SEC Filing | Chevron Corporation

================================================================================ United States Securities and Exchange Commission Washington, D.C. 20549 Form 10-Q ---------- Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1999 Commission file number 1-27 Texaco Inc. (Exact name of the registrant as specified in its charter) Delaware 74-1383447 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2000 Westchester Avenue White Plains, New York 10650 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (914) 253-4000 ---------- Texaco Inc. (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. As of October 29, 1999, there were outstanding 553,059,992 shares of Texaco Inc. Common Stock - par value $3.125. ================================================================================

PART I - FINANCIAL INFORMATION TEXACO INC. STATEMENT OF CONSOLIDATED INCOME FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 --------------------------------------------------------------- (Millions of dollars, except as noted) (Unaudited) ------------------------------------------------- For the nine months For the three months ended September 30, ended September 30, ------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- REVENUES Sales and services $24,502 $23,132 $ 9,472 $ 7,481 Equity in income of affiliates, interest, asset sales and other 634 766 205 226 ------- ------- ------- ------- 25,136 23,898 9,677 7,707 ------- ------- ------- ------- DEDUCTIONS Purchases and other costs 19,254 17,922 7,448 5,836 Operating expenses 1,653 1,818 544 593 Selling, general and administrative expenses 871 862 270 290 Exploratory expenses 282 324 72 93 Depreciation, depletion and amortization 1,082 1,172 356 409 Interest expense 369 355 124 121 Taxes other than income taxes 211 328 63 103 Minority interest 62 43 27 13 ------- ------- ------- ------- 23,784 22,824 8,904 7,458 ------- ------- ------- ------- Income before income taxes and cumulative effect of accounting change 1,352 1,074 773 249 Provision for income taxes 493 258 386 34 ------- ------- ------- ------- Income before cumulative effect of accounting change 859 816 387 215 Cumulative effect of accounting change - (25) - - NET INCOME $ 859 $ 791 $ 387 $ 215 ======= ======= ======= ======= Preferred stock dividend requirements $ 26 $ 40 $ 3 $ 13 ------- ------- ------- ------- Net income available for common stock $ 833 $ 751 $ 384 $ 202 ======= ======= ======= ======= Per common share (dollars) Basic net income $ 1.56 $ 1.42 $ 0.71 $ 0.38 Diluted net income $ 1.56 $ 1.42 $ 0.71 $ 0.38 Cash dividends paid $ 1.35 $ 1.35 $ 0.45 $ 0.45 Average shares outstanding for computation of earnings per share (thousands) Basic 532,534 529,433 543,671 525,836 Diluted 535,208 548,575 546,343 526,382 See accompanying notes to consolidated financial statements. - 1 -

TEXACO INC. CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 ---------------------------------------------- (Millions of dollars) September 30, December 31, 1999 1998 ------------- ----------- (Unaudited) ----------- ASSETS Current Assets Cash and cash equivalents $ 193 $ 249 Short-term investments - at fair value 26 22 Accounts and notes receivable, less allowance for doubtful accounts of $27 million in 1999 and $28 million in 1998 4,150 3,955 Inventories 1,380 1,154 Deferred income taxes and other current assets 224 256 ------- ------- Total current assets 5,973 5,636 Investments and Advances 6,773 7,184 Properties, Plant and Equipment - at cost 35,870 35,494 Less - accumulated depreciation, depletion and amortization 20,875 20,733 ------- ------- Net properties, plant and equipment 14,995 14,761 Deferred Charges 1,037 989 ------- ------- Total $28,778 $28,570 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Short-term debt $ 665 $ 939 Accounts payable and accrued liabilities Trade liabilities 2,643 2,302 Accrued liabilities 1,003 1,368 Estimated income and other taxes 883 655 ------- ------- Total current liabilities 5,194 5,264 Long-Term Debt and Capital Lease Obligations 6,626 6,352 Deferred Income Taxes 1,556 1,644 Employee Retirement Benefits 1,251 1,248 Deferred Credits and Other Noncurrent Liabilities 1,480 1,550 Minority Interest in Subsidiary Companies 711 679 ------- ------- Total 16,818 16,737 Stockholders' Equity Market Auction Preferred Shares 300 300 ESOP Convertible Preferred Stock - 428 Unearned employee compensation and benefit plan trust (332) (334) Common stock (authorized: 700,000,000 shares, $3.125 par value; 567,576,504 shares issued in 1999; 567,606,290 shares issued in 1998) 1,774 1,774 Paid-in capital in excess of par value 1,304 1,640 Retained earnings 9,677 9,561 Other accumulated nonowner changes in equity Currency translation adjustment (97) (107) Minimum pension liability adjustment (24) (24) Unrealized net gain on investments 3 30 ------- ------- Total other accumulated nonowner changes in equity (118) (101) ------- ------- 12,605 13,268 Less - Common stock held in treasury, at cost 645 1,435 ------- ------- Total stockholders' equity 11,960 11,833 ------- ------- Total $28,778 $28,570 ======= ======= See accompanying notes to consolidated financial statements. -2-

TEXACO INC. CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 ----------------------------------------------------- (Millions of dollars) (Unaudited) ------------------- For the nine months ended September 30, ------------------- 1999 1998 ---- ---- OPERATING ACTIVITIES Net income $ 859 $ 791 Reconciliation to net cash provided by (used in) operating activities Cumulative effect of accounting change - 25 Depreciation, depletion and amortization 1,082 1,172 Deferred income taxes 3 (36) Exploratory expenses 282 324 Minority interest in net income 62 43 Dividends from affiliates, greater (less) than equity in income 25 (30) Gains on asset sales (70) (61) Changes in working capital (290) (164) Other - net (66) 14 ------ ------ Net cash provided by operating activities 1,887 2,078 INVESTING ACTIVITIES Capital and exploratory expenditures (1,729) (2,226) Proceeds from asset sales 306 130 Purchases of investment instruments (406) (809) Sales/maturities of investment instruments 685 806 Collection of note/formation payments from U.S. affiliate 101 612 Other - net (23) 25 ------ ------ Net cash used in investing activities (1,066) (1,462) FINANCING ACTIVITIES Borrowings having original terms in excess of three months Proceeds 2,086 1,028 Repayments (763) (493) Net increase (decrease) in other borrowings (1,395) 166 Purchases of common stock - (579) Dividends paid to the company's stockholders Common (719) (716) Preferred (26) (31) Dividends paid to minority stockholders (31) (45) ------ ------ Net cash used in financing activities (848) (670) CASH AND CASH EQUIVALENTS Effect of exchange rate changes (29) (7) ------ ------ Decrease during period (56) (61) Beginning of year 249 311 ------ ------ End of period $ 193 $ 250 ======= ======= See accompanying notes to consolidated financial statements. -3-

