CONOCO INC /DE, S-1, 1999-10-07

CONOCO INC /DE
S-1, 1999-10-07
PETROLEUM REFINING

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1999
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

CONOCO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C> <C>
DELAWARE 2911 51-0370352
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

600 NORTH DAIRY ASHFORD
HOUSTON, TEXAS 77079
TEL: (281) 293-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RICK A. HARRINGTON, ESQ.
SENIOR VICE PRESIDENT, LEGAL, AND
GENERAL COUNSEL
CONOCO INC.
600 NORTH DAIRY ASHFORD
HOUSTON, TEXAS 77079
TEL: (281) 293-1000
FAX: (281) 293-1440
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:

WALTER J. SMITH, ESQ.
BAKER & BOTTS, L.L.P.
ONE SHELL PLAZA
910 LOUISIANA
HOUSTON, TEXAS 77002
TEL: (713) 229-1234
FAX: (713) 229-1522
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box: [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A common stock, $.01 par value per share... 500,000 $26.22 $13,110,000.00 $3,644.58
- -------------------------------------------------------------------------------------------------------------------------------
Class B common stock, $.01 par value per share... 1,500,000 $26.22 $39,330,000.00 $10,933.74
- -------------------------------------------------------------------------------------------------------------------------------
Total.......................................... 2,000,000 $26.22 $52,440,000.00 $14,578.32
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) of the Securities Act, based on the average of
the high and low sales prices for the Class A and the Class B common stock
reported on the New York Stock Exchange composite tape on October 5, 1999.
(2) Includes associated preferred share purchase rights, which currently are
attached to and trade with the shares of Class A and Class B common stock
registered hereby.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING UNDER SAID SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS DOCUMENT IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

Subject to Completion, dated October 7, 1999

Conoco Inc.'s Direct Stock Purchase
and Dividend Reinvestment Plan

CONOCO CONNECTION

Prospectus

Conoco Inc.

500,000 Class A Shares
1,500,000 Class B Shares

Common Stock, par value $.01 per share

[CONOCO LOGO]

Conoco Inc. is pleased to offer you the opportunity to participate in CONOCO
CONNECTION, a direct stock purchase and dividend reinvestment plan. Participants
in CONOCO CONNECTION may:

] Purchase shares without paying brokerage fees.

] Reinvest dividends and/or make additional cash purchases by check or automatic
deduction from their bank accounts.

] Transfer and sell shares easily.

] Own and transfer shares without holding stock certificates.

Conoco has appointed First Chicago Trust Company of New York, a division of
EquiServe, to administer CONOCO CONNECTION. All purchases of common stock will
be made by EquiServe at 100% of the then-current market price of the Class A or
Class B common stock, calculated as described in this Prospectus, either in the
open market or from Conoco.

The Class A common stock and the Class B common stock are listed on the New York
Stock Exchange under the symbols "COC.A" and "COC.B." On October 6, 1999, the
closing price of the Class A common stock as shown on the New York Stock
Exchange composite tape was $26 1/8 per share, and the closing price of the
Class B common stock as shown on the New York Stock Exchange composite tape was
$26 1/8 per share.

INVESTING IN CONOCO COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 26 OF THIS PROSPECTUS.

To the extent required by law in certain jurisdictions, shares offered through
CONOCO CONNECTION will be offered through a registered broker dealer to persons
not currently Conoco stockholders.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

NOVEMBER 1, 1999
<PAGE> 3

[CONOCO LOGO]

Conoco, Inc.
CONOCO CONNECTION

NOVEMBER 1, 1999

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C> <C>
Summary.................................. 4
CONOCO CONNECTION...................... 4
ABOUT CONOCO........................... 6
Recent Developments.................... 7
Summary Historical Financial Data of
Conoco.............................. 7
CONOCO CONNECTION...................... 10
1. What is CONOCO CONNECTION?...... 10
2. What options are available under
CONOCO CONNECTION?.............. 10
3. Who can join CONOCO
CONNECTION?..................... 10
4. How do I join CONOCO
CONNECTION?..................... 11
5. Can I enroll via the
Internet?....................... 12
6. Who administers CONOCO
CONNECTION? How do I contact
them?........................... 13
7. What are the dividend payment
options?........................ 14
8. How do I change my dividend
option?......................... 14
9. How can I stop reinvesting
dividends?...................... 15
Can my cash dividends be
10. deposited directly to my bank
account?........................ 15
How do I make additional cash
11. purchases of common stock?...... 16
I am currently a holder of Class
12. A common stock. How do I become
a holder of Class B common
stock?.......................... 17
I am currently a holder of Class
13. B common stock. How do I become
a holder of Class A common
stock?.......................... 17
How do I change or stop
14. automatic deductions?........... 17
How are shares purchased and
15. priced?......................... 17
Is there any limit on cash
16. purchases?...................... 18
How do I sell shares?........... 18
17.
</TABLE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C> <C>
Can I transfer my shares to
18. someone else?................... 19
What are the risks of
19. participating in CONOCO
CONNECTION?..................... 19
Are there fees associated with
20. participation?.................. 20
What reports will I receive?.... 21
21.
Will I receive stock
22. certificates for shares I
purchase through CONOCO
CONNECTION?..................... 21
How do I get a stock certificate
23. for the shares credited to my
account?........................ 21
Why should I deposit my stock
24. certificates with EquiServe? How
can I do this?.................. 21
What is the "book-entry"
25. procedure for holding and
transferring shares?............ 22
What are the tax consequences of
26. participating in CONOCO
CONNECTION?..................... 23
Will federal income tax be
27. withheld from dividends or sales
proceeds?....................... 24
How do I vote my CONOCO
28. CONNECTION shares at stockholder
meetings?....................... 24
What if Conoco issues a stock
29. dividend or declares a stock
split or rights offering?....... 24
Can CONOCO CONNECTION be
30. changed?........................ 25
What law applies to CONOCO
31. CONNECTION?..................... 25
How will Conoco use the proceeds
32. from its sale of stock?......... 25
RISK FACTORS............................. 26
Low oil and gas prices have negatively
affected Conoco's financial results
and may continue to do so in the 26
future..............................
Global political and economic
developments may hurt Conoco's
operations.......................... 26
</TABLE>

2
<PAGE> 4

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C> <C>
The oil and gas reserves data in this
document are only estimates, and may
prove to be inaccurate................... 27
Conoco's growth depends on finding new
reserves............................ 27
Conoco may incur material costs to
comply with environmental 27
regulations.........................
Changes in government regulations may
impose price controls and
limitations on production of oil and 28
gas.................................
Potential year 2000 problems may
adversely affect Conoco's 28
business............................
Provisions in Conoco's by-laws,
certificate of incorporation, and
Delaware law could deter takeover 28
attempts............................
Conoco may not pay dividends on its
common stock........................ 28
Price Range of Conoco Common Stock and
Dividends.............................. 29
Special Note on Forward-Looking
Information............................ 30
Selected Historical Financial Data of 31
Conoco.................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 34
Liquidity and Capital Resources........ 35
Investment Activities.................. 35
Financing Activities................... 40
Results of Operations.................. 41
Upstream Segment Results............... 46
Downstream Segment Results............. 48
Corporate and Other Segment Results.... 49
Environmental Expenditures............. 50
Tax Matters............................ 52
Year 2000.............................. 52
European Monetary Union................ 54
Restructuring.......................... 55
New Accounting Standards............... 55
Market Risks........................... 56
Business................................. 59
General................................ 59
Business Strategy...................... 59
</TABLE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C> <C>
Conoco History......................... 60
Financial Information -- Operating
Segment and Geographic 60
Information.........................
Upstream............................... 60
Downstream............................. 75
Power.................................. 85
Core Values............................ 86
Environmental Regulation............... 87
Sources of Supply...................... 90
Research and Development............... 90
Patents and Trademarks................. 90
Operating Hazards and Insurance........ 90
Properties............................. 90
Employees.............................. 91
Legal Proceedings...................... 91
Management............................... 92
Directors and Executive Officers....... 92
Election and Compensation of 94
Directors...........................
Committees of the Board of Directors... 95
Stock Ownership of Directors and
Executive Officers.................. 96
Compensation of Executive Officers..... 98
Retirement Benefits.................... 100
Severance Arrangements................. 101
Principal Stockholders of Conoco Common
Stock.................................. 103
Description of Conoco Capital Stock...... 104
General................................ 104
Common Stock........................... 104
Preferred Stock........................ 105
Anti-Takeover Effects of Certificate
and By-Law Provisions............... 105
Contractual Relations among Conoco,
DuPont and Related Entities......... 109
Delaware Business Combination 110
Statute.............................
Limitations on Directors' Liability.... 110
Listing................................ 111
Transfer Agent and Registrar........... 111
Legal Matters............................ 111
Experts.................................. 111
Where You Can Find More Information...... 112
Index to Consolidated Financial F-1
Statements.............................
</TABLE>

3
<PAGE> 5

SUMMARY

This summary highlights selected information from this document but may not
contain all the information that is important to you. To fully understand Conoco
Connection and for a more complete description of the legal terms of Conoco
Connection, you should read carefully this entire document and the documents to
which we have referred you. To find out how to obtain copies of these documents,
see "Where You Can Find More Information" on page 112.

CONOCO CONNECTION

] If you are not currently a Conoco stockholder, or if you hold Class A common
stock, you can purchase Class B common stock for the first time for a minimum
of $250 by check or money order or through automatic withdrawal of a minimum
of $50 per transaction from your bank account for at least five consecutive
purchases.

] If you are an existing stockholder, you may:

- Automatically reinvest all or part of your cash dividends in additional
shares. DIVIDENDS ON CLASS A SHARES ARE REINVESTED IN CLASS A SHARES.
DIVIDENDS ON CLASS B SHARES ARE REINVESTED IN CLASS B SHARES.

- Make an additional cash purchase of a minimum of $50 by check, money order
or automatic deduction from your bank account. IF YOU CURRENTLY HOLD CLASS A
STOCK, ANY ADDITIONAL CASH PURCHASES YOU MAKE WILL BE IN CLASS A STOCK. IF
YOU CURRENTLY HOLD CLASS B STOCK, ANY ADDITIONAL CASH PURCHASES YOU MAKE
WILL BE IN CLASS B STOCK. IF YOU HOLD BOTH CLASS A AND CLASS B STOCK, YOU
CAN MAKE ADDITIONAL CASH PURCHASES OF BOTH CLASSES OF STOCK.

] If you elect to reinvest only a portion of your dividends, you may elect to
receive the portion of your dividends you decide not to reinvest by check or
electronic deposit to your bank account.

] Cash investments are subject to an annual maximum of $250,000 in each class of
stock through CONOCO CONNECTION.

] Purchase orders are processed at least once every five days.

] Your whole and fractional Conoco shares are held in safe and convenient
book-entry form. However, stock certificates are free of charge upon request.

4
<PAGE> 6

] For safekeeping purposes, stock certificates can be converted into book-entry
shares, which will be credited to your account at no cost to you.

] You can sell your shares by simply picking up the telephone and instructing
EquiServe. Sale orders are processed daily.

] You can transfer shares or make gifts of shares easily and at no cost.

] You can handle all transactions by mail and most by fax and can accomplish
many account inquiries and sales over the telephone and/or Internet.

HOW TO PARTICIPATE IN CONOCO CONNECTION:

] New investors or Class A holders wishing to purchase Class B shares may make
their initial investment in Class B shares by completing an Initial Investment
Form and either mailing it with a check or money order for at least $250 or
authorizing automatic deductions of $250, or for at least five consecutive
purchases, a minimum of $50 per transaction from a designated account at a
U.S. bank or financial institution. New investors in Class B shares can also
enroll on the Internet.

] Current registered stockholders can reinvest dividends immediately by filling
out the Enrollment Authorization Form and sending it to EquiServe or by
calling EquiServe at 800-317-4445. They can also make additional cash
purchases of the class of stock they currently own by sending a check for a
minimum of $50 or by authorizing EquiServe to make automatic deductions of a
minimum of $50 from a designated account at a U.S. bank or financial
institution.

] Conoco stockholders holding their stock through a broker must become
registered stockholders to enroll in CONOCO CONNECTION. See "4. How do I Join
CONOCO CONNECTION?" for instructions.

FEES AND COMMISSIONS:

] New investors in Class B shares pay a one-time fee of $10.00, taken from
initial investment funds. Current stockholders enrolling to reinvest dividends
or make additional cash purchases of the class of stock they currently own do
not pay this fee.

] Returned checks or failed automatic deduction transactions will result in a
charge of $25 to the participant.

] Conoco pays most fees and all brokerage commissions on purchases and all fees
and brokerage commissions

5
<PAGE> 7

on dividend reinvestments, in addition to the cost of annual maintenance of
your account and the fees for automatic deduction from your bank account.

] You will be charged a $10.00 fee and reasonable brokerage commissions
(currently $0.12 per share) on sales of shares through CONOCO CONNECTION.

ABOUT CONOCO

] Conoco is a major, integrated, global energy company. Conoco was founded in
1875 and is involved in exploring for and developing, producing and selling
crude oil, natural gas and natural gas liquids, refining crude oil and other
feedstocks into petroleum products, buying and selling crude oil and refined
products and transporting, distributing and marketing petroleum products.
Conoco is also engaged in developing and operating power facilities.

] Conoco has two classes of common stock, Class A and Class B. Holders of Conoco
Class A common stock and Class B common stock generally have identical rights,
including dividend and liquidation rights, except that holders of Conoco Class
A common stock are entitled to one vote per share, while holders of Conoco
Class B common stock are entitled to five votes per share. Conoco stock is
listed on the New York Stock Exchange under the symbol "COC.A" for the Class A
common stock and "COC. B" for the Class B common stock.

] Conoco's principal executive office is located at 600 North Dairy Ashford,
Houston, Texas 77079, and its telephone number is (281) 293-1000.

6
<PAGE> 8

RECENT DEVELOPMENTS

On July 12, 1999, E. I. du Pont de Nemours & Company commenced an exchange
offer in which it offered its stockholders the opportunity to receive 2.95
shares of Conoco Class B common stock in exchange for each share of DuPont
common stock validly tendered and accepted in the exchange offer, up to a
maximum of 147,980,872 DuPont shares. The exchange offer expired on August 6,
1999 and DuPont announced the final results of the exchange offer on August 12,
1999. As a result of the exchange offer, all of the 436,543,573 shares of Class
B common stock owned by DuPont were distributed to DuPont stockholders. The
exchange offer was a final step in DuPont's planned divestiture Conoco.

SUMMARY HISTORICAL
FINANCIAL DATA OF CONOCO

The following table contains summary historical financial data of Conoco as
of the dates and for the periods indicated. The information may not necessarily
reflect the results of operations, financial position and cash flows of Conoco
in the future or what the results of operations, financial position and cash
flows would have been had Conoco been a separate, stand-alone entity during all
of the periods presented. The information is only a summary and you should read
it together with the consolidated financial statements of Conoco and the other
information about Conoco included elsewhere in this document. You should also
read the "Risk Factors", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" sections of this document,
which describe Conoco's business, as well as a number of factors that have
affected Conoco's financial results, including declining crude oil and natural
gas prices.

Except where otherwise indicated, reserve and production information in the
following tables includes Conoco's share of equity affiliates. Oil includes
crude oil, condensate and natural gas liquids expected to be removed for
Conoco's account from its natural gas production.

7
<PAGE> 9

CONOCO

<TABLE>
<CAPTION>
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total Revenues(1)...................................... $11,664 $11,486 $23,168 $26,263 $24,416 $20,518 $19,433
Cost of Goods Sold and Other Operating Expenses........ 6,887 6,754 13,840 16,226 14,560 11,146 10,640
Selling, General and Administrative Expenses........... 383 370 736 726 755 728 679
Stock Option Provision................................. -- -- 236 -- -- -- --
Exploration Expenses(2)................................ 120 176 380 457 404 331 357
Depreciation, Depletion and Amortization............... 584 505 1,113 1,179 1,085 1,067 1,244
Taxes Other Than on Income(1).......................... 3,246 2,896 5,970 5,532 5,637 5,823 5,477
Interest and Debt Expense.............................. 150 1 199 36 74 74 63
------- ------- ------- ------- ------- ------- -------
Income Before Income Taxes............................. 294 784 694 2,107 1,901 1,349 973
Provision for Income Taxes............................. 97 254 244 1,010 1,038 774 551
------- ------- ------- ------- ------- ------- -------
Net Income(3)...................................... $ 197 $ 530 $ 450 $ 1,097 $ 863 $ 575 $ 422
======= ======= ======= ======= ======= ======= =======
Segment Net Income:
Upstream:
United States........................................ $ 92 $ 144 $ 219 $ 445 $ 314 $ 258 $ 248
International........................................ 154 215 283 439 367 234 250
Downstream:
United States........................................ 45 86 135 216 172 112 104
International........................................ 42 95 156 91 117 121 137
Corporate and Other(3)................................. (136) (10) (343) (94) (107) (150) (317)
------- ------- ------- ------- ------- ------- -------
$ 197 $ 530 $ 450 $ 1,097 $ 863 $ 575 $ 422
======= ======= ======= ======= ======= ======= =======
Earnings Per Share
Basic................................................ $ 0.31 $ 1.21 $ 0.95 $ 2.51 $ 1.98 $ 1.32 $ 0.97
Diluted.............................................. $ 0.31 $ 1.21 $ 0.95 $ 2.51 $ 1.98 $ 1.32 $ 0.97
Weighted Average Shares Outstanding
Basic................................................ 628 437 474 437 437 437 437
Diluted.............................................. 636 437 475 437 437 437 437
Dividends Per Share of Common Stock(4)................. $ .33 $ -- $ -- $ -- $ -- $ -- $ --
OTHER DATA:
Cash Provided By Operations............................ $ 670 $ 548 $ 1,373 $ 2,876 $ 2,396 $ 1,924 $ 2,143
Capital Expenditures and Investments................... 794 1,050 2,516 3,114 1,944 1,837 1,665
Cash Used for Investing
Activities........................................... 895 718 1,598 2,037 1,647 1,677 1,364
Cash Used for (Provided from) Financing Activities..... (98) 149 555 499 187 313 773
Cash Exploration Expense............................... 65 105 217 286 262 204 200
</TABLE>

- ------------
(1) Includes petroleum excise taxes of $5,801, $5,349, $5,461, $5,655, and
$5,291 for 1998, 1997, 1996, 1995 and 1994, and of $3,156 and $2,806 for the
first six months of 1999 and 1998.

(2) Includes cash exploration overhead and operating expense, depreciation,
depletion and amortization, dry hole costs and impairments of unproved
properties.

(3) Includes after-tax exchange gains (losses) of $32, $21, $(7), $(40) and
$(143) for 1998, 1997, 1996, 1995 and 1994, and $6 and $5 for the first six
months of 1999 and 1998.

(4) Conoco's initial dividend was determined on a pro rata basis covering the
period from October 27, 1998, the closing date of Conoco's initial public
offering, to December 31, 1998, and is equivalent to $0.19 per share for a
full quarter.

8
<PAGE> 10

CONOCO

OPERATING DATA:
Proved Reserves at December 31:
Oil (MMbbls).................................................... 1,591 1,624 973 977 988
Natural Gas (Bcf)............................................... 6,183 5,861 5,396 5,048 4,674
Total Proved Reserves (MMBOE)................................... 2,622 2,601 1,872 1,818 1,767
International Proved Reserves (% of Total)........................ 73% 73% 65% 63% 61%
Reserve Replacement Ratio......................................... 110% 448% 126% 127% 157%
Reserve Life (years)(2)........................................... 12.3 12.4 8.9 9.3 8.2
Finding and Development Costs
per BOE(3)...................................................... $ 4.03 $ 3.63 $ 4.84 $ 5.39 $ 6.24
Average Daily Production:
Oil (Mbbls/day)................................................. 348 374 374 346 367
Natural Gas (MMcf/day).......................................... 1,411 1,203 1,211 1,126 1,327
Total Production (MBOE/day)..................................... 583 575 576 534 588
Average Production Costs per BOE(4)............................... $ 3.95 $ 4.21 $ 3.84 $ 3.92 $ 3.59
Refinery Capacity at December 31 (Mbbls/day)(5)................... 807 754 743 621 602
Refinery Utilization(5)........................................... 92% 91% 83% 97% 99%
Total Refinery Inputs (Mbbls/day)(6).............................. 823 780 732 721 697
Sales of Refined Products (Mbbls/day)............................. 1,049 1,048 998 983 931
Retail Marketing Outlets at December 31(7):
United States................................................... 4,897 4,903 4,976 5,125 5,196
International................................................... 3,023 2,971 2,874 2,390 2,438
</TABLE>

- ------------

(1) The working capital deficit results from the issuance of short-term
commercial paper to repay the remaining related-party debt owed to DuPont.

(2) Total proved reserves at December 31 divided by annual production, excluding
natural gas liquids from gas plant ownership.

(3) Finding and development costs per barrel-of-oil-equivalent represent a
trailing five-year average for each year displayed.

(4) Excludes equity affiliates and processed natural gas liquids.

(5) Based on rated capacity to process crude oil and condensate excluding other
feedstocks.

(6) Includes crude oil, condensate and other feedstocks. This does not include
Conoco's indirect 1.2 percent interest in a 95,000 barrel per day refinery
in Mersin, Turkey, acquired as a result of Conoco's marketing joint venture
in Turkey.

(7) Represents outlets owned by Conoco and others that sell Conoco's refined
products.

9
<PAGE> 11

CONOCO CONNECTION

The following questions and answers explain and constitute CONOCO CONNECTION:

1. WHAT IS CONOCO CONNECTION?

CONOCO CONNECTION is a convenient and economical way for new investors to
make an initial investment in Conoco Class B common stock and for existing
stockholders to increase their holdings of Conoco common stock.
Participants in CONOCO CONNECTION may elect to have dividends on both Class
A and Class B common stock automatically reinvested and to make additional
cash purchases of shares of the class of common stock they currently hold.

Participation in CONOCO CONNECTION is entirely voluntary and we give no
advice regarding your decision to join CONOCO CONNECTION. However, if you
decide to participate in CONOCO CONNECTION, an Enrollment Authorization
Form and reply envelope are enclosed for your convenience. Initial
Investment Forms for new investors in Class B shares are also available,
and may be completed, on the Internet at www.equiserve.com.

2. WHAT OPTIONS ARE AVAILABLE UNDER CONOCO CONNECTION?

CONOCO CONNECTION allows participants to:

] Make initial investments in Class B common stock;

] Have their dividends on Class A and Class B common stock automatically
reinvested (fully or partially) in additional shares of common stock.
DIVIDENDS ON CLASS A SHARES ARE REINVESTED IN CLASS A SHARES. DIVIDENDS
ON CLASS B SHARES ARE REINVESTED IN CLASS B SHARES; AND

] Make additional cash purchases of Class A or Class B common stock by
check, money order or automatic deduction from their bank accounts. IF
YOU CURRENTLY HOLD CLASS A STOCK, ANY ADDITIONAL CASH PURCHASES YOU MAKE
WILL BE IN CLASS A STOCK. IF YOU CURRENTLY HOLD CLASS B STOCK, ANY
ADDITIONAL CASH PURCHASES YOU MAKE WILL BE IN CLASS B STOCK. IF YOU HOLD
BOTH CLASS A AND CLASS B STOCK, YOU CAN MAKE ADDITIONAL CASH PURCHASES OF
BOTH CLASSES OF STOCK.

As a participant, you can mix and match CONOCO CONNECTION features. For
example, you can convert your stock certificates into book-entry shares,
continue to receive dividends in cash, and purchase more shares through
additional cash purchases.

3. WHO CAN JOIN CONOCO CONNECTION?

Anyone is eligible to join CONOCO CONNECTION, whether or not they are
currently stockholders of Conoco. If you are a resident of a foreign
country, you should make sure

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<PAGE> 12

that participation would not violate any laws in your home
country.

4. HOW DO I JOIN CONOCO CONNECTION?

] REGISTERED STOCKHOLDERS. If you are already a Conoco stockholder of
record (that is, if you own shares that are registered in your name, not
your broker's name), you may enroll in CONOCO CONNECTION simply by
completing and returning the enclosed Enrollment Authorization Form.
Forms may also be obtained by calling EquiServe directly at 800-317-4445.

] STOCKHOLDERS THROUGH A BANK, BROKER, OR TRUSTEE. If you own shares of
Conoco common stock but they are held in the name of a bank, broker, or
trustee in "street" or nominee name, you can become a registered holder
by instructing your bank, broker, or trustee to transfer some or all of
your shares into your name. You can choose whether to receive a physical
stock certificate for your shares or to hold them in a book-entry account
maintained by EquiServe.

- STOCK CERTIFICATE. Once you receive your stock certificate, you may
begin to use any or all of the CONOCO CONNECTION services.

- BOOK-ENTRY SHARES. This is an electronic transfer of your shares from
your broker's name into your name through EquiServe's Direct
Registration System. This will allow you to continue to take advantage
of the specialized services offered by "street name" ownership and also
to participate in CONOCO CONNECTION. Simply instruct your broker to
conduct a "Withdrawal by Transfer" specifying a "statement" or "S"
transaction. This will establish your book-entry account that includes
your brokerage account information on Conoco's stockholder records
maintained by EquiServe.

Once your brokerage account information is established on your
book-entry account with EquiServe, you can withdraw all or part of your
shares from CONOCO CONNECTION and electronically deliver them back to
your brokerage account. EquiServe will electronically deliver your
shares within two business days of receiving and accepting your
instructions. To change or add information concerning your bank,
broker, or trustee to your account with EquiServe, you must complete an
Authorization to Provide Broker/Dealer Information Form, available upon
request from EquiServe or your bank, broker, or trustee. Your
signature(s) on the Authorization Form must be witnessed by the bank or
broker with a Medallion Guarantee. Most banks and brokers participate
in the Medallion Guarantee program. The Medallion Guarantee program
ensures that the

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<PAGE> 13

individual signing is in fact the owner of the participant's account. A
notary is not sufficient.

