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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
January 22, 1998
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TEXACO INC.
(Exact name of registrant as specified in its charter)
Delaware 1-27 74-1383447
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation) Number) Identification Number)
2000 Westchester Avenue, 10650
White Plains, New York (Zip Code)
(Address of principal executive offices)
(914) 253-4000
(Registrant's telephone number, including area code)
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Item 5. Other Events
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1. On January 22,1998, the Registrant issued an Earnings Press
Release entitled "Texaco Reports Results: Fourth Quarter 1997
Earnings of $623 Million Cap Record Year - 1997 Net Income
Exceeds $2.6 Billion," a copy of which is attached hereto as
Exhibit 99.1 and made a part hereof.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
- ---------------------------------------------------------------------------
(c) Exhibits
99.1 Press Release issued by the Registrant dated January 22, 1998,
entitled "Texaco Reports Results: Fourth Quarter 1997 Earnings
of $623 Million Cap Record Year - 1997 Net Income Exceeds
$2.6 Billion."
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TEXACO INC.
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(Registrant)
By: R. E. KOCH
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(Assistant Secretary)
Date: January 23, 1998
EXHIBIT 99.1
TEXACO REPORTS RESULTS:
FOURTH QUARTER 1997 EARNINGS OF $623 MILLION CAP RECORD YEAR
1997 Net Income Exceeds $2.6 Billion
FOR RELEASE: THURSDAY, JANUARY 22, 1998.
WHITE PLAINS, N.Y., Jan. 22 - Production increases and improved
refining and marketing results in the fourth quarter were highlights capping an
outstanding year, Texaco Chairman and Chief Executive Officer Peter Bijur
reported today.
Texaco's total reported net income for the fourth quarter of 1997 was
$623 million, or $1.15 per share, including net special benefits of $151
million. Net income for the fourth quarter of 1996 was $509 million, or $.95 per
share, including net special benefits of $129 million. For the year 1997, total
reported net income was $2,664 million, or $4.99 per share, as compared with
$2,018 million, or $3.77 per share, for the year 1996. For the year 1997, net
income before special items was $1,894 million, or $3.52 per share, as compared
with $1,665 million, or $3.09 per share, for the year 1996. Per share amounts
reflect the two-for-one stock split effective September 29, 1997.
Commenting on 1997 fourth quarter and annual results, Bijur highlighted
the following:
o Net income before special items rose 24 percent to $472 million,
or $.87 per share;
o Worldwide production rose 11 percent quarterly and six percent
annually;
o Refinery downtime was reduced and downstream margins improved;
o Expense containment continued;
o The $500 million stock repurchase program was completed;
o Annual return on average capital employed reached 13 percent; and
o Yearly capital and exploratory expenditures, including the $1.4
billion Monterey acquisition, grew 73 percent to $5.9 billion.
Bijur further commented on the fourth quarter, "The Monterey
acquisition, increasing production in the Captain field and the start-up of the
Erskine field led to a significant rise in worldwide production. Our refining
and marketing results were significantly higher as earnings continued to recover
from last year's depressed levels. Improved refinery utilization, higher margins
and a three percent increase in U.S. branded gasoline sales were the key
contributors to the higher results. Lower worldwide crude oil prices and higher
exploratory expenditures dampened our exploration and production results.
Exploratory expenditures rose 21 percent as we aggressively sought out
high-impact producing opportunities."
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Bijur concluded, "The recent sharp decline in both oil and natural
gas prices as well as stagnant refining margins will apply downward pressure on
first quarter 1998 earnings. Despite the recent decline in industry
fundamentals, aggressive efforts to strengthen our upstream position, as
demonstrated by the Monterey and Karachaganak acquisitions, will serve as the
foundation to build our position in the energy marketplace. Our expanded
upstream leadership team and the establishment of a corporate development team
will enable us to more quickly identify and act upon emerging opportunities
across the globe. Also, definitive agreements were signed last week with Shell
Oil Company combining our western refining and marketing assets along with
nationwide transportation, trading, and lubricants businesses. This brings us
closer to achieving the substantial benefits expected from the
Texaco/Shell/Saudi Aramco U.S. downstream alliance."