TEXACO INC. CONDENSED STATEMENT OF CONSOLIDATED NONOWNER CHANGES IN EQUITY FOR THE NINE AND THRE MONTHS ENDED SEPTEMBER 30,1999 AND 1998 ------------------------------------------------------------- (Millions of dollars) (Unaudited) ------------------------------------------------ For the nine months For the three months ended September 30, ended September 30, ------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net income $ 859 $ 791 $ 387 $ 215 Other nonowner changes in equity (net of tax) Currency translation adjustment 10 (2) 10 - Minimum pension liability adjustment - 2 - - Unrealized net gain (loss) on investments (27) 2 (5) (5) ------- ------- ------- -------- (17) 2 5 (5) ------- ------- ------- -------- Total nonowner changes in equity $ 842 $ 793 $ 392 $ 210 ======= ======= ======= ======== TEXACO INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Segment Information - --------------------------- For the nine months ended September 30, ------------------------------------------------------------------------------- 1999 1998 -------------------------------------- ------------------------------------- Sales and Services Sales and Services ------------------ After ------------------ After Inter- Tax Inter- Tax Outside Segment Total Profit (Loss) Outside Segment Total Profit (Loss) ------- ------- ----- ------------- ------- ------- ----- ------------- (Millions of dollars) (Unaudited) Exploration and production United States $ 1,434 $1,100 $ 2,534 $ 444 $ 1,330 $1,293 $ 2,623 $ 301 International 1,770 605 2,375 189 1,518 467 1,985 166 Refining, marketing and distribution United States 2,461 12 2,473 204 1,982 100 2,082 233 International 15,761 137 15,898 377 14,700 74 14,774 414 3,068 82 3,150 13 3,555 68 3,623 (9) Global gas and power ------- ------ ------- ------ ------- ------ ------- ------ Segment totals $24,494 $1,936 26,430 1,227 $23,085 $2,002 25,087 1,105 ======= ====== ======= ====== Other business units 27 (3) 73 (1) Corporate/Non-operating 5 (365) 3 (288) Intersegment eliminations (1,960) -- (2,031) -- Consolidated, before ------- ------ ------- ------ cumulative effect of accounting change $24,502 $ 859 $23,132 $ 816 ======= ====== ======= ====== - 4 -

For the three months ended September 30, ------------------------------------------------------------------------------- 1999 1998 -------------------------------------- ------------------------------------- Sales and Services Sales and Services ------------------ After ------------------ After Inter- Tax Inter- Tax Outside Segment Total Profit (Loss) Outside Segment Total Profit (Loss) ------- ------- ----- ------------- ------- ------- ----- ------------- (Millions of dollars) (Unaudited) Exploration and production United States $ 608 $434 $ 1,042 $258 $ 404 $388 $ 792 $ 93 International 748 307 1,055 129 491 170 661 53 Refining, marketing and distribution United States 1,021 5 1,026 118 624 22 646 124 International 5,905 63 5,968 6 4,817 48 4,865 38 Global gas and power 1,189 35 1,224 6 1,125 24 1,149 (8) ------ ---- ------ --- ------ ---- ----- --- Segment totals $9,471 $844 10,315 517 $7,461 $652 8,113 300 ====== ==== ====== ==== Other business units 7 (1) 29 (1) Corporate/Non-operating 1 (129) 1 (84) Intersegment eliminations (851) -- (662) -- ------- ---- ------ ---- Consolidated $ 9,472 $387 $7,481 $215 ======= ==== ====== ==== Assets as of ---------------------------------------------- September 30, December 31, 1999 1998 ------------- ------------ (Unaudited) (Millions of dollars) Exploration and production United States $ 8,871 $ 8,699 International 4,600 4,349 Refining, marketing and distribution United States 3,780 4,095 International 8,829 8,210 Global gas and power 1,314 1,088 ------- ------- Segment totals 27,394 26,441 Other business units 388 384 Corporate/Non-operating 1,264 1,945 Intersegment eliminations (268) (200) ------- ------- Consolidated $28,778 $28,570 ======= ======= During the third quarter of 1999, responsibility for the global gas marketing segment and our 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. - 5 -