] NEW INVESTORS IN CLASS B SHARES. If you are not a current Conoco Class B
stockholder or if you want to establish a separate account by purchasing
Class B shares through CONOCO CONNECTION (for example, a joint account
\with your spouse, or as a custodian for a minor), you may enroll by
filling out an Initial Investment Form and returning it to EquiServe with
a payment of at least $250 and no more than $250,000. Initial cash
payments may be made by check or money order payable to EquiServe. All
money must be in U.S. funds and drawn on a U.S. bank. Third-party checks
will not be accepted. As an alternative, you may enroll directly and make
your initial purchase through authorizing automatic deductions by
accessing CONOCO CONNECTION over the Internet at www.equiserve.com.

Conoco will waive the $250 minimum initial investment for investors who
choose to make their initial purchase and subsequent on-going purchases
of Class B common stock through automatic monthly investments. You must
authorize an Automatic Clearing House withdrawal of a minimum of $50 per
transaction either once or twice a month from a designated account at a
U.S. bank or financial institution for at least five consecutive
purchases. To do this, you must complete and return an Authorization Form
for Automatic Deductions to EquiServe, together with a voided blank check
or savings account deposit slip for the account from which funds are to
be drawn. An Authorization Form for Automatic Deductions is located on
the reverse of the Initial Investment Form. You should allow four to six
weeks for the first investment to be initiated. Once automatic deductions
are initiated, funds will be drawn from your account on the first and/or
fifteenth day of each month or the next business day if the first and/or
fifteenth are not business days. If you authorize automatic deductions
once a month, you can specify whether your deduction will be made on the
first or the fifteenth of the month. After fulfilling the minimum
purchase requirement, you can stop the automatic investments by
telephoning or writing to EquiServe.

Your enrollment fee of $10.00 will be subtracted from your initial
investment amount, with the remainder of the funds being applied toward
your purchase.

5. CAN I ENROLL VIA THE INTERNET?

If you are not currently a Conoco Class B stockholder, your may enroll in
CONOCO CONNECTION and make your initial investment in Class B shares via
the Internet. You can access the CONOCO CONNECTION Prospectus through the
Internet at www.equiserve.com. After reviewing this document, click on
"Enrollment" to link to a secure web site

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<PAGE> 14

where, after providing the necessary information, you may enroll in CONOCO
CONNECTION by authorizing automatic deductions of a minimum of $50 per
transaction (one or twice per month) from a designated account at a U.S.
bank or financial institution for at least five consecutive purchases.
Except for Class A holders who wish to make an investment in Class B
Shares, current stockholders may not enroll on the Internet.

6. WHO ADMINISTERS CONOCO CONNECTION? HOW DO I CONTACT THEM?

Conoco has engaged EquiServe to administer and act as agent for CONOCO
CONNECTION. EquiServe purchases shares of Conoco common stock acquired
under CONOCO CONNECTION, keeps records, sends statements of account
activity to participants and performs all other administrative duties
relating to CONOCO CONNECTION.

By enrolling in CONOCO CONNECTION, you are authorizing EquiServe to receive
your initial investment and/or additional cash purchases and/or dividends
(if you reinvest your dividends) on your behalf and to apply these amounts
to the purchase of the Conoco common stock.

All inquiries, notices, requests and other communications concerning CONOCO
CONNECTION should be made to EquiServe at:

CONOCO CONNECTION
C/O EQUISERVE
P.O. BOX 2598
JERSEY CITY, NJ 07303-2598

Current stockholders can enroll or obtain their account information, and
new investors may obtain a prospectus and enrollment form, by calling
EquiServe at the following telephone numbers:

STOCKHOLDERS: 800-317-4445
NEW INVESTORS: 800-483-0294
OUTSIDE THE U.S. AND CANADA 201-324-0313
(CURRENT STOCKHOLDERS AND INVESTORS)
TDD (CURRENT STOCKHOLDERS AND NEW
INVESTORS) 201-222-4955

Automated voice response systems are available 24 hours per day, every day
of the year. Customer service representatives are available from 8:30 a.m.
to 7:00 p.m. (Eastern time) each business day.

You can also obtain information about your CONOCO CONNECTION account on
EquiServe's Internet site at www.equiserve.com. At the Internet site, you
can access your share balance, sell shares, request a stock certificate,
and obtain online forms and other information about your account. To get
access, you will require a password which will be sent

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<PAGE> 15

to you, or you can request one by calling toll-free 800-877-THE-WEB7
(800-877-9327).

Conoco may assume the administration of CONOCO CONNECTION at any time or
appoint another agent for CONOCO CONNECTION without prior notice to
participants.

7. WHAT ARE THE DIVIDEND PAYMENT OPTIONS?

Participants in CONOCO CONNECTION may choose to reinvest some, all, or none
of their dividends.

DIVIDENDS ON CLASS A SHARES ARE
REINVESTED IN CLASS A SHARES.
DIVIDENDS ON CLASS B SHARES ARE
REINVESTED IN CLASS B SHARES.

] If you elect full reinvestment, cash dividends paid on all Conoco Class A
or Class B common stock registered in your name, whether they are held by
you in stock certificate form or credited to your book-entry account,
will be applied to the purchase of additional shares of the class of
Conoco common stock on which the dividend is paid, on or around the
dividend payment date.

] If you elect partial reinvestment of dividends, a portion of your
dividend proceeds will be paid to you, and the remainder will be used to
purchase additional shares of the class of Conoco common stock on which
the dividend is paid, on or around the dividend payment date. To do this,
you must specify the number of whole shares on which you wish to receive
cash dividends. The dividends on the balance of your shares will be
reinvested. You may choose to have cash dividends directly deposited in
your designated account at a bank or financial institution or sent to you
by check.

] You can also elect to receive all of your dividends in cash rather than
reinvesting them. If you do not elect on the Enrollment Authorization
Form to reinvest some or all of your dividends, your dividends will be
paid to you in cash.

DECLARED DIVIDENDS ON SHARES OF
CLASS A AND CLASS B COMMON STOCK
ARE NORMALLY PAID ON THE 10TH OF
MARCH, JUNE, SEPTEMBER AND
DECEMBER TO STOCKHOLDERS OF RECORD
ON THE 10TH OF FEBRUARY, MAY,
AUGUST AND NOVEMBER.

8. HOW DO I CHANGE MY DIVIDEND OPTION?

You may change your dividend option, including the amount of dividends
received in cash or applied to the purchase of

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<PAGE> 16

additional shares, at any time by telephoning EquiServe, or by completing
and submitting a new Enrollment Authorization Form by fax or mail. Unless
EquiServe receives these changes before the record date for the dividend,
they will not become effective until the following dividend. You can obtain
the Enrollment Authorization Form by contacting EquiServe by telephone or
at the address provided in Question 6. You can also obtain a copy of the
form on EquiServe's Internet site.

9. HOW CAN I STOP REINVESTING DIVIDENDS?

You may discontinue reinvestment of dividends at any time by calling or
writing to EquiServe at the address and telephone numbers set forth in
Question 6. However, EquiServe must receive your request before the record
date for dividend for the change to be effective for that dividend payment
date.

Even if you stop reinvestment, your shares will continue to be credited in
book-entry form to your account at EquiServe unless you request a stock
certificate. You may request a certificate for all or part of your shares.
If you request a stock certificate for all of your shares, you will receive
a stock certificate for any whole share(s) and a check representing the net
proceeds from the sale of any fractional share.

10. CAN MY CASH DIVIDENDS BE DEPOSITED DIRECTLY TO MY BANK ACCOUNT?

Through CONOCO CONNECTION's direct deposit feature, you may elect to have
any cash dividends not reinvested in additional shares of Conoco common
stock paid by electronic funds transfer to your designated bank account. To
do this, you must first complete and return a Direct Deposit Authorization
Form to EquiServe along with a copy of a voided check or deposit slip. This
form is not included with your CONOCO CONNECTION material and must be
specifically requested from EquiServe by calling 800-870-2340 or obtained
on-line at www.equiserve.com.

Forms must be received before the record date for a dividend to be
effective for that dividend. Forms received after the dividend record date
will not become effective until the following dividend. You may change the
designated account for direct deposit or discontinue this feature by
writing to EquiServe. You must complete a new Direct Deposit Authorization
Form if you transfer ownership of shares or otherwise establish a new
account with EquiServe, close or change the designated bank account, or are
assigned a new account number by your bank. If the proper forms are not
completed, you will receive your dividend payment by check.

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<PAGE> 17

11. HOW DO I MAKE ADDITIONAL CASH PURCHASES OF COMMON STOCK?

ADDITIONAL CASH PURCHASES CAN ONLY BE
MADE IN THE CLASS OF COMMON STOCK YOU
ALREADY OWN. IF YOU CURRENTLY HOLD
CLASS A STOCK, ANY ADDITIONAL CASH
PURCHASES YOU MAKE WILL BE IN CLASS A
STOCK. IF YOU CURRENTLY HOLD CLASS B
STOCK, ANY ADDITIONAL CASH PURCHASES
YOU MAKE WILL BE IN CLASS B STOCK. IF YOU HOLD BOTH CLASS A AND CLASS B STOCK,
YOU CAN MAKE ADDITIONAL CASH PURCHASES OF BOTH CLASSES OF STOCK.

Additional cash purchases can be made in the following ways:

] CHECK OR MONEY ORDER. You can make additional cash purchases of Class A
or Class B common stock by check or money order for a minimum of $50,
payable in U.S. dollars to "EquiServe-Conoco." You should send your
additional cash purchase payments to EquiServe together with the tear-off
Transaction Form attached to each account statement, or if making an
investment while enrolling, with the Enrollment Authorization Form. You
should also write your CONOCO CONNECTION account number on the check or
money order.

] AUTOMATIC DEDUCTION FROM A BANK ACCOUNT. You may make automatic
additional cash purchases through an Automated Clearing House withdrawal
of a specified amount from a designated account at a U.S. bank or
financial institution either once or twice a month. To do this, you must
complete and return an Authorization Form for Automatic Deductions to
EquiServe, together with a voided blank check or savings account deposit
slip for the account from which funds are to be drawn. You should allow
four to six weeks for the first investment to be initiated. Once
automatic deductions are initiated, funds will be drawn from your account
on the first and/or fifteenth day of each month or the next business day
if the first and/or fifteenth are not business days. If you authorize
automatic deductions once a month, you can specify whether your deduction
will be made on the first or the fifteenth of the month. Automatic
deductions will continue until you instruct EquiServe to stop.

Regardless of how you make your purchase, you will benefit from the full
investment of your funds as both whole and fractional shares are credited
to your account. Fractional shares are currently carried out to three
decimal places.

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<PAGE> 18

12.I AM CURRENTLY A HOLDER OF CLASS A COMMON STOCK. HOW DO I BECOME A HOLDER OF
CLASS B COMMON STOCK?

You may directly purchase Class B common stock in the same way that a new
investor joins CONOCO CONNECTION, regardless of your ownership in Class A
common stock. You will be required to make a $250 minimum investment in
Class B stock and pay the $10 enrollment fee. To learn more about this, see
Question 4, How do I join CONOCO CONNECTION?, and follow the instructions
for new investors in Class B shares.

13.I AM CURRENTLY A HOLDER OF CLASS B COMMON STOCK. HOW DO I BECOME A HOLDER OF
CLASS A COMMON STOCK?

Current Class B common stockholders may not purchase Class A common stock
directly through CONOCO CONNECTION. If you wish to purchase Class A common
stock, you must do so in the open market. After you become a Class A
holder, you may enroll in CONOCO CONNECTION as a Class A holder and
reinvest Class A dividends and make additional cash purchases of Class A
common stock.

14.HOW DO I CHANGE OR STOP AUTOMATIC DEDUCTIONS?

You may change or stop automatic deductions by notifying EquiServe by
telephone, mail or fax. You must complete a new Authorization Form for
Automatic Deductions when you transfer ownership of your shares or
otherwise establish a new account on EquiServe's records, close or change
the designated bank account or are assigned a new account number by your
bank.

To be effective with respect to a particular investment date, EquiServe
must receive the new Authorization Form for Automatic Deductions at least
six business days before the date that funds are scheduled to be withdrawn
from your account.

15.HOW ARE SHARES PURCHASED AND PRICED?

]SOURCE OF SHARES AND PURCHASE PRICE. Conoco will decide how EquiServe will
purchase shares for CONOCO CONNECTION. We will instruct EquiServe to
purchase shares in the open market or to buy newly issued or treasury
shares directly from Conoco.

If EquiServe buys shares in the open market, the purchase price will be
the average price paid per share in the period during which shares are
purchased. If new shares or treasury shares are issued, the purchase price
will be the average of the high and low prices based on the New York Stock
Exchange composite transactions tape as reported in the Wall Street
Journal on the date they are purchased from Conoco.

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<PAGE> 19

] PURCHASE PERIOD -- INITIAL CASH INVESTMENTS AND ADDITIONAL CASH
PURCHASES. EquiServe will invest funds in Class A or Class B common
stock, as applicable, at least once every five business days. EquiServe,
not Conoco, will determine the actual investment dates. If you sign up to
make automatic purchases of Class A or Class B common stock by
authorizing EquiServe to deduct $50 or more from your bank account either
once or twice a month, your payment will be transferred on the first
and/or fifteenth of each month (as elected by you) or on the next
business day if the first and/or fifteenth are not business days.

- You will not be paid any interest on amounts held by EquiServe pending
investment. EquiServe will not make any refunds of investments it
receives after two days prior to the day they are invested.

- To be sure you receive the next dividend to be paid, initial
investments and additional cash purchases of Class A or Class B common
stock must be received by EquiServe at least eight business days before
the record date.

] REINVESTED DIVIDENDS. When EquiServe purchases shares in the open market
with dividend reinvestment funds, EquiServe will purchase shares at any
time beginning on the dividend payment date and ending no later than 30
days after the dividend payment date. If new shares or previously issued
shares held in Conoco's treasury are issued, EquiServe will purchase
shares from Conoco on the dividend payment date.

PLEASE NOTE THAT YOU WILL NOT BE ABLE TO
INSTRUCT EQUISERVE TO PURCHASE SHARES
AT A SPECIFIC TIME OR AT A SPECIFIC PRICE.
IF YOU PREFER TO HAVE CONTROL OVER THE
EXACT TIMING AND PRICE OF YOUR
PURCHASE, YOU WILL NEED TO USE YOUR OWN
BROKER.

16.IS THERE ANY LIMIT ON CASH PURCHASES?

Total cash purchases in each class of common stock may not exceed $250,000
per calendar year, including your initial cash investment, if applicable.

17.HOW DO I SELL SHARES?

To sell any shares that you hold in stock certificate form through CONOCO
CONNECTION, they must first be converted into book-entry shares and
credited to your account with EquiServe.

You can sell any of the shares credited to your account with EquiServe by
accessing your account via the Internet at www.equiserve.com, telephoning
EquiServe, or completing the

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<PAGE> 20

Transaction Form attached to your CONOCO CONNECTION account statement and
returning it to EquiServe by fax or mail.

If you have elected to receive cash dividends on some of your shares and
reinvest dividends on the balance of your shares, unless you specify
otherwise, the shares on which you are reinvesting dividends will be used
to fill the sale order first. If those shares are insufficient to fill the
sale order, shares on which you have elected to receive cash dividends will
be sold.

EquiServe will sell shares daily on the open market through its designated
broker. To be processed the same day, all sale requests must be received
before 1:00 p.m. (Eastern U.S. time) on a business day during which
EquiServe and the relevant securities trading markets are open. The sales
price will be the average price per Class A or Class B share, as
applicable, received by EquiServe for all sales made that day for CONOCO
CONNECTION participants. The cash proceeds that you will receive for the
shares sold will be equal to this average sales price minus the $10.00
service charge per sale and the brokerage commission on the shares sold
(see Question 20).

PLEASE NOTE THAT EQUISERVE WILL NOT
ACCEPT INSTRUCTIONS TO SELL ON SOME LATER
DAY OR AT A SPECIFIC TIME OR PRICE. IF YOU
WANT TO HAVE CONTROL OVER THE EXACT
TIMING AND SALES PRICES, YOU CAN
WITHDRAW THE SHARES YOU WISH TO SELL AND
SELL THEM THROUGH YOUR OWN BROKER.

18.CAN I TRANSFER MY SHARES TO SOMEONE ELSE?

To transfer some or all of your shares to another person, simply call
EquiServe. You will be asked to send EquiServe written transfer
instructions, or you can fill out the transfer instructions on the reverse
of the Transaction Form attached to your account statement. Your signature
must be "Medallion Guaranteed" by a financial institution. Once EquiServe
receives all of the necessary forms and documents, your request will be
processed promptly. This service is free.

You may transfer shares to new or existing Conoco stockholders. However, a
CONOCO CONNECTION account will not be opened for a transferee as a result
of a transfer of less than one full share.

19.WHAT ARE THE RISKS OF PARTICIPATING IN CONOCO CONNECTION?

] YOU BEAR ALL RISK OF LOSS THAT MAY RESULT FROM MARKET FLUCTUATIONS IN THE
PRICE OF CONOCO COMMON STOCK. Your investment risks in Conoco shares
acquired and/or credited to your account under CONOCO CONNECTION are no

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<PAGE> 21

different from your investment risks in shares held directly by you.
Neither Conoco nor EquiServe can assure you a profit or protect you
against any loss on shares that are purchased and/or credited to your
account through CONOCO CONNECTION.

] BY ESTABLISHING CONOCO CONNECTION, CONOCO DOES NOT GUARANTEE THE PAYMENT
OF FUTURE DIVIDENDS. Conoco's stockholders may not receive future
dividends. The amount of cash dividends, if any, to be declared and paid
will depend upon declaration by Conoco's board of directors and upon
Conoco's financial conditions, results of operations, cash flow, the
level of its capital and exploration expenditures, its future business
prospects and other related matters that Conoco's board of directors deem
relevant.

] CONOCO AND EQUISERVE WILL INTERPRET AND REGULATE THE OPERATION OF CONOCO
CONNECTION AS THEY BELIEVE APPROPRIATE. Neither Conoco, EquiServe, nor
any of their successors or any other person providing services to CONOCO
CONNECTION will be responsible for any good-faith acts or omissions when
operating or administering CONOCO CONNECTION. For example, they are not
responsible for:

- the failure to discontinue reinvestment of dividends or additional cash
purchases for a participant's account when the participant dies;

- the price at which Conoco common stock is purchased or sold; or

- the timing of any purchases or sales.

However, by participating in CONOCO CONNECTION, you will not waive any
legal rights you otherwise may have.

20.ARE THERE FEES ASSOCIATED WITH PARTICIPATION?

] New investors in Class B shares pay a one-time fee of $10.00, which will
be deducted from your initial investment funds. Conoco pays the brokerage
commission on shares purchased with your initial investment.

] Conoco pays the fees and brokerage commissions on all other purchases,
including dividend reinvestments, in addition to the fees for automatic
deductions from your bank account and the cost of annual maintenance of
your account.

] If you ask EquiServe to sell any of your shares, you will be charged a
$10.00 fee and reasonable brokerage commissions (currently $0.12 per
share).

] Returned checks or failed automatic deduction transactions will result in
a charge of $25 to you.

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<PAGE> 22

21.WHAT REPORTS WILL I RECEIVE?

To help you in your record keeping, EquiServe will send you the following
information:

] For each initial cash investment, additional cash purchase, sale or gift
that you make or receive, a statement detailing the transaction;

] For each dividend reinvested, a statement detailing all activity in your
account for that calendar year; and

] For any transactions you make after the fourth quarter dividend, an
updated cumulative statement detailing all activity in your account for
that year.

IT IS VERY IMPORTANT TO RETAIN YOUR
STATEMENTS IN A SAFE PLACE FOR TAX
PURPOSES. EQUISERVE WILL CHARGE YOU $5
PER YEAR (UP TO $25) FOR EACH DUPLICATE
STATEMENT YOU REQUEST FOR ACCOUNT
ACTIVITY OLDER THAN TWO CALENDAR YEARS.

In addition to reports regarding CONOCO CONNECTION, you'll receive copies
of the same communications sent to all other holders of Conoco Common
Stock, such as annual reports and proxy statements. You will also receive
any Internal Revenue Service information returns, if required.

22.WILL I RECEIVE STOCK CERTIFICATES FOR SHARES I PURCHASE THROUGH CONOCO
CONNECTION?

You will not receive stock certificates for shares purchased through CONOCO
CONNECTION. EquiServe will credit those shares in book-entry form to an
account in your name at EquiServe. Similarly, any stock certificates which
you may send to EquiServe for deposit will be converted into book-entry
shares and credited to your account.

23. HOW DO I GET A STOCK CERTIFICATE FOR THE SHARES CREDITED TO MY ACCOUNT?

To obtain stock certificates for all or some of your shares, you can access
your account via the Internet at www.equiserve.com, or call, write, or fax
EquiServe. This service is free.

Stock certificates for fractional shares cannot be issued. Instead,
EquiServe will sell any fractional shares and send you a check for the net
sale proceeds.

24. WHY SHOULD I DEPOSIT MY STOCK CERTIFICATES WITH EQUISERVE? HOW CAN I DO
THIS?

Your stock certificates are valuable and expensive to replace if lost or
stolen. CONOCO CONNECTION offers you the convenience of depositing your
stock certificates for conversion into book-entry shares at any time.

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<PAGE> 23

Once converted, your book-entry shares are credited to your account and may
be transferred or sold through CONOCO CONNECTION in the same convenient way
as those shares you acquire through CONOCO CONNECTION.

Depositing your stock certificates does not require that you reinvest your
dividends.

To deposit stock certificates into your CONOCO CONNECTION account, send the
unendorsed certificates to:

CONOCO CONNECTION
C/O EQUISERVE
P.O. BOX 2598
JERSEY CITY, NJ 07303-2598

To insure against loss resulting from mailing certificates, Conoco will
provide mail insurance free of charge. To be eligible for certificate
mailing insurance, a stockholder must observe the following guidelines.
Certificates must be mailed in brown, pre-addressed return envelopes
provided by EquiServe. Certificates mailed to EquiServe will be insured for
the current market value (up to $25,000) provided they are mailed first
class. Stockholders must notify EquiServe of any lost certificate claim
within 30 calendar days of the date the certificates were mailed. To submit
a claim, a stockholder must be a participant in CONOCO CONNECTION or a
current stockholder of record of shares of Conoco stock. In the latter
case, the claimant must enroll in CONOCO CONNECTION at the time the
insurance claim is processed. The maximum insurance protection provided is
$25,000 and coverage is available only when the certificate(s) are sent to
EquiServe in accordance with the guidelines described above.

Insurance covers the replacement of shares of Conoco stock, but in no way
protects against any loss resulting from fluctuations in the value of such
shares from the time the individual mails the certificates until such time
as replacement can be completed.

If the stockholder does not use the brown, pre-addressed envelope provided
by EquiServe, or if the market value of the shares being mailed is greater
than $25,000, certificates mailed should be insured for possible mail loss
for 2% of the market value (minimum of $20). This represents the
stockholder's replacement cost if the certificates are lost in transit to
EquiServe.

There is no charge for depositing your stock certificates. You also may
request a stock certificate for any of your deposited shares at any time,
free of charge. See Question 23.

25. WHAT IS THE "BOOK-ENTRY" PROCEDURE FOR HOLDING AND TRANSFERRING SHARES?

The book-entry procedure for share ownership is a way for stockholders to
hold and transfer their shares, without having

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<PAGE> 24

to use physical stock certificates. Book-entry share ownership provides
benefits to Conoco and the participants in CONOCO CONNECTION by:

] eliminating the chance of lost or destroyed certificates;

] eliminating the need for certificate storage; and

] reducing the costs associated with the issuance and delivery of physical
stock certificates.

At any time, participants may request and receive stock certificates for
whole shares that are held in book-entry form by following the procedures
set forth in Question 23, How do I get a stock certificate for my shares
held in safekeeping? You may also sell shares held in book-entry form by
following the procedures set out in Question 17, How do I Sell Shares?

All Class B shares were initially distributed as book-entry shares, so most
Class B stockholders already hold their shares in this manner, unless they
have requested a stock certificate.

26. WHAT ARE THE TAX CONSEQUENCES OF PARTICIPATING IN CONOCO CONNECTION?

All the dividends paid to you -- whether or not they are reinvested -- are
considered taxable income to you in the year they are paid by Conoco. Also,
the Internal Revenue Service will treat as taxable income any brokerage
commissions [and fees] that Conoco pays on your behalf for the reinvestment
of dividends. The total amount will be reported to you and to the Internal
Revenue Service on IRS Form 1099-DIV which will be mailed by January 31.

All shares of Conoco common stock that are sold through EquiServe will be
reported to the IRS as required by law. IRS Form 1099-B will be mailed by
January 31 to all those who sold stock through CONOCO CONNECTION. The
1099-B form will only include proceeds you received from the sale of your
shares. You are responsible for calculating the cost basis of the shares
you sold and any gain or loss on the sale.

BE SURE TO KEEP YOUR ACCOUNT STATEMENTS
FOR INCOME TAX PURPOSES. IF YOU HAVE
QUESTIONS ABOUT THE TAX IMPACT OF ANY
TRANSACTIONS YOU ARE CONTEMPLATING,
PLEASE CONSULT YOUR OWN TAX ADVISOR.

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<PAGE> 25

27. WILL FEDERAL INCOME TAX BE WITHHELD FROM DIVIDENDS OR SALES PROCEEDS?

] UNITED STATES STOCKHOLDERS:

- Federal law requires EquiServe to withhold an amount, currently 31%,
from the amount of dividends and the proceeds of any sale of shares if:

V you fail to certify (either on your Enrollment Authorization Form or
on Form W-9) to EquiServe that you are not subject to backup
withholding and that the taxpayer identification number on your
account is correct, or

V the IRS notifies Conoco or EquiServe that you are subject to backup
withholding.

