the 24 day of February, 2006.

Chevron Phillips Chemical Company LLC


Title: President and Chief Executive Officer

10

SCHEDULE A

Administrative Procedures

1. Target AIP Awards



The following target AIP Award schedule shall apply to Participants in the Plan for the Plan Year 2005 and for subsequent Plan Years unlesschanged by the Company or the Committee:

Grade Level

Target

(% of Salary at 12/31 of Plan Year)

99 80%

98 60%

97 55%

96 50%

95 45%

94 40%

93 35%

92 30%

91 27.5%

90 22.5%

2. Assignment to Award Units

The Company has established Award Units for purposes of the EIP applicable to Employees generally. Each Participant shall be deemed to bea member of the Award Unit through which such individual would participate in the EIP if such individual were not a Participant in this Plan.

3. Calculation of AIP Awards

The AIP Award payable to each Participant shall be determined under the following formula:

AIP Award = S * T * X/7%

11

Where:

S is the Participant�s Salary;

T is the Participant�s target AIP Award, determined under Paragraph 1 above; and

X is the percentage of EIP Target paid to Employees in the Award Unit to which the Participant is assigned.

The above calculation may result in an AIP Award ranging from 0% up to 200% of the target AIP Award.



4. Performance and Other Adjustments

In the case of the Chief Executive Officer (�CEO�) or other Participants who, in the Committee�s judgment, do not provide services to asingle Strategic Business Unit, Facility, Technology Group or Staff, the Committee shall make a special determination as to the manner inwhich any such individual�s AIP Award shall be calculated.

In the event the Committee determines that an individual Participant or group of Participants has made contributions to the success of theCompany which deserve special recognition, the Committee may provide for such enhancement of the AIP Awards payable to them as theCommittee may deem appropriate. Conversely, if the Committee determines that an individual Participant or group of Participants has failedto make such contribution as would have been justified by application of the formula described in Paragraph 3 above, the Committee mayreduce or cancel the AIP Award payable to any such Participant.

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Exhibit 10.10

RELATIVE PERFORMANCE VALUE PLAN

OF


(Effective January 1, 2006)

RELATIVE PERFORMANCE VALUE PLANOF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC(Effective January 1, 2006)

TABLE OF CONTENTS

Page

1. Interpretation and Definitions 12. Administration of Plan 63. Eligibility and Participation 74. Grants and Settlement of Awards 85. Deferral of Awards 96. Vesting and Forfeiture 97. Amendments or Discontinuance 108. Recapitalization, Merger, and Consolidation 119. General Provisions 11

Exhibit A �Peer Companies� 13Exhibit B �Award Calculation Example� 14

i

RELATIVE PERFORMANCE VALUE PLANOF

CHEVRON PHILLIPS CHEMICAL COMPANY LLCEffective January 1, 2006

PURPOSE

The purpose of this Relative Performance Value Plan of Chevron Phillips Chemical Company LLC (the �Plan�) is to attract, motivate, andretain qualified management personnel by providing to them a long-term incentive compensation plan that will provide competitive



compensation opportunities similar to those of comparable companies in the chemical industry, align the interests of key management with theinterests of the Company�s owners, and encourage the creation of additional owner value.

The Plan is intended to be a �bonus program� within the meaning of Labor Reg. § 2510.3-2(c) and, therefore, is not intended to be subject tothe requirements of ERISA. It is also intended that the Plan comply with the requirements of Section 409A of the Internal Revenue Code, asadded by The American Jobs Creation Act of 2004 (�Section 409A�).

The Plan shall be effective as of January 1, 2006.


(a) General.






(v) reference to any law means such law as amended, modified, codified, replaced or reenacted, in whole or inpart, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to anysection or other provision of any law means that provision

1

of such law from time to time in effect and constituting the substantive amendment, modification, codification,replacement or reenactment of such section or other provision;











(b) Definitions


(2) �Capital Charge� means the economic cost of the Total Assets used in the operations of the Company, asdetermined by the Committee from time to time.

(3) �Chem Systems Leader� means reports provided by Nexant Company or other relevant third party data that reviewchemical industry performance in various areas

2

such as cash cost margins and cash cost return on investment. The chemical industry may use this data to illustrate their performancecompared to the performance of the rest of the chemical industry, and to identify top performance in the industry.





(8) �Date of Grant� means the effective date on which a Relative Performance Value Award is granted to aParticipant.




(12) �EBITDA� means earnings before interest, taxes, depreciation, and amortization as reported in the financialrecords of the Company, or the financial records of any other company, or segment thereof, against whom the performance of theCompany is being compared.

(13) �Effective Date� means, for purposes of this Plan, January 1, 2006.

(14) �Eligible Employee� means any regular, full time Employee (including an Employee who is also a director or anofficer) who is a pay grade 93 or above. Notwithstanding anything contained in the Plan to the contrary, any person who, pursuant toa written contract with a Participating Employer that provides that he is an independent contractor and not an Employee, shall beexcluded from the definition of Eligible Employee and shall not be eligible to participate in the Plan during the period such written



contract is in effect regardless of such person�s reclassification as an Employee for such period by the Internal Revenue Service fortax withholding purposes. If, during any period, a Participating Employer has not treated an individual as an Employee and,

3

for that reason, has not withheld employment taxes with respect to that individual, then that individual shall not be an EligibleEmployee for that period, even in the event that the individual is determined, retroactively, to have been an Employee during all orany portion of that period.