Fourth Quarter Year
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Texaco Inc. (Millions) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Net income before special items $ 472 $ 380 $1,894 $1,665
------ ------ ------ ------
Gains (losses) on major asset sales 193 (30) 367 194
Write-down of assets (41) - (41) -
Tax and other issues (1) 68 487 68
Financial reserves for various issues - (32) (43) (32)
Tax benefits on asset sales - 188 - 188
Employee separation costs - (65) - (65)
------ ------ ------ ------
151 129 770 353
------ ------ ------ ------
Total reported net income $ 623 $ 509 $2,664 $2,018
====== ====== ====== ======
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The following functional analysis includes details on special items.
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ANALYSIS OF OPERATING EARNINGS
EXPLORATION AND PRODUCTION
Fourth Quarter Year
-------------------------- --------------------------
UNITED STATES (Millions): 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
Operating earnings before special items $ 256 $ 351 $1,031 $1,123
Special items (31) - (74) -
----- ----- ------ ------
Total operating net income $ 225 $ 351 $ 957 $1,123
- --------------------------------------------------------------------------------------------------------------------------
In the U.S. exploration and production operations, fourth quarter and
year 1997 earnings were below last year as a result of lower crude oil prices
and lower gas marketing results. Average realized crude oil prices for the
fourth quarter and year 1997 were $16.36 and $17.34 per barrel, $3.64 and $.59
per barrel lower than the fourth quarter and year 1996. Crude oil prices have
declined sharply from the fourth quarter 1996 peak due to the recent slowing of
world oil demand growth and higher worldwide production creating rising
inventory levels. Higher expenses associated with increased operating and
exploratory activities also contributed to the decline in earnings.
Production gains and higher natural gas prices benefited fourth quarter
and year 1997 results. Production increased eight percent in the fourth quarter
and two percent for the year. The increases are from new production, notably
from the acquired Monterey properties, and continued development in the Gulf of
Mexico and Louisiana. Average natural gas prices for the fourth quarter and year
1997 were $2.63 and $2.37 per thousand cubic feet (MCF), $.09 and $.18 per MCF
higher than the fourth quarter and year 1996.
Special items for 1997 included a fourth quarter write-down of assets
of $31 million and a second quarter charge of $43 million for the establishment
of financial reserves for royalty and severance tax issues.
Fourth Quarter Year
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INTERNATIONAL (Millions): 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
Operating earnings before special items $ 100 $ 86 $ 438 $ 451
Special items 198 27 359 27
----- ----- ----- ------
Total operating net income $ 298 $ 113 $ 797 $ 478
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In the international exploration and production operations,
earnings before special items for the fourth quarter 1997 were above 1996 levels
while the year results were slightly lower. Improved production only partly
offset the cost of Texaco's expanded exploration programs, lower gas marketing
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results in the U.K. and lower crude prices. Average realized crude oil prices
were $17.44 for the fourth quarter and $17.64 per barrel for the year 1997,
$4.52 and $1.91 per barrel below 1996 prices.
Production increased 16 percent for the fourth quarter and 11 percent
for the year versus 1996. New production from the Captain and Erskine fields in
the U.K. North Sea and record production in the Partitioned Neutral Zone
contributed to the increase. Also, new oil and gas production in offshore areas
of Angola, Denmark, Trinidad and Colombia came onstream in late 1996 and early
1997.
Results for 1997 included non-cash currency charges of $5 million for
the fourth quarter and a $21 million benefit for the year, due to the movement
of the Pound Sterling versus the U.S. dollar relating to deferred income taxes.
These compare to charges of $36 million and $38 million for the fourth quarter
and year 1996.
Special items for the fourth quarter of 1997 included gains on asset
sales of $193 million, mainly from the sale of properties in Myanmar. Also, the
quarter included a $15 million tax benefit and a $10 million write-down of
assets. Additionally, the year included second quarter special gains of $161
million from the sales of a 15-percent interest in the Captain field in the U.K.
North Sea, and interests in Canadian gas properties and an Australian pipeline
system. The 1996 special item relates to a fourth quarter Danish deferred tax
benefit.
MANUFACTURING, MARKETING AND DISTRIBUTION
Fourth Quarter Year
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UNITED STATES (Millions): 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
Operating earnings before special items $ 80 $ (9) $ 305 $ 233
Special items - (26) 13 (26)
----- ----- ------ ------
Total operating net income $ 80 $ (35) $ 318 $ 207
- -------------------------------------------------------------------------------------------------------------------------
U.S. refining and marketing results greatly improved in the fourth
quarter of 1997 versus the comparable period in 1996. Earnings benefited from
improved margins, strong branded gasoline sales and higher refinery utilization
for both our East and West Coast operations. Fires at the Los Angeles, Calif.,
refinery in November 1996 and the Convent, LA., refinery in December 1996 caused
property damage and adversely affected fourth quarter 1996 yields.