- Any amounts withheld will be deducted from your dividends and/or from
the proceeds of any sale of your shares, and the remaining amount will
be reinvested or paid as you have instructed.

- You may obtain a W-9 by calling EquiServe.

] FOREIGN STOCKHOLDERS:

Any required United States income tax withholding will be deducted from
dividends and/or sale proceeds and the remaining amount will be reinvested
or paid as you have instructed.

28. HOW DO I VOTE MY CONOCO CONNECTION SHARES AT STOCKHOLDER MEETINGS?

For every stockholder meeting, you will receive a proxy that will cover all
the Conoco shares you hold both in CONOCO CONNECTION and in the form of
stock certificates. The proxy will allow you to indicate how you want your
shares to be voted. Your shares will be voted only as you indicate,
according to the instructions provided on the proxy card and in the
materials accompanying the proxy. If you own both Class A shares and Class
B shares, you will receive separate proxies for each class.

29. WHAT IF CONOCO ISSUES A STOCK DIVIDEND OR DECLARES A STOCK SPLIT OR RIGHTS
OFFERING?

If Conoco declares a stock split or stock dividend, the new shares will be
added to your account or distributed in the form of a stock certificate at
the discretion of Conoco.

In the event of a stock subscription or other offering of rights to
stockholders, your rights will be based on the shares held in your account
plus any shares you hold that are represented by stock certificates. A
single set of materials will be distributed that will allow you to exercise
your rights for all shares you own.

24
<PAGE> 26

30. CAN CONOCO CONNECTION BE CHANGED?

Conoco can change or terminate CONOCO CONNECTION at any time. Conoco also
reserves the right to terminate any participant's participation in CONOCO
CONNECTION for any reason in its sole discretion. We will send you written
notice of any significant changes or upon termination. CONOCO CONNECTION
changes or termination will not affect your rights as a stockholder in any
way.

31. WHAT LAW APPLIES TO CONOCO CONNECTION?

Delaware law governs the terms and conditions in this document, as well as
those that are described in detail on all forms and account statements.

32. HOW WILL CONOCO USE THE PROCEEDS FROM ITS SALE OF STOCK?

Conoco currently anticipates that all purchases by CONOCO CONNECTION will
be made on the open market. Conoco will not receive any proceeds from these
purchases. However, if CONOCO CONNECTION purchases are made from newly
issued shares or previously issued shares held in Conoco's treasury, Conoco
would receive the proceeds and use them for general corporate purposes. We
are unable to estimate the total amount of these shares or proceeds.

25
<PAGE> 27

RISK FACTORS

You should consider carefully all of the information set forth or
incorporated by reference in this document and, in particular, the following
risk factors in considering whether or not to purchase shares through CONOCO
CONNECTION. In addition, for a discussion of additional uncertainties associated
with the business of Conoco and forward-looking statements in this document,
please see "Special Note on Forward-Looking Information" on page 30.

LOW OIL AND GAS PRICES HAVE NEGATIVELY AFFECTED CONOCO'S FINANCIAL RESULTS AND
MAY CONTINUE TO DO SO IN THE FUTURE

Crude oil prices declined substantially in 1998 and in early 1999 and these
depressed prices could reoccur. Decreases in crude oil and natural gas prices
and refined product margins adversely affect Conoco. Lower crude oil and natural
gas prices had a significant negative impact on Conoco's financial results in
1998 and in the first quarter of 1999. Conoco's net income fell 59 percent in
1998 compared to 1997. As a result of reduced crude oil and petroleum product
price levels in 1998, Conoco wrote down its inventories by $97 million in the
fourth quarter of 1998 in accordance with Conoco's inventory valuation policy.
Future declines in commodity prices could necessitate further write-downs. Lower
crude oil and natural gas prices may reduce the amount of oil and natural gas
reserves Conoco can produce economically, and existing contracts that Conoco has
entered into may become uneconomic.

Conoco has no control over many factors affecting prices for its products.
Prices for crude oil, natural gas, and refined products may fluctuate widely in
response to changes in global and regional supply, political developments and
the ability of the Organization of Petroleum Exporting Countries and other
producing nations to set and maintain production levels and prices. Prices for
crude oil, natural gas and refined products are also affected by changes in
demand for these products, which may result from global events, as well as
supply and demand in industrial markets, such as the steel and aluminum markets.
For a discussion of recent oil and gas prices and their effect on Conoco, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 44 and 46.

GLOBAL POLITICAL AND ECONOMIC DEVELOPMENTS MAY HURT CONOCO'S OPERATIONS

Local political and economic factors in international markets may have a
material adverse effect on Conoco. Approximately 43 percent of Conoco's sales in
1998 were derived from markets outside the United States, and approximately 73
percent of Conoco's proved reserves at December 31, 1998 were located outside of
the United States.

There are many risks associated with operations in international markets,
including changes in foreign governmental policies relating to crude oil,
natural gas or refined product pricing and taxation, other political, economic
or diplomatic developments, changing political conditions and international
monetary fluctuations. These risks include:

- political and economic instability or war;

- the possibility that a foreign government may seize Conoco's property
with or without compensation;

- confiscatory taxation;

- a foreign government attempting to renegotiate or revoke existing
contractual arrangements; and

- fluctuating currency values, hard currency shortages and currency
controls.

Recent turmoil in regions such as Russia, Southeast Asia and South America has
subjected Conoco's operations in these regions to increased risks.

Actions of the United States government through tax and other legislation,
executive order and commercial restrictions could adversely affect Conoco's
operating profitability both in the U.S. and overseas. The United States
government can prevent or restrict Conoco from doing business in foreign
countries. These restrictions and those of foreign governments have in the past
limited Conoco's ability to
26
<PAGE> 28

operate in or gain access to opportunities in various countries. Various
agencies of the United States and other governments have from time to time
imposed restrictions on Conoco's ability to operate in or gain attractive
opportunities in various countries. Actions by both the United States and host
governments have affected operations significantly in the past and will continue
to do so in the future.

Conoco is also exposed to risks associated with fluctuations in foreign
currency exchange rates as indicated in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Market Risks -- Foreign
Currency Risk" on page 58.

THE OIL AND GAS RESERVES DATA IN THIS DOCUMENT ARE ONLY ESTIMATES, AND MAY PROVE
TO BE INACCURATE

The reserve data included in this document represent estimates only. Actual
production, revenues and expenditures with respect to Conoco's reserves will
probably vary from these estimates, and such variances may be material. Many of
the factors, assumptions and variables involved in estimating reserves are
beyond the control of Conoco, and may prove to be incorrect over time.

The reliability of reserve estimates depends on the quality and quantity of
technical and economic data, the production performance of the reservoirs and
extensive engineering judgment. Results of drilling, testing and production
after the date of the estimates may require substantial upward or downward
revisions. Adverse changes in economic conditions, including a drop in crude oil
or natural gas prices, may render it uneconomical to produce reserves that are
more expensive to produce. For more information on Conoco's oil and gas reserves
data, see "Business of Conoco -- Upstream" on page 60.

CONOCO'S GROWTH DEPENDS ON FINDING NEW RESERVES

Conoco's ability to achieve its growth objectives depends upon its success
in finding, acquiring or gaining access to additional reserves. Conoco's future
drilling, exploration and acquisition activities may not be successful. If these
activities are unsuccessful, this failure would have an adverse effect on
Conoco's future results of operations and financial condition.

In general, production from oil and natural gas properties declines as
reserves are depleted, with the rate of decline depending on reservoir
characteristics. If Conoco does not conduct successful exploration and
development activities, or acquire properties containing proved reserves, its
total proved reserves will decline.

Conoco's exploration and development activities expose it to inherent
drilling risks, including the risk that it will not find any economically
productive natural gas or oil reservoirs. The costs of drilling, completing and
operating wells are often uncertain, and numerous factors beyond Conoco's
control may cause drilling operations to be curtailed, delayed or cancelled.

CONOCO MAY INCUR MATERIAL COSTS TO COMPLY WITH ENVIRONMENTAL REGULATIONS

Compliance with environmental regulations could have a material adverse
effect on Conoco. Conoco incurs, and expects to continue to incur, substantial
capital and operating costs to comply with increasingly complex laws and
regulations covering the protection of the environment, including costs to
remediate contamination at various owned and previously owned facilities and at
third-party sites where Conoco's products or wastes have been handled or
disposed.

New laws and regulations, the imposition of tougher requirements in
permits, increasingly strict enforcement of existing laws and regulations or the
discovery of previously unknown contamination may require future expenditures
to:

- modify operations;

- install pollution control equipment;

- perform site clean ups; or

- curtail Conoco's operations.

27
<PAGE> 29

These future expenditures or curtailments could have a material adverse effect
on Conoco. For more information about environmental risks, see
"Business -- Environmental Regulation" on page 87.

CHANGES IN GOVERNMENT REGULATIONS MAY IMPOSE PRICE CONTROLS AND LIMITATIONS ON
PRODUCTION OF OIL AND GAS

Conoco's operations are subject to extensive government regulations. From
time to time, regulatory agencies have imposed price controls and limitations on
production by restricting the rate of flow of oil and natural gas wells below
actual production capacity in order to conserve supplies of oil and natural gas.
Because legal requirements are frequently changed and subject to interpretation,
Conoco cannot predict the effect of these requirements.

POTENTIAL YEAR 2000 PROBLEMS MAY ADVERSELY AFFECT CONOCO'S BUSINESS

Many existing computer programs were designed and developed using only two
digits to represent the year of a date. This failure to consider the upcoming
change in the century could lead to the failure of computer applications or
create erroneous results by or at the year 2000. Failure by Conoco, its business
associates or other constituents, such as governments, to ensure their computer
systems are Year 2000 compliant on a timely basis could have a material adverse
effect on Conoco's financial position and results of operations. For more
information about Year 2000 risks, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000" on page 52.

PROVISIONS IN CONOCO'S BY-LAWS, CERTIFICATE OF INCORPORATION, AND DELAWARE LAW
COULD DETER TAKEOVER ATTEMPTS

Conoco's certificate of incorporation and by-laws contain a number of
provisions that may discourage, delay or prevent a merger or acquisition of
control of Conoco without the approval of Conoco's board of directors.
Provisions of Delaware law may also discourage, delay or prevent someone from
acquiring or merging with Conoco. For a detailed explanation of these
provisions, see "Description of Conoco Capital Stock -- Anti-Takeover Effects of
Certificate and By-law Provisions."

CONOCO MAY NOT PAY DIVIDENDS ON ITS COMMON STOCK

Conoco's shareholders may not receive future dividends. The amount of cash
dividends, if any, to be declared and paid will depend upon declaration by
Conoco's board of directors and upon Conoco's financial condition, results of
operations, cash flow, the level of its capital and exploration expenditures,
its future business prospects and other related matters that Conoco's board of
directors deems relevant.

28
<PAGE> 30

PRICE RANGE OF CONOCO COMMON STOCK AND DIVIDENDS

Conoco Class A common stock and Class B common stock are currently listed
and traded on the NYSE under the symbols "COC.A" and "COC.B." Class A common
stock began trading on October 22, 1998 following the Conoco initial public
offering. Class B common stock began trading on August 16, 1999 following
Conoco's split-off from DuPont. The following table contains, for the periods
indicated, the high and low sale prices per share of Conoco Class A and Class B
common stock as reported on the NYSE composite tape and the cash dividends per
share of Conoco Class A and Class B common stock:

<TABLE>
<CAPTION>
CASH
CLASS A COMMON STOCK HIGH LOW DIVIDENDS
- -------------------- ---- --- ---------
<S> <C> <C> <C>
1998
Fourth Quarter (from October 22 through December 31,
1998).................................................. $25 3/4 $19 3/8 $ --
1999
First Quarter............................................. $25 7/16 $19 3/8 $0.14(1)
Second Quarter............................................ 31 1/4 22 15/16 0.19
Third Quarter............................................. 29 1/4 25 5/16 0.19
Fourth Quarter (through October 5, 1999).................. 27 3/4 25 3/4
CLASS B COMMON STOCK
- ------------------------------------------------------------
1999
Third Quarter (from August 16 through September 30,
1999).................................................. $29 3/8 $24 1/2 $0.19
Fourth Quarter (through October 5, 1999).................. 27 3/8 25 15/16
</TABLE>

- ------------
(1) The initial dividend was determined on a pro rata basis covering the period
from October 27, 1998, the closing date of the Conoco initial public
offering, to December 31, 1998, and is equivalent to $0.19 per share for a
full quarter.

The number of holders of record of Conoco's Class A common stock as of
September 30, 1999 was 1,890. The number of holders of record of Conoco's Class
B common stock on September 30, 1999 was 5,906.

Conoco's board of directors may declare dividends on Conoco common stock
after considering many factors, including Conoco's competitive position,
available cash, financial condition, earnings and capital requirements. Conoco
may choose not to pay dividends in the future.

29
<PAGE> 31

SPECIAL NOTE ON FORWARD-LOOKING INFORMATION

This document includes 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. You can identify our forward-looking statements by the
words "expects," "intends," "plans," "projects," "believes," "estimates" and
similar expressions.

For a discussion identifying some important factors that could cause actual
results to vary materially from those anticipated in the forward-looking
statements, see "Risk Factors" on page 26, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 34. Also see
Conoco's SEC filings.

Conoco based the forward-looking statements relating to its operations on
its current expectations, estimates and projections about Conoco and the
petroleum industry in general. Conoco cautions you that these statements are not
guarantees of future performance and involve risks, uncertainties and
assumptions that Conoco cannot predict. In addition, Conoco has based many of
these forward-looking statements on assumptions about future events that may
prove to be inaccurate. Accordingly, Conoco's actual outcomes and results may
differ materially from what Conoco has expressed or forecasted in the
forward-looking statements. Any differences could result from a variety of
factors including the following:

- fluctuations in crude oil and natural gas prices and refining and
marketing margins;

- failure or delays in achieving expected production from oil and gas
development projects;

- uncertainties inherent in predicting oil and gas reserves and oil and gas
reservoir performance;

- lack of exploration success;

- disruption or interruption of Conoco's production facilities due to
accidents or political events;

- international monetary conditions and exchange controls;

- liability for remedial actions under environmental regulations;

- disruption to Conoco's operations due to untimely or incomplete
resolution of Year 2000 issues by Conoco or other entities;

- liability resulting from litigation;

- world economic and political conditions; and

- changes in tax and other laws applicable to Conoco's business.

30
<PAGE> 32

SELECTED HISTORICAL FINANCIAL DATA OF CONOCO

The following table contains summary historical financial data of Conoco as
of the dates and for the periods indicated. The information may not necessarily
reflect the results of operations, financial position and cash flows of Conoco
in the future or what the results of operations, financial position and cash
flows would have been had Conoco been a separate, stand-alone entity during all
of the periods presented. The information is only a summary and you should read
it together with the consolidated financial statements of Conoco and the other
information about Conoco included elsewhere in this document. You should also
read the "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" sections of this document,
which describe Conoco's business, as well as a number of factors that have
affected Conoco's financial results, including declining crude oil and natural
gas prices.

31
<PAGE> 33

CONOCO

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total Revenues(1)............................... $11,664 $11,486 $23,168 $26,263 $24,416 $20,518 $19,433
Cost of Goods Sold and Other Operating
Expenses...................................... 6,887 6,754 13,840 16,226 14,560 11,146 10,640
Selling, General and Administrative Expenses.... 383 370 736 726 755 728 679
Stock Option Provision.......................... -- -- 236 -- -- -- --
Exploration Expenses(2)......................... 120 176 380 457 404 331 357
Depreciation, Depletion and Amortization........ 584 505 1,113 1,179 1,085 1,067 1,244
Taxes Other Than on Income(1)................... 3,246 2,896 5,970 5,532 5,637 5,823 5,477
Interest and Debt Expense....................... 150 1 199 36 74 74 63
------- ------- ------- ------- ------- ------- -------
Income Before Income Taxes...................... 294 784 694 2,107 1,901 1,349 973
Provision for Income Taxes...................... 97 254 244 1,010 1,038 774 551
------- ------- ------- ------- ------- ------- -------
Net Income(3)............................... $ 197 $ 530 $ 450 $ 1,097 $ 863 $ 575 $ 422
======= ======= ======= ======= ======= ======= =======
Segment Net Income:
Upstream:
United States................................. $ 92 $ 144 $ 219 $ 445 $ 314 $ 258 $ 248
International................................. 154 215 283 439 367 234 250
Downstream:
United States................................. 45 86 135 216 172 112 104
International................................. 42 95 156 91 117 121 137
Corporate and Other(3).......................... (136) (10) (343) (94) (107) (150) (317)
------- ------- ------- ------- ------- ------- -------
$ 197 $ 530 $ 450 $ 1,097 $ 863 $ 575 $ 422
======= ======= ======= ======= ======= ======= =======
Earnings Per Share
Basic......................................... $ 0.31 $ 1.21 $ 0.95 $ 2.51 $ 1.98 $ 1.32 $ 0.97
Diluted....................................... $ 0.31 $ 1.21 $ 0.95 $ 2.51 $ 1.98 $ 1.32 $ 0.97
Weighted Average Shares Outstanding
Basic......................................... 628 437 474 437 437 437 437
Diluted....................................... 636 437 475 437 437 437 437
Dividends Per Share of Common Stock(4).......... $ .33 $ -- $ -- $ -- $ -- $ -- $ --
OTHER DATA:
Cash Provided By Operations..................... $ 670 $ 548 $ 1,373 $ 2,876 $ 2,396 $ 1,924 $ 2,143
Capital Expenditures and Investments............ 794 1,050 2,516 3,114 1,944 1,837 1,665
Cash Used for Investing
Activities.................................... 895 718 1,598 2,037 1,647 1,677 1,364
Cash Used for (Provided from) Financing
Activities.................................... (98) 149 555 499 187 313 773
Cash Exploration Expense........................ 65 105 217 286 262 204 200
</TABLE>

(2) Includes cash exploration overhead and operating expense, depreciation,
depletion and amortization, dry hole costs and impairments of unproved
properties.

(3) Includes after-tax exchange gains (losses) of $32, $21, $(7), $(40) and
$(143) for 1998, 1997, 1996, 1995 and 1994 and $6 and $5 for the first six
months of 1999 and 1998.

32
<PAGE> 34

CONOCO

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------------------------------
1999 1998 1997 1996 1995 1994
-------- ---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents................................ $ 252 $ 394 $ 1,147 $ 846 $ 286 $ 319
Working Capital.......................................... (758)(1) 45 567 862 999 1,790
Net Property, Plant and Equipment........................ 11,197 11,413 10,828 10,082 9,758 9,522
Total Assets............................................. 15,891 16,075 17,062 15,226 14,229 15,271]
Long-Term Borrowings -- Related Parties.................. -- 4,596 1,450 2,287 2,141 2,279
Other Long-Term Borrowings and Capital Lease
Obligations............................................ 4,086 93 106 101 65 342
Total Stockholders' Equity/Owner's Net Investment........ 4,331 4,438 7,896 6,579 6,754 7,274
OPERATING DATA:
Proved Reserves at December 31:
Oil (MMbbls)........................................... 1,591 1,624 973 977 988
Natural Gas (Bcf)...................................... 6,183 5,861 5,396 5,048 4,674
Total Proved Reserves (MMBOE).......................... 2,622 2,601 1,872 1,818 1,767
International Proved Reserves (% of Total)............... 73% 73% 65% 63% 61%
Reserve Replacement Ratio................................ 110% 448% 126% 127% 157%
Reserve Life (years)(2).................................. 12.3 12.4 8.9 9.3 8.2
Finding and Development Costs
per BOE(3)............................................. $ 4.03 $ 3.63 $ 4.84 $ 5.39 $ 6.24
Average Daily Production:
Oil (Mbbls/day)........................................ 348 374 374 346 367
Natural Gas (MMcf/day)................................. 1,411 1,203 1,211 1,126 1,327
Total Production (MBOE/day)............................ 583 575 576 534 588
Average Production Costs per BOE(4)...................... $ 3.95 $ 4.21 $ 3.84 $ 3.92 $ 3.59
Refinery Capacity at December 31 (Mbbls/day)(5).......... 807 754 743 621 602
Refinery Utilization(5).................................. 92% 91% 83% 97% 99%
Total Refinery Inputs (Mbbls/day)(6)..................... 823 780 732 721 697
Sales of Refined Products (Mbbls/day).................... 1,049 1,048 998 983 931
Retail Marketing Outlets at December 31(7):
United States.......................................... 4,897 4,903 4,976 5,125 5,196
International.......................................... 3,023 2,971 2,874 2,390 2,438
</TABLE>

- ------------

(1) The working capital deficit results from the issuance of short-term
commercial paper to repay the remaining related-party debt owed to DuPont.

(2) Total proved reserves at December 31 divided by annual production, excluding
natural gas liquids from gas plant ownership.

(3) Finding and development costs per barrel-of-oil-equivalent represent a
trailing five-year average for each year displayed.

(4) Excludes equity affiliates and processed natural gas liquids.

(5) Based on rated capacity to process crude oil and condensate excluding other
feedstocks.

(7) Represents outlets owned by Conoco and others that sell Conoco's refined
products.

33
<PAGE> 35

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The discussion and analysis of Conoco's financial condition and results of
operations should be read together with the consolidated financial statements of
Conoco included in this document.

At the time of its initial public offering, Conoco's capital structure was
established and the transfer to Conoco of subsidiaries previously owned by
DuPont was substantially completed, resulting in direct ownership of those
subsidiaries. Accordingly, for periods subsequent to Conoco's initial public
offering, financial information is presented on a consolidated basis.

Prior to the date of Conoco's initial public offering, operations were
conducted by Conoco Inc., subsidiaries of Conoco Inc. and, in some cases,
subsidiaries of DuPont. The accompanying consolidated financial statements of
Conoco for these periods are presented on a carve-out basis prepared from
DuPont's historical accounting records, and include the historical operations of
both entities owned by Conoco and operations transferred to Conoco by DuPont at
the time of the initial public offering. In this context, no direct ownership
relationship existed among all the various units comprising Conoco. Accordingly,
DuPont and its subsidiaries' net investment in Conoco, presented as owner's net
investment, is shown in lieu of stockholders' equity in the consolidated
financial statements for periods prior to the initial public offering.

Conoco's consolidated statement of income includes all revenues and costs
directly attributable to Conoco, including costs for facilities, functions and
services used by Conoco at shared sites and costs for functions and services
performed by centralized DuPont organizations and directly charged to Conoco
based on usage. In addition, services performed by Conoco on DuPont's behalf are
directly charged to DuPont. The results of operations also include allocations
of DuPont's general corporate expenses through the date of the initial public
offering.

Prior to the date of the initial public offering, all charges and
allocations of cost for facilities, functions and services performed by DuPont
organizations for Conoco have been deemed to have been paid by Conoco to DuPont,
in cash, in the period in which the cost was recorded in Conoco's consolidated
financial statements. Allocations of current income taxes receivable or payable
are similarly deemed to have been remitted, in cash, by or to DuPont in the
period the related income taxes were recorded. Subsequent to the initial public
offering, such costs are billed directly under transitional service agreements,
and income taxes are paid directly to the taxing authorities, or to DuPont, as
appropriate.

Conoco has four reporting segments for its upstream and downstream
businesses, reflecting geographic division between the United States and
international. Activities of the upstream business include exploring for, and
developing, producing and selling, crude oil, natural gas and natural gas
liquids. Activities of the downstream business include refining crude oil and
other feedstocks into petroleum products, buying and selling crude oil and
refined products and transporting, distributing and marketing petroleum
products. Corporate and other includes general corporate expenses, financing
costs and other non-operating items, and results for electric power and
related-party insurance operations.

Conoco considers portfolio optimization to be an ongoing business strategy
and continuously seeks to improve the balance of properties in its investment
portfolio in order to maximize profitability. Over the past five years, Conoco
has generated proceeds of approximately $2,126 million, averaging about $425
million a year, through the disposal of marginal and non-strategic producing
properties, by upgrading and redirecting its exploration portfolio and by
increasing its ownership in large scale properties. As a result, Conoco has
maintained production essentially constant on a barrel-of-oil-equivalent basis
while undergoing these changes in its properties. Conoco's policy is to report
material gains and losses from individual asset sales as special items when
reporting consolidated net income.

Conoco conducts its activities through wholly and majority owned
subsidiaries and, increasingly, through investments in corporate entities,
partnerships and limited liability companies in which Conoco exerts significant
influence, generally having a 20-50% ownership interest. Conoco refers to such
investments in this document as "equity affiliates". This trend of conducting
business in the petroleum
34
<PAGE> 36

industry through equity affiliates is expected to increase in the future as
Conoco attempts to minimize either the capital or political risks associated
with new large-scale, high-impact projects.

LIQUIDITY AND CAPITAL RESOURCES

CASH PROVIDED BY OPERATIONS

Cash provided by operations in the first six months of 1999 increased $122
million to $670 million versus $548 million in the first six months of 1998.
Cash provided by operations before changes in operating assets and liabilities
decreased $282 million compared to the first six months of 1998, primarily due
to lower net realized natural gas prices, weaker refined product margins and
increased interest expense, partly offset by higher volumes. Positive changes to
net operating assets and liabilities of $404 million were due to timing of
payments on other operating liabilities, lower 1999 tax payments and higher 1999
accrued interest expense. Partly offsetting these improvements was an increase
in accounts receivable due to the rise in crude oil prices during the first half
of 1999 as compared to the decrease in crude oil prices during the first half of
1998.

