press release

Texaco Press Release - Texaco Reports Second Quarter Results

FOR IMMEDIATE RELEASE: MONDAY, JULY 26, 1999.

WHITE PLAINS, N.Y., July 26 - Texaco reported today second quarter 1999 income before special items of $286 million ($.52 per share). This compares with income before special items of $335 million ($.60 per share) for the second quarter of 1998. Net income was $273 million ($.50 per share) for the second quarter of 1999 and $342 million ($.61 per share) for the second quarter of 1998. For the first half of 1999, income before special items was $391 million ($.70 per share), compared with $594 million ($1.06 per share) for last year. Net income was $472 million ($.85 per share) for the first half of 1999 and $576 million ($1.03 per share) for the first half of 1998.

Texaco Chairman and Chief Executive Officer Peter I. Bijur stated, "Texaco's second quarter earnings, while below last year, showed marked improvement over this year's first quarter as we benefited from the recovery in crude oil and natural gas prices. The benchmark price for crude has risen into the $19 to $20 per barrel range signaling higher upstream earnings in the months ahead. Refining margins, however, remain at historically low levels in most areas of the world. A bright spot in our downstream was the solid performance of our Western U.S. operations. Also, Latin American operations continue to grow led by solid earnings in the Caribbean and Central American areas."

Bijur added, "While we maintain our focus on strategic growth opportunities, our accelerated $650 million cost reduction program continues to produce benefits. Expenses per barrel declined nine percent versus a year ago, the U.S. downstream alliances are ahead of schedule in capturing synergy benefits and the cost reduction and restructuring programs by Caltex should enhance its returns as the Asian economies recover." Bijur also highlighted the following recent successes in Texaco's pursuit of high-impact exploration and production opportunities:

  • June start-up production from the Gemini project in the Gulf of Mexico;
  • The acquisition of an additional 10 percent equity ownership in the Hamaca heavy oil project in Venezuela, raising the company's ownership share to 30 percent;
  • An agreement with Petrobras, Brazil's national oil company, to become an equity partner in the Campos exploration and the Frade development areas offshore Brazil; and
  • A successful bid on three high potential offshore exploration blocks in Brazil's First License Round.
      
                                            Second Quarter        First Half
                                            --------------        ----------
      Texaco Inc. (Millions of dollars):     1999    1998      1999     1998
      ----------------------------------------------------------------------
      Income before special items            $286    $335      $391     $594
      ----    ----      ----     ----
      Inventory valuation adjustments          55       -       138        -
      Write-down of assets                    (76)      -       (76)       -
      Tax issues                               54      19        65       19
      Gains on major asset sales               21      20        21       20
      Reorganization, restructuring and
      employee separation costs               (67)    (32)      (67)     (32)
                                             ----    ----      ----     ----
                                              (13)      7        81        7
      Cumulative effect of
      accounting change                         -       -         -      (25)
                                             ----    ----      ----     ----
      Total special items                     (13)      7        81      (18)
                                             ----    ----      ----     ----
      Net income                             $273    $342      $472     $576
                                             ====    ====      ====     ====

    
    

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

      
      OPERATING RESULTS

            EXPLORATION AND PRODUCTION
                                            Second Quarter        First Half
                                            --------------        ----------

      United States (Millions of dollars):   1999    1998      1999     1998
      ----------------------------------------------------------------------
      Operating income before special items  $138    $100      $165     $208
      Special items                            10       -        21        -
                                             ----    ----      ----     ----
      Total operating income                 $148    $100      $186     $208
                                             ====    ====      ====     ====
    
    

U.S. Exploration and Production earnings in the second quarter of 1999 were above last year's levels mostly due to higher crude oil prices. Prices continued to rise in the second quarter as there was high compliance by OPEC and several non-OPEC countries with previously announced production cutbacks leading to a decline in worldwide inventory levels. Average realized crude oil prices for the second quarter 1999 were $12.80 per barrel, a 40 percent increase over the first quarter and 19 percent above last year. Average natural gas prices were $2.05 per MCF in the second quarter, the same as last year.

