press release

Texaco Press Release - Texaco Reports 1999 Results

FOR IMMEDIATE RELEASE: WEDNESDAY, JANUARY 26, 2000.

WHITE PLAINS, N.Y., January 26 – Texaco reported today fourth quarter 1999 income before special items of $370 million ($.67 per share). Net income for the period was $318 million ($.58 per share).

EARNINGS SUMMARY

                                Fourth Quarter             Year
                              -----------------     ------------------
                              1999         1998      1999         1998
----------------------------------------------------------------------
Income before 
 special items (millions)  $   370      $    92   $ 1,214      $   894
    Per share              $  0.67      $  0.15   $  2.21      $  1.59
Net income (loss)(millions)$   318      $  (213)  $ 1,177      $   578
    Per share              $  0.58      $ (0.43)  $  2.14      $  0.99
----------------------------------------------------------------------

Texaco Chairman and Chief Executive Officer Peter I. Bijur stated, "Our 1999 earnings benefited significantly from the dramatic rise in crude oil prices, but these increases could not be fully recovered in the marketplace. After starting the year at very low levels, crude oil prices jumped in March and continued to climb throughout the year. Benchmark WTI crude oil ended the year at nearly $26 per barrel and continued to climb in 2000. Much of the earnings benefit from higher crude oil prices was reduced by lower refining and marketing margins around the world. Excess refining capacity has created chronic refined product oversupply in all areas, limiting the amount of crude costs that can be recovered in the market. The oversupply situation was exacerbated by economic weakness in the Caltex areas and parts of Latin America which reduced product demand."

Bijur added, "Operationally, we continued to reduce our exposure to the refining business through Equilon's sale of its El Dorado, Kansas refinery. Our recently announced Agbami exploration discovery in the deepwater offshore Nigeria reflects the success of our upstream strategy shift from multiple incremental projects to select high margin, high impact projects. We achieved over $700 million in expense reductions and synergy capture, exceeding our year-end 2000 target of $650 million a full year ahead of schedule. Fourth quarter exploration expenses were higher as we wrote off investments in Thailand, and in the Gulf of Mexico where fourth quarter appraisal drilling determined certain prospects to be non-commercial."

                                Fourth Quarter             Year
                               ----------------      -----------------
Texaco Inc. 
(Millions of dollars):        1999         1998      1999         1998
----------------------------------------------------------------------
Income before 
 special items             $   370      $    92   $ 1,214      $   894
                             -----        -----    ------        -----
Inventory valuation 
 adjustments                     -         (142)      152         (142)
Write-downs of assets          (81)         (93)     (157)         (93)
Gains (losses) on major
 asset sales                    (3)           -       (62)          20
Tax benefits on 
 asset sales                    40           24        40           43
Tax issues                      41            -       106           25
Royalty settlement             (30)           -       (30)           -
Environmental issues           (12)           -       (12)           -
Reorganization, 
 restructuring and employee
  separation costs              (7)         (94)      (74)        (144)
                             -----        -----    ------        -----
                               (52)        (305)      (37)        (291)
Cumulative effect of 
 accounting change               -            -         -          (25)
                             -----        -----    ------        -----
Total special items            (52)        (305)      (37)        (316)
                             -----        -----    ------        -----
Net income (loss)          $   318      $  (213)  $ 1,177      $   578
                            ======       ======   =======       ======

Effective January 1, 1998, Texaco's Caltex affiliate adopted a new accounting standard, SOP 98-5, resulting in a change in accounting for start-up costs at its Thailand refinery. Texaco's first quarter 1998 results included a $25 million charge associated with this accounting change.

Details on special items are included in the following segment information.

OPERATING RESULTS

EXPLORATION AND PRODUCTION

                                Fourth Quarter             Year
                               ----------------      -----------------
United States
(Millions of dollars):        1999         1998      1999         1998
----------------------------------------------------------------------
Operating income before
 special items             $   243      $    80   $   666      $   381
Special items                  (35)         (80)      (14)         (80)
                             -----        -----    ------        -----
Total operating income     $   208      $     -   $   652      $   301
                            ======       ======   =======       ======

U.S. Exploration and Production earnings for this year's fourth quarter and year were above last year's levels due to higher crude oil and natural gas prices. Crude oil prices continued to rise in the fourth quarter and more than doubled in 1999, in response to production cutbacks by OPEC and several non-OPEC countries which led to a decline in worldwide inventory levels. Average realized crude oil prices for the fourth quarter and year 1999 were $20.50 and $14.70 per barrel, 110 percent and 39 percent higher than last year. For the fourth quarter and year 1999, average natural gas prices were $2.43 and $2.18 per MCF, 27 percent and nine percent above last year.