(17) �EVA� or �Economic Value Added� means EBITDA minus any Capital Charge.

(18) �Geographic Differences� means the impact of the location of various assets owned by a Peer Company that causedifferences in financial performance, such as assets owned in the United States vs. assets owned in Europe, the Middle East, or otherareas.

(19) �Grant� means the award of a Relative Performance Value Award, subject to such terms and conditions as may beset forth in a Grant Agreement accompanying such award.

(20) �Grant Agreement� or �Agreement� means the agreement accompanying such Grant that sets forth the RelativePerformance Value Award target amount, the Share Ratio underlying said target amount, the initial Market Value Per Share,Performance Cycle, vesting, and other terms and conditions pertaining to that Grant as established by the Committee. All such GrantAgreements may be entered into by the Company as agent for the Participating Employers, and all Relative Performance ValueAwards shall be and remain the liability of the Participating Employer employing the Participant at the time of such Grants.

(21) �Market Value Per Share� means the closing price of each Parent Company�s common stock on the applicableValuation Date, as adjusted by the Committee in its sole discretion, considering factors deemed relevant by the Committee, whichmay include, but are not limited to, the dividend policies of the Parent Companies.


(23) �Participant� means an Eligible Employee to whom a Relative Performance Value Award may be granted pursuantto the Plan.


4

(25) �Peer Companies� means those chemical companies, or chemical segments thereof, identified in Exhibit A whichmay be amended from time to time by the Committee in its discretion.

(26) �Performance Cycle� means the continuous period as established in the respective Grant Agreement during whicha Relative Performance Value Award is earned by a Participant.

(27) �Plan� means the Relative Performance Value Plan of Chevron Phillips Chemical Company LLC.

(28) �Plan Document� means this Plan, any Grant Agreement executed in respect of any award, and any otherdocument defining the rights and liabilities of any Participant.



(29) �Relative Performance� means any measure established by the Committee in its sole and absolute discretion thatcompares the Company�s performance to a group of Peer Companies. Relative Performance measures considered may include, butare not limited to, EBITDA divided by Total Assets; comparison to Chem Systems Leader or other relevant third party data; and/orEVA. The evaluation by the Committee may consider adjustments to normalize portfolio and Geographic Differences and to accountfor special events.

(30) �Relative Performance Value Award�, �RPVA� or �Award� means, unless modified by the Committee pursuantto the authority granted to it herein, an award under the Plan that rewards Participants for changes in the Company�s RelativePerformance compared to a group of Peer Companies.

(31) �Retirement� means an Eligible Employee�s Termination of Service in connection with the attainment of anyapplicable early retirement age or normal retirement age as defined in (i) the Chevron Phillips Chemical Company LP RetirementPlan, (ii) any retirement plan of any Participating Employer, or (iii) the retirement plan of any Parent Company or any of itsrespective subsidiaries other than Chevron Phillips Chemical Company LLC. A Participant whose Termination of Service occurswhile eligible to retire under any of such plans, but who does not elect to immediately commence the receipt of benefits thereunder,shall nevertheless be deemed to have retired under such plan for purposes of this Plan.

(32) �Share Ratio� means the number of hypothetical shares of each ConocoPhillips and Chevron common sharesunderlying each Relative Performance Value Award target amount as determined by the Committee. Such Share Ratio is generallyestablished to provide that one-half of the opportunity inherent in the Grant is based on the value of common stock of each ParentCompany, considering factors deemed relevant by the Committee, which may include but are not limited to, dividend policies of eachParent Company. Share Ratios are fixed over the Performance Cycle of any individual Grant, but may vary among Grants occurringon different dates.

5

Notwithstanding the foregoing, the Committee retains the authority to adjust the Share Ratio for active Performance Cycles in amanner it deems appropriate to account for capital restructurings or other similar transactions involving the common shares of theParent Company.


(34) �Total Assets� means the sum of current and long-term assets owned by a company.

(35) �Valuation Date� means:

(i) for purposes of determining the Market Value Per Share at the beginning of any Performance Cycle, thelast New York Stock Exchange trading day in December for the year immediately preceding said PerformanceCycle; and

(ii) for purposes of determining the Market Value Per Share at the end of any Performance Cycle, the lastNew York Stock Exchange trading day in December for the last year of said Performance Cycle.








(e) The members of the Committee may retain counsel, employ agents, and provide for such clerical, accounting and consultingservices as they may require in carrying out the provisions of the Plan; and may allocate among themselves or delegate to otherpersons all or such portion of their duties under the Plan as they in their sole discretion, shall decide. Each member of the Committeeand each member of the Board shall be fully justified in relying upon or acting in good faith upon any opinion, report, or informationfurnished in connection with the Plan by any accountant, counsel, or other

6

specialist so retained (including financial officers of the Company, whether or not such persons are Participants in the Plan).