Note 2. Inventories - ------------------- The inventory accounts of Texaco are presented below (in millions of dollars): As of -------------------------------------- September 30, December 31, 1999 1998 ------------- ------------ (Unaudited) Crude oil $ 260 $ 116 Petroleum products and petrochemicals 887 799 Other merchandise 46 40 Materials and supplies 187 199 ------ ------ Total $1,380 $1,154 ====== ====== Note 3. Redemption of Series B and Series F ESOP Convertible Preferred Stock - ---------------------------------------------------------------------------- On June 30, 1999, after having called the Series B ESOP Convertible Preferred Stock for redemption, each share of Series B was converted into 25.736 shares, or 15.1 million shares in total, of Common Stock of Texaco Inc. On February 16, 1999, after having called the Series F ESOP Convertible Preferred Stock for redemption, each share of Series F was converted into 20 shares, or 1.1 million shares in total, of Common Stock of Texaco Inc. These noncash financing activities for the first nine months of 1999 resulted in reductions of $391 million in preferred stock outstanding and $308 million in paid-in capital. This was offset by a $699 million reduction in the cost of shares held in treasury. Note 4. Other Financial Information, Commitments and Contingencies - ------------------------------------------------------------------ Information relative to commitments and contingent liabilities of Texaco is presented in Note 16, pages 67 and 68, of our 1998 Annual Report and in Note 4, pages 5 and 6, of our first quarter, 1999 Form 10-Q. It is impossible for us to ascertain the ultimate legal and financial liability with respect to contingencies and commitments. However, we do not anticipate that the aggregate amount of such liability in excess of accrued liabilities will be materially important in relation to our consolidated financial position or results of operations. Note 5. Investments in Significant Equity Affiliates - ---------------------------------------------------- U.S. Downstream Alliances Summarized unaudited financial information for Equilon, formed January 1, 1998 and jointly owned 44% by Texaco and 56% by Shell Oil Company, is presented below on a 100% Equilon basis (in millions of dollars): For the nine months For the three months ended September 30, ended September 30, ----------------------- ---------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Gross revenues $19,955 $18,195 $8,501 $6,100 Income before income taxes $ 378 $ 542 $ 330 $ 232 - 6 - Summarized unaudited financial information for Motiva, formed July 1, 1998 and jointly owned 32.5% each by Texaco and Saudi Refining, Inc. (a corporate affiliate of Saudi Aramco) and 35% by Shell Oil Company, is presented below on a 100% Motiva basis (in millions of dollars): For the three For the nine months ended September 30, months ended -------------------------- September 30, 1999 1999 1998 ------------------ ---- ---- Gross revenues $8,432 $3,416 $2,877 Income before income taxes $ 65 $ 45 $ 59 We account for our interests in Equilon and Motiva using the equity method of accounting. Under this method, we record our share of Equilon's and Motiva's results of operations on a one-line basis to Equity in Income of Affiliates in the Statement of Consolidated Income. Additionally, since Equilon and Motiva are limited liability companies, we record the provision and related liability for income taxes applicable to our share of Equilon's and Motiva's pre-tax income in our consolidated financial statements. Caltex Group of Companies Summarized unaudited financial information for the Caltex Group of Companies, owned 50% by Texaco and 50% by Chevron Corporation, is presented below on a 100% Caltex Group basis (in millions of dollars): For the nine months For the three months ended September 30, ended September 30, ------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Gross revenues $15,617 $12,407 $6,951 $3,852 Income before income taxes and cumulative effect of accounting change $ 666 $ 606 $ 148 $ 16 Income (loss) before cumulative effect of accounting change $ 378 $ 369 $ 35 $ (58) Net income (loss) $ 378 $ 319 $ 35 $ (58) Effective January 1, 1998, Caltex adopted a new accounting standard, Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," issued by the American Institute of Certified Public Accountants. This resulted in a change in accounting for start-up costs at Caltex' Thailand refinery. Caltex' first quarter 1998 results included a $50 million charge (no tax benefit) associated with this accounting change. On September 22, 1999, Caltex sold 97.2% of its 50% equity interest (70.6 million shares) in Koa Oil Co. Ltd. to Nippon Mitsubishi Oil Corporation in response to their public tender offer. In late October 1999, Caltex sold its remaining 1,977,000 shares of Koa to Mitsubishi Corporation in a private transaction. Caltex recorded a loss of $63 million in the third quarter of 1999, resulting from the U.S. tax consequences of the sale. * * * * * * * * * * * We have consistently applied the accounting policies we used in preparing the financial statements we issued in our 1998 Annual Report to our unaudited financial statements for the nine and three month periods ended September 30, 1999 and 1998. In our opinion, we have made all adjustments and disclosures necessary to present fairly our results of operations for such periods. These adjustments include normal recurring adjustments. The information is subject to year-end audit by independent public accountants. We make no forecasts or representations with respect to the level of net income for the year 1999. * * * * * * * * * * * - 7 -

SUPPLEMENTAL MARKET RISK DISCLOSURES We are exposed to the following types of market risks: o The price of crude oil, natural gas and petroleum products o The value of foreign currencies in relation to the U.S. dollar o Interest rates We use derivative financial instruments, such as futures, forwards, options and swaps, in managing these risks. There were no material changes during the first nine months of 1999 in our exposure to losses from possible future changes in the price of crude oil, natural gas and petroleum products, or from possible future changes in the value of foreign currencies in relation to the U. S. dollar. The Liquidity and Capital Resources section of the MD&A appearing on page 15 of this Form 10-Q describes financing and related hedging transactions we entered into during the first nine months of 1999. As a result of those transactions, our variable rate debt, before the effects of interest rate swaps, now totals $2.1 billion, as compared with $2.7 billion at year-end 1998. The notional amount of interest rate swaps increased $850 million and now totals $1.6 billion. Based on our present interest rate exposure on variable rate debt and interest rate swaps, a hypothetical increase or decrease in interest rates of 200 basis points would not materially affect our consolidated financial position, net income or cash flows. - 8 -

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- RESULTS OF OPERATIONS - --------------------- The following table provides a summary of Texaco's net income and income before special items for the third quarter and first nine months of 1999 and 1998: For the nine months For the three months ended September 30, ended September 30, ------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Millions of dollars, except per share amounts) (Unaudited) Income before special items $ 844 $ 802 $ 453 $ 208 Per share $1.53 $1.44 $0.83 $0.37 Net income $ 859 $ 791 $ 387 $ 215 Per share $1.56 $1.42 $0.71 $0.38 Boosted by significantly higher crude oil and natural gas prices, our 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, 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. Looking ahead, our recent acquisition of a 45 percent interest in the Malampaya Deep Water Natural Gas Project in the Philippines exemplifies our strategy of pursuing projects that will 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 Caltex' sale of its interest in Koa Oil Co. Ltd. and the anticipated sales by Equilon of its Wood River and El Dorado refineries. Results for 1999 and 1998 are summarized in the table on the following page. Details on special items are included in the segment analysis which follows this table. The following discussion of operating earnings is presented on an after-tax basis. - 9 -

