UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF ~~THE SECURITIES EXCHANGE ACT OF 1934~~

~~For~~THE ~~the~~SECURITIES ~~quarterly~~EXCHANGE ~~period~~ACT ~~ended March 31, 2005~~OF 1934

~~o TRANSITION~~For ~~REPORT~~the ~~PURSUANT~~quarterly TOperiod ~~SECTION 13 OR~~ended ~~15(d)~~June ~~OF THE~~30, ~~SECURITIES EXCHANGE ACT OF 1934~~2005

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 the Registrant as specified in its charter)

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

10001 Six Pines Drive ~~The Woodlands, TX 77380-1498~~

The Woodlands, TX 77380-1498

(Address of principal executive offices, including zip code)

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

~~NONE~~ (~~Former~~Registrant’s ~~name~~telephone number, ~~former~~including ~~address~~area ~~and former fiscal year if changed since last report~~code)

NONE

(Former name, former address and former fiscal year if changed since last report)

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes o No ý

Chevron Phillips Chemical Company LLC

Index

			Page
Part I.	Financial Information (Unaudited)
	Item 1.	Financial Statements
		Condensed Consolidated Statement of Operationsfor the three months ended March 31, 2005 and 2004	3
		Condensed Consolidated Statement of Operations for the three and six-month periods ended June 30, 2005 and 2004	3
		Condensed Consolidated Balance Sheet at March 31, 2005 and December 31, 2004	4
		Condensed Consolidated Balance Sheet at June 30, 2005 and December 31, 2004	4
		Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2005 and 2004	5
		Condensed Consolidated Statement of Cash Flows for the six-month periods ended June 30, 2005 and 2004	5
		Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1921
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2225
	Item 4.	Controls and Procedures	2225
Part II.	Other Information
	Item 6.	Exhibits	23
	Item 1.	Legal Proceedings	26
Signature			23
	Item 6.	Exhibits	26
Signature			26

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Chevron Phillips Chemical Company LLC

Condensed Consolidated Statement of Operations

(Unaudited)

	Three months ended March 31,
	Three months ended June 30,						Six months ended June 30,
Millions	2005			2004			2005			2004
Revenue
Net sales	$	2,~~658~~503		$	12,~~993~~091		$	5,161		$	4,084
Equity in income of affiliates, net	5039			2744			89			71
Other income	2640			1921			66			40
Total revenue	2,~~734~~582			2,~~039~~156			5,316			4,195
Costs and Expenses
Cost of goods sold	2,~~205~~254			1,~~798~~922			4,459			3,720
Selling, general and administrative	~~110~~123			~~104~~106			233			210
Research and development	10			1011			20			21
Total costs and expenses	2,~~325~~387			12,~~912~~039			4,712			3,951
Income Before Interest and Taxes	~~409~~195			~~127~~117			604			244
Interest income	4			2			8			4
Interest expense	(20		)	(1819		)	(40		)	(37		)
Income Before Taxes	~~393~~179			~~111~~100			572			211
Income taxes	(46		)	(3		)	(10		)	(6		)
Net Income	~~389~~173			~~108~~97			562			205
Distributions on members’ preferred interests	(2—		)	(65		)	(2		)	(11		)
Income Attributed to Members’ Interests	$	~~387~~173		$	~~102~~92		$	560		$	194

See Notes to Condensed Consolidated Financial Statements.

Chevron Phillips Chemical Company LLC

Condensed Consolidated Balance Sheet

(Unaudited)

Millions	~~March~~June 3130, 2005		December 31, 2004
ASSETS
Current assets
Cash and cash equivalents	$	5630	$	63
Accounts receivable, net	1,~~339~~204		1,266
Inventories	~~833~~		~~784~~
Other current assets	32		43
Finished goods and raw materials	733		733
Total current assets	2,260		2,156
Materials, supplies and other	49		51
Property, plant and equipment, net	3,728		3,768
Total inventories	782		784
Investments in and advances to affiliates	949		893
Other current assets	33		43
Other assets and deferred charges	45		55
Total current assets	2,049		2,156
Total Assets	$	6,982	$	6,872
Property, plant and equipment, net	3,692		3,768
Investments in and advances to affiliates	948		893
Other assets and deferred charges	42		55
Total Assets	$	6,731	$	6,872
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities
Accounts payable	$	~~943~~774	$	884
Accrued income and other taxes	3447		60
Secured borrowings and other debt	~~201~~154		201
Other current liabilities and deferred credits	245		196
Accrued distributions to members	217		39
Total current liabilities	1,423		1,341
Other current liabilities and deferred credits	130		157
Long-term debt	1,265		1,390
Total current liabilities	1,322		1,341
Other liabilities and deferred credits	88		91
Long-term debt	1,169		1,390
Total liabilities	2,776		2,822
Other liabilities and deferred credits	90		91
Total liabilities	2,581		2,822
Members’ preferred interests	—		75
Members’ capital	4,~~163~~120		3,925
Accumulated other comprehensive income	4330		50
Total members’ equity	4,~~206~~150		3,975
Total Liabilities and Members’ Equity	$	6,~~982~~731	$	6,872

See Notes to Condensed Consolidated Financial Statements.

Chevron Phillips Chemical Company LLC

Condensed Consolidated Statement of Cash Flows

(Unaudited)

	Three months ended March 31,
	Six months ended June 30,
Millions	2005			2004
Cash Flows From Operating Activities
Net income	$	~~389~~562		$	~~108~~205
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities
Adjustments to reconcile net income to net cash flows provided by operating activities
Depreciation, amortization and retirements	69142			70139
Undistributed equity in income of affiliates, net	(5034		)	(2759		)
Changes in operating working capital	(~~123~~89		)	(~~172~~34		)
Other operating cash flow activity	710			41
Net cash flows provided by (used in) operating activities	292			(17		)
Net cash flows provided by operating activities	591			252
Cash Flows From Investing Activities
Capital and investment expenditures	(3379		)	(4396		)
Investments in and advances to Qatar Chemical Company Ltd. (Q-Chem)	—			(9		)
Investments in and advances to Jubail Chevron Phillips Company	(20		)	(4		)
Other investing cash flow activity	—			1
Investment in Qatar Chemical Company Ltd. (Q-Chem)	—			(18		)
Net cash flows used in investing activities	(33		)	(51		)
Advance repayment from Saudi Chevron Phillips Company	9			—
Net cash flows used in investing activities	(90		)	(118		)
Cash Flows From Financing Activities
Increase (decrease) in commercial paper, net	(~~125~~221		)	7754
Decrease in other debt, net	—			(13		)
Decrease in secured borrowings, net	(50		)	(100		)
Increase (decrease) in other debt, net	3			(14		)
Redemptions of members’ preferred interests	(75		)	—
Distributions on members’ preferred interests	(2		)	—(39		)
Other distributions to members	(64189		)	—(36		)
Net cash flows provided by (used in) financing activities	(266		)	64
Net cash flows used in financing activities	(534		)	(135		)
Net Decrease in Cash and Cash Equivalents	(733		)	(41		)
Cash and Cash Equivalents at Beginning of Period	63			43
Cash and Cash Equivalents at End of Period	$	5630		$	3942

See Notes to Condensed Consolidated Financial Statements.

Chevron Phillips Chemical Company LLC

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. General Information

The company, 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 owned 50% each by ~~ChevronTexaco~~Chevron Corporation (“Chevron,” formerly ChevronTexaco Corporation) and ConocoPhillips (collectively, the “members”).

The accompanying unaudited condensed consolidated financial statements include the accounts of Chevron Phillips Chemical Company LLC and its wholly- owned subsidiaries (collectively, “CPChem”), and should be read in conjunction with the consolidated financial statements included in CPChem’s Annual Report on Form 10-K for the year ended December 31, 2004. The financial statements and accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations have been prepared in conformity with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Some information and footnote disclosures required by generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The financial statements include all normal recurring adjustments that CPChem considers necessary for a ~~fair~~ fair presentation. Certain amounts for ~~prior~~ prior periods ~~may~~ have been reclassified in order to conform to the current ~~reporting~~ reporting presentation. Results for the ~~periods~~ periods presented in this report are not necessarily indicative of future financial performance.

Note 2. 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) apply immediately to VIEs created after December~~ ~~31, 2003, and for CPChem, which is considered to be a nonpublic entity as it relates to FIN No.~~ 46(R)~~, the consolidation requirements for VIEs created~~ ~~on or before December 31, 2003~~ 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 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~~ recognized as current-period charges. It ~~also~~ 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.

