press release

Texaco Press Release - Texaco Reports Results: Third Quarter 1998 Earnings Total $215 Million

FOR IMMEDIATE RELEASE: WEDNESDAY, OCTOBER 21, 1998.

WHITE PLAINS, N.Y., Oct. 21 - Weak worldwide crude oil and natural gas prices and depressed downstream margins in the Far East eroded third quarter earnings, Texaco Chairman and Chief Executive Officer Peter Bijur reported today. Worldwide production growth of nine percent and tight control over cash expenses helped to lessen these negative impacts.

Texaco's total reported net income for the third quarter of 1998 was $215 million ($.38 per share). Net income for the third quarter of 1997 was $490 million ($.90 per share). For the first nine months of 1998, total reported net income was $816 million ($1.46 per share), compared to $2,041 million ($3.75 per share) for the first nine months of 1997. Commenting on the third quarter of 1998, Bijur highlighted the following:

  • Average quarterly crude oil prices slumped to their lowest levels since 1986;
  • Continued economic instability in the Far East depressed downstream margins;
  • Worldwide daily production rose nine percent for the quarter and 12 percent for nine months; and
  • Year-to-date cash operating expenses per barrel decreased six percent.

Bijur further stated, "Average crude oil prices for the quarter reached a low point not seen since mid-1986. OPEC efforts to reduce production and lower inventory levels caused crude prices to rebound somewhat from their summer lows; however, prices have recently retreated and remain significantly below last year's levels. Storms in the Gulf of Mexico caused temporary production shut-ins which further dampened earnings."

Texaco's worldwide downstream results decreased from sluggish margins, especially in the Far East. Bijur pointed to the impact of the Asian financial and economic crisis noting that Singapore refinery margins were negative in the third quarter from extremely weak demand. In the U.S., results were down from an extremely strong quarter last year; however, in Latin America and Europe, margins and sales volumes remained strong.

"To remain competitive in this environment, our affiliate Caltex announced a reorganization program. This program will focus the organization functionally and better position Caltex to identify growth opportunities. When fully implemented, it will yield expense savings in excess of $50 million annually. Also, our U.S. alliances with Shell Oil Company and Saudi Refining, Inc. continue to implement programs that will take advantage of existing synergies," Bijur concluded.

                                          Third Quarter              Nine Months
                                        -----------------         ------------------
Texaco Inc. (Millions):                 1998         1997         1998          1997
------------------------------------------------------------------------------------
Net income before special items        $ 208        $ 490        $ 802       $ 1,422
                                      --------     --------     --------    --------
Caltex reorganization                    (43)           -          (43)            -
U.S. alliance formation issues            25            -           (7)            -
U.S. tax issues                           25            -           25           488
Gains on major asset sales                 -            -           20           174
Tax benefits on asset sales                -            -           19             -
Financial reserves for various issues      -            -            -           (43)
                                      --------     --------     --------    --------
Special items                              7            -           14           619
                                      --------     --------     --------    --------
Total reported net income              $ 215        $ 490        $ 816       $ 2,041
                                      ========     ========     ========    ========
------------------------------------------------------------------------------------
     The following functional analysis includes details on special items.

ANALYSIS OF OPERATING EARNINGS
EXPLORATION AND PRODUCTION

                                           Third Quarter              Nine Months
                                        -----------------         ------------------
UNITED STATES: (Millions)               1998         1997         1998          1997
------------------------------------------------------------------------------------
Operating earnings before special items $ 92        $ 232        $ 299         $ 775
Special items                              -            -           20           (43)
                                      --------     --------     --------    --------
Total operating net income              $ 92        $ 232        $ 319         $ 732
------------------------------------------------------------------------------------
 

U.S. exploration and production earnings for the third quarter and nine months of 1998 were below last year's levels due to lower crude oil and natural gas prices. Average realized crude oil prices for the third quarter and nine months of 1998 were $10.06 and $10.87 per barrel; 39 percent lower than the 1997 periods. The dramatic price declines reflect a slowing in worldwide demand growth and continued high inventory levels. Crude oil prices recovered somewhat in late September as a result of the OPEC nations' efforts to cut production. For the third quarter and nine months of 1998, average natural gas prices were $1.89 and $2.03 per MCF; 11 percent lower than the 1997 periods. Lower natural gas prices were the result of excess supply in the marketplace.

Production increased four percent for this year's third quarter and nine percent for the year. The increased production in the quarter included new production from the Arnold, Oyster and Barite South fields located in the Gulf of Mexico. Both production and earnings were negatively impacted by the recent storms in the Gulf of Mexico. This year included production from the Monterey properties acquired in November 1997.

