10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2005

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE 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. Employer
incorporation or organization)	Identification Number)

10001 Six Pines Drive

The 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 o      No ý

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 ý      No o

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 Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes o      No ý

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 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 o Accelerated filer o Non-accelerated filer ý

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

Yes o      No ý

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 I
Item 1.	Business	2
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	19
Item 4.	Submission of Matters to a Vote of Security Holders	20
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	21
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 8.	Financial Statements and Supplementary Data	32
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	105
Item 9A.	Controls and Procedures	105
Item 9B.	Other Information	105
	PART III
Item 10.	Directors and Executive Officers of the Registrant	105
Item 11.	Executive Compensation	108
Item 12.	Security Ownership of Certain Beneficial Owners and Management	113
Item 13.	Certain Relationships and Related Transactions	113
Item 14.	Principal Accounting Fees and Services	114
	PART IV
Item 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 Chemical Company LLC (CPChem) expresses an expectation or belief as to future events or results, there can be no assurance that the expectation or belief will result, be achieved or be accomplished. Where any such forward-looking statement includes a statement of the assumptions or bases 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 be material, depending on the circumstances. Significant assumptions that, if erroneous, could cause actual results to differ materially from those expressed relate to the following factors, among others: the timing and duration of periods of expansion and contraction within the chemicals business; 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 and domestic laws, rules and regulations and the interpretation and enforcement thereof; the effects of accounting rule changes under generally accepted accounting principles promulgated by various rule-setting bodies; regulatory decisions relating to taxes, the environment and human resources; 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. CPChem does 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 range of 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,” formerly ChevronTexaco Corporation) and ConocoPhillips (collectively, the “members” or the “owners”) each own 50% of CPChem.

CPChem is governed by its Board of Directors (the “Board”), comprised of six representatives, under the terms of a limited liability company agreement. Chevron and ConocoPhillips each have two voting representatives, and the chief executive officer and the chief financial officer of CPChem are non-voting representatives. Certain major decisions and actions require the approval of the Board. All decisions and actions of the 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’s website 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 Specialty Products. For a list of the principal products of these segments, see the tables included in each segment’s discussion. See also “Part II - Item 8. Financial Statements and Supplementary Data - Note 16. Segment and Geographic Information” for financial data by segment and geographic 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 production of polyethylene, normal alpha olefins (NAO), polypropylene and polyethylene pipe. CPChem has five olefin and/or polyolefin production facilities located in Texas, eight domestic pipe production facilities and one domestic pipe fittings production facility. CPChem also has one pipe production facility in Mexico. In addition, CPChem owns interests in a polypropylene facility located at the Pasadena Plastics Complex in Texas, a high-density polyethylene plant located at CPChem’s Cedar Bayou facility in Baytown, Texas, an ethylene, polyethylene and 1-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 the Waxahachie, Texas pipe production facility was permanently closed in the third quarter of 2005.

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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 for chemicals 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 detergent bottles, pails, plastic pipe and conduit, shopping bags, geomembrane and film applications;
			•   linear low-density polyethylene (LLDPE), which is a resin used to make plastic film 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 pipe fittings	558		Rigid and flexible plastic pipe used in a wide variety of industries, such as electrical, energy, gas distribution, geothermal, mining, municipal projects and telecommunications.
Propylene	2,880		Basic building block for various fibers and plastics, such as polypropylene, and used 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 and synthetic 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 and polyethylene 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 Chemical Company (Shell). CPChem’s NAO technology allows it to produce a wide range of hydrocarbon products that compete in many different markets. Other significant producers of NAO are Ineos, Shell and Sasol Ltd. Major producers of polyalphaolefins (PAO) include Ineos and ExxonMobil.

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

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Ethylene

By volume, ethylene is the most widely consumed petrochemical product in the world, according to Chemical Market Associates, Inc., a company that specializes in petrochemical industry data and consulting services. Domestically, ethylene is produced at CPChem’s Sweeny facility in Old Ocean, Texas, at its Cedar Bayou facility in Baytown, Texas and at its Port Arthur, Texas facility. Internationally, CPChem produces ethylene through its 49%-owned joint venture, Qatar Chemical Company Ltd. (Q-Chem), located in Mesaieed, Qatar. CPChem’s share 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 naphtha and gas oil. The two most common ethylene feedstocks are ethane, because of its high ethylene yield, and naphtha, because of its availability and transportability. Much of CPChem’s ethylene production is based on ethane/propane feedstock, however certain domestic facilities have varying degrees of flexibility to process butane and naphtha. The price of ethane tends to correlate with the price of natural gas, while the prices 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 Targa Resources, Inc., which together cover over 75% of CPChem’s expected domestic ethylene feedstock needs. The agreement with Duke Energy Field Services, LLC expires in 2014 and the agreement with Targa Resources, Inc. expires in 2008. Contracts with other suppliers provide the remainder 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 storage facilities in Clemens and Mont Belvieu. Internationally, all of the ethylene produced by Q-Chem is consumed internally in its production of polyethylene 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’s share 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 of polyethylene 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 and 1-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 the Texas 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 the Far East. CPChem acts as an agent for the sale of substantially all of Q-Chem’s polyethylene production. The polyethylene is sold in Western Europe, 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 conduit in 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 and stadium 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 is approximately 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 amount of 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 from CPChem’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 production facilities located at the Pasadena Plastics Complex. Propylene is also sold to external U.S. customers under long-term contracts and on the spot 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 a comonomer in the production of polyethylene, through its joint venture in Qatar. CPChem’s share of the combined NAO capacity of its domestic 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 of the 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 of NAO 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 intermediate products. CPChem also uses a portion of its own production of NAO in the manufacturing of polyethylene and PAO. North America and Europe are the largest geographic markets for NAO and PAO.

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Aromatics & Styrenics

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

Product	Approximate Net Capacity		Primary Uses
	(million pounds per year)
Benzene	2,130	(1)	An aromatic primary building block chemical used in the production of ethylbenzene, cumene and cyclohexane.
Styrene	2,100		Aromatic monomer used to produce a wide variety of polymers with very diverse end-uses that include packaging, automotive applications, electronic parts, rubber products, paper, housewares, construction materials, carpeting and toys.
Polystyrene	990		Thermoplastic polymer used to make a variety of products, including packaging materials, cups and media enclosures.
Paraxylene	1,715		Used almost exclusively to make terephthalic acid or dimethyl terephthalate intermediates in the production of polyester and packaging resins such as polyethylene terephthalate (PET).
Cyclohexane	1,230	(1)	Predominantly used in intermediates for the manufacture of nylon.
K-Resin® styrene-butadiene copolymers	269	(1,2)	A high quality, clear copolymer material used to make a variety of products including medical components, toys, candy wrap, food packaging, cups and garment 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, product quality and performance, product deliverability and customer service. CPChem generally ranks within the top tenproducers and competes with 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 by trucks, railcars, barges, ships and pipelines.

Benzene

Domestically, benzene is produced at CPChem’s Pascagoula, Mississippi facility. Internationally, CPChem produces benzene through its joint venture facility in Al Jubail, Saudi Arabia. CPChem’s share of the combined benzene capacity of its domestic and international facilities is approximately 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 are intermediate products of petroleum refining and petrochemical plants. These two feedstocks account for over 75% of benzene production worldwide. Domestically, CPChem purchases benzene feedstocks from its owners’ refineries, located in proximity to CPChem’s benzene plant, and from various other sources. In Saudi Arabia, CPChem’s 50%-owned affiliate has a long-term feedstock agreement with a producer that 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 at full capacity, preserving a low-cost position, even during times of reduced demand for derivatives. At CPChem’s joint venture plant in Saudi Arabia, approximately 60% of the benzene produced is consumed by the joint venture’s cyclohexane plant located at the same facility. The balance 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 produced internally 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 plant and a smaller amount in its production of K-Resin^® SBC. The balance of production is sold in the merchant market. CPChem generally markets 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 these facilities 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 by CPChem’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-term and 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, Puerto Rico plant, which has a capacity of approximately 715 million pounds of paraxylene per year, became operational in 2003 after being idled in 2001 for economic reasons. The plant is currently being utilized in a campaign mode due to market conditions.

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Supply/Feedstock Sources. Mixed xylenes are the feedstock for the production of paraxylene. Mixed xylenes are the end product of either reforming operations that are part of the motor fuels production process in refineries, or the end product of the conversion of toluene, another intermediate refining product, into benzene and xylenes. Mixed xylenes are available on the merchant market in the forms of both gasoline blending stocks and paraxylene feedstocks. CPChem purchases mixed xylenes from its owners and other suppliers on a contract basis. During periods 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 its paraxylene production to major producers of polyester in North America and Europe under long-term contracts, and also periodically sells into the Asian market.

Cyclohexane

CPChem is the largest marketer of cyclohexane in the world. Marketed volumes include those produced at the Port Arthur and Saudi Arabian plants, of which CPChem’s share of the combined capacity is approximately 1.2 billion pounds per year, as well as certain volumes produced by ConocoPhillips for which CPChem has marketing rights. CPChem owns a 50% interest in the Saudi Arabian facility and has an obligation to market all of the cyclohexane exported outside of the Middle East from that facility. CPChem also has the exclusive right to market the cyclohexane 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 from CPChem’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-term arrangements. 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 R Copolymer Co., Ltd. joint venture plant located in Yochon, South Korea. CPChem’s share of the combined K-Resin^® SBC capacity of the facilities 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. James facility for domestic production, and secures butadiene on a long-term contract basis from a single producer. Other sources of butadiene are available if necessary. In South Korea, feedstocks are secured through long-term contracts with a company in which CPChem’s joint venture partner, 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 product is 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 trademark Ryton^®. Production and/or compounding facilities are located in Texas, Belgium and Singapore.

Product	Approximate Net Capacity	Primary Uses
	(million pounds per year)
Ryton® polyphenylene sulfide polymer and compounds	44	High-performance engineering polymers and compounds used in electronic, automotive and appliance applications.
High-purity hydrocarbons and solvents	140	High-purity chemicals including performance-proven normal paraffins, cycloparaffins and isoparaffins, including Soltrol® isoparaffin solvents, used in various pharmaceutical, industrial and consumer applications.
Organosulfur chemicals	270	Chemical intermediates, primarily mercaptans, used in agricultural and pharmaceutical intermediates and polymerization modifiers.
Performance and reference fuels	120	Specialty fuels for calibration standards and high-performance service, such as automobile and boat racing.
Drilling specialty chemicals, including Soltex® additives and Soltex® potassium additives	29	Additives used in water-based drilling fluids for controlling unstable shale formations 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 not large when compared to the basic commodity chemical products like ethylene and polyethylene. However, in the aggregate, specialty chemicals can account for a significant portion of the earnings of the Specialty Products segment. Production facilities are located in Borger and 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 variety of olefins and other hydrocarbon streams. In many cases, CPChem acquires these feedstocks through long-term arrangements with its owners from facilities that are integrated with CPChem’s production facilities.

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

Specialty chemicals are sold through CPChem’s global marketing network. This network provides sales, distribution and technical services to customers.

Ryton^® Polyphenylene Sulfide

CPChem produces high-performance polyphenylene sulfide (PPS) polymers and compounds sold under the trademark Ryton^®. Compounds are combinations of Ryton^® polymer and various additives, designed to have specific properties. CPChem currently has an annual production capacity of approximately 22 million pounds of Ryton^® polymer at its Borger, Texas facility. Substantially all Ryton^® polymer produced at the Borger facility is currently used to produce Ryton^® compounds at CPChem’s compounding facility in La Porte, Texas, its plastics compounds and development center in Singapore and its Kallo compounding facility in Kallo-Beveren, Belgium. Ryton^® compounds are sold to 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’s existing PPS plant in Borger, Texas. It is expected that final Board approval will be sought in 2006, with operational start-up anticipated in early 2008.

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

Marketing. Ryton^® PPS polymers and compounds are sold through CPChem’s global marketing network. CPChem’s compounding facilities are regionally located, enhancing global sales and distribution efforts. The customer base includes automotive, appliance and consumer electronics 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 in eight countries. The following table provides information regarding principal manufacturing facilities, business segments served, principal products and approximate gross annual production capacities at December 31, 2005.

Facility / Location	Segment Served	Product	Approximate Gross Capacity
			(million pounds per year)
Pasadena Plastics Complex	Aromatics & Styrenics	K-Resin® SBC	200	(1)
Pasadena, Texas	Olefins & Polyolefins	High-density polyethylene	2,240
Sweeny Facility	Olefins & Polyolefins	Ethylene	4,100
Old Ocean, Texas	Olefins & Polyolefins	Propylene	1,100
Borger Facility	Specialty Products	Organosulfur chemicals	200
Borger, Texas	Specialty Products	Ryton® PPS polymer	22
	Specialty Products	Performance and reference fuels	120
	Specialty Products	High-purity hydrocarbons and solvents	140
Cedar Bayou Facility	Olefins & Polyolefins	Ethylene	1,750
Baytown, Texas	Olefins & Polyolefins	Propylene	1,000
	Olefins & Polyolefins	Normal alpha olefins	1,500
	Olefins & Polyolefins	Polyalphaolefins	104
	Olefins & Polyolefins	Linear-low, low- and high- density polyethylene	1,900
Orange Chemical Facility	Olefins & Polyolefins	High-density polyethylene	930
Orange, Texas
Port Arthur Facility	Olefins & Polyolefins	Ethylene	1,750
Port Arthur, Texas	Olefins & Polyolefins	Propylene	780
	Aromatics & Styrenics	Cyclohexane	920
Drilling Specialties	Specialty Products	Drilling specialty chemicals	29
Conroe, Texas
Houston Compounding	Specialty Products	Ryton® PPS compounds	15
Facility
La Porte, Texas
St. James Facility	Aromatics & Styrenics	Styrene	2,100
St. James, Louisiana
Pascagoula Facility	Aromatics & Styrenics	Paraxylene	1,000
Pascagoula, Mississippi	Aromatics & Styrenics	Benzene	1,540
Marietta Facility	Aromatics & Styrenics	Polystyrene	770
Marietta, Ohio

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Facility / Location	Segment Served	Product	Approximate Gross Capacity
			(million pounds per year)
Puerto Rico Facility	Aromatics & Styrenics	Paraxylene	715
Guayama, Puerto Rico
Performance Pipe Division	Olefins & Polyolefins	Polyethylene pipe, conduit	558
Nine locations in the United		and pipe fittings
States and one in Mexico
Plastics Compounds &	Specialty Products	Ryton® PPS compounds	9
Development Center
Singapore
Zhangjiagang, China Facility	Aromatics & Styrenics	Polystyrene	220
Zhangjiagang, China
Tessenderlo Chemicals Facility	Specialty Products	Organosulfur chemicals	70
Tessenderlo, Belgium
Kallo Compounding Facility	Specialty Products	Ryton® PPS compounds	20
Kallo-Beveren, Belgium
Joint Venture Facilities:
Qatar Chemical Company	Olefins & Polyolefins	Ethylene	1,100
Ltd. (Q-Chem)	Olefins & Polyolefins	High-density polyethylene	1,000
Mesaieed, Qatar	Olefins & Polyolefins	1-hexene	100
Chevron Phillips Singapore	Olefins & Polyolefins	High-density polyethylene	860
Chemicals (Private) Limited
Singapore
Shanghai Golden Phillips	Olefins & Polyolefins	High-density polyethylene	300
Petrochemical Co., Ltd.
Jinshanwei, China
Phillips Sumika	Olefins & Polyolefins	Polypropylene	810
Polypropylene Company
Pasadena, Texas
Saudi Chevron	Aromatics & Styrenics	Benzene	1,180
Phillips Company	Aromatics & Styrenics	Cyclohexane	620
Al Jubail, Saudi Arabia
K R Copolymer Co., Ltd.	Aromatics & Styrenics	K-Resin® SBC	115
Yochon, 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 on a site adjacent to the existing aromatics complex owned by Saudi Chevron Phillips Company (SCP), will include feed fractionation, an olefins cracker, and ethylbenzene and styrene monomer processing units. Construction of the JCP facility will be in conjunction with an expansion of SCP’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, as defined 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 plants will be owned 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 with Total Petrochemicals and Qatar Petrochemical Company Ltd., establishing a joint venture to develop a 2.9 billion-pound-per-year ethylene cracker in Ras Laffan Industrial City, Qatar. The cracker will provide ethylene feedstock via pipeline to the planned polyethylene 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 Qatofin Company Limited (Qatofin). Q-Chem II will own 53.85% of the capacity rights to the ethylene cracker and pipeline, and the balance will be held by Qatofin. Collectively, Q-Chem II’s interest in the ethylene cracker and pipeline, and the polyethylene and normal alpha olefins plants are referred to as “the Q-Chem II project.” Financial closing of the Q-Chem II project occurred in November 2005. Construction began in late 2005, with start-up anticipated in late 2008. 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.

NCP Project. CPChem received authorization from its Board in the fourth quarter of 2005 for the continued development of a third major project in Saudi Arabia. Preliminary studies are focused on the construction of a world-scale ethane/propane cracker and a metathesis unit to produce ethylene and propylene, as well as downstream units to produce polyethylene, polypropylene, 1-hexene and polystyrene. The request for 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 all employees are covered under collective bargaining agreements, and of those covered, none are subject to collective bargaining agreements that will 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 property necessary to conduct its operations via a combination of patent, trademark, copyright and trade secret laws, as well as confidentiality procedures 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 and abroad 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’s loop slurry polyethylene and Aromax^® aromatics production processes. Licenses granted for these processes typically provide for royalty payments from third parties based on the actual or anticipated volume of product that they may produce, payable either in advance of production or as a “running royalty.” The licenses for these processes generally provide that any technologies developed by the licensee related to such process shall be licensed to CPChem with the right to sublicense such developments to third parties. This technique, common in 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’s licenses to third parties contain restrictions on disclosure, and contractors involved in the detailed design or construction of CPChem’s or its licensees’ facilities are required to execute nondisclosure agreements. Third parties are not allowed to inspect or photograph facilities without permission, 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 in connection with CPChem’s businesses. Also, CPChem licenses its trade name on a nonexclusive basis from its owners. Appropriate actions are taken to maintain, renew, protect and enforce CPChem’s trademarks to prevent infringement, dilution or misappropriation by third parties in the United States and abroad.

Research and Development

CPChem has scientists, process engineers and technical service experts at sixtechnical centers. The Bartlesville, Oklahoma site provides basic research, 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 in support of all manufacturing as well as all phases of research and process development for aromatics, NAO, PAO and specialty catalysts. The technology center at Orange, Texas provides a plastics technical center and technical services for polyethylene. Polystyrene research and technical services are located at Marietta, Ohio. International technical support and product development are provided by the Belgium and Singapore 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 conducts business. Under some laws, CPChem may be subject to joint and several liability regarding environmental contamination on or from properties 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 or arranged for disposal of hazardous substances, or where feedstocks or products that contained hazardous substances have been accidentally spilled or released. For further discussion, see “Item 1A. Risk Factors - 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.”

CPChem incurs, and expects to continue to incur, significant costs for capital improvements and general compliance under applicable environmental laws, including costs to acquire, maintain and repair equipment dealing with pollution control. By 2007, industrial facilities in the 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 installation of additional control equipment are required to meet these new NOx standards. CPChem expects that total capital expenditures of approximately $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). CPChem expects that total capital expenditures of approximately $25 million will be required to comply with the monitoring aspects of these regulations. To date, CPChem has invested approximately $17 million of such expenditures ($15 million in 2005). While CPChem cannot determine if additional expenditures will be required until monitoring capabilities are in place, CPChem currently believes that additional expenditures 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 groundwater contaminated 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, sites where CPChem had been named a potentially responsible party, or environmental litigation at December 31, 2005 or 2004. Based on available information, CPChem believes that the costs that may be incurred to investigate and remediate known contamination will not have a material adverse 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 in the United States. Some of CPChem’s operations, including certain of its equity affiliates, are outside the continental United States, with manufacturing 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 sales calculations were determined based on location of the operation. CPChem’s international operations are subject to risks similar to those affecting its U.S. operations in addition to a number of other risks, including difficulties in enforcing contractual and intellectual property rights, and impositions or increases of withholding and other taxes on remittances and other payments by subsidiaries and affiliates. Other risks include, but are not limited to, 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.

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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 its consolidated 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 and profit margins, are followed by periods of capacity expansion, resulting in oversupply and declining prices and profit margins. Volatility occurs as a result of changes in supply and demand for products, changes in energy prices and changes in various other economic conditions around the world. Consequently, our sales volumes and profit margins may fluctuate, not only from year to year, but also from quarter to quarter.

Feedstock costs and some other external factors beyond our control can cause wide fluctuations in margins. Due to the commodity nature of most of the products we sell, market position cannot necessarily be protected by product differentiation or by passing on cost increases to customers. Accordingly, price increases in raw materials and other costs may not correlate with changes in the prices received for our products. Feedstock prices can fluctuate widely for a variety of reasons, including changes in worldwide energy prices, changes in availability or significant facility operating problems. Other external factors that can cause volatility in feedstock prices, as well as changes in demand for products, 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 supply contracts with affiliates of our owners and others, we are still subject to volatile feedstock prices. Extreme price volatility, such as that experienced 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 result in a significant deterioration of projected cash flows which may necessitate the need to recognize asset impairment charges, some of which could 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 and safety matters. Such matters include, but are not limited to, air pollutant emissions, discharges of treated wastewater, stormwater runoff, solid waste management, workplace safety, and contamination. Violations of these laws and regulations often result in monetary penalties and corrective action, but depending on the severity of the violation, could result in substantial fines, criminal sanctions, permit revocation and/or facility shutdowns.

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Under some laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“Superfund”), the Resource 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 subject to liability for contaminated properties where we have disposed of or arranged for disposal of hazardous substances, or where feedstocks or products that contained hazardous substances may have been spilled or released. Depending on the circumstances, such liabilities may involve, for example, investigation or clean-up costs, claims for damages to natural resources or punitive damage claims. In addition, we may be 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 environmental laws, including costs to acquire, maintain and repair equipment dealing with pollution control. In addition, we are aware that there is or may be soil or groundwater contamination at some facilities and that remediation of soil and groundwater contaminated with hazardous substances will 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 of new disposal or cleanup requirements could in the future require us to incur costs, or affect our production or revenues, in ways that could have a negative effect on our financial condition or results of operations. Therefore, there can be no assurance that material capital expenditures, costs, or operating expenses beyond those currently anticipated will not be required under applicable environmental, health, and safety 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 increased expenses.

While we incorporate extensive safety controls and processes within our business, there are risks inherent with the production of petrochemicals and the related storage and transportation of raw materials and products, such as operational hazards and unforeseen interruptions caused by events beyond our control. These include, but are not limited to, accidents, explosions, fires, breakdowns or failures of equipment or processes, acts of terrorism and severe weather. These events can result in injury or loss of life and extensive property or environmental damage. In addition, the handling of chemicals has the potential for serious impacts on human health and the environment from such events as chemical spills and unintentional discharges or releases of toxic or hazardous substances or gases. Liabilities incurred and interruptions in operations caused by such events have the potential to materially impact our consolidated results of operations, financial position and liquidity. While we maintain general liability, property and business interruption insurance coverage, insurance proceeds may not be 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 may affect 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 our strategic and financial policies and in providing management oversight. Should either or both of them dispose of their interests in us, and thereby cease or diminish their participation, we cannot guarantee that our strategic plans, our financial policies or other aspects of our business 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 governance structure, 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. Over time, 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, an affiliate of ConocoPhillips and one other supplier. Portions of these feedstocks come from certain plants connected to pipelines we own or to which we have access. Over time, these suppliers may rationalize their feedstock production by closing plants or consolidating production in new 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 with new 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 the United States.

International operations are exposed to different political, economic and regulatory risks that are not faced by businesses that operate solely in the United States. Some of our operations, including certain of our equity affiliates, are outside the continental United States, with manufacturing facilities in Puerto Rico, Singapore, China, South Korea, Saudi Arabia, Qatar, Mexico and Belgium. Our international operations 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 the misappropriation 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 our technology, we cannot assure that any patents, issued or pending, will provide us with any competitive advantage or will not be challenged by third parties.

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We have entered into confidentiality and assignment of invention agreements with our employees and nondisclosure agreements with customers, suppliers and potential strategic partners, among others; however, we cannot assure that we have done so on a uniform basis or in all 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 independently developed 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 service marks and trademarks, as we deem appropriate. A failure to obtain trademark registrations in the United States and in other countries could limit 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 around the world. Some of these contracts are on a cost-plus basis, a reimbursable basis or require the completion of work in a specified time frame for a lump sum price, subject to adjustments for changes in scope and other defined variables. Recently, construction costs have risen sharply in 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 the projects may be delayed or even terminated. In those instances, costs incurred and previously capitalized for ongoing projects that might be terminated or indefinitely postponed may need to be expensed, which could have a material impact on our financial results in the period recorded. In addition, contractors may request additional compensation on existing projects or even default in rare instances, potentially exposing us to project delays and additional project completion and financing costs including the repayment of loans as required under project completion guarantees. We often include project milestone payment schedules, delay damage provisions and performance guarantees in our largest 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 laws regulating the discharge of materials into the environment.  While it is not possible to predict with certainty the outcome of an unresolved proceeding, if the proceedings described below were decided adversely to CPChem, CPChem expects that there would be no material adverse effect on consolidated results of operations, financial position or liquidity.  Nevertheless, such proceedings are reported pursuant to the SEC’s regulations.

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As previously reported, in July and August 2004, the Texas Commission for Environmental Quality (the “TCEQ”) conducted an annual air compliance inspection at CPChem’s facility in Port Arthur, Texas. By letter dated December 30, 2004, the TCEQ issued a Notice of Enforcement letter to CPChem with a proposed Agreed Order and recommended penalty amount. In June 2005, CPChem and the TCEQ agreed to settle this matter by entering into an Agreed Order providing for the payment of a penalty and performance of a Supplemental Environmental Project for a combined value of $278,250. CPChem also agreed to submit a permit application to authorize emissions from the cyclohexane 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 waste management program at CPChem’s Cedar Bayou facility in Baytown, Texas. The Notice of Violation pertained to the historical management of an on-site impoundment. CPChem agreed to conduct an investigation of the unit and, in late June 2004, completed the investigation. The investigation characterized the contents of the impoundment and identified a small groundwater contamination plume, adjacent to and unrelated to the operation of the impoundment. In November 2004, CPChem and TCEQ representatives agreed to move forward on addressing the groundwater plume. TCEQ and CPChem are presently in discussions regarding the final disposition of the impoundment and the management 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 these lawsuits.  In the meantime, ConocoPhillips is managing and defending these lawsuits.  In the event the financial responsibility for these lawsuits is ultimately determined to rest with CPChem, CPChem may be required to record a charge to operations that could be material to the period reported. However, CPChem believes that any such charge, if required, would not have a material adverse effect on financial position or 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, no provision 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 of operations, 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 Certain Beneficial Owners and Management” for a listing of the holders of ownership interests in CPChem.

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PART II

Item 6.   Selected Financial Data

The following selected financial data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition 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		$	5,804
Net 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	$	5,860
Long-term debt, less current maturities	1,186		1,390		1,189		1,190		1,507
Members’ 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 requires significant judgment and estimates on the part of management in its application.  The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain amounts reported in the financial statements and related disclosures.  Actual results could differ from these estimates and assumptions.

CPChem believes that the estimates and assumptions used in connection with the amounts reported in its financial statements and related disclosures 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 Supplementary Data - 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 circumstances 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 largely independent of the cash flows of other groups 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 carrying value, the carrying value is written down to estimated fair value.  Since there are usually no quoted market prices available to determine the fair values of CPChem’s long-lived assets, if upon review, the sum of the projected undiscounted pre-tax cash flows is less than the carrying value of the asset group, the carrying value is written down to estimated fair value.  Fair values of impaired assets are usually determined based on the present value of projected future cash flows using discount rates commensurate with the risks involved in the asset group.  This area often requires management to make complex and subjective judgments covering extended periods of time, involving significant variables such 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 in write-downs determined to be permanent in nature.