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 are effective July 1, 2005. CPChem believes that implementation of this standard will not have a material impact on consolidated results of operations, financial position or liquidity.

In March 2005, ~~FASB~~the FASB issued 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 required by FASB Statement No. 143, “Accounting for Asset Retirement Obligations.” For CPChem, the provisions of FIN No. 47 are effective December 31, 2005. CPChem is evaluating what impact, ~~FIN~~if any, FIN No. 47 will have regarding its asset retirement obligations, but currently believes that implementation of FIN No. 47 will not have a material impact on consolidated results of operations, financial position or liquidity.

Note 3. Comprehensive Income

	Three months ended March 31,
	Three months ended June 30,						Six months ended June 30,
Millions	2005			2004			2005			2004
Net income	$	~~389~~173		$	~~108~~97		$	562		$	205
Foreign currency translation adjustments	(713		)	(32		)	(20		)	(5		)
Comprehensive income	$	~~382~~160		$	~~105~~95		$	542		$	200

Note 4. Postretirement Benefits Information

CPChem expects to contribute approximately $5055 million to its pension plans for pension benefits during 2005. ~~There~~Contributions ~~were no~~totaling ~~contributions~~$20 tomillion ~~pension~~were ~~plans~~made during in the first ~~quarters~~half of 2005. There were orno contributions during the first half of 2004.

Net periodic benefit costs for pension and other postretirement benefits follow:

	Pension benefits						Other benefits
	Three months ended June 30,						Six months ended June 30,
	Three months ended March 31,						Three months ended March 31,
Millions	2005			2004			2005			2004
Service cost on benefits earned	$	6		$	5		$	—		$	—
Pension Benefit Costs
Interest cost on projected benefit obligations	5			5			1			1
Service cost on benefits earned	$	7		$	6		$	13		$	11
Expected return on plan assets	(4		)	(3		)	—			—
Interest cost on projected benefit obligations	6			4			11			9
Amortization of prior service costs	3			3			1			1
Expected return on plan assets	(6		)	(3		)	(10		)	(6		)
Net periodic benefit cost	$	10		$	10		$	2		$	2
Amortization of prior service costs	3			3			6			6
Net actuarial loss	—			1			—			1
Net periodic benefit cost	$	10		$	11		$	20		$	21
Other Postretirement Benefit Costs
Service cost on benefits earned	$	1		$	1		$	1		$	1
Interest cost on projected benefit obligations	1			1			2			2
Expected return on plan assets	(1		)	(1		)	(1		)	(1		)
Amortization of prior service costs	—			1			1			2
Net actuarial loss	1			—			1			—
Net periodic benefit cost	$	2		$	2		$	4		$	4

Note 5. 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.

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 $164 million during the first half of 2005 and $36 million during the first half of 2004. At ~~March~~June 3130, 2005, $~~124~~ 92 million of tax distributions were accrued in Other Current Liabilities and Deferred Credits that will be paid in the ~~second~~third quarter of 2005. At December 31, 2004, ~~$39~~accrued ~~million of~~ tax distributions ~~were~~totaled ~~accrued that were subsequently paid in the first quarter of~~$39 ~~2005~~million.

Note 6. Investments

Qatar ~~Chemical~~ 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 target debt service payments. This loan is 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’s rights under the subordinated loan agreement and the other contingent loan agreements related to Q-Chem previously described 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, including accrued interest, under the subordinated loan agreement totaled $~~313~~317 million at ~~March~~June 3130, 2005 and $310 million at December 31, 2004.

CPChem records its 49% share of Q-Chem’s operating results using the equity method of accounting for investments. Q-Chem is a VIE under the provisions of FIN No. 46(R). CPChem’s maximum exposure to loss per FIN No. 46(R) was $~~405~~419 million at ~~March~~June 3130, 2005, representing CPChem’s carrying value of its investment in and advances to Q-Chem.

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 $5716 million (gross) at ~~March~~June 3130, 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 ~~direct~~ party to this guarantee. SCP is not a VIE under the provisions of FIN No. 46(R).

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. Construction of the JCP facility is 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. JCP is not a VIE under the provisions of FIN No. 46(R).

The JCP project ~~will~~is be 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 totaled $7071 million at ~~March~~June 3130, 2005 and $50 million at December 31, 2004. Principal and accrued interest outstanding under loans from the first governmental agency totaled $82132 million at ~~March~~June 3130, 2005 and $42 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~~/or~~ subordinated loans. In addition, the co-venturers are obligated to each fund their respective 50% share, through equity contributions ~~and/~~ 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.

Certain bridge loan guarantees ~~obligate~~ obligated the JCP co-venturers to each repay their respective 50% share of the commercial bank loans to JCP and SCP if the loans from the second Saudi Arabian governmental agency ~~are~~were not available by June 21, 2005. Conditions precedent to the availability of loans from the second Saudi Arabian governmental agency were satisfied, and the bridge loan guarantees were terminated.

Under the terms of completion guarantees, the commercial bank lenders and the first Saudi Arabian governmental agency 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. Furthermore, if the project is not completed by March 31, 2010, the commercial bank lenders and the first Saudi Arabian governmental agency 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. Chevron Phillips Chemical Company LLC is not a ~~direct~~ party to this guarantee.

In addition to the above guarantees, ~~CPChem~~each co-venturer guaranteed their respective 50% share of payment to a contractor for certain ~~construction~~ 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. ~~CPChem~~ Each co-venturer also granted a guarantee, on a pro rata basis, related to the delivery of stated amounts of JCP’s styrene monomer production to a JCP customer, limited to a maximum of $8 million each. This guarantee terminates upon the achievement of commercial production of styrene by JCP.

The total carrying amount of liabilities recorded, discounted and weighted for probability, for the aforementioned guarantees related to the JCP project totaled $69 million at ~~March~~June 3130, 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.

Summarized Financial Information

In accordance with the SEC’s rules pertaining to equity investments that are deemed to be “significant,” summarized financial information for CPChem’s equity investments, shown at 100%, follows:

	Three months ended March 31,
	Three months ended June 30,				Six months ended June 30,
Millions	2005		2004		2005		2004
Q-Chem
Revenues	$	~~130~~81	$	6370	$	211	$	133
Income before income taxes	6617		1829		83		47
Net income	4710		1829		57		47
Saudi Chevron Phillips Company
Revenues	~~163~~122		~~111~~148		285		259
Income before income taxes	6838		3360		106		93
Net income	6838		3360		106		93
All others in the aggregate
Other equity investments
Revenues	~~287~~280		~~205~~219		567		424
Income before income taxes	1513		52		28		7
Net income	1312		41		25		5

Note 7. Trade Receivables Securitization

CPChem had ~~$200 million of~~ secured borrowings outstanding totaling $150 million at ~~March~~June 3130, 2005 and $200 million at December 31, ~~2004~~ 2004 under a trade receivables securitization agreement. These borrowings are classified as short-term and were secured by $~~700~~652 million and $665 million of trade receivables, respectively. ~~The~~CPChem renewed its $300 million trade receivables securitization agreement ~~expires~~in onthe ~~May 17,~~second quarter of 2005~~. CPChem~~ ~~has~~on ~~commitments~~terms ~~from~~substantially ~~banks,~~similar ~~subject~~ to ~~final~~ ~~documentation,~~those toof ~~renew~~ the ~~receivables~~prior ~~securitization~~agreement. The new agreement ~~through~~expires in May 2006 ~~on terms substantially identical to the current agreement~~.

Note 8. 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 If applicable, undiscounted receivables are recorded for probable insurance or other third-party recoveries. ~~Based on~~ ~~currently~~As ~~available~~facts ~~information~~concerning contingent liabilities become known, CPChem reassesses ~~believes~~its itposition iswith ~~remote~~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 ~~related~~due to ~~known~~such ~~contingent~~factors ~~liabilities~~as ~~will~~the ~~exceed~~unknown ~~current~~magnitude ~~accruals~~of bycleanup ancosts, prospective ~~amount~~changes in laws and regulations, the unknown timing and extent of remedial actions that ~~would~~may ~~have~~be arequired ~~material~~and ~~adverse~~the ~~effect~~determination onof ~~consolidated~~CPChem’s ~~results~~liability in proportion to those of other responsible parties. Estimated future costs related to legal ~~operations,~~matters ~~financial~~are ~~position~~subject orto ~~liquidity~~change as events occur and as additional information becomes available.