(g) The Committee shall periodically evaluate the effectiveness of the Plan in meeting the purposes for which the Plan wasadopted. Subject to the limitations and requirements of Section 7 and Section 409A, the Committee, based on such an evaluation,may in its sole and absolute discretion, add a new optional form of Grant, eliminate an optional form of Grant, modify the terms of anexisting form of Grant, or offer one form of Grant in exchange for an existing Grant made to a Participant for a Performance Cycle.Any exchange of an existing Grant for a new Grant under the Plan shall be for good and valuable consideration and subject toconsent of the Participant and the provisions of Section 7 and Section 409A.


(a) The Committee, upon its own action, may grant, but shall not be required to grant, Relative Performance Value Awards toany Eligible Employee. Grants may be made by the Committee at any time and from time to time to new Eligible Employees, or tothen Eligible Employees, or to a greater or lesser number of Eligible Employees, and may include or exclude previous Participants, asthe Committee shall determine.

(b) If, during a Performance Cycle, a regular, full time Employee is promoted to a pay grade of 93 or above, the Employeebecomes eligible to participate in the Plan. If the Eligible Employee is otherwise selected by the Committee to participate in the Plan,the Eligible Employee will receive a Grant of a Relative Value Performance Award for the most recent, active Performance Cycle.Such Award will be prorated for the period which begins on the date of promotion and ends as of the end of the applicablePerformance Cycle. If, during a Performance Cycle, an individual is hired in a pay grade of 93 or above, the Employee becomeseligible to participate in the Plan. If the Eligible Employee is otherwise selected by the Committee to participate in the Plan, theEligible Employee will receive a Grant of a Relative Value Performance Award for the most recent, active Performance Cycle. SuchAward will be pro-rated for the period which begins on the date of hire and ends as of the end of the applicable Performance Cycle.Notwithstanding the foregoing, when an individual is hired in a pay grade of 93 or above, the CEO will have the authority to giveprorated Awards for all active Performance Cycles when required for competitive reasons. In the event a Participant is demoted to apay grade lower than 90, outstanding Relative Performance Value Awards will be prorated for all active Performance Cycles towhich such outstanding Awards apply. For this purpose, the proration period will begin as of the Date of Grant for each applicableAward and will end on the effective date of the Participant�s demotion. Outstanding Relative Performance Value Awards will not besubject to such proration in the event the Participant is demoted to a pay grade lower than 93; provided such demotion is not below90. At the end of the applicable Performance Cycle, the value of

7

said prorated Relative Performance Value Awards, as determined in accordance with Section 4, shall be deferred to Participant�sDeferred Compensation Plan account in accordance with Section 5.

4. Grants and Settlement of Awards



(a) Each Grant shall be evidenced by a Grant Agreement executed by the Participant in such form and with such terms andconditions, as the Committee may from time to time determine. The rights of a Participant with respect to any Grant shall at all timesbe subject to the terms and conditions set forth in the Grant Agreement relating thereto and in the Plan Documents. Except asrequired by this Plan, different Grants need not contain terms or conditions similar to any Grant made prior thereto orcontemporaneously therewith. The Committee�s determinations under the Plan (including determinations of which EligibleEmployees, if any, are to receive Grants, the form, amount and timing of such Grants, the terms and provisions of such Grants andthe agreements evidencing same) need not be uniform and may be made by it selectively among Eligible Employees who receive, orare eligible to receive, Grants under the Plan.

(b) Each Performance Cycle, subject to the other limitations set forth in the Plan, may extend for a period of up to three(3) years from the Date of Grant. The length of each Performance Cycle shall be determined by the Committee; provided, however,if no term is established by the Committee the term of the Performance Cycle shall be three (3) years from the Date of Grant.

(c) At the beginning of each Performance Cycle, the Committee shall establish the Participant�s Relative Performance ValueAward target amount. The Committee shall also determine the (1) Share Ratio underlying such Relative Performance Value Awardtarget amount based upon the Market Value Per Share established by the Committee at the beginning of said Performance Cycle; and(2) the Relative Performance measures for the Performance Cycle, at the beginning of said Performance Cycle. Moreover, the RPVAtarget amounts, applicable Share Ratio, and the Relative Performance measures shall be set forth in writing within ninety (90) days ofthe beginning of each Performance Cycle.

Notwithstanding anything in the Plan to the contrary, in no event shall any RPVA be awarded to any Participant for aPerformance Cycle if the Award is not based on the Company�s favorable performance as compared with the group of PeerCompanies.

(d) At the end of each Performance Cycle, the Committee shall evaluate the Company�s Relative Performance in comparison tothe group of Peer Companies to establish what percentage of the Share Ratio will be used as a basis for calculating the Participant�sRelative Performance Value Award. The percentage may range from 0% to 200%.

(e) At the end of each Performance Cycle, the Committee shall also establish a Market Value Per Share which shall be appliedto the Share Ratio, as adjusted pursuant to Section 4(d), to determine the Participant�s Relative Performance Value Award. Any

8

Relative Performance Value Award may be further adjusted as a result of the application of the provisions in Section 4(f) or by theCommittee in its sole and absolute discretion either in individual cases or in the aggregate. An example of a Relative PerformanceValue Award determination is set forth, for illustration purposes only, in Exhibit B.

