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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):
October 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 (Commission File (I.R.S. of 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 October 21, 1998, the Registrant issued an Earnings Press
Release entitled "Texaco Reports Results: Third Quarter 1998
Earnings Total $215 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 October 21, 1998,
entitled "Texaco Reports Results: Third Quarter 1998
Earnings Total $215 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: October 21, 1998
----------------
EXHIBIT 99.1
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.
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-2-
"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.
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-3-
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.
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-4-
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.
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-5-
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
- more -
-6-
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.
- xxx -
CONTACTS: Faye Cox 914-253-7745
Chris Gidez 914-253-4042
Kelly McAndrew 914-253-6295
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-7-
INVESTOR RELATIONS:
Elizabeth Smith 914-253-4478
Listen in live to Texaco's third quarter 1998 earnings discussion with
financial analysts on Thursday, October 22, at 11:30 a.m. EDT at:
http://www.events.broadcast.com/events/texaco/q398earnings
----------------------------------------------------------
For technical assistance, call Sheila Lujan at 800-366-9831
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-8-
Third Quarter (a) Nine Months (a)
----------------- ---------------
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.
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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
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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
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OPERATING DATA Third Quarter Nine Months
- - -------------- --------------- -------------
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
