press release

Texaco Press Release - Texaco Reports Results: Second Quarter 1998 Earnings Total $342 Million

FOR IMMEDIATE RELEASE: TUESDAY, JULY 21, 1998

WHITE PLAINS, N.Y., July 21 - Continuing weak crude oil prices lowered second quarter results, Texaco Chairman and Chief Executive Officer Peter Bijur reported today. Improved margins and higher sales volumes in the international downstream and an 11 percent increase in worldwide production only partially offset the effects of lower oil prices.

Texaco's reported net income for the second quarter of 1998 was $342 million ($.61 per share). The quarter included a net special gain of $7 million. Net income for the second quarter of 1997 was $571 million ($1.05 per share), including a net special gain of $131 million. For the first half of 1998, reported net income was $601 million ($1.07 per share), compared with $1,551 million ($2.85 per share) for last year. Commenting on the second quarter of 1998, Bijur highlighted the following:

  • Strong international downstream margins and volumes;
  • Worldwide daily production increased 11 percent;
  • Year-to-date cash operating expenses per barrel decreased six percent; and
  • Year-to-date stock repurchases of $400 million.

Further commenting on the results Bijur stated, "The combination of excessive crude oil inventories and slower demand growth continues to keep downward pressure on prices. Recently announced production cuts by certain oil producing nations should lead to a better supply/demand balance and a recovery in prices. In this environment, we continue to strategically position the company for long-term profitability by focusing on increasing our reserve base."

Bijur noted that lower crude oil prices helped to improve downstream margins in the second quarter. Texaco's increasing presence in Latin American markets and the company's operational performance in Europe contributed to improved results. Additionally, profitability has been maintained in the Caltex area of operations, despite the highly volatile business environment.

Bijur went on to say that Texaco, Shell Oil Company and Saudi Refining, Inc., finalized agreements for the July 1998 operational start-up of Motiva Enterprises LLC. This U.S. downstream alliance combines Eastern and Gulf Coast refining and marketing operations. Earlier in the year, Equilon Enterprises LLC, a U.S. joint venture combining Texaco's and Shell's Western and Midwestern downstream assets began operations.

                                                        Second Quarter               First Half
                                                   ---------------------         --------------------
Texaco Inc. (Millions):                             1998         1997              1998        1997
-----------------------------------------------------------------------------------------------------
Net income before special items                    $ 335        $ 440            $  594      $  932
                                                  ------       ------            ------      ------
Gains on major asset sales                            20          174                20         174
Tax benefits on asset sales                           19            -                19           -
Alliance formation expenses                          (32)           -               (32)          -
Financial reserves for various issues                  -          (43)                -         (43)
U.S. tax issue                                         -            -                 -         488
                                                  ------       ------            ------      ------
Special items                                          7          131                 7         619
                                                  ------       ------            ------      ------
Total reported net income                          $ 342        $ 571            $  601     $ 1,551
                                                  ======       ======            ======      ======
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        Details on special items are included in the following functional analysis.

ANALYSIS OF OPERATING EARNINGS
EXPLORATION AND PRODUCTION

                                                        Second Quarter               First Half
                                                   ---------------------         --------------------
UNITED STATES (Millions):                           1998         1997              1998        1997
-----------------------------------------------------------------------------------------------------
Operating earnings before special items            $ 100        $ 232             $ 207       $ 543
Special items                                         20          (43)               20         (43)
                                                  ------       ------            ------      ------
Total operating net income                         $ 120        $ 189             $ 227       $ 500
-----------------------------------------------------------------------------------------------------

U.S. exploration and production earnings in the second quarter and the first half of 1998 were below last year's levels due to the continued deterioration of crude oil prices. Average realized crude oil prices for the second quarter and first half of 1998 were $10.72 and $11.26 per barrel; more than 36 percent lower than the 1997 periods. The dramatic declines in price resulted from rising inventory levels and slowing worldwide demand growth. Slightly higher natural gas prices benefited second quarter 1998 results. For the first half of 1998, average natural gas prices were $2.10 per MCF, $.26 lower than last year. The lower natural gas prices were the result of milder weather as well as increased inventory levels in this year's first quarter.

Production increased 10 percent for the second quarter and 11 percent for the first half of 1998. The increased production in the second quarter 1998 included new production from the Arnold, Oyster and Barite South fields located in the Gulf of Mexico. Both periods of 1998 included production from the Monterey properties acquired in November of 1997.