Earnings for the first six months of 1999 were below last year due to lower production and depressed natural gas prices during the first quarter. Average natural gas prices were $1.92 per MCF, nine percent below last year. Also, average realized crude oil prices were $10.95 per barrel, three percent below last year.

Production decreased 12 percent for the second quarter and first half of 1999 due to natural field declines and asset sales. Focusing on capital efficiency, Texaco and its operating partners reduced developmental activities such as infill drilling, recompletions and secondary recovery projects, normally undertaken to offset production declines within mature fields.

Expenses were lower for the second quarter and first half of 1999 as a result of cost savings from the restructuring of our worldwide upstream organization. Exploratory expenses for the second quarter and first half of 1999 were $38 million and $92 million before tax, $13 million and $55 million below the same periods of 1998.

Results for the second quarter of 1999 included a special gain of $21 million for the sale of our interest in six California onshore and offshore fields, and a special charge of $11 million for employee separation costs. Results for the first half of 1999 also included a first quarter special benefit of $11 million for a production tax refund.

      
                                            Second Quarter       First Half
                                            --------------       ----------

      International (Millions of dollars):   1999    1998      1999     1998
      ----------------------------------------------------------------------
      Operating income before special items  $ 78    $ 61      $ 58     $109
      Special items                            (2)      -        (2)       -
                                             ----    ----      ----     ----
      Total operating income                 $ 76    $ 61      $ 56     $109
                                             ====    ====      ====     ====
    
    

International Exploration and Production operating results for the second quarter of 1999 were above last year's levels mostly due to higher crude oil prices. Crude oil prices for the second quarter of 1999 continued to rise due to worldwide production cutbacks and inventory declines. Average realized crude oil prices for the second quarter of 1999 were $13.73 per barrel, a 39 percent increase over the prior quarter and 20 percent above last year.

Operating results for the first six months of 1999 were below last year mostly due to higher exploratory expenses. Also, average realized crude oil prices were $11.60 per barrel, slightly lower than last year and average natural gas prices were $1.37 per MCF, 15 percent below last year.

Daily production in the second quarter and first six months of 1999 was flat with last year. During the first half of 1999 production declines from the U.K. North Sea, due to temporary operating problems in the first quarter, and lower gas production in Latin America were offset by increased production in the Partitioned Neutral Zone, Indonesia and Karachaganak. Expenses were lower for the second quarter of 1999 as a result of cost savings from the restructuring of our worldwide upstream organization. Exploratory expenses for the second quarter of 1999 were $42 million before taxes, slightly higher than last year. Exploratory expenses for the first six months of 1999 were $118 million before taxes, $34 million higher than last year due to an unsuccessful first quarter exploratory well in a new offshore area of Trinidad.

Results for the second quarter of 1999 included a special charge of $2 million for employee separation costs.

      
             REFINING, MARKETING AND DISTRIBUTION

                                            Second Quarter        First Half
                                            --------------        ----------

      United States (Millions of dollars):   1999    1998      1999     1998
      ----------------------------------------------------------------------
      Operating income before special items  $111    $ 96      $166     $143
      Special items                           (87)    (32)      (79)     (32)
                                             ----    ----      ----     ----
      Total operating income                 $ 24    $ 64      $ 87     $111
                                             ====    ====      ====     ====

    
    

U.S. Refining, Marketing and Distribution earnings before special items were higher than last year for the second quarter and first half of this 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.

During the second quarter and first half of 1999, Equilon's earnings benefited from improved West Coast refining and marketing margins, although operational problems at the Puget Sound refinery and scheduled maintenance at the Los Angeles refinery had a negative impact on earnings. Margins on the West Coast remained strong as a result of refinery outages leading to industry supply disruptions.

Motiva continued to experience weak refining margins during the second quarter due to high industry wide inventory levels. These effects were partially offset by higher gasoline volumes.

The second quarter and first half of 1999 also benefited from the realization of synergies for Equilon and Motiva, which included higher utilization of proprietary pipelines, marketing staff and function consolidations, reduced additive costs, and hydrotreater realignment at the Convent refinery.