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

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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 and the 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 as those experienced during various times over the past five years, CPChem is less able to fully recover such increased costs through product sales price increases than it could had there been steady, sustained prices, even at elevated levels.  CPChem is also affected by overall domestic and global economic conditions, which drive consumer spending for durable goods.  In addition, capacity expansions or contractions contribute 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 improved despite the negative impact of hurricane activity in the Gulf Coast during the second half of the year.  In the third quarter of 2005, Hurricanes Katrina (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 for Hurricane Katrina.  The St. James facility sustained minimal damage and promptly resumed operations.  However, portions of the Pascagoula facility 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 resumed operations at all of its affected facilities by the first week in October, except at Orange and Port Arthur.  Those two facilities resumed operations in November at various operating rates, and achieved normal operating rates in December.  As a result of these force majeure events, certain product lines encountered varying degrees of production shortfalls, resulting in product allocations to customers and decreased overall production.

Condensed Consolidated Statement of Operations

	Years ended December 31,
Millions	2005			2004			2003
Net sales	$	10,707		$	9,165		$	6,838
Equity in income of affiliates, net	185			218			41
Other income	146			111			75
Total revenues	11,038			9,494			6,954
Cost of goods sold	9,601			8,324			6,390
Other costs and expenses	503			463			488
Income before interest and taxes	934			707			76
Net 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 of higher overall sales prices, which was partially offset by lower sales volumes largely due to the hurricane-related plant shutdowns. Lower equity

23

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

2004 compared with 2003

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 affiliates improved, primarily on improved results from SCP and Qatar Chemical Company Ltd. (Q-Chem).  Cost of Goods Sold rose in the 2004 period, 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	)	$	934
Year ended December 31, 2004	428		251		58		(30		)	707
Year 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&A expense) from a legal settlement related to a styrene column collapse at the St. James facility in 2001 and a $9 million benefit recorded to Cost of 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 accruals relating to CPChem’s facilities, asset retirements, a pilot plant closure, employee termination benefit costs related to workforce reductions and a 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 in 2003.  See subsequent segment-level discussions for additional information.

Olefins & Polyolefins

	Years ended December 31,
Millions	2005		2004		2003
Income before interest and taxes	$	831	$	428	$	41

2005 compared with 2004

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

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

2004 compared with 2003

Income before interest and taxes for Olefins & Polyolefins totaled $428 million in 2004, compared with $41 million in 2003, driven primarily by higher earnings from the olefins and polyethylene product lines.  Higher revenues from increased sales prices and volumes were partially offset by higher feedstock costs.  Equity earnings from affiliates increased significantly, largely from improved results of Q-Chem.  Earnings in 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 accruals relating to CPChem’s facilities, a $9 million charge to Research and Development depreciation related to the permanent closure of the research and technology pilot plant facility in Orange, Texas, and a $5 million net benefit resulting from the sales and use tax audit.

Aromatics & Styrenics

	Years ended December 31,
Millions	2005		2004		2003
Income before interest and taxes	$	99	$	251	$	27

2005 compared with 2004

Income before interest and taxes for Aromatics & Styrenics totaled $99 million in 2005 compared with $251 million in 2004.  The decrease in earnings in 2005 was driven primarily by lower earnings from the benzene product line.  Overall revenues were down slightly in 2005 as lower sales volumes across most product lines, including benzene, were mostly offset by higher sales prices.  CPChem’s Pascagoula benzene facility 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 primarily due to higher prices, while higher utility costs also contributed to the lower overall results.  Overall earnings were also negatively impacted by hurricane-related activity.  Earnings in 2005 included a $14 million gain related to reductions in certain LIFO-valued inventories.  Earnings in 2005 also included an $11 million net benefit from a legal settlement related to the St. James styrene column collapse in 2001 and a $7 million benefit to recognize unit/line fill inventory.

2004 compared with 2003

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

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Specialty Products

	Years ended December 31,
Millions	2005		2004		2003
Income before interest and taxes	$	43	$	58	$	34

2005 compared with 2004

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

2004 compared with 2003

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

Corporate and Other

	Years ended December 31,
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.  The increased loss in 2005 was largely due to higher project expenditures and employee incentive plan expenses held at the corporate level in 2005.  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 compared with 2004 was attributable to higher interest rates on variable-rate based debt, partially offset by lower average debt balances and higher capitalized interest in 2005.  The increase in 2004 compared with 2003 was primarily attributable to higher interest rates on variable-rate based debt.

Interest income.  Interest income totaled $17 million in 2005, $9 million in 2004 and $8 million in 2003.  The improvement in 2005 was attributable 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 was primarily due to higher foreign withholding taxes.  The increase in 2004 compared with 2003 was due to taxes on higher overall foreign income.

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 on its respective share of income and losses.  However, CPChem is directly liable for federal and state income taxes and franchise taxes on certain 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 & Polyolefins segment and CPChem’s Middle East joint ventures.  However, earnings for the year were negatively impacted by lower sales volumes, mostly the result of plant downtime caused by two hurricanes in the Gulf of Mexico, and elevated energy prices. CPChem continues to maintain its focus on safety, environmental stewardship, operational reliability, cost management, project execution and increasing sales volumes in order to sustain profitable and responsible growth.

Chemical industry sales volumes and earnings are expected to improve in 2006 as industrial production remains strong.  Prices and margins for certain products could decline from recent levels, however, due to various factors including uncertain energy and feedstock prices, foreign currency 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 hurricane activity 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 utilizing the 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 primarily reflect a trend of improved earnings in each of the years.  Cash from operations for 2004 was negatively impacted by a $235 million increase in 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	$	177
Year ended December 31, 2004	138		34		12		7		191
Year 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 JCP Project (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 to CPChem 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 the remainder to be spent at the corporate level.  Included in estimated 2006 capital and investment expenditures are $39 million in investments in and 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 on a site adjacent to the existing aromatics complex owned by SCP, will include feed fractionation, an olefins cracker, and ethylbenzene and styrene monomer processing units.  Construction of the JCP facility will be in conjunction with an expansion of SCP’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, as defined in the JCP project’s financing agreements, will be achieved in the first half of 2008.  The JCP project is being financed through equity contributions and subordinated loans from the co-venturers, in proportion to their equal ownership interests, and limited recourse loans from commercial banks and 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 into a separate agreement in 2002 with Total Petrochemicals and Qatar Petrochemical Company Ltd., establishing a joint venture to develop an ethylene cracker in Ras Laffan Industrial City, Qatar.  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.  It is expected that 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.  Commercial paper balances outstanding decreased $203 million during 2005 compared to a $201 million increase in 2004, while borrowing outstanding under the accounts receivable securitization program decreased $100 million in both 2005 and 2004.  CPChem voluntarily redeemed $175 million of members’ preferred interests in 2004 and the remaining $75 million in 2005, and paid distributions on those interests of $55 million in 2004 and $2 million in 2005.  Financing activities in 2005 also included $263 million of distributions to members to fund their estimated tax liabilities attributable to CPChem, compared with $118 million of such distributions in 2004.  Discretionary distributions paid to members totaled $250 million in 2005.  At December 31, 2005, accrued discretionary distributions to members totaled $180 million and accrued distributions to fund the members’ estimated tax liabilities totaled $122 million.  These accrued distributions to members were paid in the first quarter of 2006.

28

In 2004, CPChem entered into an $800 million five-year credit facility with various banks that provides committed credit support for the commercial paper program and concurrently terminated its existing credit facilities.  There were no borrowings under any of the current or prior 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.  These commercial paper borrowings totaled $182 million at December 31, 2005 and were classified as Long-Term Debt since CPChem’s intent is to refinance 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.  The agreement allows for borrowings of up to $300 million for which CPChem grants a security interest in certain of its trade receivables as collateral for any amounts outstanding.  The trade receivables securitization agreement expires in May 2006.  CPChem intends to request an extension 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 from operations and commercial paper.  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 or at risk of default.  In addition, a change in CPChem’s credit ratings would not result in the acceleration of any existing 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		—		500
Other debt, including current portions	12		5		2		3		2
Other long-term liabilities included in the consolidated balance sheet	72		—		47		8		17
Operating lease obligations	195		31		40		60		64
Purchase 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 lease obligations.

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 provides committed 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 various employee 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 on CPChem’s long-term forecast were used to calculate obligation amounts that contain variable price provisions.  Obligations with no fixed or minimum purchase requirements for products or services were not included.  In addition, for obligations that include rights to terminate, the amounts 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 actuarial assumptions used in conjunction with the determination of future projected benefit obligations, it is estimated that annual funding of approximately $45 million into CPChem’s existing pension plans would be sufficient for the plans to achieve fully funded status over a ten year planning horizon.  This level of funding would be in excess of future expected minimum regulatory funding requirements.  Actual annual funding levels may differ from this estimate due to, among other things, economic conditions, actual pension asset returns and changes in business 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 entity of a company under which such company has (1) made certain guarantees, (2) a retained or a contingent interest in assets transferred to an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, (3) an obligation, including a contingent obligation, under derivative instruments classified as equity or (4) any obligation, including a contingent obligation, arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company.  Other than certain guarantees related to its equity 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 of certain 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. Accounting Pronouncements.”

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 many other countries, resulting in transactions denominated in various currencies.  As such, CPChem is exposed to foreign currency risk to the extent there are devaluations and fluctuations in the exchange rates of those countries against the U.S. dollar and other foreign currencies which may adversely affect revenues and margins.  The potential foreign currency transaction gain/loss from a hypothetical 10% decrease (or increase) 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 upon maturity, the debt is considered variable-rate based.  The secured debt issued in connection with the accounts receivable securitization program is also variable-rate based.  A hypothetical one percentage point change in the weighted average interest rates of the outstanding balances at December 31, 2005 of these debt instruments would impact interest expense by approximately $3 million annually in the aggregate.

31

Item 8.Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

	Page
Chevron 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 Exchange Commission’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

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 December 31, 2005 and 2004, and the related consolidated statements of operations, members’ equity, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. The financial statements of Qatar Chemical Company Ltd. (Q-Chem), a joint venture company in which 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 by other auditors whose report has been furnished to us, and our opinion on the consolidated financial statements, insofar as it relates to the amounts included for Q-Chem, is based solely on the report of the other auditors. In the consolidated financial statements, the Company’s investment in Q-Chem is stated at $398 million and $387 million, respectively, at December 31, 2005 and 2004, and the Company’s equity in the 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). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration 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 the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial 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 material respects, the consolidated financial position of Chevron Phillips Chemical Company LLC at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

Ernst & Young LLP

Houston, Texas

February 20, 2006

33

Chevron Phillips Chemical Company LLC

Consolidated Statement of Operations

	Years ended December 31,
Millions	2005			2004			2003
Revenue
Net sales	$	10,707		$	9,165		$	6,838
Equity in income of affiliates, net	185			218			41
Other income	146			111			75
Total revenue	11,038			9,494			6,954
Costs and Expenses
Cost of goods sold	9,601			8,324			6,390
Selling, general and administrative	462			421			433
Research and development	41			42			55
Total costs and expenses	10,104			8,787			6,878
Income Before Interest and Taxes	934			707			76
Interest income	17			9			8
Interest 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.

34

Chevron Phillips Chemical Company LLC

Consolidated Balance Sheet

	December 31,
Millions	2005		2004
ASSETS
Current assets
Cash and cash equivalents	$	40	$	63
Accounts receivable, net – trade	1,227		1,140
Accounts receivable, net – affiliates	166		126
Inventories	776		784
Other current assets	66		43
Total current assets	2,275		2,156
Property, plant and equipment	7,897		7,903
Less: accumulated depreciation	4,317		4,135
Net property, plant and equipment	3,580		3,768
Investments in and advances to affiliates	1,057		893
Other assets and deferred charges	48		55
Total Assets	$	6,960	$	6,872
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities
Accounts payable – trade	$	767	$	665
Accounts payable – affiliates	250		219
Accrued income and other taxes	64		60
Accrued salaries, wages and benefits	118		102
Secured borrowings and other debt	105		201
Accrued distributions to members	302		39
Other current liabilities and deferred credits	51		55
Total current liabilities	1,657		1,341
Long-term debt	1,186		1,390
Other liabilities and deferred credits	87		91
Total liabilities	2,930		2,822
Members’ preferred interests	—		75
Members’ capital	4,000		3,925
Accumulated other comprehensive income	30		50
Total members’ equity	4,030		3,975
Total Liabilities and Members’ Equity	$	6,960	$	6,872

See Notes to Consolidated Financial Statements.

35

Chevron Phillips Chemical Company LLC

Consolidated 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			—			7
Foreign currency translation adjustments	—			25			25
Total comprehensive income							32
Distributions on members’ preferred interests	(23		)	—			(23		)
Balance on December 31, 2003	3,478			32			3,510
Net income	626			—			626
Foreign currency translation adjustments	—			21			21
Minimum pension liability adjustments	—			(3		)	(3		)
Total comprehensive income							644
Distributions 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			—			853
Foreign currency translation adjustments	—			(20		)	(20		)
Total comprehensive income							833
Distributions on members’ preferred interests	(2		)	—			(2		)
Other distributions to members	(776		)	—			(776		)
Balance on December 31, 2005	$	4,000		$	30		$	4,030

See Notes to Consolidated Financial Statements.

36

Chevron Phillips Chemical Company LLC

Consolidated Statement of Cash Flows

	Years ended December 31,
Millions	2005			2004			2003
Cash Flows From Operating Activities
Net income	$	853		$	626		$	7
Adjustments to reconcile net income to net cash flows provided by operating activities
Depreciation, amortization and retirements	283			281			298
Undistributed 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 Activities
Capital 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			1
Net cash flows used in investing activities	(163		)	(179		)	(325		)
Cash Flows From Financing Activities
Increase (decrease) in commercial paper, net	(203		)	201			(1		)
Increase (decrease) in secured borrowings, net	(100		)	(100		)	10
Increase (decrease) in other debt, net	2			(13		)	8
Redemptions of members’ preferred interests	(75		)	(175		)	—
Distributions on members’ preferred interests	(2		)	(55		)	—
Other distributions to members	(513		)	(118		)	—
Contributions from members	—			—			32
Net cash flows provided by (used in) financing activities	(891		)	(260		)	49
Net Increase (Decrease) in Cash and Cash Equivalents	(23		)	20			4
Cash 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 Information
Changes in operating working capital
Increase in accounts receivable	$	(132	)	$	(408	)	$	(100	)
Decrease (increase) in inventories	(4		)	(77		)	13
Increase in other current assets	(25		)	(13		)	(5		)
Increase in accounts payable	138			216			70
Increase in accrued income and other taxes	5			6			1
Increase 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

See Notes to Consolidated Financial Statements.

37

Chevron Phillips Chemical Company LLC

Notes to Consolidated Financial Statements

Index		Page
1.	Nature of Operations	38
2.	Summary of Significant Accounting Policies	38
3.	Transactions with Affiliates	41
4.	Inventories	42
5.	Investments in and Advances to Affiliates	43
6.	Property, Plant and Equipment	47
7.	Environmental Liabilities	48
8.	Debt	48
9.	Members’ Preferred Interests	49
10.	Guarantees, Commitments and Indemnifications	49
11.	Contingent Liabilities	50
12.	Credit Risk	51
13.	Operating Leases	51
14.	Benefit Plans	51
15.	Taxes	55
16.	Segment and Geographic Information	57
17.	Fair Values of Financial Instruments	59
18.	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 of petrochemicals 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 under Delaware 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 limited liability company agreement. Chevron and ConocoPhillips each have two voting representatives, and the chief executive officer and the chief financial officer of the company are non-voting representatives. Certain major decisions and actions require the approval of the Board. All decisions and actions of the Board require the approval of at least one representative of both Chevron and ConocoPhillips.

Note 2.Summary of Significant Accounting Policies

Basis of Financial Statements – The accompanying consolidated financial statements include the accounts of Chevron Phillips Chemical 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 the voting 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 accounting principles requires management to make estimates and assumptions that affect certain amounts reported in the financial statements and 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 business and assets against material insurable risks in a manner it deems appropriate. Because of the diversity of its operations, CPChem believes any loss incurred from an uninsured event in any one business or country, other than a terrorist act directed at CPChem operations, would not have a material adverse effect on operations as a whole. However, any such loss could have a material impact on financial results in the period recorded.

Revenue Recognition – Sales of petrochemicals, natural gas liquids and other items, including by-products, are recorded when title passes to the customer. Revenues from royalties for licensed technology are recorded as the associated services are rendered when royalties 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 of cash 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 at December 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 inventories are valued using a combination of the first-in, first-out (FIFO) and weighted average methods. Materials and supplies inventories are carried at average cost.

Property, Plant and Equipment –Property, plant and equipment is stated at cost. Property, plant and equipment is comprised of assets, defined as property units, with an initial expected economic life beyond one year. Asset categories are used to compute depreciation 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 in circumstances 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 largely independent of the cash flows of other groups of assets – generally at a product line level. If, upon review, the sum of the projected undiscounted pre-tax cash flows is less than the carrying value of the asset group, the carrying value is written down to estimated fair value. The fair values of impaired assets are usually determined based on the present value of projected future cash flows using discount rates commensurate with the risks involved in the asset group, as quoted market prices in active markets are generally not available.

The expected future cash flows used for impairment reviews and related fair value calculations are based on projected production volumes, 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 as incurred.

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 in income.

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

Capitalization of Interest – Interest costs incurred to finance projects of at least $75 million and that are longer than one year in duration, and interest costs associated with investments in equity affiliates that have their planned principal operations under construction, are capitalized until commercial production begins. Capitalized interest is generally amortized over the life of the associated asset. Unamortized capitalized interest totaled $42 million at both December 31, 2005 and December 31, 2004. Interest costs 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 whereby each member is taxable on its respective share of income and loss. However, CPChem is directly liable for federal and state income taxes and franchise taxes on certain separate legal entities and for any foreign taxes incurred. CPChem follows the liability method of accounting for these income taxes.

Accounting Pronouncements – The Financial Accounting Standards Board (the “FASB”) issued Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (FIN No. 46(R)), which provides guidance as to when a company is required to include in its financial statements the assets, liabilities and activities of a variable interest entity (a “VIE”). A VIE is generally a corporation, partnership, trust, or any other legal structure used for business purposes that either does not have equity investors with voting rights or that has equity investors that do not provide sufficient financial resources for the entity to support its activities. 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 loss from the activities of the VIE or is entitled to receive a majority of the residual returns of the VIE. FIN No. 46(R) also requires disclosures about VIEs that are not required to be consolidated by a company, but in which the company has a significant variable interest. The consolidation requirements of FIN No. 46(R) became effective January 1, 2005 for CPChem. FIN No. 46(R) did not require 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, an Amendment 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 and spoilage, requiring that such costs be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. For CPChem, the provisions of SFAS No. 151 are effective January 1, 2006. CPChem believes that implementation of this standard will not have a material impact on consolidated results of operations, financial position or liquidity.

40

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 based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged, with certain exceptions. This statement amends APB Opinion No. 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange does not have commercial substance if the future cash flows of the entity are not expected to change 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 and reporting requirements for legal obligations associated with retirement of long-lived assets. On December 31, 2005, CPChem adopted FASB 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 entered into certain right of way agreements with landowners, some of which require removal of pipelines if they are idled for a specified period of time. In addition, certain CPChem facilities contain amounts of asbestos that may require abatement in the future. CPChem performs periodic reviews of its long-lived assets for, among other things, changes in facts and circumstances that might require the recognition of a retirement obligation. Implementation of SFAS No. 143 and FIN No. 47 did not have a material impact on consolidated 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 for Purchases and Sales of Inventory with the Same Counterparty.”  In situations in which one inventory transaction is entered into in contemplation of another inventory transaction in the same line of business with the same counterparty, the two inventory transactions are deemed to be a single non-monetary exchange transaction. It was determined that such transactions should generally be recognized at the carrying amount of the inventory transferred. For CPChem, the provisions of EITF Issue No. 04-13 are effective April 1, 2006. CPChem believes that implementation of EITF Issue No. 04-13 will not have a material impact on consolidated results of operations, financial position or liquidity.

Note 3.Transactions with Affiliates

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

	Years ended December 31,
Millions	2005		2004		2003
Net sales (a)	$	1,291	$	1,085	$	789
Other income	63		54		33
Cost of goods sold (b),(c),(d)	2,560		2,440		1,573
Selling, general and administrative (c),(d)	5		8		11

(a)CPChem sells ethylene residue gas to ConocoPhillips’ crude oil refining operations; specialty chemicals, alpha olefin products and 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 finished product from certain non-consolidated equity companies. In addition, Chevron and ConocoPhillips provide CPChem certain common facility and manufacturing services at some of CPChem’s facilities.

(c)ConocoPhillips and Chevron provide various services to CPChem under services agreements, including engineering consultation, 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 and administrative 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 by ConocoPhillips, was idled in March 2000 due to a fire. The contribution agreement that was entered into upon the formation of CPChem contained certain provisions related to pre-established K-Resin^® SBC plant earnings and production targets. In accordance with those provisions, ConocoPhillips made member contributions of $22 million in 2003.

Note 4.Inventories

Inventories were as follows:

	December 31,
Millions	2005		2004
LIFO inventories
Olefins & Polyolefins	$	294	$	267
Aromatics & Styrenics	133		169
Specialty Products	55		48
Total LIFO inventories	482		484
Non-LIFO inventories
Olefins & Polyolefins	119		111
Aromatics & Styrenics	83		91
Specialty Products	36		47
Total non-LIFO inventories	238		249
Materials, supplies and other	56		51
Total inventories	$	776	$	784

The excess of replacement cost over book value of product inventories valued under the LIFO method was $552 million at December 31, 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 million in 2003 ($10 million in Olefins & Polyolefins and $3 million in Aromatics & Styrenics) related to reductions in certain LIFO-valued inventories.

42

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 the manufacturing 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		303
Jubail Chevron Phillips Company	50	%	72		27
Phillips Sumika Polypropylene Company	60	%*	62		52
Chevron Phillips Singapore Chemicals (Private) Limited	50	%	58		58
K R Copolymer Co., Ltd.	60	%	41		42
Shanghai Golden Phillips Petrochemical Company Limited	40	%	23		24
Qatar 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’s members’ capital included $184 million of undistributed net earnings from equity affiliates at December 31, 2005 and $69 million at December 31, 2004.

Phillips Sumika Polypropylene Company and K R Copolymer Co., Ltd. are not consolidated because CPChem does not have voting control 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 achieving project completion, CPChem made certain advances to Q-Chem under a subordinated loan agreement. In addition, CPChem agreed to provide up to $75 million of loans to Q-Chem if there is insufficient cash to pay the minimum debt service payments on Q-Chem’s senior 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 sales volumes being less than design capacity, or the actual cash deficiency, whichever is less. CPChem believes it is unlikely that funding under 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 market prices, specified amounts of production if CPChem fails to sell that product under the terms of the agency agreement. CPChem has no exposure to price risk for volumes it may be obligated to purchase under the terms of the offtake agreement. CPChem also guarantees the customer payments to Q-Chem for all sales arranged by CPChem under the agency agreement. The offtake and credit risk agreement expires upon the earlier of the repayment in full by Q-Chem of its outstanding bank financing, currently scheduled to mature in 2012, or any refinancing thereof. CPChem expects that it will be able to sell all the production under the terms of the agency 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 of subordination. Advances to Q-Chem under the subordinated loan agreement totaled $273 million at December 31, 2005 and $310 million 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, designed to produce polyethylene (770 million pounds per year) and normal alpha olefins (760 million pounds per year). These plants will be owned 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 with Total Petrochemicals and Qatar Petrochemical Company Ltd., establishing a joint venture to develop a 2.9 billion-pound-per-year ethylene cracker in Ras Laffan Industrial City, Qatar. The cracker will provide ethylene feedstock via pipeline to the planned polyethylene 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 Qatofin Company Limited (Qatofin). Q-Chem II will own 53.85% of the capacity rights to the ethylene cracker and pipeline, and the balance will be held by Qatofin. Collectively, Q-Chem II’s interest in the ethylene cracker and pipeline, and the polyethylene and normal alpha olefins plants are referred to as “the Q-Chem II project.”  Construction began in late 2005, with start-up anticipated in late 2008. 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 not considered 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 following commitments 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 the export credit agency totaled $48 million at December 31, 2005. The co-venturers are obligated to each fund their pro rata ownership share of Q-Chem II’s share of project costs that are not funded by senior debt and operating cash flow through equity contributions and non-interest-bearing subordinated loans, subject to stated maximum amounts for each co-venturer. After these amounts are reached, additional project costs, if any, related to Q-Chem II’s share of total project costs will be funded by an interest-bearing subordinated loan from CPChem. These funding obligations terminate upon achieving project completion, as defined in the financing agreements.

Under the terms of a completion guarantee in the financing agreements, if project completion has not occurred by June 30, 2010, the senior debt lenders will have the right to demand from each co-venturer, on a pro rata basis, funds to cover the quarterly senior debt service 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 and interest 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 project completion, 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 cash deficiency, whichever is less, and (b) are capped at $50 million for the co-venturers, combined. CPChem believes that any funding required 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’s polyethylene 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 that product under the terms of the agency agreement. CPChem has no exposure to price risk for any volumes it may be obligated to purchase under the terms of the offtake agreement. CPChem also guarantees the customer payments to Q-Chem II for all sales arranged by CPChem under the agency agreement. The offtake and credit risk agreement expires the earlier of (a) 12 years after commencement of the commercial operation date, as defined, or (b) the cessation of Q-Chem II as a joint venture. CPChem expects that 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 related to Q-Chem II totaled $3 million at December 31, 2005. The liabilities are recorded as Other Liabilities and Deferred Credits, with an offsetting 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. The subsidiary 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. These loans totaled $12 million (gross) at December 31, 2005 and $69 million at December 31, 2004. CPChem believes it is unlikely that funding under this guarantee will be required. Chevron Phillips Chemical Company LLC is not a party to this guarantee. As it applies to 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 for volumes it may be obligated to purchase and believes that it will continue to be able to sell all the purchased production required under 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 Al Jubail, Saudi Arabia. The 1.6 billion-pound-per-year facility, to be built on a site adjacent to the existing aromatics complex owned by SCP, will include feed fractionation, an olefins cracker, and ethylbenzene and styrene monomer processing units.  Construction of the JCP facility will be in conjunction with an expansion of SCP’s benzene plant, together called “the JCP project.”  Construction began in the fourth quarter of 2004 and operational start-up is anticipated in late 2007. It is estimated that project completion, as defined in the JCP project’s financing agreements, will be achieved in the first half of 2008. As it applies to CPChem, JCP is not considered 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, in proportion to their equal ownership interests, and limited recourse loans from commercial banks and two Saudi Arabian governmental agencies (collectively, called “senior debt”). Principal and accrued interest outstanding under the commercial bank loans 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 project cost, as defined. The JCP co-venturers are obligated to each fund their respective 50% share of the remaining estimated project cost through 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 of any 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 lenders and the first Saudi Arabian governmental agency will have the right to demand from each JCP co-venturer, on a pro rata basis, funds to cover the debt service requirements associated with the JCP project that are due after March 31, 2009 until project completion is achieved. 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 their respective 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 certain construction costs of the project, limited to a maximum of $103 million each. The guarantee remains in effect until payment for those construction costs is made.