AsOther ~~facts~~than ~~concerning~~those ~~contingent liabilities~~matters ~~become~~discussed ~~known,~~below ~~CPChem reassesses its position with respect to accrued liabilities~~ and ~~other~~based ~~potential~~on ~~exposures. Estimates that are particularly sensitive to~~currently ~~future~~available ~~change~~information, ~~include~~CPChem ~~legal~~believes ~~matters~~it ~~and~~is ~~contingent~~remote ~~liabilities~~that ~~for environmental remediation. Estimated~~ future ~~environmental~~ ~~remediation~~ costs ~~are subject~~ related to ~~change~~known ~~due~~contingent toliabilities ~~such~~will ~~factors~~exceed ~~as the~~current ~~unknown~~accruals ~~magnitude~~by ofan ~~cleanup~~amount ~~costs, prospective changes in laws and regulations, the unknown timing and extent of remedial actions~~ that ~~may be~~ ~~required~~would ~~and~~have ~~the~~a ~~determination~~material ofadverse ~~CPChem’s~~effect ~~liability~~on inconsolidated ~~proportion~~results ~~to those~~ of ~~other~~ ~~responsible parties. Estimated~~operations, ~~future~~financial ~~costs~~position ~~related~~or ~~to legal matters are subject to change as events occur and as additional information becomes available~~liquidity.

~~CPChem~~Legal is a party to certain asbestos lawsuits for which the financial responsibility between CPChem and ConocoPhillips is disputed. CPChem and ConocoPhillips are attempting to resolve where the financial responsibility for these lawsuits rests. 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.Matters

CPChem is a party to ~~a number~~certain ofasbestos ~~other~~lawsuits ~~legal~~for ~~proceedings~~which ~~that~~the ~~arose~~financial responsibility inbetween ~~the~~CPChem ~~ordinary~~and ~~course~~ConocoPhillips ofis ~~business~~disputed. CPChem and ~~for~~ConocoPhillips ~~which,~~are inattempting ~~many~~to ~~instances,~~resolve nowhere ~~provision~~the ~~has~~financial ~~been~~responsibility ~~made~~for these inlawsuits rests. In the ~~financial~~meantime, ConocoPhillips is managing and ~~statements~~defending these lawsuits. ~~While~~ In the ~~final~~event ~~outcome~~the offinancial responsibility for these ~~proceedings~~lawsuits ~~cannot~~is beultimately ~~predicted~~determined to rest with ~~certainty~~CPChem, CPChem ~~believes~~may ~~that none~~be ofrequired ~~these~~to ~~proceedings,~~record ~~when resolved, will have~~ a ~~material~~charge ~~adverse~~to ~~effect~~operations ~~on consolidated~~that ~~results~~could ofbe ~~operations,~~material ~~financial~~to ~~position~~the ~~or liquidity~~period reported.

~~Electricity~~CPChem ~~Deregulation~~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 proceedings, when resolved, will have a material adverse effect on consolidated results of operations, financial position or liquidity.

~~Legislation~~Electricity for electricity deregulation enacted in 1999 allowed utilities to file an application with the Public Utility Commission of Texas (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. A number of entities intervened in the PUCT proceedings to object to certain claims in CenterPoint’s application. In November 2004, the PUCT entered an order for a recovery of approximately one-half of Centerpoint’s request. Both sides are appealing the decision.Deregulation

IfLegislation for itelectricity isderegulation ~~determined~~enacted ~~that CenterPoint~~in is1999 ~~entitled~~allowed utilities to ~~recover~~file ~~any~~an application ofwith the ~~costs~~Public ~~claimed~~Utility inCommission ~~its~~of ~~application, CPChem~~Texas ~~would~~(the ~~receive~~“PUCT”) afor ~~monthly~~the determination ~~charge~~and ~~added~~reimbursement toof ~~its~~certain ~~electricity~~costs ~~cost~~associated ~~over~~with anutility asset ~~extended~~devaluation ~~period~~that ofmay ~~time~~have tooccurred ~~pay~~due ~~for~~to ~~such~~that ~~reimbursement~~legislation. ~~Based~~CenterPoint onEnergy ~~the~~Houston ~~stated~~Electric ~~amounts~~LLC (CenterPoint), ofwhich ~~CenterPoint~~previously provided electricity to CPChem’s Cedar Bayou ~~application~~manufacturing facility and Kingwood research center, both located in Texas, filed its application for such determination with the PUCT’s ~~subsequent~~on ~~order~~March 31, 2004. A itnumber isof ~~currently~~entities ~~anticipated~~intervened ~~that~~in the ~~additional~~PUCT ~~monthly~~proceedings ~~cost~~ to ~~CPChem~~object ~~that~~to iscertain ~~approved~~claims byin ~~the~~CenterPoint’s application. In ~~PUCT~~November 2004, ~~when~~the ~~finalized,~~PUCT ~~would~~entered ~~not~~an ~~have~~order for a ~~material~~recovery ~~adverse~~of ~~effect~~approximately onone-half ~~consolidated results~~ of Centerpoint’s ~~operations,~~request. Both ~~financial~~sides ~~position~~are orappealing ~~liquidity~~the decision.

~~Note~~If 9it is determined that CenterPoint is entitled to recover any of the costs claimed in its application, it is currently expected that CPChem would receive a monthly charge added to its electricity cost over an extended period of time to pay for such reimbursement. ~~Guarantees~~ Based on the stated amounts of CenterPoint’s application and ~~Indemnifications~~the PUCT’s subsequent order, it is currently anticipated that the additional monthly cost to CPChem that is approved by the PUCT, when finalized, would not have a material adverse effect on consolidated results of operations, financial position or liquidity.

Note 9. Guarantees and Indemnifications

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 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 partyGuarantees

11CPChem’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.

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.11

See also Note 6 for a discussion of certain guarantees related to CPChem’s equity investments.

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~~ including technology license agreements, contain indemnities that require CPChem to perform certain acts, such as defending certain licensees against ~~patent~~ patent infringement claims of others, as a result of the occurrence of a ~~triggering~~ 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~~ obligations are not limited in duration or potential monetary exposure, CPChem ~~cannot~~ 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~~ 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 10. Segment Information

Financial information by segment follows:

Millions	Olefins & Polyolefins		Aromatics & Styrenics		Specialty Products		Corporate, Other & Eliminations			Consolidated
Three months ended March 31, 2005
Three months ended June 30, 2005
Net sales – external	$	1,~~665~~633	$	~~861~~743	$	~~132~~127	$	—		$	2,~~658~~503
Net sales – inter-segment	8573		1—		—1		(8674		)	—
Income (loss) before interest & taxes	~~302~~183		9313		158		(19		)	~~409~~195
Three months ended March 31, 2004
Three months ended June 30, 2004
Net sales – external	1,~~239~~258		~~639~~708		~~115~~125		—			12,~~993~~091
Net sales – inter-segment	6159		—		—1		(6160		)	—
Income (loss) before interest & taxes	~~103~~56		1448		1519		(56		)	~~127~~117
Total assets – March 31, 2005	4,188		2,186		500		108			6,982
Six months ended June 30, 2005
Net sales – external	3,298		1,604		259		—			5,161
Net sales – inter-segment	158		1		1		(160		)	—
Income (loss) before interest & taxes	485		106		23		(10		)	604
Six months ended June 30, 2004
Net sales – external	2,497		1,347		240		—			4,084
Net sales – inter-segment	120		—		1		(121		)	—
Income (loss) before interest & taxes	159		62		34		(11		)	244
Total assets – June 30, 2005	4,145		2,003		486		97			6,731
Total assets – December 31, 2004	4,108		2,125		508		131			6,872

Note 11. Condensed Consolidating Financial Statements

Condensed consolidating financial statements follow. This information is presented in accordance with SEC 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 condensed ~~consolidating~~ consolidating financial statements were prepared using the equity method of accounting for investments.