Results for the second quarter included special charges for asset write-downs on the pending sales of the El Dorado and Wood River refineries for $76 million, and reorganization, restructuring and employee separation costs of $11 million. Results for 1999 also included a first quarter special benefit of $8 million for inventory valuation adjustments to reflect higher prices for crude oil and refined products. The second quarter of 1998 included a special charge of $32 million mainly for alliance employee separation costs.

      
                                            Second Quarter        First Half
                                            --------------        ----------

      International (Millions of dollars):   1999    1998      1999     1998
      ----------------------------------------------------------------------
      Operating income before special items  $ 76    $194      $221     $376
      Special items                            75       -       150        -
                                             ----    ----      ----     ----
      Total operating income                 $151    $194      $371     $376
                                             ====    ====      ====     ====
    
    

International Refining and Marketing results for the second quarter of 1999 declined significantly from 1998. The decline was due to the protracted weakness of international refining margins in both the Caltex and European areas of operation. Results in Latin America declined due to weak economic conditions in Brazil and poor refining margins in Panama.

Results for the first half of 1999 were similarly affected by lower refining margins and intensified competitive pressures. Improved economic conditions in Asia, resulting in higher sales volumes and reduced currency volatility, were more than offset by lower margins in the Caltex region. Results in Latin America and Europe were down due to the economic situation in Brazil and poor refining margins in the U.K., Netherlands and Panama. In the Caribbean and Central American areas, marketing results increased due to lower acquisition costs and increased sales in the industrial sector.

Results for the second quarter 1999 included net special benefits of $75 million. Special items included favorable inventory valuation adjustments of $55 million and a Korean tax benefit of $54 million. Other special items for the quarter included Caltex restructuring charges of $25 million and employee separation costs in Europe and Latin America of $9 million. Additionally, 1999 results included a first quarter special benefit of $75 million for inventory valuation adjustments.

      

      GLOBAL GAS MARKETING
                                            Second Quarter        First Half
                                            --------------        ----------

      (Millions of dollars):                 1999    1998      1999     1998
      ----------------------------------------------------------------------
      Operating income (loss) before
      special items                        $    4    $(10)     $ 16     $(19)
      Special items                            (3)     20        (3)      20
                                             ----    ----      ----     ----
      Total operating income                 $  1    $ 10      $ 13     $  1
                                             ====    ====      ====     ====
    
    

Global Gas Marketing operating results for the second quarter of 1999 benefited from the continued improvement of natural gas margins. Results for the first half of 1999 reflected gains on normal asset sales including our interest in a U.K. retail gas marketing operation and the sale of a U.S. gas gathering pipeline.

Results for the second quarter of 1999 included a special charge of $3 million for employee separation costs. The second quarter of 1998 included a special gain of $20 million from the sale of a partial interest in a pipeline.

      
                                            CORPORATE/NON-OPERATING RESULTS
                                            Second Quarter        First Half
                                            --------------        ----------

       (Millions of dollars):                1999    1998      1999     1998
      ----------------------------------------------------------------------
      Results before special items           $(122)  $(104)    $(230)  $(223)
      Special items                             (6)     19        (6)     19
                                              ----    ----      ----    ----
      Total corporate/non-operating          $(128)  $ (85)    $(236)  $(204)
                                              ====    ====      ====    ====
    
    

Corporate/Non-operating Results for the second quarter and first half of 1999 reflect higher net interest expense due to decreased interest income from investments and higher interest expense due to increased debt. First half results this year included gains on the first quarter sales of marketable securities.

Results for 1999 included a second quarter special charge of $6 million for employee separation costs. Results for 1998 included a second quarter special tax benefit of $19 million attributable to the sale of an interest in a subsidiary.

CAPITAL AND EXPLORATORY EXPENDITURES

Capital and Exploratory Expenditures were $1,458 million for the first half of 1999 compared with $1,881 million for 1998.

Upstream expenditures in the U.S. for the first six months were significantly below 1998 levels due to reductions and deferrals of exploratory and developmental spending related to market conditions. Continuing areas of focus included platform development in deep water Gulf of Mexico projects and developmental drilling in California.