The total carrying amount of liabilities recorded, discounted and weighted for probability, for the aforementioned guarantees related to the JCP project totaled $11 million at December 31, 2005 and $4 million at December 31, 2004. The liabilities are recorded as Other Liabilities and Deferred Credits, with an offsetting increase to Investments in and Advances to Affiliates. CPChem believes it is unlikely that performance under any of the guarantees will be required. However, should such performance be required, CPChem believes 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	$	392
Income (loss) before income taxes	182		129		(40		)	218		304		115
Net 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	$	197
Noncurrent assets	848		880		940		489		460		475
Current liabilities	143		110		104		125		137		87
Noncurrent liabilities	772		889		974		43		135		294

	All Others in the Aggregate
	Years ended December 31,
Millions	2005		2004		2003
Revenues	$	1,130	$	951	$	682
Income before income taxes	44		33		13
Net income	39		28		10
	December 31,
	2005		2004		2003
Current assets	$	330	$	295	$	196
Noncurrent assets	871		412		357
Current liabilities	225		134		105
Noncurrent 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	$	5,086
Aromatics & Styrenics	2,019		2,060
Specialty Products	587		589
Other	178		168
Gross property, plant and equipment, at cost	7,897		7,903
Accumulated 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 assets depreciated on estimated useful lives of approximately 25 years. Other non-plant items, such as furniture, fixtures, buildings and automobiles, have estimated useful lives ranging from 5 to 45 years, with a weighted average of 27 years.  Assets under construction totaled $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 to provide 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 remove the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at its 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. In addition, 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		$	500
7% notes due 2011	500			500
Commercial paper	182			385
Other	7			9
Subtotal	1,189			1,394
Unamortized 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, 2005 and $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 borrow up to $300 million for which CPChem grants a security interest in certain of its trade receivables as collateral for any amounts outstanding. 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 an extension of the current agreement to May 2007. The interest rate of borrowings outstanding under the agreement was 4.33% at December 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 Phillips Chemical Company LP, jointly and severally issued $500 million of senior unsecured 5 3/8% notes that mature in 2007, and $500 million 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 normal operations. 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 or less. These commercial paper borrowings are classified as Long-Term Debt since CPChem’s intent is to refinance or replace the obligations on a long-term basis and CPChem has a committed backup credit facility in effect. The weighted average interest rate of commercial 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 for the commercial paper program and concurrently terminated its existing credit facilities. The current agreement contains covenants and events of default typical of bank revolving credit facilities, such as restrictions on liens. The agreement also contains a provision requiring the maintenance of ownership of CPChem by Chevron and ConocoPhillips of at least 50% in the aggregate. Provisions under this agreement are not considered to be restrictive to normal operations. There were no borrowings under any of the current or prior 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 or at risk of default. In addition, a change in CPChem’s credit ratings would not result in the acceleration of any existing debt obligation maturities.

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’s Second Amended and Restated Limited Liability Company Agreement. In 2004, CPChem voluntarily redeemed $175 million of members’ preferred interests and paid $55 million of distributions on members’ preferred interests. In 2005, CPChem voluntarily redeemed the remaining $75 million of members’ preferred interests and paid $2 million of distributions. There were no redemptions or 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 in March 2005, which contains a fixed price purchase option and a residual guarantee. The purchase option price was considered to be the fair market value of the building at the time of the extension of the lease. If CPChem does not extend the lease or exercise the purchase option upon the current expiration of the lease in 2010, CPChem has an obligation to pay the lessor the shortfall, if any, in the 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 is not possible to predict with certainty the amount, if any, that CPChem would be required to pay or be entitled to receive should the building be sold to a third party upon the expiration of the lease, CPChem believes that the amount paid or received would not be material 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.

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Indemnifications

As part of CPChem’s ongoing business operations and consistent with generally accepted and recognized industry practice, CPChem enters into numerous agreements with other parties which apportion future risks between the parties to the transaction or relationship governed by the agreements. One method of apportioning risk is the inclusion of provisions requiring one party to indemnify the other party against losses that might be incurred in the future. Many of CPChem’s agreements, including technology license agreements, contain indemnities that require CPChem to perform certain acts, such as defending certain licensees against patent infringement 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 triggering events or conditions. In addition, the indemnities in each agreement vary widely in their definitions of both the triggering event and the resulting obligation, which is contingent upon that triggering event. Because many of CPChem’s indemnity obligations are not limited in duration or potential monetary exposure, CPChem cannot reasonably calculate the maximum potential amount of future payments that could possibly be paid under the indemnity obligations stemming from all of CPChem’s existing agreements. In the case of known contingent liabilities, however, CPChem records an undiscounted liability when a loss is probable and the amount can be reasonably estimated.

CPChem is not aware of the occurrence of any triggering event or condition that would have a material adverse impact on consolidated results of operations, financial position or liquidity as a result of an indemnity obligation arising from such triggering event 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 be reasonably estimated. These liabilities are not reduced for potential insurance recoveries. If applicable, undiscounted receivables are recorded 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 particularly sensitive to future change include legal matters and contingent liabilities for environmental remediation. Estimated future environmental remediation costs are subject to change due to such factors as the unknown magnitude of cleanup costs, prospective changes in laws and regulations, the unknown timing and extent of remedial actions that may be required and the determination of CPChem’s liability in proportion to those of other responsible parties. Estimated future costs related to legal matters are subject to change 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 future costs related to known contingent liabilities will exceed current accruals by an amount that would have a material adverse effect on consolidated 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 is disputed.  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 the financial responsibility for these lawsuits is ultimately determined to rest with CPChem, CPChem may be required to record a charge to operations that could be material to the period reported. However, CPChem believes that any such charge, if required, would not have 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 with certainty, CPChem believes that none of these individual proceedings, when resolved, will have a material adverse effect on consolidated 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 of Texas (the “PUCT”) for the determination and reimbursement of certain costs associated with utility asset devaluation that may have occurred due to that legislation. CenterPoint Energy Houston Electric LLC (CenterPoint), which previously provided electricity to CPChem’s Cedar Bayou manufacturing facility and Kingwood research center, both located in Texas, filed its application for such determination with the PUCT on March 31, 2004. Following the initial determination and appeals, CenterPoint was permitted to recover certain costs in the form of securitized transition charges and unsecuritized competitive transition charges. The implementation of these charges is expected to increase the monthly cost of electricity by approximately 3% to 4%. The actual increase 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 trade receivables. Cash equivalents are currently comprised of bank accounts and short-term investments with several financial institutions that 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 limited concentrations of credit risk. However, increased economic pressures on CPChem’s customers and the continuing overall consolidation and reorganization of customers in the industry has resulted in more customers with significant financial leverage and has increased overall credit risk and exposure. CPChem maintains and follows credit policies and procedures designed to control such 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 rental expense 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 2006 through 2010, respectively, and $64 million thereafter. Included in aggregate future minimum lease payments in 2010 is CPChem’s maximum exposure of $27 million under the contingent obligation associated with the lease agreement for CPChem’s headquarters building.

Note 14.Benefit Plans

The majority of CPChem employees are former employees of Chevron Corporation or Phillips Petroleum Company (Phillips), now ConocoPhillips. 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 enhanced benefits, including credit for service while employed by Chevron Corporation or Phillips.

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Pension and Other Postretirement Health Care

CPChem’s retirement plan is a defined benefit plan that covers most U.S.-based employees. Eligible employees automatically participate 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 service with Chevron Corporation or Phillips or their affiliates, if applicable. Retirement benefits are based on two types of credits: a career average pay benefit and a variable annuity account benefit. Both benefits are based on an employee’s compensation over the years and 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 spending account is established by CPChem for eligible retirees at the time of retirement based on years of service and marital status times a fixed dollar amount. Retirees may use funds in their account to purchase medical and/or dental coverage from CPChem or from private health care plans, or to pay eligible out-of-pocket health care expenses. Retirees’ flexible spending accounts earn interest upon inception at market-based rates. Any changes in future health care cost rates for retirees would not impact future CPChem earnings 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. A December 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 primary purpose of the plan is to provide compensating benefits to those employees affected by federally mandated limits on eligible compensation levels contained in CPChem’s normal retirement plan or as a result of certain incentive bonus amounts or deferrals not being recognized as compensation under the retirement plan. The benefit obligation associated with this plan was $20 million at both December 31, 2005 and December 31, 2004. Also included are separate pension plans for employees at CPChem’s Puerto Rico and Belgium 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		$	3
Interest cost on projected benefit obligations	20			18			17			5			3			5
Expected return on plan assets	(17		)	(12		)	(9		)	(2		)	(1		)	—
Amortization of prior service costs	11			12			12			3			3			3
Net 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
	December 31,						December 31,
Millions	2005			2004			2005			2004
Change in Benefit Obligation
Benefit obligation at beginning of year	$	358		$	321		$	92		$	75
Service cost	23			22			2			2
Interest cost	20			18			5			3
Actuarial loss (gain)	(11		)	1			4			15
Foreign 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 Assets
Fair value of plan assets at beginning of year	219			151			26			12
Actual return on plan assets	22			17			2			2
Employer contributions	57			56			7			14
Foreign 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 Plan
Excess obligation	(94		)	(139		)	(63		)	(66		)
Unrecognized net actuarial loss	24			37			29			26
Unrecognized transition obligation	—			1			—			—
Unrecognized prior service cost	94			105			22			31
Total recognized	$	24		$	4		$	(12	)	$	(9	)
Components of Total Recognized
Prepaid 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 in 2006.

The weighted average amortization period for the unrecognized prior service costs at December 31, 2005 was approximately eight years for the retirement plans and approximately nine years for other postretirement benefits plans. Unrecognized net actuarial losses at December 31, 2005 related to CPChem’s retirement and other postretirement benefits plans are being amortized on a straight-line basis over approximately 12 years, which represents the average remaining service period of employees expected to receive benefits under 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, 2005 follows:

	December 31,
Millions	2005		2004
Projected benefit obligation	$	43	$	42
Accumulated benefit obligation	36		33
Fair 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 international equities, fixed income securities and cash equivalents.  Target asset allocations are chosen based on an analysis of the historical returns and volatilities of various asset classes.  The plan investments are periodically rebalanced to maintain the target asset allocation.  Rates of return for the investment funds comprising each asset class are monitored quarterly against benchmarks and peer fund 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		34
Real estate	—		9		8
Other	1		3		15
Total	100	%	100	%	100	%

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

	December 31,				December 31,
	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		—

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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 in the current period and also impacts the level and timing of contributions into the plans. Due to the specialized nature of these calculations, 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, estimated employee retirement dates and salary levels at retirement, and mortality rates. Estimates of these future unknown events are judgmentally determined based on factors such as, among other things, historical returns on pension plan assets and outside actuarial advice. However, a 1% decrease in the estimated future returns on pension plan assets or a 1% decrease in the discount rates applied to pension plan obligations would not have a material adverse effect on consolidated results of operations, financial position or liquidity.

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

Millions	Pension Benefits		Other Benefits
2006	$	14	$	3
2007	18		3
2008	21		4
2009	25		4
2010	31		5
2011-2015	252		35

Contribution Plans

Defined contribution plans are available for most employees, whereby CPChem matches a percentage of the employee’s contribution. CPChem’s contributions to the plans are expensed and funded on a current basis, and totaled $27 million in 2005, $17 million 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 is taxable on its respective share of income and loss. However, CPChem is directly liable for federal and state income taxes and franchise 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 exemption from 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.

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CPChem is required to make quarterly distributions to its members in amounts representing the liability for combined federal and state income taxes calculated at specified rates based on CPChem’s estimate of federal taxable income. Tax distributions paid to members 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:

	Years ended December 31,
Millions	2005		2004		2003
Domestic	$	600	$	301	$	(98	)
Foreign	273		340		110
Total income before taxes	$	873	$	641	$	12

The components of income tax expense follow:

	Years ended December 31,
Millions	2005		2004		2003
State – current	$	1	$	—	$	—
Foreign – current	19		15		5
Total income tax expense	$	20	$	15	$	5

Deferred income tax assets and liabilities follow:

	December 31,
Millions	2005			2004
Deferred income tax assets – federal	$	193		$	191
Valuation 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 valuation allowances. A valuation allowance was established to reduce the deferred tax assets of the subsidiary’s net operating loss carryforwards and tax depreciation differences to amounts that would more likely than not be realized. Uncertainties that may affect the 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 assets
Loss carryforward (expires 2011- 2025)	$	176		$	171
Depreciation and amortization	13			15
Other	4			5
Gross deferred income tax assets	193			191
Valuation allowance	(193		)	(191		)
Deferred income tax assets	—			—
Deferred tax liabilities – foreign	(1		)	(1		)
Net deferred income tax liability	$	(1	)	$	(1	)

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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 primarily consumed internally for the production of polyethylene, normal alpha olefins, polypropylene and polyethylene pipe. CPChem has five olefin and/or polyolefin production facilities located in Texas, eight domestic pipe production facilities and one domestic pipe fittings production facility. CPChem also has one pipe production facility in Mexico. In addition, CPChem owns interests in a polypropylene facility located at the Pasadena Plastics Complex in Texas, a high-density polyethylene plant located at CPChem’s Cedar Bayou facility in Texas, an ethylene, polyethylene and 1-hexene facility in Qatar, and polyethylene facilities in Singapore and China.

Aromatics & Styrenics – This segment manufactures and markets aromatics products such as benzene, styrene, paraxylene and cyclohexane. This segment also manufactures and markets polystyrene as well as styrene-butadiene copolymers sold under the trademark K-Resin^®. Production facilities are located in Mississippi, Louisiana, Texas, Ohio, Puerto Rico and China. CPChem also owns 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 organosulfur chemicals and high-performance polyphenylene sulfide polymers and compounds sold under the trademark Ryton^®. Production facilities are located in Texas, Belgium and Singapore.

“Corporate and Other” (Other) includes items not directly attributable to CPChem’s operating segments. Interest expense, certain charges 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, 2005
Net sales – external	$	7,027			$	3,146			$	534			$	—			$	10,707
Net sales – inter-segment	330				2				3				(335			)	—
Equity in income of affiliates	78				107				—				—				185
Other income	104				41				1				—				146			(a)
Total revenue	7,539				3,296				538				(335			)	11,038
Operating 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			)	934
Interest income (expense), net	14				1				—				(76			)	(61			)
Income taxes	(4			)	(7			)	(7			)	(2			)	(20			)
Net income (loss)	841				93				36				(117			)	853
Distributions 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
Year ended December 31, 2004
Net sales – external	$	5,501		$	3,187		$	477		$	—		$	9,165
Net sales – inter-segment	295			1			2			(298		)	—
Equity in income of affiliates	73			145			—			—			218
Other 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		)	8,506
Depreciation and amortization	174			83			23			1			281
Income (loss) before interest & taxes	428			251			58			(30		)	707
Interest income (expense), net	7			1			—			(74		)	(66		)
Income taxes	(5		)	(3		)	(7		)	—			(15		)
Net income (loss)	430			249			51			(104		)	626
Distributions on members’ preferred interests	—			—			—			(21		)	(21		)
Income (loss) attributed to members’ interests	$	430		$	249		$	51		$	(125	)	$	605
Year ended December 31, 2003
Net sales – external	$	4,010		$	2,437		$	391		$	—		$	6,838
Net sales – inter-segment	272			144			1			(417		)	—
Equity in income (loss) of affiliates	(14		)	55			—			—			41
Other income	53			17			5			—			75		(d)
Total revenue	4,321			2,653			397			(417		)	6,954
Operating 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		)	76
Interest income (expense), net	6			1			—			(71		)	(64		)
Income taxes	—			—			(5		)	—			(5		)
Net income (loss)	47			28			29			(97		)	7
Distributions on members’ preferred interests	—			—			—			(23		)	(23		)
Income (loss) attributed to members’ 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 affiliates
December 31, 2005	$	591	$	466	$	—	$	—	$	1,057
December 31, 2004	520		373		—		—		893
Total assets
December 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		177
Year ended December 31, 2004	138		34		12		7		191
Year 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 and advances 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 - external
Year ended December 31, 2005	$	9,135	$	1,572	$	10,707
Year ended December 31, 2004	7,681		1,484		9,165
Year ended December 31, 2003	5,752		1,086		6,838
Investments in and advances to affiliates
December 31, 2005	62		995		1,057
December 31, 2004	52		841		893
Property, plant and equipment, net
December 31, 2005	3,446		134		3,580
December 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 2004 and 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 fair values. The carrying amount of secured borrowings outstanding also approximates fair value due to the short-term nature of the borrowings. The carrying amount of commercial paper outstanding also approximates fair value due to the variable interest rate feature. The carrying amount of other long-term debt outstanding was $1.004 billion at December 31, 2005 and $1.005 billion at December 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 Exchange Commission’s rules and regulations as they relate to the debt jointly and severally issued by Chevron Phillips Chemical Company LLC 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” is principally comprised of foreign operations and the holding companies that have direct ownership of the LP. These consolidating financial statements were prepared using the equity method of accounting for investments.

Chevron Phillips Chemical Company LLC

Consolidating Statement of Operations

For the Year ended December 31, 2005

Millions	LLC			LP			Other Entities			Eliminations			Total
Revenue
Net sales	$	—		$	9,606		$	1,746		$	(645	)	$	10,707
Equity in income of affiliates	925			—			807			(1,547		)	185
Other income	—			105			126			(85		)	146
Total revenue	925			9,711			2,679			(2,277		)	11,038
Costs and Expenses
Cost of goods sold	—			8,580			1,634			(613		)	9,601
Selling, general and administrative	1			472			106			(117		)	462
Research and development	—			41			—			—			41
Total 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		)	17
Interest 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’ preferred interests	(2		)	—			—			—			(2		)
Income Attributed to Members’ Interests	$	851		$	633		$	914		$	(1,547	)	$	851

60

Note 18.Consolidating Financial Statements (continued)

Chevron Phillips Chemical Company LLC

Consolidating Statement of Operations

For the Year ended December 31, 2004

Millions	LLC			LP			Other Entities			Eliminations			Total
Revenue
Net sales	$	—		$	8,071		$	1,688		$	(594	)	$	9,165
Equity in income of affiliates	716			4			591			(1,093		)	218
Other income	—			85			92			(66		)	111
Total revenue	716			8,160			2,371			(1,753		)	9,494
Costs and Expenses
Cost of goods sold	—			7,341			1,538			(555		)	8,324
Selling, general and administrative	—			429			97			(105		)	421
Research and development	—			42			—			—			42
Total costs and expenses	—			7,812			1,635			(660		)	8,787
Income Before Interest & Taxes	716			348			736			(1,093		)	707
Interest income	—			26			9			(26		)	9
Interest expense	(90		)	(1		)	(10		)	26			(75		)
Income Before Taxes	626			373			735			(1,093		)	641
Income taxes	—			(2		)	(13		)	—			(15		)
Net Income	626			371			722			(1,093		)	626
Distributions on members’ preferred interests	(21		)	—			—			—			(21		)
Income Attributed to Members’ Interests	$	605		$	371		$	722		$	(1,093	)	$	605

61

Note 18.Consolidating Financial Statements (continued)

Chevron Phillips Chemical Company LLC

Consolidating Statement of Operations

For the Year ended December 31, 2003

Millions	LLC			LP			Other Entities			Eliminations			Total
Revenue
Net sales	$	—		$	6,034		$	1,247		$	(443	)	$	6,838
Equity in income of affiliates	86			7			17			(69		)	41
Other income	—			80			80			(85		)	75
Total revenue	86			6,121			1,344			(597		)	6,954
Costs and Expenses
Cost of goods sold	—			5,641			1,157			(408		)	6,390
Selling, general and administrative	—			457			96			(120		)	433
Research and development	—			55			—			—			55
Total costs and expenses	—			6,153			1,253			(528		)	6,878
Income (Loss) Before Interest & Taxes	86			(32		)	91			(69		)	76
Interest income	—			14			9			(15		)	8
Interest expense	(79		)	(1		)	(7		)	15			(72		)
Income (Loss) Before Taxes	7			(19		)	93			(69		)	12
Income taxes	—			—			(5		)	—			(5		)
Net Income (Loss)	7			(19		)	88			(69		)	7
Distributions on members’ preferred interests	(23		)	—			—			—			(23		)
Income (Loss) Attributed to Members’ Interests	$	(16	)	$	(19	)	$	88		$	(69	)	$	(16	)

62

Note 18.Consolidating Financial Statements (continued)

Chevron Phillips Chemical Company LLC

Consolidating Balance Sheet

December 31, 2005

Millions	LLC		LP			Other Entities		Eliminations			Total
Current assets
Cash and cash equivalents	$	—	$	19		$	21	$	—		$	40
Accounts receivable, net	58		1,104			1,000		(769		)	1,393
Inventories	—		613			163		—			776
Other 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		—			3,580
Investments in and advances to affiliates	5,485		69			5,028		(9,525		)	1,057
Other assets and deferred charges	19		37			20		(28		)	48
Total Assets	$	5,563	$	5,221		$	6,498	$	(10,322	)	$	6,960
Current liabilities
Accounts payable	$	63	$	913		$	810	$	(769	)	$	1,017
Secured borrowings and other debt	—		1			104		—			105
Other current liabilities and deferred credits	314		198			23		—			535
Total current liabilities	377		1,112			937		(769		)	1,657
Long-term debt	1,179		7			—		—			1,186
Other 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 comprehensive income (loss)	—		(1		)	31		—			30
Total Liabilities and Members’ Equity	$	5,563	$	5,221		$	6,498	$	(10,322	)	$	6,960

63

Note 18.Consolidating Financial Statements (continued)

Chevron Phillips Chemical Company LLC

Consolidating Balance Sheet

December 31, 2004

Millions	LLC		LP			Other Entities		Eliminations			Total
Current assets
Cash and cash equivalents	$	—	$	15		$	48	$	—		$	63
Accounts receivable, net	16		986			1,013		(749		)	1,266
Inventories	—		601			183		—			784
Other 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		—			3,768
Investments in and advances to affiliates	5,537		32			5,009		(9,685		)	893
Other assets and deferred charges	20		32			31		(28		)	55
Total Assets	$	5,575	$	5,153		$	6,606	$	(10,462	)	$	6,872
Current liabilities
Accounts payable	$	141	$	710		$	782	$	(749	)	$	884
Secured borrowings and other debt	—		1			200		—			201
Other current liabilities and deferred credits	50		181			25		—			256
Total current liabilities	191		892			1,007		(749		)	1,341
Long-term debt	1,381		9			—		—			1,390
Other liabilities and deferred credits	3		85			31		(28		)	91
Total liabilities	1,575		986			1,038		(777		)	2,822
Members’ preferred interests	75		—			—		—			75
Members’ capital	3,925		4,168			5,517		(9,685		)	3,925
Accumulated other comprehensive income (loss)	—		(1		)	51		—			50
Total Liabilities and Members’ Equity	$	5,575	$	5,153		$	6,606	$	(10,462	)	$	6,872

64

Note 18.Consolidating Financial Statements (continued)

Chevron Phillips Chemical Company LLC

Consolidating Statement of Cash Flows

For the Year ended December 31, 2005

Millions	LLC			LP			Other Entities			Eliminations			Total
Cash Flows From Operating Activities
Net income	$	853		$	633		$	914		$	(1,547	)	$	853
Adjustments to reconcile net income to net cash flows provided by operating activities
Depreciation, amortization and retirements	—			262			21			—			283
Undistributed equity in income of affiliates, net	(112		)	—			(8		)	5			(115		)
Changes in operating working capital	(115		)	133			(24		)	—			(6		)
Other operating cash flow activity	2			(18		)	32			—			16
Net cash flows provided by operating activities	628			1,010			935			(1,542		)	1,031
Cash Flows From Investing Activities
Capital and investment expenditures	—			(158		)	(19		)	—			(177		)
Investments in and advances towards JCP project	—			—			(35		)	—			(35		)
Advance repayments from Q-Chem	—			—			25			—			25
Advance repayments from SCP	—			—			9			—			9
Proceeds from the sale of assets	—			13			2			—			15
Decrease (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 Activities
Decrease in commercial paper, net	(203		)	—			—			—			(203		)
Decrease in secured borrowings, net	—			—			(100		)	—			(100		)
Increase (decrease) in other debt, net	—			(1		)	3			—			2
Redemptions 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 Cash Equivalents	—			4			(27		)	—			(23		)
Cash and Cash Equivalents at Beginning of Year	—			15			48			—			63
Cash and Cash Equivalents at End of Year	$	—		$	19		$	21		$	—		$	40

65

Note 18.Consolidating Financial Statements (continued)

Chevron Phillips Chemical Company LLC

Consolidating Statement of Cash Flows

For the Year ended December 31, 2004

Millions	LLC			LP			Other Entities			Eliminations			Total
Cash Flows From Operating Activities
Net income	$	626		$	371		$	722		$	(1,093	)	$	626
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities
Depreciation, amortization and retirements	—			259			22			—			281
Undistributed 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 Activities
Capital 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			—			32
Proceeds from the sale of assets	—			6			12			—			18
Decrease 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 Activities
Increase in commercial paper, net	201			—			—			—			201
Decrease 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			—			20
Cash and Cash Equivalents at Beginning of Year	—			12			31			—			43
Cash and Cash Equivalents at End of Year	$	—		$	15		$	48		$	—		$	63

66

Note 18.Consolidating Financial Statements (continued)

Chevron Phillips Chemical Company LLC

Consolidating Statement of Cash Flows

For the Year ended December 31, 2003

Millions	LLC			LP			Other Entities			Eliminations			Total
Cash Flows From Operating Activities
Net income (loss)	$	7		$	(19	)	$	88		$	(69	)	$	7
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities
Depreciation, amortization and retirements	—			281			17			—			298
Undistributed 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 operating activities	103			172			12			(7		)	280
Cash Flows From Investing Activities
Capital 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			—			—			1
Increase in other investments	(134		)	—			—			134			—
Net cash flows used in investing activities	(134		)	(168		)	(157		)	134			(325		)
Cash Flows From Financing Activities
Decrease in commercial paper, net	(1		)	—			—			—			(1		)
Increase in secured borrowings, net	—			—			10			—			10
Increase (decrease) in other debt, net	—			(1		)	9			—			8
Contributions 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			—			4
Cash and Cash Equivalents at Beginning of Year	—			9			30			—			39
Cash and Cash Equivalents at End of Year	$	—		$	12		$	31		$	—		$	43

67

Chevron Phillips Chemical Company LLC

Selected Quarterly Financial Data

For 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)
2005
First quarter	$			2,658	$	(18	)	$	2,640	$	409	$	389
Second quarter	2,503				(19		)	2,484		195		173
Third quarter	2,624				(20		)	2,604		17		(1		)
Fourth quarter								2,979		313		292
Total								$	10,707	$	934	$	853
2004
First quarter	$		1,993		$	(17	)	$	1,976	$	127	$	108
Second quarter	2,091				(18		)	2,073		117		97
Third quarter	2,534				(18		)	2,516		227		205
Fourth 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 at cost, 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 an adjustment 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: 8825414
	4th Floor	Fax: 8827224
DR. ABDULLAH A. BAESHEN - COUNTRY CO-ORDINATING PARTNER	Fluor Building	www.ey.com/me
	Alkhobar 31952	Registration No. 45
	Saudi Arabia

AUDITORS’ REPORT TO THE PARTNERS OF

SAUDI CHEVRON PHILLIPS COMPANY LIMITED

We have audited the accompanying balance sheet of Saudi Chevron Phillips Company Limited, expressed in United States Dollars, as of 31 December 2005, 31 December 2004 and 31 December 2003 and the related statements of income, cash flows and changes in partners’ equity for the years then ended. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion 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 the same as those followed in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance 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 and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Chevron Phillips Company Limited as of 31 December 2005, 31 December 2004, 31 December 2003 and the results of its operations and its cash flows for 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 principles generally accepted in United States of America. The significant differences between the accounting principles generally accepted in the Kingdom of Saudi Arabia and those generally accepted in the United States of America so far as concerns the financial statements referred to are summarised in note 18 to the accompanying financial statements.

for Ernst & Young

[stamp affixed]

Abdulaziz Saud Alshubaibi

Certified Public Accountant

Registration 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 Limited

BALANCE SHEET

As 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 ASSETS
Inventories	5	78,422	63,764	60,185
Accounts receivable and prepayments	6	71,889	103,839	57,955
Bank balances and cash	7	222,237	220,492	78,833
		372,548	388,095	196,973
CURRENT LIABILITIES
Accounts payable and accruals	9	85,297	83,377	46,013
Current portion of term loans	13	31,490	53,894	40,693
Current 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’ EQUITY
Capital	11	174,667	174,667	162,667
Statutory reserve	12	69,407	47,838	17,731
Retained earnings		459,140	365,635	124,700
		703,214	588,140	305,098
NON CURRENT LIABILITIES
Term loans	13	40,000	106,156	201,905
Subordinated partners’ loans	14	—	25,733	89,834
Employees’ 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 Limited

INCOME STATEMENT

Year Ended 31 December 2005

	Note	2005		2004		2003
		US $ ‘000		US $ ‘000		US $ ‘000
Sales		617,849		664,559		392,131
Cost of sales		(398,447	)	(351,128	)	(269,333	)
GROSS PROFIT		219,402		313,431		122,798
EXPENSES
Selling 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		335
Loss 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

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

71

Saudi Chevron Phillips Company Limited

STATEMENT OF CASH FLOWS

Year Ended 31 December 2005

	2005		2004		2003
	US $ ‘000		US $ ‘000		US $ ‘000
OPERATING ACTIVITIES
Net income for the year	215,693		301,069		112,115
Adjustments for:
Depreciation	30,320		29,809		29,797
Amortization	3,306		3,305		3,306
Employees’ terminal benefits (net)	(8	)	809		668
Income from bank deposits	(5,937	)	(1,535	)	(335	)
Financial charges	2,948		6,136		5,397
Loss on sale of equipment	—		—		435
	246,322		339,593		151,383
Changes 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 ACTIVITIES
Purchase of property, plant and equipment	(59,866	)	(16,558	)	(1,871	)
Proceeds from sale of equipment	—		—		35
Income from bank deposits	5,937		1,535		335
Net cash used in investing activities	(53,929	)	(15,023	)	(1,501	)
FINANCING ACTIVITIES
Issue 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

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

72

Saudi Chevron Phillips Company Limited

STATEMENT OF CHANGES IN PARTNERS’ EQUITY

Year 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	)
Balance at 31 December 2003	162,667	17,731	124,700		305,098
Net income for the year	—	—	301,069		301,069
Provision for zakat (note 10)	—	—	(3,773	)	(3,773	)
Zakat reimbursable by a partner	—	—	3,773		3,773
Transfer to statutory reserve	—	30,107	(30,107	)	—
Dividends paid	—	—	(30,027	)	(30,027	)
Issue of capital	12,000	—	—		12,000
Balance at 31 December 2004	174,667	47,838	365,635		588,140
Net income for the year	—	—	215,693		215,693
Provision for zakat (note 10)	—	—	(3,058	)	(3,058	)
Zakat reimbursable by a partner	—	—	3,058		3,058
Transfer to statutory reserve	—	21,569	(21,569	)	—
Dividends paid	—	—	(100,619	)	(100,619	)
Balance at 31 December 2005	174,667	69,407	459,140		703,214

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

73

Saudi Chevron Phillips Company Limited

NOTES TO THE FINANCIAL STATEMENTS

31 December 2005

1ACTIVITIES

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

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

2SIGNIFICANT ACCOUNTING POLICIES

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

Accounting convention

The financial statements are prepared under the historical cost convention.