Texaco continued to pursue new reserve opportunities in the Gulf of Mexico leading to higher exploration expenses this year. Exploration expenses for the nine months of 1998 were $195 million before tax, $73 million higher than the same period of 1997. For the third quarter of 1998, exploration expenses were $48 million, $2 million higher than the third quarter 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 to establish financial reserves for royalty and severance tax issues.

                                          Third Quarter              Nine Months
                                        -----------------         ------------------
INTERNATIONAL: (Millions)               1998         1997         1998          1997
------------------------------------------------------------------------------------
Operating earnings before special items $ 40        $ 103        $ 131         $ 338
Special items                              -            -            -           161
                                      --------     --------     --------    --------
Total operating net income              $ 40        $ 103        $ 131         $ 499
------------------------------------------------------------------------------------

International exploration and production earnings for the third quarter and nine months of 1998 declined significantly from the same periods of 1997 due to lower crude oil prices. Average realized crude oil prices in 1998 were $11.05 per barrel for the quarter and $11.55 for nine months. These average prices were 35 percent below 1997 levels. OPEC's efforts to reduce production and lower inventory levels caused prices to recover slightly from their summer lows; however, prices have recently retreated and remain substantially below last year's levels.

Daily production growth of 15 percent for this year's third quarter and 16 percent for the year benefited earnings. The combined production from the Captain, Erskine and Galley fields in the U.K. North Sea grew to 95 thousand barrels of oil equivalent per day in the third quarter. Production also grew in the Partitioned Neutral Zone, Indonesia and Colombia.

Operating results for the third quarter and nine months of 1998 included non-cash currency charges of $3 million and $6 million related to deferred income taxes denominated in British Pound Sterling. This compares to benefits of $13 million for the third quarter and $26 million for nine months of 1997.

Nine months of 1997 included second quarter 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

                                          Third Quarter              Nine Months
                                        -----------------         ------------------
UNITED STATES: (Millions)               1998         1997         1998          1997
------------------------------------------------------------------------------------
Operating earnings before special items $ 99        $ 132        $ 242         $ 225
Special items                             25            -           (7)           13
                                      --------     --------     --------    --------
Total operating net income             $ 124        $ 132        $ 235         $ 238
------------------------------------------------------------------------------------
  

U.S. manufacturing, marketing and distribution earnings for the third quarter of 1998 included results from Motiva Enterprises LLC, Texaco's Eastern alliance with Shell Oil Company and Saudi Refining, Inc. that began operations in July. In addition, the quarter and year included operating results from Equilon Enterprises LLC, Texaco's Western alliance with Shell Oil Company that began operations in the first quarter.

Results for the third quarter of 1998 reflected the industry trend of shrinking refining margins. Operating difficulties at certain refineries and the temporary shutdown of Gulf Coast refineries in September due to hurricane Georges negatively impacted earnings. Lower crude costs as well as strong transportation and lubricants earnings benefited the quarter and year.

Results for the third quarter of 1997 included minimum refinery downtime and solid West Coast margins. Both the quarter and year included strong Gulf Coast refining margins. However, refinery fires in late 1996 and early 1997 negatively affected product yields and caused casualty loss expense in the first quarter. Additionally, West Coast margins were weak during the first half of the year due to intense competitive pressures.

Results for 1998 included a third quarter net special gain of $25 million associated with the formation of the U.S. alliances. This net gain included gains on asset sales, asset writedowns and other formation charges. The second quarter of 1998 included a special charge of $32 million for alliance formation expenses, primarily employee severance programs. Results for 1997 included a second quarter special gain of $13 million from the sale of credit card operations.

                                          Third Quarter              Nine Months
                                        -----------------         ------------------
INTERNATIONAL: (Millions)               1998         1997         1998          1997
------------------------------------------------------------------------------------
Operating earnings before special items $ 81        $ 134        $ 457         $ 370
Special items                            (43)           -          (43)            -
                                      --------     --------     --------    --------
Total operating net income             $  38        $ 134        $ 414         $ 370
------------------------------------------------------------------------------------
 

International manufacturing and marketing earnings for the third quarter of 1998 declined significantly from 1997. The sharp decline was due to the Asian financial and economic crisis which weakened demand and created currency volatility. Caltex experienced a loss as a result of declining margins throughout the region from weak inland demand that caused higher volumes to be sold into the lower margin export markets. Singapore refinery margins were negative from extremely weak demand. However, in Latin America and Europe, third quarter earnings were up slightly.