Production decreased seven percent for the fourth quarter and ten percent for the year. This decrease was due to natural field declines, asset sales and reduced investment consistent with our focus on capital efficiency.

Operating expenses were ten percent lower this year as a result of cost savings from the restructuring of our worldwide upstream organization. Exploratory expenses for the fourth quarter were $130 million before taxes, $68 million higher than last year. This year's quarter included a $100 million ($65 million after tax) write-off of investments in the Fuji and McKinley prospects in the Gulf of Mexico. These prospects were initially drilled between 1995 and 1998 and appraisal drilling in the fourth quarter determined them to be non-commercial. Exploratory expenses for the year 1999 were $234 million before taxes, $23 million below last year.

Results for 1999 included net special charges of $14 million comprised of an $11 million charge for employee separation costs, a $30 million charge for the settlement of crude oil royalty valuation issues on federal lands, an $18 million gain on asset sales in California and a $9 million production tax refund. Special charges of $35 million in the fourth quarter included the above referenced crude oil royalty settlement.

Special charges for 1998 included fourth quarter asset write-downs of $51 million and employee separation costs of $29 million.

                                Fourth Quarter             Year
                               ----------------      -----------------
International
(Millions of dollars):        1999         1998      1999         1998
----------------------------------------------------------------------
Operating income
 before special items      $   195      $    15   $   386      $   181
Special items                  (24)         (52)      (26)         (52)
                             -----        -----    ------        -----
Total operating 
 income (loss)             $   171      $   (37)  $   360      $   129
                            ======       ======   =======       ======

International Exploration and Production operating results for the fourth quarter and year improved over last year's levels due to higher crude oil prices. These prices continued to rise throughout the fourth quarter due to worldwide production cutbacks which lowered inventory levels. Average realized crude oil prices for the fourth quarter and year were $20.57 and $15.23 per barrel, 101 percent and 36 percent above last year. For the fourth quarter and year average natural gas prices were $1.30 and $1.34 per MCF, 27 percent and 18 percent below last year.

Daily production in the fourth quarter and year was slightly below last year's levels due to the decline in volumes in Indonesia as higher prices reduced our lifting entitlements for cost recovery. Fourth quarter production increases in the Partitioned Neutral Zone and further development of our Karachaganak field in the Republic of Kazakhstan almost offset the lower Indonesian entitlements. Production increases for the year in the Partitioned Neutral Zone and Karachaganak nearly offset decreased production in the U.K. North Sea and Indonesia, and lower gas production in Latin America.

Operating expenses were three percent lower for the year as a result of cost savings from the restructuring of our worldwide upstream organization. Exploratory expenses for the fourth quarter were $89 million before taxes, $14 million higher than last year. This year's fourth quarter included $30 million ($20 million after tax) of prior year drilling expenditures in Thailand. Exploratory expenses for the year were $267 million before taxes, $63 million higher than last year.

Results for 1999 included special charges of $26 million, including $24 million in the fourth quarter for prior years' tax issues in the U.K. Special charges in 1998 included $42 million for U.K. asset impairments and $10 million for employee separation costs.

REFINING, MARKETING AND DISTRIBUTION

                                Fourth Quarter             Year
                               ----------------      -----------------
United States
(Millions of dollars):        1999         1998      1999         1998
----------------------------------------------------------------------
Operating income before
 special items             $     4      $    36   $   287      $   276
Special items                    -          (48)      (79)         (55)
                             -----        -----    ------        -----
Total operating 
 income (loss)             $     4      $   (12)  $   208      $   221
                            ======       ======   =======       ======

U.S. Refining, Marketing and Distribution fourth quarter earnings before special items were lower than last year and slightly higher for the year. U.S. downstream activities are primarily conducted through Equilon Enterprises LLC, Texaco's western alliance with Shell Oil Company, and Motiva Enterprises LLC, Texaco's eastern alliance with Shell Oil Company and Saudi Refining, Inc.

Equilon's earnings for the year benefited from improved West Coast refining margins as a result of industry refinery outages earlier in the year and improved utilization at the Martinez refinery. Operational problems at the Puget Sound refinery earlier this year had a negative impact on earnings. Transportation results benefited from higher throughput during the quarter and the year. Marketing margins were weak for the quarter and the year as pump prices lagged increases in gasoline spot prices. During the fourth quarter, Equilon recorded additional supply costs which related to operations during the first nine months of the year. These costs negatively impacted our fourth quarter results by $16 million.

Motiva's results for the fourth quarter and year were affected by weak refining and marketing margins on the East and Gulf Coasts due to rising crude costs and high industry-wide refined product inventory levels. These effects were partially mitigated by improved refinery reliability for the year.