Texaco continued to pursue new reserve opportunities in the Gulf of Mexico, leading to higher exploration expenses this year. Exploration expenses for the second quarter and first half of 1998 were $51 million and $147 million before tax, $17 million and $71 million higher than the same periods of 1997.

Results for 1998 included a second quarter special gain of $20 million from the sale of an interest in a natural gas pipeline. Results for 1997 included a second quarter special charge of $43 million for the establishment of financial reserves for royalty and severance tax issues.

                                                        Second Quarter               First Half
                                                   ---------------------         --------------------
INTERNATIONAL (Millions):                           1998         1997              1998        1997
-----------------------------------------------------------------------------------------------------
Operating earnings before special items            $  51        $  79             $  91       $ 235
Special items                                          -          161                 -         161
                                                  ------       ------            ------      ------
Total operating net income                         $  51        $ 240             $  91       $ 396
-----------------------------------------------------------------------------------------------------

International exploration and production earnings for the second quarter and first half of 1998 declined from 1997 as a result of lower crude oil prices. Average realized crude oil prices were $11.42 per barrel for the quarter, and $11.68 for the first half of 1998, decreasing 32 percent for the quarter and 36 percent for the first half.

Production increased 13 percent for the second quarter and 16 percent for the first half of 1998. Volumes in the U.K. North Sea increased from the Captain, Erskine and Galley fields. The Galley field began production in the second quarter of this year. Production also increased in the Partitioned Neutral Zone and Colombia, and as a result of Texaco's first quarter 1998 acquisition of a 20 percent interest in the Karachaganak field in Kazakhstan. Also, exploratory expenses in both periods were lower.

The second quarter of 1997 included special gains of $161 million from the sales of a 15 percent interest in the Captain field, an interest in Canadian gas properties and an interest in an Australian pipeline system.

MANUFACTURING, MARKETING AND DISTRIBUTION

                                                        Second Quarter               First Half
                                                   ---------------------         --------------------
UNITED STATES (Millions):                           1998         1997              1998        1997
-----------------------------------------------------------------------------------------------------
Operating earnings before special items            $  96        $  87             $ 143       $  93
Special items                                        (32)          13               (32)         13
                                                  ------       ------            ------      ------
Total operating net income                         $  64        $ 100             $ 111       $ 106
-----------------------------------------------------------------------------------------------------

In the U.S. downstream, earnings for 1998 reflect the change in operations from the formation of Equilon Enterprises LLC, Texaco's downstream alliance with Shell Oil Company.

During this year's second quarter, margins benefited from lower crude oil prices. Refining operations improved in the West and Midwest while in the East results were adversely affected by downtime at several plants.

For the first half of this year, lower crude prices benefited product and lubricant margins. Crude oil trading operations also contributed to higher results. However, in the first quarter, weather conditions weakened demand for heating oil on the East Coast and gasoline on the West Coast. Also, first quarter refining results were affected by maintenance at the Martinez and Wood River plants.

Earnings for 1997 included the adverse effects of intense competition that squeezed margins in the West Coast marketplace, primarily in the first quarter. Refinery fires late in 1996 and early in 1997 negatively affected product yields and caused casualty loss expenses.

The second quarter of 1998 included a special charge of $32 million for alliance formation expenses, mostly Texaco's share of announced employee severance programs. Results for 1997 included a second quarter special gain of $13 million from the sale of credit card operations.

                                                        Second Quarter               First Half
                                                   ---------------------         --------------------
INTERNATIONAL (Millions):                           1998         1997              1998        1997
-----------------------------------------------------------------------------------------------------
Operating earnings before special items            $ 194        $ 132             $ 376       $ 236
Special items                                          -            -                 -           -
                                                  ------       ------            ------      ------
Total operating net income                         $ 194        $ 132             $ 376       $ 236
-----------------------------------------------------------------------------------------------------

In the international downstream, earnings for the second quarter and first half of 1998 were higher than 1997. Refining margins improved in the U.K. and Panama due to lower crude costs. Improved marketing results reflected increased sales volumes and higher margins, primarily in the U.K., Brazil and other Latin American areas where operations have expanded. Scandinavian earnings improved following the 1997 price war in Norway.

In the Caltex area, higher 1998 earnings were a result of lower crude costs and partial recovery of the fourth quarter 1997 currency losses in Korea. However, a significantly higher volume of product was sold into the lower margin export market.