Cash provided by operations in 1998 decreased $1,503 million to $1,373
million versus $2,876 million in 1997. Cash provided by operations before
changes in operating assets and liabilities decreased $303 million compared to
1997. The decrease was primarily due to lower net realized crude oil and natural
gas prices, partially offset by higher natural gas volumes and improved
international downstream margins. Negative changes to net operating assets and
liabilities of $1,200 million were due to higher tax payments attributable to
1997 asset sales and a decrease in accounts payable, offset by a decrease in
accounts receivable due to lower crude oil prices.

Cash provided by operations increased $480 million, or 20 percent, to
$2,876 million during 1997 versus $2,396 million in 1996. Positive changes to
net operating assets and liabilities of $446 million were principally due to the
$303 million received from a contract for future sales of natural gas to
Centrica, a United Kingdom gas marketing company.

INVESTMENT ACTIVITIES

CAPITAL EXPENDITURES AND INVESTMENTS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30 YEAR ENDED DECEMBER 31
------------- --------------------------
1999 1998 1998 1997 1996
---- ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Upstream:
United States.................................. $207 $ 384 $ 788 $1,534 $ 400
International.................................. 376 420 1,177 999 864
---- ------ ------ ------ ------
Total Upstream......................... $583 $ 804 $1,965 $2,533 $1,264
Downstream:
United States.................................. $ 79 $ 80 $ 201 $ 227 $ 218
International.................................. 119 161 332 331 462
---- ------ ------ ------ ------
Total Downstream....................... $198 $ 241 $ 533 $ 558 $ 680
Corporate and Other.............................. 13 5 18 23 --
---- ------ ------ ------ ------
Total Capital Expenditures and
Investments.......................... $794 $1,050 $2,516 $3,114 $1,944
==== ====== ====== ====== ======
United States.................................... $299 $ 469 $1,007 $1,761 $ 618
International.................................... 495 581 1,509 1,353 1,326
---- ------ ------ ------ ------
Total.................................. $794 $1,050 $2,516 $3,114 $1,944
==== ====== ====== ====== ======
</TABLE>

Total capital expenditures and investments were $794 million, a decrease of
$256 million, or 24 percent, versus capital expenditures and investments of
$1,050 for the first six months of 1998. The first six

35
<PAGE> 37

months of 1999 excluded amounts paid in the first quarter of 1999 for the
completion of 1998 acquisitions. The decrease is primarily due to lower spending
on upstream capital projects in the United States.

Total capital investments in 1998 were $2,516 million, a decrease of 19
percent versus 1997 capital investments of $3,114 million, which included a $929
million acquisition of natural gas properties and transportation assets in the
Lobo trend in South Texas. Approximately 60 percent of 1998 capital investments
were outside the United States. About 78 percent of 1998 capital investments
were spent in upstream, with a majority of this devoted to development projects
in South Texas, deepwater Gulf of Mexico, Venezuela, the United Kingdom and
Norway. Approximately $312 million was spent on exploratory drilling and
leasing. Downstream capital investments in 1998 included completion of the
Melaka refinery in Malaysia, expansion of retail marketing operations,
particularly in Europe, and upgrades and maintenance of existing facilities.
Conoco also spent approximately $18 million for corporate software in 1998.

Total capital investments, including investments in affiliates and
acquisitions, were $3,114 million in 1997, a 60 percent increase over 1996
capital investments of $1,944 million. This increase primarily reflects the Lobo
acquisition.

Discussed below is a more detailed analysis of capital expenditures and
investments by operating segments within the U.S. and international. Capital
expenditures and investments do not include expensed exploration costs.

UPSTREAM
--------

Upstream capital expenditures and investments totaled $583 million in the
first six months of 1999. The first six months of 1999 excluded amounts paid in
the first quarter of 1999 for the completion of 1998 acquisitions. The decrease
was $221 million, or approximately 27 percent, compared to $804 million for the
first six months of 1998, primarily a result of an overall reduction in the
capital expenditure program, including exploration, partly offset by increased
1999 investments in Petrozuata, a joint venture in Venezuela.

Upstream capital investments totaled $1,965 million in 1998, a decrease of
$568 million, or 22 percent, compared to $2,533 million in 1997, which included
the $929 million Lobo acquisition.

Upstream capital investments totaled $2,533 million in 1997, an increase of
$1,269 million, or 100 percent, compared to $1,264 million in 1996, primarily as
a result of the Lobo acquisition. The Lobo acquisition added significant
reserves and 1,150 miles of natural gas gathering and transportation pipeline,
providing direct access to major Texas intrastate and interstate pipelines. As a
result, Conoco is the largest natural gas producer in the area and the second
largest natural gas producer in Texas.

Conoco adjusts its capital expenditure budgets on an annual basis. Conoco
currently has long-term commitments to fund the following upstream projects:

- $275 million in equity advances for Petrozuata;

- $250 million for three major projects in Norway;

- $170 million for the West Natuna gas development project in Indonesia;
and

- $490 million for charter fees for Conoco's two new drillships.

United States

During the first six months of 1999, Conoco spent $207 million on upstream
capital projects in the United States, a decrease of $177 million, or 46
percent, from $384 million in the first six months of 1998. Expenditures in the
first six months of 1999 focused on the continued development of the Lobo field
in South Texas and the completion of the Ursa field, as well as the drilling of
the Magnolia discovery in the deepwater Gulf of Mexico.
36
<PAGE> 38

In 1998, U.S. capital investments were $788 million, a decrease of $746
million, or 49 percent, compared to 1997 U.S. capital investments of $1,534
million, which included the $929 million Lobo acquisition. Expenditures in 1998
focused on continuing operations and development. This included

- the development of the Lobo field and the Ursa field in the deepwater
Gulf of Mexico;

- the construction of two deepwater drillships, the first of which went
into service in January 1999 in the Gulf of Mexico, and the second of
which went into service in April 1999 in New Zealand;

- the acquisition of exploratory acreage; and

- the expansion of onshore natural gas operations.

The Ursa field development represents a major development project in the Gulf of
Mexico. The project involved installing a new generation tension leg platform in
approximately 3,900 feet of water. Initial production began in March 1999.

During 1997, Conoco spent $1,534 million on capital projects in the United
States, an increase of $1,134 million, or 284 percent, compared to 1996 U.S.
capital investments of $400 million. Besides the $929 million Lobo acquisition
and exploratory drilling, expenditures focused on

- development of the Ursa field in deepwater Gulf of Mexico;

- construction of two deepwater drillships;

- acquisition of additional reserves and exploratory acreage in the San
Juan Basin; and

- expansion of onshore natural gas operations.

In 1996, U.S. capital investments focused on continuing operations and
development.

International

International upstream capital expenditures and investments totaled $376
million in the first six months of 1999, a decrease of $44 million, or ten
percent, from $420 million in the first six months of 1998. The 1999
expenditures include investments in Petrozuata, as well as continued development
of various fields in the U.K. and the Norwegian sectors of the North Sea.

In 1998, international capital investments were $1,177 million, an increase
of $178 million, or 18 percent, compared to $999 million in 1997. The 1998
increase reflects expenditures to complete the multi-year development program in
the Britannia gas field in the U.K. North Sea, with first production in August
1998. Other significant capital investments were made for exploratory drilling
and development projects such as:

- the Petrozuata joint venture in Venezuela, which also began production in
August 1998;

- the Visund field in the Norwegian North Sea; and

- the Viking Phoenix project in the U.K. North Sea.

Conoco increased its natural gas holdings in the U.K. sector of the North Sea
through its acquisition of the British subsidiary of Canadian Occidental
Petroleum Ltd., which held an interest in the South Valiant, Vulcan and Caister
fields, as well as interests in the Murdoch and Esmond gas transportation
systems.

International capital investments totaled $999 million in 1997, an increase
of $135 million, or 16 percent, compared to international capital investments of
$864 million in 1996. Conoco continued to develop the Britannia gas field in the
U.K. North Sea. Other significant capital investments were made for exploratory
drilling and development projects such as:

- the Petrozuata joint venture in Venezuela;

- the Ukpokiti field offshore Nigeria;

37
<PAGE> 39

- the Visund field in the Norwegian North Sea;

- a methanol plant in Norway; and

- the Boulton gas field in the U.K. North Sea.

In 1996, international capital investments were $864 million, reflecting
expenditures to develop the Britannia field and $67 million to fund Conoco's
share of losses incurred by a European gas marketing joint venture.

DOWNSTREAM
--------

Downstream capital expenditures and investments totaled $198 million in the
first six months of 1999, a decrease of $43 million, or 18 percent, versus $241
million in the first six months of 1998, primarily reflecting reduced
expenditures associated with the Melaka refinery in the Asia Pacific region that
was completed in the second half of 1998.

Downstream capital investments were $533 million in 1998, a decrease of $25
million, or four percent, versus $558 million in 1997, primarily as a result of
lower investments in equity affiliates.

Downstream capital investments totaled $558 million in 1997, a decrease of
$122 million, or 18 percent, versus $680 million in 1996, primarily reflecting
completion of the acidic crude vacuum unit at Conoco's Humber refinery in the
U.K., as well as the acquisition of an equity interest in two refineries in the
Czech Republic during 1996.

Conoco currently has long-term commitments to fund the following downstream
projects:

- $150 million to comply with clean fuels specifications at the Humber
refinery in the U.K.; and

- $165 million to facilitate the processing of Petrozuata synthetic crude
at the Lake Charles refinery.

United States

During the first six months of 1999, Conoco spent $79 million on downstream
capital projects in the United States, down $1 million, or one percent, from $80
million in the first six months of 1998. The majority of the funds spent were
used to support continuing refining operations.

Investments in 1998 totaled $201 million, a decrease of $26 million, or 11
percent, versus 1997 investments of $227 million. Investments in 1998 included
costs for continued operations and optimization of retail marketing operations.
Conoco also invested $8 million for an increased ownership interest in Penreco,
a joint venture with Pennzoil-Quaker State that produces and markets highly
refined specialty petroleum products.

During 1997, Conoco spent $227 million on downstream capital projects in
the United States, an increase of $9 million, or four percent, compared to
investments of $218 million in 1996. The majority of the 1997 funds were used to
support continuing operations and optimization of retail marketing operations.
Conoco also invested funds for an initial equity interest in Penreco.

Capital investments in 1996 totaled $218 million. The most significant
investments related to the completion of the 45,000 barrel per day expansion of
the Lake Charles refinery's sour crude oil processing capability to support the
Excel Paralubes lube oil hydrocracker joint venture with Pennzoil. The lube oil
hydrocracker converts low quality, high sulphur vacuum gas oil into base oil of
extremely high purity and enhances the value of Conoco's finished lubricants
business by producing improved motor oils, transmission fluids and industrial
lubes blended from hydrocracked base oils.

International

During the first six months of 1999, Conoco spent $119 million on
downstream international capital expenditures and investments, down $42 million,
or 26 percent, from $161 million in the first six months of 1998. Expenditures
in the first six months of 1999 focused on strengthening Conoco's retail
marketing
38
<PAGE> 40

position, as well as on investment in the Melaka Refinery in Malaysia and the
Humber Refinery in the U.K.

In 1998, Conoco made capital investments of $332 million including
investments in Conoco's retail marketing position in core markets such as
Germany and Austria, and newer retail markets such as Thailand, as well as
investments for completing the construction of the Melaka refinery, a joint
venture with Petronas and Statoil, which began operation in the third quarter of
1998.

During 1997, Conoco spent $331 million on downstream international capital
investments, a decrease of $131 million, or 28 percent, from 1996 capital
investments of $462 million. The decrease was due to expenditures in 1996
relating to costs for the acidic crude vacuum unit at Conoco's Humber refinery.
The installation of the vacuum unit at the Humber refinery allowed the refinery
to process acidic crude oil, including equity crude oil from the Heidrun field.
Expenditures in 1997 focused on strengthening Conoco's retail marketing position
in core markets such as Germany, Austria and the Nordic countries, expanding in
targeted retail growth markets in Central and Eastern Europe, Spain, Turkey and
the Asia Pacific region, and continuing the construction of the Melaka refinery.

Capital investments in 1996 totaled $462 million and included costs for the
acidic crude vacuum unit at Conoco's Humber refinery, construction expenditures
related to the Melaka refinery, acquisition of equity interests in two Czech
refineries, and expansion of retail marketing operations, particularly in
Eastern Europe. The acquisition of the equity interests in the two Czech
refineries supported the expansion of Conoco's retail marketing operations in
the emerging markets in Eastern Europe, including the Czech Republic, Poland,
Hungary and Slovakia.

CORPORATE AND OTHER
--------

Corporate and other capital expenditures totaled $13 million in the first
six months of 1999. Expenditures were primarily related to project costs
associated with the construction of power generation facilities.

Capital investments in 1998 were $18 million and were primarily associated
with corporate software.

Capital investments in 1997 were $23 million, most of which represent
Conoco's investment in electric power generation projects through international
equity affiliates. Because of deregulation within this industry, Conoco expects
to continue to pursue projects that leverage the economic advantages of Conoco's
energy production activities and the demand for energy in third party
manufacturing operations.

There were no capital investments in corporate and other during 1996.

PROCEEDS FROM SALES OF ASSETS AND SUBSIDIARIES

Conoco's investment activities also included proceeds of $38 million from
the sale of assets during the first six months of 1999, a decrease of $310
million, or 89 percent, from $348 million in the first six months of 1998, which
included $54 million from the sale of North Sea producing and non-producing
properties and $156 million from the sale of various downstream assets in the
U.S. These sales resulted from Conoco's ongoing strategic portfolio realignment.

Conoco's 1998 investment activities included proceeds of $721 million, a 28
percent increase over $565 million in 1997. The 1998 proceeds included $245
million from the sale of upstream U.S. and North Sea properties, $156 million
from the sale of various downstream assets in the U.S., as well as $54 million
from the sale of an office building in Europe.

These and other proceeds are a result of Conoco's ongoing strategic
portfolio management program designed to improve profitability. In recent years,
Conoco has consolidated its exploration and production operations by selling
hundreds of smaller, less efficient properties, while acquiring an increased
interest in its larger producing areas. As a result, Conoco has reduced the
number of producing fields while

39
<PAGE> 41

maintaining production essentially constant on a barrel-of-oil-equivalent basis.
1997 proceeds were $565 million, an increase of $237 million versus 1996
proceeds of $328 million.

FINANCING ACTIVITIES

Conoco's ability to maintain and grow its operating income and cash flow is
dependent upon continued capital spending to replace depleting assets. Conoco
believes its future cash flow from operations and its borrowing capacity should
be sufficient to fund its dividends, if any, capital expenditures and working
capital requirements and to service debt.

In connection with the separation from DuPont, Conoco incurred indebtedness
to DuPont, consisting of a $7,500 million dividend promissory note, other
intercompany notes and borrowings under a revolving credit agreement with
DuPont.

In April 1999, Conoco issued and sold in a public offering $4,000 million
in senior fixed-rate debt securities with a weighted average interest rate of
6.49 percent. The net proceeds of this offering of $3,970 million were used to
repay a portion of Conoco's separation-related indebtedness to DuPont. The
remaining debt owed to DuPont was repaid in May 1999 with proceeds from a
commercial paper program. The commercial paper program provides Conoco with up
to $2,000 million of borrowing capacity and gives Conoco the ability to issue
commercial paper at any time with various maturities not to exceed 270 days. As
of June 30, 1999, Conoco had $988 million of commercial paper outstanding,
bearing a weighted average interest rate of 5.26 percent.

Upon repayment of the indebtedness to DuPont, Conoco and DuPont terminated
the revolving credit agreement.

Total debt of Conoco was $5,105 million at June 30, 1999, up $364 versus
$4,741 million at year-end 1998. The debt-to-capitalization ratio at June 30,
1999 was 54 percent compared to 52 percent at year-end 1998.

40
<PAGE> 42

RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
----------------- ---------------------------
1999 1998 1998 1997 1996
------- ------- ------- ------- -------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
SALES AND OTHER OPERATING REVENUES
Upstream
United States........................... $ 1,407 $ 1,667 $ 3,200 $ 3,348 $ 2,783
International........................... 922 808 1,601 1,906 1,943
------- ------- ------- ------- -------
Total Upstream..................... $ 2,329 $ 2,475 $ 4,801 $ 5,254 $ 4,726
Downstream
United States........................... $ 4,665 $ 4,465 $ 8,949 $11,394 $10,545
International........................... 4,545 4,069 8,297 8,639 8,880
------- ------- ------- ------- -------
Total Downstream................... $ 9,210 $ 8,534 $17,246 $20,033 $19,425
Corporate and Other 24 339 749 509 79
------- ------- ------- ------- -------
Total Sales and Other Operating
Revenues......................... $11,563 $11,348 $22,796 $25,796 $24,230
======= ======= ======= ======= =======
AFTER-TAX OPERATING INCOME
Upstream
United States........................... $ 92 $ 144 $ 219 $ 445 $ 314
International........................... 154 215 283 439 367
------- ------- ------- ------- -------
Total Upstream..................... $ 246 $ 359 $ 502 $ 884 $ 681
Downstream
United States........................... $ 45 $ 86 $ 135 $ 216 $ 172
International........................... 42 95 156 91 117
------- ------- ------- ------- -------
Total Downstream................... $ 87 $ 181 $ 291 $ 307 $ 289
Corporate and Other Operating.............. (34) (39) (271) (82) (74)
------- ------- ------- ------- -------
Total After-Tax Operating Income... $ 299 $ 501 $ 522 $ 1,109 $ 896
Interest and Other Non-Operating Income
Expense
Net of Tax......................... (102) 29 (72) (12) (33)
------- ------- ------- ------- -------
CONSOLIDATED NET INCOME............ $ 197 $ 530 $ 450 $ 1,097 $ 863
======= ======= ======= ======= =======
</TABLE>

41
<PAGE> 43

SPECIAL ITEMS

Consolidated net income includes the following non-recurring special items
on an after-tax basis:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31
------------ -----------------------
1999 1998 1998 1997 1996
----- ---- ------ ------ -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
UPSTREAM
Asset sales............................................ -- $54 $ 95 $ 240 $ 16
Property impairments................................... -- -- (38) (112) (63)
Tax rate changes....................................... -- -- -- 19 --
Employee separation costs.............................. -- -- (42) -- (11)
Inventory write-downs.................................. -- -- (4) -- --
----- --- ----- ----- ----
Total Upstream Special Items................. -- 54 $ 11 $ 147 $(58)
===== === ===== ===== ====
DOWNSTREAM
Asset sales............................................ -- -- $ 12 $ -- $ 19
Property impairments................................... -- -- -- (55) --
Tax rate changes....................................... -- -- -- 11 --
Environmental insurance litigation recoveries.......... -- -- -- -- 44
Employee separation costs.............................. -- -- (10) -- (11)
Inventory write-downs.................................. -- -- (59) -- --
Environmental litigation settlements................... -- (28) (28) (23) --
----- --- ----- ----- ----
Total Downstream Special Items............... -- (28) $ (85) $ (67) $ 52
===== === ===== ===== ====
CORPORATE AND OTHER
Stock option provision................................. -- -- $(183) $ -- $ --
Environmental litigation settlements................... -- -- (14) -- --
----- --- ----- ----- ----
Total Corporate and Other Special Items...... -- -- $(197) $ -- $ --
===== === ===== ===== ====
TOTAL SPECIAL ITEMS.................................... -- $26 $(271) $ 80 $ (6)
===== === ===== ===== ====
</TABLE>

There were no special items for the first six months of 1999. Special items
for the first six months of 1998 reflect a $23 million gain from the sale of
certain properties in the North Sea, and a $31 million gain from the sale of an
international subsidiary, partly offset by a $28 million charge for litigation.

Special items in 1998 include $107 million in gains from several unrelated
asset sales. The gains consist of:

- $54 million from the sale of producing and non-producing international
upstream properties;

- $41 million from U.S. upstream producing properties and assets; and

- $12 million in downstream from the sale of an office building in Europe.

The upstream sales are a normal part of Conoco's ongoing strategic portfolio
management program designed to improve profitability by disposing of marginal
properties and concentrating operations on core properties. Offsetting the gains
were:

- property impairments of $38 million;

- inventory write-downs of $63 million to market prices;

- restructuring and employee separation costs of $52 million; and

- other losses of $42 million for environmental litigation settlements.

42
<PAGE> 44

The after-tax property impairments of $38 million were made in accordance
with Conoco's policy on impairment of long-lived assets, and relate to a $32
million after-tax writedown of United States upstream properties and a $6
million after-tax writedown of an international upstream property. The United
States properties include various oil and gas producing properties in Texas and
in the Gulf of Mexico, as well as a non-operating natural gas plant in Texas.
The writedown of the oil and gas properties became necessary because of
reductions to Conoco's price forecast in light of deteriorating pricing
conditions. The international property is an exploration license in Norway and
was written down after the decision was made to discontinue further investment
in the license. The fair value of oil and gas producing properties subject to
the write-down was based on the present value of estimated future net cash flows
from the properties using Conoco's projections of future prices, which were
higher than year-end prices, and costs.

The $63 million write-down at year-end 1998 was the result of significant
declines in crude oil and petroleum product prices occurring primarily in the
fourth quarter of 1998. On a quarterly basis, Conoco evaluates whether the book
value of its crude oil, natural gas, and petroleum products inventories exceeds
the market value of such inventories. This evaluation is made on a region by
region basis for each pool of inventory. For the purpose of this evaluation, the
inventories are grouped into United States, Europe and Asia Pacific regions and
grouped into as many as twelve different pools per region based on relative
values. Conoco writes down its inventories for each region when the book value
of the inventory within a region exceeds the market value of such inventory. The
average book value of inventories on a price per barrel basis across all pools
decreased from $16.68 to $13.80 in the United States region, from $20.99 to
$18.54 in the European region and from $46.75 to $29.56 in the Asia Pacific
region. The significantly larger difference in value in the Asia Pacific region
resulted from Conoco's more recent acquisition of inventories in that region as
well as the recent dramatic economic decline in the region.

With respect to the likelihood of future write downs, Conoco optimizes its
inventory levels to minimize operating inventories and typically operates at or
near the same levels of inventories. Conoco is unaware of any strategic or
operating plans that would affect its inventory volumes such that a write-down
would be likely. Furthermore, based on the recent strengthening of energy prices
at the end of the first quarter of 1999 versus the market conditions at the time
of the year-end write-down, no further write-downs are anticipated in 1999. For
a discussion of the $52 million after-tax charge for restructuring and employee
related costs, see page 55.

The $42 million environmental settlement relates to the settlement in 1998
of lawsuits and a number of group and individual claims for alleged property
damage, personal injury, and medical monitoring. In each of these settlements,
Conocco was and is bound to confidentiality agreements with the settling
parties, most of which involved court approval.

The $183 million stock option provision is a one-time non-cash charge for
stock option employee compensation expenses related to the replacement of
outstanding DuPont stock options held by Conoco employees with Conoco stock
options in connection with the initial public offering.

Upstream special items in 1997 include $240 million in gains from asset
sales consisting of $191 million associated with producing and non-producing
properties in the North Sea and $49 million in the United States. Such asset
sales are part of Conoco's ongoing strategic portfolio management program. A
United Kingdom tax rate change also provided a $19 million benefit in 1997.
Offsetting these benefits were property impairments of $112 million relating to
international non-revenue producing properties. Downstream special items in 1997
include a United Kingdom tax rate change benefit of $11 million. Offsetting this
benefit were property impairments of $55 million attributable to the write-down
of an office building held for sale in Europe. Other losses of $23 million
include environmental litigation charges.

Upstream special items in 1996 include a gain of $16 million from the sale
of producing and non-producing properties in the United States. Offsetting this
gain was a $63 million impairment associated with a write-down of an investment
in a European gas marketing joint venture and employee separation costs of $11
million. Downstream special items in 1996 include a gain of $19 million
associated with the sale of Conoco's retail marketing business in Ireland.
Environmental insurance litigation recoveries also resulted in a $44 million
benefit. Offsetting these benefits were employee separation costs of $11
million.
43
<PAGE> 45

Consolidated net income before special items, or "earnings before special
items", was $721 million in 1998, $1,017 million in 1997 and $869 million in
1996.

First Six Months 1999 versus First Six Months 1998

Conoco had first six months consolidated net income of $197 million in
1999, down 63 percent from $530 million in the first six months of 1998 and down
61 percent from the first six months 1998 earnings before special items of $504
million. Lower earnings primarily reflected significantly weaker refined product
margins, higher interest expense, lower net realized natural gas prices and
fewer gains from asset dispositions than in 1998, partly offset by increased
natural gas volumes and refining and marketing volumes, reduced exploration
expenses and improved equity earnings.

Sales and other operating revenues for the first six months of 1999 were
$11,563 million, up two percent from $11,348 million in the first six months of
1998, primarily due to higher refined product prices and increased natural gas
production partly offset by reduced power trading revenues and lower natural gas
prices. Conoco's worldwide net realized crude oil price was $13.02 per barrel
for the first six months of 1999, down $0.06 per barrel, or flat versus the
$13.08 per barrel in the first six months of 1998. Worldwide net realized
natural gas prices averaged $1.96 per thousand cubic feet for the first six
months of 1999, compared with $2.39 per thousand cubic feet in the same period
in 1998, a reduction of 18 percent.

Worldwide crude oil and condensate production in the first six months of
1999 was 319,000 barrels per day versus 317,000 barrels per day in the first six
months of 1998, a one percent increase. Worldwide natural gas production in the
first six months of 1999 was up 30 percent to 1,697 million cubic feet per day
from 1,308 million cubic feet per day of 1998. U.S. natural gas production was
up 11 percent, primarily as a result of increased production from prior
development drilling in the Lobo field in South Texas. International natural gas
production was up 61 percent due to the new production from the Britannia and
Viking Phoenix gas fields in the U.K.

Worldwide refined product sales were 1,136,000 barrels per day, up ten
percent versus 1998. Crude oil and refined product buy/sell and natural gas and
electric power resale activities in the first six months of 1999 totaled $1,513
million, down 37 percent compared to $2,400 million in the first six months of
1998, primarily due to reduced crude oil and power trading activities.