Chevron Phillips Chemical Company LLC

Condensed Consolidating Statement of Operations

For the three months ended ~~March 31~~June 30, 2005

(Unaudited)

Millions	LLC			LP			Other Entities			Eliminations			Total
Revenue
Net sales	$	—		$	2,~~379~~284		$	~~485~~395		$	(~~206~~176	)	$	2,~~658~~503
Equity in income (loss) of affiliates, net	~~407~~191			(1		)	~~368~~170			(~~724~~321		)	5039
Other income	—			1730			2932			(2022		)	2640
Total revenue	~~407~~191			2,~~395~~313			~~882~~597			(~~950~~519		)	2,~~734~~582
Costs and Expenses
Cost of goods sold	—			12,~~957~~046			~~445~~376			(~~197~~168		)	2,~~205~~254
Selling, general and administrative	—			~~109~~125			3028			(2930		)	~~110~~123
Research and development	—			10			—			—			10
Total costs and expenses	—			2,~~076~~181			~~475~~404			(~~226~~198		)	2,~~325~~387
Income Before Interest and Taxes	~~407~~191			~~319~~132			~~407~~193			(~~724~~321		)	~~409~~195
Interest income	—			34			4			(34		)	4
Interest expense	(18		)	—			(56		)	34			(20		)
Income Before Taxes	~~389~~173			~~322~~136			~~406~~191			(~~724~~321		)	~~393~~179
Income taxes	—			(1		)	(35		)	—			(46		)
Net Income	~~389~~173			~~321~~135			~~403~~186			(~~724~~321		)	~~389~~173
Distributions on members’ preferred interests	(2—		)	—			—			—			(2—		)
Income Attributed to Members’ Interests	$	~~387~~173		$	~~321~~135		$	~~403~~186		$	(~~724~~321	)	$	~~387~~173

Note 11. Condensed Consolidating Financial Statements (continued)

Chevron Phillips Chemical Company LLC

Condensed Consolidating Statement of Operations

For the three months ended ~~March 31~~June 30, 2004

(Unaudited)

Millions	LLC			LP			Other Entities			Eliminations			Total
Revenue
Net sales	$	—		$	1,~~795~~861		$	~~331~~356		$	(~~133~~126	)	$	12,~~993~~091
Equity in income of affiliates, net	~~128~~118			—1			9689			(~~197~~164		)	2744
Other income	—			15			2221			(1815		)	1921
Total revenue	~~128~~118			1,~~810~~877			~~449~~466			(~~348~~305		)	2,~~039~~156
Costs and Expenses
Cost of goods sold	—			1,~~628~~715			~~294~~322			(~~124~~115		)	1,~~798~~922
Selling, general and administrative	—			~~108~~111			2321			(2726		)	~~104~~106
Research and development	—			1011			—			—			1011
Total costs and expenses	—			1,~~746~~837			~~317~~343			(~~151~~141		)	12,~~912~~039
Income Before Interest and Taxes	~~128~~118			6440			~~132~~123			(~~197~~164		)	~~127~~117
Interest income	—			45			2			(45		)	2
Interest expense	(2021		)	—(1		)	(2		)	45			(1819		)
Income Before Taxes	~~108~~97			6844			~~132~~123			(~~197~~164		)	~~111~~100
Income taxes	—			—			(3		)	—			(3		)
Net Income	~~108~~97			6844			~~129~~120			(~~197~~164		)	~~108~~97
Distributions on members’ preferred interests	(65		)	—			—			—			(65		)
Income Attributed to Members’ Interests	$	~~102~~92		$	6844		$	~~129~~120		$	(~~197~~164	)	$	~~102~~92

Note 11. Condensed Consolidating Financial Statements (continued)

Chevron Phillips Chemical Company LLC

Condensed Consolidating ~~Balance~~Statement ~~Sheet~~of Operations

~~March~~For 31the six months ended June 30, 2005

(Unaudited)

Millions	LLC			LP			Other Entities			Eliminations			Total
Current assets
Revenue
Cash and cash equivalents	$	—		$	6		$	50		$	—		$	56
Net sales	$	—		$	4,663		$	880		$	(382	)	$	5,161
Accounts receivable, net	20			1,206			1,133			(1,020		)	1,339
Equity in income (loss) of affiliates, net	598			(2		)	538			(1,045		)	89
Inventories	—			620			213			—			833
Other income	—			47			61			(42		)	66
Other current assets	2			24			6			—			32
Total revenue	598			4,708			1,479			(1,469		)	5,316
Total current assets	22			1,856			1,402			(1,020		)	2,260
Costs and Expenses
Property, plant and equipment, net	—			3,419			309			—			3,728
Cost of goods sold	—			4,003			821			(365		)	4,459
Investments in and advances to affiliates	5,805			31			5,257			(10,144		)	949
Selling, general and administrative	—			234			58			(59		)	233
Other assets and deferred charges	20			32			21			(28		)	45
Research and development	—			20			—			—			20
Total Assets	$	5,847		$	5,338		$	6,989		$	(11,192	)	$	6,982
Total costs and expenses	—			4,257			879			(424		)	4,712
Current liabilities
Income Before Interest and Taxes	598			451			600			(1,045		)	604
Accounts payable	$	289		$	766		$	908		$	(1,020	)	$	943
Interest income	—			7			8			(7		)	8
Secured borrowings and other debt	—			1			200			—			201
Interest expense	(36		)	—			(11		)	7			(40		)
Other current liabilities and deferred credits	134			121			24			—			279
Income Before Taxes	562			458			597			(1,045		)	572
Total current liabilities	423			888			1,132			(1,020		)	1,423
Income taxes	—			(2		)	(8		)	—			(10		)
Long-term debt	1,257			8			—			—			1,265
Net Income	562			456			589			(1,045		)	562
Other liabilities and deferred credits	4			79			33			(28		)	88
Distributions on members’ preferred interests	(2		)	—			—			—			(2		)
Total liabilities	1,684			975			1,165			(1,048		)	2,776
Income Attributed to Members’ Interests	$	560		$	456		$	589		$	(1,045	)	$	560
Members’ capital	4,163			4,364			5,780			(10,144		)	4,163
Accumulated other comprehensive income (loss)	—			(1		)	44			—			43
Total members’ equity	4,163			4,363			5,824			(10,144		)	4,206
Total Liabilities and Members’ Equity	$	5,847		$	5,338		$	6,989		$	(11,192	)	$	6,982

Note 11. Condensed Consolidating Financial Statements (continued)

Chevron Phillips Chemical Company LLC

Condensed Consolidating ~~Balance~~Statement ~~Sheet~~of Operations

~~December~~For 31the six months ended June 30, 2004

Millions	LLC		LP			Other Entities		Eliminations			Total
Current assets
Cash and cash equivalents	$	—	$	15		$	48	$	—		$	63
Accounts receivable, net	16		945			1,013		(708		)	1,266
Inventories	—		601			183		—			784
Other current assets	2		34			7		—			43
Total current assets	18		1,595			1,251		(708		)	2,156
Property, plant and equipment, net	—		3,453			315		—			3,768
Investments in and advances to affiliates	5,496		32			4,968		(9,603		)	893
Other assets and deferred charges	20		32			31		(28		)	55
Total Assets	$	5,534	$	5,112		$	6,565	$	(10,339	)	$	6,872
Current liabilities
Accounts payable	$	100	$	710		$	782	$	(708	)	$	884
Secured borrowings and other debt	—		1			200		—			201
Other current liabilities and deferred credits	50		181			25		—			256
Total current liabilities	150		892			1,007		(708		)	1,341
Long-term debt	1,381		9			—		—			1,390
Other liabilities and deferred credits	3		85			31		(28		)	91
Total liabilities	1,534		986			1,038		(736		)	2,822
Members’ preferred interests	75		—			—		—			75
Members’ capital	3,925		4,127			5,476		(9,603		)	3,925
Accumulated other comprehensive income (loss)	—		(1		)	51		—			50
Total members’ equity	3,925		4,126			5,527		(9,603		)	3,975
Total Liabilities and Members’ Equity	$	5,534	$	5,112		$	6,565	$	(10,339	)	$	6,872

(Unaudited)

Millions	LLC			LP			Other Entities			Eliminations			Total
Revenue
Net sales	$	—		$	3,656		$	687		$	(259	)	$	4,084
Equity in income of affiliates, net	246			1			185			(361		)	71
Other income	—			30			43			(33		)	40
Total revenue	246			3,687			915			(653		)	4,195

Costs and Expenses
Cost of goods sold	—			3,343			616			(239		)	3,720
Selling, general and administrative	—			219			44			(53		)	210
Research and development	—			21			—			—			21
Total costs and expenses	—			3,583			660			(292		)	3,951

Income Before Interest and Taxes	246			104			255			(361		)	244

Interest income	—			9			4			(9		)	4
Interest expense	(41		)	(1		)	(4		)	9			(37		)

Income Before Taxes	205			112			255			(361		)	211

Income taxes	—			—			(6		)	—			(6		)