(f) Notwithstanding anything contained in this Plan document to the contrary, in the event that any Participant engages in anyactivity which the Committee judges to be detrimental to any Participating Employer, or otherwise fails to perform his obligations asa regular, full time Employee, the Committee may cancel or reduce the Participant�s Relative Performance Value Award in whole orin part at any time prior to the date said RPVA is deferred to the Participant�s Deferred Compensation Plan account, as moreparticularly described in Section 5.

5. Deferral of Awards

(a) Upon final determination by the Committee of a Participant�s right to receive a Relative Performance Value Award, theamount of said RPVA shall be automatically deferred to the Participant�s Deferred Compensation Plan account attributable toRelative Performance Value Awards. Deferrals shall occur on May 10 of the year following the end of the Performance Cycle;provided, however that if a deferral date occurs on a Saturday, Sunday or bank holiday, the deferral will be made the next followingbusiness day.

(b) The rules and procedures governing the Deferred Compensation Plan shall govern and be binding upon the Participants. Inaddition, deferral and distribution elections shall be made in accordance with Section 409A and the terms of the DeferredCompensation Plan. Specifically, irrevocable elections by Participants of the time and form of payment of the RPVA paid under theDeferred Compensation Plan shall be made no later than the date that is six (6) months before the end of the applicable PerformanceCycle in accordance with the Proposed Treasury Regulation section 1.409A-2(a)(7) and subsequent guidance.




(a) Except as provided in the Plan Document, upon a Participant�s Termination of Service, the Participant�s outstanding Grantsof Relative Value Performance Awards and all rights thereunder shall terminate on the Date of Termination; provided, however, thatin the case of a Participant�s Termination of Service due to Retirement, transfer to a Parent Company, Disability or death, theParticipant shall be entitled, with respect to each Grant still outstanding, to a prorated Relative Performance Value Award for theperiod beginning as of the Date of Grant for each respective Relative Performance Value Award and ending on the Date ofTermination. At the end of applicable Performance Cycle, the amount of said prorated Relative Performance Value Award shall bedeferred to Participant�s Deferred Compensation Plan account as described in Section 5.

9

(b) Except as provided in the Plan Document or the Deferred Compensation Plan, a Participant will be vested in his DeferredCompensation Plan account attributable to Relative Performance Value Award deferrals (and deemed earnings and losses thereon)only upon Participant�s Date of Termination resulting from Termination of Service due to Retirement, layoff, transfer to a ParentCompany, Disability or death. If a Participant terminates employment with the Participating Employer for any reason other thanRetirement, layoff, transfer to a Parent Company, Disability or death, then the Participant shall forfeit the entire portion of theParticipant�s Deferred Compensation Plan account attributable to Relative Performance Value Award deferrals (and deemed earningsand losses thereon).

Notwithstanding the foregoing, any Eligible Employee who is a Participant in the Plan as of January 1, 2006 will be vestedin his Deferred Compensation Plan account attributable to Relative Performance Value Award deferrals (and deemed earnings andlosses thereon) upon his Date of Termination without regard to the cause of the Termination of Service.

(c) Notwithstanding the foregoing, in the event a Participant takes a leave of absence from the Participating Employer forpersonal reasons or as a result of entry into the Armed Forces of the United States, or terminates employment for reasons which, inthe judgment of the Committee, are deemed to be special circumstances, the Committee may consider such circumstances and maytake such action (to the extent consistent with Section 409A) in respect of the Participant�s (1) related outstanding Grants as it maydeem appropriate under the circumstances, including extending the rights of a Participant to continue participation in the Plan beyondhis Date of Termination; provided in no event may participation be extended beyond the term of the Performance Cycle; or(2) vesting rights related to his Deferred Compensation Plan account attributable to the Relative Performance Value Award deferrals(and deemed earnings and losses thereon), including extending vesting rights to the Participant upon his Date of Termination withrespect to said account.


Subject to the limitations set forth in this Section 7, the Board may at any time and from time to time, without the consent of theParticipants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part. Any such amendment shall, to the extentdeemed necessary or advisable by the Committee, be applicable to any outstanding Grants theretofore awarded under the Plan,notwithstanding any contrary provisions contained in any Grant Agreement. In the event of any such amendment to the Plan, theholder of any Grant outstanding under the Plan shall, upon request of the Committee and as a condition to the exercisability thereof,execute a conforming amendment in the form prescribed by the Committee to any Grant Agreement relating thereto.Notwithstanding anything contained in this Plan to the contrary, unless required by law, no action contemplated or permitted by thisSection 7 shall adversely affect any rights of Participants or obligations of the Participating Employer to Participants with respect toany award theretofore granted under the Plan without the consent of the affected Participant.

10


The existence of this Plan and the awards granted hereunder shall not affect in any way the right or power of the Company or thoseentities holding membership interests in the Company to make or authorize any or all adjustments, reorganizations, or other changes



in the Company�s capital structure and its business, or any merger or consolidation of the Company, or the dissolution or liquidationof the Company, or any sale or transfer of all or part of its assets or business, or any other corporate act or proceeding, whether of asimilar character or otherwise.


