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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 26, 1999
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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 January 26, 1999, the Registrant issued an Earnings Press
Release entitled "Texaco Reports 1998 Results," 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 January 26, 1999,
entitled "Texaco Reports 1998 Results."
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: January 26, 1999
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EXHIBIT 99.1
TEXACO REPORTS 1998 RESULTS
---------------------------
FOR IMMEDIATE RELEASE: TUESDAY, JANUARY 26, 1998.
- -----------------------------------------------------
WHITE PLAINS, N.Y., Jan. 26 - Low crude oil and natural gas prices
from weak demand and oversupply, along with foreign currency losses
in our Asian downstream operations caused earnings to drop sharply,
Texaco Chairman and Chief Executive Officer Peter I. Bijur reported
today.
Commenting on 1998 results, Bijur pointed to the following:
- Income before special items declined 50 percent in 1998
to $894 million, and declined 80 percent to $92 million in
the fourth quarter;
- Special items reduced 1998 net income to $578 million and
caused a fourth quarter net loss of $213 million;
- Average crude oil prices hit their lowest levels in over 20
years;
- Currency volatility in Asia caused fourth quarter foreign
currency losses of $71 million in the
international downstream operations;
- Worldwide daily production grew nine percent for the year;
- Cash operating expenses per barrel decreased eight percent for
the year, and
- Yearly capital and exploratory expenditures were $4.0
billion, a 10 percent reduction from 1997.
"The industry has not experienced crude oil prices this low since
the mid 1970's. Upstream results declined sharply in this low price
environment. In the downstream, we continued to have solid
performances in our European and Latin American businesses as margins
and volumes remained strong. However, in the Asian operations of
Caltex, we incurred significant foreign currency losses
due to the strengthening of the Korean won and Japanese yen. Also,
our U.S. alliances experienced weak results due to poor margins and
significant refinery downtime," Bijur added.
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- 2 -
Bijur went on to say that the past year has been a challenge for
the entire industry, and that the company expects low crude oil
prices to continue through at least mid-year 1999.
"We are not standing still, waiting for prices to improve. We are
implementing significant cost and expense reductions across all of
our businesses. These reductions, along with the announced $600
million reduction in our 1999 capital-spending program, will enable
us to maintain financial flexibility. Texaco is prepared to
operate efficiently in this environment and will continue to be
competitive in any environment," Bijur noted.
For 1998, Texaco's income before special items was $894 million
($1.59 per share), down from $1,894 million ($3.45 per share)
for 1997. Net income for 1998 was $578 million ($.99 per share),
after net special charges of $316 million. This compares to net
income of $2,664 million ($4.87 per share) for 1997, after
net special benefits of $770 million.
Texaco's income before special items was $92 million ($.15 per
share) for the fourth quarter of 1998, down from $472 million
($.85 per share) for the fourth quarter of 1997. After net
special charges of $305 million, there was a net loss for the fourth
quarter of 1998 of $213 million ($.43 per share). This compares to
net income of $623 million ($1.12 per share) for the fourth quarter
of 1997, after net special benefits of $151 million.
Fourth Quarter Year
--------------- -----------------
Texaco Inc. (Millions): 1998 1997 1998 1997
- ------------------------------------------------------------------
Income before special items $ 92 $ 472 $ 894 $1,894
----- ----- ----- ------
Inventory valuation adjustments (142) - (142) -
Write-downs of assets (93) (41) (93) (41)
Employee separation costs (80) - (80) -
Caltex reorganization - - (43) -
U.S. alliance formation issues (14) - (21) -
Tax issues - (1) 25 487
Gains on major asset sales - 193 20 367
Expense accruals for various
issues - - - (43)
Tax benefits on asset sales 24 - 43 -
------ ----- ------ -------
(305) 151 (291) 770
Adoption of new accounting
standard
Cumulative effect of
accounting change - - (25) -
------ ------ ------ ------
Total special items (305) 151 (316) 770
------ ------ ------- ------
Net income (loss) $ (213) $ 623 $ 578 $2,664
====== ====== ====== ======
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- 3 -
Caltex has elected to adopt, effective January 1, 1998, SOP 98-5
of the AICPA (see editor's note below), causing Caltex to change the
accounting for start-up costs at its Thailand refinery. Texaco's
first quarter 1998 earnings have been restated to include an
after-tax charge of $25 million.
The following functional analysis includes details on special
items.