Net Income	205			112			249			(361		)	205

Distributions on members’ preferred interests	(11		)	—			—			—			(11		)

Income Attributed to Members’ Interests	$	194		$	112		$	249		$	(361	)	$	194

~~Note 11. Condensed Consolidating Financial Statements (continued)~~16

~~Chevron~~Note 11. Condensed ~~Phillips~~Consolidating ~~Chemical~~Financial ~~Company~~Statements ~~LLC~~(continued)

~~Condensed~~Chevron Phillips ~~Consolidating~~Chemical ~~Statement~~Company ~~of Cash Flows~~LLC

~~For~~Condensed ~~the~~Consolidating ~~three~~Balance ~~months ended March 31, 2005~~Sheet

~~(Unaudited)~~June 30, 2005

Millions	LLC			LP			Other Entities			Eliminations			Total
Cash Flows From Operating Activities
Net income	$	389		$	321		$	403		$	(724	)	$	389
Adjustments to reconcile net income to net cash flows provided by operating activities
Depreciation, amortization and retirements	—			64			5			—			69
Undistributed equity in income (loss) of affiliates, net	(308		)	1			(269		)	526			(50		)
Changes in operating working capital	184			(261		)	(46		)	—			(123		)
Other operating cash flow activity	1			(6		)	12			—			7
Net cash flows provided by operating activities	266			119			105			(198		)	292
Cash Flows From Investing Activities
Capital and investment expenditures	—			(29		)	(4		)	—			(33		)
Other investing cash flow activity	—			—			—			—			—
Net cash flows used in investing activities	—			(29		)	(4		)	—			(33		)
Cash Flows From Financing Activities
Decrease in commercial paper, net	(125		)	—			—			—			(125		)
Redemptions of members’ preferred interests	(75		)	—			—			—			(75		)
Distributions on members’ preferred interests	(2		)	—			—			—			(2		)
Other distributions to members	(64		)	(99		)	(99		)	198			(64		)
Net cash flows used in financing activities	(266		)	(99		)	(99		)	198			(266		)
Net Increase (Decrease) in Cash and Cash Equivalents	—			(9		)	2			—			(7		)
Cash and Cash Equivalents at Beginning of Period	—			15			48			—			63
Cash and Cash Equivalents at End of Period	$	—		$	6		$	50		$	—		$	56

(Unaudited)

Millions	LLC		LP			Other Entities		Eliminations			Total
Current assets
Cash and cash equivalents	$	—	$	5		$	25	$	—		$	30
Accounts receivable, net	26		997			943		(762		)	1,204
Inventories	—		584			198		—			782
Other current assets	2		28			3		—			33
Total current assets	28		1,614			1,169		(762		)	2,049

Property, plant and equipment, net	—		3,391			301		—			3,692
Investments in and advances to affiliates	5,608		31			5,077		(9,768		)	948
Other assets and deferred charges	19		31			20		(28		)	42

Total Assets	$	5,655	$	5,067		$	6,567	$	(10,558	)	$	6,731

Current liabilities
Accounts payable	$	139	$	646		$	751	$	(762	)	$	774
Secured borrowings and other debt	—		1			153		—			154
Other current liabilities and deferred credits	229		145			20		—			394
Total current liabilities	368		792			924		(762		)	1,322

Long-term debt	1,161		8			—		—			1,169
Other liabilities and deferred credits	6		78			34		(28		)	90

Total liabilities	1,535		878			958		(790		)	2,581

Members’ capital	4,120		4,190			5,578		(9,768		)	4,120
Accumulated other comprehensive income (loss)	—		(1		)	31		—			30
Total members’ equity	4,120		4,189			5,609		(9,768		)	4,150

Total Liabilities and Members’ Equity	$	5,655	$	5,067		$	6,567	$	(10,558	)	$	6,731

~~Note 11. Condensed Consolidating Financial Statements (continued)~~17

~~Chevron~~Note 11. Condensed ~~Phillips~~Consolidating ~~Chemical~~Financial ~~Company~~Statements ~~LLC~~(continued)

~~Condensed~~Chevron Phillips ~~Consolidating~~Chemical ~~Statement~~Company ~~of Cash Flows~~LLC

~~For~~Condensed ~~the~~Consolidating ~~three~~Balance ~~months ended March 31, 2004~~Sheet

~~(Unaudited)~~December 31, 2004

Millions	LLC			LP			Other Entities			Eliminations			Total
Cash Flows From Operating Activities
Current assets
Net income	$	108		$	68		$	129		$	(197	)	$	108
Cash and cash equivalents	$	—		$	15		$	48		$	—		$	63
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities
Accounts receivable, net	16			945			1,013			(708		)	1,266
Depreciation, amortization and retirements	—			64			6			—			70
Inventories	—			601			183			—			784
Undistributed equity in income of affiliates, net	(128		)	—			(96		)	197			(27		)
Other current assets	2			34			7			—			43
Changes in operating working capital	11			(152		)	(31		)	—			(172		)
Total current assets	18			1,595			1,251			(708		)	2,156
Other operating cash flow activity	(50		)	51			3			—			4
Property, plant and equipment, net	—			3,453			315			—			3,768
Net cash flows provided by (used in) operating activities	(59		)	31			11			—			(17		)
Investments in and advances to affiliates	5,496			32			4,968			(9,603		)	893
Cash Flows From Investing Activities
Other assets and deferred charges	20			32			31			(28		)	55
Capital and investment expenditures	—			(32		)	(11		)	—			(43		)
Total Assets	$	5,534		$	5,112		$	6,565		$	(10,339	)	$	6,872
Investments in and advances to Q-Chem	—			—			(9		)	—			(9		)
Current liabilities
Other investing cash flow activity	(18		)	—			1			18			1
Accounts payable	$	100		$	710		$	782		$	(708	)	$	884
Net cash flows used in investing activities	(18		)	(32		)	(19		)	18			(51		)
Secured borrowings and other debt	—			1			200			—			201
Cash Flows From Financing Activities
Other current liabilities and deferred credits	50			181			25			—			256
Increase in commercial paper, net	77			—			—			—			77
Total current liabilities	150			892			1,007			(708		)	1,341
Decrease in other debt, net	—			—			(13		)	—			(13		)
Long-term debt	1,381			9			—			—			1,390
Contributions from members	—			—			18			(18		)	—
Other liabilities and deferred credits	3			85			31			(28		)	91
Net cash flows provided by financing activities	77			—			5			(18		)	64
Total liabilities	1,534			986			1,038			(736		)	2,822
Net Decrease in Cash and Cash Equivalents	—			(1		)	(3		)	—			(4		)
Members’ preferred interests	75			—			—			—			75
Cash and Cash Equivalents at Beginning of Period	—			12			31			—			43
Members’ capital	3,925			4,127			5,476			(9,603		)	3,925
Cash and Cash Equivalents at End of Period	$	—		$	11		$	28		$	—		$	39
Accumulated other comprehensive income (loss)	—			(1		)	51			—			50
Total members’ equity	3,925			4,126			5,527			(9,603		)	3,975
Total Liabilities and Members’ Equity	$	5,534		$	5,112		$	6,565		$	(10,339	)	$	6,872

~~ITEM~~Note 211. ~~Management’s~~ ~~Discussion and Analysis of~~Condensed Consolidating Financial ~~Condition~~Statements ~~and Results of Operations~~(continued)

~~This discussion~~Chevron ~~should~~Phillips beChemical ~~read~~Company in conjunction with the condensed consolidated financial statements and notes preceding this discussion, and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes included in CPChem’s Annual Report on Form 10-K for the year ended December 31, 2004.LLC

~~Results~~ Condensed Consolidating Statement of ~~Operations~~Cash Flows

	Three months ended March 31,
Millions	2005			2004
Income (loss) before interest and taxes
Olefins & Polyolefins	$	302		$	103
Aromatics & Styrenics	93			14
Specialty Products	15			15
Corporate & Other	(1		)	(5		)
Consolidated	409			127
Net interest expense and income taxes	(20		)	(19		)
Net income	$	389		$	108

For the six months ended June 30, 2005

Net income for the three-month period ended March 31, 2005 increased $281 million to $389 million, compared with net income of $108 million during the same three-month period in 2004. Consolidated net sales revenue rose significantly in the 2005 period on higher overall sales prices. Equity earnings from affiliates were higher on improved results from SCP, Q-Chem and Phillips Sumika Polypropylene Company. Cost of Goods Sold increased as a result of higher feedstock costs.(Unaudited)

