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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------
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):
July 21, 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
- - ---------------------
On July 21, 1998, the Registrant issued an Earnings Press
Release entitled "Texaco Reports Results: Second Quarter 1998
Earnings Total $342 Million," 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 Texaco Inc. dated July 21, 1998,
entitled "Texaco Reports Results: Second Quarter 1998 Earnings
Total $342 Million."
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.
----------------------
(Registrant)
By: R. E. KOCH
----------------------
(Assistant Secretary)
Date: July 21, 1998
EXHIBIT 99.1
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.
- more -
- 2 -
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
===== ===== ===== ======
- - --------------------------------------------------
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 $ 100 $232 $207 $543
special items
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.
- more -
- 3 -
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 1998 1997 1998 1997
(Millions):
- - ----------------------------------------------------
Operating earnings $ 51 $ 79 $ 91 $ 235
before special items
Special items - 161 - 161
----- ---- ---- -----
Total operating net $ 51 $240 $ 91 $ 396
income
- - -----------------------------------------------------
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.
- more -
- 4 -
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 $ 194 $132 $ 376 $236
special items
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.
- more -
- 5 -
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 $1,798 million in
1997.
In the U.S. upstream, development continued
in the deepwater Gulf of Mexico. Expenditures in 1998
also increased for enhanced oil recovery projects using
advanced thermal recovery techniques which raised
production from the acquired Monterey properties and
other core producing fields. Exploratory expenses
increased as Texaco continued its program to grow oil and gas
production and reserves.
Internationally, slightly higher upstream
expenditures included investment in the Karachaganak
venture in Kazakhstan, a discovered reserve opportunity.
Development work continued in the U.K. North Sea,
Indonesia and other promising areas while exploratory
spending decreased in China.
Lower international downstream expenditures in the
Caltex marketing areas were due to higher 1997 service
station investments in Hong Kong.
- more -
- 6 -
Texaco continues to carefully assess investment
projects given the current and projected industry
environment. The company anticipates some adjustment in
spending by deferring non-critical projects into future periods
should the current low crude price environment persist.
CONTACTS: Faye J. Cox 914-253-7745
Kelly McAndrew 914-253-6295
Ken Sniffen 914-253-6295
David Robinson 914-253-4524
INVESTOR RELATIONS:
Elizabeth Smith 914-253-4478
Listen in live to Texaco's second quarter 1998 earnings
discussion with financial analysts on Wednesday, July 22
at 11:00 EDT at http://www.events.audionet.com/events/texaco/q2earnings/
For technical assistance, call Sheila Lujan at 800-366-9831
- 7 -
Second Quarter(a) First Half(a)
----------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
FUNCTIONAL NET INCOME
- - ---------------------
($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.
- 8 -
Second Quarter(a) First Half(a)
----------------- -------------
OTHER FINANCIAL 1998 1997 1998 1997
- - --------------- ---- ---- ---- ----
DATA ($Millions)
- - ----------------
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
- 9 -
Second Quarter First Half
-------------- --------------
OPERATING DATA 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
- 10 -
Second Quarter First Half
-------------- ----------
OPERATING DATA 1998 1997 1998 1997
- - -------------- ---- ---- ---- ----
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