(a) Relative Value Performance Awards shall be nontransferable and nonassignable, except that any such Grant may betransferred (1) to such beneficiary as the Participant may designate in the event of death, Disability or other incapacity, or (2) bytestamentary instrument or by the laws of descent and distribution. The Committee shall prescribe the form and manner in whichbeneficiary designations shall be made, revoked or amended. Any valid beneficiary designation on file with the Company shall takepriority over any conflicting provision of any testamentary or similar instrument.

(b) The establishment of the Plan shall not confer any legal rights upon any Employee or other person to continuedemployment, nor shall it interfere with the right of any Participating Employer (which right is hereby reserved) to discharge anyEmployee and to treat him without regard to the effect which that treatment might have upon him as a Participant or potentialParticipant.

(c) Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any person any rightto be granted an award or any other rights except as may be evidenced by a Grant Agreement, or any amendment thereto, dulyauthorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditionsexpressly set forth therein.


(e) THE VALIDITY, CONSTRUCTION AND EFFECT OF THE PLAN, ANY PLAN DOCUMENTS, AND ANY ACTIONSTAKEN OR RELATING TO THE PLAN SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATEOF TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WITHIN SUCH STATE.

(f) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to allor substantially all of the business and/or assets of the Company, expressly to assume and agree to perform the Company�sobligations

11

under this Plan in the same manner and to the same extent that the Company would be required to perform them if no such successionhad taken place.

(g) The Plan shall be unfunded. Neither the Company, any Participating Employer, the Committee, nor the Board shall berequired to segregate any assets or secure any liability that may at any time be represented by Grants made pursuant to the Plan.

(h) The Plan shall have a term of ten (10) years from its Effective Date. After termination of the Plan, no future Grants may bemade, but Grants made before that date will continue to be effective in accordance the terms and conditions of the respective GrantAgreement.

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EXHIBIT A

PEER COMPANIES

The following companies, or the chemicals segments thereof, shall be the initial comparator companies for purposes of Performance Awards:



1. The Dow Chemical Company

2. Borealis (polyolefins & chemicals segment)

3. NOVA Chemicals Corporation

4. Lyondell (chemical segment)

5. ExxonMobil Corporation (chemicals segment)

6. BP, p.l.c. (chemicals segment)

7. Royal Dutch/Shell Group (chemicals segment)

Chem Systems Data or other relevant third-party data may also be used to determine relative performance.

THIS EXHIBIT A MAY BE MODIFIED FROM TIME TO TIME BY THE COMMITTEE IN ITS SOLE AND ABSOLUTEDISCRETION.

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EXHIBIT BAWARD CALCULATION EXAMPLE

Assume that Participant�s RPVA target amount for a Performance Cycle is $100,000, and the Market Value Per Share for common stock ofeach Parent Company as determined by the Committee at the beginning of the Performance Cycle is $51.98 for Chevron stock and $53.51 forCOP stock.

The Share Ratio for the RPVA target amount, as determined by the following formula, is 962 shares of Chevron stock and 934 shares of COPstock.

COP Share Ratio Allocation = .5 x RVPA Target/COP MVPS{In this example: .5 x 100,000/$53.51}

CVX Share Ratio Allocation= .5 x RVPA Target/CVX MVPS{In this example: .5 x 100,000/$51.98}

Where,

RVPA Target is the RPVA target amount for the Performance Cycle;

COP MVPS is the Market Value Per Share for COP stock at the beginning of the Performance Cycle; and

CVX MVPS is the Market Value Per Share for Chevron stock at the beginning of the Performance Cycle.

Assume that at the end of the Performance Cycle, based upon the Company�s Relative Performance during the Performance Cycle, theCommittee awards the Participants 110% of the Share Ratios underlying their RPVA target amount, as determined above. Further assume thatat the end of the Performance Cycle, the Market Value Per Share for Chevron stock is $77.00 and the Market Value Per Share for COP stockis $67.00. In this example, the Participant�s Relative Value Performance Award will equal $150,275, as calculated in accordance with thefollowing formula:

RVPA = [(COP Share Ratio Allocation x RP%) x MVPS1)] + [(CVX Share Ratio Allocation x RP%) x CVX MVPS1)],



{In this example: [(934 x 110%) x $67] + [(962 x 110%) x $77]}

Where

COP Share Ratio Allocation and CVX Share Ratio Allocation are defined above;

RP% is the percentage to be applied to the Participants� Share Ratios based upon Committee�s determination of theCompany�s Relative Performance;

COP MVPS1 is the Market Value Per Share for COP stock at the end of the Performance Cycle; and

CVX MVPS1 is the Market Value Per Share for Chevron stock at the end of the Performance Cycle.

14

AMENDMENT NUMBER ONETO THE

RELATIVE PERFORMANCE VALUE PLAN OFCHEVRON PHILLIPS CHEMICAL COMPANY LLC

WHEREAS, effective January 1, 2006, Chevron Phillips Chemical Company LLC (the �Company�) established the RelativePerformance Value Plan of Chevron Phillips Chemical Company LLC (the �Plan�);

WHEREAS, pursuant to Section 7 of the Plan, the Company reserves the right at any time and from time to time to amend the Plan inwhole or in part;

NOW, THEREFORE, BE IT RESOLVED,

1. Effective January 1, 2006, paragraphs (a) and (b) of Section 6 are amended in their entirety as follows:

(a) If a Participant becomes Disabled or has a Termination of Service due to Retirement, transfer to a Parent Company, ordeath, the Participant shall be entitled, with respect to each Grant still outstanding, to a prorated Relative Performance ValueAward for the period beginning as of the Date of Grant for each respective Relative Performance Value Award and endingwhen the Participant is placed on Disability or on the Participant�s Date of Termination, as applicable. If a Participantterminates employment for any reason other than Retirement, transfer to a Parent Company, or death, then the Participant�soutstanding Grants of Relative Performance Value Awards and all rights thereunder shall be forfeited.