ANALYSIS OF OPERATING INCOME
EXPLORATION AND PRODUCTION
Fourth Quarter Year
------------------ ---------------
UNITED STATES (Millions): 1998 1997 1998 1997
- ---------------------------------------------------------------------
Operating income before
special items $ 84 $ 256 $ 383 $1,031
Special items (83) (31) (63) (74)
---- ----- ----- ------
Total operating income $ 1 $ 225 $ 320 $ 957
- --------------------------------------------------------------------
U.S. exploration and production income for the fourth quarter
and year 1998 were substantially below last year's levels due to
lower crude oil and natural gas prices. Average realized crude oil
prices for the fourth quarter and year 1998 were $9.74 and $10.60 per
barrel, 40 percent below last year's levels. The continued slowing of
worldwide demand growth, high inventory levels, and warmer than
normal weather patterns caused crude oil prices to reach their lowest
quarterly level since 1976. These industry conditions also depressed
natural gas prices. For the fourth quarter and year 1998, average
natural gas prices were $1.91 and $2.00 per MCF, 27 percent lower
than the fourth quarter and 16 percent lower than the year 1997.
Daily production for the fourth quarter of 1998 was six percent
lower than last year's fourth quarter. The lower production was due
to natural declines in maturing fields, delays in resuming full
production of fields affected by third quarter storms, and the
slowing of development expenditures in response to lower commodity
prices. Daily production for the year 1998, however, rose five percent
from last year's levels. This year's production included new
production from the Arnold, Oyster and Barite South fields located
in the Gulf of Mexico and a full year's production from the
properties acquired from Monterey Resources in November 1997.
We continued to pursue new reserve opportunities in the Gulf of
Mexico leading to higher exploration expenses this year. Exploration
expenses for the year were $257 million before tax, $68 million higher
than 1997. In the fourth quarter, our exploratory expenses were $62
million, $5 million lower than the fourth quarter of 1997.
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- 4 -
Special items for 1998 included fourth quarter asset write-downs
of $51 million for impaired properties and employee separation costs
of $32 million associated with announced restructurings, and a second
quarter gain of $20 million from the sale of an interest in a natural
gas pipeline. Results for 1997 included fourth quarter asset
write-downs of $31 million and second quarter charges of $43 million
for royalty and severance tax issues.
Fourth Quarter Year
------------------ ---------------
INTERNATIONAL (Millions): 1998 1997 1998 1997
- ---------------------------------------------------------------------
Operating earnings before
special items $ 4 $ 100 $ 135 $ 438
Special items (52) 198 (52) 359
----- ----- ------ ------
Total operating net income (loss) $(48) $ 298 $ 83 $ 797
- --------------------------------------------------------------------
International exploration and production income for the fourth
quarter and year 1998 were significantly below last year's levels due
to low crude oil and natural gas prices. Crude oil and natural gas
prices steadily declined throughout the year with crude oil prices
dropping in the fourth quarter to 20 year lows. Average realized crude
oil prices for the fourth quarter and year 1998 were $10.22 and $11.20
per barrel, 41 percent lower than the fourth quarter 1997 and 37
percent lower than the year 1997. The weak prices were the result
of a continued slowing in worldwide demand growth, high inventory
levels, and warmer than normal weather patterns. Additionally,
the year included fourth quarter losses associated with natural
gas liquids trading.
Daily production growth for the fourth quarter was 10 percent,
and 14 percent for the year. The combined production from the U.K.
North Sea Captain, Erskine and Galley fields averaged 78 thousand
barrels of oil equivalent per day for the year. Additionally,
production growth was realized in the Partitioned Neutral Zone and
Indonesia.
Exploration expenses were lower by $23 million before tax for
the quarter and by $78 million for the year. The lower expenditures
were due to our expanded program in 1997 coupled with lower 1998
exploratory activity in China and the U.K.
Operating results for the fourth quarter of 1998 included
non-cash currency benefits of $4 million related to deferred income
taxes denominated in British Pound Sterling versus a $5 million charge
for the fourth quarter 1997. The year 1998 included charges of $2
million versus benefits of $21 million for 1997.
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- 5 -
Special charges for the fourth quarter of 1998 included asset
write-downs of $42 million for the impairment of the Strathspey
property in the U.K. North Sea and employee separation costs of
$10 million for an announced restructuring. The fourth quarter of
1997 included gains on asset sales of $193 million, a $15 million tax
benefit and a $10 million write-down of assets. The year 1997
included additional gains on asset sales of $161 million.