Cost of goods sold and other operating expenses for the first six months of
1999 totaled $6,887 million, an increase of $133 million, or two percent,
compared to $6,754 million in the first six months of 1998, primarily due to
higher refinery feedstock costs, partly offset by the reduction in power trading
activities.

Exploration expenses for the first six months of 1999 totaled $120 million,
a decline of $56 million, or 32 percent, compared to $176 million in the first
six months of 1998, primarily driven by cost reduction efforts, a more focused
exploration program and lower dry hole costs.

Depreciation, depletion and amortization for the first six months of 1999
totaled $584 million, an increase of $79 million, or 16 percent, compared to
$505 million in the first six months of 1998, primarily due to increased
upstream production volumes, field mix and depreciation, depletion and
amortization rate changes.

Provision for income taxes for the first six months of 1999 totaled $97
million, down 62 percent compared to $254 million for the first six months of
1998 primarily driven by lower pretax income with the effective tax rate
essentially flat versus the prior year.

1998 Versus 1997

Consolidated net income for 1998 of $450 million was down 59 percent from
$1,097 million in 1997. Conoco had earnings before special items of $721 million
in 1998, down 29 percent from $1,017 million in 1997. Lower earnings before
special items primarily reflect lower net realizable crude oil and natural gas

44
<PAGE> 46

prices and refined product prices. The lower prices were partly offset by higher
natural gas volumes, lower exploration expenses, improved international
downstream marketing margins and the favorable resolution of tax issues.

Sales and other operating revenues of $22,796 million in 1998 were down 12
percent compared to $25,796 million in 1997, primarily due to a decrease in
worldwide crude oil and natural gas prices and lower refined product prices.
Downstream sales and other operating revenues were $17,246 million, down 14
percent compared to $20,033 million in 1997. Crude oil and refined product
buy/sell and natural gas and electric power resale activities in 1998 totaled
$5,004 million, down 9 percent compared to $5,509 million in 1997.

Cost of goods sold and other operating expenses in 1998 totaled $13,840
million, down 15 percent compared to $16,226 million in 1997. This reduction is
primarily due to lower feedstock prices.

Selling, general and administrative expenses for 1998 totaled $736 million,
an increase of $10 million, or one percent, compared to $726 million in 1997,
primarily due to environmental litigation charges related to a discontinued
business assumed by Conoco under the separation agreement with DuPont.

Included in 1998 is a pretax charge of $236 million, labeled "Stock Option
Provision" on the income statement. This expense is a one-time non-cash charge
for employee stock option compensation relating to the replacement of
outstanding DuPont stock options held by Conoco employees with Conoco stock
options in connection with the initial public offering.

Exploration expenses in 1998 totaled $380 million, a decline of $77
million, or 17 percent, compared to $457 million in 1997. The decrease is
primarily a result of a more focused exploration program. Also contributing to
the decrease were lower amortization of non-producing leasehold properties in
the United States and lower exploration overhead and operating expenses compared
to 1997, which included seismic surveys conducted in the Gulf of Paria, located
between Venezuela and Trinidad, and in the Merida Andes foothills in Venezuela.

Depreciation, depletion and amortization for 1998 totaled $1,113 million, a
decrease of $66 million, or six percent, compared to $1,179 million in 1997.

Provision for income taxes for 1998 totaled $244 million, down 76 percent
compared to $1,010 million for 1997. This reflects an effective tax rate of
approximately 35 percent in 1998 compared to 48 percent in 1997. The lower
effective tax rate in 1998 is due to the increased impact of the U.S.
alternative fuels tax credit, realization of a tax benefit on the sale of a
subsidiary and a greater percentage of earnings in countries with lower
effective tax rates.

1997 versus 1996

Consolidated net income for 1997 of $1,097 million was up 27 percent from
$863 million in the prior year. Conoco had earnings before special items of
$1,017 million in 1997, up 17 percent from $869 million in 1996. The increase
was attributable to improved U.S. natural gas prices and higher international
natural gas volumes in addition to stronger worldwide downstream product margins
and increased worldwide refinery production.

Sales and other operating revenues of $25,796 million in 1997 were up six
percent compared to $24,230 million in the prior year, as higher downstream
product prices and volumes, increased international natural gas volumes and
stronger domestic natural gas prices more than compensated for lower crude oil
prices. Crude oil and refined product buy/sell and natural gas and electric
power resale activities in 1997 totaled $5,509 million, up 32 percent compared
to $4,167 million in 1996.

Cost of goods sold and other operating expenses in 1997 totaled $16,226
million, up 11 percent compared to $14,560 million in 1996, due to higher
refined product volumes and crude oil and refined product buy/sell contract
activity and natural gas and electric power resale activities.

45
<PAGE> 47

Selling, general and administrative expenses in 1997 totaled $726 million,
a decrease of $29 million, or four percent, compared to $755 million in 1996,
primarily due to one-time costs in 1996 for retail expansion activities in the
U.S.

Exploration expenses in 1997 totaled $457 million, an increase of $53
million, or 13 percent, compared to $404 million in 1996, due to higher
international exploration overhead and operating costs primarily from seismic
surveys conducted in the Gulf of Paria, located between Venezuela and Trinidad,
and in the Merida Andes foothills in Venezuela, higher international dry hole
costs and an adjustment of non-producing U.S. leasehold properties.

Depreciation, depletion and amortization in 1997 totaled $1,179 million, an
increase of $94 million, or nine percent, compared to $1,085 million in 1996 due
to higher depreciation resulting from a write-down of an office building held
for sale in the United Kingdom and an impairment of some international non-
revenue producing properties partially offset by lower depreciation in U.S.
downstream operations.

Provision for income taxes totaled $1,010 million in 1997, down three
percent compared to $1,038 million in 1996. The lower provision reflects an
effective tax rate of approximately 48 percent in 1997 compared to 55 percent in
1996. The decrease in the effective tax rate was primarily due to a lower
proportion of earnings from operations in countries with higher effective tax
rates.

UPSTREAM SEGMENT RESULTS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30 DECEMBER 31
----------- -------------------
1999 1998 1998 1997 1996
---- ---- ---- ----- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
After-Tax Operating Income
United States............................................. $ 92 $144 $219 $ 445 $314
International............................................. 154 215 283 439 367
---- ---- ---- ----- ----
After-Tax Operating Income............................. $246 $359 $502 $ 884 $681
Special Items
United States............................................. $ -- $ -- $ 14 $ (49) $ (9)
International............................................. -- (54) (25) (98) 67
---- ---- ---- ----- ----
Special Items.......................................... $ -- $(54) $(11) $(147) $ 58
Earnings Before Special Items
United States............................................. $ 92 $144 $233 $ 396 $305
International............................................. 154 161 258 341 434
---- ---- ---- ----- ----
Earnings Before Special Items.......................... $246 $305 $491 $ 737 $739
==== ==== ==== ===== ====
</TABLE>

First Six Months 1999 versus First Six Months 1998

Upstream earnings before special items were $246 million in the first six
months of 1999, down 19 percent from $305 million in the first six months of
1998. U.S. upstream earnings before special items totaled $92 million in the
first six months of 1999, down 36 percent from $144 million in the comparable
period of 1998. Lower U.S. upstream earnings were due to lower natural gas
prices, decreased crude oil volumes resulting from natural declines and the sale
of various small, non-strategic properties in 1998, higher depreciation,
depletion and amortization charges and fewer gains from asset disposition. These
factors more than offset increased natural gas production and lower exploration
expenses. Natural gas volumes in the United States were up 11 percent, as
production from the Lobo field in South Texas increased more than production
declined elsewhere. International upstream earnings before special items were
$154 million, down four percent, from $161 million in the comparable period in
1998, primarily attributable to lower natural gas prices, higher depreciation,
depletion and amortization charges and fewer gains from non-strategic asset
dispositions, partly offset by increased natural gas and condensate production
from the Britannia field, higher equity earnings and lower exploration expenses.

46
<PAGE> 48

1998 versus 1997

Upstream after-tax operating income was $502 million in 1998, down 43
percent from $884 million in 1997, principally due to lower crude oil and
natural gas prices. Upstream earnings before special items were $491 million in
1998, down 33 percent from $737 million in 1997.

Conoco's worldwide net realized crude oil price was $12.37 per barrel for
1998, down $6.21 per barrel, or 33 percent, from $18.58 per barrel in 1997.
Excess supply caused by weak Asian demand, higher crude oil production from OPEC
producing countries and warmer winter weather caused the sharp drop in crude oil
prices. Worldwide natural gas prices averaged $2.24 per thousand cubic feet for
1998, compared with $2.44 per thousand cubic feet in 1997, primarily because of
warmer winter weather. Lower worldwide natural gas prices were primarily driven
by lower natural gas prices inside the United States. In the U.S., natural gas
prices averaged $1.96 per thousand cubic feet, down 10 percent, while
internationally they remained steady at $2.72 per thousand cubic feet. Worldwide
crude oil and condensate production in 1998 was 315,000 barrels per day versus
337,000 barrels per day in 1997. Worldwide natural gas production in 1998 was up
17 percent to 1,411 million cubic feet per day from 1,203 million cubic feet per
day in 1997.

U.S. upstream earnings before special items totaled $233 million in 1998,
down 41 percent from $396 million in 1997. Lower U.S. upstream earnings before
special items were due to lower crude oil and natural gas prices and lower crude
oil volumes resulting from asset dispositions and crude oil production declines.
These reductions more than offset benefits from increased natural gas
production, gains on property sales and lower exploration expenses. Natural gas
volumes were up 22 percent as increased production from the holdings in the
South Texas Lobo trend, acquired in 1997, more than offset the decline in
natural gas production elsewhere. U.S. production costs were $3.69 per
barrel-of-oil-equivalent, down $0.54 per barrel-of-oil-equivalent, or 13
percent, compared to $4.23 per barrel-of-oil-equivalent in 1997, due to lower
production taxes and higher gas volumes.

Outside the United States, upstream earnings before special items were $258
million, down 24 percent, from $341 million in the comparable period in 1997,
primarily due to lower crude oil and natural gas prices, offset by higher
natural gas volumes, lower exploration expenses and the favorable resolution of
some tax issues. International crude volumes, which comprise over 80 percent of
Conoco's oil production, were down five percent to 265,000 barrels per day due
to the sale of Conoco's interest in the mature Ula and Gyda fields in Norway and
natural production declines. However, earnings benefited from higher production
in countries with relatively lower tax rates, primarily the United Kingdom and
Nigeria. International gas volume was up nine percent. International production
costs were $4.13 per barrel-of-oil-equivalent, down $0.06 per
barrel-of-oil-equivalent, or one percent, compared to $4.19 per barrel-of-oil-
equivalent in 1997, due to reduced costs from asset dispositions and other
operating costs in 1998, partly offset by lower international crude oil
production.

1997 versus 1996

Upstream after-tax operating income was $884 million in 1997, up 30
percent, compared to $681 million in 1996. Upstream earnings before special
items totaled $737 million in 1997, essentially unchanged from the previous
year.

Worldwide natural gas prices were up 15 percent to $2.44 per thousand cubic
feet in 1997 from $2.12 per thousand cubic feet in 1996, resulting primarily
from higher U.S. industry demand. Worldwide net realized crude oil prices were
$18.58 per barrel, down $1.53 per barrel, or eight percent, from $20.11 per
barrel in 1996. Crude oil prices declined despite higher crude oil demand and
strong crude oil production growth, which included initial exports of Iraqi
crude oil. Worldwide crude oil and condensate production averaged 337,000
barrels per day for the year, up slightly versus 1996. Worldwide natural gas
deliveries in 1997 of 1,203 million cubic feet per day were essentially
unchanged from 1,211 million cubic feet per day in 1996 as higher international
natural gas volumes were offset by lower domestic natural gas volumes.

U.S. upstream earnings before special items totaled $396 million, up 30
percent from $305 million in 1996, due to higher gas prices which more than
offset lower crude oil prices. U.S. production costs per

47
<PAGE> 49

barrel-of-oil-equivalent were $4.23, up $0.12 per barrel-of-oil-equivalent or 3
percent, compared to $4.11 per barrel-of-oil-equivalent in 1996, due to higher
production taxes.

Outside the United States, earnings before special items were $341 million,
down 21 percent from $434 million in 1996 due to lower crude oil prices, partly
offset by increased crude oil and natural gas volumes associated with the first
year of oil production from Nigeria and increased production from the Heidrun
and Troll fields in Norway and the Canadian Foothills. International production
costs per barrel-of-oil-equivalent were $4.19 per barrel-of-oil-equivalent, up
$0.51 per barrel-of-oil-equivalent, or 14 percent, compared to $3.68 per
barrel-of-oil-equivalent in 1996, resulting from floating production storage
offtake lease costs on new fields in the United Kingdom and costs incurred on
development projects that had not yet begun production.

DOWNSTREAM SEGMENT RESULTS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30 YEAR ENDED DECEMBER 31
----------- ------------------------
1999 1998 1998 1997 1996
---- ---- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
After-Tax Operating Income
United States........................................... $ 45 $ 86 $135 $216 $172
International........................................... 42 95 156 91 117
---- ---- ---- ---- ----
After-Tax Operating Income........................... $ 87 $181 $291 $307 $289
Special Items
United States........................................... $ -- $ 28 $ 73 $ 23 $(36)
International........................................... -- -- 12 44 (16)
---- ---- ---- ---- ----
Special Items........................................ $ -- $ 28 $ 85 $ 67 $(52)
Earnings Before Special Items
United States........................................... $ 45 $114 $208 $239 $136
International........................................... 42 95 168 135 101
---- ---- ---- ---- ----
Earnings Before Special Items........................ $ 87 $209 $376 $374 $237
==== ==== ==== ==== ====
</TABLE>

First Six Months 1999 versus First Six Months 1998

Downstream earnings before special items were $87 million for the first six
months of 1999, down 58 percent from $209 million in the comparable period in
1998. U.S. downstream earnings before special items were $45 million for the
first six months of 1999, down 61 percent from $114 million for the first six
months of 1998, due to very weak refining margins, partly offset by higher
refined product sales volumes. International downstream earnings before special
items were $42 million for the first six months of 1999, down 56 percent from
$95 million in the comparable period in 1998, reflecting significantly lower
refining margins that were only partly offset by higher refined product sales
volumes and marketing margins.

1998 versus 1997

Downstream after-tax operating income was $291 million in 1998, down five
percent compared to $307 million in 1997. Downstream earnings before special
items totaled $376 million in 1998, up one percent from $374 million in 1997.

United States downstream earnings before special items were $208 million in
1998, compared to $239 million in 1997, a decrease of 13 percent. The decline
was mainly attributable to weaker refinery margins, which were partly offset by
record refinery runs, lower feedstock and operating costs and higher marketing
margins.

48
<PAGE> 50

International downstream earnings before special items were $168 million in
1998, up 24 percent from $135 million in the comparable period in 1997,
reflecting higher European marketing margins, lower cost and 11 percent higher
refinery runs.

Conoco's refineries, excluding the Melaka refinery, operated at 95 percent
capacity in 1998, four percent higher than 1997. The increase was primarily due
to refinery upgrades in Europe in 1997, increased reliability throughout the
system and increased rates at the Lake Charles refinery subsequent to
debottlenecking work completed in February 1998.

1997 versus 1996

Downstream after-tax operating income was $307 million, up six percent from
$289 million in 1996. Downstream earnings before special items increased 58
percent to $374 million in 1997, compared with $237 million in the prior year.
Worldwide refined product sales volumes were 1,048,000 barrels per day in 1997,
up five percent versus 1996.

In the United States, downstream earnings before special items were $239
million versus $136 million in 1996, an increase of 76 percent. The improvement
was attributable to strong refining margins, reduced operating costs and higher
refined product volumes from the new Lake Charles, Louisiana, hydrocracker
expansion project.

International downstream earnings before special items were $135 million,
up 34 percent from $101 million in the comparable period in 1996, primarily due
to higher European refining margins and increased refinery production from the
Humber refinery's new vacuum unit in the United Kingdom.

Conoco's refineries operated at 91 percent capacity in 1997, ten percent
higher than 1996. The increase was primarily due to less downtime incurred in
1997, compared to 1996 when major expansions were taking place at the Lake
Charles and Humber refineries.

CORPORATE AND OTHER SEGMENT RESULTS

CORPORATE AND OTHER OPERATING

First Six Months 1999 versus First Six Months 1998

Corporate and other operating losses were $34 million for the first six
months of 1999, an improvement of 13 percent from a loss of $39 million for the
comparable period in 1998, resulting from lower administrative costs.

1998 versus 1997

Corporate and other segment after-tax operating income was a loss of $271
million in 1998, an impairment of $189 million from a loss of $82 million in
1997, primarily as a result of the one-time stock option provision. Corporate
and other earnings before special items were a loss of $74 million, an
improvement of $8 million from the 1997 loss of $82 million as a result of lower
compensation costs.

49
<PAGE> 51

1997 versus 1996

Corporate and other segment after-tax operating income was a loss of $82
million, an impairment of $8 million from a loss of $74 million in 1996 due to
higher compensation costs.

INTEREST AND OTHER NON-OPERATING INCOME (EXPENSES) NET OF TAX

<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30 DECEMBER 31
----------- ------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Interest Expenses on Debt................................. $(96) $ -- (128) (26) (50)
Interest Income........................................... 8 39 $ 66 $ 61 $ 78
Exchange Gains (Losses)................................... 6 5 32 21 (7)
Other Corporate Expenses(1)............................... (20) (15) (42) (68) (54)
---- ---- ---- ---- ----
Total........................................... $(102) $ 29 $(72) $(12) $(33)
==== ==== ==== ==== ====
</TABLE>

- ---------------

(1) Includes other non-operating items.

First Six Months 1999 versus First Six Months 1998

Interest and other non-operating expenses for the first six months of 1999
were a loss of $102 million compared to income of $29 million in the comparable
period in 1998, primarily reflecting an increase in interest expense from
separation-related debt and lower interest income.

1998 versus 1997

Interest and other non-operating expenses for 1998 were $72 million, an
increase of $60 million versus $12 million in 1997. The increase is primarily
attributable to higher interest expense from debt incurred in the second half of
the year, which more than offset interest income earned in the first half of the
year.

1997 versus 1996

Interest and other non-operating expenses were a loss of $12 million in
1997, an improvement of $21 million from 1996 results. Net interest income
(expense) in 1997 was improved by $7 million versus 1996, primarily due to
increased after-tax capitalized interest on major upstream business development
projects. Conoco incurred an after-tax exchange gain of $21 million in 1997
compared with a loss of $7 million in 1996, primarily reflecting the impact of
Norwegian Kroner and British Pound exchange rate movements on U.S.
dollar-denominated working capital balances. Other expenses of $68 million in
1997 were $14 million higher than 1996.

ENVIRONMENTAL EXPENDITURES

The costs to comply with environmental laws and regulations, as well as
internal voluntary programs, are significant and will continue to be so in the
foreseeable future. Conoco anticipates substantial expenditures will be
necessary to comply with Maximum Achievable Control Technology standards
proposed by EPA under the Clean Air Act and specifications for motor fuels
designed to reduce emissions of some types of pollutants from vehicles using
such fuels.

Estimated pre-tax environmental expenses charged to current operations
totaled about $131 million in 1998, as compared to approximately $136 million in
1997 and $162 million in 1996. These expenses include the remediation accruals
discussed below, operating, maintenance and depreciation costs for pollution
control facilities and the costs of other environmental activities. The largest
of these expenses resulted from the operation of pollution control facilities.
Approximately 80 percent of 1998 total environmental expenses resulted from the
operations of Conoco's business in the United States.

50
<PAGE> 52

Capital expenditures for pollution control facilities totaled approximately
$53 million in 1998, as compared to approximately $50 million in 1997 and $78
million in 1996. Conoco estimates that capital expenditures will increase by
$100 million in 1999 and by an additional $100 million in 2000 primarily due to
regulations in Europe requiring cleaner burning fuels.

REMEDIATION EXPENDITURES

The Resource Conservation and Recovery Act extensively regulates the
treatment, storage and disposal of hazardous waste and requires a permit to
conduct such activities. RCRA requires permitted facilities to undertake an
assessment of environmental conditions at the facility. If conditions warrant,
Conoco may be required to remediate contamination caused by prior operations. In
contrast to the Comprehensive Environmental Response, Compensation, and
Liability Act, often referred to as "Superfund," the cost of remediation under
RCRA is typically borne solely by Conoco. Conoco anticipates that significant
ongoing expenditures for RCRA remediation may be required over the next decade,
although Conoco does not expect that annual expenditures for the near term will
vary significantly from the range of such expenditures over the past few years.
Conoco's expenditures associated with RCRA and similar remediation activities
conducted voluntarily or under state law were approximately $27 million in 1998,
$31 million in 1997 and $34 million in 1996. In the long term, expenditures are
subject to considerable uncertainty and may fluctuate significantly.

EPA and state environmental agencies from time to time allege that Conoco
is a potentially responsible party under CERCLA or an equivalent state statute
for contamination at various sites that typically are not owned by Conoco but
allegedly contain wastes attributable to Conoco's past operations. These
agencies and private parties have also sued Conoco on occasion for the recovery
of costs incurred to remediate the contaminated sites. As of December 31, 1998,
Conoco had been notified of potential liability under CERCLA or state law at
about 16 sites in the United States, with active remediation under way at six of
those sites. Conoco received notice of potential liability at three new sites as
of June 15, 1999, one new site during 1998, which was resolved, compared with
four similar notices in 1997 and one in 1996. Conoco's expenditures associated
with CERCLA and similar state remediation activities were not significant in
1998, 1997 or 1996.

For most Superfund sites, Conoco's costs likely will be significantly less
than the total site remediation costs, because the percentage of waste
attributable to Conoco versus that attributable to all other potentially
responsible parties has been relatively low. Other potentially responsible
parties at sites where Conoco is a party typically have had the financial
strength to meet their obligations and, where they have not, or where
potentially responsible parties could not be located, Conoco's own share of
liability has not materially increased. There are relatively few sites where
Conoco is a major participant, and Conoco does not expect that remediation at
those sites, or at all Superfund sites in the aggregate, will have a material
adverse effect on Conoco's financial condition, results of operation or
liquidity.

Cash expenditures not charged against income for previously accrued
remediation activities under CERCLA, RCRA and similar state and foreign laws
were $17 million in 1998, $19 million in 1997 and $19 million in 1996. Although
future remediation expenditures in excess of current reserves are possible, the
effect of any such excess on future financial results is not subject to
reasonable estimation because of the considerable uncertainty regarding the cost
and timing of expenditures.

REMEDIATION ACCRUALS

Conoco accrues for remediation activities when it is probable that a
liability has been incurred and reasonable estimates of the liability can be
made. These accrued liabilities exclude claims against Conoco's insurers or
other third parties and are not discounted. Many of these liabilities result
from CERCLA, RCRA and similar state laws that require Conoco to investigate and
remediate contamination at sites where it conducts or once conducted operations
or at sites where company-generated waste was disposed. The accrual also
includes a number of sites identified by Conoco that may require environmental
remediation, but which are not currently the subject of CERCLA, RCRA or state
enforcement activities.

51
<PAGE> 53

Over the next decade, Conoco may incur significant costs under both CERCLA and
RCRA. Considerable uncertainty exists with respect to these costs and under
adverse changes in circumstances, potential liability may exceed amounts accrued
as of December 31, 1998.

Remediation activities vary substantially in duration and cost from site to
site depending on site characteristics, evolving remediation technologies,
diverse regulatory agencies, enforcement policies and the presence of
potentially liable third parties. Therefore, it is difficult to develop
reasonable estimates of future site remediation costs. At December 31, 1998,
Conoco's balance sheet included an accrued liability of $129 million as compared
to $144 million at year-end 1997. Approximately 89 percent of Conoco's
environmental reserve at December 31, 1998, was attributable to RCRA and similar
remediation liabilities and 11 percent to Superfund liabilities. Voluntary
remediations are not included in this reserve. During 1998, remediation accruals
resulted in a $2 million charge, compared to credits of $41 million in 1997 and
$70 million in 1996, both of which resulted from insurance recoveries. No
significant additional recoveries are expected.

TAX MATTERS

As a result of the separation from DuPont and the initial public offering,
Conoco is no longer able to combine the results of its operations with those of
DuPont in reporting income for U.S. federal income tax purposes and for state
and non-U.S. income tax purposes in some states and foreign countries. Conoco
believes this will not have a material adverse effect on its earnings.

In connection with the separation from DuPont, Conoco and DuPont entered
into a tax sharing agreement. Several matters under the tax sharing agreement
are currently in dispute between Conoco and DuPont. DuPont's obligations to
Conoco arising out of the most significant of these matters could range from
zero to up to approximately $160 million, depending on the outcome of the
dispute. The effect of the dispute is not currently reflected in Conoco's
financial statements and, regardless of the outcome of this dispute, Conoco
believes the result will not be material to its financial position.

During the period ended June 30, 1999, Conoco's net deferred tax assets
increased, primarily as a result of the recognition of $90 million of
carryforwards related to foreign tax credits, alternative fuels tax credits and
the U.S. alternative minimum tax. Conoco believes it is more likely than not
that the additional deferred tax assets related to these foreign tax credits and
alternative fuels tax credits will be realized in the current year. Further,
Conoco believes it is more likely than not the alternative minimum tax credits
will be realized in future years.

As of December 31, 1998, Conoco had deferred tax assets in the amount of
$1,238 million. Of this amount, $496 million related to tax benefits from
operating losses incurred in start-up operations, including exploration and U.S.
foreign tax credit carry forwards. These benefits were substantially offset by a
valuation reserve. Conoco believes it is more likely than not that the balance
of the deferred tax assets will be realized in future years.

YEAR 2000

Historically, many computerized systems have used two digits rather than
four digits to define the applicable year, which could result in recognizing a
date using "00" as the year 1900 rather than the year 2000. This could result in
major failures or miscalculations.