Income (loss) before interest and taxes

Millions	LLC			LP			Other Entities			Eliminations			Total
Cash Flows From Operating Activities
Net income	$	562		$	456		$	589		$	(1,045	)	$	562
Adjustments to reconcile net income to net cash flows provided by operating activities
Depreciation, amortization and retirements	—			131			11			—			142
Undistributed equity in income of affiliates, net	(114		)	—			(58		)	138			(34		)
Changes in operating working capital	34			(99		)	(24		)	—			(89		)
Other operating cash flow activity	2			(6		)	14			—			10
Net cash flows provided by operating activities	484			482			532			(907		)	591

Cash Flows From Investing Activities
Capital and investment expenditures	—			(69		)	(10		)	—			(79		)
Investments in Jubail Chevron Phillips Company	—			—			(20		)	—			(20		)
Advance repayment from Saudi Chevron Phillips Company	—			—			9			—			9
Other investing cash flow activity	3			—			—			(3		)	—
Net cash flows provided by (used in) investing activities	3			(69		)	(21		)	(3		)	(90		)

Cash Flows From Financing Activities
Decrease in commercial paper, net	(221		)	—			—			—			(221		)
Decrease in secured borrowings, net	—			—			(50		)	—			(50		)
Increase in other debt, net	—			—			3			—			3
Redemptions of members’ preferred interests	(75		)	—			—			—			(75		)
Distributions on members’ preferred interests	(2		)	—			—			—			(2		)
Other distributions to members	(189		)	(423		)	(487		)	910			(189		)
Net cash flows used in financing activities	(487		)	(423		)	(534		)	910			(534		)

Net Decrease in Cash and Cash Equivalents	—			(10		)	(23		)	—			(33		)
Cash and Cash Equivalents at Beginning of Period	—			15			48			—			63

Cash and Cash Equivalents at End of Period	$	_—		$	5		$	25		$	—		$	30

~~Olefins & Polyolefins~~19

	Three months ended March 31,
Millions	2005		2004
Income before interest and taxes	$	302	$	103

Note 11. Condensed Consolidating Financial Statements (continued)

~~Income before interest~~Chevron and taxes for Olefins & Polyolefins totaled $302 million in the first quarter of 2005 compared with $103 million in the prior-year period. Significantly higher earnings from olefins and polyethylene were partially offset by lower earnings from normal alpha olefins and polyalphaolefins. Revenues increased as a result of significantly higher sales prices. Feedstock costs increased largely due to higher prices. Equity earnings from affiliates increased in the 2005 period, largely from improved results of Q-Chem and Phillips ~~Sumika~~Chemical ~~Polypropylene~~ Company. LLC

~~CPChem’s~~Condensed ~~650 million-pound-per-year~~Consolidating ~~ethylene~~Statement ~~plant at its Sweeny facility in Old Ocean, Texas is in the process~~ of ~~being~~Cash ~~restarted and will be operated on a campaign basis as market conditions warrant.~~Flows

~~Aromatics~~For &the ~~Styrenics~~six months ended June 30, 2004

	Three months ended March 31,
Millions	2005		2004
Income before interest and taxes	$	93	$	14

(Unaudited)

Income before interest and taxes for Aromatics & Styrenics totaled $93 million in the first three months of 2005 compared with $14 million in the prior-year period. Earnings improved across most product lines from higher margins, with benzene margins accounting for the majority of the

Millions	LLC			LP			Other Entities			Eliminations			Total
Cash Flows From Operating Activities
Net income	$	205		$	112		$	249		$	(361	)	$	205
Adjustments to reconcile net income to net cash flows provided by operating activities
Depreciation, amortization and retirements	—			128			11			—			139
Undistributed equity in income of affiliates, net	(243		)	(1		)	(173		)	358			(59		)
Changes in operating working capital	19			(95		)	42			—			(34		)
Other operating cash flow activity	70			(69		)	—			—			1
Net cash flows provided by operating activities	51			75			129			(3		)	252

Cash Flows From Investing Activities
Capital and investment expenditures	—			(79		)	(21		)	—			(100		)
Investments in Q-Chem	—			—			(18		)	—			(18		)
Other investing cash flow activity	(30		)	—			—			30			—
Net cash flows used in investing activities	(30		)	(79		)	(39		)	30			(118		)

Cash Flows From Financing Activities
Increase in commercial paper, net	54			—			—			—			54
Decrease in secured borrowings, net	—			—			(100		)	—			(100		)
Decrease in other debt, net	—			(1		)	(13		)	—			(14		)
Distributions on members’ preferred interests	(39		)	—			—			—			(39		)
Other distributions to members	(36		)	—			—			—			(36		)
Contributions from members	—			—			27			(27		)	—
Net cash flows used in financing activities	(21		)	(1		)	(86		)	(27		)	(135		)

Net Increase (Decrease) in Cash and Cash Equivalents	—			(5		)	4			—			(1		)
Cash and Cash Equivalents at Beginning of Period	—			12			31			—			43

Cash and Cash Equivalents at End of Period	$	—		$	7		$	35		$	—		$	42

1920

~~increase. Revenues~~ITEM ~~increased as a result of significantly higher sales prices, partially offset by slightly lower volumes~~2. ~~Overall~~ ~~feedstock~~Management’s ~~costs increased~~Discussion ~~primarily~~and ~~due~~Analysis toof ~~higher~~Financial ~~benzene~~Condition and ~~benzene~~Results ~~feedstock~~of ~~prices. Earnings also benefited in the 2005 quarter from significantly higher equity earnings from SCP.~~Operations

~~Specialty~~This ~~Products~~discussion should be read in conjunction with the condensed consolidated financial statements and notes preceding this discussion, and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes included in CPChem’s Annual Report on Form 10-K for the year ended December 31, 2004.

	Three months ended March 31,
Millions	2005		2004
Income before interest and taxes	$	15	$	15

Results of Operations

Income before interest and taxes for Specialty Products totaled $15 million in the first quarter of 2005 and 2004, with higher earnings from Ryton® polyphenylene sulfide polymers offset by lower earnings from Specialty Chemicals. Revenues increased from higher sales prices and overall sales volumes, which were offset by higher feedstock costs primarily due to higher prices.

	Three months ended June 30,						Six months ended June 30,
Millions	2005			2004			2005			2004
Income (loss) before interest and taxes
Olefins & Polyolefins	$	183		$	56		$	485		$	159
Aromatics & Styrenics	13			48			106			62
Specialty Products	8			19			23			34
Corporate & Other	(9		)	(6		)	(10		)	(11		)
Consolidated	195			117			604			244
Net interest expense and income taxes	(22		)	(20		)	(42		)	(39		)
Net income	$	173		$	97		$	562		$	205

~~Corporate~~Net &income for the three-month period ended June 30, 2005 increased $76 million to $173 million, compared with net income of $97 million during the same three-month period in 2004. Consolidated net sales revenue rose in the 2005 period on higher overall sales prices, partially offset by lower volumes. Other income rose as a result of higher commission income and a legal settlement discussed below. Cost of Goods Sold increased as a result of higher feedstock and utility costs, partially offset by lower turnaround costs. Increased distribution costs and foreign currency transaction expenses contributed to higher Selling, General and Administrative expense in the second quarter of 2005.

	Three months ended March 31,
Millions	2005			2004
Income (loss) before interest and taxes	$	(1	)	$	(5	)

Results in 2005 include a $12 million net benefit, recorded to Other Income in the second quarter, from a legal settlement related to a styrene column collapse at the St. James, Louisiana facility in 2001. Also included in second quarter 2005 results was a $9 million benefit recorded to Cost of Goods Sold to recognize unit/line fill inventory at various manufacturing facilities, and a $4 million cumulative charge to depreciation resulting from the adjustment of the economic life of certain leasehold improvements at a third-party tolling facility.