(b) A Participant shall be vested in his Deferred Compensation Plan account attributable to Relative Performance Value Awarddeferrals (and deemed earnings and losses thereon) only upon the Participant�s Disability or on the Participant�s Date ofTermination resulting from Termination of Service due to Retirement, layoff, transfer to a Parent Company, or death. If aParticipant terminates employment for any reason other than Retirement, layoff, transfer to a Parent Company, or death,then the Participant shall forfeit the entire portion of the Participant�s Deferred Compensation Plan account attributable toRelative Performance Value Award deferrals (and deemed earnings and losses thereon).

Notwithstanding the foregoing, any Participant who is a Participant in the Plan as of January 1, 2006 will become vested inthe entire portion of his Deferred Compensation account attributable to Relative Performance Value Award deferrals (anddeemed earning and losses thereon) on the Participant�s Date of Termination, without regard to the cause of his Terminationof Service.

2. Effective January 1, 2006, paragraph (a) of Section 9 is amended in its entirety as follows:



(a) Except as otherwise expressly provided in the Deferred Compensation Plan, Relative Value Performance Awardsshall be nontransferable and nonassignable.

IN WITNESS WHEREOF, Chevron Phillips Chemical Company LLC has caused this Amendment Number One to be executed this24 day of February, 2006.

CHEVRON PHILLIPS CHEMICALCOMPANY LLC


Its: President and Chief Executive Officer



Don F. KremerVice PresidentHuman Resources

10001 Six Pines DriveRoom 8026The Woodlands, TX77380-1498

P.O. Box 4910The Woodlands, TX77387-4910

832-813-4347Fax: [email protected]

www.cpchem.com

February 8, 2006

Raymond I. Wilcox

Dear Ray:

The terms of this offer are conditioned upon approval by Chevron Phillips Chemical�s Compensation Committee of its Board of Directors.

I am pleased to present you with the following offer of employment with Chevron Phillips Chemical Company LP (�CPChem�):

Position: President and Chief Executive OfficerLocation: The Woodlands, TXGrade: 99Salary: $525,000/annuallyStart Date: April 1, 2006

This offer includes relocation benefits under CPChem�s Metro Move Policy, a copy of which will be provided under separate cover.

Employment as a Grade 99 allows your participation in the Annual Incentive Plan (AIP) and Long Term Incentive Plan (LTIP) of CPChem.

Your current target percentage for AIP is 80% of your base salary. Actual AIP awards can increase or decrease based on company andindividual performance. If you accept our offer and begin work April 1, 2006, you will be eligible for a prorated AIP award generally paid inearly 2007.

Your current target grant for future awards under LTIP is 250% of your base salary. You will receive a full 2006 LTIP grant, which wouldnormally be awarded in early 2009.



This offer includes six weeks (240 hours) of vacation per year. This allotment is based on a Vacation Eligibility Date of May 6, 1968.

During your employment with the Company, you shall be eligible to participate in each of the Company�s existing executive and employeebenefit plans, as they may be amended from time to time, and any plans the Company may establish during your period of employment forwhich your current salary grade makes you eligible. Full details of our benefit plans are available at http://www.benefitium.com.

The Company may terminate your employment for any reason hereunder without Cause at any time after providing thirty (30) days writtennotice to you, or you may terminate employment at any time after providing thirty (30) days written notice to the Company. In the event youremployment is involuntarily terminated by the Company within three years of the Start Date, other than for Cause, you shall be entitled to aspecial Termination Bonus. The Termination Bonus shall be the lesser of either (i) two year�s base salary plus two year�s AIP award at targetor (ii) two year�s base salary plus two year�s AIP award at target prorated by dividing by thirty-six (36) the number of full months from thedate of termination until the thirty-sixth month following date of hire.

Your employment with CPChem is expected to begin on April 1, 2006, subject to your signing this letter and the attached Job OfferAddendum (which describes some of the requirements necessary for you to begin employment). To accept this offer, please mail this letterand the Job Offer Addendum to me at the address below.

Please feel free to contact me if you have any questions or need additional information. We look forward to you joining CPChem.

Sincerely,

/s/ Don F. Kremer

Don F. Kremer

Vice President Human ResourcesChevron Phillips Chemical LP10001 Six Pines DriveThe Woodlands, TX 77380

Check One:

I accept the position. I decline this position.

/s/ Raymond I. WilcoxSignature

02/09/06Date

2

JOB OFFER ADDENDUM



THIS DOCUMENT IS A JOB OFFER ADDENDUM COVERING CERTAIN CONDITIONS OF YOUR EMPLOYMENT. THECONTENT OF THIS JOB OFFER ADDENDUM IS IMPORTANT AND SHOULD BE REVIEWED THOROUGHLY. THECONDITIONS OF EMPLOYMENT ARE AS FOLLOWS.