MANUFACTURING, MARKETING AND DISTRIBUTION
Fourth Quarter Year
------------------ ---------------
UNITED STATES (Millions): 1998 1997 1998 1997
- ---------------------------------------------------------------------
Operating income before
special items $ 36 $ 80 $ 278 $ 305
Special items (48) - (55) 13
----- ----- ------ -----
Total operating income (loss) $(12) $ 80 $ 223 $ 318
- --------------------------------------------------------------------
U.S. manufacturing, marketing and distribution income for the
year 1998 included Texaco's interest in: the full year results of
Equilon Enterprises LLC, Texaco's western alliance with Shell Oil
Company that began operations in January; results for the first half
of the year of Star Enterprise, a joint venture between Texaco and
Saudi Refining, Inc. in the eastern U.S. that ceased operations in
June; and results for the second half of the year for Motiva
Enterprises LLC, Texaco's eastern alliance with Shell Oil Company and
Saudi Refining, Inc. that began operations in July.
Weak margins were prevalent throughout 1998 due to high inventory
levels and warmer than normal weather conditions in the eastern
region. Additionally, significant downtime at several refineries and
increased interest expense in both the quarter and year negatively
impacted earnings. Lower crude costs and strong lubricant earnings
benefited the fourth quarter and year.
Strong marketing margins and branded gasoline sales as well as
minimal refinery downtime benefited the fourth quarter of 1997.
Refining margins on the Gulf Coast were strong throughout 1997. On the
West Coast, refining margins were weak during the first half of the
year due to intense competitive pressures, but improved during the
last half of the year. Refinery fires in late 1996 and early 1997
negatively affected product yields and caused casualty loss expense 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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- 6 -
Results for 1998 included fourth quarter special charges for
inventory valuation adjustments of $34 million to reflect lower market
prices for crude oil and refined products. The quarter also included
net U.S. alliance formation charges of $14 million. The year included
additional net charges of $7 million associated with the formation of
the U.S. alliances. Results for 1997 included a second quarter gain of
$13 million from the sale of credit card operations.
Fourth Quarter Year
------------------ --------------
INTERNATIONAL (Millions): 1998 1997 1998 1997
- ---------------------------------------------------------------------
Operating income before
special items $ 46 $ 160 $ 503 $ 530
Special items (128) (16) (171) (16)
------ ------ ----- -----
Total operating income (loss) $ (82) $ 144 $ 332 $ 514
- ---------------------------------------------------------------------
International manufacturing and marketing income for the fourth
quarter of 1998 declined significantly from 1997. Caltex experienced
currency related losses of $71 million. The currency losses were
due to substantial strengthening of currencies in Korea and Japan.
This compares with favorable Korean net currency-related effects of
$70 million realized in the fourth quarter of 1997. Exclusive of
these Caltex currency effects, international manufacturing and
marketing results improved by nearly 30 percent. In Europe and
Latin America, results improved due to higher margins and strong
sales volumes.
Operating results for the year 1998 included currency related
losses in the Caltex region of $103 million versus gains of $101
million in 1997. Caltex, the U.K., Central America and the
Caribbean showed improved marketing income from higher margins
and volumes.
Operating results for the fourth quarter 1998 included a non-cash
currency benefit of $3 million related to deferred income taxes
denominated in British Pound Sterling versus a $1 million charge in
1997. The year 1998 included a charge of $3 million compared to a
benefit of $7 million for the year 1997.
Results for 1998 included fourth quarter special charges for
inventory valuation adjustments of $108 million to reflect lower
market prices for crude oil and refined products, and employee
separation costs of $20 million in Europe and Latin America associated
with cost cutting initiatives. The third quarter of 1998 included a
charge of $43 million for a reorganization program in Caltex. Special
items for 1997 included a fourth quarter charge of $16 million,
primarily for a European deferred tax adjustment.
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- 7 -
CORPORATE/NONOPERATING RESULTS
Fourth Quarter Year
------------------ --------------
(Millions): 1998 1997 1998 1997
- ---------------------------------------------------------------------
Results before special items $ (80) $ (125) $(411) $(427)
Special items 6 - 50 488
------ ------ ----- -----
Total corporate/nonoperating $ (74) $ (125) $(361) $ 61
- ---------------------------------------------------------------------
Nonoperating results improved for the fourth quarter and year.
Lower overhead and tax expenses as well as higher interest income more
than offset increased interest expense arising from higher debt
levels.
Special items for 1998 included fourth quarter tax benefits on
asset sales of $24 million and employee separation costs of $18
million, a third quarter tax benefit of $25 million to adjust prior
year's tax liabilities and second quarter tax benefits on asset sales
of $19 million. Results for 1997 included a first quarter benefit of
$488 million associated with an IRS settlement.