CORPORATE/NONOPERATING RESULTS

                                                        Second Quarter               First Half
                                                   ---------------------         --------------------
(Millions):                                         1998         1997              1998        1997
-----------------------------------------------------------------------------------------------------
Results before special items                      $ (104)       $ (91)           $ (223)     $ (188)
Special items                                         19            -                19         488
                                                  ------       ------            ------      ------
Total corporate/nonoperating                      $  (85)       $ (91)           $ (204)     $  300
-----------------------------------------------------------------------------------------------------

Corporate and nonoperating results for the second quarter and first half of 1998 included increased interest expense due to higher debt levels. Additionally, results for 1998 included expenses for Texaco's corporate advertising campaign introduced in the second half of 1997.

Results for 1998 included a second quarter special item of $19 million for tax benefits attributable to the sale of an interest in a subsidiary. Results for 1997 included a first quarter special benefit of $488 million associated with an IRS settlement.

CAPITAL AND EXPLORATORY EXPENDITURES

Capital and exploratory expenditures were $1,881 million for the first half of 1998 and $1,798 million in 1997.

In the U.S. upstream, development continued in the deepwater Gulf of Mexico. Expenditures in 1998 also increased for enhanced oil recovery projects using advanced thermal recovery techniques which raised production from the acquired Monterey properties and other core producing fields. Exploratory expenses increased as Texaco continued its program to grow oil and gas production and reserves.

Internationally, slightly higher upstream expenditures included investment in the Karachaganak venture in Kazakhstan, a discovered reserve opportunity. Development work continued in the U.K. North Sea, Indonesia and other promising areas while exploratory spending decreased in China.

Lower international downstream expenditures in the Caltex marketing areas were due to higher 1997 service station investments in Hong Kong.

Texaco continues to carefully assess investment projects given the current and projected industry environment. The company anticipates some adjustment in spending by deferring non-critical projects into future periods should the current low crude price environment persist.


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                                                        Second Quarter               First Half
                                                   ---------------------         --------------------
                                                    1998         1997              1998        1997
                                                  ------       ------            ------      ------
FUNCTIONAL NET INCOME ($Millions)

Operating Earnings
   Petroleum and natural gas
       Exploration and production
           United States                          $  120       $  189            $  227      $  500
           International                              51          240                91         396
                                                  ------       ------            ------      ------
               Total                                 171          429               318         896
                                                  ------       ------            ------      ------

    Manufacturing, marketing and
    distribution
           United States                              64          100               111         106
           International                             194          132               376         236
                                                  ------       ------            ------      ------
               Total                                 258          232               487         342
                                                  ------       ------            ------      ------

               Total petroleum and natural gas       429          661               805       1,238

   Nonpetroleum                                       (2)           1                 -          13
                                                  ------       ------            ------      ------
               Total operating earnings              427          662               805       1,251


Corporate/Nonoperating                               (85)         (91)             (204)        300
                                                  ------       ------            ------      ------
               Total net income                   $  342       $  571            $  601     $ 1,551
                                                  ======       ======            ======      ======

Net income per common share (Dollars)
               Basic                              $ 0.62       $ 1.07            $ 1.08      $ 2.93
               Diluted                            $ 0.61       $ 1.05            $ 1.07      $ 2.85

Average number of common shares
     outstanding for computation
     of earnings per share (Millions)
               Basic                               530.6        519.4             531.2       519.3
               Diluted                             549.8        539.9             550.6       540.0

Provision for income taxes included in
    total net income above                         $  84       $  335            $  224      $  141

(a) Includes special items as detailed in this release.



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                                                        Second Quarter               First Half
                                                   ---------------------         --------------------
OTHER FINANCIAL DATA (Millions):                    1998         1997              1998        1997
-----------------------------------------------------------------------------------------------------

Revenues                                         $ 8,044     $ 11,496          $ 16,191    $ 23,525 

Total assets as of June 30                                                 (b) $ 28,700    $ 27,041 

Stockholders' equity as of June 30                                         (b) $ 12,500    $ 11,415 

Total debt as of June 30                                                   (b) $ 6,950     $  5,539 

Capital and exploratory expenditures							
    Exploration and production							
      United States                               $  423       $  429           $  899       $  781 
      International                                  261          264              551          546
                                                  ------       ------            ------      ------
           Total                                     684          693            1,450        1,327 
                                                  ------       ------            ------      ------