(1) UNDER THE PROVISIONS OF THE IMMIGRATION REFORM AND CONTROL ACT OF 1986, THE COMPANY ISREQUIRED TO HAVE CERTAIN VERIFICATION INDICATING YOU ARE A U.S. CITIZEN OR LEGAL ALIEN. TO COMPLYWITH THE REGULATIONS THAT ARE ASSOCIATED WITH THE ACT, YOU MUST PRESENT CERTAIN DOCUMENTATION TOTHE COMPANY. ATTACHED IS A LISTING OF AUTHORIZED DOCUMENTATION THAT CAN BE ACCEPTED. UPONREPORTING TO WORK, THE COMPANY WILL ASK YOU TO PRESENT ONE DOCUMENT FROM EITHER LIST A OR FROMLIST B AND ONE DOCUMENT FROM LIST C. IF YOU ARE UNABLE TO PROVIDE THESE DOCUMENTS WITHIN THREEWORKING DAYS, YOU MUST PROVIDE A RECEIPT SHOWING APPLICATION FOR THE PROPER DOCUMENTS WITHIN THESAME THREE WORKING DAYS. IF YOU CANNOT PROVIDE THE DOCUMENTS WITHIN NINETY DAYS AFTER DATE OFHIRE, BY LAW WE CANNOT CONTINUE YOUR EMPLOYMENT.

(2) FOR BENEFIT PURPOSES, PRESENTATION OF YOUR BIRTH CERTIFICATE (ORIGINAL OR CERTIFIED COPY) ANDYOUR SOCIAL SECURITY CARD ARE REQUIRED WHEN YOU REPORT TO WORK. IT IS ALSO RECOMMENDED YOU BRINGSOCIAL SECURITY NUMBERS AND BIRTHDATES OF YOUR DEPENDENTS AND BENEFICIARIES FOR MEDICAL, DENTALAND OTHER INSURANCE BENEFITS. IF YOU ARE BEING EMPLOYED BASED IN PART ON YOUR COLLEGE DEGREE, YOUWILL ALSO BE REQUIRED TO PROVIDE A FINAL COLLEGE TRANSCRIPT THAT DAY OR AS SOON AS PRACTICAL.

(3) THE COMPANY HAS IMPLEMENTED CERTAIN POLICIES AND WORK RULES WITH WHICH YOU AND OTHEREMPLOYEES ARE EXPECTED TO COMPLY. THESE POLICIES ARE IN PLACE FOR THE WELFARE OF OUR WORKFORCE. INTHIS REGARD, YOU ARE ADVISED THAT THE COMPANY HAS ADOPTED A NO-SMOKING POLICY. SMOKING ISPROHIBITED IN ALL ENCLOSED WORK AREAS. ALSO, BECAUSE OF THE CRITICAL NEED FOR SAFETY IN THE CHEMICALINDUSTRY, THE COMPANY HAS A DRUG OR SUBSTANCE POLICY RELATING TO PROHIBITED UNAUTHORIZED, ILLEGALOR CONTROLLED DRUGS, ALCOHOL, CHEMICALS AND SUBSTANCES IN THE WORKFORCE WHICH YOU WILL BEEXPECTED TO ACKNOWLEDGE AND ABIDE BY WHILE AN EMPLOYEE. IN ESSENCE, THE COMPANY IS COMMITTED TOMAINTAINING A DRUG OR SUBSTANCE-FREE WORKFORCE. (YOUR HUMAN RESOURCES REPRESENTATIVE CANPROVIDE YOU WITH THE SPECIFICS OF THESE POLICIES.)

(4) YOUR EMPLOYMENT IS CONTINGENT UPON YOUR SATISFACTORY COMPLETION OF A DRUG AND ALCOHOL(�SUBSTANCE�) SCREENING STANDARDS. YOU WILL BE NOTIFIED WHEN MEDICAL CLEARANCE HAS BEEN RECEIVED.IF APPLICABLE, IT IS RECOMMENDED THAT YOU WAIT TO DISCUSS YOUR DECISION CONCERNING THE COMPANY�SCONDITIONAL OFFER OF EMPLOYMENT AND WAIT TO GIVE NOTICE OF YOUR RESIGNATION TO YOUR PRESENTEMPLOYER UNTIL THE COMPANY HAS NOTIFIED YOU OF YOUR CLEARANCE.

1

(5) AS PART OF ITS EMPLOYMENT SCREENING AND SELECTION PROCEDURES, THE COMPANY REQUIRES ABACKGROUND INVESTIGATION AND A CHECK OF REFERENCES BE CONDUCTED. THE OBJECTIVES OF THEINVESTIGATION ARE TO VERIFY INFORMATION PROVIDED DURING THE APPLICATION PROCESS, INVESTIGATEREFERENCES, AND TO IDENTIFY ANY FACTORS THAT MIGHT BE INCONSISTENT WITH THE COMPANY�S EMPLOYMENTREQUIREMENTS. YOUR EMPLOYMENT IS CONTINGENT ON A SATISFACTORY BACKGROUND INVESTIGATION ANDCHECK OF REFERENCES.