The fourth quarter and year also benefited from the realization of synergies for Equilon and Motiva. These included re-engineering of work processes, leveraging economies of scale to reduce supply costs, sharing best practices and capitalizing on logistical and trading opportunities, including higher utilization of proprietary pipelines and other assets.

The year 1999 included special charges of $79 million mainly for asset write-downs of $76 million for the El Dorado and Wood River refineries during the second quarter. Equilon completed the sale of El Dorado to Frontier Oil Company during the fourth quarter and is seeking a purchaser for the Wood River refinery. Other special items in 1999 included an inventory valuation benefit of $8 million and reorganization, restructuring and employee separation costs of $11 million associated with the alliance formation.

Results for 1998 included $55 million of net special charges. These included a charge of $21 million related to the formation of our U.S. alliances and inventory valuation charges of $34 million. For the fourth quarter net special charges of $48 million consisted of inventory valuation adjustments and U.S. alliance formation charges. Formation charges included asset write-downs and reorganization, restructuring and employee separation costs, as well as gains on Federal Trade Commission mandated asset sales.

                                Fourth Quarter             Year
                               ----------------      -----------------
International
(Millions of dollars):        1999         1998      1999         1998
----------------------------------------------------------------------
Operating income before
 special items             $    45      $    46   $   338      $   503
Special items                  (52)        (128)       32         (171)
                             -----        -----    ------        -----
Total operating 
 income (loss)             $    (7)     $   (82)  $   370      $   332
                            ======       ======   =======       ======

International Refining and Marketing results for the year declined due to escalating crude costs that outpaced product price increases. This pressure on refining margins impacted all major operating areas in Europe, Latin America and the Caltex Asia-Pacific region. The economic downturn and related currency devaluation in Brazil also adversely impacted marketing margins and volumes in Latin America. However, marketing revenues improved in West Africa, Central America and the Caribbean as a result of increased high margin sales volumes. In the Caltex region, results benefited from reduced currency volatility linked to improved economic conditions, gains from the sale of marketable securities and an inventory drawdown benefit. These benefits were not sufficient to offset the combined forces of higher crude costs and an oversupply of product in the Caltex region, where refining and marketing margins were down from the prior year.

Operating results for the fourth quarter were down slightly from the prior year. Results in Europe and Latin America decreased due to lower margins. Comparative results in the Caltex region were higher due to significant currency losses last year and an inventory drawdown benefit of $25 million this year.

Results for 1999 included net special benefits of $32 million. These included inventory valuation benefits of $144 million and tax benefits of $54 million for a Korean tax revaluation. The year also included a charge of $80 million relating to Caltex' sale of its interest in Koa Oil Company, asset write-downs of $23 million in Caltex and Europe, restructuring, reorganization and employee separation costs of $41 million and prior year tax charges of $22 million. Of these amounts, $52 million of special charges were included in the fourth quarter. These included $23 million in asset write-downs, $22 million in prior year tax charges and $7 million for Caltex restructuring charges.

The year 1998 included special charges of $171 million consisting of inventory valuation charges of $108 million and restructuring, reorganization and employee separation costs of $63 million. The fourth quarter 1998 included special charges of $128 million consisting of the inventory valuation charges of $108 million and employee separation costs of $20 million.

GLOBAL GAS AND POWER

                                Fourth Quarter             Year
                               ----------------      -----------------
(Millions of dollars):        1999         1998      1999         1998
----------------------------------------------------------------------
Operating income (loss)
 before special items      $     5      $    (4)  $    21      $   (33)
Special items                  (32)          (3)      (35)          17
                             -----        -----    ------        -----
Total operating (loss)     $   (27)     $    (7)  $   (14)     $   (16)
                            ======       ======   =======       ======

During 1999, responsibility for the Global Gas Marketing segment and the company's cogeneration, gasification, hydrocarbons-to-liquids and fuel cell technology units was combined under a single senior executive, creating the Global Gas and Power segment. Prior period information has been restated to reflect this change.

Operating results for the fourth quarter and year benefited from the continued improvement of natural gas liquids margins, higher gasification licensing revenues and higher cogeneration income. There were also gains from the sale of several assets, including our interest in a U.K. retail gas marketing operation and a U.S. gas gathering pipeline.

Results for 1999 included special charges of $35 million for gas plant impairments in the fourth quarter of $32 million and employee separation costs of $3 million recorded earlier in the year. Net special benefits of $17 million were recorded in 1998, including $20 million in the second quarter for the sale of a partial interest in a pipeline and $3 million for employee separation costs recorded in the fourth quarter.