Results for the year 1997 were higher than 1996 primarily due to
improved earnings on the East Coast. These operations benefited from improved
Gulf Coast sour crude cracking margins. Earnings for West Coast operations also
surpassed 1996 as margins improved during the last half of the year.
Additionally, while refinery operations improved this year, refinery upsets in
late 1996 and early 1997 caused higher repair costs and lower product yields in
the first quarter of 1997. Lower crude oil trading margins and clean-up costs
from a May pipeline break negatively impacted 1997 earnings.
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Special items for 1997 included a second quarter gain of $13 million
from the sale of credit card operations. Special items for 1996 included a
fourth quarter charge of $26 million, principally for a loss on the sale of a
chemical facility.
Fourth Quarter Year
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INTERNATIONAL (Millions): 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Operating earnings before special items $ 160 $ 43 $ 530 $ 252
Special items (16) (26) (16) 198
------ ----- ------ -----
Total operating net income $ 144 $ 17 $ 514 $ 450
- --------------------------------------------------------------------------------------------------------------------------
The international refining and marketing business reported higher 1997
earnings for both the quarter and year. The refining segment experienced
improved margins and reduced downtime for operations in Panama. Improved U.K.
marketing results reflected a recovery from significantly depressed 1996 margins
and increased refined product sales volumes. Stronger marketing margins in Latin
America and overall lower marketing expenses also contributed to the higher
earnings. Lower results in Scandinavia, primarily from competitive pressures in
the Norwegian marketplace, partly offset these improvements.
In the Caltex area of operations, 1997 earnings were higher for both
the fourth quarter and year. Reflected in Caltex results were the impacts of the
current economic crisis in Southeast Asia. This included favorable Korean net
currency-related effects of $70 million recorded in the fourth quarter.
Effective October 1, 1997, Caltex changed the functional currency used to
account for its operations in Korea to the U.S. dollar. The net currency-related
effects were primarily tax benefits on currency losses on U.S. obligations
resulting from the devaluation of the Won. Also, the dramatic weakening of
currencies versus the U.S. dollar prevented immediate recovery of dollar-based
crude cost. Inventory valuation losses of $24 million associated with the recent
decline in crude prices were also included in Caltex's fourth quarter 1997
earnings.
Results for 1997 included a non-cash currency charge of $1 million for
the fourth quarter and a $7 million benefit for the year, due to the movement of
the Pound Sterling versus the U.S. dollar relating to deferred income taxes.
These compare to charges of $18 million and $20 million for the fourth quarter
and year 1996.
Special items for 1997 included a fourth quarter charge of $16 million,
primarily for a European deferred tax adjustment. Special items for 1996
included net gains of $198 million, primarily from a Caltex gain of $224 million
recognized on the second quarter sale of its interest in a Japanese affiliate,
reduced by a related fourth quarter tax charge of $5 million. Special items for
1996 also included a fourth quarter charge for employee separations of $21
million.
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CORPORATE/NONOPERATING RESULTS
Fourth Quarter Year
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(Millions): 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
Results before special items $ (125) $ (96) $ (427) $ (410)
Special items - 154 488 154
------ ------ ------ ------
Total corporate/nonoperating $ (125) $ 58 $ 61 $ (256)
- --------------------------------------------------------------------------------------------------------------------------
Comparative corporate/nonoperating results for the fourth quarter and
year included expenses associated with the introduction of the new advertising
campaign in the second half of 1997, which were partly offset by the impact of
slightly lower interest rates. The 1996 fourth quarter included higher gains on
sales of equity securities held for investment by insurance operations.
Results for both 1997 and 1996 include special items. The "Aramco
Advantage" U.S. tax case resulted in a first quarter 1997 benefit of $488
million. Special items for 1996, recorded in the fourth quarter, included $188
million of tax benefits attributable to sales of interests in a subsidiary and a
$41 million benefit resulting from lower than anticipated prior years' state tax
exposure. These 1996 benefits were partly offset by charges of $32 million for
financial reserves for various litigation matters and $43 million for employee
separation charges.