Nine months 1998 results increased due to improved manufacturing and marketing results from higher margins and volumes, mainly in the U.K., Caribbean and Central America.

Operating results for the third quarter and nine months of 1998 included non-cash currency charges of $3 million and $5 million related to deferred income taxes denominated in British Pound Sterling. This compares to benefits of $4 million for the third quarter and $8 million for nine months of 1997.

Results for 1998 included a third quarter net special charge of $43 million for a reorganization program in our affiliate Caltex. This program is intended to organize operations functionally and better position Caltex to identify growth opportunities.

CORPORATE/NONOPERATING RESULTS

                                          Third Quarter              Nine Months
                                        -----------------         ------------------
(Millions)                              1998         1997         1998          1997
------------------------------------------------------------------------------------
Results before special items          $ (108)      $ (114)      $ (331)       $ (302)
Special items                             25            -           44           488
                                      --------     --------     --------    --------
Total corporate/nonoperating          $  (83)      $ (114)      $ (287)        $ 186
------------------------------------------------------------------------------------
 

Corporate and nonoperating results for the third quarter and nine months of 1998 included increased net interest expense from higher debt levels, however, successful efforts in expense control in overhead departments more than mitigated this impact. Results for nine months of 1998 included higher expenses for Texaco's corporate advertising campaign introduced in the second half of 1997.

Results for 1998 included a third quarter special benefit of $25 million to adjust prior year's tax liability and a second quarter special tax benefit of $19 million 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 $2,769 million for the nine months of 1998 and $3,023 million in 1997.

In the U.S., exploration and development expenditures slowed during the third quarter, but were flat for the year. Activities continued to reflect Texaco's focus in both the traditional shelf and deepwater areas of the Gulf of Mexico. Using advanced technologies, Texaco continues to grow oil and gas production and reserves.

Internationally, expenditures decreased following the completion of several large projects in both the U.K. and Danish sectors of the North Sea. Development activity in Indonesia, the North Sea and other promising areas continued while exploratory spending decreased in China and other Far Eastern areas. Upstream expenditures in discovered reserve opportunities also continued in promising areas, including the Karachaganak venture in Kazakhstan.

Lower international downstream expenditures reflected a decrease in the Caltex marketing areas from higher 1997 service station investments in Hong Kong and slower re-imaging spending in Caltex areas and Europe. These decreases were partly offset by higher marketing and manufacturing expenditures in Texaco's newly formed U.S. alliances.

Texaco continues to carefully assess investment projects given the current and projected industry environment. Adjustments in spending have been made by deferring non-critical projects into future periods.

                                        Third Quarter (a)           Nine Months (a)
                                        -----------------         ------------------
(Millions)                              1998         1997         1998          1997
                                      --------     --------     --------    --------
FUNCTIONAL NET INCOME (Millions)

Operating Earnings
 Petroleum and natural gas
  Exploration and production
    United States                     $   92       $  232       $  319        $  732
    International                         40          103          131           499
                                      --------     --------     --------    --------
      Total                              132          335          450         1,231
                                      --------     --------     --------    --------

   Manufacturing, marketing and
   distribution
     United States                       124          132          235           238
     International                        38          134          414           370
                                      --------     --------     --------    --------
      Total                              162          266          649           608
                                      --------     --------     --------    --------

      Total petroleum and natural gas    294          601        1,099         1,839

  Nonpetroleum                             4            3            4            16
                                      --------     --------     --------    --------
      Total operating earnings           298          604         1,103        1,855

Corporate/Nonoperating                   (83)        (114)         (287)         186
                                      --------     --------     --------    --------
        Total net income              $  215       $  490        $  816      $ 2,041
                                      ========     ========     ========    ========

Net income per common share (Dollars)
         Diluted                      $ 0.38       $ 0.90        $ 1.46      $  3.75

Average number of common shares
  outstanding for computation
  of earnings per share (Millions)
         Diluted                       526.4        540.2         548.6        540.0

Provision for income taxes included in
  total net income                    $   34       $  270        $  258      $   411

(a) Includes special items as detailed in this release.
                                          Third Quarter              Nine Months
                                        -----------------         ------------------
OTHER FINANCIAL DATA (Millions)         1998         1997         1998          1997
                                      --------     --------     --------    --------
Revenues                             $ 7,707     $ 11,093      $23,898      $ 34,618

Total assets as of September 30	                           (b) $28,400      $ 26,815

Stockholders' equity as of September 30                    (b) $12,300      $ 11,617