For the nine months For the three months ended September 30, ended September 30, ------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Millions of dollars) (Unaudited) Income before special items $ 844 $ 802 $ 453 $ 208 ------- ------- ------ ---- Inventory valuation adjustments 152 - 14 - Write-down of assets (76) - - - Tax issues 65 44 - 25 Gains (losses) on major asset sales (59) 20 (80) - Reorganization, restructuring and employee separation costs (67) (50) - (18) ------- ------- ------ ---- Special items 15 14 (66) 7 ------- ------- ------ ---- Adoption of new accounting standard Cumulative effect of accounting change - (25) - - ------- ------- ------ ---- Net income $ 859 $ 791 $ 387 $215 ======= ======= ====== ==== Effective January 1, 1998, our affiliate, Caltex, adopted a new accounting standard, Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," issued by the American Institute of Certified Public Accountants. This resulted in a change in accounting for start-up costs at its Thailand refinery. Our first quarter 1998 results included a $25 million charge associated with this accounting change. OPERATING RESULTS EXPLORATION AND PRODUCTION United States Exploration and production earnings in the U.S. for the third quarter of 1999 were $258 million, as compared with $93 million for the third quarter of 1998. For the first nine months of 1999 and 1998, earnings were $444 million and $301 million. Results for 1999 included a second quarter special gain of $21 million from the sale of our interest in six California onshore and offshore fields, and a special charge of $11 million for employee separation costs. See the section entitled, Reorganizations, Restructurings and Employee Severance Programs beginning on page 15 of this Form 10-Q for additional information. Results for 1999 also included a first quarter special benefit of $11 million for a production tax refund. Excluding these special items, results for the first nine months of 1999 totaled $423 million. 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 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. - 10 -

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. International Exploration and production earnings outside the U.S. for the third quarter of 1999 were $129 million, as compared with $53 million for the third quarter of 1998. For the first nine months of 1999 and 1998, earnings were $189 million and $166 million. Results for 1999 included a second quarter special charge of $2 million for employee separation costs. See the section entitled, Reorganizations, Restructurings and Employee Severance Programs beginning on page 15 of this Form 10-Q for additional information. Excluding the special charge, results for the first nine months of 1999 totaled $191 million. 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 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. Looking Forward in the Worldwide Upstream We intend to continue to cost-effectively explore for, develop and produce crude oil and natural gas reserves. In an effort to boost long-term upstream profitability, we are planning to sell producing properties that no longer fit our business strategy. Specifically, we plan to sell selected producing assets totaling about 100,000 barrels per day in the United States, offshore Trinidad and in the North Sea. As a result, we now anticipate that worldwide production will increase by one-to-two percent annually over the next three-to-five years. Our growth areas of focus include the U.S. Gulf of Mexico, Kazakhstan, Brazil, Venezuela and West Africa. Earlier this year, we announced two major oil discoveries offshore Nigeria. We recently signed an agreement to acquire a 45 percent interest in the Malampaya Deep Water Natural Gas Project in the Philippines. Malampaya is on schedule to deliver first gas by the end of 2001, and is expected to achieve gas production rates of 360 million cubic feet per day by the year 2002. We expect at year-end 1999 this project will add 140 million barrels of oil equivalent to our proved reserve base and increase our international gas reserves by 30 percent. Our expense reduction program is also showing success. We are well on our way to capturing the expected $200 million in annual pre-tax cash expense savings from our worldwide upstream restructuring program announced in November, 1998. The program is designed to place greater emphasis on our long-term production and reserve growth, and to address the need for streamlining costs and improving competitiveness. These savings include lower people-related and operating expenses. - 11 -

REFINING, MARKETING AND DISTRIBUTION United States We conduct our U.S. downstream activities primarily through Equilon, our western alliance with Shell Oil Company, and Motiva, our eastern alliance with Shell Oil Company and Saudi Refining, Inc. Our share of refining, marketing and distribution earnings in the U.S. for the third quarter of 1999 was $118 million, as compared with $124 million for the third quarter of 1998. For the first nine months of 1999 and 1998, earnings were $204 million and $233 million. Results for 1999 included second quarter special charges of $76 million for the write-down of assets to their estimated sales values due to the pending sales by Equilon of its El Dorado and Wood River refineries and $11 million for alliance reorganization, restructuring and employee separation costs. Results for 1999 also included a first quarter special benefit of $8 million due to higher inventory values on March 31, 1999. This follows a fourth-quarter 1998 charge of $34 million to reflect lower prices on December 31, 1998 for inventories of crude oil and refined products. We value inventories at the lower of cost or market, after initial recording at cost. Inventory valuation adjustments are reversed when the associated physical units of inventory are sold. Excluding these special items, results for the first nine months of 1999 were $283 million. Results for the third quarter of 1998 included a net special gain of $25 million for U.S. alliance formation issues. This included gains of $73 million for the Federal Trade Commission-mandated sales of the Anacortes refinery and Plantation pipeline. Also included were charges of $9 million for alliance employee separation costs and $39 million for asset write-downs of closed facilities and surplus equipment to their net realizable values. These facilities included a refinery in Texas, research labs located in Texas and New York and a lube plant in Virginia. Results for 1998 also included a second quarter special charge of $32 million, mainly for alliance employee separation costs. Excluding these special items, results for the third quarter and first nine months of 1998 were $99 million and $240 million. U.S. refining, marketing and distribution earnings before special items were higher than last year for the third quarter and nine months 1999. During these periods, 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 first nine months of 1999 also benefited from the realization of synergies for Equilon and Motiva, including re-engineering of work processes, leveraging economies of scale to reduce supply costs, sharing best practices and capitalizing on logistical and trading opportunities including higher utilization of proprietary pipelines and other assets.