CAPITAL AND EXPLORATORY EXPENDITURES
Capital and exploratory expenditures were $4,019 million for the
year 1998, compared to $5,930 million for 1997. Included in 1997 was
the $1.4 billion acquisition of Monterey Resources Inc., a California
producing company. Excluding this acquisition, capital and
exploratory expenditures declined by 10 percent in 1998. This
decrease reflects the deferral of selected projects given the lower
prevailing energy prices.
In the United States, we continued to focus on both the
traditional shelf and deepwater areas of the Gulf of Mexico, however,
development drilling slowed. Exploratory activity in the United
States increased as we selectively pursued our program to grow oil
and gas production and reserves.
Internationally, investment activity decreased as a result of the
completion of several large projects in the U.K. North Sea and
Denmark. Exploratory drilling also decreased primarily in far eastern
areas. Texaco continued to maintain an investment program in the
North Sea, Indonesia, China, Australia and West Africa. Upstream
expenditures also reflect our continued investments in the
Karachaganak and the North Buzachi ventures in Kazakhstan, both
discovered reserve opportunities.
Lower international downstream expenditures in the Caltex and
European marketing areas were due to higher 1997 service station
investments. Partly offsetting these declines were increased
investments associated with the Caltex refinery in Thailand.
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- 8 -
In the United States, downstream expenditures were maintained
at the same level by Texaco and its affiliates for both 1998 and 1997.
- xxx -
CONTACTS: Faye Cox 914-253-7745
Chris Gidez 914-253-4042
Kelly McAndrew 914-253-6295
INVESTOR RELATIONS:
Elizabeth Smith 914-253-4478
Listen in live to Texaco's 1998 earnings discussion with
financial analysts on Wednesday, January 27, at 1:00 pm EST at:
http://www.events.broadcast.com/events/texaco/q498earnings
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For technical assistance, call Sheila Lujan at 800-366-9831
Note: This press release contains forward-looking statements about
Texaco's expectations for crude oil prices in 1999 and its plans for
capital and exploratory spending and for cost and expense reductions.
These expectations and plans may change if business conditions, such
as energy prices, world economic conditions, demand growth,
inventory levels, and weather patterns change. For a further
discussion of additional factors that could cause actual results to
materially differ from those in the forward-looking statements,
please refer to the section entitled "Forward-Looking Statements"
in Texaco's 1997 Annual Report on Form 10-K.
SOP 98-5 is an accounting rule adopted by the American Institute
of Certified Public Accountants (AICPA) in 1998. It provides that
costs incurred during the start-up period for a new facility, new
product, process or service, or expansion of business area or
customer base must be charged to expense as incurred. This does not
include costs during the construction phase of a new facility.
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- 9 -
Fourth Quarter (a) Year (a)
-------------------- ----------------
FUNCTIONAL NET INCOME 1998 1997 1998 1997
(Millions) -------- ------ ------ -------
Operating income (loss)
Petroleum and natural gas
Exploration and production
United States $ 1 $ 225 $ 320 $ 957
International (48) 298 83 797
------ ----- ----- ------
Total (47) 523 403 1,754
------ ------ ----- ------
Manufacturing, marketing
and distribution
United States (12) 80 223 318
International (82) 144 332 514
------ ----- ----- ------
Total (94) 224 555 832
------ ----- ----- ------
Total petroleum and
natural gas (141) 747 958 2,586
Nonpetroleum 2 1 6 17
------ ----- ----- ------
Total operating income (loss) (139) 748 964 2,603
Corporate/Nonoperating (74) (125) (361) 61
------ ----- ----- ------
Income (loss) before
cumulative effect of
accounting change (213) 623 603 2,664
Cumulative effect of accounting
change (b) - - (25) -
------ ----- ----- ------
Net income (loss) $ (213) $ 623 $ 578 $2,664
====== ===== ===== ======
Net income (loss) per common
share (Dollars)
Diluted $(0.43) $ 1.12 $ 0.99 $ 4.87
Average number of common
shares outstanding for
computation of earnings
per share (Millions)
Diluted 525.4 550.2 529.0 542.6
Provision for (benefit from)
income taxes included
in net income (loss) $ (160) $ 252 $ 98 $ 663
(a) Includes special items as detailed in this release.
(b) Previously reported results for the first quarter of 1998 have
been restated for the adoption by Caltex of SOP 98-5 of the AICPA.