(6) UPON REPORTING TO WORK YOU WILL BE REQUIRED TO SIGN AN AGREEMENT IN RESPECT TOCONFIDENTIALITY COVERING INVENTIONS, PATENTS, AND PROPRIETARY KNOWLEDGE.



(7) THE COMPANY IS AN AT-WILL EMPLOYER. AS SUCH, YOUR EMPLOYMENT WITH THE COMPANY IS ON ANEMPLOYMENT AT-WILL BASIS.

I ACKNOWLEDGE HAVING READ THIS JOB OFFER ADDENDUM AND UNDERSTAND AND AGREE TO THE STATUS OF MYEMPLOYMENT AND THESE CONDITIONS OF EMPLOYMENT. I FURTHER UNDERSTAND AND AGREE THAT NOTHINGCONTAINED IN THIS JOB OFFER ADDENDUM CAN BE CHANGED, MODIFIED, WAIVED OR TERMINATED UNLESS AGREEDTO IN WRITING BY A DULY AUTHORIZED REPRESENTATIVE OF THE COMPANY.

SIGNED: /s/ Raymond I. Wilcox DATE: 02/09/06

2



Exhibit 21.1

Schedule of Subsidiaries

Jurisdiction

Entity Name of Organization

Arabian Chevron Phillips Petrochemical Company Limited BermudaChemical Services LLC DelawareChevron Phillips Chemical (China) Co., Ltd. ChinaChevron Phillips Chemical ANZ Holdings LLC DelawareChevron Phillips Chemical Company LP DelawareChevron Phillips Chemical Company Qatar LLC DelawareChevron Phillips Chemical Holdings I LLC DelawareChevron Phillips Chemical Holdings II LLC DelawareChevron Phillips Chemical International Canada Ltd. CanadaChevron Phillips Chemical International Holdings LLC DelawareChevron Phillips Chemical International Inc. PanamaChevron Phillips Chemical International, Limited JapanChevron Phillips Chemical International Qatar Holdings LLC DelawareChevron Phillips Chemical International Sales LLC DelawareChevron Phillips Chemical Malaysia Sdn Bhd MalaysiaChevron Phillips Chemical Pipeline Company LLC DelawareChevron Phillips Chemical Puerto Rico Core Inc. DelawareChevron Phillips Chemicals (Shanghai) Corporation ChinaChevron Phillips Chemicals Asia Pte. Ltd. SingaporeChevron Phillips Chemicals Australia Pty. Ltd. AustraliaChevron Phillips Chemicals France S.A.R.L. FranceChevron Phillips Chemicals Germany GmbH GermanyChevron Phillips Chemicals International N.V. BelgiumChevron Phillips Chemicals International Sales Inc. BahamasChevron Phillips Chemicals Italy S.r.L. ItalyChevron Phillips Chemicals New Zealand Ltd. New ZealandChevron Phillips Chemicals, S.A. de C.V. MexicoChevron Phillips Chemicals Spain S.L. SpainChevron Phillips Chemicals UK Limited EnglandChevron Phillips International Corporation BahamasChevron Phillips Spain Holding Company, S.L. SpainCPC Receivables Company LLC DelawareDriscopipe Mexicana S. de R.L. de C.V. MexicoPhillips Petroleum International N.V. BelgiumPhillips Petroleum International Ventures Corporation PanamaPlexco de Mexico, S.A. de C.V. MexicoPlexco International, S.A. de C.V. MexicoProductos Plasticos Plexco, S.A. de C.V. MexicoSix Pines Insurance Limited BermudaSouthTex 66 Pipeline Company, Ltd. Texas



Exhibit 31.1

CERTIFICATION

I, James L. Gallogly, certify that:

1. I have reviewed this Annual Report on Form 10-K of Chevron Phillips Chemical Company LLC;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which such statements were made, not misleading with respect tothe period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in thisreport;

4. The registrant�s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant�s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and

c) Disclosed in this report any change in the registrant�s internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) that occurred during the registrant�s most recent fiscal quarter (the registrant�s fourth fiscal quarter inthe case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant�s internalcontrol over financial reporting; and

5. The registrant�s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant�s auditors and the audit committee of registrant�s board of directors (or persons performing the equivalentfunctions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrant�s ability to record, process, summarize and report financial information;and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant�sinternal control over financial reporting.

Date: February 27, 2006 /s/ James L. GalloglyJames L. Gallogly

President and Chief Executive Officer



Exhibit 31.2

CERTIFICATION

I, Greg G. Maxwell, certify that:

1. I have reviewed this Annual Report on Form 10-K of Chevron Phillips Chemical Company LLC;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which such statements were made, not misleading with respect tothe period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant�s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant�s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and

c) Disclosed in this report any change in the registrant�s internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) that occurred during the registrant�s most recent fiscal quarter (the registrant�s fourth fiscal quarter inthe case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant�s internalcontrol over financial reporting; and

5. The registrant�s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant�s auditors and the audit committee of registrant�s board of directors (or persons performing the equivalentfunctions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant�s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant�sinternal control over financial reporting.

Date: February 27, 2006 /s/ Greg G. MaxwellGreg G. Maxwell

Senior Vice President,Chief Financial Officer and Controller