Fixed assets/depreciation

All property, plant and equipment are recorded at cost. The cost of property, plant and equipment is depreciated on a straight line basis over the 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 the related assets are capitalized.

Deferred charges/amortization

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

Inventories

Inventories 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 attributable overheads based on a normal level of activity.

Zakat and income tax

Zakat 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 benefits

Provision is made for amounts payable to comply with the Saudi Arabian labor law applicable to employees’ accumulated periods of service at the balance sheet date.

Sales

Sales represent the invoiced value of goods supplied by the company during the year net of shipping, distribution and selling and marketing costs.

Foreign currencies

Transactions in foreign currencies are recorded in US Dollars at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to the income statement.

Expenses

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

74

Saudi Chevron Phillips Company Limited

NOTES TO THE FINANCIAL STATEMENTS - continued

31 December 2005

3PROPERTY, PLANT AND EQUIPMENT

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

Office buildings	20 years
Plant and equipment	6-20 years
Furniture and office equipment	8-10 years
Motor 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	586,297
Additions	—	—	—	—	59,866		59,866	16,558	1,871
Disposals	—	—	—	—	—		—	—	(744	)
Transfers	—	1,663	51	235	(1,949	)	—	—	—
At the end of the year	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	88,276
Charge for the year	946	28,577	554	243	—		30,320	29,809	29,797
Disposals	—	—	—	—	—		—	—	(274	)
At the end of the year	5,615	166,808	4,300	1,205	—		177,928	147,608	117,799
Net book amounts:
At 31 December 2005	13,308	396,215	588	632	75,177		485,920
At 31 December 2004	14,254	423,129	1,091	640	17,260			456,374
At 31 December 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 for a 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)). These include finance charges of US $18.9 million (2004 and 2003: US $18.9 million) capitalized during construction phase in respect of the loan facilities disclosed in note 13 (b).

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

75

Saudi Chevron Phillips Company Limited

NOTES TO THE FINANCIAL STATEMENTS - continued

31 December 2005

4DEFERRED 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	9,435
Provided during the year	3,306	3,305	3,306
At 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 and commercial 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 the pre-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.

5INVENTORIES

	2005	2004	2003
	US $ ‘000	US $ ‘000	US $ ‘000
Raw materials	2,954	2,389	1,953
Finished goods	32,834	14,484	17,602
Spares	3,387	3,684	3,566
Catalyst	39,247	43,207	37,064
	78,422	63,764	60,185

6ACCOUNTS RECEIVABLE AND PREPAYMENTS

	2005	2004	2003
	US $ ‘000	US $ ‘000	US $ ‘000
Trade accounts receivable	36,676	59,827	37,638
Amounts due from partners (note 8)	3,172	3,773	2,026
Amount due from an affiliate (note 8)	23,940	29,726	12,391
Other receivables	5,710	8,125	3,614
Prepaid 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).

7BANK 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 of banks (note 13 (a)).

76

Saudi Chevron Phillips Company Limited

NOTES TO THE FINANCIAL STATEMENTS - continued

31 December 2005

8RELATED PARTY TRANSACTIONS AND BALANCES

Purchases amounting to approximately US $8.7million 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 affiliate of the foreign partner under a marketing agreement. Upon delivery of the product to the marketing affiliate, sales are recorded at provisional prices calculated on the basis of a methodology approved by the board of directors. The provisional prices are subsequently adjusted to actual selling prices, as received by the marketer from its customers, after deducting shipping, distribution and selling costs, and a marketing fee (in accordance with the above marketing contract) to cover all other marketing expenses. Adjustments are recorded on a quarterly basis as they are 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 to affiliates are shown under notes 6 and 9, respectively. Subordinated loans from the partners are disclosed in note 14 to these financial statements.

9ACCOUNTS PAYABLE AND ACCRUALS

	2005	2004	2003
	US $ ‘000	US $ ‘000	US $ ‘000
Trade accounts payable	32,006	28,584	19,434
Amounts due to affiliates (note 8)	4,437	19,563	4,672
Zakat payable (note 10)	3,058	3,773	1,410
Accrued expenses	45,796	31,457	20,497
	85,297	83,377	46,013

10ZAKAT 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	1,410
Adjustment for previous year	—	—	(313	)
Charge for the year	3,058	3,773	1,097

77

Saudi Chevron Phillips Company Limited

NOTES TO THE FINANCIAL STATEMENTS - continued

31 December 2005

10ZAKAT 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		96,492
Opening provisions and other adjustments	37,079		80,984		166,811
Book 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		56,392
Zakat 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 relevant fiscal 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		870
Provided during the year	3,058		3,773		1,097
Payments 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 ten years from the date of commencement of commercial production (1 March 2000). The non-Saudi partner’s cumulative share of net income since the commencement of the tax holiday is US $302million (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 fine liabilities of US $1.5 million, US $2.3 million and US $0.6 million, respectively. The company has filed an appeal against the DZIT’s assessments with the Preliminary Appeals Committee. Management is confident that the committee’s decision will be in favor of the company. 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.

11CAPITAL

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 - continued

31 December 2005

12STATUTORY 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 for distribution.

13TERM LOANS

	2005	2004	2003
	US $ ‘000	US $ ‘000	US $ ‘000
Consortium	59,667	91,000	146,189
SIDF	11,823	69,050	96,409
	71,490	160,050	242,598
Less: Current portion:
Consortium	19,667	30,000	20,000
SIDF	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 increasing from 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, intends to repay the remaining portion of the loan in 2006 and accordingly, the remaining balance has been classified as current liabilities.

ii)            US $40 million term loan facility. The facility is repayable in 18 half yearly installments commencing six months after the expansion 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 all material and significant contracts, charge and assignment over offshore project accounts and pledge and assignment over onshore project 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 $150 million) has been drawn as of the balance sheet date. After restructuring in 2004, the repayment of the remaining balance commenced on 15 Sha’aban 1425H (corresponding to 30 September 2004). The company accelerated its repayment of the loans and repaid additional 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 current liabilities. The loans are secured by a mortgage on the company’s plant and equipment and assignment of insurance proceeds and technology rights. The loans carry appraisal fees which are being amortized over the term of the loans (note 4).

79

Saudi Chevron Phillips Company Limited

NOTES TO THE FINANCIAL STATEMENTS - continued

31 December 2005

13TERM LOANS - continued

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

	US $ ‘000
2006	31,490
2007	1,120
2008	2,240
2009	2,760
2010	3,280

14SUBORDINATED PARTNERS’ LOANS

Subordinated partners’ loans are commission free and are repayable subject to the minimum level required to be maintained by the terms of the SIDF loan agreement disclosed in note 13. The board of directors intends to repay the balance as of 31 December 2005 during the year 2006, after the repayment of SIDF term loans (see note 13 (b)).

15SELLING AND DISTRIBUTION EXPENSES

	2005	2004	2003
	US $ ‘000	US $ ‘000	US $ ‘000
Inspection charges	3,392	4,456	1,880

16FINANCIAL CHARGES

	2005	2004	2003
	US $ ‘000	US $ ‘000	US $ ‘000
Term loans borrowing costs	1,987	2,847	4,009
Bank charges	961	3,289	1,388
	2,948	6,136	5,397

17CAPITAL COMMITMENTS

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

80

Saudi Chevron Phillips Company Limited

NOTES TO THE FINANCIAL STATEMENTS - continued

31 December 2005

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

The financial statements of the company have been prepared in accordance with accounting standards generally accepted in the Kingdom of Saudi Arabia. For the purpose of these financial statements, following are the differences between the accounting standards generally accepted in 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	112,115
US GAAP adjustment:
Add back pre production costs amortization	2,275	2,275	2,275
Net 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 Accounting Standards)	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 to
US $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 the capital (2004: 17.19% and 2003: 12.23%).

81

Saudi Chevron Phillips Company Limited

NOTES TO THE FINANCIAL STATEMENTS - continued

31 December 2005

18SUMMARY OF SIGNIFICANT DIFFERENCES (BOTH AMOUNTS AND DISCLOSURES) BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - 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 mentioned under 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 to employees’ 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 Reporting Standard 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 a charge on the Saudi partner. Had the provision for zakat been charged to the income statement, and subsequently been reimbursed by the partner, 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

To

The Shareholders

Qatar 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 of and for the year ended 31 December 2005. The financial statements of the Company as of 31 December 2003 were audited by another auditor whose report thereon dated 24 March 2004, expressed an unqualified opinion on those statements with an emphasis of matter relating to going concern assumption of the financial statements resulting from accumulated losses as at 31 December 2003.

Respective responsibilities of the Company’s directors and auditors

These financial statements are the responsibility of the Company’s directors. Our responsibility is to express an opinion on these financial statements based on our audit.

Basis of opinion

We conducted our audit in accordance with the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance 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 and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

Opinion

In 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 International Financial Reporting Standards.

Other matters

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

20 February 2006	Abdul Hakim Al-Adhamy
Doha	KPMG
State of Qatar	Qatar Auditors’ Registry No. 105

83

AUDITORS’ REPORT TO THE SHAREHOLDERS OF

QATAR 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.), as of 31 December 2003, and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. These financial statements are presented together with the financial statements for the years ended 31 December 2004 and 31 December 2005 which are audited by another auditor whose report dated 20 February 2006, expressed an unqualified opinion on these financial statements.

We conducted our audit in accordance with International Standards on Auditing.  Those Standards require that we plan and perform the audit to obtain reasonable assurance 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 and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that 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 2003 and 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 Qatar Commercial Companies’ Law No. 5 of 2002 and the Company’s Articles of Association.  We have obtained all the information and explanations we required for the purpose of our audit, and are not aware of any violations of the above mentioned law or the Articles of Association 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 31 December 2003 with an emphasis of matter relating to the going concern assumption of the financial statements resulting from accumulated losses as at 31 December 2003.

T. F. Sexton

of Ernst & Young

Auditor’s Registration No. 114

Date : 20 February 2006

Doha

84

Qatar Chemical Company Limited, Q.S.C	2
Balance Sheet
as at 31 December 2005

	Notes	2005	2004	2003
		US$’000	US$’000	US$’000
ASSETS
Non-current assets
Property, plant and equipment	4	848,467	880,156	939,639
Long- term receivables	5	68	220	616
		848,535	880,376	940,255
Current assets
Inventories	6	33,122	32,416	23,953
Other receivables and prepayments	7	6,101	5,536	5,354
Due from related parties	8(a)	59,085	65,824	27,985
Trade accounts receivable	9	58,960	57,201	16,691
Cash 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’ Equity
Share capital	11	112,800	112,800	56,300
Legal reserve		24,495	11,676	—
Retained earnings / (Accumulated losses)		118,513	22,329	(82,756	)
		255,808	146,805	(26,456	)
Non- current liabilities
Non-current portion of syndicated loan	12	465,524	574,430	644,700
Subordinated loan	13	273,042	310,184	303,181
Provision for employees’ end of service benefits	14	2,728	1,833	1,236
Deferred liability	15	1,642	1,870	25,000
Deferred tax liability	16(a)	22,528	370	—
Due to a related party	8(b)	6,481	—	—
		771,945	888,687	974,117
Current liabilities
Current portion of syndicated loan	12	70,500	65,925	61,650
Provision for taxation	16(b)	31,696	11,859	—
Due to related parties	8(b)	22,800	15,761	11,679
Accounts payable and accrued expenses	17	18,362	16,363	30,755
		143,358	109,908	104,084
TOTAL 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

Qatar Chemical Company Limited, Q.S.C	3
Statement of Income
for the year ended 31 December 2005

	Note		2005		2004		2003
			US$’000		US$’000		US$’000
Sales			437,329		323,872		72,996
Cost of goods sold			(184,902	)	(153,984	)	(86,467	)
Gross profit			252,427		169,888		(13,471	)
Other income			5,450		412		72
Selling 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		977
Interest expense			(41,429	)	(23,292	)	(14,398	)
Net profit / (loss) for the year before provision for taxation			182,003		128,990		(39,798	)
Income taxes
Current	16(b	)	(31,649	)	(11,859	)	—
Deferred	16(a	)	(22,158	)	(370	)	—
Net profit / (loss) for the year			128,196		116,761		(39,798	)

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

86

Qatar Chemical Company Limited, Q.S.C	4
Statement of Changes in Shareholders’ Equity
for 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	—	—		36,300
Net 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	—	—		56,500
Net profit for the year	—	—	116,761		116,761
Transfer to legal reserve	—	11,676	(11,676	)	—
Balance at 31 December 2004	112,800	11,676	22,329		146,805
Dividend paid during the year	—	—	(19,193	)	(19,193	)
Net profit for the year	—	—	128,196		128,196
Transfer to legal reserve	—	12,819	(12,819	)	—
Balance at 31 December 2005	112,800	24,495	118,513		255,808

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 be transferred to the Legal Reserve until the balance in the Reserve equals 50% of the paid up capital. This Reserve is not normally available for distribution 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 31 December 2004.

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

87

Qatar Chemical Company Limited, Q.S.C	5
Statement of cash flows
for the year ended 31 December 2005

	2005		2004		2003
	US$’000		US$’000		US$’000
Operating activities
Net profit/(loss) for the year	128,196		116,761		(39,798	)
Adjustments for :
Depreciation	41,469		41,261		26,634
Interest income	(4,852	)	(803	)	(146	)
Interest expense	41,429		23,292		14,398
Unrealised foreign exchange (gain)/loss	132		7		(45	)
Loss on disposal of property, plant and equipment	40		—		80
Provision for employees’ end of service benefits	1,178		834		684
Operating profit before changes in working capital	207,592		181,352		1,807
Working capital changes
Increase in inventories	(706	)	(8,463	)	(13,790	)
(Increase)/decrease in other receivables and prepayments	(565	)	(182	)	660
Decrease/(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		5,147
Increase in due to related parties-Non-current	6,481		—
Increase/(Decrease) in accounts payable and accrued expenses	2,001		(14,866	)	18,099
Cash from/(used in) operating activities	268,400		95,803		(32,658	)
Decrease in long term receivables	152		396		302
Employees’ end of service benefits paid	(283	)	(237	)	(98	)
Decrease in deferred credit	(228	)	(23,130	)	25,000
Net cash from/(used in) operating activities	268,041		72,832		(7,454	)
Investing activities
Payments 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		—		693
Interest received	4,583		803		146
Interest 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 activities
Movement in subordinated loan	(37,142	)	—		84,900
Repayment of syndicated loan	(104,331	)	(65,995	)	(43,650	)
Dividend paid	(19,193	)	—		—
Proceeds from issue of Share capital	—		56,500		36,300
Net 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

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

88

Qatar Chemical Company Limited, Q.S.C	6
Notes to the financial statements
for the year ended 31 December 2005

1LEGAL 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 was registered in Qatar as a Qatari Shareholding Company (Q.S.C). The activities of the Company are governed by a joint venture agreement dated 16 November 1997 between Qatar General Petroleum Corporation (now doing business under the name of Qatar Petroleum), Chevron Phillips Chemical International Qatar Holdings LLC (“CPCIQH”, as successor to Phillips Investment Company) and Chevron Phillips Chemical Company LLC (“CPChem”, as successor to Phillips Petroleum Company), as amended and is valid for a period of 25 years. The Company 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.

2BASIS OF PREPARATION

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

3SIGNIFICANT ACCOUNTING POLICIES

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

3.1Functional currency

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

3.2Revenue recognition

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

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

3.3Income tax

Income tax is the expected tax payable on taxable income for the year in accordance with Qatar Income Tax Regulations applying the tax rates specified 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 tax assets 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.

3.4Operating leases

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

89

Qatar Chemical Company Limited, Q.S.C	7
Notes to the financial statements
for the year ended 31 December 2005

3.5Property, plant and equipment

Property, plant and equipment have been recorded at cost less accumulated depreciation and impairment losses, if any (refer accounting policy 3.11).

Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately is capitalised and the net book value of the replaced component is written-off. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in the statement of income as an expense 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 out as part of the shutdown which is capitalised.

3.6Depreciation

Depreciation is provided on all property, plant and equipment on a straight-line basis over the assets’ estimated useful lives at the following annual rates:

Plant facilities	25	years
Buildings	25	years
Land improvements	25	years
Furniture, fixtures and equipment	5	years
Computer hardware and software	3-10	years
Mobile 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.

3.7Inventories

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

Raw materials, consumables, spare parts and packaging supplies	-	moving weighted average cost
Work in progress and finished goods	-	moving weighted average cost which comprised of direct materials, direct labour, other direct costs, plus attributable overheads based on normal level of capacity.

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

3.8Accounts receivable and other receivables

Receivables are stated at the amortised cost less a provision for any estimated uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

3.9Cash and cash equivalents

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

3.10Accounts payable and accruals

Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

3.11Impairment

The carrying amounts of the Company assets, other than inventories (refer accounting policy 3.7) are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment 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

Qatar Chemical Company Limited, Q.S.C	8
Notes to the financial statements
for the year ended 31 December 2005

3.12  Provisions

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

3.13  Loans

Loans are carried on the balance sheet at its principal amount plus accrued interest. Instalments due within one year are shown as a current liability. Interest due under the syndicated loan is included in “accounts payable and accruals”.

3.14  Borrowing costs

Borrowing costs that are attributable to the construction of the Company’s plant and equipment (qualifying assets) are capitalised as part of the 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 are incurred.

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 a minimum service period. The Company has no expectation of settling all its employees’ end of service benefits within the next 12 month period 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 Qatari employees calculated as a percentage of the Qatari employees’ salaries. The Company’s obligations are limited to these contributions, which are expensed on accrual basis.

3.16  Foreign currencies

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

91

Qatar Chemical Company Limited, Q.S.C	9
Notes to the financial statements
for the year ended 31 December 2005

4PROPERTY, 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

Qatar Chemical Company Limited, Q.S.C	10
Notes to the financial statements
for the year ended 31 December 2005

4PROPERTY, PLANT AND EQUIPMENT (Continued)

	2005	2004	2003
	US$’000	US$’000	US$’000
The depreciation charge has been allocated as follows:
Accumulated plant costs	—	—	200
Cost of production	40,277	39,977	25,914
Selling 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	—	—	929,052
Additions during the year	—	—	28,563
	—	—	957,615
Transferred 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 on 8 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$67.1 million).

5LONG TERM RECEIVABLES

Long term receivables represent furniture allowances recoverable from employees and prepayments.

6INVENTORIES

	2005	2004	2003
	US$’000	US$’000	US$’000
Finished goods	9,587	12,977	7,489
Work in progress	188	169	145
Raw materials	4,277	3,992	3,340
Packaging supplies	564	387	339
Spare 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.

7OTHER RECEIVABLES AND PREPAYMENTS

	2005	2004	2003
	US$’000	US$’000	US$’000
Prepayments	3,064	2,580	1,267
Receivables from employees	1,319	1,440	1,485
Other receivables	1,718	1,516	2,602
	6,101	5,536	5,354

93

Qatar Chemical Company Limited, Q.S.C	11
Notes to the financial statements
for the year ended 31 December 2005

8TRANSACTIONS WITH RELATED PARTIES

A significant portion of the Company’s costs have been charged by the shareholders. In accordance with the specific agreements entered into by 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. QChem has 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 date no transaction has been executed under the Offtake and Credit Risk Agreement. The Offtake and Credit Risk Agreement expires upon the earlier 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 East region 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 QP agreed 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 venture with 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	24,698
QAPCO	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	4,893
QP	18,705	11,111	6,786
	22,800	15,761	11,679
Non-current:
QP	6,481	—	—
	6,481	—	—

Refer to note 14 for disclosure of the subordinate loan payable to an affiliate.

94

Qatar Chemical Company Limited, Q.S.C	12
Notes to the financial statements
for the year ended 31 December 2005

8TRANSACTIONS WITH RELATED PARTIES (continued)

		2005	2004	2003
		US$’000	US$’000	US$’000
(c)	Compensation paid to key management personnel	765	640	604

9TRADE ACCOUNTS RECEIVABLE

	2005	2004	2003
	US$’000	US$’000	US$’000
Trade accounts receivable	58,960	57,084	16,691
Advances 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 five largest customers account for 49% of outstanding accounts receivable at 31 December 2005 (2004: 52%; 2003: 32%).

10CASH AND BANK

	2005		2004		2003
	US$’000		US$’000		US$’000
Petty cash	5		5		5
Bank Balances
Current account	12		(794	)	(196	)
Call account	165,291		104,836		37,698
	165,308		104,047		37,507
Effects 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 accordance with the terms of the senior debt agreements.

11SHARE 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 was subscribed by the shareholders according to their proportion of shareholding.

95

Qatar Chemical Company Limited, Q.S.C	13
Notes to the financial statements
for the year ended 31 December 2005

12SYNDICATED LOAN

	2005	2004	2003
	US$’000	US$’000	US$’000
Syndicated loan	536,024	640,355	706,350
Classified in the balance sheet as follows:
Current liability	70,500	65,925	61,650
Non-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, the total amount repaid was US$ 104.3 million (2004: US$ 66 million; 2003: US$ 43.6 million). Fixed repayment amounts are due in the amount of 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.

13SUBORDINATED LOANS

	2005	2004	2003
	US$’000	US$’000	US$’000
Tranche A	269,825	294,500	294,500
Tranche B	—	13,479	7,399
Accrued 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 16 September 1999 as amended in accordance with the QChem Joint Venture Agreement. Excluding the accrued interest, the balance of the loan was US$ 270 million (2004: US$ 308 million; 2003: US$ 302 million) as of 31 December 2005. The subordinated loan carries interest as follows:

•The outstanding principal amount of each subordinated loan shall bear interest until repayment in full at a rate equal to the rate payable under the syndicated loan.

•Any amounts outstanding, after the syndicated loan terminates, shall bear interest at a rate equal to LIBOR plus the margin over LIBOR payable 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 loans and interest thereon shall be repayable each quarter from available cash flows after the payment of all priority dividends. With respect to any interest due and payable at the end of each quarter not paid from available cash flows, an amount equal to such interest shall be deemed to have been advanced to the Company as a Tranche B Subordinated loan in accordance with the agreement. During the year, repayment of subordinated 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 service payments on the bank financing. CPChem has also agreed to provide loans to QChem through December 2006 if there is insufficient cash to make QChem’s target debt service payments. These loans are limited to an amount not greater than the operating margin loss resulting from sales volumes being less than the design capacity of the plant. CPChem’s rights under the Subordinated Loan Agreement and the other contingent loan agreements related to QChem previously described are subordinated to QChem’s senior bank debt.

14PROVISION FOR EMPLOYEES’ END OF SERVICE BENEFITS

	2005		2004		2003
	US$’000		US$’000		US$’000
At 1 January	1,833		1,236		650
Provided during the year	1,178		834		684
Less: paid during the year	(283	)	(237	)	(98	)
At 31 December	2,728		1,833		1,236

96

Qatar Chemical Company Limited, Q.S.C	14
Notes to the financial statements
for the year ended 31 December 2005

14PROVISION 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 the requirements 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.

15DEFERRED LIABILITY

The deferred liability as at 31 December 2005 represents a premium amount payable to an insurance company. Since QChem doesn’t expect this amount to be paid within the next one year, the same has been classified as non-current.

16TAXATION

(a)DEFERRED TAXATION

Deferred income tax is provided for temporary differences existing between the financial statement and the tax basis of the Company’s assets and 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		26,634
	Others	—		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

Qatar Chemical Company Limited, Q.S.C	15
Notes to the financial statements
for the year ended 31 December 2005

16TAXATION (continued)

(c)EFFECTIVE INCOME TAX RATE RECONCILIATION

	2005	2004		2003		2005	2004		2003
	US$’000	US$’000		US$’000		%	%		%
Income / (loss) from continuing operations 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		—

17ACCOUNTS PAYABLE AND ACCRUED EXPENSES

	2005	2004	2003
	US$’000	US$’000	US$’000
Trade payables	9,137	9,938	5,326
Advances received from customers	1,673	450	232
Accrued expenses and other payables	4,643	3,702	23,937
Bonus payable to employees	1,357	742	357
Pension liability for Qatari employees	148	464	310
Interest 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	28,331
Rental – operating lease	549	535	523

19EXPENDITURE 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

Qatar Chemical Company Limited, Q.S.C	16
Notes to the financial statements
for the year ended 31 December 2005

19EXPENDITURE COMMITMENTS (continued)

Operating lease commitments:	2005	2004	2003
	US$’000	US$’000	US$’000
Future minimum lease payments:
Within one year	544	488	488
After one year but not more than five years
2005	—	—	487
2006	—	487	488
2007	544	488	488
2008	544	488	488
2009	544	488	—
2010	544	—	—
Total	2,176	1,951	1,951
More than five years	7,616	7,317	7,805
Total 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 lease agreement signed on 25 August 1999.

20FINANCIAL 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 of another 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 length basis. 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, curtail materially 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 financial loss. The Company exposure to credit risk is as indicated by the carrying amount of its financial assets which consist primarily of current balances 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 monitoring outstanding 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 the date of sale. Trade payables are normally settled within 30-45 days of the date of purchase.

99

Qatar Chemical Company Limited, Q.S.C	17
Notes to the financial statements
for the year ended 31 December 2005

20FINANCIAL 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$ 36.2 million (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 Qatari Riyal.