Conoco recognizes that the impact of the Year 2000 issue extends beyond
traditional computer hardware and software to automated plant systems and
instrumentation, as well as to third parties. The Year 2000 issue is being
addressed within Conoco by its individual business units, and progress is
reported periodically to management and the board of directors.

Conoco has committed resources to conduct risk assessments and to take
corrective action, where required, within each of the following areas:
information technology, plant systems and external parties. Information
technology includes telecommunications as well as traditional computer software
and hardware in the mainframe, midrange and desktop environments. Plant systems
include all automation and
52
<PAGE> 54

embedded chips used in production, plant, transportation and marketing
facilities. External parties include any third party with which Conoco
interacts. Most of the resources committed to this work are internal.

Managing Year 2000 risk is being handled in three tiers -- through Year
2000 Compliance Plans, Mitigation Plans and Emergency Recovery Plans. The Year
2000 Compliance Plans include inventorying and assessing risk, and outlining
action to be taken for each of these items. Year 2000 Compliance Plans have been
developed and are being implemented for all business units. Mitigation Plans
outline a list of actions that will be taken at specified times to further
minimize risk. These plans are currently being developed for areas in which the
Year 2000 Compliance Plans may not adequately address all of the relevant risk
issues. For example, Conoco cannot be guaranteed that external partners will be
ready for the year 2000. Therefore, operations that rely heavily on external
partners will develop Mitigation Plans. Mitigation Plans will be developed, as
needed, for all business units by the end of the third quarter of 1999.

Emergency Recovery Plans already exist in many of Conoco's operations to
address other issues such as oil tanker spills and plant explosions. Typically,
the Emergency Recovery Plans address the results of single events. These plans
are designed to facilitate the resumption of normal operations following a
disruption. In contrast to a "normal" disruption, the scope of Year 2000 issues
may cause multiple concurrent events. Accordingly, it is expected that the
Emergency Recovery Plans will be reviewed and supplemented to address Year 2000
risks by the end of the third quarter of 1999.

Currently contingency plans call for close monitoring of information
technology, field operations and external supply during and around critical
dates. Additional staff including senior management will be available to monitor
operations and deal with disruptions that might occur. Some critical inventories
and products will be increased.

The progress reported below covers only the replacement or upgrade of
existing non-compliant systems. Replacement projects planned and managed outside
of the Year 2000 Program have been excluded. Approximately 87 percent of the
work required to fix Year 2000 issues identified by the Year 2000 Program has
been completed.

In the information technology area, inventory and assessment audits have
been completed. Corrective action in the mainframe, midrange and desktop
environments will be completed by the end of the third quarter of 1999 and
telecommunications and business application software by the end of the fourth
quarter of 1999.

In the plant systems area, inventory and assessment audits have been
completed. Conoco is relying on vendor testing of hardware, software and
embedded chips, with certification and validation through limited internal
testing and/or industry test results. Downtime for normally scheduled plant
maintenance will be used to conduct testing, with completion of corrective
action expected by the end of the third quarter of 1999.

With respect to external parties, the inventory of critical external
parties and initial risk assessment is complete. Various methods are being used
to assess and monitor external party readiness including letters, phone calls,
meetings and SEC disclosure statements. Monitoring of risk in this area will
continue throughout 1999.

The total cost of Year 2000 activities is not expected to be material to
Conoco's operations, liquidity or capital resources. Costs are being managed
within each business unit. The total estimated cost for Conoco's Year 2000 work
is $46 million. 1997 costs were $5 million, 1998 costs were $25 million and
through the second quarter 1999 costs were $8 million. This includes costs for
the replacement or upgrade of existing non-compliant systems. Replacement
projects planned and managed outside of the Year 2000 program have been
excluded. In order to control costs, Conoco is taking advantage of savings
presented by its memberships in industry organizations.

Conoco cannot guarantee that all third parties of business importance to
Conoco will be prepared for the Year 2000. Therefore, the most likely worst case
scenario may occur if Conoco's contingency plans do

53
<PAGE> 55

not adequately address the nature or extent of disruptions caused by external
third parties, or by abnormal supply and demand patterns in late 1999 and early
2000. These disruptions could materially affect Conoco's operations, liquidity
or capital resources. Given the diverse and global nature of Conoco operations,
varying degrees of readiness and risk exist at each location. The company cannot
quantify the impact or probability of these failures. Therefore, the company
cannot further anticipate the potential impact of a worst case scenario. Conoco
is developing contingency plans to address issues within Conoco's control. This
program minimizes, but does not eliminate, risks related to external parties.

EUROPEAN MONETARY UNION

Within Europe, the European Economic and Monetary Union introduced a new
currency, the euro, on January 1, 1999. The new currency is in response to the
European Monetary Union's policy of economic convergence to harmonize trade
policy, eliminate business costs associated with currency exchange and to
promote the free flow of capital, goods and services.

Conoco has undertaken a review of the euro implementation and has
concentrated on areas such as operations, finance, treasury, legal, information
management, procurement and others, both in participating and nonparticipating
European Union countries where Conoco operates. Existing legacy accounting and
business systems and other business assets have been reviewed for euro
compliance. Progress regarding euro implementation is reported periodically to
management. Amounts spent to date and expected to be spent in the future are not
material.

Because of the staggered introduction of the euro regarding non-cash and
cash transactions, Conoco has developed its plans to address first its
accounting and business systems and second, its business assets. Conoco
undertook steps to be euro compliant within its accounting and business systems
by the end of 1998 relative to the conversion rules when performing translations
between European Monetary Union currencies. The accounting systems were modified
so that European Monetary Union legacy currencies are converted to other
European Monetary Union legacy currencies via the euro rather than directly.
Conoco has an implementation plan to convert its accounting and reporting
systems from legacy currency to the euro by January 1, 2002, for those
operations that are in European Monetary Union countries. The plan also
incorporates steps to ensure the corresponding business assets are fully
compliant by that date, in preparation for being able to conduct business
involving euro notes and coins.

Consistent with regulations and steps the industry is taking to get the
public familiar with the euro, conversion at retail outlets has already begun.
The conversion program varies between countries, and includes:

- displaying conversion tables between European Monetary Union legacy
currencies and the euro at gasoline stations;

- placing stickers on the gasoline pumps with the equivalent euro price per
liter;

- installing "euro corners" in the shop part of the station with calculators
and examples so that customers can practice converting their European
Monetary Union legacy currency to the euro; and

- showing the euro equivalent total at the bottom of receipts issued from
cash registers.

The business assets conversion program will continue throughout the
transition period, and in its final stages will include new or modified pole
price signs, electronic euro price displays at the pump, new or modified
automatic cash machines, and receipts which give detailed itemized breakdown in
euros.

Conoco does not currently expect to experience any significant operational
disruptions or to incur any significant costs, including any currency risk,
which could materially affect its liquidity or capital resources. Conoco is
preparing plans to address issues within the transitional period when both
legacy and euro currencies may be tendered.

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<PAGE> 56

Because of the competitive business environment within the petroleum
industry, Conoco does not anticipate any long-term competitive implications or
the need to materially change its mode of conducting business as a result of
increased price transparency.

RESTRUCTURING

In December 1998, Conoco announced, that as a result of a comprehensive
review of its assets and long-term strategy, Conoco was making organizational
realignments consistent with furthering the efficiency of operations and taking
advantage of synergies created by the upgrading of its asset portfolio. The
announced plans are being implemented in 1999 and will result in a reduction of
approximately 775 upstream positions and 200 downstream positions worldwide.
About three quarters of the upstream positions and about half of the downstream
positions affected will be in the United States. These reductions largely
reflect the elimination of redundancies at all levels resulting from past and
ongoing consolidation of assets into operations requiring less employee support
as well as better sharing of common services and functions across regions.
Associated with these announcements, Conoco recorded a charge in the fourth
quarter of 1998 of $82 million pretax ($52 million after-tax), nearly all of
which represents termination payments and related employee benefits to be made
to persons affected. During the first six months of 1999 approximately 465
persons left Conoco under implementation of these realignment plans.
Restructuring costs of $23 million were charged against the reserve for the
first six months of 1999.

Conoco expects the restructuring efforts provided for in December 1998 will
be completed by year-end 1999.

NEW ACCOUNTING STANDARDS

Effective January 1, 1999, Conoco adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities," issued by the American
Institute of Certified Public Accountants. This statement requires that costs
related to start-up activities, including organization costs, be expensed as
incurred. Conoco's policy has been one of expensing organization and other
similar costs of start-up operations. Accordingly, Conoco has no cumulative
charge to earnings from a write-off of deferred start-up costs as a result of
adoption of this accounting standard.

Conoco adopted the Financial Accounting Standards Board's Statement No. 131
"Disclosures About Segments of an Enterprise and Related Activities." for the
year ended December 31, 1998, and has disclosed segment information on the same
basis used internally for evaluating segment performance and deciding how to
allocate resources to segments. Conoco has assessed the effect of the new
disclosure, and adoption of Statement No. 131 had no financial impact.

In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosure About Pension and Other Postretirement
Benefits," which revised disclosure requirements for pension and other
postretirement benefits. It does not affect the measurement of the expense of
Conoco's pension and other postretirement benefits. Conoco adopted this
Statement for the year ended December 31, 1998.

In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
requires that companies recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
Statement No. 133 provides, if specified conditions are met, that a derivative
may be specifically designated as:

- a hedge of the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment;

- a hedge of the exposure to variable cash flows of a forecasted transaction;
or

- a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security
or a foreign-currency-denominated forecasted transaction.

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<PAGE> 57

Under Statement No. 133, the accounting for changes in fair value of a
derivative depends on its intended use and designation. For a fair value hedge,
the gain or loss is recognized in earnings in the period of change together with
the offsetting loss or gain on the hedged item. For a cash flow hedge, the
effective portion of the derivative's gain or loss is initially reported as a
component of other comprehensive income and subsequently reclassified into
earnings when the forecasted transaction affects earnings. For a foreign
currency hedge, the gain or loss is reported in other comprehensive income as
part of the cumulative translation adjustment. For all other items not
designated as hedging instruments, the gain or loss is recognized in earnings in
the period of change. In June 1999, the Financial Accounting Standard Board
approved the issuance of Statement No. 137 deferring the effective date of
Statement No. 133 for one year. Consequently, Conoco is required to adopt
Statement No. 133 by the first quarter of 2001 and is currently assessing its
effect on the consolidated financial statements.

MARKET RISKS

Conoco operates in the worldwide crude oil, refined product, natural gas,
natural gas liquids and electric power markets and is exposed to fluctuations in
hydrocarbon prices, electric power prices, foreign currency rates, and interest
rates that can affect the revenues and cost of operating, investing and
financing. Conoco's management has used and intends to use financial and
commodity-based derivative contracts to reduce the risk in overall earnings and
cash flow when the benefits provided are anticipated to more than offset the
risk management costs involved.

Conoco has established a financial risk management policy framework that
provides guidelines for entering into contractual arrangements to manage
Conoco's commodity price, foreign currency rate, and interest rate risks. The
Conoco risk management committee has ongoing responsibility for the content of
this policy and has principal oversight responsibility to ensure Conoco is in
compliance with the policy and that procedures and controls are in place for the
use of commodity, foreign currency and interest rate instruments. These
procedures clearly establish derivative control and valuation processes, routine
monitoring and reporting requirements and counterparty credit approval
procedures. Additionally, Conoco's internal audit group conducts reviews of
these risk management activities to assess the adequacy of internal controls.
The audit results are reviewed by the Conoco risk management committee and by
management.

The counterparties to these contractual arrangements are limited to major
financial institutions and other established companies in the petroleum
industry. Although Conoco is exposed to credit loss in the event of
nonperformance by these counterparties, this exposure is managed through credit
approvals, limits and monitoring procedures, and limits to the period over which
unpaid balances are allowed to accumulate. Conoco has not experienced
nonperformance by counterparties to these contracts, and no material loss would
be expected from any such nonperformance.

Commodity Price Risk

Conoco enters into energy-related futures, forwards, swaps and options in
various markets to balance its physical systems, to meet customer needs and to
manage its price exposure on anticipated crude oil, natural gas, refined product
and electric power transactions. These instruments provide a natural extension
of the underlying cash market and are used to physically acquire a portion of
supply requirements as well as to manage pricing of near term physical
requirements. The commodity futures market has underlying principles of
increased liquidity and longer trading periods than the cash market and is one
method of managing price risk in the energy business.

Conoco policy is to generally be exposed to market pricing for commodity
purchases and sales. From time to time, management may use derivatives to
establish longer-term positions to hedge the price risk for Conoco's equity
crude oil and natural gas production as well as refinery margins.

Under Conoco's policy, hedging includes only those transactions that offset
physical positions and reduce overall company exposure to price risk. Trading is
defined as any transaction that does not meet the definition of hedging. Much of
the portfolio is reported in the trading category and, thereby, receives mark-
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<PAGE> 58

to-market accounting. As a consequence, current revenues and costs reflect the
full effect of price movement on most of Conoco's trading activity. Those
activities that qualify as hedges use deferral accounting.

The fair value gain (loss) of outstanding derivative commodity instruments
and the change in fair value that would be expected from a ten percent adverse
price change are shown in the table below:

<TABLE>
<CAPTION>
CHANGE IN FAIR VALUE
FROM 10% ADVERSE
FAIR VALUE PRICE CHANGE
---------- --------------------
(IN MILLIONS)
<S> <C> <C>
AT JUNE 30, 1999
Crude Oil and Refined Products
Hedging............................................... $ (1) $ (2)
Trading............................................... 19 (4)
---- ----
Combined.............................................. $ 18 $ (6)
Natural Gas
Hedging............................................... $(13) $(15)
Trading............................................... (1) --
---- ----
Combined.............................................. $(12) $(15)
AT DECEMBER 31, 1998
Crude Oil and Refined Products
Hedging............................................... $ (1) $ (5)
Trading............................................... 3 3
---- ----
Combined.............................................. $ 2 $ (2)
Natural Gas
Hedging............................................... $(25) $(20)
Trading............................................... (2) (1)
---- ----
Combined.............................................. $(27) $(21)
AT DECEMBER 31, 1997
Crude Oil and Refined Products
Hedging............................................... $ (3) $ (8)
Trading............................................... (6) (18)
---- ----
Combined.............................................. $ (9) $(26)
Natural Gas
Hedging............................................... $ 8 $ (9)
Trading............................................... -- --
---- ----
Combined.............................................. $ 8 $ (9)
</TABLE>

The fair values of the futures contracts are based on quoted market prices
obtained from the New York Mercantile Exchange or the International Petroleum
Exchange of London. The fair values of swaps and other over-the-counter
instruments are estimated based on quoted market prices of comparable contracts
and approximate the gain or loss that would have been realized if the contracts
had been closed out at the end of the reporting period.

All hedge positions offset physical positions exposed to the cash market;
none of these offsetting physical positions is included in the above table.

Price-risk sensitivities were calculated by assuming an across-the-board
ten percent adverse change in prices regardless of term or historical
relationships between the contractual price of the instrument and the underlying
commodity price. In the event of an actual ten percent change in prompt month
crude or natural gas prices, the fair value of Conoco's derivative portfolio
would typically change less than that shown in the table due to lower volatility
in out-month prices.

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<PAGE> 59

Additional details regarding accounting policy for these financial
instruments are set forth in note 2 to Conoco's consolidated financial
statements.

Foreign Currency Risk

Conoco has foreign currency exchange rate risk resulting from operations in
approximately 40 countries around the world. Conoco does not comprehensively
hedge its exposure to currency rate changes, although it may choose to
selectively hedge exposure to foreign currency exchange rate risk. Examples
include firm commitments for capital projects, some local currency tax payments,
and cash returns from net investments in foreign affiliates to be remitted
within the coming year. At June 30, 1999 and at December 31, 1998, Conoco had no
open forward exchange contracts. At December 31, 1997, Conoco had open forward
exchange contracts designated as a hedge of firm foreign currency commitments.
The notional amount of these contracts was $50 million and the estimated fair
value was $38 million.

Interest Rate Risk

Prior to the initial public offering, Conoco had no significant interest
rate risk to manage. In March 1999, Conoco hedged interest rate exposure on a
portion of the public debt that was issued in April 1999. The hedge was
accomplished by purchasing put options on U.S. Treasury securities with a
maturity date matching the expected pricing date of the debt offering and having
a total notional amount of $2.5 billion spread over five-year, ten-year and
30-year maturities proportional to the expected tranches of Conoco debt to be
issued. Fair value of the put options at March 31, 1999 was $7 million. In April
1999, subsequent to purchasing the put options, U.S. Treasury interest rates
decreased and the put options expired out of the money. Before the public debt
issuance, Conoco entered into interest rate lock agreements proportional to the
expected tranches of debt to be issued. Overall, the two hedging transactions
resulted in an immaterial net gain that will be amortized against interest
expense over the life of the various debt maturities.

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<PAGE> 60

BUSINESS

GENERAL

Conoco, a major, integrated, global energy company, is involved in both the
upstream and downstream operating segments of the petroleum industry. Upstream
activities include exploring for, and developing, producing and selling crude
oil, natural gas and natural gas liquids. Downstream activities include refining
crude oil and other feedstocks into petroleum products, buying and selling crude
oil and refined products and transporting, distributing and marketing petroleum
products. In addition to upstream and downstream operations, Conoco also is
engaged in developing and operating power facilities. Conoco operates in
approximately 40 countries worldwide.

As of December 31, 1998, Conoco had proved worldwide reserves of 2,622
million barrels-of-oil-equivalent, 39 percent of which were natural gas. Based
on 1998 annual production of 213 million barrels-of-oil-equivalent, excluding
natural gas liquids from gas plant ownership, Conoco had a reserve life of 12.3
years as of December 31, 1998. Over the last five years, Conoco has replaced an
average of 195 percent of the oil and gas it has produced each year. Conoco owns
or has equity interests in nine refineries worldwide, with a total crude and
condensate processing capacity of approximately 807,000 barrels per day. Conoco
has a marketing network of approximately 7,900 outlets in the United States,
Europe and Asia.

Based on public filings, for the year ended December 31, 1998, Conoco
ranked eighth in the worldwide production of petroleum liquids by U.S.-based
companies, eleventh in the production of natural gas, and eighth in refining
throughput. For that same period, Conoco reported net income of $450 million,
which included a net charge for special items of $271 million, on total revenues
of $23,168 million. For the first quarter of 1999, Conoco had net income of $83
million, on total revenues of $5.3 billion.

BUSINESS STRATEGY

Conoco intends to pursue a growth-oriented business strategy by exploiting
opportunities where Conoco has existing major areas of operation, creating at
least two new major business areas in northern South America and the Caribbean,
and one of the Asia Pacific, West Africa, Middle East or Russia/ Caspian Sea
regions, and continuing to improve the profitability, efficiency and
effectiveness of its existing operations. Specifically, Conoco intends to:

- manage its portfolio to increase the proportion of upstream assets
relative to downstream assets and the proportion of large-scale,
long-lived, early-life cycle assets relative to mature assets, which
could include forming joint ventures or alliances to optimize the
efficiency of operations or monetize a portion of the value of such
assets;

- achieve significant near-term production growth through large scale
projects such as Petrozuata, Britannia, Lobo and Ursa;

- seek opportunities created by worldwide privatizations and the opening of
new markets previously closed to private investment;

- apply its strengths in carbon upgrading, project management, deepwater
technology, natural gas processing, seismic processing and
interpretation, and in the ability to present integrated upstream/
downstream solutions to host governments and other institutions in new
and emerging markets;

- pursue exploration activities that have significant value creation
potential by concentrating on areas that are under-explored;

- capitalize on its ability to convert low cost, heavy, high sulfur and
acidic crude oils into high value light oil products; and

- continuously rationalize its asset base, contain costs, optimize its
investment portfolio, and improve operating reliability.

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In all of its activities, Conoco will strive to act in accordance with its
core values of operating safely, protecting the environment, acting ethically
and valuing all people.

CONOCO HISTORY

Conoco was founded in 1875 in Ogden, Utah, as the Continental Oil and
Transportation Company. In 1885, it was reincorporated with a new name,
Continental Oil Company, as part of the nationwide Standard Oil Trust. In its
early years, its principal operations were marketing oil and petroleum related
products, primarily in the Rocky Mountain area and in California. In 1913, two
years after the U.S. Supreme Court dissolved the Standard Oil Trust, Conoco was
again independently incorporated. From 1913 to 1929, Conoco evolved into a fully
integrated oil company, with operations in most states west of the Mississippi
River.

By 1929, Conoco had approximately 1,800 producing wells and had become one
of the largest retailers of gasoline in the Rocky Mountain area. In that year,
it merged with the Marland Oil Company, an oil and gas company with wells and
marketing operations from Oklahoma to Maryland. After World War II, Conoco was
an early participant in Gulf of Mexico exploration and production activities and
moved aggressively overseas with upstream assets in many parts of the world and
downstream assets in Western Europe. In 1981, Conoco was acquired by DuPont.

FINANCIAL INFORMATION -- OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

See note 27 to the consolidated financial statements of Conoco for
operating segment and geographic information.

UPSTREAM

SUMMARY

Conoco is currently exploring for, developing or producing crude oil,
natural gas and/or natural gas liquids in 17 countries around the world. In
1998, production averaged 583,000 barrels-of-oil-equivalent per day, consisting
of 348,000 barrels per day of petroleum liquids, excluding natural gas liquids
from gas plant ownership, and 1,411 million cubic feet of natural gas per day.
The majority of this production came from fields located in the United States,
the United Kingdom and Norway, with the remaining production coming from
operations in Canada, the United Arab Emirates, Indonesia, Nigeria, Russia and
Venezuela.

In 1998, Conoco replaced nearly 110 percent of the oil and natural gas it
produced, adding 234 million barrels-of-oil-equivalent to Conoco's worldwide
reserves while producing 213 million barrels-of-oil-equivalent, excluding
natural gas liquids from gas plant ownership, for a net addition of 21 million
barrels-of-oil-equivalent. This marks the sixth consecutive year that Conoco has
replaced more reserves than it produced. Conoco replaced 163 percent of the
natural gas produced and 74 percent of the oil produced. On December 31, 1998,
Conoco had proved reserves of 2,622 million barrels-of-oil-equivalent,
consisting of 1,591 million barrels of petroleum liquids and 6,183 billion cubic
feet of natural gas, representing an increase of 48 percent on a
barrel-of-oil-equivalent basis since December 31, 1994.

Conoco's capital investment in upstream activities in 1998 was $1,965
million, including the continued development of the Lobo trend, Britannia, Ursa
and Petrozuata. These projects will contribute to Conoco's 1999 production and
significantly increase Conoco's production rates over current levels in future
years.

The majority of Conoco's exploration and production assets are located in
the United States and Canada, the United Kingdom and Norway. The producing
properties in these areas generate cash to fund growth opportunities around the
world. Outside of North America and Western Europe, Conoco's investment
activities are focused on areas that have the potential to become major business
areas in the future, such as northern South America and the Caribbean, and the
Asia Pacific, West Africa, Middle East and Russia/Caspian Sea regions.

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<PAGE> 62

Conoco is exploring for oil and/or natural gas in 14 countries. Since 1996,
Conoco has pursued and continues to implement an exploration strategy focused on
acquiring large acreage positions in areas that are relatively under-explored.
The purpose of these acreage acquisitions has been to establish Conoco at an
early stage in areas that have the potential for large discoveries. During the
same period, Conoco acquired significant acreage positions in the following
regions:

- the deepwater Gulf of Mexico;

- the Atlantic Margin of Northwest Europe;

- northern South America;

- the Caribbean; and

- selected basins in the Asia Pacific region.

Conoco's global deepwater acreage position is the largest in the industry. In
1998, Conoco's exploratory success rate was its best in 15 years. Approximately
30 percent of the exploratory wells Conoco drilled, excluding appraisal wells,
were potentially commercial.

Conoco intends to manage its asset portfolio to increase the proportion of
upstream assets relative to downstream assets and the proportion of large-scale,
long-lived, early-life cycle assets relative to mature assets. In the course of
implementing such strategy, Conoco has in the past, and may from time to time in
the future, purchase or sell upstream assets. Conoco may also consider forming
alliances or joint ventures to hold and operate selected upstream assets, either
to optimize the efficiency of such operations through achieving economies of
scale or to monetize a portion of the value of such assets.

The following table sets forth information regarding Conoco's producing
properties. This table includes crude oil, condensate, and natural gas liquids
expected to be removed for Conoco's account from its natural gas production.

<TABLE>
<CAPTION>
PROVED RESERVES
AS OF DECEMBER 31, 1998
1998 PRODUCTION
NATURE OF INTEREST (MMBOE) (MBOE PER DAY)
------------------ ------------------ --------------
<S> <C> <C> <C>
REGION
UNITED STATES
Lobo...................................... Lease 162 70
Gulf of Mexico............................ Lease 80 28
San Juan Basin............................ Lease 185 53
Permian Basin............................. Lease 133 31
Central Appalachian Basin................. Partnership 63 2
Other..................................... 88 43
----- ---
Total United States............... 711 227
WESTERN EUROPE
Britannia................................. License 242 18
Heidrun................................... License 146 39
Statfjord................................. License 100 54
Troll..................................... License 114 9
Other..................................... 317 111
----- ---
Total Western Europe.............. 919 231
NORTHERN SOUTH AMERICA AND THE CARIBBEAN
Petrozuata................................ Equity Company 678 5
OTHER....................................... 314 120
----- ---
Total............................. 2,622 583
===== ===
</TABLE>

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UNITED STATES

Production operations in the United States are principally located in the
following areas:

- the Lobo trend in South Texas;

- the Gulf of Mexico;

- the San Juan Basin in New Mexico;

- the Permian Basin in West Texas; and

- the Central Appalachian Basin in Virginia.