- 12 - International Refining, marketing and distribution earnings outside the U.S. for the third quarter of 1999 were $6 million, as compared with $38 million for the third quarter of 1998. For the first nine months of 1999 and 1998, earnings were $377 million and $414 million. Results for each of the first three quarters of 1999 included special benefits of $75 million, $55 million and $14 million, respectively, to reflect higher prices for crude oil and refined products. This follows a fourth-quarter 1998 special charge of $108 million to reflect lower prices on December 31, 1998, as well as additional charges previously recorded. We value inventories at the lower of cost or market, after initial recording at cost. Inventory valuation adjustments are reversed when the associated physical units of inventory are sold. Results for the third quarter of 1999 also included special charges of $32 million for our 50 percent share of Caltex' loss on the sale of its equity interest in Koa Oil Co. Ltd. and $48 million for related deferred currency translation amounts. Additionally, our results for the second quarter of 1999 included a Korean tax benefit of $54 million, as well as a $25 million charge for our share of Caltex' restructuring charges and $9 million for employee separation costs in Europe and Latin America. See the section entitled, Reorganizations, Restructurings and Employee Severance Programs beginning on page 15 of this Form 10-Q for additional information. Excluding these special items, results for the third quarter and first nine months of 1999 were $72 million and $293 million. Our results for 1998 included a third quarter net special charge of $43 million for a reorganization program in Caltex. This charge results from their decision to structure their organization along functional lines and to reduce costs by establishing a shared service center in the Philippines. In implementing this change, Caltex relocated its headquarters from Dallas to Singapore. About $35 million of the charge relates to severance and other retirement benefits for about 200 employees who have not relocated, write-downs of surplus furniture and equipment and other costs. The balance of the charge is for severance costs in other affected areas and amounts spent in relocating employees to the new shared service center. Excluding this special charge, results for the third quarter and first nine months of 1998 were $81 million and $457 million. 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. Looking Forward in the Worldwide Downstream Our U.S. joint ventures with Shell and Saudi Refining, Inc. should continue to achieve lower costs and capture synergies. We expect that our share of these annual pre-tax cost reductions will be over $300 million, and we are well on our way to capturing these savings. These savings include lower people-related expenses and reductions in cash operating expenses due to efficiencies. We have already captured about $35 million in annual pre-tax cost savings from our international downstream operations' announced restructuring, representing lower people-related expenses. In addition, we have already realized our share of the previously-announced $25 million of annual pre-tax cost savings from the Caltex reorganization. These savings represent lower people-related expenses. We now anticipate that we will capture by the end of this year an additional $10 million in annual pre-tax cost savings from the Caltex reorganization. We are also well on our way to capturing $25 million in annual pre-tax cost reductions from our worldwide Fuel and Marine Marketing joint venture with Chevron, representing our share of reductions in cash operating expenses due to efficiencies. - 13 -

GLOBAL GAS AND POWER During the third quarter of 1999, responsibility for the global gas marketing segment and our 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. Global gas and power earnings for the third quarter of 1999 were $6 million, as compared with a loss of $8 million for the third quarter of 1998. Earnings for the first nine months of 1999 were $13 million, as compared with a loss of $9 million for the comparable period of 1998. Results for 1999 included a second quarter special charge of $3 million for employee separation costs. See the section entitled, Reorganizations, Restructurings and Employee Severance Programs beginning on page 15 of this Form 10-Q for additional information. Excluding this special charge, results for the first nine months of 1999 were $16 million. Results for 1998 included a second quarter special gain of $20 million from the sale of a partial interest in a pipeline. Excluding this special gain, results for the first nine months of 1998 were a loss of $29 million. Gas marketing operating results for the third quarter and first nine months of 1999 benefited from the continued improvement of natural gas margins. Results for the first 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 first nine months of 1999 reflected lower margins from Indonesian geothermal activities, due to higher costs and lower revenues caused by the currency devaluation, non-recurring recoupment of development costs in 1998 and lower gasification licensing revenues. We have already captured the previously-announced $20 million in annual pre-tax cost savings from the global gas marketing restructuring announced in November 1998. We now anticipate that we will capture by the end of this year an additional $10 million in annual pre-tax cost savings. These savings include lower people-related expenses and benefits from our exiting the United Kingdom gas marketing business. OTHER BUSINESS UNITS Results for both the third quarter of 1999 and 1998 were losses of $1 million. Results for the first nine months of 1999 were a loss of $3 million, as compared with a loss of $1 million for the comparable period in 1998. Other business units include our insurance activity. CORPORATE/NON-OPERATING Corporate/Non-operating charges for the third quarter of 1999 were $129 million, as compared with charges of $84 million for the third quarter of 1998. For the first nine months of 1999 and 1998, charges were $365 million and $288 million. Results for 1999 included a second quarter special charge of $6 million for employee separation costs. See the section entitled, Reorganizations, Restructurings and Employee Severance Programs beginning on page 15 of this Form 10-Q for additional information. Excluding this special charge, charges for the first nine months of 1999 were $359 million. Results for 1998 included a third quarter special benefit of $25 million to adjust for prior years' federal tax liabilities and a second quarter special tax benefit of $19 million attributable to the sale of an interest in a subsidiary. Excluding these special gains, charges for the third quarter and first nine months of 1998 were $109 million and $332 million. Corporate/Non-operating results for the third quarter and first 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. - 14 -