Internationally, expenditures increased slightly as we raised our ownership interest in the Venezuelan Hamaca project and continued to focus spending for Nigerian lease acquisitions and developmental work in the U.K. North Sea - Captain B field. These increases were offset by decreased spending in Eurasia where a significant investment in the Karachaganak project was made in the first half of 1998. Exploratory expenditures increased due to activity in offshore Trinidad.

Downstream capital expenditures decreased following refinery project completions in the U.S. and the slowing of re-imaging and brand initiatives in the U.S. and Caltex areas of operation. There was also lower spending on a gas pipeline project which incurred peak expenditures in 1998. Other operations showed an increase in spending for Indonesia, California and Philippines cogeneration facilities.

Listen in live to Texaco's second quarter 1999 earnings discussion with financial analysts on Tuesday, July 27, at 11:30 am EDT at:

http://webevents.broadcast.com/texaco/q299earnings

For technical assistance, call Sheila Lujan at 800-366-9831

Note: This press release contains forward-looking statements about our expectations for upstream earnings and downstream margins in 1999. Our actual earnings and margins in 1999 may be different than we currently expect, if business conditions, such as energy prices, world economic conditions, demand growth, and inventory levels, change. For a further discussion of additional factors that could cause actual results to materially differ from those in the forward-looking statement, please refer to the section entitled "Forward-Looking Statements and Factors That May Affect Our Business" in Texaco's 1998 Annual Report on Form 10-K.

      
      Income (loss)                         Second Quarter (a)  First Half(a)
      (Millions of dollars)                 ---------------     -------------
                                              1999    1998      1999     1998
                                            ------- -------   -------  ------
      Exploration and production
          United States                      $ 148   $ 100     $ 186    $ 208
          International                         76      61        56      109
                                             -----   -----     -----    -----
                  Total                        224     161       242      317

      Refining, marketing and distribution
             United States                      24      64        87      111
             International                     151     194       371      376
                                             -----   -----     -----    -----
                  Total                        175     258       458      487
      Global gas marketing                       1      10        13        1
                                             -----   -----     -----    -----
                  Total operating segments     400     429       713      805
                                             -----   -----     -----    -----
      Other business units                       1      (2)       (5)       -

      Corporate/Non-operating                (128)    (85)      (236)    (204)
                                             -----   -----     -----    -----
      Income before cumulative effect
        of accounting change                   273     342       472      601

      Cumulative effect of accounting
        change (b)                               -       -         -      (25)
                                             -----   -----     -----    -----
                   Net income                $ 273   $ 342     $ 472    $ 576
                                              ====    ====      ====     ====
      Net income per common share
        (dollars) - diluted                  $ .50   $ .61     $ .85    $1.03

      Average number of common shares
        outstanding for computation of earnings
        per share (millions) - diluted       530.2   549.8     529.6    550.6

      Provision for income taxes included
        in net income                        $ 122   $  84     $ 107    $ 224

      (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".


      Other Financial Data                     Second Quarter     First Half
      (Millions of dollars)                    --------------    ------------
                                               1999    1998     1999     1998
                                              -------  ------  -------- -------
      Revenues                              $8,269  $8,044   $15,459  $16,191

      Total assets as of June 30                          (c)$28,200  $28,795

      Stockholders' equity as of June 30                  (c)$11,810  $12,515

      Total debt as of June 30                            (c)$ 7,400  $ 6,970


      Capital and exploratory expenditures
      Exploration and production
           United States                     $ 207   $ 374     $ 463    $ 816
           International                       346     261       568      551
                                             -----   -----     -----    -----
                  Total                        553     635     1,031    1,367

      Refining, marketing and distribution
            United States                       85      95       158      183
            International                       99     129       176      228
                                             -----   -----     -----    -----
                  Total                        184     224       334      411
      Global gas marketing                      14      49        25       83
                                             -----   -----     -----    -----
                  Total operating segments     751     908     1,390    1,861