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- 10 -
Fourth Quarter Year
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OTHER FINANCIAL DATA 1998 1997 1998 1997
(Millions) -------- ------ ------ -------
Revenues $ 7,809 $12,049 $31,707 $46,667
Total assets as of
December 31 (c)$28,300 $29,600
Stockholders' equity as of
December 31 (c)$11,840 $12,766
Total debt as of
December 31 (c)$ 7,300 $ 6,392
Capital and exploratory
expenditures
Exploration and production
United States
Acquisition of Monterey
Resources $ - $ 1,448 $ - $ 1,448
Other 303 463 1,554 1,735
------- ------- ------- -------
Total 303 1,911 1,554 3,183
International 438 421 1,272 1,411
------- ------- ------- -------
Total 741 2,332 2,826 4,594
------- ------- ------- -------
Manufacturing, marketing
and distribution
United States 130 185 433 431
International 368 362 726 848
------- ------- ------- -------
Total 498 547 1,159 1,279
------- ------- ------- -------
Other 11 28 34 57
------- ------- ------- -------
Total $ 1,250 $ 2,907 $ 4,019 $ 5,930
======= ======= ======= =======
Exploratory expenses
included above
United States $ 62 $ 67 $ 257 $ 189
International 75 98 204 282
------- ------- ------- -------
Total $ 137 $ 165 $ 461 $ 471
======= ======= ======= =======
Dividends paid to common
stockholders $ 236 $ 242 $ 952 $ 918
Dividends per common share
(Dollars) $ 0.45 $ 0.45 $ 1.80 $ 1.75
Dividend requirements for
preferred stockholders $ 14 $ 14 $ 54 $ 56
(c) Preliminary
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- 11 -
Fourth Quarter Year
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OPERATING DATA 1998 1997 1998 1997
- -------------- -------- ------ ------ -------
Exploration and Production
- --------------------------
United States
- -------------
Net production of crude
oil and natural gas
liquids (MBPD) 401 425 433 396
Net production of
natural gas -
available for sale
(MMCFPD) 1,637 1,768 1,679 1,706
Total net production
(MBOEPD) 674 720 713 680
Natural gas sales (MMCFPD) 3,719 3,629 3,873 3,584
Average U.S. crude
(per bbl.) $ 9.74 $16.36 $10.60 $17.34
Average U.S. natural
gas (per mcf) $ 1.91 $ 2.63 $ 2.00 $ 2.37
Average WTI (Spot)
(per bbl.) $12.88 $19.92 $14.39 $20.61
Average Kern (Spot)
(per bbl.) $ 8.22 $14.41 $ 8.38 $14.71
International
- -------------
Net production of crude
oil and natural gas
liquids (MBPD)
Europe 163 149 158 125
Indonesia 186 155 166 150
Partitioned Neutral Zone 113 105 108 97
Other 63 63 65 65
------ ------ ------ ------
Total 525 472 497 437
Net production of
natural gas -
available for sale
(MMCFPD)
Europe 304 245 267 209
Colombia 163 204 180 177
Other 85 78 101 85
------ ------ ------ ------
Total 552 527 548 471
Total net production
(MBOEPD) 617 560 588 516
Natural gas sales
(MMCFPD) 579 682 664 592
Average International
crude (per bbl.) $10.22 $17.44 $11.20 $17.64
Average U.K. natural
gas (per mcf) $ 2.54 $ 2.75 $ 2.54 $ 2.70
Average Colombia natural
gas (per mcf) $ 0.72 $ 0.87 $ 0.84 $ 0.98
Worldwide
- ---------
Total net production
(MBOEPD) 1,291 1,280 1,301 1,196
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- 12 -
Fourth Quarter Year
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OPERATING DATA 1998 1997 1998 1997
- -------------- -------- ------ ------ -------
Manufacturing, Marketing
and Distribution
----------------
United States
- -------------
Refinery input (MBPD)
Western U.S. 385 407 387 413
Eastern U.S. 298 332 311 334
----- ----- ----- -----
Total 683 739 698 747
Refined product sales
(MBPD)
Western U.S. 599 496 585 493
Eastern U.S. 412 322 377 323
Other Operations 279 200 241 206
----- ----- ----- -----
Total 1,290 1,018 1,203 1,022
International
- -------------
Refinery input (MBPD)
Europe 332 333 350 336
Caltex 418 432 417 408
Latin America/West
Africa 67 63 65 60
----- ----- ----- -----
Total 817 828 832 804
Refined product sales
(MBPD)
Europe 586 545 571 509
Caltex 629 592 593 571
Latin America/West
Africa 488 447 462 418
Other 77 73 59 65
----- ----- ----- -----
Total 1,780 1,657 1,685 1,563