100

Qatar Chemical Company Limited, Q.S.C	18
Notes to the financial statements
for the year ended 31 December 2005

20      FINANCIAL INSTRUMENTS (continued)

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		4.59
Subordinated loan	—	—		—		273,042		—	273,042		4.44
Provision 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

Qatar Chemical Company Limited, Q.S.C	19
Notes to the financial statements
for the year ended 31 December 2005

20FINANCIAL INSTRUMENTS (continued)

e)    Interest rate risk

	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 2004
Financial assets:
Long-term receivables	—	—		—		—		220	220		—
Other receivables and prepayments	—	—		—		—		5,536	5,536		—
Due from related parties	—	—		—		—		65,824	65,824		—
Accounts receivable	—	—		—		—		57,201	57,201		—
Cash and cash equivalents	104,047	—		—		—		—	104,047		1.04
	104,047	—		—		—		128,781	232,828
Financial liabilities:
Syndicated loan	16,050	49,875		404,850		169,580		—	640,355		2.35
Subordinated loan	—	—		—		310,184		—	310,184		2.2
Provision for employees’ end of service benefit	—	—		—		—		1,833	1,833		—
Deferred liability	—	—		—		—		1,870	1,870		—
Deferred tax liability	—	—		—		—		370	370		—
Provision for taxation	—	—		—		—		11,859	11,859		—
Due to related parties	—	—		—		—		15,761	15,761		—
Accounts payable and accrued expenses	—	—		—		—		16,363	16,363		—
	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

Qatar Chemical Company Limited, Q.S.C	20
Notes to the financial statements
for the year ended 31 December 2005

20      FINANCIAL INSTRUMENTS (continued)

e)    Interest rate risk

	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 2003
Financial assets:
Long-term receivables	—	—		—		—		616		616		—
Other receivables and prepayments	—	—		—		—		5,354		5,354		—
Due from related parties	—	—		—		—		27,985		27,985		—
Accounts receivable	—	—		—		—		16,691		16,691		—
Cash and cash equivalents	37,507	—		—		—		—		37,507		0.69
	37,507	—		—		—		50,646		88,153
Financial liabilities:
Syndicated loan	15,000	50,995		378,525		261,830		—		706,350		1.94
Subordinated loan	—	—		—		303,181		—		303,181		1.9
Provision for employees’ end of service benefit	—	—		—		—		1,236		1,236		—
Deferred liability	—	—		—		—		25,000		25,000		—
Due to related parties	—	—		—		—		11,679		11,679		—
Accounts payable and accrued expenses	—	—		—		—		30,755		30,755		—
	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

Qatar Chemical Company Limited, Q.S.C	21
Notes to the financial statements
for the year ended 31 December 2005

21COMPARATIVE FIGURES

The corresponding figures presented for 2004 and 2003 have been reclassified and restated where necessary to preserve consistency with the 2005 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 its new principal accountants (auditors).  The appointment of KPMG was necessitated by a Qatari law which mandates that audit firms be rotated at 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 Chief Financial 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 Chief Financial Officer have concluded that CPChem’s disclosure controls and procedures are effective in providing them with timely material information that is required to be disclosed in reports CPChem files under Section 13 or Section 15(d) of the Securities Exchange Act. There were 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 the following 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, effective March 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 as Executive 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 Director
Greg G. Maxwell	49	Senior Vice President, Chief Financial Officer and Controller; Non-voting Director
Greg C. Garland	48	Senior Vice President, Planning & Specialty Products
Craig B. Glidden	48	Senior Vice President, Legal and Public Affairs, General Counsel and Secretary
J. Mike Parker	59	Senior Vice President, Aromatics & Styrenics
Rick L. Roberts	51	Senior Vice President, Manufacturing
Tim G. Taylor	52	Senior Vice President, Olefins & Polyolefins
Joe M. McKee	55	Vice President and Treasurer
Patricia E. Yarrington	49	Class C Director
Gary G. Yesavage	53	Class C Director
John E. Lowe	47	Class P Director
Jim 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, since its inception in July 2000. He previously served as Senior Vice President of Chemicals for Phillips Petroleum Company (Phillips), a position he accepted in 1999.

Greg G. Maxwell:  Mr. Maxwell has been Senior Vice President, Chief Financial Officer and Controller, and has served as a non-voting director of CPChem, since August 2003. From July 2000 to August 2003, Mr. Maxwell was Vice President and Controller. From 1998 to July 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. From July 2000 to October 2001, Mr. Garland was Senior Vice President, Planning and Strategic Transactions. From 1997 to July 2000, he served as 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 since April 2004. From July 2000 to April 2004, Mr. Glidden was Vice President, General Counsel and Secretary. In 1996, Mr. Glidden founded the law 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 to October 2001, Mr. Parker was Senior Vice President of Aromatics. He served Chevron Chemical Company LLC (Chevron Chemical) as General 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 to October 2001, Mr. Roberts was Vice President of Manufacturing for Olefins & Polyolefins. He served Chevron Chemical as Plant Manager at Cedar 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 as Polyolefins 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, he served 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 previously served Chevron as Vice President, Strategic Planning, a position to which she was appointed upon the merger of Chevron Corporation and Texaco Inc. into ChevronTexaco Corporation (now Chevron) in 2001. Prior to that merger, she served Chevron in a similar position, Vice President 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 Chevron Products 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 Vice President, Planning, Strategy and Corporate Affairs for ConocoPhillips, a position to which he was appointed in 2002. Mr. Lowe previously served as Senior Vice President, Corporate Strategy and Development for Phillips, a position to which he was appointed in 2001, and as Senior Vice President of Planning and Strategic Transactions in 2000. In 1999, he served as Vice President, Planning and Strategic Transactions and Manager of Strategic Growth Projects for Phillips. Mr. Lowe also serves as a Director of Duke Energy Field Services, LLC and 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 served Conoco Inc. as Executive Vice President, Worldwide Refining, Marketing, Supply and Transportation, a position to which he was named in 1999.

Raymond I. Wilcox:  On February 10, 2006, CPChem’s Board of Directors elected Raymond I. Wilcox as President and Chief Executive Officer of CPChem, effective April 1, 2006. Mr. Wilcox, 59, currently serves as Vice President of Chevron and President of Chevron North America 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, 2002 and 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 “Audit Committee”), the members of which are Ms. Yarrington and Mr. Lowe, and has determined that Mr. Lowe qualifies, and has so designated him, as the “Audit Committee financial expert.”  Mr. Lowe is not considered to be “independent” as defined in the applicable SEC rules and regulations.

Code of Ethics. CPChem has adopted a code of ethics that applies to its principal executive officer and principal financial officer. A copy of this code is available to any person upon request and at no charge. Requests should be directed to the Office of the General Counsel at CPChem’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 highly compensated executive officers for the year ended December 31, 2005 (collectively, the “named executive officers”). Information for the named 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	$	41,643
President and	2004		504,200		505,479		1,343,400		31,240
Chief Executive Officer	2003		483,750		309,200		967,700		24,503
Greg G. Maxwell	2005	287,037		210,864		247,100		21,574
Senior Vice President,	2004	252,588		203,775		387,200		15,379
Chief Financial Officer and Controller	2003	231,196		120,256		204,200		11,531
Greg C. Garland Senior Vice President, Planning & Specialty Products	2005 2004 2003	312,125 295,175 279,107		230,033 243,838 157,618		254,700 444,400 288,100		19,908 18,148 14,071
Craig B. Glidden Senior Vice President, Legal and Public Affairs, General Counsel and Secretary	2005 2004 2003	319,292 308,710 298,637		237,362 214,848 116,042		275,100 487,000 352,300		25,430 19,209 15,162
Tim G. Taylor Senior Vice President, Olefins & Polyolefins	2005 2004 2003	317,958 303,762 291,284		294,175 229,424 126,994		321,600 572,400 414,700		25,141 18,814 14,797

(a)Information for 2005 represents Strategic Performance (SP) awards earned in 2005 for the completed 2003-2005 performance cycle that will be paid in 2006. As of the date of this report, Relative Performance (RP) awards earned and payable for the 2003-2005 performance cycle have not been determined and are not included in the table. Information for 2004 represents RP and SP awards earned in 2004 for the completed 2002-2004 performance cycle that were paid in 2005 (information for 2004 as presented in the 2004 Annual Report on Form 10-K included only SP awards, as the RP award amounts had not been determined). Information for 2003 represents RP and SP awards 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 options granted 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 was amended 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 no longer available under the LTIP for performance cycles beginning on or after January 1, 2006. The amendment and restatement had no effect on 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 Chemical Company LLC (the “RPV Plan”) was adopted effective January 1, 2006. The RPV Plan provides for the granting of Relative Performance Value (RPV) awards to certain key eligible employees of the Company. Any final RPV award amount earned by a participant will be automatically deferred into the Chevron Phillips Chemical Company LP Executive Deferred Compensation Plan (the “Deferred Compensation Plan”). The Compensation Committee of the Board of Directors of CPChem (the “Compensation Committee”) has the sole discretion to determine 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 are granted. RPV awards are generally based on the Company’s relative performance during the performance cycle and the stock prices of Chevron and ConocoPhillips (collectively, the “members”) at the end of the performance cycle, as adjusted by the Compensation Committee at its discretion. SP awards are based on CPChem’s strategic performance as compared to defined strategic objectives as selected by the Compensation Committee. Amounts paid under each type of award are determined at the end of each performance cycle, which is typically three 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	$	1,289,800
	SP	644,900		12/31/2007	—		644,900		1,289,800
Greg G. Maxwell	RP	178,100		12/31/2007	—		178,100		356,200
	SP	178,100		12/31/2007	—		178,100		356,200
Greg C. Garland	RP	189,900		12/31/2007	—		189,900		379,800
	SP	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		466,200
	SP	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 executive officers. According to the terms of the grant, each of those executives is entitled to earn between 0% and 200% of such executive’s respective target RP award depending on performance measures achieved during the three year performance cycle beginning January 1, 2003 and ending December 31, 2005, as determined by the Compensation Committee at the end of the performance cycle. Target RP awards are set as a percentage of such executive’s base salary at the time of the grant, with the percentage differing based upon the executive’s grade level. The payment 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 executive officers. According to the terms of the grant, each of those executives is entitled to earn between 0% and 200% of such executive’s respective target RPV award depending on performance measures achieved during the three year performance cycle beginning January 1, 2006 and ending December 31, 2008 and the members’ stock prices, as adjusted by the Compensation Committee at their discretion at the end of the performance cycle. Target RPV awards are set as a percentage of such executive’s base salary at the time of the grant, with the percentage differing based upon the executive’s grade level. Any RPV award amount, once determined, will be automatically deferred into the Deferred Compensation Plan in 2009.

The performance measures for the RPV awards consist of: (1) 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.

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 executive officers. According to the terms of the grant, each of those executives is entitled to earn between 0% and 200% of such executive’s respective SP award depending on performance measures achieved during the three year performance cycle beginning January 1, 2006 and ending December 31, 2008, as determined by the Compensation Committee at the end of the performance cycle. Target SP awards are set as a percentage of such executive’s base salary at the time of the grant, with the percentage differing based upon the executive’s grade level. The payment 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 baseline measurements, 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 executive officers. Target awards are measured as a percentage of such executive’s base salary at December 31, 2006, with the percentage differing based upon the executive’s grade level. Each of those executives is entitled to earn between 0% and 200% of such executive’s target award depending 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 in the plan and began 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 service with Chevron or ConocoPhillips or their affiliates, if applicable. Retirement benefits are based on two types of credits: a career average pay benefit and a variable annuity benefit. For the career average pay benefit, each year employees receive an annual credit equal to 1.5% of eligible compensation for that year. The variable annuity benefit is the second component of the retirement plan and is made up of a monthly credit equal to 1% of each eligible employee’s compensation for that month. Discretionary increases to the career average pay benefit and/or the variable annuity benefit may be approved by the Compensation Committee from time to time provided CPChem’s performance metrics support the additional cost. Upon retirement, the accrued benefit may be paid as a lump sum payment or converted to a monthly benefit. If a lump sum payment is elected, that payment may be rolled over to an individual retirement account or individual retirement annuity of another employer’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 in accordance with the options described above or remain in the plan until the individual’s early or normal retirement date, at which time the accrued benefit may be paid out as a lump sum or converted to a monthly benefit. Eligible employees that joined CPChem from either Chevron 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 early retirement factor.

111

Supplemental Executive Retirement Plan

The supplemental executive retirement plan applies to designated officers and key executives who receive a retirement benefit under the retirement plan and who have had the amount of that benefit reduced due to required limitations under the Internal Revenue Code, or by reason of deferral of compensation under CPChem’s executive deferred compensation plan, or as a result of management incentive bonus amounts not being recognized as compensation under the retirement plan. The eligible employee’s benefit under this plan is equal to the difference between (1) the amount the employee would have received under the retirement plan had the amount been calculated (a) without regard to the limitations imposed by the Internal Revenue Code; (b) as if amounts deferred by the employee under CPChem’s executive deferred compensation plan had been paid, (c) by treating management incentive bonus amounts as compensation; and (d) with respect to an employee that came from ConocoPhillips on January 1, 2001, by “decoupling” that employee’s compensation payable as bonus and the amount payable as base pay for purposes of determining highest average earnings under the retirement plan; and (2) the amount of the employee’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 the named executive officers are as follows:

Name	Estimated Annual Retirement Benefits
James L. Gallogly	$	268,435
Greg G. Maxwell	161,603
Greg C. Garland	179,713
Craig B. Glidden	110,485
Tim 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 voting member of the Compensation Committee during 2005. Ms. Yarrington, who currently serves as Vice President, Policy, Government and Public 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. Lowe nor 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 wholly owned 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 Road San Ramon, California 94583	Class C	50.0	%
ConocoPhillips
ConocoPhillips Company 600 North Dairy Ashford Houston, Texas 77079	Class P	38.0	%
Phillips Petroleum International Corporation 600 North Dairy Ashford Houston, Texas 77079	Class P	9.5	%
WesTTex 66 Pipeline Company 600 North Dairy Ashford Houston, Texas 77079	Class P	2.1	%
Phillips Chemical Holdings Company 600 North Dairy Ashford Houston, 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 have been agreed upon with third parties on an arm’s-length basis. See Part II - Item 8. Financial Statements and Supplementary Data – Notes 3, 9 and 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 management support. 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 services including, 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 Agreement with Chevron and ConocoPhillips, a General Trademark Assignment Agreement with ConocoPhillips, and separate Intellectual Property Agreements 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 Chevron related 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 CPChem purchases various products produced in certain of their refineries. In addition, CPChem is a party to agreements with ConocoPhillips and Duke 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 certain chemical 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 extractive solvents 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:

	Years ended December 31,
Dollars	2005		2004
Audit fees (a)	$	1,058,115	$	872,100
Audit-related fees (b)	141,391		160,397
Tax fees (c)	92,411		72,895
All other fees (d)	—		243
Total 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 financial statements, 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 and certain 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 is CPChem’s policy that all engagements of Ernst & Young LLP by CPChem be pre-approved by the Audit Committee, with the exception that the Audit Committee has granted CPChem’s Senior Vice President, Chief Financial Officer and Controller the pre-approval authority to engage 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 per year 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, not required or has been furnished in the Consolidated Financial Statements or Notes thereto.

Chevron Phillips Chemical Company LLC
Schedule 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		$	181
Additions	4			9
Deductions	(4		)	—
Balance on December 31, 2003	7			190
Additions	3			1
Deductions	(3		)	—
Balance on December 31, 2004	7			191
Additions	8			2
Deductions	(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 be signed on its behalf by the undersigned, thereunto duly authorized.

	CHEVRON PHILLIPS CHEMICAL COMPANY LLC
Date: February 27, 2006		/s/ Greg G. Maxwell
	Greg 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 following persons on behalf of the registrant and in the capacities indicated.

Signature	Title
/s/ James L. Gallogly	President and Chief Executive Officer
James L. Gallogly
/s/ Greg G. Maxwell	Senior Vice President,
Greg G. Maxwell	Chief Financial Officer and Controller
/s/ John E. Lowe	Director
John E. Lowe
/s/ Jim W. Nokes	Director
Jim W. Nokes
/s/ Patricia E. Yarrington	Director
Patricia E. Yarrington
/s/ Gary G. Yesavage	Director
Gary G. Yesavage

116

Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Securities Exchange Act of 1934 by Registrants 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 proxy statement, form of proxy or other proxy soliciting material has been sent to more than ten of the Registrant’s security holders with respect to any annual or other meeting of security holders. No such report or proxy material is expected to be furnished to security holders subsequent to the 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’s Registration 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 to CPChem’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, dated July 1, 2002, by and between ChevronTexaco Corporation, Phillips Petroleum Company, Chevron U.S.A. Inc., Phillips Chemical 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 to CPChem’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 Chemical Company LP, as Issuers, and The Bank of New York as Trustee (Exhibit No. 4.1 to CPChem’s Registration Statement on Form S-4 dated April 16, 2001)
10.1	Contribution Agreement by and among Phillips Petroleum Company, Chevron Corporation and Chevron Phillips Chemical Company 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 Chevron Corporation, Phillips Petroleum Company and Chevron Phillips Chemical Company LLC (Exhibit No. 10.1 to CPChem’s Quarterly 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 Chevron Corporation, Phillips Petroleum Company and Chevron Phillips Chemical Company LLC (Exhibit No. 10.3 to CPChem’s Annual 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 January 1, 2005)

117

INDEX OF EXHIBITS (continued)

Exhibit No.	Document
*+10.5	Chevron Phillips Chemical Company LP Supplemental Executive Retirement Plan (As Amended and Restated Effective January 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, as Borrowers, and Barclays Bank Plc, The Royal Bank of Scotland Plc, Sumitomo Mitsui Banking Corporation, The Bank of Nova Scotia, 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 Report on 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

EX-10.4

fExhibit 10.4

CHEVRON PHILLIPS CHEMICAL COMPANY LP

EXECUTIVE DEFERRED COMPENSATION PLAN

(As Amended and Restated
Effective January 1, 2005)

TABLE OF CONTENTS

		Page
ARTICLE 1 -	INTERPRETATION AND DEFINITIONS	2
1.1	Interpretation	2
1.2	Definitions	3
ARTICLE 2 -	PARTICIPATION	6
2.1	Date of Participation	6
2.2	Termination of Participation	6
ARTICLE 3 -	CONTRIBUTIONS	7
3.1	Participant Contributions	7
3.2	Employer Matching Contributions	8
ARTICLE 4 -	PARTICIPANT ACCOUNT	9
4.1	Individual Accounts	9
ARTICLE 5 -	INVESTMENT OF CONTRIBUTIONS	9
5.1	Adjustment of Accounts	9
ARTICLE 6 -	RIGHT TO BENEFITS	9
6.1	Vesting	9
6.2	Death	10
ARTICLE 7 -	DISTRIBUTION OF BENEFITS	11
7.1	Amount of Benefits	11
7.2	Determination of Method of Distribution to Participants	11
7.3	Distribution on Disability	11
7.4	Notice to Trustee	12
7.5	Unforeseeable Emergency	12
7.6	Cashouts of Amounts Not Exceeding $10,000	13
7.7	Effect of Early Taxation	13
7.8	Permitted Delays	13
7.9	Adjustment of Investment Experience	13
ARTICLE 8 -	AMENDMENT AND TERMINATION	13
8.1	Amendment by the Company	13
8.2	Retroactive Amendments	14
8.3	Plan Termination	14
8.4	Distribution upon Termination of the Plan	14

i

		Page
ARTICLE 9 -	THE TRUST	14
9.1	Establishment of Trust	14
9.2	Investment of Trust Funds	14
9.3	Information Between Employer and Trustee	14
ARTICLE 10 -	MISCELLANEOUS	15
10.1	Unsecured General Creditor of the Employer	15
10.2	Employer’s Liability	15
10.3	Limitation of Rights	15
10.4	No Assignment of Benefits	15
10.5	Facility of Payment	16
10.6	Notices	16
10.7	Governing Law	16
10.8	Successors and Mergers, and/or Consolidation	16
10.9	Employment Not Affected by the Plan	16
10.10	Severability	16
ARTICLE 11 -	PLAN ADMINISTRATION	17
11.1	Powers and Responsibilities the DCP Committee	17
11.2	Claims and Review Procedures	17
11.3	Plan Administrative Costs	19
ARTICLE 12 -	PARTICIPATING EMPLOYERS	20
12.1	Adoption of the Plan	20
12.2	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 key employees of the Company an opportunity to defer the receipt of incentive Bonuses and/or other compensation as a means of saving for their retirement 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 or highly compensated employees” within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and shall be implemented and administered in a manner consistent with this intention. Thus, the Plan is subject to Title I of ERISA, but is exempt from 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, as added 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

1.1Interpretation

(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 successors and assigns are permitted by the Plan, and reference to a person in a particular capacity excludes such person in any other 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 and in 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 any section or other provision of any law means that provision 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;

(vi)reference in the Plan to any article, section, appendix, schedule or exhibit means such article or section thereof or appendix, schedule or exhibit thereto;

(vii)“hereunder”, “hereof”, and words of similar import shall be deemed references to a Plan Document as a whole and not to any particular article, section or other provision thereof;

(viii)“including” (and with the correlative meaning “include”) means including without limiting the generality of any description 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 but excluding;” and

(xi)references to days, weeks, months, quarters and years are references to such periods as determined by the Gregorian calendar.

2

(b)Accounting Terms. Unless expressly otherwise provided, accounting terms shall be construed and interpreted, and accounting determinations and computations shall be made, in accordance with generally accepted accounting principles.

1.2Definitions

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 any income, expenses, gains, losses or distributions included thereon. The Account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant pursuant to the 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 Program of Chevron Phillips Chemical Company LLC.

(d)“Base Compensation” means “Compensation” as defined in the CPChem 401(k) Plan for purposes of making pre-tax deferrals to this Plan, but including amounts deferred pursuant to Section 3.1(a) of this Plan, and disregarding the limitations imposed 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 benefits under 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 the Company 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 any Bonus payment.

(i)“Chevron” means Chevron Corporation, or such entity as may be controlled by Chevron, that directly or indirectly holds a membership 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 with Section 3.1(a).

(m)“ConocoPhillips” means ConocoPhillips Corporation, or such entity as may be controlled by ConocoPhillips, that directly or 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 to the 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 deferral percentage test under section 401(k) of the Code, (c) the actual contribution percentage test under section 401(m) of the Code, 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 the Plan.

(r)“Deferral Agreement” means either a Bonus Deferral Agreement or a Compensation Deferral Agreement, or both if the context so requires. A Deferral Agreement shall be a completed agreement between the Participant and the Employer under which the Participant agrees to a Bonus Deferral or a Compensation Deferral as the case may be. It also means a completed agreement between the Participant and the Employer under which the Participant selects the time and form of payment for an RPV Award and Matching Contribution. The Deferral Agreement shall be on a form prescribed by the Company and shall include any amendments, attachments or appendices.

(s)“Disability” or “Disabled” means that a Participant is eligible for, and continuously receiving disability insurance payments under the Social Security Act and/or the Company’s long-term disability plan. However, for purposes of Section 7.3, “Disability” or “Disabled” means a Participant who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last 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 by the Employer to be a member of a select group of management or highly compensated employees within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of ERISA; and (ii) is designated by the Employer as an employee who may participate in the Plan.

(u)“Employer” means the Company and any one of the entities listed in Appendix A hereto, and any other entity which is authorized by the Company to

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participate in and, which in fact, does adopt the Plan in accordance with Section 12.1. The term “Employer” shall in each instance refer to any one of the foregoing entities and in no case shall refer to the entities collectively or to more than one such entity.

(v)“Entry Date” means the first day of each Plan Year, or such other dates established by the DCP Committee, including, but not limited to the day immediately following the due date for the filing of any Deferral Agreement with the Company, if such dates are in accordance in Section 409A. Entry Date shall also mean the date that is thirty (30) days after the date on which 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 Company LLC.

(y)“LTIP Bonus” means an amount paid to a Participant pursuant to the Long-Term Incentive Plan. An LTIP Bonus may take the 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 Employer makes 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 the event occurs after the fifteenth day of a month, the “Payment Date” shall be the first business day of the second month following the event.

(cc)“Plan” means the Chevron Phillips Chemical Company LP Executive Deferred Compensation Plan as set forth herein and as 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 to performance 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 to performance relative to peer group of companies.

(hh)“Strategic Performance Award” means that portion of an LTIP Bonus which is based on performance measured against defined strategic objectives.

(ii)“Termination of Employment” means the termination of a Participant’s employment with his or her Employer and all other 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 successor and/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

2.1Date of Participation. Each Participant on the effective date of the amendment and restatement of this Plan who was an Eligible Employee and a Participant on such date shall continue as a Participant. In the case of an Employer that adopts this Plan after the effective date of the amended and restated Plan, in accordance with Section 12.1, an Eligible Employee shall become a Participant in the Plan on the first Entry Date next following such Employer’s adoption of the Plan, provided the Eligible Employee files a Deferral Agreement with the DCP Committee in accordance with Article 3. Each Eligible Employee not described in the foregoing sentences of this Section 2.1 shall become a Participant in the Plan on the Entry Date next following the date the Participant files a Deferral Agreement with the DCP Committee in accordance with Article 3. If the Eligible Employee does not file a Deferral Agreement pursuant to Article 3 prior to his or her first Entry Date, the Eligible Employee will become a Participant in the Plan as of the Entry Date next following the date the Eligible Employee files a Deferral Agreement pursuant to Article 3.

2.2Termination of Participation. A Participant’s participation in the Plan shall cease upon his or her Termination of Employment with the Employer for any reason or the Participant ceasing to qualify as a “management” or “highly compensated” employee within the meaning of sections 201(2), 301(a)(3) or 401(a)(1) of ERISA. In addition, the DCP Committee may terminate a Participant’s participation in the Plan at the direction of the Employer or the Employer may cease to exist or operate and may thereby terminate its participation 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 have been entitled under the Plan as in effect immediately prior to such termination of participation had the Plan then terminated.

ARTICLE 3 -  CONTRIBUTIONS

3.1Participant 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 Deferral Agreement within the time period prescribed by the DCP Committee. The Compensation Deferral Agreement will specify in whole number multiples of 1% the amount the Participant elects to defer of his Base Compensation. The maximum amount of any Base Compensation deferral that is permissible under this Section 3.1(a) shall be 50% of the Participant’s Base Compensation.

To the extent permitted by the Code and Treasury Regulations, the Deferral Agreement may, but need not, coordinate deferrals under the Plan with elective deferrals within the meaning of Section 402(g) of the Code that the Participant makes under the CPChem 401(k) Plan. This election, called the “wrap” election, provides for all the Participant’s deferrals to be first made to the Plan, and then, to the extent that the CPChem 401(k) Plan Limits permit these contributions to be made to the CPChem 401(k) Plan, they are automatically transferred to the CPChem 401(k) Plan. This election is irrevocable and the Participant cannot change his deferral elections under the CPChem 401(k) Plan for such Plan Year once this “wrap” election has been made.