      Other business units                      38       6        68       20
                                             -----   -----     -----    -----
                  Total                      $ 789   $ 914    $1,458   $1,881
                                             =====   =====     =====    =====
      Exploratory expenses included above
            United States                    $  38   $  51     $  92    $ 147
            International                       42      39       118       84
                                             -----   -----     -----    -----
                  Total                      $  80   $  90     $ 210    $ 231
                                             =====   =====     =====    =====

      Dividends paid to common
       stockholders                          $ 237   $ 240     $ 474    $ 479

      Dividends per common share
       (dollars)                             $ .45   $ .45     $ .90    $ .90

      Dividend requirements for preferred
       stockholders                          $  10   $  13     $  23    $  27

      (c)  Preliminary


      Operating Data                          Second Quarter       First Half
                                              --------------     -------------
                                               1999    1998      1999     1998
                                             ------- -------   -------  ------
      Exploration and production

       United States
         Net production of crude oil and
         natural gas liquids (MBPD)            399     447       404      449

         Net production of natural gas
         available for sale (MMCFPD)         1,479   1,703     1,483    1,721
                                             -----   -----     -----    -----
             Total net production (MBOEPD)     646     731       651      736

         Natural gas sales (MMCFPD)          3,015   3,934     3,295    3,908

         Average U.S. crude (per bbl.)      $12.80  $10.72    $10.95   $11.26
         Average U.S. natural gas (per mcf) $ 2.05  $ 2.05    $ 1.92   $ 2.10
         Average WTI (Spot) (per bbl.)      $17.66  $14.62    $15.44   $15.26
         Average Kern (Spot) (per bbl.)     $11.26  $ 7.75    $ 9.49   $ 8.31

      International
         Net production of crude oil and
         natural gas liquids (MBPD)
         Europe                                143     149       136      154
         Indonesia                             150     156       165      155
         Partitioned Neutral Zone              121     105       119      106
         Other                                  69      67        67       69
                                            ------  ------    ------   ------
           Total                               483     477       487      484

         Net production of natural gas
           available for sale (MMCFPD)
            Europe                             244     245       265      251
            Colombia                           160     185       157      196
            Other                              112     112       111      118
                                            ------  ------    ------   ------
              Total                            516     542       533      565
                                            ------  ------    ------   ------
              Total net production (MBOEPD)    569     567       576      578

         Natural gas sales (MMCFPD)            549     665       557      721

         Average International crude
         (per bbl.)                         $13.73  $11.42    $11.60   $11.68
         Average International natural
         gas (per mcf)                      $ 1.23  $ 1.59    $ 1.37   $ 1.61
         Average U.K. natural gas
         (per mcf)                          $ 2.17  $ 2.64    $ 2.39   $ 2.64
         Average Colombia natural gas
         (per mcf)                          $  .59  $  .92    $  .62   $  .91

        Total worldwide net production
        (MBOEPD)                             1,215   1,298     1,227    1,314


      Operating Data                         Second Quarter        First Half
                                             ---------------     -------------
                                              1999    1998      1999     1998
                                            ------- -------    ------- ------
      Refining, marketing and distribution

         United States
           Refinery input (MBPD)
           Equilon area                        373     396       369      377
           Motiva area                         313     333       307      323
                                            ------  ------    ------   ------
               Total                           686     729       676      700

           Refined product sales (MBPD)
           Equilon area                        741     590       669      561
           Motiva area                         376     341       378      337
           Other                               291     234       299      234
                                            ------  ------    ------   ------
               Total                         1,408   1,165     1,346    1,132

         International
           Refinery input (MBPD)
           Europe                              368     367       367      371
           Caltex area                         416     419       427      428
           Latin America/West Africa            72      70        73       64
                                            ------  ------    ------   ------
            Total                              856     856       867      863

            Refined product sales (MBPD)
            Europe                             601     602       619      582
            Caltex area                        663     586       667      589
            Latin America/West Africa          501     460       489      444
            Other                               82      56        93       51
                                            ------  ------    ------   ------
            Total                            1,847   1,704     1,868    1,666
      
    

Updated: July 1999