~~Corporate~~Net ~~and Other~~income ~~loss~~for ~~before~~the ~~interest~~first ~~and~~six ~~taxes~~months of 2005 was $562 million, representing a $1357 million inimprovement ~~the~~over ~~first~~net ~~quarter~~income of $205 ~~2005~~million ~~compared~~during ~~with~~the asame $5period ~~million~~in ~~loss~~2004. Consolidated net sales revenue rose significantly in the ~~prior~~2005 ~~year~~ period~~. Certain~~ ~~employee~~on higher ~~benefit~~overall ~~and~~sales ~~incentive~~prices, ~~plan expenses~~while ~~that~~Equity Earnings from Affiliates were ~~accrued~~higher primarily ~~and~~on ~~held~~improved atresults ~~the~~from ~~Corporate~~Phillips ~~level~~Sumika atPolypropylene ~~year-end~~Company (Phillips ~~2004~~Sumika). Other income rose as ~~were~~a ~~allocated~~result toof ~~the~~higher ~~business~~commission ~~segments~~income ~~during~~and the ~~first~~legal ~~quarter~~settlement discussed above. Cost of ~~2005,~~Goods Sold increased ~~thereby~~primarily ~~lowering~~as ~~2005~~a ~~Corporate~~result of higher feedstock costs. Increased distribution costs and foreign currency transaction expenses contributed to higher Selling, General and Administrative expense in the 2005 period.

~~Outlook~~21

~~CPChem~~Income ~~continues~~(loss) tobefore ~~maintain~~interest ~~its focus on safety, operational reliability, improving margins~~ and ~~increasing~~ sales volumes as the global economy improves. Results from CPChem’s joint ventures in the Middle East have been strong due in part to good market conditions and favorable local feedstock costs. Commodity chemical demand growth rates are expected to moderate as compared with 2004, with near-term overall profitability expected to decrease from the level seen in the first quarter of 2005. However, the continuing tightening of available supply due to a lack of significant capacity additions within the industry during 2003-2004 should support solid profitability over the next several years.taxes

~~Liquidity and~~Olefins & ~~Capital Resources~~Polyolefins

Cash balances were $56 million at March 31, 2005 and $63 million at December 31, 2004, of which $50 million and $48 million, respectively, were held by foreign subsidiaries. CPChem’s objective is to minimize cash balances in its worldwide operations while utilizing its commercial paper program for daily operating requirements.

	Three months ended June 30,				Six months ended June 30,
Millions	2005		2004		2005		2004

Income before interest and taxes	$	183	$	56	$	485	$	159

~~Operating~~Income before interest and taxes for Olefins & ~~Activities~~Polyolefins increased to $183 million in the second quarter of 2005 compared with $56 million in the prior-year period, primarily due to significantly higher earnings from olefins and polyethylene on improved margins. Revenues increased as a result of higher overall sales prices, while feedstock costs also increased due to higher prices. Equity Earnings from Affiliates increased slightly in the 2005 quarter on improved results of Phillips Sumika, partially offset by lower earnings from Q-Chem. The improvement in Olefins & Polyolefins’ earnings was also attributable to lower turnaround costs in 2005, partially offset by costs associated with the restart of one of CPChem’s ethylene plants. The plant, located at its Sweeny facility in Old Ocean, Texas and idle since 2001, was restarted in the second quarter of 2005. Results in 2005 include a $2 million benefit recorded in the second quarter associated with the recognition of unit/line fill inventory.

~~Cash~~Income ~~provided~~before byinterest ~~operating~~and taxes for Olefins & ~~activities~~Polyolefins totaled $~~292~~485 million ~~during~~in the first ~~three~~half ~~months~~ of 2005, compared with $17 159 million ofin ~~cash~~the ~~used~~2004 inperiod. Significantly ~~operating~~higher ~~activities~~earnings ~~during~~from ~~the~~olefins ~~same~~and ~~period~~polyethylene inon higher ~~2004~~margins were the main drivers of the improved results. ~~The~~ Revenues ~~improvement~~increased ~~was~~from ~~driven~~significantly higher ~~primarily~~sales byprices. Feedstock costs increased largely due to higher ~~earnings~~energy prices. Equity Earnings from Affiliates were higher in the first half of 2005 on improved results of Phillips Sumika and Q-Chem.

20Aromatics & Styrenics

Investing Activities

	Three months ended June 30,				Six months ended June 30,
Millions	2005		2004		2005		2004

Income before interest and taxes	$	13	$	48	$	106	$	62

~~Capital~~Income before interest and ~~investment~~ ~~expenditures~~taxes for Aromatics & Styrenics totaled $33 13 million ~~during~~in the ~~first~~ three-month ~~months~~period ~~of 2005~~ended June 30, 2005 compared with $43 48 million in the ~~prior-year~~2004 period. ~~Approximately~~Lower earnings ~~$26~~from ~~million~~benzene and styrene accounted for most of ~~2005~~the decrease. Benzene earnings were lower due to lower margins ~~expenditures~~and ~~was~~sales ~~invested~~volumes, inpartially ~~Olefins &~~due ~~Polyolefins~~to a turnaround at the Pascagoula, $3Mississippi benzene ~~million~~facility in June. The plant ~~Aromatics~~remained down through most of July &due ~~Styrenics,~~to $2catalyst ~~million~~issues and hurricane activity in ~~Specialty~~the ~~Products~~Gulf of Mexico and is in the ~~remaining~~ $2process ~~million~~of inbeing ~~corporate~~re-~~level expenditures~~started. ~~CPChem~~ Results ~~invested~~for $9styrene ~~million~~were inlower ~~additional~~due to ~~shares~~decreased ofsales ~~Q-Chem~~volumes, inpartially ~~the~~offset ~~2004~~by ~~period~~higher margins. NoSales revenues for the segment increased on ~~additional~~higher ~~investments~~overall inprices, ~~Q-Chem~~partially ~~were~~offset ~~made~~by inlower sales volumes. Feedstock costs increased despite the lower volumes. Equity Earnings from Affiliates decreased in the 2005 ~~period~~quarter on lower earnings from Saudi Chevron Phillips Company.

~~For~~Results in the ~~year~~ 2005~~, CPChem~~ ~~expects~~periods topresented ~~invest~~include a ~~total of approximately~~ $~~245~~12 million innet ~~capital~~benefit ~~and investment~~from ~~expenditures. Included~~a inlegal ~~estimated~~settlement ~~2005~~related ~~expenditures~~to ~~are~~the ~~$45~~St. ~~million~~James ofstyrene ~~investments~~column collapse in 2001 and ~~advances towards~~a ~~the JCP project. No investments~~$7 inmillion orbenefit ~~advances~~for tounit/line ~~Q-Chem~~fill ~~are expected in 2005~~inventory.

~~See~~Income before ~~Note~~interest 6and taxes for Aromatics & Styrenics totaled $106 million in the first six months of 2005 compared with $62 million in the ~~Notes~~prior-year toperiod. Earnings ~~Condensed~~improved across ~~Consolidated~~most ~~Financial~~product ~~Statements~~lines ~~for~~from ~~further~~higher ~~discussion~~margins. Revenues increased as a result of significantly higher sales prices, ~~commitments~~partially ~~relating~~offset by slightly lower volumes. Overall feedstock costs increased primarily due to ~~Q-Chem~~higher benzene and benzene ~~the~~feedstock ~~JCP project~~prices.

~~Financing Activities~~22

~~Cash~~Specialty used in financing activities totaled $266 million in the first three months of 2005 compared to $64 million provided by financing activities in the prior-year period. Commercial paper balances outstanding decreased $125 million during the first quarter of 2005 compared to a $77 million increase during the 2004 period. In the first quarter of 2005, CPChem voluntarily redeemed the remaining $75 million of outstanding members’ preferred interests and made $2 million of distributions on members’ preferred interests. Financing activities during this period also included $39 million of distributions to members to fund the members’ estimated federal and state income tax liabilities attributable to CPChem and discretionary distributions to members totaling $25 million.Products

CPChem had $200 million of secured borrowings outstanding at both March 31, 2005 and December 31, 2004 under a trade receivables securitization agreement. These borrowings are classified as short-term and were secured by $700 million and $665 million of trade receivables, respectively. CPChem has commitments from banks, subject to final documentation, to renew the receivables securitization agreement through May 2006 on terms substantially identical to the current agreement.

