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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 25, 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
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On October 25, 1999, the Registrant issued an Earnings Press Release entitled
"Texaco Reports Third 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
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(c) Exhibits
99.1 Press Release issued by Texaco Inc. dated October 25, 1999,
entitled "Texaco Reports Third 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.
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(Registrant)
By: R. E. KOCH
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(Assistant Secretary)
Date: October 25, 1999
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EXHIBIT 99.1
TEXACO REPORTS THIRD QUARTER RESULTS
------------------------------------
FOR IMMEDIATE RELEASE: MONDAY, OCTOBER 25, 1999.
- -------------------------------------------------
WHITE PLAINS, N.Y. -- October 25, 1999 -- Texaco reported today third
quarter 1999 income before special items of $453 million ($.83 per share). Net
income for the period was $387 million ($.71 per share).
EARNINGS SUMMARY
Third Quarter Nine Months
------------- -------------
1999 1998 1999 1998
- ---------------------------------------------------------------------
Income before special
items (millions) $ 453 $ 208 $ 844 $ 802
Per share $ 0.83 $ 0.37 $ 1.53 $1.44
Net income (millions) $ 387 $ 215 $ 859 $ 791
Per share $ 0.71 $ 0.38 $ 1.56 $1.42
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Texaco Chairman and Chief Executive Officer Peter I. Bijur stated, "Boosted
by significantly higher crude oil and natural gas prices, Texaco's third quarter
results improved dramatically from the first half of the year to their highest
quarterly level since 1997. Cutbacks in OPEC and non-OPEC production, plus
improving global economies pushed benchmark crude oil prices over $20 a barrel.
But, as we've seen in recent weeks, prices remain volatile. Operationally, we
had strong production during September in the North Sea led by record production
in the Captain field. In addition, we are benefiting significantly from synergy
capture and expense reductions as our $650 million global target will be
realized by year end, a full year ahead of schedule. In the downstream, our
refineries ran well and sales volumes increased. However, these businesses,
already burdened by generally low refining margins, were further hampered by the
higher crude costs which could not be fully recovered in product prices."
Bijur continued, "Looking ahead, our recent announcement on acquiring a 45
percent interest in the Malampaya Deep Water Natural Gas Project in the
Philippines exemplifies Texaco's strategy of pursuing projects that provide for
long-term growth and strong near-term earnings and cash flow. We also continue
to execute our long-term strategy of reducing refining exposure through the
completion of
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Caltex's sale of its interest in Koa Oil Co. Ltd. and the anticipated sales by
Equilon of its Wood River and El Dorado refineries."
Third Quarter Nine Months
-------------- -------------
Texaco Inc. (Millions of dollars): 1999 1998 1999 1998
- ---------------------------------------------------------------------
Income before special items $ 453 $ 208 $ 844 $ 802
----- ----- ----- -----
Inventory valuation adjustments 14 - 152 -
Write-down of assets - - (76) -
Tax issues - 25 65 44
Gains (losses) on major asset sales (80) - (59) 20
Reorganization, restructuring and
employee separation costs - (18) (67) (50)
----- ----- ----- -----
(66) 7 15 14
Cumulative effect of
accounting change - - - (25)
----- ----- ----- -----
Total special items (66) 7 15 (11)
----- ----- ----- -----
Net income $ 387 $ 215 $ 859 $ 791
===== ===== ===== =====
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
Third Quarter Nine Months
-------------- --------------
United States (Millions of dollars): 1999 1998 1999 1998
- ---------------------------------------------------------------------
Operating income before special items $ 258 $ 93 $ 423 $ 301
Special items - - 21 -
----- ----- ----- -----
Total operating income $ 258 $ 93 $ 444 $ 301
===== ===== ===== =====
U.S. Exploration and Production earnings for the third quarter and nine
months of 1999 were above last year's levels due to higher crude oil and natural
gas prices and lower expenses. Prices continued to rise in the third quarter as
production cutbacks by OPEC and several non-OPEC countries, coupled with
increasing demand in improving global economies, led to a decline in worldwide
inventory
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levels. Average realized crude oil prices for the third quarter and nine months
of 1999 were $16.65 and $12.81 per barrel, 66 percent and 18 percent higher than
the 1998 levels. For the third quarter and nine months of 1999, average natural
gas prices were $2.44 and $2.09 per MCF, 29 percent and three percent above last
year's periods.