In 1998, United States operations contributed approximately 23 percent of
Conoco's worldwide petroleum liquids production and 63 percent of its worldwide
natural gas production. Proved reserves as of December 31, 1998, were 711
million barrels-of-oil-equivalent, consisting of 261 million barrels of
petroleum liquids and 2,700 billion cubic feet of natural gas.

In recent years, Conoco has consolidated its exploration and production
operations in the United States in order to increase profitability. Conoco sold
hundreds of smaller, less efficient properties, while acquiring an increased
interest in its largest producing areas such as the San Juan Basin and the Lobo
trend. As a result, Conoco has reduced the number of fields in its portfolio
from approximately 700 in 1990 to 104 as of December 31, 1998, while maintaining
production essentially constant on a barrel-of-oil-equivalent basis. Conoco has
also focused its exploration activities by reducing the number of exploration
plays being pursued in the United States from over 30 in 1995 to less than ten
as of December 31, 1998. Exploration activity in the United States is
concentrated in the deepwater Gulf of Mexico.

Conoco's objectives are to increase production from the Lobo trend and the
deepwater Gulf of Mexico, while maintaining production from other United States
assets and focusing on natural gas processing capabilities.

Lobo Trend in South Texas

Conoco is the largest natural gas producer in the Lobo trend, and a leading
producer, marketer and transporter of natural gas in South Texas. Conoco has 20
years of operating and drilling experience in the Lobo trend and currently holds
approximately 450,000 acres in the area under oil and gas leases. In 1997, in
accordance with its strategy to rapidly increase production through
participation in large development projects, Conoco substantially increased its
holdings in South Texas through the acquisition of $929 million of natural gas
properties and transportation assets. Assets acquired by Conoco in this
transaction included approximately 215,000 acres of leases, 800 wells and a
1,150-mile natural gas gathering and transportation pipeline. The pipeline
provides direct access to major Texas intrastate and interstate pipeline
systems. As a result of the Lobo acquisition, Conoco is currently the second
largest natural gas producer in Texas.

Conoco's average working interest in its leases in the Lobo trend is 92
percent. A large number of the producing wells acquired in the Lobo acquisition
were acquired subject to volumetric production payments. The holders of these
production payments are entitled to a specific volume of production from these
wells until the last of the production payments terminates in 2002. These
volumes averaged approximately 91 million cubic feet per day in 1998.

Since the 1997 acquisition of Lobo properties, Conoco has maintained
between two and 14 rigs working continuously in the region. As of May 1, 1999,
Conoco had seven rigs working. This development activity has resulted in an
increase in gross natural gas production in the region from approximately 510
million cubic feet per day for December 1997 to approximately 750 million cubic
feet per day for December 1998, an increase of approximately 47 percent. Conoco
anticipates spending $600 million between 1999 and 2002 to further develop its
leases in the Lobo trend. Conoco's 1998 Lobo trend development program included
the acquisition of new 3D seismic data and the drilling of over 200 wells.

As of June 1999, Conoco had completed 3-D seismic surveys on 90 percent of
its total acreage holdings in the Lobo trend, and drilled over 330 wells since
mid-year 1997. As a result of the progression

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of the seismic interpretations and recent higher gas prices, Conoco intends to
gradually increase the number of drilling rigs during the balance of this year,
with the objective of maintaining lower per well drilling costs at increasing
levels of activity. To date during 1999, drilling and completion costs have been
reduced approximately 10 percent on a per well basis compared to 1998 and
operating costs have been reduced by approximately 10 percent on a unit of
production basis compared to 1998.

Lobo Pipeline Company, a wholly owned subsidiary of Conoco, owns a 1,150
mile intrastate natural gas pipeline system in South Texas and expects to
implement an expansion plan designed to provide transportation for Conoco's gas
production and that of third party producers, laying 100 miles of pipeline per
year for the next five years. During the first two years, most of the pipeline
added will be high-pressure trunklines to support regional development.

Gulf of Mexico

Conoco's current portfolio of producing properties in the Gulf of Mexico
includes ten fields operated by Conoco and 14 operated by other companies. The
properties are in various stages of development, ranging from properties that
are fully developed to ones with considerable additional development potential.
Conoco also holds interests in various offshore platforms, pipelines and other
infrastructure.

Conoco currently has 13 leases in production or under development in the
deepwater Gulf of Mexico. Conoco's most important current development project in
the Gulf of Mexico is the Ursa field development. Ursa, operated by Shell, is
one of the largest discoveries to date in the deepwater Gulf of Mexico. Conoco
holds a 16 percent interest in the field, and the other owners are Shell, BP
Amoco and Exxon. The Ursa tension leg platform was installed in late 1998 in
approximately 3,900 feet of water. Initial production from Ursa began four
months ahead of schedule in March 1999, and Conoco projects that peak gross
production from the Ursa field will reach 150,000 barrels per day of petroleum
liquids and 400 million cubic feet of gas per day by 2001.

Conoco's most important exploration program in the United States is in the
deepwater Gulf of Mexico. Conoco is the seventh largest deepwater leaseholder in
the Gulf on an acreage basis, with interests in 295 leases. Conoco has a 100
percent interest in 104 of these leases, and jointly owns 76 of the remaining
leases on a 50-50 basis with Shell and 60 of the remaining leases on a 50-50
basis with Exxon. Since 1996, Conoco has acquired 3D seismic data over large
portions of the deepwater Gulf of Mexico to identify acreage to lease and to
select prospects for drilling. Seismic interpretation is now underway on many
leases and preparations for a multi-well drilling program are being made.

Conoco will carry out its deepwater Gulf of Mexico drilling program in
large part with a recently completed deepwater drillship, which is owned by a
joint venture between Conoco and R&B Falcon Corporation. This vessel, christened
the Deepwater Pathfinder, went into service in January 1999, commencing a
five-year, $400 million drilling program in the Gulf of Mexico. This highly
sophisticated drillship is capable of drilling in water depths of up to 10,000
feet and provides Conoco with the ability to explore in areas that were
previously inaccessible. In May 1999, Conoco announced a discovery on the
Magnolia prospect on Garden Banks Block 783, the first prospect drilled by the
Deepwater Pathfinder. Conoco is currently evaluating the results of the
discovery. The Deepwater Pathfinder is currently drilling another prospect in
Green Canyon Block 562.

Other U.S. Producing Properties

Outside of South Texas and the Gulf of Mexico, Conoco's largest producing
properties in the United States are located in the San Juan Basin of New Mexico,
the Permian Basin in West Texas and the Central Appalachian Basin in Virginia.
Conoco also has producing properties in the Williston Basin and the Hugoton
complex in the Oklahoma/Texas Panhandle.

Conoco has a significant acreage position in the San Juan Basin. Conoco's
average daily net production from the San Juan Basin in 1998 was approximately
15,500 barrels of petroleum liquids and 226 million cubic feet of natural gas.
Conoco believes significant additional hydrocarbons lie below the

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basin's traditional producing formations, and Conoco is actively exploring for
new reserves. In 1998, Conoco conducted a 300-square-mile 3D seismic survey
covering the most promising deep areas of the basin. Early results have
identified several high-potential prospects, and two wells are planned to be
drilled in 1999. Conoco will also continue to consider potential acquisitions in
this basin to take advantage of synergies resulting from its large asset base
and gas plant in the area.

Conoco has an interest in 29 fields in the Permian Basin, which is one of
the largest producing areas in the United States. In the Permian Basin, Conoco's
average daily net production in 1998 was approximately 23,500 barrels of
petroleum liquids and approximately 44 million cubic feet of gas. Conoco is
using 3D seismic technology, horizontal wells and other innovative extraction
technologies in an effort to extend the productive life of many of the mature
fields in the Permian Basin.

Pocahontas Gas Partnership is a 50/50 partnership between Conoco and Consol
Energy Inc. Pocahontas produces and gathers coal bed methane prior to and during
coal mining operations in Virginia. Pocahontas produced and gathered
approximately 34 million gross cubic feet per day of coal bed methane from the
existing active mining area in 1998. Conoco recently approved an expansion of
the Pocahontas project to develop coal bed methane outside of the existing
mining area, which is expected to increase total Pocahontas production to
approximately 40 million gross cubic feet per day in 1999.

NATURAL GAS AND GAS PRODUCTS

In the United States, Conoco owns interests in 23 natural gas processing
plants located in Louisiana, New Mexico, Oklahoma and Texas as well as
approximately 10,000 miles of gathering lines. Conoco operates 16 of the plants.

Conoco gathers natural gas, extracts natural gas liquids and sells the
remaining residual gas. Most of Conoco's raw gas liquids are supplied to its
processing operations, which further separate them into natural gas liquid
products that are used as feedstocks for gasoline and chemicals production.
Conoco provides service to approximately 800 natural gas producers and sells
more than 500 million cubic feet per day of residue gas to approximately 120
customers.

Conoco's share of total natural gas liquids from natural gas processed at
the 23 plants in which it owns an interest averaged 66,300 barrels per day in
1998, of which approximately 11,000 barrels per day of natural gas liquids were
from Conoco owned reserves, which were reported, net of royalties, as United
States natural gas liquids production. In 1998, approximately 28,200 barrels per
day of additional natural gas liquids were attributable to processing of
Conoco's natural gas liquids in third-party-operated plants. Furthermore,
Conoco's 50 percent-owned equity affiliate, C&L Processors Partnership, has five
natural gas processing plants in Oklahoma and Texas. Conoco's pro rata share of
C&L's natural gas liquids production was approximately 7,600 barrels per day in
1998.

Conoco's other natural gas and gas products facilities in the United States
include:

- Lobo Pipeline Company's 1,150-mile intrastate natural gas pipeline system
in South Texas;

- an 800-mile intrastate natural gas pipeline system in Louisiana operated
by Conoco's wholly owned subsidiary, Louisiana Gas System, Inc.;

- natural gas and natural gas liquids pipelines in several other states;

- three underground natural gas liquids storage facilities;

- a natural gas liquids fractionating plant in Gallup, New Mexico with a
capacity of 25,000 barrels per day; and

- a 22.5 percent equity interest in Gulf Coast Fractionators, which owns a
natural gas liquids fractionating plant in Mt. Belvieu, Texas with a
capacity of 104,000 barrels per day.

In 1998 Conoco sold approximately 3.3 billion cubic feet per day of natural gas,
which included 873 million cubic feet per day of its U.S. natural gas
production.

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<PAGE> 66

WESTERN EUROPE

Conoco has a significant portfolio of producing properties in the United
Kingdom and Norway. Proved Western Europe reserves, as of December 31, 1998,
were 919 million barrels-of-oil-equivalent, consisting of 410 million barrels of
petroleum liquids and 3,053 billion cubic feet of natural gas. In 1998,
operations in Western Europe contributed 44 percent of Conoco's worldwide
petroleum liquids production and 33 percent of its natural gas production.

Britannia Field

Conoco has a 42.4 percent interest in the Britannia field, which is one of
the largest natural gas/ condensate fields in the United Kingdom sector of the
North Sea. Britannia is a centerpiece of Conoco's strategy to increase
production and reserves through large, long-lived projects. First production
from Britannia occurred in August 1998 and Conoco estimates that the field will
have a production life of approximately 30 years. Conoco's proved reserves in
Britannia include 1.1 trillion cubic feet of natural gas and 56 million barrels
of petroleum liquids at December 31, 1998. As of June 8, 1999, Britannia was
producing 740 million gross cubic feet of gas per day and 50,000 gross barrels
of petroleum liquids. Production is expected to fluctuate due to seasonal
demand. Conoco and Chevron, the two largest interest holders in the field,
jointly operate Britannia.

Southern North Sea Producing Properties

Conoco has various equity interests in 13 producing gas fields in the
Southern North Sea, a major gas producing area on the United Kingdom continental
shelf. These fields mostly feed into the Conoco-operated Theddlethorpe gas
processing facility through three Conoco-operated pipeline systems: Viking,
LOGGS and CMS. In 1998, Conoco's net production from the Southern North Sea was
98 billion cubic feet of natural gas.

Conoco believes there are additional development opportunities in the
Southern North Sea. One example is the Viking Phoenix project, in which Conoco
targeted the development of additional reserves using existing infrastructure
and new drilling and completion technology. In November 1998, Conoco started
production from this development, for which its proved reserves were 73 billion
cubic feet of gas as of December 31, 1998. Conoco holds a 50 percent interest in
the Viking Field. In June 1999, Conoco announced a discovery on the E-Plus
exploration well in the Southern North Sea. This well is near existing Conoco
infrastructure in the Viking field and Conoco is currently evaluating the
commercial potential of the discovery.

At year-end 1998, Conoco acquired Canadian Petroleum UK Ltd., the British
subsidiary of Canadian Occidental Petroleum Ltd. The acquisition included:

- interests in the Vulcan (7.9 percent), South Valiant (12.5 percent), and
Caister (30 percent) gas producing fields;

- a 15 percent interest in the Caister Murdoch gas pipeline;

- a ten percent interest in the Eagles gas pipeline; and

- interests in eight exploration blocks.

As a result of this acquisition, Conoco increased its interest in the Vulcan and
South Valiant Fields to 50 percent from 42.1 percent and 37.5 percent, and
increased its stake in the Caister Murdoch gas pipeline to 42.25 percent. Conoco
currently operates the Vulcan and South Valiant fields.

Other United Kingdom Properties and Discoveries

Conoco also has interests in the following fields and discoveries:

- Miller (30 percent);

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<PAGE> 67

- Alba (12 percent);

- Statfjord (4.8 percent in the United Kingdom/10.3 percent in the
Norwegian sector);

- MacCulloch (40 percent);

- Banff (32 percent); and

- Clair (21 percent).

Conoco operates the MacCulloch and Banff fields, both of which employ floating
production, storage and offtake technology. BP Amoco operates the Miller field
and the Clair discovery, which is one of the largest undeveloped oil discoveries
in Western Europe.

Interconnector Pipeline and Gas Sales

The Interconnector pipeline, which connects the United Kingdom and Belgium,
will facilitate marketing throughout Europe of the natural gas Conoco produces
in the United Kingdom. This pipeline commenced operation in October 1998.
Conoco's ten percent share of the Interconnector pipeline allows Conoco to ship
approximately 200 million cubic feet of gas per day to the markets in
continental Europe. Conoco has seven- to ten-year contracts to supply natural
gas to Gasunie in the Netherlands and Wingas in Germany, which fully utilizes
this capacity. Because the Interconnector pipeline provides flexibility to flow
in either direction, Conoco will be able to take advantage of the long-term and
short-term market conditions in both the United Kingdom and continental Europe.

Norwegian Producing Fields

Conoco is the sixth largest oil producer in Norway. Conoco has an ownership
interest in three of the largest fields in the country: Heidrun, Statfjord and
Troll. Conoco also has an interest in the following discoveries which are in
development:

- Oseberg South (7.7 percent);

- Visund (9.1 percent);

- Jotun (3.75 percent); and

- Huldra (23.3 percent).

Conoco also has an interest in the PL 203 discovery.

Production from the Heidrun field began in 1995 and is currently averaging
approximately 240,000 gross barrels of petroleum liquids per day. Conoco's share
of the proved reserves in the field, based on its 18.125 percent interest, is
119 million barrels of petroleum liquids and 159 billion cubic feet of natural
gas. Conoco was the operator for the construction and installation of Heidrun's
tension leg platform. Upon first production, Statoil assumed operatorship in
accordance with a pre-agreed arrangement. Associated gas from the Heidrun field
currently serves as feedstock for a methanol plant that became operational in
Norway in 1997. The plant, in which Conoco holds an 18.125 percent interest, is
operated by Statoil.

Conoco, which holds 10.3 and 4.8 percent interests in the Norwegian and
United Kingdom sectors of the Statfjord field, had total net proved reserves for
both the Norwegian and United Kingdom sectors of 84 million barrels of petroleum
liquids and 98 billion cubic feet of natural gas in the field as of December 31,
1998. Conoco is supporting work by Statoil, the operator of Statfjord, to
determine ways to slow the natural decline of the field and increase reserves.
Conoco also owns a 1.66 percent interest in the Troll gas field, operated by
Statoil, and has net proved reserves in the field of 576 billion cubic feet of
natural gas and 18 million barrels of petroleum liquids.

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<PAGE> 68

Exploration -- The Atlantic Margin

Exploration activity in Western Europe is focused on the deepwater Atlantic
Margin fairway, which runs from the Voring Basin off the coast of Norway to the
Porcupine Basin off the west coast of Ireland. Along the Atlantic Margin, Conoco
has significant acreage positions in the Voring Basin, the West of Shetlands and
North Rockall Trough areas in the United Kingdom and the Porcupine Basin. In
1997, the United Kingdom government awarded Conoco and three partners
exploration licenses for two deepwater blocks, Block 204/14 and 204/15, in the
West of Shetlands area. These blocks are adjacent to a discovery in BP
Amoco-operated Block 204/19. Conoco, as operator of Blocks 204/14 and 204/15,
drilled two wells in 1998 to test the potential of this acreage. The results of
the wells are being currently evaluated by Conoco and its partners.

NORTHERN SOUTH AMERICA AND THE CARIBBEAN

Petrozuata

Petrozuata is a key component of Conoco's strategy to increase production
and reserves through implementation of long-lived, large development projects
and to utilize its proprietary coking technology in other areas of its business.
Petrozuata is a joint venture between Conoco, which holds a 50.1 percent non-
controlling equity interest, and PDVSA Petroleo y Gas S.A., a subsidiary of
PDVSA, the national oil company of the Republic of Venezuela, which holds the
remaining interest.

Petrozuata, the first venture of its kind in Venezuela, is developing an
integrated operation to produce extra heavy crude oil from known reserves in the
Zuata region of the Orinoco Belt, transport it to the Jose industrial complex on
the north coast of Venezuela and upgrade it into synthetic crude, with
associated by-products of liquified petroleum gas, sulfur, petroleum coke and
heavy gas oil, a product slightly lighter than residual oil. Petrozuata's
synthetic crude is a lighter, partially processed refining feedstock similar to
crude oil. Conoco's recorded proved reserves related to its interest in
Petrozuata as of December 31, 1998, were 678 million barrels of oil. The joint
venture agreement has a 35-year term, commencing upon the completion of the
upgrading facility in 2000, and requires approval of both Conoco and PDVSA
Petroleo y Gas S.A. for major Petrozuata decisions.

The upgrading facility, which will employ Conoco's proprietary delayed
coking technology, will be located at Jose and is projected to become
operational in mid-2000. Diluted extra heavy crude oil will be transported via a
36-inch pipeline from the field to the Jose industrial complex. An adjacent
20-inch pipeline will return naphtha from the upgrading facility to the field
for use as a diluent. Petrozuata has also begun construction of field processing
and support facilities and marine facilities for shipping synthetic crude and
by-products.

As of May 31, 1999, Petrozuata has made significant progress toward project
completion. The upgrading facility is now approximately two-thirds complete and
most of the key process units have been installed. The dual pipeline system is
fully operational and early production and diluent volumes are currently being
shipped between Jose and the field. Production facilities are now substantially
complete and drilling of production wells continues. Current extra heavy oil
production is approximately 61,000 barrels per day. While many wells are
producing at expected rates, on average, individual well productivity has been
less than expected. As a result, Petrozuata will drill more wells than
anticipated in the original plans for the project. Due to drilling efficiencies,
Petrozuata is experiencing lower than expected per well drilling costs which
will mitigate the cost of the additional wells. Additionally, Conoco expects
that use of multi-lateral well technology will increase the per well producing
capability above current levels. Conoco expects Petrozuata to produce 120,000
barrels per day of extra heavy crude oil required for the planned start-up of
the upgrading facility in mid-2000.

Petrozuata began early production of extra heavy crude oil in August 1998.
Prior to completion of the upgrading facility, the extra heavy crude will be
blended with lighter oils and sold on world markets. Following completion of the
upgrading facility, the synthetic crude produced by Petrozuata will either be

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<PAGE> 69

used as a feedstock for Conoco's Lake Charles refinery and a refinery operated
by PDVSA, or will be sold to third parties.

Conoco has entered into an agreement to purchase up to 104,000 barrels per
day of the Petrozuata synthetic crude for a formula price over the term of the
joint venture if Petrozuata is unable to sell the production to third parties
for higher prices. All synthetic crude sales will be denominated in United
States dollars. By-products produced by the upgrading facility, principally coke
and sulfur, will be sold to a variety of domestic and foreign purchasers. The
loading facilities at Jose will transfer synthetic crude and some of the
by-products to ocean tankers for export. Synthetic crude sales are expected to
comprise more than 90 percent of the project's revenues.

The La Luna Trend

Exploration activity in northern South America and the Caribbean is focused
on a geologic trend known as La Luna. In Venezuela, Conoco conducted seismic
surveys in 1997 on the shallow water Gulf of Paria West block, and on the
Guanare block in the Merida Andes foothills. In early 1999, Conoco drilled a
well in the Gulf of Paria West, which is a potentially commercial discovery that
flowed hydrocarbons from multiple zones in drill stem tests. Conoco is currently
drilling a second well on an adjacent structure. Conoco also drilled a well in
the Guanare block, which was a dry hole. Additional exploration and appraisal
work is currently planned for 1999. Conoco currently holds a 50 percent working
interest in both the Gulf of Paria West block, which it operates, and the
Guanare block, which is operated by Elf Aquitane. Conoco's interest in each case
is subject to dilution to 32.5 percent at the option of a PDVSA affiliate.

In northwestern Colombia, seismic surveys have been completed in
partnership with Texaco on three tracts that Conoco acquired through a 50
percent farm-in. In 1998, Texaco drilled two dry holes on the acreage and plans
to drill two additional wells in 1999. In addition, Conoco and Texaco acquired a
fourth tract in a joint bid in 1998.

In 1997, Conoco signed a production sharing contract for Blocks 4a and 4b,
two large prospective blocks off Trinidad's east coast. A 3D seismic survey was
acquired over the acreage in 1997, and Conoco is currently drilling a well to
test the potential of this acreage. Conoco is operator of both blocks and has a
50 percent working interest; Texaco holds the remaining working interest in both
blocks.

Seeking additional opportunities in the La Luna Trend, Conoco has conducted
a two-year study of the hydrocarbon potential of the entire offshore Barbados
area. Encouraged by the study, Conoco has entered into a commitment to acquire
seismic data over 50 percent of the original study area and has the option to
enter a drilling program to test the potential of this largely unexplored area.

Phoenix Park

Conoco holds a 39 percent equity interest in Phoenix Park Gas Processors
Limited, a joint venture with the National Gas Company of Trinidad and Tobago
Limited, that processes gas in Trinidad and markets in the eastern Caribbean.
Phoenix Park's facilities include:

- a gas processing plant;

- a fractionator producing propane, mixed butane and natural gasoline;

- storage tanks; and

- a liquified petroleum gas marine loading dock.

These facilities produce over 11,000 gross barrels per day of natural gas
liquids. Phoenix Park recently completed an expansion of its facilities to
process up to 1.4 billion cubic feet of gas per day, increase fractionation
capacity to 33,000 barrels per day, and add additional storage and marine export
facilities.

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<PAGE> 70

ASIA PACIFIC

Conoco has a 30-year operating history in Indonesia. The focus of Conoco's
effort in the Asia Pacific region is its operations in the Indonesian sector of
the Natuna Sea. In this area, Conoco is the operator of the Block B and North
West Natuna Sea Block II production sharing contracts. Conoco also has interests
in exploration blocks in Cambodia, Vietnam and New Zealand, where the second
deepwater drillship owned by a joint venture between Conoco and R&B Falcon, the
Deepwater Frontier, recently completed drilling its first exploratory well. The
well did not encounter commercial hydrocarbons.

West Natuna Gas Project

In 1996, Conoco, as operator of the South Natuna Sea Block B PSC, along
with the other participants in Block B and the interest holders in the Block A
and Kakap production sharing contracts, formed the "West Natuna Group", with the
aim of jointly marketing gas from the West Natuna Area to Singapore. In January
1999, the West Natuna Group, Pertamina, the Indonesian state-owned oil and gas
company and Sembgas, a company owned by Sembcorp Industries, entered into a
definitive set of agreements to sell the gas to Temasek and Tracetebel. These
agreements provide for the sale and purchase of natural gas from specified
fields in the production sharing contracts operated by the West Natuna Group.

These agreements provide for gas deliveries to begin by mid-2001 that will
rise to a sales rate of 325 million cubic feet per day. Sembgas will sell the
gas to a series of end users, including Tuas Power, Sembcorp Cogen and Esso
Chemicals, which will use the gas for industrial purposes, primarily power
generation. The West Natuna Group has entered into a gas supply agreement with
Pertamina in which they have undertaken to develop a series of fields and to
supply the gas produced to Pertamina for the sale to Sembgas. The agreements
provide for the supply of approximately one trillion cubic feet of natural gas
from fields in Block B to Sembgas. Block B's share of production will reach 140
million cubic feet of gas daily. Block B constitutes 43.1 percent of the West
Natuna Group and Conoco owns a 40 percent interest in Block B and has net proved
reserves of 197 billion cubic feet of natural gas. Conoco plans to drill five
wells in Block B in 1999 to begin development of these reserves. In addition,
each of the production sharing contracts has been extended to allow the West
Natuna Group to support Pertamina for the expected 22 year life of the contract
with Sembgas.

A 300-mile 28-inch submarine pipeline and smaller gathering pipelines will
be built by the West Natuna Group to transport the gas from the West Natuna Sea
fields to Singapore. Conoco will be the operator of the pipeline system,
including the receiving terminal in Singapore. The West Natuna Group, Pertamina
and Sembgas have entered into contracts governing the construction and operation
of the pipeline. Contracts for engineering, procurement, construction and
installation of the pipeline and platform based gas processing equipment were
recently awarded and approved by Pertamina.