	Three months ended June 30,				Six months ended June 30,
Millions	2005		2004		2005		2004

Income before interest and taxes	$	8	$	19	$	23	$	34

~~CPChem~~Income before ~~believes~~interest ~~cash~~and ~~requirements~~taxes ~~over~~for ~~the~~Specialty ~~next~~Products ~~twelve~~totaled ~~months~~$8 ~~will~~million bein the ~~funded~~second ~~through~~quarter ~~a combination~~ of ~~cash~~2005 oncompared ~~hand,~~with ~~cash~~$19 ~~flows~~million ~~from~~in ~~operations~~the ~~and commercial~~second ~~paper. CPChem~~quarter isin ~~not aware of any conditions~~2004, ~~that~~and ~~exist~~$23 asmillion ofin the ~~date~~first half of ~~this~~2005 ~~report~~compared ~~that~~with ~~would~~$34 ~~cause~~million ~~any~~in ofthe ~~its debt~~same ~~obligations~~period toin be2004. Earnings in orthe ~~at risk of default.~~ 2005 Inperiods ~~addition,~~presented ~~CPChem~~include ~~does~~a ~~not~~$4 ~~have~~million ~~any~~charge ~~debt~~resulting ~~obligations~~from ~~whose~~the ~~maturities~~adjustment of ~~would~~the beeconomic ~~accelerated~~life asof ~~the~~certain ~~result~~leasehold ofimprovements at a ~~credit~~third-party ~~rating downgrade~~tolling facility.

~~Other~~Earnings in the second quarter of 2005 were lower compared with the second quarter of 2004 in both Ryton® polyphenylene sulfide (PPS) and Specialty Chemicals. Ryton® PPS earnings decreased due to lower margins. Specialty Chemicals earnings decreased due to higher feedstock costs, partially offset by higher sales volumes.

~~Contingencies. See~~Income ~~Note~~before 8interest and taxes for Specialty Products for the first half of ~~Notes~~2005 decreased due to ~~Condensed~~lower ~~Consolidated~~earnings from ~~Financial~~Specialty ~~Statements~~Chemicals. Lower ~~for~~margins, largely adriven ~~discussion~~by the impact of ~~contingent~~a ~~liabilities~~feedstock supply interruption that occurred earlier in the year at the Borger, Texas facility, were partially offset by higher overall sales volumes.

~~New~~Corporate & ~~Accounting Pronouncements. See Note 2 of Notes to Condensed Consolidated Financial Statements for a discussion of new accounting pronouncements.~~Other

	Three months ended June 30,						Six months ended June 30,
Millions	2005			2004			2005			2004

Income (loss) before interest and taxes	$	(9	)	$	(6	)	$	(10	)	$	(11	)

~~CAUTIONARY~~Loss before ~~STATEMENTS~~interest ~~REGARDING~~and ~~FORWARD~~taxes for Corporate and Other was $9 million in the second quarter of 2005 compared with $6 million in the prior year period. Higher employee benefit and incentive plan expenses in the 2005 period contributed to the increase. Certain employee benefit and incentive plan expenses that were accrued and held at the Corporate level at year-~~LOOKING~~end ~~INFORMATION~~2004 and allocated to the business segments during the first quarter of 2005 offset the effects of the second quarter.

This report contains “forward-looking statements” within the meaning of the federal securities laws. 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 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; accidents; labor relations; political risks; terrorist acts; war; changes in foreign and domestic laws, rules and regulations and the interpretation and enforcement thereof; regulatory decisions relating to taxes, the environment and human resources; the global economy; results of financing efforts; and overall financial market conditions. All forward-looking statements and risk factors in this report are qualified in their entirety by the cautionary statements contained herein. CPChem does not undertake to update, revise or correct any of the forward-looking information.Outlook

~~ITEM~~CPChem continues 3to maintain its focus on safety, operational reliability, improving margins and increasing sales volumes. Results from CPChem’s Middle East joint ventures in the first half of 2005 were strong due in part to good market conditions and favorable local feedstock costs. ~~Quantitative~~Commodity chemicals demand growth rates have generally moderated as compared with 2004 and ~~Qualitative~~the first ~~Disclosures~~quarter of 2005. During the second ~~about~~quarter ~~Market~~of ~~Risk~~2005, customer demand softened in various product lines as some inventory de-stocking occurred, impacting overall sales volumes. As a result, utilization rates at certain domestic production facilities fell and an oversupply in a number of product lines caused margin contraction. However, the continuing tightening of available supply due to a lack of significant capacity additions within the industry during 2003-2004 is expected to support solid profitability over the next several years.

~~CPChem’s~~Liquidity ~~exposure~~and toCapital market risk is described in Item 7A of its Annual Report on Form 10-K for the year ended December 31, 2004. CPChem believes its exposure to market risk has not changed materially at March 31, 2005.Resources

~~ITEM~~Cash ~~4. Controls~~balances were $30 million at June 30, 2005 and ~~Procedures~~$63 million at December 31, 2004, of which $25 million and $48 million, respectively, were held by foreign subsidiaries. CPChem’s objective is to minimize cash balances in its worldwide operations while utilizing its commercial paper program for daily operating requirements.

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 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 the period covered by this report that have materially affected, or are reasonably likely to materially affect, CPChem’s internal control over financial reporting.23

22Operating Activities

~~PART II~~Cash provided by operating activities totaled $591 million during the first six months of 2005, compared with $252 million during the same period in 2004. ~~OTHER~~ The ~~INFORMATION~~improvement was primarily driven by higher earnings in 2005.

~~ITEM~~Investing ~~6. Exhibits~~Activities

10.1		Chevron Phillips Chemical Company LLC Annual Incentive Plan (as amended effective January 1, 2005)
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

Capital and investment expenditures, excluding investments related to the JCP Project, totaled $79 million during the first half of 2005, compared with $96 million in the prior-year period. Approximately $61 million of 2005 expenditures was invested in Olefins & Polyolefins, $8 million in Aromatics & Styrenics, $6 million in Specialty Products and the remaining $4 million in corporate-level expenditures. In addition, CPChem invested $20 million in the JCP Project in 2005. In the 2004 period, CPChem invested $18 million in additional shares of Q-Chem.

For the year 2005, CPChem expects to invest a total of approximately $200 million in capital and investment expenditures and approximately $45 million towards the JCP project.

See Note 6 of Notes to Condensed Consolidated Financial Statements for further discussion of commitments relating to Q-Chem and the JCP project.

Financing Activities

Cash used in financing activities totaled $534 million in the first six months of 2005 compared to $135 million in the prior-year period. Commercial paper balances outstanding decreased $221 million during the first half of 2005 compared to a $54 million increase during the 2004 period. Borrowings outstanding under the accounts receivable securitization program decreased an additional $50 million during the 2005 period, compared with a decrease of $100 million during the prior-year period. CPChem voluntarily redeemed the remaining $75 million of outstanding members’ preferred interests in 2005 and paid distributions on members’ preferred interests totaling $2 million and $39 million in the 2005 and 2004 periods, respectively. Financing activities in 2005 also included $164 million of distributions to members to fund their estimated federal and state income tax liabilities attributable to CPChem, compared with $36 million in 2004. Discretionary distributions to members totaled $25 million in 2005.

CPChem had secured borrowings outstanding totaling $150 million at June 30, 2005 and $200 million at December 31, 2004 under a trade receivables securitization agreement. These borrowings, classified as short-term, were secured by $652 million and $665 million of trade receivables, respectively. CPChem renewed its $300 million trade receivables securitization agreement in the second quarter of 2005 on terms substantially similar to those of the prior agreement. The new agreement expires in May 2006.

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, CPChem does not have any debt obligations whose maturities would be accelerated as the result of a credit rating downgrade.

Other

Contingencies. See Note 8 of Notes to Condensed Consolidated Financial Statements for a discussion of contingent liabilities.

New Accounting Pronouncements. See Note 2 of Notes to Condensed Consolidated Financial Statements for a discussion of new accounting pronouncements.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This report contains “forward-looking statements” within the meaning of the federal securities laws. 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 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; accidents; labor relations; political risks; terrorist acts; war; changes in foreign and domestic laws, rules and regulations and the interpretation and enforcement thereof; regulatory decisions relating to taxes, the environment and human resources; the global economy; results of financing efforts; and overall financial market conditions. All forward-looking statements and risk factors in this report are qualified in their entirety by the cautionary statements contained herein. CPChem does not undertake to update, revise or correct any of the forward-looking information.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

CPChem’s exposure to market risk is described in Item 7A of its Annual Report on Form 10-K for the year ended December 31, 2004. CPChem believes its exposure to market risk has not changed materially at June 30, 2005.

ITEM 4. Controls and Procedures

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Governmental Agency Proceeding

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.

ITEM 6. Exhibits

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

SIGNATURE

Pursuant to the requirements 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: May 3, 2005	/s/ Greg G. Maxwell
Date: July 29, 2005		/s/ Greg G. Maxwell
	~~Greg G. Maxwell~~	Greg G. Maxwell
	~~Senior Vice President,~~	Senior Vice President,
	~~Chief Financial Officer and Controller~~	Chief Financial Officer and Controller

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