We are well on our way to capturing the expected $60 million in annual pre-tax cost savings as a result of the fourth quarter 1998 corporate center reorganization and other cost-cutting initiatives, mainly lower operating expenses and people-related expenses. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Our cash, cash equivalents and short-term investments were $219 million at September 30, 1999, as compared with $271 million at year-end 1998. During 1999, our operations provided cash of $1,887 million. We also had cash inflows of $306 million from asset sales and $279 million from net sales of investment instruments. Early collection of a note receivable from our affiliate Equilon provided another $101 million. We spent $1,729 million on our capital and exploratory program and paid $776 million in common, preferred and minority interest dividends. At September 30, 1999, our ratio of total debt to total borrowed and invested capital was 36.5%, as compared with 36.8% at year-end 1998. At September 30, 1999, our long-term debt included $2.05 billion of debt scheduled to mature within one year, which we have both the intent and ability to refinance on a long-term basis. During the first nine months of 1999, we reduced our commercial paper by $1,158 million, to $458 million at September 30, 1999. We issued $1,268 million under our medium-term note program and borrowed $400 million due 2009. In addition, we reduced other debt obligations by $582 million. During the first nine months of 1999, we entered into $850 million of floating rate pay interest rate swaps. All floating rate swaps entered into during 1999 are indexed to LIBOR. We maintain $2.05 billion in revolving credit facilities, which were unused at September 30, 1999, to provide additional support for liquidity and our commercial paper program. During the third quarter of 1999, we established a new "shelf" registration for $1.5 billion of combined debt and equity securities, bringing our total capacity under this program to $1.975 billion. We consider our financial position to be sufficiently strong to meet our anticipated future financial requirements. REORGANIZATIONS, RESTRUCTURINGS AND EMPLOYEE SEVERANCE PROGRAMS - --------------------------------------------------------------- In the fourth quarter of 1998, we announced that we were reorganizing several of our operations and implementing other cost-cutting initiatives. The principal units affected were our worldwide upstream operations; our international downstream operations, principally our marketing operations in the United Kingdom and Brazil and our refining operations in Panama; our global gas marketing operations, now included as part of our global gas and power operating segment; and our corporate center. The reorganizations were substantially completed by the end of the first quarter of 1999. We accrued $115 million ($80 million, net of tax) for employee separations, curtailment costs and special termination benefits associated with these announced restructurings in the fourth quarter of 1998. During the second quarter of 1999, we expanded the employee severance programs and recorded an additional provision of $48 million ($31 million, net of tax). For the most part, severance accruals are shown as operating expenses in the Statement of Consolidated Income. The table on the following page, which identifies each of our four restructuring initiatives, provides the provision recorded in the fourth quarter of 1998 and the additional provision recorded in the second quarter of 1999, along with the payments made through September 30, 1999 and the remaining obligations as of September 30, 1999. We will pay the remaining obligations in future periods in accordance with plan provisions. - 15 -

Provision Recorded in the ------------------------- Payments Remaining Fourth Quarter, Second Quarter, Made Through Obligations as of 1998 1999 September 30, 1999 September 30, 1999 --------------- --------------- ------------------ ------------------ (Millions of dollars) Worldwide upstream $ 56 $20 $(50) $26 International downstream 25 13 (22) 16 Global gas and power 5 4 (5) 4 Corporate center 29 11 (19) 21 ---- --- ---- --- Total $115 $48 $(96) $67 ==== === ==== === At the time we initially announced these programs, we estimated that over 1,400 employee reductions would result. Employee reductions of 800 in our worldwide upstream operations, 300 in our international downstream areas, 100 in our global gas and power operations and 200 in our corporate center were expected. During the second quarter of 1999, we expanded the program by almost 1,100 employees, comprised of 600 employees in our worldwide upstream operations, 250 employees in our international downstream areas, 100 employees in our global gas and power operations and 150 employees in our corporate center. Through September 30, 1999, employee reductions totaled 1,334 in our worldwide upstream operations, 426 in our international downstream areas, 163 in our global gas and power operations and 398 in our corporate center. Almost all of the remaining reductions, representing about 6% of the total reductions, will occur prior to the end of this year. CAPITAL AND EXPLORATORY EXPENDITURES - ------------------------------------ Capital and exploratory expenditures were $2,176 million for the first nine months of 1999, compared with $2,769 million for the same period in 1998. In our 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 our downstream, spending declines reflected 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. NEW ACCOUNTING STANDARDS - ------------------------ In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes new accounting rules and disclosure requirements for most derivative instruments and hedge transactions. In July 1999, the FASB issued SFAS 137, which deferred the effective date of SFAS 133. We will adopt SFAS 133 effective January 1, 2001 and are currently assessing the initial effects of adoption. - 16 -

EURO CONVERSION - --------------- On January 1, 1999, 11 of the 15 member countries of the European Union established fixed conversion rates between their existing legacy currencies and one common currency--the euro. The euro began trading on world currency exchanges and may be used in business transactions. On January 1, 2002, new euro-denominated bills and coins will be issued, and legacy currencies will be completely withdrawn from circulation by June 30 of that year. Prior to introduction of the euro, our operating subsidiaries affected by the euro conversion completed computer systems upgrades and fiscal and legal due diligence to ensure our euro readiness. Computer systems have been adapted to ensure that all our operating subsidiaries have the capability to comply with necessary business requirements and customer/supplier preferences. Legal due diligence was conducted to ensure post-euro continuity of contracts, and fiscal reviews were completed to ensure compatibility with our banking relationships. We, therefore, experienced no major impact to our current business operations. We continue to review our marketing and operational policies and procedures to ensure our ability to continue to successfully conduct all aspects of our business in this new, price-transparent market. We believe that the euro conversion will not have a material adverse impact on our financial condition or results of operations. YEAR 2000 - --------- On pages 39 and 40 of our 1998 Annual Report, we discussed our state of readiness and our costs, risks and contingency plans for dealing with potential Year 2000 (Y2K) date change problems. We reported that approximately 95% of the computers and computer software involved in corporate financial applications, and about 5% of our industrial automation systems used in refineries, lubricant and gas plants and oil well operations needed modification or upgrade. Since that time, we have not identified any additional material Y2K risks. We continue to believe that the worst case scenario we described in our 1998 Annual Report is not likely to occur. However, if it occurs, Y2K failures, if not corrected on a timely basis or otherwise mitigated by our contingency plans, could have a material adverse effect on our results of operations, liquidity and overall financial condition. We identified over 45,000 systems for assessment of potential Y2K issues. These were categorized as: Applications, Telecommunications, Computer Systems or Embedded Systems (Industrial Automation). We assessed each system and prioritized them as Critical, Essential or Important. Critical systems are those related to safety, health and environment, including monitoring and regulatory reporting systems. Essential systems are those required to accomplish business objectives. Important systems are those used in a support role and are not required for day-to-day operations. As of the end of the third quarter of 1999, we completed modifying or upgrading all of our Critical and Essential systems that required such work, with the exception of one Essential system. In October, we successfully implemented a workaround for this one system. We completed our review of our critical suppliers and customers and developed contingency plans. If we were not satisfied that these critical suppliers and customers will be able to operate in 2000, we have established alternatives and/or developed contingency plans. As part of our contingency planning, we have completed evaluating the business resumption plans of all our business units for any Y2K issues, and we have completed end-of-year rollover plans. During the fourth quarter, we will be coordinating tests of our Early Alert System, which we will use for monitoring the Y2K status of our key facilities around the world. We will be testing our procedures to manage both the information flows and our responses to different situations. - 17 -