CAPITAL AND EXPLORATORY EXPENDITURES
Capital and exploratory expenditures, including equity in such
expenditures of affiliates, were $5.9 billion for the year 1997, as compared to
$3.4 billion for 1996. For the fourth quarter, expenditures totaled $2.9 billion
in 1997 as compared to $1.2 billion for 1996. The 1997 amounts include $1.4
billion for the acquisition of Monterey Resources Inc., a company that produces
significant quantities of heavy crude oil in California.
In the United States, exploration and production expenditures increased
during 1997 reflecting the continued focus on opportunities both onshore and
offshore, especially in the deepwater Gulf of Mexico. Platform construction and
development drilling is underway in the Petronius and Arnold fields while
prospect drilling continues in the Fuji and Gemini fields. Additionally,
expenditures in 1997 reflect enhanced oil recovery efforts in California and
drilling and development programs in traditional offshore shelf areas and
onshore. Construction continued during the fourth quarter on a jointly-owned
natural gas pipeline and processing complex in the Gulf Coast area.
Internationally, exploration and production expenditures in 1997
included the acquisition of a 20 percent interest in Kazakhstan's giant
Karachaganak oil and gas field. Higher expenditures also reflect development
work in Indonesia, including expenditures for enhanced oil recovery
installations. In the U.K., North Sea activities in the Galley and Mariner
fields moved forward. Exploration and development activities continued in China,
Nigeria and Indonesia.
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Internationally, investments in manufacturing, marketing and other
facilities increased during 1997 as a result of expenditures on marketing
facilities and service station re-imaging throughout Asia by Texaco's affiliate,
Caltex Petroleum Corporation. Texaco also continued to invest in selected Latin
American and European growth markets. Additionally, the remaining interest in
the Pembroke Cracking Company was acquired from Chevron during the fourth
quarter.
In the U.S. downstream, investments in various pipeline construction
projects in the Gulf Coast continued, as well as a refinery upgrade at Port
Arthur, Texas.
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CONTACTS: Faye Cox 914-253-7745
Cynthia Michener 914-253-4743
Additional Texaco information is available on the World Wide Web at:
http://www.texaco.com
-8-
Fourth Quarter (a) Year (a)
-------------------------- ----------------------------
1997 1996 1997 1996
----------- ------------ ------------ ------------
FUNCTIONAL NET INCOME ($000,000)
- -------------------------------------------------------------
Operating Earnings
Petroleum and natural gas
Exploration and production
United States $ 225 $ 351 $ 957 $ 1,123
International 298 113 797 478
----- ----- ------ -------
Total 523 464 1,754 1,601
----- ----- ------ -------
Manufacturing, marketing and
distribution
United States 80 (35) 318 207
International 144 17 514 450
----- ----- ------ -------
Total 224 (18) 832 657
----- ----- ------ -------
Total petroleum and natural gas 747 446 2,586 2,258
Nonpetroleum
1 5 17 16
----- ----- ------ -------
Total operating earnings 748 451 2,603 2,274
Corporate/Nonoperating (125) 58 61 (256)
----- ----- ------ -------
Total net income $ 623 $ 509 $2,664 $ 2,018
----- ----- ------ -------
Net income per common share (dollars)(b)
Basic $1.15 $ .95 $ 4.99 $ 3.77
Diluted $1.12 $ .93 $ 4.87 $ 3.68
Average number of common shares
outstanding for computation
of basic earnings per share (000,000)(b) 530.3 520.3 522.2 520.4
Provision for (benefit from) income taxes
included in total net income above ($000,000) $ 252 $ (3) $ 663 $ 965
(a) Includes special items as detailed in this release.
(b) All periods presented reflect the September 29, 1997 two-for-one stock split and the fourth quarter
1997 adoption of Statement of Financial Accounting Standards No. 128, Earnings Per Share.