(b)Each Participant may elect, in accordance with rules and procedures established by the DCP Committee, to defer up to ninety-five percent (95%) of any Bonus by executing a Bonus Deferral Agreement within the time period established by the DCP Committee. The Bonus Deferral Agreement will specify in whole number multiples of 1% the amount the Participant elects to defer of his or her Bonus (and, for the LTIP Bonus, a flat dollar amount can be deferred instead). With regard to any Bonus Deferral elections relating to LTIP Bonuses which were made prior to September 1, 2003, such elections shall apply to both the Relative Performance Award and Strategic Performance Award portions of the LTIP Bonus. Effective on or after September 1, 2003, the DCP Committee, in its discretion, may permit Participants to make separate elections with respect 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 into the Plan. A Deferral Agreement must be timely executed and delivered to the DCP Committee no later than the date that is six (6) months before the end of the applicable “Performance Cycle” (as defined in the RPV Plan) in accordance with the Proposed Treasury Regulation

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section 1.409A-2(a)(7) (and any final regulations or other guidance that supersedes such Proposed Regulation) in order for a Participant 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 which the Participant desires to defer Base Compensation and/or Bonus. Amounts credited to a Participant’s Account prior to the effective date of a new Deferral Agreement will not be affected by any subsequent agreement or agreements and will be paid in accordance with the prior election or elections. A Participant who does not timely deliver a properly executed Deferral Agreement to the DCP Committee shall be deemed to have elected zero deferral of Base Compensation and/or Bonus for such Plan Year. Notwithstanding the maximum deferral limits set forth in Sections 3.1(a) and (b), no Participant shall be permitted to defer Base Compensation or Bonus which the DCP Committee reasonably determines is required to pay the Participant’s payroll taxes, contributions toward benefits, or other payroll obligations. Under no circumstances may a Deferral Agreement be adopted retroactively. A Participant may not revoke a Deferral Agreement for a Plan Year during such 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 the Plan 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 irrevocable Deferral Agreement with the DCP Committee before the beginning of such Plan Year. Notwithstanding the foregoing, (1) if the DCP Committee determines that a Bonus qualifies as “performance-based compensation” under Section 409A, a Participant may elect to defer a portion of the Bonus by filing a Bonus Deferral Agreement at such later time as permitted by the DCP Committee in accordance with Section 409A, and (2) in the first year in which an Employee becomes eligible to participate 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 to the extent permitted under Section 409A.

3.2Employer Matching Contributions. An Eligible Employee will receive a Matching Contribution allocation with respect to a Plan Year 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 multiplied by 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

4.1Individual Accounts. The DCP Committee will establish and maintain an Account for each Participant which will reflect contributions made pursuant to Section 3.1 and, if applicable, Section 3.2 along with earnings, expenses, gains and losses credited thereto, attributable to the investments made with the amounts in the Participant’s Account as provided in Article 5. The amount a Participant 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 the Base 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 Award becomes payable to the Participant. Contributions made in accordance with Section 3.2 shall be credited to the Participant’s Account at such time as the Employer, in its sole discretion, determines. The DCP Committee will establish and maintain such other accounts and 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

5.1Adjustment of Accounts. The amount in a Participant’s Account shall be adjusted for hypothetical investment earnings or losses in an amount equivalent to the gains or losses reported by the measuring fund or funds selected by the Participant or Beneficiary from among the measuring funds designated by the Company for this purpose. A Participant may, in accordance with rules and procedures established by the DCP Committee, change the measuring fund or funds to be used for the purpose of calculating future hypothetical investment adjustments to the Participant’s Account. The Account of each Participant shall be adjusted as of each Valuation Date to reflect:  (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

6.1Vesting.

(a)A Participant, at all times, has a 100% nonforfeitable interest in the amounts credited to his Account attributable to Compensation and Bonus Deferrals. Amounts credited to a Participant’s Account attributable to Matching Contributions shall vest only pursuant to such provisions as apply to the vesting of rights to Matching Contributions and Profit-sharing Contributions under the CPChem 401(k) Plan. If the Participant terminates employment prior to having three (3) years of vesting service under the CPChem 401(k) Plan, then such Participant shall forfeit the entire portion of the Participant’s Account 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) upon disability (as that term is defined in the RPV Plan), or (ii) upon the Participant’s termination of service (as that term is defined in the RPV Plan) due to retirement (as that term is

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defined in the RPV Plan), layoff, transfer to Chevron or ConocoPhillips, or death. If a Participant terminates employment for any reason other than retirement, layoff, transfer to a Chevron or ConocoPhillips, or death, the Participant shall forfeit the entire 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 his Termination of Employment, without regard to the cause of the Termination of Employment.

6.2Death. If a Participant dies before the distribution of his or her Account has commenced, or before such distribution has been completed, the Participant’s designated Beneficiary or Beneficiaries will be entitled to receive the balance or remaining balance of his or her vested Account, plus any amounts thereafter credited to his or her Account. Distribution to the Beneficiary or Beneficiaries will 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 giving notice 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 benefits commence (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 the death of the Participant there is, in the opinion of the DCP Committee, no designated Beneficiary for part or all of the Participant’s vested Account (or the designation is not effective because no spousal consent has been provided), such amount will be paid to the Participant’s surviving spouse or, if none, to his or her estate (such spouse or estate shall be deemed to be the Beneficiary for purposes 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 shall be paid to the deceased Beneficiary’s estate. In determining whether any person named as a Beneficiary is living at the time of a Participant’s death, if such person and the Participant died in a common disaster and there is insufficient evidence to determine which person died first, then it shall be deemed that the Beneficiary died first.

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ARTICLE 7 -  DISTRIBUTION OF BENEFITS

7.1Amount of Benefits. The vested value of a Participant’s Account shall constitute the basis for the value of benefits payable to the Participant under the Plan.

7.2Determination of Method of Distribution to Participants. Distributions under the Plan to a Participant shall be made in a lump sum 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’s Termination of Employment, (b) the Payment Date following the Participant’s one year anniversary of his Termination of Employment, or (c) a date certain after the completion of a deferral period of at least two (2) years (provided, however, that Section 7.2(c) shall not be available for RPV Award distributions). Subject to Section 7.5, the Participant will request the time and method of distribution of benefits in accordance with the rules established by the DCP Committee and Section 409A. If the Participant does not properly request the time or method of distribution, the time and method shall be a lump sum upon the Payment Date following his Termination 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 the Payment Date elected above, if permitted by Section 409A and the applicable guidance thereunder; otherwise, payments shall commence as of the Payment Date following the Participant’s two (2) year anniversary of his Termination of Employment from the Employer.

A Participant may make one or more subsequent elections to change the time or form of a distribution for a deferred amount, but any such 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 have otherwise 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 be made at least twelve (12) months before the date of the first scheduled distribution.

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7.3Distribution on Disability. Notwithstanding the provisions of Section 7.2, a Participant will receive distributions due to becoming Disabled. Distributions under the Plan to a Disabled Participant shall be made in a lump sum 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 as initially elected pursuant to Section 7.2. Distributions shall commence upon (a) the Payment Date following Disability if the Participant elected Section 7.2(a) above, (b) the Payment Date following the Participant’s one year anniversary of his Disability if the Participant elected Section 7.2(b) above, or (c) a date certain if the Participant elected Section 7.2(c) above. If the Participant does not properly elect the time or method of distribution under Section 7.2, the time and method shall be a lump sum upon the Payment Date following his Disability.

7.4Notice to Trustee. If amounts are held pursuant to a Trust, the DCP Committee will notify the Trustee in writing whenever any Participant or Beneficiary is entitled to receive benefits under the Plan. The DCP Committee’s notice shall indicate the form, amount and frequency of benefits that such Participant or Beneficiary shall receive in accordance with Section 7.2 or 7.3.

7.5Unforeseeable Emergency. Notwithstanding the provisions of Section 7.2, a Participant may request a distribution due to an unforeseeable emergency in accordance with Section 409A. Specifically, an Unforeseeable Emergency is defined as a severe financial 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 section 152(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 the Participant.

The request for such a distribution must be in writing and must be submitted to the DCP Committee along with evidence that the circumstances constitute an unforeseeable emergency and must comply with any other requirements imposed by Section 409A and applicable guidance thereunder. The DCP Committee has the discretion to require whatever evidence it deems necessary to determine whether a distribution shall be made. The amounts distributed with respect to an Unforeseeable Emergency may not exceed the amounts necessary to satisfy such unforeseeable emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship) or by cessation of deferrals under the Plan. The distribution will be made in the form of a single lump sum. If a Participant who has commenced receiving installment payments requests and is granted an Unforeseeable Emergency distribution, the DCP Committee

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will accelerate the payments into a single lump sum, provided the lump sum does not exceed the amount reasonably necessary to satisfy the Unforeseeable Emergency.

7.6Cashouts of Amounts Not Exceeding $10,000. Any other provision of this Article 7 notwithstanding, if the vested portion of a Participant’s Account equals $10,000 or less on the date of the Participant’s Termination of Employment or Disability, then the Company will distribute such amount to the Participant in a single lump sum in cash upon the Payment Date following his Termination of Employment or Disability.

7.7Effect of Early Taxation. If a portion of the Participant’s Account balance is includible in income under Section 409A, such portion shall be distributed immediately to the Participant.

7.8Permitted Delays. Notwithstanding the foregoing, any payment to a Participant under the Plan may be delayed upon the DCP Committee’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 Code section 162(m);

(b)The making of the payment would violate a term of a loan agreement to which the Company or one of its Affiliated Employers is a party, or other similar contract to which the Company or one of its Affiliated Employers is a party, and such violation 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.

7.9Adjustment for Investment Experience. If any distribution under this Article 7 is not made in a single payment, the amount remaining in the Account after the distribution will be subject to adjustment until distributed to reflect the income and gain or loss on the investments in which such amount is treated as invested.

ARTICLE 8 -  AMENDMENT AND TERMINATION

8.1Amendment by the Company. The Company reserves the authority to amend the Plan by executing an amendment or restatement of the Plan. Except as otherwise specified, such changes are to be effective on the effective date of such amendment or restated Plan document. Any such change notwithstanding, the Participant’s Account shall not be reduced by such change below the amount to which the Participant would have been entitled if he or she had voluntarily left the employ of the Employer immediately prior to the date of the change. In addition, the Company may from time to time make any amendment to the Plan that may be necessary to satisfy the Code or ERISA.

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8.2Retroactive Amendments. An amendment made by the Company in accordance with Section 8.1 may be made effective on a date prior to the first day of the Plan Year in which it is adopted if such amendment is necessary or appropriate to enable the Plan and Trust to satisfy the applicable requirements of the Code or ERISA or to conform the Plan to any change in federal law or to any regulations or ruling thereunder. Any retroactive amendment by the Company shall be subject to the provisions of Section 8.1.

8.3Plan Termination. The Plan has been adopted with the intention and expectation that it will be continued indefinitely. Each Employer, however, reserves the right to terminate the Plan, in accordance with Section 12.2, with respect to all or certain of its participating Eligible Employees. However, each Employer has no obligation or liability whatsoever to maintain the Plan for any length of time and may discontinue contributions under the Plan or terminate the Plan at any time by written notice delivered to the Trustee without any liability hereunder for any such discontinuance or termination.

8.4Distribution upon Termination of the Plan. Upon termination of the Plan, or as to any particular Employer, no further contributions shall be made under the Plan, but the Participant’s Account maintained under the Plan at the time of termination shall continue to be governed by the terms of the Plan until paid out in accordance with the terms of the Plan.

ARTICLE 9 -  THE TRUST

9.1Establishment of Trust. The Company may establish a Trust between the Company and the Trustee, in accordance with the terms and 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 his Beneficiaries specified in the Plan. Such a Trust will be intended to be treated as a grantor trust under the Code, and the establishment of the Trust shall not cause any Participant to realize current income on amounts contributed thereto.

9.2Investment of Trust Funds. Any amounts contributed to the Trust by the Employer shall be invested by the Trustee in accordance with the provisions of the Trust and the instructions of the Company. Trust investments need not reflect the hypothetical investments selected by Participants under Section 5.1 for the purpose of adjusting Accounts and the earnings or investment results of the Trust shall not affect the hypothetical investment adjustments to Participant Accounts under the Plan.

9.3Information Between Employer and Trustee. The Employer agrees to furnish the Trustee, and the Trustee agrees to furnish the Employer with such information relating to the Plan and Trust as may be required by the other in order to carry out their respective duties hereunder, including without limitation information required under the Code or ERISA and any regulations issued or forms adopted thereunder.

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ARTICLE 10 -  MISCELLANEOUS

10.1Unsecured General Creditor of the Employer. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of the Employer. For purposes of the payment of benefits under the Plan, 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.

10.2Employer’s Liability. Each Employer’s liability for the payment of benefits under the Plan shall be defined only by the Plan and/or by the Deferral Agreements entered into between a Participant and the Employer. An Employer shall have no obligation or liability to a Participant under the Plan except as provided by the Plan and/or a Deferral Agreement or agreements. An Employer shall have no liability to Participants employed by other Employers.

10.3Limitation of Rights. Neither the establishment of the Plan and the Trust, nor any amendment thereof, nor the creation of any fund or account, nor the payment of any benefits, will be construed as giving to the Participant or any other person any legal or equitable right against the Employer, DCP Committee, Company or Trustee, except as provided herein; and in no event will the terms of employment or service of the Participant be modified or in any way affected hereby.

10.4No Assignment of Benefits.

(a)The benefits provided under this Plan may not be alienated, assigned, transferred, pledged or hypothecated by any person, at any time, to any person whatsoever. Except as provided below, the benefits shall be exempt from the claims of creditors or other 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 or the Participant’s Beneficiary in accordance with the provisions of this Plan except to the extent that such benefits are required to be paid to an alternate payee under the provisions of a qualified domestic relations order (a “QDRO”) which satisfies the requirements of section 414(p) of the Code. The provisions set forth in the CPChem Retirement Plan applicable to QDROs 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 CPChem Retirement Plan, the provisions of which are hereby incorporated by reference; provided, however, a benefit shall be payable to an alternate payee 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 any person,

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including the Participant, Participant’s spouse, or Participant’s Beneficiary, for complying with any such court order or judgment.

10.5Facility of Payment. If the DCP Committee determines, on the basis of medical reports or other evidence satisfactory to the DCP Committee, 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 or institution of any such payments therefore, and any such payment to the extent thereof, shall discharge the liability of the Employer or the Trust for the payment of benefits hereunder to such recipient.

10.6Notices. Any notice or other communication in connection with the Plan shall be deemed delivered in writing if addressed as provided below and if either actually delivered at said address or, in the case of a letter, five business days shall have elapsed after the same 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 be sent to the address set forth in the Trust agreement; or, in each case at such other address as the addressee shall have specified by written notice delivered in accordance with the foregoing to the addressor’s then effective notice address.

10.7Governing Law. The Plan will be construed, administered and enforced according to ERISA, and to the extent not preempted thereby, the laws of the State of Texas.

10.8Successors and Mergers, and/or Consolidation. The terms and conditions of this Plan shall inure to the benefit of and bind the Employer and the Participants, their successors, assignees, and personal representatives. If substantially all of the stock, assets or partnership interests of the Employer are acquired by another corporation or entity or if the Employer is merged into, or consolidated with another corporation or entity, then the obligations created hereunder shall be obligations of the acquirer or successor corporation or entity, without the requirement of further action by the acquirer or successor corporation or entity.

10.9Employment Not Affected by the Plan. Neither the establishment of this Plan, or any modification thereof, nor the payment of any benefit shall be construed as giving any Participant or any other person any legal or equitable right against the Employer, nor as giving any Employee or Participant the right to be retained in the employ of the Employer. All Employees shall remain subject to discharge to the same extent as if this Plan had never been adopted.

10.10Severability. In the event any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of this

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Plan, which shall be fully severable, and this Plan shall be construed and enforced as if said illegal or invalid provisions had never been inserted.

ARTICLE 11 -  PLAN ADMINISTRATION

11.1Powers and Responsibilities of the DCP Committee. The DCP Committee has the full power and the full responsibility to administer the Plan in all of its details, subject, however, to the applicable requirements of ERISA. The DCP Committee’s powers and 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 under the 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 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 DCP Committee shall be fully justified in relying upon or acting in good faith upon any opinion, report, or information furnished in connection with the Plan by any accountant, counsel, or other specialist so retained (including financial officers of the Company, whether or not such 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 DCP Committee shall be final. No member of the DCP Committee shall be liable for any action taken, or determination made, in respect of the Plan in good faith. Notwithstanding any other provision of the Plan, the Plan shall be interpreted, operated and administered in accordance with Section 409A.

11.2Claims and Review Procedures.

(a)Filing a Claim. A Participant or his authorized representative may file a claim for benefits under the Plan. Any claim must be in writing and submitted to the DCP Committee at such address as may be specified from time to time. Claimants will be notified in writing of approved claims, which will be processed as claimed. A claim is considered approved only if its approval 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, a written 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 (such as 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 clearly set 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 an explanation 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 the claimant’s right 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 to submit a written request to the DCP Committee for a full and fair review of the denied claim by filing a written notice of appeal with the DCP Committee within sixty (60) days of the receipt by the claimant of written notice of the denial of the claim. A claimant or the claimant’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. The review will take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, 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 sixty (60) days of the denial notification, the claim will be deemed abandoned and the claimant precluded from reasserting it. If the claimant does file a request for review, his request must include a description of the issues and evidence he deems relevant. Failure to raise issues or present evidence on review will preclude 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 on review, the decision shall set forth:

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(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, and copies 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 the information about such procedures, as well as a statement of the claimant’s right to bring an action under ERISA section 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 special circumstances (such as for a hearing) require such extension. If an extension of time is required, written notice of the extension 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 claims procedures set forth in this Section shall be final and binding on all parties. No legal action for benefits under the Plan shall be brought unless and until the claimant has exhausted his remedies under this Section. In any such legal action, the claimant may only present evidence and theories, which the claimant presented during the claims procedure. Any claims, which the claimant does not in good faith pursue through the review stage of the procedure, shall be treated as having been irrevocably waived. Judicial review of a claimant’s denied claim shall be limited to a determination of whether the denial was an abuse of 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 later than one year following a final decision on the claim for benefits by the DCP Committee. The one-year limitation on suits for benefits will apply in any forum where a claimant initiates such suit or legal action.

11.3Plan 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 of particular Participants, be charged against the Accounts of all Participants on a pro rata basis or in such other reasonable manner as may be directed by the DCP Committee. Notwithstanding the foregoing, the Employer may, in its sole discretion, elect to pay all such reasonable costs and expenses.

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ARTICLE 12 -  PARTICIPATING EMPLOYERS

12.1Adoption of the Plan. As of January 1, 2005, each entity listed on Appendix A is an Employer. In addition, this Plan may be adopted by additional Employers provided that any such adoption is with the approval of the Company. Any adoption of this Plan by an additional Employer shall be pursuant to such authority as is required by such Employer’s governing body, a copy of which shall be filed with the Company.

12.2Termination of Plan Participation. Each Employer may cease to participate in the Plan with respect to its Employees by executing a resolution adopted pursuant to such authority as is required by such Employer’s governing body, provided, however, that such termination may not reduce the obligation of the Employer to any Participant below the amount to which the Participant would have been entitled under the Plan as in effect immediately prior to the Employer’s termination of Plan participation. A copy of such resolution 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 the

24 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. In addition, such other participating employers may be designated in accordance with rules prescribed by the Company.

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EX-10.5

Exhibit 10.5

CHEVRON PHILLIPS CHEMICAL COMPANY LP

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

(As Amended and Restated
Effective January 1, 2005)

CHEVRON PHILLIPS CHEMICAL COMPANY LP

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

(As Amended and Restated Effective January 1, 2005)

TABLE OF CONTENTS

Section		Page
I	Purpose	1
II	Interpretation and Definitions	1
III	Administration of Plan	5
IV	Supplemental Retirement Benefits & Supplemental Death Benefits	6
V	Time and Form of Payment	7
VI	Source of Payment	8
VII	Withholding	9
VIII	Right to Amend, Modify, Suspend or Terminate	9
IX	Claim Review Procedure	9
X	Miscellaneous	11
	Appendix A	13

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CHEVRON PHILLIPS CHEMICAL COMPANY LP

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

(As Amended and Restated Effective January 1, 2005)

SECTION I

Purpose

The purpose of this amended and restated Supplemental Executive Retirement Plan (the “Plan”)  is to provide retirement benefits to certain eligible 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 Chevron Phillips Chemical Company LP Retirement Plan (the “Retirement Plan”). To accomplish this, the Participating Employers intend to make supplemental pension and, if appropriate, survivor benefit payments, under the terms and conditions described below, to those SERP Members and 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 definitions of “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 the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and, to the extent it is not an excess benefit plan, it is an unfunded deferred compensation program maintained “for a select group of management or highly compensated employees” within the meaning of Title I of ERISA, and shall be implemented and administered in a manner consistent with this intention. It is also intended that the Plan 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.

The Plan is, except as otherwise set forth in the document, amended and restated effective January 1, 2005.

SECTION II

Interpretation and Definitions

A.Interpretation

(1)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 successors and assigns are permitted by the Plan, and

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reference to a person in a particular capacity excludes such person in any other capacity or individually;

(iii)reference to any gender includes the other gender;

(iv)reference to the Plan means the Plan as amended or modified and in 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 any section or other provision of any law means that provision 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;

(vi)reference in the Plan to any article, section, appendix, schedule or exhibit means such article or section thereof or appendix, schedule or exhibit thereto;

(vii)“hereunder”, “hereof”, and words of similar import shall be deemed references to the Plan as a whole and not to any particular article, section or other provision thereof;

(viii)“including” (and with the correlative meaning “include”) means including without limiting the generality of any description 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 but excluding;” and

(xi)references to days, weeks, months, quarters and years are references to such periods as determined by the Gregorian calendar.

(2)Accounting Terms. Unless expressly otherwise provided, accounting terms shall be construed and interpreted, and accounting 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 on account 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 or indirectly 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 indirectly holds a membership interest in the Company.

(8)“Deferred Compensation Plan” means the Chevron Phillips Chemical Company LP Executive Deferred Compensation Plan.

(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 in Section 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 of Section 409A and applicable guidance thereunder. Generally, a separation from service occurs when a SERP Member ceases to 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 payable in the event of the SERP Member’s death. If no SERP Beneficiary designation is in effect at the SERP Member’s death or if 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 the estate of the SERP Member. In determining whether any person named as a SERP Beneficiary is living at the time of a SERP 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 designations in 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 section 401(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 SERP Member’s Average Final Compensation determined in the same manner such amount was calculated under the Phillips Plan as such plan was in effect on December 31, 2000. Thus, such an individual’s SERP Highest Average Earnings will be calculated 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 month period preceding the termination of that Phillips Member’s employment, which produces the highest average. For this purpose, “Phillips Member”, “Average Final Compensation”, and “Phillips Plan” shall have the meaning set forth in the Retirement Plan. With regard to all other SERP Members, the term “SERP Highest Average Earnings” shall have the same meaning 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 Treasury constant maturity 10-year note plus 1% as published by the Federal Reserve Statistical Release – H.15 Selected Interest Rates. Should the Federal Reserve discontinue publishing this document, then the SERP Interest Rate shall be based on a successor publication as determined by the Company.

(20)“SERP Member” means an employee of a Participating Employer who has satisfied the eligibility requirements under the Retirement Plan, and who satisfies each of the following criteria:  (a) is determined by the Company to be a member of a select group of management or highly compensated employees within the meaning of sections 201(2), 301(a)(3) and 401(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 SERP Beneficiary.

(22)“Supplemental Retirement Benefit” means the benefit calculated under Section IV of the Plan payable to a SERP Member.

(23)“Unrestricted Death Benefit” means the benefit that would be payable under the Retirement Plan to the SERP Beneficiary of a SERP Member on account of death of such SERP Member, calculated:  (a) without regard to the limitations of sections 401(a)(17) and 415 of the Code; (b) as if amounts deferred by the SERP Member under the Deferred Compensation Plan had been paid to the SERP Member in the year so deferred; (c) utilizing “SERP Compensation” instead of “Compensation” as

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that term is defined in the Retirement Plan; and (d) utilizing “SERP Highest Average Earnings” instead of “Highest Average 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 SERP Member, calculated:  (a) without regard to the limitations of sections 401(a)(17) and 415 of the Code; (b) as if amounts deferred by the SERP Member under the Deferred Compensation Plan had been paid to the SERP Member in the calendar year so deferred; (c) utilizing “SERP Compensation” instead of “Compensation” as that term is defined in the Retirement Plan; and (d) utilizing “SERP Highest Average Earnings” instead of “Highest Average Earnings” as that term is defined in the 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 Section 409A, 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 its operation 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 connection with 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 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 SERP Committee shall be fully justified in relying upon or acting in good faith upon any opinion, report, or information furnished in connection with the Plan by any accountant, counsel, or other specialist so retained (including financial officers of the Company, whether or not 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;

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(6)To keep all records and prepare all reports and disclosures necessary to comply with the reporting and disclosure requirements of ERISA and the Code and to 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 supplements thereto, as it deems necessary to comply with 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 SERP Committee shall be final. No member of the SERP Committee shall be liable for any action taken, or determination made, in respect of the Plan in good faith.

E.This Plan may be adopted by Affiliated Employers as the SERP Committee may approve, whereupon such entities shall become Participating Employers.

SECTION IV

Supplemental 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 an amount equal to the difference between his Basic Retirement Benefit and his Unrestricted Retirement Benefit. For a SERP Member who has a Separation from Service on or after January 1, 2005, the Supplemental Retirement Benefit actually payable to the SERP Member shall be calculated with reference to the SERP Member’s actual Basic Retirement Benefit, determined at the time of the SERP Member’s Separation from Service from the Participating Employer, regardless of whether the SERP Member elects to commence 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 the SERP Beneficiary is entitled to the payment of a death benefit under the terms of the Retirement Plan. The Supplemental Death Benefit payable to a SERP Beneficiary of a SERP Member shall be an amount equal to the difference between the SERP Beneficiary’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 forth in this Plan, be made in the same manner as such determination is made under the Retirement Plan (including, without limitation, the determination of the “Equivalent Actuarial Value” (as defined by the Retirement Plan) of any form of benefit payable under this Plan).

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SECTION V

Time 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 installments commencing 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 not be 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 January 1 of the calendar year following the calendar year of the SERP Member’s Separation from Service from the Parent Company if permitted by Section 409A and the applicable guidance thereunder,  otherwise payments shall be made in 5 annual installments commencing on January 1 immediately following the 2 year anniversary of his Separation from Service from the Participating Employer.

B.Notwithstanding the foregoing, a SERP Member may subsequently elect to receive a lump sum payment of his Supplemental Retirement Benefit under the Plan in accordance with such procedures as may be established by the SERP Committee. In addition to such 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 amount was 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 the month following his Separation from Service (or first business day of the second month following his Separation from Service if the separation occurs after the fifteenth day of the month) if the present value of the SERP Member’s Supplemental Retirement Benefit is less than $10,000; provided, however, that if a SERP Member is described in Paragraph A(2) above, payment to the SERP Member shall be made in a lump sum distribution the first business day of the month following his Separation from Service from the Parent Company (or first business day of the second month following his Separation from Service if the separation occurs after the fifteenth day of the month) if permitted by Section 409A and the applicable guidance thereunder, otherwise on January 1 immediately following his 2 year anniversary of Separation from Service from the Participating Employer. In determining whether the SERP Member’s Supplemental Retirement Benefit is less than $10,000, the same provisions set forth in the Retirement Plan with respect to the determination of such values shall be utilized.

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DPayments to a SERP Beneficiary under this Plan shall be made in the same manner, for the same time period and on the same basis as payments would have been made to a SERP Member under Section V.A. of the Plan (or Section V.B. of the Plan if the SERP Member 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 shall be made in a lump sum distribution following a SERP Member’s death if the present value of such Supplemental Death Benefit is less 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 be distributed 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 the SERP 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 by application 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 Affiliated Employers is a party, or other similar contract to which the Company or one of its Affiliated Employers is a party, and such violation 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 of Service) there remains an outstanding balance of the SERP Member’s benefit (or a SERP Beneficiary’s benefit, in the event the SERP Member’s Separation from Service is due to death) under the Plan, such balance shall earn the SERP Interest Rate.

SECTION VI

Source 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 Participating Employer that employed the SERP Member. The SERP Member or their SERP Beneficiary shall be an unsecured general creditor of such Participating 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, or create any fiduciary relationship between the Participating Employer or the Company and the SERP Member or any SERP Beneficiary with respect to any assets of the Participating Employer or the Company.

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SECTION VII

Withholding

Notwithstanding any contrary provision of the Plan, all benefits payable under this Plan to a SERP Member or SERP Beneficiary shall be subject to applicable withholding for federal, state and/or local income tax, FICA, and any other taxes.