     Manufacturing, marketing and							
     distribution
      United States                                   95           92              183          152 
      International                                  129          207              228          308
                                                  ------       ------            ------      ------
           Total                                     224          299              411          460
                                                  ------       ------            ------      ------ 
							
     Other                                             6            7               20           11
                                                  ------       ------            ------      ------
           Total                                  $  914       $  999          $ 1,881      $ 1,798
                                                  ======       ======            ======      ======

     Exploratory expenses included above
       United States                              $   51       $   34           $  147       $   76
       International                                  39           59               84          116
                                                  ------       ------            ------      ------ 
           Total 	                          $   90       $   93           $  231       $  192
                                                  ======       ======            ======      ======
							
Dividends paid to common stockholders             $  240       $  220           $  479       $  441
			   				
Dividends per common share (Dollars)              $ 0.45      $ 0.425           $ 0.90       $ 0.85

Dividend requirements for preferred stockholders  $   13      $    14           $   27       $   28


(b) Preliminary



-----------------------------------------------------------------------------------------------------




                                                        Second Quarter               First Half
                                                   ---------------------         --------------------
OPERATING DATA (Millions):                          1998         1997              1998        1997
-----------------------------------------------------------------------------------------------------

  Exploration and Production

  United States
    Net production of crude oil and
      natural gas liquids (MBPD)                     447          385               449         385
    Net production of natural gas -
      available for sale (MMCFPD)                  1,703        1,677             1,721       1,666

         Total net production (MBOEPD)               731          665               736         663

    Natural gas sales (MMCFPD)                     3,934        3,561             3,908       3,700

    Average U.S. crude (per bbl.)                $ 10.72      $ 16.95           $ 11.26     $ 18.29
    Average U.S. natural gas (per mcf)           $  2.05      $  2.02           $  2.10     $  2.36
    Average WTI (Spot) (per bbl.)                $ 14.62      $ 19.97           $ 15.26     $ 21.38
    Average Kern (Spot) (per bbl.)               $  7.75      $ 14.11           $  8.31     $ 15.07 

  International
     Net production of crude oil and
       natural gas liquids (MBPD)
         Europe                                      149          118              154          116
         Indonesia                                   156          153              155          147
         Partitioned Neutral Zone                    105           94              106           92
         Other                                        67           68               69           67
                                                  ------       ------            ------      ------
           Total                                     477          433              484          422
     Net production of natural gas -		
       available for sale (MMCFPD)
         Europe                                      245          172              251          207
         Colombia                                    185          173              196          156
         Other                                       112           83              118           93
                                                  ------       ------            ------      ------
           Total                                     542          428              565          456

         Total net production (MBOEPD)               567          504              578          498

    Natural gas sales (MMCFPD)                       665          528              721          574

    Average International crude (per bbl.)       $ 11.42      $ 16.91          $ 11.68      $ 18.22
    Average U.K. natural gas (per mcf)           $  2.64      $  2.59          $  2.64      $  2.73
    Average Colombia natural gas (per mcf)       $  0.92      $  1.12          $  0.91      $  1.09

  Worldwide
         Total net production (MBOEPD)             1,298        1,169            1,314        1,161

  Manufacturing, Marketing and Distribution

  United States
    Refinery input (MBPD)
      Western U.S.                                   396          418              377          413
      Eastern U.S.                                   333          328              323          332
                                                  ------       ------            ------      ------
        Total                                        729          746              700          745

    Refined product sales (MBPD)
      Gasoline                                       554          512              530          505
      Avjets                                         164           94              168           92
      Middle Distillates                             188          216              184          215
      Residuals                                      119           59              107           72
      Other                                          181          117              165          119
                                                  ------       ------            ------      ------
         Total                                     1,206          998            1,154        1,003
							
  International
    Refinery input (MBPD)
      Europe                                         367          335              371          341
      Caltex                                         419          414              428          411
      Latin America/West Africa                       70           55               64           59
                                                  ------       ------            ------      ------
         Total                                       856          804              863          811

    Refined product sales (MBPD)
       Europe                                        602          494              582          495
       Caltex                                        586          561              589          574
       Latin America/West Africa                     460          406              444          391
       Other                                          56           74               51           55
                                                  ------       ------            ------      ------
          Total                                    1,704        1,535            1,666        1,515

Updated: July 1998