Production decreased 11 percent for both the third quarter and nine months
of 1999 due to natural field declines and asset sales. Capital expenditures for
developmental activities such as infill drilling, recompletions and secondary
recovery projects, normally undertaken to offset production declines within
mature fields were reduced as Texaco and its operating partners concentrated on
maximizing capital efficiency.
Operating expenses declined significantly for the first nine months of 1999
as a result of cost savings from the restructuring of our worldwide upstream
organization. Exploratory expenses for the third quarter and first nine months
of 1999 were $12 million and $104 million before tax, $36 million and $91
million below the same periods of 1998.
Results for 1999 included a first quarter special benefit of $11 million
for a production tax refund, a second quarter special gain of $21 million for
the sale of our interest in six California onshore and offshore fields, and a
second quarter special charge of $11 million for employee separation costs.
Third Quarter Nine Months
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International (Millions of dollars): 1999 1998 1999 1998
- ---------------------------------------------------------------------
Operating income before special items $ 129 $ 53 $ 191 $ 166
Special items - - (2) -
----- ---- ----- -----
Total operating income $ 129 $ 53 $ 189 $ 166
===== ==== ===== =====
International Exploration and Production operating results for the third
quarter and nine months of 1999 improved over last year's levels as crude oil
prices continued to rise throughout the third quarter due to worldwide
production cutbacks and improving demand. Average realized crude oil prices for
the third quarter and nine months of 1999 were $16.96 and $13.36 per barrel, 53
percent and 16 percent above the 1998 periods. For the third quarter and first
nine months of 1999, average natural gas prices were $1.35 and $1.36 per MCF,
nine percent and 13 percent below last year.
Daily production in the third quarter and first nine months of 1999 was
slightly below last year's levels. Third quarter production declines in the U.K.
North Sea due to temporary operating problems early in the quarter and in
Indonesia due to lower volumes as a result of higher prices were offset by
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increased production in the Partitioned Neutral Zone as a result of increased
drilling activity. Year-to-date production declines in the U.K. North Sea and
lower gas production in Latin America were offset by increased production in the
Partitioned Neutral Zone.
Expenses were lower for the third quarter of 1999 as a result of continued
cost savings from the restructuring of our worldwide upstream organization.
Exploratory expenses for the third quarter of 1999 were $60 million before
taxes, $15 million higher than last year. Exploratory expenses for the first
nine months of 1999 were $178 million before taxes, $49 million higher than last
year.
Results for 1999 included a second quarter special charge of $2 million for
employee separation costs.
REFINING, MARKETING AND DISTRIBUTION
Third Quarter Nine Months
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United States (Millions of dollars): 1999 1998 1999 1998
- ---------------------------------------------------------------------
Operating income before special items $ 118 $ 99 $ 283 $ 240
Special items - 25 (79) (7)
----- ----- ----- -----
Total operating income $ 118 $ 124 $ 204 $ 233
===== ===== ===== =====
U.S. Refining, Marketing and Distribution earnings before special items
were higher than last year for the third quarter and nine months 1999. 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 third quarter and nine months 1999, Equilon's earnings benefited
from improved West Coast refining margins and improved utilization at the
Martinez refinery, although operational problems at the Puget Sound refinery
earlier this year had a negative impact on earnings. Refining margins on the
West Coast benefited from industry refinery outages which caused market supply
disruptions. Marketing margins were weak for the quarter as gasoline pump prices
lagged increases in spot prices.
Motiva's earnings for the nine months were affected by weak refining
margins on the East and Gulf Coasts due to high industry-wide refined product
inventory levels. These effects were mitigated by higher gasoline sales volumes
and improved refinery utilization in 1999.