SECTION VIII

Right 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 is entitled to receive or has commenced to receive benefits pursuant to this Plan in a manner which would reduce the benefits payable to such 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 Supplemental Death 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 the limitations of sections 401(a)(17), and/or 415 of the Code, and/or the SERP Member’s deferrals under the Deferred Compensation Plan.

D.Notwithstanding the foregoing, no amendment of the Plan shall apply to amounts paid under Appendix A, unless the amendment specifically provides that it applies to such amounts. The purpose of this restriction is to prevent a Plan amendment from resulting in an inadvertent “material modification” to amounts that are exempt from the requirements of Section 409A.

SECTION IX

Claim 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 in writing and submitted to the SERP Committee at such address as may be specified from time to time. Claimants will be notified in writing of approved claims, which will be processed as claimed. A claim is considered approved only if its approval 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 SERP Member, a written notice will be furnished to the claimant within 90 days of the date on which the SERP Committee receives the claim. If special circumstances (such as for a hearing) require a longer period, the claimant will be notified in writing, prior to the expiration of the 90-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 of why 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’s right 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 to submit a written request to the SERP Committee for a full and fair review of the denied claim by filing a written notice of appeal with the SERP Committee within 60 days of the receipt by the claimant of written notice of the denial of the claim. A claimant or the claimant’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. The review will take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, 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 the claimant precluded from reasserting it. If the claimant does file a request for review, his request must include a description of the issues and evidence he deems relevant. Failure to raise issues or present evidence on review will preclude those issues or evidence from 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, all documents, records, and other information relevant to the claimant’s claim for benefits; and

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(4)a statement describing any voluntary appeal procedures offered by the Plan and the claimant’s right to obtain the information about such procedures, as well as a statement of the claimant’s right to bring an action under ERISA section 502(a).

A decision will be rendered no more than 60 days after the SERP Committee’s receipt of the request for review, except that such period may be extended for an additional 60 days if the SERP Committee determines that special circumstances (such as for a hearing) require such extension. If an extension of time is required, written notice of the extension will be furnished to the claimant before 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 claims procedures set forth in this Section shall be final and binding on all parties. No legal action for benefits under the Plan shall be brought unless and until the claimant has exhausted his remedies under this Section. In any such legal action, the claimant may only present evidence and theories, which the claimant presented during the claims procedure. Any claims, which the claimant does not in good faith pursue through the review stage of the procedure, shall be treated as having been irrevocably waived. Judicial review of a claimant’s denied claim shall be limited to a determination of whether the denial was an abuse of 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 later than one year following a final decision on the claim for benefits by the SERP Committee. The one-year limitation on suits for benefits will apply in any forum where a claimant initiates such suit or legal action.

SECTION X

Miscellaneous

A.No Assignment of Benefits.

(1)The benefits provided under this Plan may not be alienated, assigned, transferred, pledged or hypothecated by any person, at any time, to any person whatsoever. Except as provided below, the benefits shall be exempt from the claims of creditors or other 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’s spouse or the SERP Beneficiary in accordance with the provisions of this Plan except to the extent that such benefits are required to be paid to an alternate payee under the provisions of a qualified domestic relations order (a “QDRO”) which satisfies the requirements of section 414(p) of the Code. The provisions set forth in the Retirement Plan applicable to QDROs 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 of which are hereby

11

incorporated by reference; provided, however, a benefit shall be payable to an alternate payee under this Plan only at the time payment of the SERP Member’s benefit commences under this Plan pursuant to Section V. Neither this Plan, the SERP Committee, the Participating Employers nor the Company shall be liable in any manner to any person, including the SERP Member, 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 the Participating 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 as provided 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 accordance with the laws of the State of Texas, and, to the extent applicable, ERISA and the Code. If any provision of this instrument shall be held invalid or unenforceable by a court of competent jurisdiction, the remaining provisions hereof shall continue to be fully effective.

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.

CHEVRON PHILLIPS CHEMICAL COMPANY LP

/s/ James L. Gallogly
TITLE:	President and Chief Executive Officer

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APPENDIX A

GRANDFATHERED PARTICIPANTS

Distribution of amounts that were earned and vested (within the meaning of Section 409A) under the Plan prior to January 1, 2005 (and earnings thereon) that are payable to SERP Members (or their SERP Beneficiaries) who Separated from Service prior to January 1, 2005 shall be made in accordance with the Plan terms as in effect on December 31, 2004.

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EX-10.6

Exhibit 10.6

LONG-TERM INCENTIVE PLAN

OF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

(As Amended and Restated Effective January 1, 2005)

LONG-TERM INCENTIVE PLAN

OF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

(As Amended and Restated Effective January 1, 2005)

TABLE OF CONTENTS

		Page
1.	Interpretation and Definitions	1
2.	Administration of Plan.	6
3.	Eligibility and Participation.	7
4.	Grants and Settlement of Awards	8
5.	Payment of Awards	9
6.	Vesting and Forfeiture.	10
7.	Amendments or Discontinuance	10
8.	Recapitalization, Merger, and Consolidation	11
9.	General Provisions	11
	Exhibit A “Peer Companies”	13

i

LONG-TERM INCENTIVE PLAN

OF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

(As Amended and Restated Effective January 1, 2005)

PURPOSE

The purpose of this amended and restated Long-Term Incentive Plan (the “Plan”) is to attract, motivate, and retain 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 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 to the requirements of ERISA.  It is also intended that the Plan comply with the requirements of Section 409A of the Internal Revenue Code, as added by the American Jobs Creation Act of 2004 (“Section 409A”).

The Plan was amended and restated effective January 1, 2001.

The Plan is, except as otherwise set forth in the document, amended and restated effective January 1, 2005.

1.Interpretation and Definitions

(a)General.

(1)Interpretation.  Unless a clear contrary intention appears, for purposes of construction of this Plan and all related Plan Documents:

(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 successors and assigns are permitted by the Plan Documents, and reference to a person in a particular capacity excludes such person in any other capacity or individually;

(iii)reference to any gender includes the other gender;

(iv)reference to any Plan Document or any other agreement, document or instrument means the applicable Plan Document or such other agreement, document or instrument as amended or modified and in 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

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reference to any section or other provision of any law means that provision 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;

(vi)reference in any Plan Document to any article, section, appendix, schedule or exhibit means such article or section thereof or appendix, schedule or exhibit thereto;

(vii)“hereunder”, “hereof”, and words of similar import shall be deemed references to a Plan Document as a whole and not to any particular article, section or other provision thereof;

(viii)“including” (and with the correlative meaning “include”) means including without limiting the generality of any description 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 but excluding;” and

(xi)references to days, weeks, months, quarters and years are references to such periods as determined by the Gregorian calendar.

(2)Accounting Terms.  In each Plan Document, unless expressly otherwise provided, accounting terms shall be construed and interpreted, and accounting determinations and computations shall be made, in accordance with generally accepted accounting principles.

(3)Conflict in Plan Documents.  If there is any conflict between any two or more Plan Documents, such Plan Documents shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to the extent) of such conflict, the Plan Document dealing most specifically with the matter as to which there is a conflict shall prevail and control.  If it cannot be determined which Plan Document deals most specifically with a matter as to which there is a conflict then the Plan 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, as determined 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 review chemical industry performance in various areas such as cash cost margins and cash cost return on investment. The chemical industry may use this data to illustrate their performance compared to the performance of the rest of the chemical industry, and to identify top performance in the industry.

(4)“Chevron” means Chevron Corporation, or such entity as may be controlled by Chevron Corporation, that directly or 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 or indirectly holds a membership interest in the Company.

(8)“Date of Grant” means the effective date on which a Relative Performance Award or a Strategic Performance Award, 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 Deferred Compensation Plan.

(11)“Disability” means the Participant is eligible for, and is continuously receiving disability insurance benefits under the 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 financial records of the Company, or the financial records of any other company, or segment thereof, against whom the performance of the Company 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 Employee who is also a director or an officer) who is a pay grade 90 or above; and

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(ii)in the case of Relative Performance Awards, any regular, full-time Employee (including an Employee who 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 a Participating Employer that provides that he is an independent contractor and not an Employee, shall be excluded 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 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 withheld employment taxes with respect to that individual, then that individual shall not be an Eligible Employee for that period, even in the event 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 that causes differences in the financial performance, such as assets owned in the United States vs. assets owned in Europe, the Middle East 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 the foregoing, effective for Performance Cycles beginning on or after January 1, 2006 Grants of Relative Performance Awards will no longer be available under the Plan.

(20)“Grant Agreement” or “Agreement” means the agreement accompanying such Grant which sets forth the Relative Performance Award or Strategic Performance Award, as applicable, target amount, the Performance Cycle, vesting and other terms and 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 Performance Award, 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 which may 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 which a 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 other document defining the rights and liabilities of any Participant.

(28)“Relative Performance” means any measure established by the Committee in its sole and absolute discretion that compares the Company’s performance to a group of Peer Companies. Relative Performance measures considered may include but are not limited to EBITDA divided by Total Assets; comparison to Chem Systems Leader or other relevant third party data; and/or EVA.  The evaluation by the Committee may consider adjustments to normalize portfolio and Geographic Differences and to account for special events.

(29)“Relative Performance Award” or “RPA” means, unless modified by the Committee pursuant to the authority granted to it herein, an award under the Plan which will be paid to a Participant that rewards Participants for changes in the Company’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 any applicable early retirement age or normal retirement age as defined in (i) the Chevron Phillips Chemical Company LP Retirement Plan, (ii) any retirement plan of any Participating Employer, or (iii) the retirement plan of any Parent Company or any of its respective subsidiaries other than Chevron Phillips Chemical Company LLC. A Participant whose Termination of Service occurs while 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 that compares the Company’s performance to the attainment of internal strategic objectives. Strategic Performance measures may initially

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 growth goals.  The Committee will annually review the internal strategic objectives to be measured for each succeeding Performance Cycle and 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 authority granted to it herein, an award which will be paid to a Participant for Company’s Strategic Performance compared to the internal strategic 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 manner consistent 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 the proper administration of the Plan.

(d)The Committee’s interpretation and construction of the provisions of the Plan and rules and regulations adopted by the Committee shall be final.  No member of the Committee or the Board shall be liable for any action taken, or determination made, in respect of the Plan in good faith.

(e)The members of the Committee may retain counsel, employ agents, and provide for such clerical, accounting and consulting services 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 Committee and each member of the Board shall be fully justified in relying upon or acting in good faith upon any opinion, report, or information furnished in connection with the Plan by any accountant, counsel, or other specialist so retained (including financial officers of the Company, 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, whereupon such entities shall become Participating Employers.

(g)The Committee shall periodically evaluate the effectiveness of the Plan in meeting the purposes for which the Plan was adopted. 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 an existing 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 to consent 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/or Strategic Performance Awards (collectively, the “Award” or “Awards”) to any Eligible Employee.  Grants may be made by the Committee at any time and from time to time to new Eligible Employees, or to then Eligible Employees, or to a greater or lesser number 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 be available 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 Employee becomes 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 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 applicable Performance Cycle.  If, during a Performance Cycle, an individual is hired as an Employee in a pay grade of 90 or above, the Employee becomes 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 most recent, active Performance Cycle.  Such Award will be prorated for the period which begins on the date 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 active Performance 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 Awards apply.  For this purpose, the proration period will begin as of the Date of Grant for each applicable outstanding Award and will end on 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 is demoted 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 and conditions, as the Committee may from time to time determine. The rights of a Participant with respect to any Grant shall at all times be subject to the terms and conditions set forth in the Grant Agreement relating thereto and in the Plan Documents. Except as required by this Plan, different Grants need not contain terms or conditions similar to any Grant made prior thereto or contemporaneously therewith.  The Committee’s determinations under the Plan (including determinations of which Eligible Employees, if any, are to receive Grants, the form, amount and timing of such Grants, the terms and provisions of such Grants and the agreements evidencing same) need not be uniform and may be made by it selectively among Eligible Employees who receive, or are 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 the Date of Grant.

(c)With respect to the Relative Performance Award, at the beginning of each Performance Cycle, the Committee shall establish the Participant’s Relative Performance Award target amount.  The Committee shall also determine the Relative Performance measures for the Performance Cycle.  Moreover, the Relative Performance Award target amount and the Relative Performance measures 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 to the group of Peer Companies to establish what percentage of the Participant’s Relative Performance Award target amount will be awarded the Participant.  The percentage may range from 0% to 200%. Any resultant Relative Value Award may be further adjusted as a result of the application of the provisions in Section 4(e) or by the Committee in its sole and absolute discretion either in individual cases or in the aggregate.  Notwithstanding anything contained in the Plan to the contrary, in no event shall any Relative Performance Award be awarded to any Participant for a Performance Cycle if the award is not based on the Company’s favorable performance 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 shall establish the Participant’s Strategic Performance Award target amount.  The Committee shall also determine the Strategic Performance measures for the Performance Cycle. Moreover, the Strategic Performance Award target amount and the Strategic Performance measures shall be set forth in writing within ninety (90) days of the beginning of each Performance Cycle.

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At the end of each Performance Cycle, the Committee shall evaluate the Company’s Strategic Performance in comparison to the Strategic Performance measures established by the Committee to establish what percentage of the Participant’s Strategic Performance Award target amount will be awarded the Participant.  The percentage may range from 0% to 200%.  Any resultant Strategic Performance Award may be further adjusted as a result of the application of the provisions in Section 4(e) or by the Committee in its sole and absolute discretion either in individual cases or in the aggregate.  Notwithstanding anything contained in the Plan to the contrary, in no event shall any Strategic Performance Award be awarded to any Participant for a Performance Cycle if the award is not based on the Company’s favorable performance as compared to the Strategic Performance measures established by the Committee.

(e)Notwithstanding anything contained in this Plan document to the contrary, in the event that any Participant engages in any activity which the Committee judges to be detrimental to any Participating Employer, or otherwise fails to perform his obligations as a regular, full-time Employee, the Committee may cancel or reduce the Relative Performance Value Award or Strategic Performance Value 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 Performance Award or Strategic Performance Award, the distribution shall be paid in cash as a lump sum as soon as practicable after such final determination by the Committee.

For Performance Cycles beginning on or after January 1, 2003, upon final determination by the Committee of a Participant’s right to receive a distribution of a Relative Performance Award or a Strategic Performance Award (or a pro rata portion thereof), the distribution shall be paid in cash as a lump sum: (1) with respect to the Relative Performance Award, on May 10 of the year following the end of the Performance Cycle in question; and (2) with respect to the Strategic Performance Award, on March 22 of 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 to defer 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 to make such deferrals.

Deferral and distribution elections shall be made in accordance with Section 409A and the terms of the Deferred Compensation Plan.  Specifically, irrevocable elections by Participants of the time and form of payment of the Strategic Performance Award and

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Relative Performance Award under the Deferred Compensation Plan shall be made no later than the date that is six (6) months before the end of the applicable Performance Cycle in accordance with the Proposed Treasury Regulation section 1.409A-2(a)(7) and subsequent 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 the end of the Performance Cycle applicable to said Award provided the Participant is an Eligible Employee at the end of said Performance Cycle.

(b)Except as provided in the Plan Document, upon a Participant’s Termination of Service, the Participant’s outstanding Grants of Strategic Performance Awards or Relative Performance Awards, as the case may be, and all rights thereunder shall terminate on the Date of Termination; provided, however, that if a Participant’s Termination of Service is due to Retirement, transfer to a Parent Company, Disability, or death, said forfeiture shall not occur, and the Participant shall be vested on the Date of Termination in each outstanding Strategic Performance Award or Relative Performance Award.  Each outstanding Strategic Performance Award will be prorated for the active Performance Cycle to which such outstanding Award applies.  For this purpose, the proration period will begin as of the Date of Grant for each applicable outstanding Strategic Performance Award and will end on the Participant’s Date of Termination. Except in the case of Termination of Service due to transfer to a Parent Company, outstanding Relative Performance Awards 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 personal reasons or as a result of entry into the Armed Forces of the United States, or (2) terminates employment for reasons which, in the judgment of the Committee, are deemed to be special circumstances, the Committee may consider such circumstances and may take such action (to the extent consistent with Section 409A) in respect of the related Grant and Grant Agreement as it may deem appropriate under the circumstances, including extending the rights of a Participant to continue participation in the Plan beyond his Date 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 the Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part.  Any such amendment shall, to the extent deemed 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, the holder 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 the contrary, unless required by law, no action contemplated or permitted by this Section 7 shall adversely affect any rights of Participants or obligations of the Company to Participants with respect to any Award theretofore granted under the Plan without the consent 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 those entities 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 liquidation 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.

9.General Provisions

(a)Strategic Performance Awards and Relative Performance Awards shall be nontransferable and nonassignable, except that any such Grant may be transferred (1) to such beneficiary as the Participant may designate in the event of death, Disability or other incapacity, or (2) by testamentary instrument or by the laws of descent and distribution. The Committee shall prescribe the form and manner in which beneficiary designations shall be made, revoked or amended. Any valid beneficiary designation on file with the Company 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 continued employment, nor shall it interfere with the right of any Participating Employer (which right is hereby reserved) to discharge any Employee and to treathimwithout regard to the effect which that treatment might have upon himas 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 right to be granted an award or any other rights except as may be evidenced by a Grant Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditions expressly 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 taxes required by law to be withheld with respect to such payments.

(e)THE VALIDITY, CONSTRUCTION AND EFFECT OF THE PLAN, ANY PLAN DOCUMENTS, AND ANY ACTIONS TAKEN 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 all or substantially all of the business and/or assets of the Company, expressly to assume and agree to perform the Company’s obligations under this Plan in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place.

(g)The Plan shall be unfunded. Neither the Company, any Participating Employer, the Committee, nor the Board shall be required 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 be made, but Grants made before that date will continue to be effective in accordance the terms and conditions of the respective Grant Agreement.

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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 Relative Performance Awards:

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 ABSOLUTE DISCRETION.

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AMENDMENT NUMBER ONE
TO THE
LONG-TERM INCENTIVE PLAN OF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

WHEREAS, effective January 1, 2001, Chevron Phillips Chemical Company LLC (the “Company”) established the Long-Term Incentive 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 in whole 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, or death, the Participant shall be vested in each outstanding Strategic Performance Award or Relative Performance Award, as the 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 outstanding award applies.  For this purpose, the proration period will begin as of the Date of Grant for each applicable outstanding Strategic Performance Award and will end when the Participant is placed on Disability or on the Participant’s Date of Termination, as applicable.  Except in the case of Termination of Service due to transfer to a Parent Company, outstanding Relative Performance Awards will not be subject to such proration.  If a Participant terminates employment for any reason other than Retirement, transfer to a Parent Company, or death, then the Participant’s outstanding Grants of Strategic Performance 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 this 24 day of February 2006.

CHEVRON PHILLIPS CHEMICAL COMPANY LLC
By:	James L. Gallogy
Its:	President and Chief Executive Officer

EX-10.7

Exhibit 10.7

ANNUAL INCENTIVE PLAN

OF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

(As Amended and Restated Effective January 1, 2005)

ANNUAL INCENTIVE PLAN

OF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

(As Amended and Restated Effective January 1, 2005)

TABLE OF CONTENTS

		Page
1.	Interpretation and Definitions	1
2.	Administration of Plan.	5
3.	Eligibility and Participation	5
4.	AIP Awards .	6
5.	Payment of AIP Awards	7
6.	Vesting and Forfeiture	7
7.	Amendment and Discontinuance	8
8.	Recapitalization, Merger, and Consolidation	8
9.	General Provisions	8
	Schedule A “Administrative Procedures”	10

i

ANNUAL INCENTIVE PLAN

OF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

(As Amended and Restated Effective January 1, 2005)

PURPOSE

The purpose of this amended and restated Annual Incentive Plan (the “Plan”) is to attract, motivate, and retain qualified management personnel by providing to them an annual 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 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 to the requirements of ERISA. It is also intended to comply with the requirements of Section 409A of the Internal Revenue Code, as added by the American Jobs Creation Act of 2004 (“Section 409A”), to the extent such provisions apply.

The Plan was originally established effective January 1, 2001.

The Plan is, except as otherwise set forth in the document, amended and restated effective January 1, 2005.

1.Interpretation and Definitions

(a)General.

(1)Interpretation. Unless a clear contrary intention appears, for purposes of construction of this Plan and all related Plan Documents:

(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 successors and assigns are permitted by the Plan Documents, and reference to a person in a particular capacity excludes such person in any other capacity or individually;

(iii)reference to any gender includes the other gender;

(iv)reference to any Plan Document or any other agreement, document or instrument means the applicable Plan Document or such other agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof;

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(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 any section or other provision of any law means that provision 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;

(vi)reference in any Plan Document to any article, section, appendix, schedule or exhibit means such article or section thereof or appendix, schedule or exhibit thereto;

(vii)“hereunder”, “hereof”, and words of similar import shall be deemed references to a Plan Document as a whole and not to any particular article, section or other provision thereof;

(viii)“including” (and with the correlative meaning “include”) means including without limiting the generality of any description 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 but excluding;” and

(xi)references to days, weeks, months, quarters and years are references to such periods as determined by the Gregorian calendar.

(2)Accounting Terms. In each Plan Document, unless expressly otherwise provided, accounting terms shall be construed and interpreted, and accounting determinations and computations shall be made, in accordance with generally accepted accounting principles.

(3)Conflict in Plan Documents. If there is any conflict between any two or more Plan Documents, such Plan Documents shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to the extent) of such conflict, the Plan Document dealing most specifically with the matter as to which there is a conflict shall prevail and control. If it cannot be determined which Plan Document deals most specifically with a matter as to which there is a conflict then the Plan shall prevail and control.

(b)Definitions.

(1)“Annual Incentive Plan Award” or “AIP Award” means an award of cash made pursuant to the Plan (or any prorated portion thereof).

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(2)“Board” means the Board of Directors of the Company.

(3)“Bonus Level Employee” means:

(i)with respect to Employees on the U.S. Dollar payroll of a Participating Employer, any regular, full-time Employee (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 employed within 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 Participating Employer that provides that he is an independent contractor and not an Employee, shall be excluded from the definition of Bonus Level 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 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 withheld employment taxes with respect to that individual, then that individual shall not be a Bonus Level Employee for that period, even in the event that the individual is determined, retroactively, to have been an Employee during all or any portion of that period.

(4)“Chevron” means Chevron Corporation, or such entity as may be controlled by Chevron Corporation, that directly or 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 or indirectly holds a membership interest in the Company.

(8)“Date of Termination” means the date on which a Participant ceases to be an Employee.

(9)“Deferred Compensation Plan” means the Chevron Phillips Chemical Company LP Executive Deferred Compensation Plan.

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(10)“Disability” means the Participant is eligible for, and is continuously receiving disability insurance benefits under the Social Security Act or the Participating Employer’s long-term disability plan.

(11)“Employee” means any employee of a Participating Employer.

(12)“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(13)“Layoff” means termination of employment by reason of layoff pursuant to the Chevron Phillips Chemical Company LP’s severance program or similar program adopted by a Participating Employer.

(14)“Parent Company” means Chevron, ConocoPhillips, and their respective successors.

(15)“Participant” means an Employee who has been designated as a participant pursuant to Section 3.

(16)“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.

(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 the Committee (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 applicable early retirement age or normal retirement age as defined in the Chevron Phillips Chemical Company LP Retirement Plan or any retirement plan of any Participating Employer. A Participant whose Termination of Service occurs while 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.

(21)“Salary” means the annualized base rate of a Participant as of December 31 of the Plan Year with respect to which an 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 on his Date of Termination.

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(22)“Termination of Service” occurs when a Participant ceases to serve as an Employee for any reason.

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 manner consistent 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 the proper administration of the Plan.

(d)The Committee’s interpretation and construction of the provisions of the Plan and rules and regulations adopted by the Committee shall be final. No member of the Committee or the Board shall be liable for any action taken, or determination made, in respect of the Plan in good faith.

(e)The members of the Committee may retain counsel, employ agents, and provide for such clerical, accounting and consulting services 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 Committee and each member of the Board shall be fully justified in relying upon or acting in good faith upon any opinion, report, or information furnished in connection with the Plan by any accountant, counsel, or other specialist so retained (including financial officers of the Company, whether or not such persons are Participants in the Plan).

(f)This Plan may be adopted by such subsidiary entities of the Company as the Board or Committee may approve, whereupon such entities shall become Participating Employers.

3.Eligibility and Participation

(a)Except as otherwise provided herein, all regular, full time Employees who are Bonus Level Employees as of January 1 of the Plan 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 select additional Employees or classes of Employees for participation in the Plan, and may direct that specific Bonus Level Employees, or classes of Bonus Level Employees be removed from participation. Any such determination may be made at any time prior to the payment of AIP Awards with respect to any Plan Year, and may be made with respect to participation during all or any part of any Plan Year.

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(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 a Participant in the Plan, and will be eligible for an AIP Award for said Plan Year. Such AIP Award will be prorated for the period which begins on the date of promotion and ends as of the end of the applicable Plan Year in question. If, during a Plan Year, an individual is hired as an Employee in a pay grade of 90 or above, the Employee will become a Participant in the Plan, and will be eligible for an AIP Award for said Plan Year. Such AIP Award will be prorated for the period which begins on the date of employment and ends as of the end of the applicable Plan Year. If, during a Plan Year, a Participant is demoted to a pay grade lower than 90, his AIP Award for said Plan Year will be prorated for the period which begins on the first day of the applicable Plan Year and 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 be determined by: Dividing the number of months in each pay grade level by 12. Multiplying each quotient by the corresponding target percentage for the pay grade as set forth in Paragraph 1 of Schedule A. The AIP Award for which the Participant will be considered is the sum of the products. In this regard, the Participant will receive credit for each month based on the grade level in which the Participant 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 it may deem appropriate with respect to the selection of Participants for such Plan Year; and (2) establish target AIP Awards for each Participant which will be measured as a percentage of the Participant’s Salary based upon the Participant’s grade level, as more particularly 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 approved by the Committee at the beginning of the applicable Plan Year under the Company’s Employee Incentive Program (“EIP”) to determine what percentage of the Participant’s AIP Award target amount will be awarded the Participant. The percentage may range from 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 Committee in 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 any activity which the Committee judges to be detrimental to any Participating Employer, or otherwise fails to perform his obligations as a regular, full-time Employee, the Committee may cancel or reduce the AIP Award in whole or in part at any time prior to payment of 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 for Plan 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 the Plan 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 to defer receipt of his AIP 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, including Section 409A, shall govern and be binding upon any Participants who elect to make such deferrals.

6.Vesting and Forfeiture

(a)Except as otherwise provided in the Plan Documents, a Participant will be vested in his AIP Award if the Participant is a regular, 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 is placed on Disability or on his Date of Termination, as applicable, in which event the AIP Award payable to the Participant for such Plan Year shall be prorated. For this purpose, the proration period will begin on January 1 of such Plan Year and will end (1) when the Participant is place on Disability or on the Participant’s Date of Termination, as applicable, or (2) December 31 of such Plan Year, whichever occurs first. Any amount payable by reason of a Participant’s death shall be paid to such Participant’s estate or to such other individuals or entities as the Committee shall direct. If a Participant terminates employment with the Participating Employer for any reason other than Retirement, Layoff, transfer to a Parent Company, or death, the Participant’s AIP Award and all rights hereunder shall be forfeited.

(c)Notwithstanding the foregoing, in the event a Participant: (1) takes a leave of absence from the Company for personal reasons or as a result of entry into the Armed Forces of the United States, or (2) terminates employment for reasons which, in the judgment of the Committee, are deemed to be special circumstances, the Committee may consider such circumstances and may take such action (to the extent consistent with Section 409A) as it may deem appropriate under the circumstances, including extending the rights of a Participant to continue participation in the Plan beyond his Date of Termination; provided in no event may participation be extended beyond the term of the Plan Year in question.

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7.Amendment or Discontinuance

The Company may at any time and from time to time, without the consent of the Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part. The Committee may amend Schedule A at any time and from time to time. Any such amendments may be made effective with respect to any Plan Year and with respect to any AIP Awards which, as of the date of the amendment, have not become payable.