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Fourth Quarter Year
----------------------------- ------------------------------
OTHER FINANCIAL DATA ($000,000) 1997 1996 1997 1996
- ------------------------------------------------- ------------- ------------- -------------- -------------
Revenues $ 12,049 $ 12,871 $ 46,667 $ 45,500
Total assets as of December 31 (c) $ 29,600 $ 26,963
Stockholders' equity as of December 31 (c) $ 12,800 $ 10,372
Total debt as of December 31 (c) $ 6,400 $ 5,590
Capital and exploratory expenditures
(includes equity in affiliates)
Exploration and production
United States
Acquisition of Monterey Resources $ 1,448 $ - $ 1,448 $ -
Other 463 349 1,735 1,243
-------- -------- -------- ---------
Total 1,911 349 3,183 1,243
International 421 373 1,411 1,135
-------- -------- -------- ---------
Total 2,332 722 4,594 2,378
-------- -------- -------- ---------
Manufacturing, marketing and
distribution
United States 185 126 431 360
International 362 313 848 658
-------- -------- -------- ---------
Total 547 439 1,279 1,018
-------- -------- -------- ---------
Other 28 18 57 35
======== ======== ======== =========
Total $ 2,907 $ 1,179 $ 5,930 $ 3,431
======== ======== ======== =========
Texaco Inc. and subsidiary companies
Exploratory expenses included above:
United States $ 67 $ 41 $ 189 $ 153
International 98 95 282 226
======== ======== ======== =========
Total $ 165 $ 136 $ 471 379
======== ======== ======== =========
Dividends paid to common stockholders $ 242 $ 221 $ 918 $ 859
Dividends per common share (dollars)(b) $ .45 $ .425 $ 1.75 $ 1.65
Dividend requirements for preferred stockholders $ 14 $ 15 $ 56 $ 58
(b) All periods presented reflect the September 29, 1997 two-for-one stock split and the fourth quarter
1997 adoption of Statement of Financial Accounting Standards No. 128, Earnings Per Share.
(c) Preliminary
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Fourth Quarter Year
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OPERATING DATA - INCLUDING 1997 1996 1997 1996
INTERESTS IN AFFILIATES ------------ ------------ ------------ -----------
Exploration and Production
United States
Net production of crude oil and
natural gas liquids (000 BPD) 425 387 396 388
Net production of natural gas -
available for sale (000 MCFPD) 1,768 1,661 1,706 1,675
Total net production (000 BOEPD) 720 664 680 667
Natural gas sales (000 MCFPD) 3,629 3,404 3,584 3,176
Natural gas liquid sales
(including purchased LPGs)(000 BPD) 173 203 184 206
Average U.S. crude (per bbl.) $ 16.36 $ 20.00 $ 17.34 $ 17.93
Average U.S. natural gas (per mcf) $ 2.63 $ 2.54 $ 2.37 $ 2.19
Average WTI (Spot) (per bbl.) $ 19.92 $ 24.67 $ 20.61 $ 22.16
Average Kern (Spot) (per bbl.) $ 14.41 $ 17.32 $ 14.71 $ 15.53
International
Net production of crude oil and
natural gas liquids (000 BPD)
Europe 149 116 125 115
Indonesia 155 152 150 145
Partitioned Neutral Zone 105 80 97 76
Other 63 64 65 63
-------- -------- -------- --------
Total 472 412 437 399
Net production of natural gas
available for sale (000 MCFPD)
Europe 245 207 209 188
Colombia 204 148 177 125
Other 78 80 85 69
-------- -------- -------- --------
Total 527 435 471 382
Total net production (000 BOEPD) 560 485 516 463
Natural gas sales (000 MCFPD) 682 538 592 477
Natural gas liquids sales
(including purchased LPGs)(000 BPD) 92 68 97 89
Average International crude (per bbl.) $ 17.44 $ 21.96 $ 17.64 $ 19.55
Average U.K. natural gas (per mcf) $ 2.75 $ 2.83 $ 2.70 $ 2.63
Average Colombia natural gas (per mcf) $ .87 $ .99 $ .98 $ .96
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Fourth Quarter Year
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OPERATING DATA - INCLUDING 1997 1996 1997 1996
INTERESTS IN AFFILIATES ------------ ------------ ------------ -----------
Manufacturing, Marketing and Distribution
United States
Refinery input (000 BPD)
Subsidiary 407 401 413 404
Affiliate - Star Enterprise 332 320 334 320
----- ----- ----- -----
Total 739 721 747 724
Refined product sales (000 BPD)
Gasoline 493 499 508 499
Avjets 115 112 100 123
Middle Distillates 211 222 216 216
Residuals 88 73 84 67
Other 111 120 114 131
----- ----- ----- -----
Total 1,018 1,026 1,022 1,036
International
Refinery input (000 BPD)
Europe 333 352 336 340
Affiliate - Caltex 432 352 408 364
Latin America/West Africa 63 39 60 58
----- ----- ----- -----
Total 828 743 804 762
Refined product sales (000 BPD)
Europe 545 545 509 496
Affiliate - Caltex 592 599 571 601
Latin America/West Africa 447 373 418 391
Other 73 74 65 64
----- ----- ----- -----
Total 1,657 1,591 1,563 1,552