The third quarter and nine months 1999 also benefited from the realization
of synergies for Equilon and Motiva, including re-engineering of work processes,
leveraging economies of scale to
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reduce supply costs, sharing best practices and capitalizing on logistical and
trading opportunities including higher utilization of proprietary pipelines and
other assets.
Results for 1999 included second quarter special charges of $76 million for
asset write-downs on the pending sales of the El Dorado and Wood River
refineries and $11 million for reorganization, restructuring and employee
separation costs. 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. Third quarter 1998 results included a net
special gain of $25 million associated with the formation of the U.S. alliances,
which included gains on asset sales, asset write-downs and other formation
charges. The second quarter of 1998 included a special charge of $32 million,
mainly for alliance employee separation costs.
Third Quarter Nine Months
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International (Millions of dollars): 1999 1998 1999 1998
- ---------------------------------------------------------------------
Operating income before special items $ 72 $ 81 $ 293 $ 457
Special items (66) (43) 84 (43)
---- ---- ----- -----
Total operating income $ 6 $ 38 $ 377 $ 414
==== ==== ===== =====
Lower international refining and marketing results in 1999 reflected the
squeeze on margins as escalating crude costs have outpaced product price
increases. This pressure on refining margins impacted all major operating areas.
Results were also adversely impacted by depressed marketing margins and lower
volumes in Brazil due to poor economic conditions and related currency
devaluation. In the Caltex region, results benefited from reduced currency
volatility as economic conditions improved. The third quarter also included
gains from the sales of marketable securities.
Results for the third quarter of 1999 included net special charges of $66
million. Special charges included $32 million for our 50 percent share of
Caltex's loss on the sale of its equity interest in Koa Oil Co. Ltd. and $48
million for related deferred currency translation amounts. Other special items
for the quarter included favorable inventory valuation adjustments of $14
million. Additionally, results for 1999 included second quarter special benefits
of $55 million for favorable inventory valuation adjustments and $54 million for
a Korean tax benefit, partially offset by restructuring charges in Caltex of $25
million and employee separation costs in Europe and Latin America of $9 million.
First quarter 1999 results included a special benefit of $75 million for
inventory valuation adjustments. Results for 1998 included a third quarter net
special charge of $43 million for a reorganization program in Caltex.
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GLOBAL GAS AND POWER
Third Quarter Nine Months
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(Millions of dollars): 1999 1998 1999 1998
- ---------------------------------------------------------------------
Operating income (loss) before
special items $ 6 $ (8) $ 16 $ (29)
Special items - - (3) 20
---- ---- ----- -----
Total operating income (loss) $ 6 $ (8) $ 13 $ (9)
==== ==== ===== =====
During the third quarter 1999, responsibility for the Global Gas Marketing
segment and the company's cogeneration, gasification, hydrocarbons-to-liquids
and fuel cell technology units was combined under a single senior executive,
creating the Global Gas and Power segment. Prior period information has been
restated to reflect this change.
Gas marketing operating results for the third quarter and nine months of
1999 benefited from the continued improvement of natural gas margins. Results
for the nine months 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 as well as lower operating expenses.
Operating results for the power related activities in the third quarter and
nine months of 1999 reflect lower margins from Indonesian geothermal activities,
due to higher costs and lower revenues caused by the currency devaluation,
nonrecurring recoupment of development costs in 1998 and lower gasification
licensing revenues.
Results for 1999 included a second quarter special charge of $3 million for
employee separation costs. Results for 1998 included a second quarter special
gain of $20 million from the sale of a partial interest in a pipeline.
CORPORATE/NON-OPERATING RESULTS
Third Quarter Nine Months
-------------- --------------
(Millions of dollars): 1999 1998 1999 1998
- ---------------------------------------------------------------------
Results before special items $(129) $(109) $(359) $(332)
Special items - 25 (6) 44
----- ----- ----- -----
Total corporate/non-operating $(129) $ (84) $(365) $(288)
===== ===== ===== =====
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Corporate/Non-operating results for the third quarter and nine months of
1999 reflected higher interest expense from increases in interest rates and debt
levels. Additionally, third quarter 1998 results included gains from the sale of
securities by a subsidiary.