8.Recapitalization, Merger, and Consolidation

The existence of this Plan and the AIP Awards granted hereunder shall not affect in any way the right or power of the Company or those entities 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 liquidation 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.

9.General Provisions

(a)AIP Awards shall be nontransferable and nonassignable, except that any such AIP Awards may be transferred (1) by testamentary instrument or by the laws of descent and distribution, or (2) to such individual or entity as the Committee may designate in 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 to treathimwithout regard to the effect which that treatment might have upon himas 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 right to receive an AIP Award or any other rights except otherwise specifically provided herein.

(d)The Company shall have the right to deduct from all amounts hereunder paid in cash, any federal, state, local, or other taxes required by law to be withheld with respect to such payments.

(e)THE VALIDITY, CONSTRUCTION AND EFFECT OF THE PLAN, ANY PLAN DOCUMENTS, AND ANY ACTIONS TAKEN OR RELATING TO THE PLAN SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WITHIN SUCH STATE.

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(f)The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, expressly to assume and agree to perform the Company’s obligations under this Plan in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place.

(g)The Plan shall be unfunded. Neither the Company, any Participating Employer, the Committee, nor the Board shall be required to segregate any assets or secure any liability that may at any time exist under the Plan.

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IN WITNESS WHEREOF, Chevron Phillips Chemical Company LLC by its duly authorized officer(s), has caused the Plan to be amended and restated on the 24 day of February, 2006.

Chevron Phillips Chemical Company LLC
By:		/s/ James L. Gallogly
Title:	President and Chief Executive Officer

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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 unless changed 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 be a 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%

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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 a single Strategic Business Unit, Facility, Technology Group or Staff, the Committee shall make a special determination as to the manner in which 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 the Company which deserve special recognition, the Committee may provide for such enhancement of the AIP Awards payable to them as the Committee may deem appropriate. Conversely, if the Committee determines that an individual Participant or group of Participants has failed to make such contribution as would have been justified by application of the formula described in Paragraph 3 above, the Committee may reduce or cancel the AIP Award payable to any such Participant.

12

EX-10.10

Exhibit 10.10

RELATIVE PERFORMANCE VALUE PLAN

OF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

(Effective January 1, 2006)

RELATIVE PERFORMANCE VALUE PLAN

OF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

(Effective January 1, 2006)

TABLE OF CONTENTS

		Page
1.	Interpretation and Definitions	1
2.	Administration of Plan	6
3.	Eligibility and Participation	7
4.	Grants and Settlement of Awards	8
5.	Deferral of Awards	9
6.	Vesting and Forfeiture	9
7.	Amendments or Discontinuance	10
8.	Recapitalization, Merger, and Consolidation	11
9.	General Provisions	11
	Exhibit A “Peer Companies”	13
	Exhibit B “Award Calculation Example”	14

i

RELATIVE PERFORMANCE VALUE PLAN

OF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

Effective January 1, 2006

PURPOSE

The purpose of this Relative Performance Value Plan of Chevron Phillips Chemical Company LLC (the “Plan”) is to attract, motivate, and retain 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 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 to the requirements of ERISA.  It is also intended that the Plan comply with the requirements of Section 409A of the Internal Revenue Code, as added by The American Jobs Creation Act of 2004 (“Section 409A”).

The Plan shall be effective as of January 1, 2006.

1.Interpretation and Definitions

(a)General.

(1)Interpretation.  Unless a clear contrary intention appears, for purposes of construction of this Plan and all related Plan Documents:

(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 successors and assigns are permitted by the Plan Documents, and reference to a person in a particular capacity excludes such person in any other capacity or individually;

(iii)reference to any gender includes the other gender;

(iv)reference to any Plan Document or any other agreement, document or instrument means the applicable Plan Document or such other agreement, document or instrument as amended or modified and in 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 any section 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;

(vi)reference in any Plan Document to any article, section, appendix, schedule or exhibit means such article or section thereof or appendix, schedule or exhibit thereto;

(vii)“hereunder”, “hereof”, and words of similar import shall be deemed references to a Plan Document as a whole and not to any particular article, section or other provision thereof;

(viii)“including” (and with the correlative meaning “include”) means including without limiting the generality of any description 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 but excluding;” and

(xi)references to days, weeks, months, quarters and years are references to such periods as determined by the Gregorian calendar.

(2)Accounting Terms.  In each Plan Document, unless expressly otherwise provided, accounting terms shall be construed and interpreted, and accounting determinations and computations shall be made, in accordance with generally accepted accounting principles.

(3)Conflict in Plan Documents.  If there is any conflict between any two or more Plan Documents, such Plan Documents shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to the extent) of such conflict, the Plan Document dealing most specifically with the matter as to which there is a conflict shall prevail and control.  If it cannot be determined which Plan Document deals most specifically with a matter as to which there is a conflict then the Plan 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, as determined by the Committee from time to time.

(3)“Chem Systems Leader” means reports provided by Nexant Company or other relevant third party data that review chemical 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 performance compared to the performance of the rest of the chemical industry, and to identify top performance in the industry.

(4)“Chevron” means Chevron Corporation, or such entity as may be controlled by Chevron Corporation, that directly or 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 or indirectly holds a membership interest in the Company.

(8)“Date of Grant” means the effective date on which a Relative Performance Value Award 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 Deferred Compensation Plan.

(11)“Disability” means the Participant is eligible for, and is continuously receiving disability insurance benefits under the 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 financial records of the Company, or the financial records of any other company, or segment thereof, against whom the performance of the Company 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 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 a Participating Employer that provides that he is an independent contractor and not an Employee, shall be excluded 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 for tax 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 Eligible Employee for that period, even in the event 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 that cause differences in financial performance, such as assets owned in the United States vs. assets owned in Europe, the Middle East, or other areas.

(19)“Grant” means the award of a Relative Performance Value Award, subject to such terms and conditions as may be set forth in a Grant Agreement accompanying such award.

(20)“Grant Agreement” or “Agreement” means the agreement accompanying such Grant that sets forth the Relative Performance 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 Grant Agreements may be entered into by the Company as agent for the Participating Employers, and all Relative Performance Value Awards 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 applicable Valuation Date, as adjusted by the Committee in its sole discretion, considering factors deemed relevant by the Committee, which may include, but are not limited to, the dividend policies of the Parent Companies.

(22)“Parent Company” means Chevron, ConocoPhillips, and their respective successors.

(23)“Participant” means an Eligible Employee to whom a Relative Performance Value Award may be granted pursuant to the Plan.

(24)“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.

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(25)“Peer Companies” means those chemical companies, or chemical segments thereof, identified in Exhibit A which may 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 which a 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 other document defining the rights and liabilities of any Participant.

(29)“Relative Performance” means any measure established by the Committee in its sole and absolute discretion that compares the Company’s performance to a group of Peer Companies. Relative Performance measures considered may include, but are not limited to, EBITDA divided by Total Assets; comparison to Chem Systems Leader or other relevant third party data; and/or EVA.  The evaluation by the Committee may consider adjustments to normalize portfolio and Geographic Differences and to account for special events.

(30)“Relative Performance Value Award”, “RPVA” or “Award” means, unless modified by the Committee pursuant to the authority granted to it herein, an award under the Plan that rewards Participants for changes in the Company’s Relative Performance compared to a group of Peer Companies.

(31)“Retirement” means an Eligible Employee’s Termination of Service in connection with the attainment of any applicable early retirement age or normal retirement age as defined in (i) the Chevron Phillips Chemical Company LP Retirement Plan, (ii) any retirement plan of any Participating Employer, or (iii) the retirement plan of any Parent Company or any of its respective subsidiaries other than Chevron Phillips Chemical Company LLC. A Participant whose Termination of Service occurs while 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 shares underlying each Relative Performance Value Award target amount as determined by the Committee.  Such Share Ratio is generally established to provide that one-half of the opportunity inherent in the Grant is based on the value of common stock of each Parent Company, considering factors deemed relevant by the Committee, which may include but are not limited to, dividend policies of each Parent Company.  Share Ratios are fixed over the Performance Cycle of any individual Grant, but may vary among Grants occurring on different dates.

5

Notwithstanding the foregoing, the Committee retains the authority to adjust the Share Ratio for active Performance Cycles in a manner it deems appropriate to account for capital restructurings or other similar transactions involving the common shares of the Parent Company.

(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.

(35)“Valuation Date” means:

(i)for purposes of determining the Market Value Per Share at the beginning of any Performance Cycle, the last New York Stock Exchange trading day in December for the year immediately preceding said Performance Cycle; and

(ii)for purposes of determining the Market Value Per Share at the end of any Performance Cycle, the last New York Stock Exchange trading day in December for the last year of said Performance Cycle.

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 manner consistent 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 the proper administration of the Plan.

(d)The Committee’s interpretation and construction of the provisions of the Plan and rules and regulations adopted by the Committee shall be final.  No member of the Committee or the Board shall be liable for any action taken, or determination made, in respect of the Plan in good faith.

(e)The members of the Committee may retain counsel, employ agents, and provide for such clerical, accounting and consulting services 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 Committee and each member of the Board shall be fully justified in relying upon or acting in good faith upon any opinion, report, or information furnished 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).

(f)This Plan may be adopted by such subsidiary entities of the Company as the Board or Committee may approve, whereupon such entities shall become Participating Employers.

(g)The Committee shall periodically evaluate the effectiveness of the Plan in meeting the purposes for which the Plan was adopted. 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 an existing 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 to consent 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 Value Awards to any Eligible Employee.  Grants may be made by the Committee at any time and from time to time to new Eligible Employees, or to then Eligible Employees, or to a greater or lesser number of Eligible Employees, and may include or exclude previous Participants, as the 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 Employee becomes 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 applicable Performance Cycle. If, during a Performance Cycle, an individual is hired in a pay grade of 93 or above, the Employee becomes 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 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 give prorated Awards for all active Performance Cycles when required for competitive reasons.  In the event a Participant is demoted to a pay grade lower than 90, outstanding Relative Performance Value Awards will be prorated for all active Performance Cycles to which such outstanding Awards apply.  For this purpose, the proration period will begin as of the Date of Grant for each applicable Award and will end on the effective date of the Participant’s demotion. Outstanding Relative Performance Value Awards will not be subject to such proration in the event the Participant is demoted to a pay grade lower than 93; provided such demotion is not below 90.  At the end of the applicable Performance Cycle, the value of

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said prorated Relative Performance Value Awards, as determined in accordance with Section 4, shall be deferred to Participant’s Deferred 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 and conditions, as the Committee may from time to time determine. The rights of a Participant with respect to any Grant shall at all times be subject to the terms and conditions set forth in the Grant Agreement relating thereto and in the Plan Documents. Except as required by this Plan, different Grants need not contain terms or conditions similar to any Grant made prior thereto or contemporaneously therewith.  The Committee’s determinations under the Plan (including determinations of which Eligible Employees, if any, are to receive Grants, the form, amount and timing of such Grants, the terms and provisions of such Grants and the agreements evidencing same) need not be uniform and may be made by it selectively among Eligible Employees who receive, or are 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 Value Award target amount. The Committee shall also determine the (1) Share Ratio underlying such Relative Performance Value Award target 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 RPVA target amounts, applicable Share Ratio, and the Relative Performance measures shall be set forth in writing within ninety (90) days of the 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 a Performance Cycle if the Award is not based on the Company’s favorable performance as compared with the group of Peer Companies.

(d)At the end of each Performance Cycle, the Committee shall evaluate the Company’s Relative Performance in comparison to the group of Peer Companies to establish what percentage of the Share Ratio will be used as a basis for calculating the Participant’s Relative 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 applied to 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 the Committee in its sole and absolute discretion either in individual cases or in the aggregate.  An example of a Relative Performance Value 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 any activity which the Committee judges to be detrimental to any Participating Employer, or otherwise fails to perform his obligations as a regular, full time Employee, the Committee may cancel or reduce the Participant’s Relative Performance Value Award in whole or in part at any time prior to the date said RPVA is deferred to the Participant’s Deferred Compensation Plan account, as more particularly 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, the amount of said RPVA shall be automatically deferred to the Participant’s Deferred Compensation Plan account attributable to Relative 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 following business day.

(b)The rules and procedures governing the Deferred Compensation Plan shall govern and be binding upon the Participants. In addition, deferral and distribution elections shall be made in accordance with Section 409A and the terms of the Deferred Compensation Plan.  Specifically, irrevocable elections by Participants of the time and form of payment of the RPVA paid under the Deferred Compensation Plan shall be made no later than the date that is six (6) months before the end of the applicable Performance Cycle in accordance with the Proposed Treasury Regulation section 1.409A-2(a)(7) and subsequent guidance.

6.Vesting and Forfeiture

(a)Except as provided in the Plan Document, upon a Participant’s Termination of Service, the Participant’s outstanding Grants of Relative Value Performance Awards and all rights thereunder shall terminate on the Date of Termination; provided, however, that in the case of a Participant’s Termination of Service due to Retirement, transfer to a Parent Company, Disability or death, the Participant shall be entitled, with respect to each Grant still outstanding, to a prorated Relative Performance Value Award for the period beginning as of the Date of Grant for each respective Relative Performance Value Award and ending on the Date of Termination.  At the end of applicable Performance Cycle, the amount of said prorated Relative Performance Value Award shall be deferred 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 Deferred Compensation 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 Parent Company, Disability or death.  If a Participant terminates employment with the Participating Employer for any reason other than Retirement, layoff, transfer to a Parent Company, Disability or death, then the Participant shall forfeit the entire portion of the Participant’s Deferred Compensation Plan account attributable to Relative Performance Value Award deferrals (and deemed earnings and losses thereon).

Notwithstanding the foregoing, any Eligible Employee who is a Participant in the Plan as of January 1, 2006 will be vested in his Deferred Compensation Plan account attributable to Relative Performance Value Award deferrals (and deemed earnings and losses 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 for personal reasons or as a result of entry into the Armed Forces of the United States, or terminates employment for reasons which, in the judgment of the Committee, are deemed to be special circumstances, the Committee may consider such circumstances and may take such action (to the extent consistent with Section 409A) in respect of the Participant’s (1) related outstanding Grants as it may deem appropriate under the circumstances, including extending the rights of a Participant to continue participation in the Plan beyond his 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 with respect to said account.

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 the Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part.  Any such amendment shall, to the extent deemed 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, the holder 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 this Section 7 shall adversely affect any rights of Participants or obligations of the Participating Employer to Participants with respect to any award theretofore granted under the Plan without the consent of the affected Participant.

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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 those entities 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 liquidation 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.

9.General Provisions

(a)Relative Value Performance Awards shall be nontransferable and nonassignable, except that any such Grant may be transferred (1) to such beneficiary as the Participant may designate in the event of death, Disability or other incapacity, or (2) by testamentary instrument or by the laws of descent and distribution. The Committee shall prescribe the form and manner in which beneficiary designations shall be made, revoked or amended. Any valid beneficiary designation on file with the Company 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 continued employment, nor shall it interfere with the right of any Participating Employer (which right is hereby reserved) to discharge any Employee and to treathimwithout regard to the effect which that treatment might have upon himas 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 right to be granted an award or any other rights except as may be evidenced by a Grant Agreement, or any amendment thereto, duly authorized by the Committee and executed on behalf of the Company, and then only to the extent and upon the terms and conditions expressly 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 taxes required by law to be withheld with respect to such payments.

(e)THE VALIDITY, CONSTRUCTION AND EFFECT OF THE PLAN, ANY PLAN DOCUMENTS, AND ANY ACTIONS TAKEN OR RELATING TO THE PLAN SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE 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 all or substantially all of the business and/or assets of the Company, expressly to assume and agree to perform the Company’s obligations

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 succession had taken place.

(g)The Plan shall be unfunded. Neither the Company, any Participating Employer, the Committee, nor the Board shall be required 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 be made, but Grants made before that date will continue to be effective in accordance the terms and conditions of the respective Grant Agreement.

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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 ABSOLUTE DISCRETION.

13

EXHIBIT B

AWARD 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 of each Parent Company as determined by the Committee at the beginning of the Performance Cycle is $51.98 for Chevron stock and $53.51 for COP 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 COP stock.

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, the Committee awards the Participants 110% of the Share Ratios underlying their RPVA target amount, as determined above.  Further assume that at 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 stock is $67.00.  In this example, the Participant’s Relative Value Performance Award will equal $150,275, as calculated in accordance with the following 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 the Company’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.

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AMENDMENT NUMBER ONE
TO THE
RELATIVE PERFORMANCE VALUE PLAN OF
CHEVRON PHILLIPS CHEMICAL COMPANY LLC

WHEREAS, effective January 1, 2006, Chevron Phillips Chemical Company LLC (the “Company”) established the Relative Performance 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 in whole 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, or death, the Participant shall be entitled, with respect to each Grant still outstanding, to a prorated Relative Performance Value Award for the period beginning as of the Date of Grant for each respective Relative Performance Value Award and ending when the Participant is placed on Disability or on the Participant’s Date of Termination, as applicable. If a Participant terminates employment for any reason other than Retirement, transfer to a Parent Company, or death, then the Participant’s outstanding 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 Award deferrals (and deemed earnings and losses thereon) only upon the Participant’s Disability or on the Participant’s Date of Termination resulting from Termination of Service due to Retirement, layoff, transfer to a Parent Company, or death.  If a Participant 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 to Relative 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 in the entire portion of his Deferred Compensation account attributable to Relative Performance Value Award deferrals (and deemed earning and losses thereon) on the Participant’s Date of Termination, without regard to the cause of his Termination of 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 Awards

shall be nontransferable and nonassignable.

IN WITNESS WHEREOF, Chevron Phillips Chemical Company LLC has caused this Amendment Number One to be executed this 24 day of February, 2006.

CHEVRON PHILLIPS CHEMICAL COMPANY LLC
By:	/s/ James L. Gallogly
Its:	President and Chief Executive Officer

EX-10.11

Don F. Kremer

Vice President

Human Resources

10001 Six Pines Drive

Room 8026

The Woodlands, TX

77380-1498

P.O. Box 4910

The Woodlands, TX

77387-4910

832-813-4347

Fax: 832-813-4555

kremedf@cpchem.com

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 Officer

Location:               The Woodlands, TX

Grade:                     99

Salary:                    $525,000/annually

Start 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 and individual performance. If you accept our offer and begin work April 1, 2006, you will be eligible for a prorated AIP award generally paid in early 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 would normally 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 employee benefit plans, as they may be amended from time to time, and any plans the Company may establish during your period of employment for which 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 written notice to you, or you may terminate employment at any time after providing thirty (30) days written notice to the Company.  In the event your employment is involuntarily terminated by the Company within three years of the Start Date, other than for Cause, you shall be entitled to a special Termination Bonus.  The Termination Bonus shall be the lesser of either (i) two year’s base salary plus two year’s AIP award at target or (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 the date 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 Offer Addendum (which describes some of the requirements necessary for you to begin employment).  To accept this offer, please mail this letter and 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 Resources

Chevron Phillips Chemical LP

10001 Six Pines Drive

The Woodlands, TX 77380

Check One:

           I accept the position.                  I decline this position.

/s/ Raymond I. Wilcox

Signature

02/09/06

Date

2

JOB OFFER ADDENDUM

THIS DOCUMENT IS A JOB OFFER ADDENDUM COVERING CERTAIN CONDITIONS OF YOUR EMPLOYMENT.   THE CONTENT OF THIS JOB OFFER ADDENDUM IS IMPORTANT AND SHOULD BE REVIEWED THOROUGHLY.  THE CONDITIONS OF EMPLOYMENT ARE AS FOLLOWS.

(1)           UNDER THE PROVISIONS OF THE IMMIGRATION REFORM AND CONTROL ACT OF 1986, THE COMPANY IS REQUIRED TO HAVE CERTAIN VERIFICATION INDICATING YOU ARE A U.S. CITIZEN OR LEGAL ALIEN.  TO COMPLY WITH THE REGULATIONS THAT ARE ASSOCIATED WITH THE ACT, YOU MUST PRESENT CERTAIN DOCUMENTATION TO THE COMPANY.   ATTACHED IS A LISTING OF AUTHORIZED DOCUMENTATION THAT CAN BE ACCEPTED.  UPON REPORTING TO WORK, THE COMPANY WILL ASK YOU TO PRESENT ONE DOCUMENT FROM EITHER LIST A OR FROM LIST B AND ONE DOCUMENT FROM LIST C.  IF YOU ARE UNABLE TO PROVIDE THESE DOCUMENTS WITHIN THREE WORKING DAYS, YOU MUST PROVIDE A RECEIPT SHOWING APPLICATION FOR THE PROPER DOCUMENTS WITHIN THE SAME THREE WORKING DAYS.  IF YOU CANNOT PROVIDE THE DOCUMENTS WITHIN NINETY DAYS AFTER DATE OF HIRE, BY LAW WE CANNOT CONTINUE YOUR EMPLOYMENT.

(2)           FOR BENEFIT PURPOSES, PRESENTATION OF YOUR BIRTH CERTIFICATE (ORIGINAL OR CERTIFIED COPY) AND YOUR SOCIAL SECURITY CARD ARE REQUIRED WHEN YOU REPORT TO WORK.  IT IS ALSO RECOMMENDED YOU BRING SOCIAL SECURITY NUMBERS AND BIRTHDATES OF YOUR DEPENDENTS AND BENEFICIARIES FOR MEDICAL, DENTAL AND OTHER INSURANCE BENEFITS.  IF YOU ARE BEING EMPLOYED BASED IN PART ON YOUR COLLEGE DEGREE, YOU WILL 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 OTHER EMPLOYEES ARE EXPECTED TO COMPLY.  THESE POLICIES ARE IN PLACE FOR THE WELFARE OF OUR WORKFORCE.  IN THIS REGARD, YOU ARE ADVISED THAT THE COMPANY HAS ADOPTED A NO-SMOKING POLICY.  SMOKING IS PROHIBITED IN ALL ENCLOSED WORK AREAS.  ALSO, BECAUSE OF THE CRITICAL NEED FOR SAFETY IN THE CHEMICAL INDUSTRY, THE COMPANY HAS A DRUG OR SUBSTANCE POLICY RELATING TO PROHIBITED UNAUTHORIZED, ILLEGAL OR CONTROLLED DRUGS, ALCOHOL, CHEMICALS AND SUBSTANCES IN THE WORKFORCE WHICH YOU WILL BE EXPECTED TO ACKNOWLEDGE AND ABIDE BY WHILE AN EMPLOYEE.  IN ESSENCE, THE COMPANY IS COMMITTED TO MAINTAINING A DRUG OR SUBSTANCE-FREE WORKFORCE.  (YOUR HUMAN RESOURCES REPRESENTATIVE CAN PROVIDE 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’S CONDITIONAL OFFER OF EMPLOYMENT AND WAIT TO GIVE NOTICE OF YOUR RESIGNATION TO YOUR PRESENT EMPLOYER UNTIL THE COMPANY HAS NOTIFIED YOU OF YOUR CLEARANCE.

1

(5)           AS PART OF ITS EMPLOYMENT SCREENING AND SELECTION PROCEDURES, THE COMPANY REQUIRES A BACKGROUND INVESTIGATION AND A CHECK OF REFERENCES BE CONDUCTED.  THE OBJECTIVES OF THE INVESTIGATION ARE TO VERIFY INFORMATION PROVIDED DURING THE APPLICATION PROCESS, INVESTIGATE REFERENCES, AND TO IDENTIFY ANY FACTORS THAT MIGHT BE INCONSISTENT WITH THE COMPANY’S EMPLOYMENT REQUIREMENTS.  YOUR EMPLOYMENT IS CONTINGENT ON A SATISFACTORY BACKGROUND INVESTIGATION AND CHECK OF REFERENCES.

(6)           UPON REPORTING TO WORK YOU WILL BE REQUIRED TO SIGN AN AGREEMENT IN RESPECT TO CONFIDENTIALITY COVERING INVENTIONS, PATENTS, AND PROPRIETARY KNOWLEDGE.

(7)           THE COMPANY IS AN AT-WILL EMPLOYER.  AS SUCH, YOUR EMPLOYMENT WITH THE COMPANY IS ON AN EMPLOYMENT AT-WILL BASIS.

I ACKNOWLEDGE HAVING READ THIS JOB OFFER ADDENDUM AND UNDERSTAND AND AGREE TO THE STATUS OF MY EMPLOYMENT AND THESE CONDITIONS OF EMPLOYMENT.  I FURTHER UNDERSTAND AND AGREE THAT NOTHING CONTAINED IN THIS JOB OFFER ADDENDUM CAN BE CHANGED, MODIFIED, WAIVED OR TERMINATED UNLESS AGREED TO IN WRITING BY A DULY AUTHORIZED REPRESENTATIVE OF THE COMPANY.

SIGNED: /s/ Raymond I. Wilcox DATE: 02/09/06

2

EX-21.1

Exhibit 21.1

Schedule of Subsidiaries

	Jurisdiction
Entity Name	of Organization
Arabian Chevron Phillips Petrochemical Company Limited	Bermuda
Chemical Services LLC	Delaware
Chevron Phillips Chemical (China) Co., Ltd.	China
Chevron Phillips Chemical ANZ Holdings LLC	Delaware
Chevron Phillips Chemical Company LP	Delaware
Chevron Phillips Chemical Company Qatar LLC	Delaware
Chevron Phillips Chemical Holdings I LLC	Delaware
Chevron Phillips Chemical Holdings II LLC	Delaware
Chevron Phillips Chemical International Canada Ltd.	Canada
Chevron Phillips Chemical International Holdings LLC	Delaware
Chevron Phillips Chemical International Inc.	Panama
Chevron Phillips Chemical International, Limited	Japan
Chevron Phillips Chemical International Qatar Holdings LLC	Delaware
Chevron Phillips Chemical International Sales LLC	Delaware
Chevron Phillips Chemical Malaysia Sdn Bhd	Malaysia
Chevron Phillips Chemical Pipeline Company LLC	Delaware
Chevron Phillips Chemical Puerto Rico Core Inc.	Delaware
Chevron Phillips Chemicals (Shanghai) Corporation	China
Chevron Phillips Chemicals Asia Pte. Ltd.	Singapore
Chevron Phillips Chemicals Australia Pty. Ltd.	Australia
Chevron Phillips Chemicals France S.A.R.L.	France
Chevron Phillips Chemicals Germany GmbH	Germany
Chevron Phillips Chemicals International N.V.	Belgium
Chevron Phillips Chemicals International Sales Inc.	Bahamas
Chevron Phillips Chemicals Italy S.r.L.	Italy
Chevron Phillips Chemicals New Zealand Ltd.	New Zealand
Chevron Phillips Chemicals, S.A. de C.V.	Mexico
Chevron Phillips Chemicals Spain S.L.	Spain
Chevron Phillips Chemicals UK Limited	England
Chevron Phillips International Corporation	Bahamas
Chevron Phillips Spain Holding Company, S.L.	Spain
CPC Receivables Company LLC	Delaware
Driscopipe Mexicana S. de R.L. de C.V.	Mexico
Phillips Petroleum International N.V.	Belgium
Phillips Petroleum International Ventures Corporation	Panama
Plexco de Mexico, S.A. de C.V.	Mexico
Plexco International, S.A. de C.V.	Mexico
Productos Plasticos Plexco, S.A. de C.V.	Mexico
Six Pines Insurance Limited	Bermuda
SouthTex 66 Pipeline Company, Ltd.	Texas

EX-31.1

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 necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the 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 material respects 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 (as defined 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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to 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 conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)Disclosed in this report any change in the registrant’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control 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 financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are 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’s internal control over financial reporting.

Date: February 27, 2006	/s/ James L. Gallogly
	James L. Gallogly
	President and Chief Executive Officer

EX-31.2

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 necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the 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 material respects 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 (as defined 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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to 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 conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)Disclosed in this report any change in the registrant’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control 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 financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are 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’s internal control over financial reporting.

Date: February 27, 2006	/s/ Greg G. Maxwell
	Greg G. Maxwell
	Senior Vice President,
	Chief Financial Officer and Controller