During the third quarter of 1999, we spent $6 million in readying our systems for Y2K, bringing our total spent through September 30, 1999 to $55 million. We estimate that we will spend an additional $10 million on Y2K-related activities. The majority of these future expenditures will be incurred during the fourth quarter, with some expenditures in 2000. FORWARD-LOOKING STATEMENTS - -------------------------- Portions of the foregoing discussion of RESULTS OF OPERATIONS; REORGANIZATIONS, RESTRUCTURINGS AND EMPLOYEE SEVERANCE PROGRAMS; EURO CONVERSION; and, YEAR 2000 contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on our current expectations, estimates and projections. Therefore, they could ultimately prove to be inaccurate. Factors which could affect our expectations for worldwide crude oil production, upstream earnings and downstream margins in 1999 are changes in business conditions, such as energy prices, world economic conditions, demand growth and inventory levels. The extent and timing of our anticipated cost savings and reorganization programs will depend upon worldwide and industry economic conditions. Factors that could alter the financial impact of our euro conversion include: changes in current governmental regulations and interpretations of such regulations; unanticipated implementation costs; and the effect of the euro conversion on product prices and margins. Factors that could affect our ability to be Year 2000 compliant by the end of 1999 include: the failure of our customers, suppliers, governmental entities and others to achieve compliance and the inaccuracy of certifications received from them; our inability to identify and remediate every possible problem; and a shortage of necessary programmers, hardware and software. 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 and Factors That May Affect Our Business" in our 1998 Annual Report on Form 10-K. PART II - OTHER INFORMATION Item 1. Legal Proceedings - ------------------------- We have provided information about legal proceedings pending against Texaco in Note 4 to the Consolidated Financial Statements of this Form 10-Q, in Item 1 of our first and second quarter, 1999 Form 10-Qs and in Item 3 of our 1998 Annual Report on Form 10-K. Note 4 of this Form 10-Q, Item 1 of our first and second quarter 1999 Form 10-Qs and Item 3 of our 1998 Form 10-K are incorporated here by reference. The Securities and Exchange Commission ("SEC") requires us to report proceedings that were instituted or contemplated by governmental authorities against us under laws or regulations relating to the protection of the environment. None of these proceedings is material to our business or financial condition. Following is a brief description of notices of violation that we received and settled during the third quarter of 1999. o In August 1999, California's San Joaquin Valley Unified Air Pollution Control District ("SJVUAPCD") issued 13 notices of violation to Texaco California Inc. related to storage of organic material in tanks having a true vapor pressure in excess of 1.5 psia without vapor control. The agency has not made a penalty demand, but it is possible that the agency will seek penalties in excess of $100,000. o On August 30, 1999, Texaco Exploration and Production Inc. and Texaco California Inc. settled a series of notices of violation filed by the SJVUAPCD in 1997-1999. The notices alleged improper permitting and inadequate maintenance at facilities in California. Under the settlement, we paid a fine of $500,000, retired some emission reduction credits, and agreed to install vapor control equipment and implement an enhanced environmental management plan. - 18 -

Item 5. Other Information - ------------------------- For the nine months For the three months ended September 30, ended September 30, ------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Millions of dollars) (Unaudited) CAPITAL AND EXPLORATORY EXPENDITURES - ------------------------------------ Exploration and production United States $ 623 $1,142 $ 162 $ 328 International 865 812 304 276 ------ ------ ----- ------ Total 1,488 1,954 466 604 ------ ------ ----- ------ Refining, marketing and distribution United States 243 298 85 116 International 294 355 118 127 ------ ------ ----- ------ Total 537 653 203 243 ------ ------ ----- ------ Global gas and power 129 141 43 39 ------ ------ ----- ------ Total operating segments 2,154 2,748 712 886 Other business units 22 21 6 2 ------ ------ ----- ------ Total $2,176 $2,769 $ 718 $ 888 ====== ====== ===== ===== Exploratory expenses included above United States $ 104 $ 195 $ 12 $ 48 International 178 129 60 45 ------ ------ ----- ------ Total $ 282 $ 324 $ 72 $ 93 ====== ====== ===== ====== - 19 -

For the nine months For the three months ended September 30, ended September 30, ------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Unaudited) OPERATING DATA - -------------- Exploration and Production - -------------------------- United States - ------------- Net production of crude oil and natural gas liquids (000 BPD) 400 443 395 432 Net production of natural gas - available for sale (000 MCFPD) 1,460 1,694 1,416 1,641 ------ ------ ------ ------ Total net production (000 BOEPD) 643 726 631 706 Natural gas sales (000 MCFPD) 3,284 3,926 3,263 3,963 Average U.S. crude (per bbl) $12.81 $10.87 $16.65 $10.06 Average U.S. natural gas (per mcf) $ 2.09 $ 2.03 $ 2.44 $ 1.89 Average WTI (Spot) (per bbl) $17.58 $14.89 $21.71 $14.16 Average Kern (Spot) (per bbl) $11.49 $ 8.43 $15.38 $ 8.65 International - ------------- Net production of crude oil and natural gas liquids (000 BPD) Europe 142 157 152 163 Indonesia 156 159 141 168 Partitioned Neutral Zone 122 106 127 104 Other 65 66 60 59 ------ ------ ------ ------ Total 485 488 480 494 Net production of natural gas - available for sale (000 MCFPD) Europe 261 255 252 261 Colombia 158 185 161 165 Other 105 108 91 87 ------ ------ ------ ------ Total 524 548 504 513 ------ ------ ------ ------ Total net production (000 BOEPD) 573 579 564 580 Natural gas sales (000 MCFPD) 551 692 539 633 Average International crude (per bbl) $13.36 $11.55 $16.96 $11.05 Average International natural gas (per mcf) $ 1.36 $ 1.57 $ 1.35 $ 1.49 Average U.K. natural gas (per mcf) $ 2.37 $ 2.53 $ 2.34 $ 2.34 Average Colombia natural gas (per mcf) $ 0.64 $ 0.88 $ 0.67 $ 0.79 Worldwide - --------- Total worldwide net production (000 BOEPD) 1,216 1,305 1,195 1,286 - 20 -

Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------- (a) Exhibits -- 11) Computation of Earnings Per Share of Common Stock. -- (12) Computation of Ratio of Earnings to Fixed Charges of Texaco on a Total Enterprise Basis. -- (20) Copy of Texaco Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (including portions of Texaco Inc.'s Annual Report to Stockholders for the year 1998) and a copy of Texaco Inc.'s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1999 and June 30, 1999, as previously filed by the Registrant with the Securities and Exchange Commission, File No. 1-27. -- (27) Financial Data Schedule. (b) Reports on Form 8-K: During the third quarter of 1999, the Registrant filed Current Reports on Form 8-K for the following events: 1. July 26, 1999 Item 5. Other Events -- reported that Texaco issued an Earnings Press Release for the second quarter 1999. 2. August 3, 1999 Item 5. Other Events -- provided a description of an Officers' Certificate dated August 3, 1999 executed by Texaco Capital Inc., a wholly-owned subsidiary of the Registrant, which established the terms and provisions of a series of securities designated "Second Series 1999 Medium-Term Notes," for up to $2 billion. 3. September 27, 1999 Item 5. Other Events -- reported that Texaco's 50%-owned affiliate, Caltex Corporation, sold 97.2% of its 50% equity interest in Koa Oil Co. Ltd. to Nippon Mitsubishi Oil Corporation in response to their public tender offer. - 22 -

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, thereunto duly authorized. Texaco Inc. --------------------- (Registrant) By: G.J. Batavick --------------------- (Comptroller) By: R.E. Koch --------------------- (Assistant Secretary) Date: November 12, 1999 ----------------- - 23 -

EXHIBIT 11 TEXACO INC. COMPUTATION OF CONSOLIDATED EARNINGS PER SHARE OF COMMON STOCK FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 --------------------------------------------------------------- (Millions of dollars, except as noted) For the nine months For the three months ended September 30, ended September 30, ------------------- -------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Unaudited) Basic Earnings Per Common Share: Income before cumulative effect of accounting change less preferred stock dividend requirements $ 833 $ 776 $ 384 $ 202 ======= ======= ======= ======= Average shares outstanding (thousands) 532,534 529,433 543,671 525,836 ======= ======= ======= ======= Basic income before cumulative effect of accounting change per common share (dollars) $ 1.56 $ 1.47 $ 0.71 $ 0.38 ======= ======= ======= ======= Diluted Earnings Per Common Share: Income before cumulative effect of accounting change less preferred stock dividend requirements $ 833 $ 776 $ 384 $ 202 Adjustments, mainly ESOP preferred stock dividends in 1998 3 25 1 - ------- ------- ------- ------- Income before cumulative effect of accounting change for diluted earnings per share $ 836 $ 801 $ 385 $ 202 ======= ======= ======= ======= Average shares outstanding (thousands) 532,534 529,433 543,671 525,836 Adjustments, mainly ESOP preferred stock in 1998 2,674 19,142 2,672 546 ------- ------- ------- ------- Shares outstanding for diluted computation (thousands) 535,208 548,575 546,343 526,382 ======= ======= ======= ======= Diluted income before cumulative effect of accounting change per common share (dollars) $ 1.56 $ 1.46 $ 0.71 $ 0.38 ======= ======= ======= =======

EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES OF TEXACO ON A TOTAL ENTERPRISE BASIS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND FOR EACH OF THE FIVE YEARS ENDED DECEMBER 31, 1998 -------------------------------------------------- (Millions of dollars) Years Ended December 31, For the Nine ------------------------ Months Ended September 30, 1999 1998 1997 1996 1995 1994 ------------------ ---- ---- ---- ---- ---- Income from continuing operations, before provision or benefit for income taxes and cumulative effect of accounting changes effective 1-1-98 and 1-1-95............................. $1,488 $ 892 $3,514 $3,450 $1,201 $1,409 Dividends from less than 50% owned companies more or (less) than equity in net income................ 70 -- (11) (4) 1 (1) Minority interest in net income............................ 62 56 68 72 54 44 Previously capitalized interest charged to income during the period................................ 11 22 25 27 33 29 ------ ------ ------ ------ ------ ------ Total earnings..................................... 1,631 970 3,596 3,545 1,289 1,481 ------ ------ ------ ------ ------ ------ Fixed charges Items charged to income: Interest charges...................................... 432 664 528 551 614 594 Interest factor attributable to operating lease rentals.................................... 66 120 112 129 110 118 Preferred stock dividends of subsidiaries guaranteed by Texaco Inc......................... 31 33 33 35 36 31 ------ ------ ------ ------ ------ ------ Total items charged to income...................... 529 817 673 715 760 743 Interest capitalized.................................... 21 26 27 16 28 21 Interest on ESOP debt guaranteed by Texaco Inc.......... - 3 7 10 14 14 ------ ------ ------ ------ ------ ------ Total fixed charges................................ 550 846 707 741 802 778 ------ ------ ------ ------ ------ ------ Earnings available for payment of fixed charges............ $2,160 $1,787 $4,269 $4,260 $2,049 $2,224 (Total earnings + Total items charged to income) ====== ====== ====== ====== ====== ====== Ratio of earnings to fixed charges of Texaco on a total enterprise basis............................. 3.93 2.11 6.04 5.75 2.55 2.86 ====== ====== ====== ====== ====== ======

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TEXACO INC.'S 1999 QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS SEP-30-1999 JAN-1-1999 SEP-30-1999 193 26 4,177 27 1,380 5,973 35,870 20,875 28,778 5,194 6,626 0 263 2,138 9,559 28,778 24,502 25,136 19,254 20,907 2,508 0 369 1,352 493 859 0 0 0 859 1.56

1.56 EPS-PRIMARY REPRESENTS BASIC EARNINGS PER SHARE IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING STANDARD 128.