CORPORATE/NON-OPERATING RESULTS

                                Fourth Quarter             Year
                               ----------------      -----------------
(Millions of dollars):        1999         1998      1999         1998
----------------------------------------------------------------------
Results before 
 special items             $  (122)     $   (80)  $  (481)     $  (412)
Special items                   91            6        85           50
                             -----        -----    ------        -----
Total 
 corporate/non-operating   $   (31)     $   (74)  $  (396)     $  (362)
                            ======       ======   =======       ======

Non-operating results for the fourth quarter and twelve months reflected higher net interest expense due to higher debt levels and interest rates. Expenses were low during the fourth quarter 1998 due to higher interest income and lower tax expense.

Results for 1999 included net special benefits of $85 million. These included $89 million of favorable prior years' income tax adjustments and tax benefits of $40 million attributable to the sale of an interest in a subsidiary recorded in the fourth quarter. Also recorded in the fourth quarter were asset write-downs of $26 million and charges for environmental issues of $12 million. In addition to these items, a $6 million charge for employee separation costs was recorded earlier in the year. Net special benefits in 1998 of $50 million included tax benefits of $24 million and employee separation costs of $18 million in the fourth quarter. Earlier in the year we recorded a gain of $19 million attributable to the sale of an interest in a subsidiary and other tax benefits of $25 million.

CAPITAL AND EXPLORATORY EXPENDITURES

Capital and exploratory expenditures were $3,893 million for the year 1999, compared to $4,019 million in 1998.

In the United States upstream, expenditures decreased 39 percent compared to 1998. Internationally, spending rose 54 percent during 1999 due to the acquisition of a 45 percent ownership interest in the Malampaya Deep Water Natural Gas project and increasing our ownership in the Venezuelan Hamaca joint venture. Additionally, international spending increased for lease acquisitions in Brazil and Nigeria. These changes reflect the effects of our switch in focus to higher impact international projects.

In the downstream, capital expenditures decreased due to depressed global industry conditions. Also, there were refinery project completions in 1998 and the slowing of re-imaging and branding initiatives in the U.S. and Caltex areas of operation.

Global Gas and Power reflected an increase in investment for cogeneration and gasification projects principally in California and the Far East, while spending for natural gas projects decreased due to pipeline completions last year.

                                Fourth Quarter (a)         Year (a)
Income (loss)                 -----------------     ------------------
(Millions of dollars)         1999         1998      1999         1998
                             -----        -----     -----        -----
Exploration and production
     United States         $   208       $    -   $   652      $   301
     International             171          (37)      360          129
                             -----        -----    ------        -----
           Total               379          (37)    1,012          430

Refining, marketing and
 distribution
     United States               4          (12)      208          221
     International              (7)         (82)      370          332
                             -----        -----    ------        -----
           Total                (3)         (94)      578          553

Global gas and power           (27)          (7)      (14)         (16)
                             -----        -----    ------        -----
           Total operating 
             segments          349         (138)    1,576          967
                             -----        -----    ------        -----


Other business units             -           (1)       (3)          (2)

Corporate/Non-operating        (31)         (74)     (396)        (362)
                             -----        -----    ------        -----

Income (loss) before
 cumulative effect
  of accounting change         318         (213)    1,177          603

Cumulative effect of 
 accounting change (b)           -            -         -          (25)
                             -----        -----    ------        -----

         Net income (loss) $   318      $  (213)  $ 1,177      $   578
                            ======       ======   =======       ======

Net income (loss) per 
 common share 
 (dollars) - diluted       $   .58      $  (.43)  $  2.14      $   .99

Average number of common
  shares outstanding for
   computation of earnings 
    per share (millions)
     - diluted               546.4        525.4     537.9        529.0

Provision for (benefit from)
  income taxes included
   in net income (loss)    $   109      $  (160)  $   602      $    98


(a)  Includes special items indicated in this release.

(b)  Caltex adoption of SOP 98-5 of the AICPA, "Reporting on the Costs
     of Start-Up Activities".


