================================================================================
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 26, 1999
----------
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)
================================================================================
Item 5. Other Events
- ---------------------
On July 26, 1999, the Registrant issued an Earnings Press Release entitled
"Texaco Reports Second Quarter 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 July 26, 1999, entitled
"Texaco Reports Second Quarter 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: July 26, 1999
-------------
TEXACO REPORTS SECOND QUARTER RESULTS
-------------------------------------
FOR IMMEDIATE RELEASE: MONDAY, JULY 26, 1999.
- ----------------------------------------------
WHITE PLAINS, N.Y.--July 26, 1999--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;
-more-
-2-
- - 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
==== ==== ==== ====
Effective January 1, 1998, Texaco's Caltex affiliate adopted a
new accounting standard, SOP 98-5, resulting in a change in accounting
for start-up costs at its Thailand refinery. Texaco's first quarter
1998 results included a $25 million charge associated with this
accounting change.
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
-more-
-3-
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.
-more-
-4-
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.
-more-
-5-
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.
-more-
-6-
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.
-more-
-7-
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.
- XXX -
CONTACTS: Kelly McAndrew 914-253-6295
Faye Cox 914-253-7745
INVESTOR RELATIONS:
Elizabeth Smith 914-253-4478
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://www.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.
-more-
-8-
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".
-more-
-9-
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
-more-
-10-
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
-more-
-11-
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