Total debt as of September 30                              (b) $ 6,950      $  5,637

Capital and exploratory expenditures
    Exploration and production
      United States                   $  352       $  491      $ 1,251       $ 1,272
      International                      283          444          834           990
                                      --------     --------     --------    --------
           Total                         635          935        2,085         2,262
                                      --------     --------     --------    --------

     Manufacturing, marketing and
     distribution
       United States                     120           94          303           246
       International                     130          178          358           486
                                      --------     --------     --------    --------
           Total                         250          272          661           732
                                      --------     --------     --------    --------

     Other                                 3           18           23            29
                                      --------     --------     --------    --------
           Total                      $  888      $ 1,225      $ 2,769       $ 3,023
                                      ========     ========     ========    ========

     Exploratory expenses included above
       United States                  $   48       $   46        $ 195         $ 122
       International                      45           68          129           184
                                      --------     --------     --------    --------
           Total                      $   93       $  114        $ 324         $ 306
                                      ========     ========     ========    ========

Dividends paid to common stockholders $  237       $  235        $ 716         $ 676

Dividends per common share (Dollars)  $ 0.45       $ 0.45       $ 1.35        $ 1.30

Dividend requirements for preferred
  stockholders                        $   13       $   14       $   40        $   42


(b) Preliminary
                                           Third Quarter              Nine Months
                                         -----------------         ------------------
OPERATING DATA                           1998         1997         1998          1997
                                       --------     --------     --------    --------
  Exploration and Production

  United States
    Net production of crude oil and
      natural gas liquids (MBPD)          432          391          443           387
    Net production of natural gas -
      available for sale (MMCFPD)       1,641        1,722        1,694         1,686

        Total net production (MBOEPD)    706          678          726           668

    Natural gas sales (MMCFPD)          3,963        3,312        3,926         3,570

    Average U.S. crude (per bbl.)     $ 10.06      $ 16.56      $ 10.87       $ 17.71
    Average U.S. natural gas (per mcf)$  1.89      $  2.13      $  2.03       $  2.28
    Average WTI (Spot) (per bbl.)     $ 14.16      $ 19.78      $ 14.89       $ 20.83
    Average Kern (Spot) (per bbl.)    $  8.65      $ 14.30      $  8.43       $ 14.81

  International
    Net production of crude oil and
      natural gas liquids (MBPD)
         Europe                           163          118          157           116
         Indonesia                        168          150          159           148
         Partitioned Neutral Zone         104           97          106            94
         Other                             59           64           66            67
                                       --------     --------     --------    --------
           Total                          494          429          488           425
    Net production of natural gas -
      available for sale (MMCFPD)
         Europe	                          261          176          255           197
         Colombia                         165          190          185           168
         Other                             87           79          108            88
                                       --------     --------     --------    --------
           Total                          513          445          548           453

         Total net production (MBOEPD)    580          503          579           501

    Natural gas sales (MMCFPD)            633          536          692           562

    Average International crude
      (per bbl.)                      $ 11.05      $ 16.88      $ 11.55       $ 17.79
    Average U.K. natural gas
      (per mcf)                       $  2.34      $  2.55      $  2.53       $  2.68
     Average Colombia natural gas
      (per mcf)                       $  0.79      $  0.95      $  0.88       $  1.04

  Worldwide
        Total net production (MBOEPD)	1,286        1,181        1,305         1,169
                                            Third Quarter              Nine Months
                                         -----------------         ------------------
OPERATING DATA                           1998         1997         1998          1997
                                       --------     --------     --------    --------
 Manufacturing, Marketing and
 Distribution

 United States
   Refinery input (MBPD)
     Western U.S.                         410          420          388           415
     Eastern U.S.                         301          339          316           334
                                       --------     --------     --------    --------
       Total                              711          759          704           749

   Refined product sales (MBPD)
     Western U.S.                         643          512          597           492
     Eastern U.S.                         486          327          387           323
     Other Operations                     216          222          228           205
                                       --------     --------     --------    --------
       Total                            1,345        1,061        1,212         1,020

  International
    Refinery input (MBPD)
      Europe                              326          329          356           337
      Caltex                              397          379          417           400
      Latin America/West Africa            66           60           64            59
                                       --------     --------     --------    --------
       Total                              789          768          837           796

    Refined product sales (MBPD)
       Europe                             547          508          567           496
       Caltex                             563          545          580           564
       Latin America/West Africa          474          440          455           408
       Other                               56           66           53            62
                                       --------     --------     --------    --------
       Total                            1,640        1,559        1,655         1,530

Updated: October 1998