                               Fourth Quarter              Year    
Other Financial Data         -----------------      ------------------
(Millions of dollars)         1999         1998      1999         1998
                             -----        -----     -----        -----

Revenues                   $10,562      $ 7,809   $35,698      $31,707

Total assets as of
 December 31                                  (c) $29,000      $28,570

Stockholders' equity as of 
 December 31                                  (c) $12,040      $11,833

Total debt as of
 December 31                                  (c) $ 7,650      $ 7,291


Capital and exploratory
  expenditures
Exploration and production
     United States         $   276      $   329   $   900      $ 1,470
     International             958          373     1,823        1,185
                             -----        -----    ------        -----
           Total             1,234          702     2,723        2,655

Refining, marketing 
 and distribution
     United States             136          133       379          431
     International             193          362       487          717
                             -----        -----    ------        -----
           Total               329          495       866        1,148
Global gas and power           150           44       279          185
                             -----        -----    ------        -----
           Total operating
            segments         1,713        1,241     3,868        3,989

Other business units             3           10        25           31
                             -----        -----    ------        -----
           Total           $ 1,716      $ 1,251   $ 3,893      $ 4,019
                            ======       ======   =======       ======
Exploratory expenses (d)
     United States         $   130      $    62   $   234      $   257
     International              89           75       267          204
                             -----        -----    ------        -----
           Total           $   219      $   137   $   501      $   461
                            ======       ======   =======       ======

Dividends paid to
 common stockholders       $   245      $   236   $   964      $   952

Dividends per common
 share (dollars)           $   .45      $   .45   $  1.80      $  1.80

Dividend requirements for
 preferred stockholders    $     3      $    14   $    29      $    54

(c)  Preliminary

(d)  Includes prior years' exploratory expenditures expensed in the
     current year


                               Fourth Quarter              Year    
Operating Data                -----------------      ------------------
                              1999         1998      1999         1998
                             -----        -----     -----        -----

Exploration 
 and production

     United States
       Net production of
       crude oil and
       natural gas 
       liquids (MBPD)          381          401       395          433

       Net production of 
       natural gas available
       for sale (MMCFPD)     1,468        1,637     1,462        1,679
                             -----        -----    ------        -----

           Total net 
            production
            (MBOEPD)           626          674       639          713

       Natural gas 
       sales (MMCFPD)        3,635        3,719     3,373        3,873

       Average U.S. 
        crude (per bbl.)   $ 20.50      $  9.74   $ 14.70      $ 10.60
       Average U.S. natural
        gas (per mcf)      $  2.43      $  1.91   $  2.18      $  2.00
       Average WTI (Spot)
        (per bbl.)         $ 24.55      $ 12.88   $ 19.31      $ 14.39
       Average Kern (Spot)
        (per bbl.)         $ 18.98      $  8.22   $ 13.35      $  8.38

     International
       Net production of 
        crude oil and
        natural gas liquids
        (MBPD)
           Europe              161          163       147          158
           Indonesia           138          186       152          166
           Partitioned 
            Neutral Zone       132          113       124          108
           Other                72           63        67           65
                             -----        -----    ------        -----
               Total           503          525       490          497

       Net production of 
        natural gas available
        for sale (MMCFPD)
           Europe              269          304       263          267
           Colombia            183          163       165          180
           Other               126           85       109          101
                             -----        -----    ------        -----

               Total           578          552       537          548
                             -----        -----    ------        -----

               Total net 
                production 
                (MBOEPD)       599          617       579          588

     Natural gas
      sales (MMCFPD)           616          579       567          664

     Average 
      International crude
      (per bbl.)           $ 20.57      $ 10.22   $ 15.23      $ 11.20
     Average International
      natural gas 
      (per mcf)            $  1.30      $  1.79   $  1.34      $  1.63
     Average U.K. natural
      gas (per mcf)        $  2.29      $  2.54   $  2.35      $  2.54
     Average Colombia
      natural gas 
     (per mcf)             $   .74      $   .72   $   .67      $   .84

     Total worldwide net
      production (MBOEPD)    1,225        1,291     1,218        1,301


                               Fourth Quarter              Year    
Operating Data                -----------------      ------------------
                              1999         1998      1999         1998
                             -----        -----     -----        -----

Refining, marketing
 and distribution

     United States
       Refinery input (MBPD)
        Equilon area           367          385       374          387
        Motiva area            267          298       297          311
                             -----        -----    ------        -----
               Total           634          683       671          698

       Refined product sales 
        (MBPD)
        Equilon area           754          599       712          585
        Motiva area            383          412       377          377
        Other                  263          279       288          241
                             -----        -----    ------        -----
               Total         1,400        1,290     1,377        1,203

     International
       Refinery input (MBPD)
        Europe                 346          332       353          350
        Caltex area            355          418       397          417
        Latin America/
         West Africa            69           67        70           65
                             -----        -----    ------        -----
               Total           770          817       820          832

       Refined product sales
        (MBPD)
        Europe                 622          586       606          571
        Caltex area            688          629       669          593
        Latin America/
         West Africa           515          488       493          462
            Other               32           77        76           59
                             -----        -----    ------        -----
               Total         1,857        1,780     1,844        1,685


Updated: January 2000