Results for 1999 included a second quarter special charge of $6 million for
employee separation costs. Results for 1998 included a third quarter special
benefit of $25 million to adjust for prior years' tax liabilities and a second
quarter special tax benefit of $19 million attributable to the sale of an
interest in a subsidiary.
CAPITAL AND EXPLORATORY EXPENDITURES
Capital and Exploratory Expenditures were $2,176 million for the nine
months of 1999 and $2,769 million for the same period in 1998. In response to
the difficult market conditions existing in the downstream and depressed crude
oil prices during the first half of 1999, spending declined in most segments.
In the U.S. upstream, expenditures for developmental activities dropped
significantly and platform construction activity slowed in the deepwater Gulf of
Mexico. Spending increased for enhanced oil recovery projects in California
which continues to be an area of focus. Internationally, spending rose slightly
as compared to the prior year as development work continued on the Captain B
project in the U.K. North Sea. Also, 1999 levels reflect higher spending for
lease acquisitions offshore Nigeria and increased ownership in the Venezuelan
Hamaca project. Project completions during 1998 in other U.K. North Sea fields
led to comparatively lower spending in 1999.
In the downstream, spending declines reflect the completion last year of
refinery upgrade projects in the United States and abroad. Also, poor economic
conditions in international areas and globally depressed downstream returns
resulted in deferrals of selected refinery and marketing expansion projects.
Global Gas and Power continues to invest in cogeneration projects in
California and in Indonesia, while spending on natural gas transportation is
down due to pipeline completions last year.
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CONTACTS: Kelly McAndrew 914-253-6295
Faye Cox 914-253-7745
INVESTOR RELATIONS:
Elizabeth Smith 914-253-4478
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Listen in live to Texaco's third quarter 1999 earnings discussion with
financial analysts on Tuesday, October 26, at 11:30 am EDT at:
http://www.webevents.broadcast.com/texaco/q399earnings
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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 cost and expense reductions in 1999. Our actual results may be
different as a result of worldwide and industry economic conditions, or if we
fail to achieve the re-engineering of our processes or reductions in the number
of our employees that we expect. 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.
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Income (loss) Third Quarter(a) Nine Months(a)
(Millions of dollars) ---------------- --------------
1999 1998 1999 1998
----- ----- ----- -----
Exploration and production
United States $ 258 $ 93 $ 444 $ 301
International 129 53 189 166
----- ----- ----- -----
Total 387 146 633 467
Refining, marketing and distribution
United States 118 124 204 233
International 6 38 377 414
----- ----- ----- -----
Total 124 162 581 647
Global gas and power 6 (8) 13 (9)
----- ----- ----- -----
Total operating segments 517 300 1,227 1,105
----- ----- ----- -----
Other business units (1) (1) (3) (1)
Corporate/Non-operating (129) (84) (365) (288)
----- ----- ----- -----
Income before cumulative effect
of accounting change 387 215 859 816
Cumulative effect of
accounting change (b) - - - (25)
----- ----- ----- -----
Net income $ 387 $ 215 $ 859 $ 791
===== ===== ===== =====
Net income per common share
(dollars) - diluted $ .71 $ .38 $1.56 $1.42
Average number of common
shares outstanding for
computation of earnings per
share (millions) - diluted 546.3 526.4 535.2 548.6
Provision for income taxes
included in net income $ 386 $ 34 $ 493 $ 258
(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".
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Other Financial Data Third Quarter Nine Months
(Millions of dollars) ------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues $ 9,677 $ 7,707 $25,136 $23,898
Total assets as of September 30 (c)$28,900 $28,495
Stockholders' equity as of
September 30 (c)$11,960 $12,325
Total debt as of September 30 (c)$ 7,300 $ 6,960
Capital and exploratory
expenditures
Exploration and production
United States $ 162 $ 328 $ 623 $ 1,142
International 304 276 865 812
------- ------- ------- ------
Total 466 604 1,488 1,954
Refining, marketing and
distribution
United States 85 116 243 298
International 118 127 294 355
------- ------- ------- ------
Total 203 243 537 653
Global gas and power 43 39 129 141
------- ------- ------- ------
Total operating segments 712 886 2,154 2,748
Other business units 6 2 22 21
------- ------ ------- ------
Total $ 718 $ 888 $ 2,176 $ 2,769
======= ====== ======= =======
Exploratory expenses included
above
United States $ 12 $ 48 $ 104 $ 195
International 60 45 178 129
------- ------ ------- -------
Total $ 72 $ 93 $ 282 $ 324
======= ====== ======= =======
Dividends paid to common
stockholders $ 245 $ 237 $ 719 $ 716
Dividends per common share
(dollars) $ .45 $ .45 $ 1.35 $ 1.35
Dividend requirements for
preferred stockholders $ 3 $ 13 $ 26 $ 40
(c) Preliminary
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Operating Data Third Quarter Nine Months
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1999 1998 1999 1998
---- ---- ---- ----
Exploration and production
United States
Net production of crude oil and
natural gas liquids (MBPD) 395 432 400 443
Net production of natural
gas available
for sale (MMCFPD) 1,416 1,641 1,460 1,694
----- ----- ----- -----
Total net production (MBOEPD) 631 706 643 726
Natural gas sales (MMCFPD) 3,263 3,963 3,284 3,926
Average U.S. crude (per bbl.) $16.65 $10.06 $12.81 $10.87
Average U.S. natural gas
(per mcf) $ 2.44 $ 1.89 $ 2.09 $ 2.03
Average WTI (Spot) (per bbl.) $21.71 $14.16 $17.58 $14.89
Average Kern (Spot) (per bbl.) $15.38 $ 8.65 $11.49 $ 8.43
International
Net production of crude oil and
natural gas liquids (MBPD)
Europe 152 163 142 157
Indonesia 141 168 156 159
Partitioned Neutral Zone 127 104 122 106
Other 60 59 65 66
----- ------ ------ ------
Total 480 494 485 488
Net production of natural
gas available for sale
(MMCFPD)
Europe 252 261 261 255
Colombia 161 165 158 185
Other 91 87 105 108
----- ----- ----- -----
Total 504 513 524 548
----- ----- ----- -----
Total net production (MBOEPD) 564 580 573 579
Natural gas sales (MMCFPD) 539 633 551 692
Average International crude
(per bbl.) $16.96 $11.05 $13.36 $11.55
Average International
natural gas (per mcf) $ 1.35 $ 1.49 $ 1.36 $ 1.57
Average U.K. natural gas
(per mcf) $ 2.34 $ 2.34 $ 2.37 $ 2.53
Average Colombia
natural gas (per mcf) $ .67 $ .79 $ .64 $ .88
Total worldwide net
production (MBOEPD) 1,195 1,286 1,216 1,305
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Operating Data Third Quarter Nine Months
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1999 1998 1999 1998
---- ---- ---- ----
Refining, marketing and distribution
United States
Refinery input (MBPD)
Equilon area 390 410 376 388
Motiva area 307 301 307 316
----- ----- ----- -----
Total 697 711 683 704
Refined product sales (MBPD)
Equilon area 752 616 697 579
Motiva area 371 421 376 366
Other 290 216 296 228
----- ----- ----- -----
Total 1,413 1,253 1,369 1,173
International
Refinery input (MBPD)
Europe 331 326 356 356
Caltex area 381 397 411 417
Latin America/West Africa 68 66 71 64
----- ----- ----- -----
Total 780 789 838 837
Refined product sales (MBPD)
Europe 585 547 609 567
Caltex area 654 563 663 580
Latin America/West Africa 479 474 485 455
Other 86 56 90 53
----- ----- ----- -----
Total 1,804 1,640 1,847 1,655