Two delineation wells recently drilled by Conoco, the West Belut #2 and the
Belut #5, further delineated a natural gas discovery made by Conoco in 1998. The
Belut Complex is not dedicated to the West Natuna Group gas sales agreement, but
Conoco believes production from this area could be used to meet increased
Singaporean gas demand, and fill excess pipeline capacity, in the future.

Belida and Sembilang Fields, Indonesia

Conoco holds a 40 percent interest in and serves as operator of the Belida
and Sembilang oil fields in the Block B PSC. An ongoing infill drilling program
in the Belida Field maintained gross production for the Indonesian fields in the
range of 85,000 barrels per day in 1998.

CANADIAN ROCKIES

Conoco has had significant exploration success in the 1990's in the
foothills east of the Canadian Rockies. In this area, Conoco has an interest in
209,000 net acres, much of which has yet to be developed. Development plans for
1999/2000 include bringing on-stream two more of the foothills discoveries. In

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addition to the discoveries in the foothills trend, Conoco has a significant
interest in the Peco Gas Field, located just east of the foothills. Conoco also
owns 100 percent of the Peco gas processing plant, which processes gas from the
Peco Field and two of the foothills discoveries.

RUSSIA

Conoco holds a 50 percent direct and a 4.7 percent indirect ownership
interest in Polar Lights Company, a Russian limited liability company
established in January 1992. Polar Lights, the first Russian-Western joint
venture to develop a major new oil field, was established to develop the Ardalin
oil field discovered in 1988 by the Russian state enterprise GP
Arkhangelskgeologia. Ardalin is located in the Arctic tundra approximately 1,000
miles northeast of Moscow. As of December 31, 1998, Conoco's share of proved
reserves was 42 million barrels of petroleum liquids, with an additional eight
million barrels of net proved reserves at the adjacent oil fields -- Kolva and
Dusushev. Polar Lights started producing oil in August 1994 and gross production
increased from an average 21,000 barrels per day in 1994 to an average 35,000
barrels per day in 1998. Average production during May 1999 reached a record
40,200 barrels per day. Oil is transported through the existing Russian pipeline
system and is then exported or sold on the domestic market.

In March 1998, Conoco signed a memorandum of understanding with OAO Lukoil,
Russia's largest oil company, to jointly study the development of petroleum
reserves in the 1.2 million acre block known as the Northern Territories in the
Timan-Pechora region in northern Russia, which includes the large undeveloped
Yuzhno Khilchuyu oil field. The memorandum of understanding followed Lukoil's
purchase in December 1997 of a majority interest in OAO Arkhangelskgeoldobycha,
successor to GP Arkhangelskgeologia and Conoco's original partner in the
Northern Territories. In November 1998, Conoco and Lukoil signed a second
memorandum of understanding to work together to draw up and submit all documents
required by the Russian government to develop the Northern Territories under
production sharing agreement terms, to secure funding for the project and to
work together to resolve other outstanding issues.

In July 1998, Conoco acquired a 15.667 percent interest in OAO
Arkhangelskgeoldobycha for approximately $33 million. OAO Arkhangelskgeoldobycha
owns a 30 percent interest in Polar Lights.

WEST AFRICA

In 1997, Conoco, in partnership with Express Petroleum and Gas Company Ltd.
of Nigeria, announced the production of first oil from the shallow water
Ukpokiti field, located offshore in the western Niger delta. Conoco currently
has a 90 percent revenue interest in the field. Total production from the field
is currently 20,000 barrels per day of oil, and Conoco's net proved reserves as
of December 31, 1998 were 13.2 million barrels of oil. Express operates
Ukpokiti, and Conoco provides technical and operational assistance in the
field's development, which included three remote caisson-type structures, five
wells, and the conversion of the Conoco tanker "Independence" into a floating
production and storage offtake vessel. With a 1.7 million barrel storage
capacity, the vessel also serves as an export terminal.

In addition to its interest in the Ukpokiti field, Conoco has a 47.5
percent working interest in the deepwater OPL 220 license off the coast of
Nigeria, which is operated by Conoco and encompasses 600,000 acres. Conoco has
acquired a 3D seismic survey and drilled two wells on this license. The first
well, which was drilled in 1997, found only gas and was non-commercial. The
second well was drilled in 1998 and encountered both oil and gas-filled sands.
Conoco and its partner, Exxon, are currently evaluating results from this second
well.

MIDDLE EAST

In Dubai, United Arab Emirates, Conoco has operated four fields since their
discovery between 1966 and 1973. Currently, Conoco is using horizontal drilling
techniques and advanced reservoir drainage technology to enhance the efficiency
of the offshore production operations and improve recovery rates.

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OIL AND NATURAL GAS RESERVES

Conoco's estimated proved reserves at December 31, 1998 were 2,622 million
barrels-of-oil-equivalent, consisting of 1,591 million barrels of oil and 6,183
billion cubic feet of natural gas.

Oil and gas proved reserves cannot be measured precisely. The reserve data
set forth in this report is only an estimate. Reservoir engineering is a
subjective and inexact process of estimating underground accumulations of oil
and natural gas. Reserve estimates are based on many factors related to
reservoir performance which require evaluation by engineers interpreting the
available data, as well as price and other economic factors. The reliability of
these estimates at any point in time depends on both the quality and quantity of
the technical and economic data, the production performance of the reservoirs as
well as extensive engineering judgment. Consequently, reserve estimates are
subject to revision as additional data become available during the producing
life of a reservoir. When a commercial reservoir is discovered, proved reserves
are initially determined based on limited data from the first well or wells.
Subsequent data may better define the extent of the reservoir and additional
production performance. Well tests and engineering studies will likely improve
the reliability of the reserve estimate.

At lower prices for crude oil and natural gas, it may no longer be economic
to produce reserves that are more expensive to produce. Actual production,
revenues and expenditures with respect to Conoco's reserves will likely vary
from estimates, and such variances may be material.

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<PAGE> 73

The following table sets forth by region Conoco's proved oil reserves at
year-end for the past five years. Proved oil reserves comprise crude oil,
condensate and natural gas liquids expected to be removed for Conoco's account
from its natural gas production.

<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1998 1997 1996 1995 1994
----- ----- ---- ---- ----
(MILLIONS OF BARRELS)
<S> <C> <C> <C> <C> <C>
PROVED OIL RESERVES
CONSOLIDATED COMPANIES
United States.............................................. 261 277 299 294 336
Europe..................................................... 410 421 413 408 394
Other Regions.............................................. 192 195 214 231 223
----- ----- --- --- ---
Worldwide................................................ 863 893 926 933 953
SHARE OF EQUITY AFFILIATES
Europe..................................................... 50 51 47 44 35
Other Regions(1)........................................... 678 680 -- -- --
----- ----- --- --- ---
Total Proved Oil Reserves........................ 1,591 1,624 973 977 988
===== ===== === === ===
</TABLE>

- ---------------

(1) Represents Conoco's equity share of the Petrozuata venture in Venezuela.

The following table sets forth by region Conoco's proved natural gas
reserves at year-end for the past five years:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- -----
(BILLIONS OF CUBIC FEET)
<S> <C> <C> <C> <C> <C>
PROVED NATURAL GAS RESERVES
CONSOLIDATED COMPANIES
United States.......................................... 2,319 2,235 1,822 1,891 1,749
Europe................................................. 3,053 3,060 3,068 2,649 2,431
Other Regions.......................................... 430 196 173 169 150
----- ----- ----- ----- -----
Worldwide............................................ 5,802 5,491 5,063 4,709 4,330
SHARE OF EQUITY AFFILIATES
United States.......................................... 381 370 333 339 344
----- ----- ----- ----- -----
Total Proved Natural Gas Reserves............ 6,183 5,861 5,396 5,048 4,674
===== ===== ===== ===== =====
</TABLE>

PRODUCTION DATA

Conoco's oil and natural gas production, excluding natural gas liquids from
gas plant ownership, averaged 583,000 barrels-of-oil-equivalent per day in 1998,
compared with 575,000 barrels-of-oil-equivalent per day in 1997. As a percentage
of total production, natural gas production was 40 percent and 35 percent in
1998 and 1997.

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The table below shows Conoco's interests in average daily oil production
and natural gas production for the past three years. Oil production comprises
crude oil and condensate produced for Conoco's account, plus its share of
natural gas liquids removed from natural gas production from owned leases.
Natural gas production represents Conoco's share of production from leases in
which it has an ownership interest. Natural gas liquids processed represents
Conoco's share of natural gas liquids acquired through gas plant ownership.

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(THOUSANDS OF BARRELS
PER DAY)
<S> <C> <C> <C>
NET AVERAGE DAILY OIL PRODUCTION
CONSOLIDATED COMPANIES
United States.......................................... 79 90 91
Europe................................................. 152 176 182
Other Regions.......................................... 95 92 88
--- --- ---
Total Net Production -- Consolidated Companies.... 326 358 361
SHARE OF EQUITY AFFILIATES
Europe................................................. 17 16 13
Other Regions.......................................... 5 -- --
--- --- ---
Total Net Production -- Equity Affiliates......... 22 16 13
--- --- ---
Total Net Oil Production Per Day.................. 348 374 374
=== === ===
</TABLE>

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(MILLIONS OF CUBIC FEET
PER DAY)
<S> <C> <C> <C>
NET AVERAGE DAILY NATURAL GAS PRODUCTION
CONSOLIDATED COMPANIES
United States.......................................... 873 709 738
Europe................................................. 470 432 416
Other Regions.......................................... 53 46 41
----- ----- -----
Total Net Production -- Consolidated Companies.... 1,396 1,187 1,195
SHARE OF EQUITY AFFILIATES
United States.......................................... 15 16 16
----- ----- -----
Total Net Natural Gas Production Per Day.......... 1,411 1,203 1,211
===== ===== =====
</TABLE>

<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(THOUSANDS OF BARRELS
PER DAY)
<S> <C> <C> <C>
NET AVERAGE DAILY NATURAL GAS LIQUIDS PROCESSED
CONSOLIDATED COMPANIES
United States(1)....................................... 55 55 58
SHARE OF EQUITY AFFILIATES
United States.......................................... 8 8 8
Other Regions.......................................... 4 5 5
----- ----- -----
Total Net Processed -- Equity Affiliates.......... 12 13 13
----- ----- -----
Total Net Natural Gas Liquids Processed Per Day... 67 68 71
===== ===== =====
</TABLE>

- ---------------

(1) 1997 and 1996 were restated to include only natural gas liquids received as
a processing fee.

See the supplemental petroleum data in the consolidated financial
statements of Conoco included in this document for the annual production volumes
of oil (crude oil, condensate and natural gas liquids) and

73
<PAGE> 75

natural gas from proved reserves. Proved oil production volumes exclude natural
gas liquids from plant ownership.

The following table sets forth Conoco's average production costs per
barrel-of-oil-equivalent produced, average sales prices per barrel of crude oil
and condensate sold and average sales prices per thousand cubic feet of natural
gas sold for the three-year period ended December 31, 1998. The table excludes
Conoco's share of equity affiliates. Average sales prices exclude proceeds from
sales of interests in oil and gas properties.

<TABLE>
<CAPTION>
TOTAL UNITED OTHER
WORLDWIDE STATES EUROPE REGIONS
--------- ------ ------ -------
(UNITED STATES DOLLARS)
<S> <C> <C> <C> <C>
For the year ended December 31, 1998
Average production costs per barrel of oil equivalent
of petroleum produced............................... $ 3.95 $ 3.69 $ 4.54 $ 3.21
Average sales prices of produced petroleum
Per barrel of crude oil and condensate sold......... 12.37 12.17 12.61 12.12
Per mcf of natural gas sold......................... 2.24 1.96 2.86 1.42
For the year ended December 31, 1997
Average production costs per barrel of oil equivalent
of petroleum produced............................... 4.21 4.23 4.51 3.40
Average sales prices of produced petroleum
Per barrel of crude oil and condensate sold......... 18.58 17.93 18.93 18.35
Per mcf of natural gas sold(1)...................... 2.44 2.18 3.25 1.41
For the year ended December 31, 1996
Average production costs per barrel of oil equivalent
of petroleum produced............................... 3.84 4.11 4.13 2.50
Average sales prices of produced petroleum
Per barrel of crude oil and condensate sold......... 20.11 18.68 20.94 19.47
Per mcf of natural gas sold(1)...................... 2.12 1.70 2.92 1.24
</TABLE>

- ---------------

(1) 1997 and 1996 restated from wet gas price to dry gas price.

DRILLING AND PRODUCTIVE WELLS

The following table sets forth Conoco's drilling wells and productive wells
by region as of December 31, 1998. The table excludes Conoco's share of equity
affiliates.

<TABLE>
<CAPTION>
TOTAL UNITED OTHER
WORLDWIDE STATES EUROPE REGIONS
--------- ------ ------ -------
(NUMBER OF WELLS)
<S> <C> <C> <C> <C>
Number of wells drilling(1)
Gross................................................... 56 33 11 12
Net..................................................... 23 16 2 5
Number of productive wells(2)
Oil wells -- gross...................................... 7,553 6,989 236 328
-- net........................................ 2,659 2,517 22 120
Gas wells -- gross...................................... 8,593 8,364 159 70
-- net....................................... 4,370 4,267 43 60
</TABLE>

- ---------------

(1) Includes wells being completed.

(2) Approximately 182 gross (31 net) oil wells and 742 gross (275 net) gas wells
have multiple completions.

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<PAGE> 76

DRILLING ACTIVITY

The following table sets forth Conoco's net exploratory and development
wells drilled by region for the three-year period ended December 31, 1998. The
table excludes Conoco's share of equity affiliates.

<TABLE>
<CAPTION>
TOTAL UNITED OTHER
WORLDWIDE STATES EUROPE REGIONS
--------- ------ ------ -------
(NUMBER OF NET WELLS COMPLETED)
<S> <C> <C> <C> <C>
For the year ended December 31, 1998
Exploratory -- productive............................... 7.3 2.2 1.1 4.0
-- dry..................................... 14.0 5.4 1.9 6.7
Development -- productive............................... 234.8 215.9 2.8 16.1
-- dry................................... 13.0 13.0 0.0 0.0
For the year ended December 31, 1997
Exploratory -- productive............................... 7.1 3.7 1.6 1.8
-- dry..................................... 18.4 11.7 4.9 1.8
Development -- productive............................... 142.6 126.9 5.4 10.3
-- dry................................... 10.2 7.2 0.0 3.0
For the year ended December 31, 1996
Exploratory -- productive............................... 42.8 1.6 2.0 39.2
-- dry..................................... 20.5 10.3 4.0 6.2
Development -- productive............................... 89.9 73.1 6.1 10.7
-- dry................................... 17.3 13.5 0.3 3.5
</TABLE>

DEVELOPED AND UNDEVELOPED PETROLEUM ACREAGE

The following table sets forth Conoco's developed and undeveloped petroleum
acreage by region as of December 31, 1998. The table excludes Conoco's share of
equity affiliates.

<TABLE>
<CAPTION>
TOTAL UNITED OTHER
WORLDWIDE STATES EUROPE REGIONS
--------- ------ ------ -------
(THOUSANDS OF ACRES)
<S> <C> <C> <C> <C>
Developed acreage
Gross................................................... 7,691 3,253 1,023 3,415
Net..................................................... 3,121 1,534 265 1,322
Undeveloped acreage
Gross................................................... 93,254 3,613 4,829 84,812
Net..................................................... 61,564 2,428 1,588 57,548
</TABLE>

Conoco is not required to file, and has not filed on a recurring basis,
estimates of its total proved net oil and gas reserves with any U.S. or non-U.S.
governmental regulatory authority or agency other than the Department of Energy
and the SEC. The estimates furnished to the DOE have been consistent with those
furnished to the SEC. They are not necessarily directly comparable, however, due
to special DOE reporting requirements such as requirements to report in some
instances on a gross, net or total operator basis, and requirements to report in
terms of smaller units. In no instance have the estimates for the DOE differed
by more than five percent from the corresponding estimates reflected in total
reserves reported to the SEC.

DOWNSTREAM

SUMMARY

Downstream operations encompass refining crude oil and other feedstocks
into petroleum products, buying and selling crude oil and refined products and
transporting, distributing and marketing petroleum products. Downstream
operations are organized regionally with operations in the United States, Europe
and the Asia Pacific region. United States and European operations provided 55
and 56 percent of total downstream earnings in 1998, respectively, partially
offset by a small loss resulting from start-up activities

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<PAGE> 77

in Asia Pacific. Downstream's objective is to continue to provide an appropriate
return on investment by improving the competitiveness of the core business,
while providing free cash flow to fund growth in upstream, as well as in new
downstream businesses. Consistent with such objectives, Conoco has in the past,
and may from time to time in the future, purchase or sell downstream assets.
Conoco may also consider forming alliances or joint ventures to hold and operate
all or a selected part of its downstream assets, either to optimize the
efficiency of such operations through achieving economies of scale or to
monetize a portion of the value of such assets.

Conoco has made capital investments in downstream activities averaging
approximately $600 million per year for the last three years. 1998 capital
investments in downstream activities were approximately $530 million.

Conoco's downstream strengths are in the following areas:

- processing heavy, high sulfur and acidic crudes;

- upgrading bottom-of-the barrel feedstocks via coking technology;

- maintaining low cost, high volume retail marketing operations; and

- developing specialty products.

Approximately 50 percent of Conoco's worldwide refining capacity is designed to
process heavy, high sulfur crude. The Humber refinery in the United Kingdom can
process about 44 percent acidic crudes in its crude slate. Conoco has applied
its coking technology to nearly all of its refining operations throughout the
world. This has enabled Conoco to become a world leader in producing petroleum
coke products, such as high value graphite and anode coke, which are used in the
production of electrodes and anodes for the steel and aluminum industries.
Conoco has also licensed its fuel coking technology around the world, which has
in turn created other business development opportunities.

Conoco produces and markets a full range of refined petroleum products
including gasolines, diesel fuels, heating oils, aviation fuels, heavy fuel
oils, asphalts, lubricants, petroleum coke products and petrochemical
feedstocks.

Conoco owns and operates, or is a partner in the operation of nine refineries
worldwide with a total crude and condensate capacity of 807,000 barrels per
calendar day. Refining capacity is distributed 62 percent in the United States,
33 percent in Europe and 5 percent in the Asia Pacific region.

Capacity has risen by over 185,000 barrels per day, or 30 percent, since
year end 1995 as a result of:

- the expansion of the Lake Charles refinery;

- the upgrade of the Humber refinery;

- the acquisition of an interest in two refineries in the Czech Republic;
and

- an investment in the new Melaka refinery in Malaysia.

In the United States, Conoco primarily markets through low cost wholesale
operations. Conoco has a growing marketing presence in Europe and Asia Pacific,
where it is a leader in operating low cost, high volume retail stations. In
1998, refined product sales averaged 1,049,000 barrels per day, distributed 68
percent, 31 percent and one percent in the United States, Europe and the Asia
Pacific region.

UNITED STATES

Conoco's four U.S. refineries are high conversion facilities with design
capacity to process over 50 percent high sulfur crude oils, much of which is
also heavy crude. A principal factor affecting the profitability of Conoco's
U.S. operations is the price of refined products in relation to the cost of
crude oils and other feedstocks processed. Because Conoco is able to process a
relatively large portion of heavy, high sulfur crude oil, the cost advantage of
these crude oils, such as those from Mexico, Venezuela and Canada, over lighter,
low sulfur crude oils, such as West Texas Intermediate, is particularly
significant.
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<PAGE> 78

Over half of Conoco's U.S. refining capacity is located in inland markets and
therefore benefits from the price differential for products produced and sold
inland versus those produced and sold on the Gulf Coast.

Integration of refining, transportation and marketing, and continuous
improvement initiatives have provided increased profitability through
improvements in refinery reliability, utilization, product yield and energy
usage. Since the end of 1994, Conoco has increased refining input at its four
U.S. refineries by approximately 14 percent, while lowering average operating
expenses by approximately $2.00 per barrel of refinery input. Conoco has
improved market share through geographic concentration of markets.

Conoco intends to limit future downstream capital investments in the United
States, excluding large, non-discretionary, regulatory-driven projects and
selected growth projects, to a level that is less than half of downstream
operating cash flow in the United States. Capital expenditures were
approximately $201 million in 1998, a decline of approximately $26 million
compared to $227 million in 1997, reflecting the completion of major projects.
Conoco is positioned to make the necessary clean fuels investments at its
refineries over the next five years in support of changing motor fuel
specifications. Conoco also plans to make investments at the Lake Charles
refinery to facilitate processing of Petrozuata synthetic crude.

Refining

Conoco operates four wholly owned refineries in the United States. The
following tables outline the rated crude and condensate distillation capacity as
of December 31 for each of the past five years, and the average daily crude,
condensate and other inputs for each of the past five years. The refining input
table includes feedstocks in addition to crude and condensate on which rated
capacity is based, and includes actual crude and condensate runs, which may
exceed rated capacity.

<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(THOUSANDS OF BARRELS PER DAY)
<S> <C> <C> <C> <C> <C>
REFINERY INPUTS(1)
Lake Charles, Louisiana
Crude and condensate(2)................................... 216 211 177 179 183
Other feedstocks.......................................... 24 23 21 23 24
Ponca City, Oklahoma
Crude and condensate(2)................................... 167 161 150 151 144
Other feedstocks.......................................... 4 2 2 5 2
Denver, Colorado
Crude and condensate(2)................................... 50 53 49 49 47
Other feedstocks.......................................... 0 0 0 0 0
Billings, Montana
Crude and condensate(2)................................... 52 51 51 45 48
Other feedstocks.......................................... 3 3 3 3 3
Total crude and condensate........................ 485 476 426 424 422
Total other feedstocks............................ 31 27 26 31 30
</TABLE>

77
<PAGE> 79

Conoco's U.S. consolidated refined product yields by volume in 1998 were 49
percent motor gasoline, 40 percent middle distillates, including jet and diesel
fuel, 11 percent residual fuel oil and asphalt and other products, including
petroleum coke, lubricants and liquified petroleum gases.

Lake Charles Refinery and Related Facilities

Conoco's Lake Charles refinery, located in Westlake, Louisiana, is a fully
integrated, high conversion facility which has a crude and condensate capacity
of 226,000 barrels per day and processes both heavy, high sulfur crude oil and
low sulfur crude oil. The refinery's Gulf Coast location provides access to
numerous cost effective domestic and international crude oil sources. The crude
design capacity is approximately 170,000 barrels per day of heavy, high sulfur
crudes with the remaining 56,000 barrels per day of local, domestically supplied
low sulfur crudes. While the types and origins of these lower priced, heavy,
high sulfur crudes can vary, the majority consists of Venezuelan and Mexican
crudes delivered via tanker. The Lake Charles refinery products can be delivered
by truck, rail or major common carrier product pipelines partially owned by
Conoco which serve the eastern and mid-continent United States. In addition,
refinery products can be sold into export markets through the refinery's marine
terminal.

The ability to refine both low sulfur and heavy, high sulfur crudes at the
Lake Charles refinery provides a competitive advantage to Conoco by enabling the
refinery to produce from relatively low-cost feedstocks a full range of products
including gasolines, jet fuel, diesel fuel, petroleum coke, lube oils, LPG and
other specialty products. The refinery facilities include fluid catalytic
cracking, delayed coking and hydrodesulfurization units which enable it to
maximize its upgrade of heavier crude oil. A crude unit expansion and a new
catalytic reformer were completed in conjunction with the Excel Paralubes
project to take advantage of synergies generated between the two facilities.
Conoco is making investments in the Lake Charles refinery so that in the future
it will be able to process Petrozuata synthetic crude.

Integration of fuels and specialty products plays an important role in
maximizing product value at the refinery. Intermediates produced from low sulfur
crude processing allow the refinery to supply the heaviest, highest boiling
range material in the crude to Conoco's 35-percent-owned Cit-Con lube plant for
base oils, finished lubes and wax production. Other intermediates are exchanged
with a neighboring chemical plant complex for further processing.

The refinery supplies high sulfur gas oil to Excel Paralubes, Conoco's
50/50 joint venture with Pennzoil-Quaker State. Excel Paralubes'
state-of-the-art hydrocracked lubricating base oil facility produces
approximately 21,000 barrels per day of high quality hydrocracked base oils,
representing approximately ten percent of U.S. lubricating base oil production.
Hydrocracked base oils are second in quality only to synthetic base oils, but
are produced at a much lower cost. The capacity of this facility was recently
increased to over 17 percent above the plant's design capacity. The refinery
produces other specialty intermediates for making solvents to supply the
recently formed Penreco joint venture company, which is also a joint venture
with Pennzoil-Quaker State. Penreco manufactures and markets highly refined
specialty petroleum products for global markets.

The Lake Charles facilities also include a specialty coker and calciner
that manufacture the more highly valued graphite and anode petroleum cokes for
the steel and aluminum industries, and provide a substantial increase in light
oils production by converting the heaviest part of the crude barrel into diesel
fuel and gasoline. In addition, green petroleum coke is supplied to a nearby
coke calcining venture.

Ponca City Refinery

Conoco's refinery located in Ponca City, Oklahoma has a crude and
condensate capacity of 168,000 barrels per day of light, high sulfur and light,
low sulfur crudes. Both foreign and domestic crudes are delivered by pipeline
from offshore, Oklahoma, Kansas, and North and West Texas fields. Finished
products are shipped by truck, rail and company-owned and common carrier
pipelines to markets throughout the mid-continent region.

78
<PAGE> 80

The Ponca City refinery is a high conversion facility that produces a full
range of products, including gasoline, jet fuel, diesel, LPG and anode and fuel
grade petroleum cokes. The refinery's facilities include fluid catalytic
cracking, delayed coking and hydrodesulfurization units, which enable it to
produce high ratios of gasoline and diesel fuel from crude oil.

Denver Refinery

Conoco's Denver refinery, located in Commerce City, Colorado, has a crude
and condensate capacity of 58,000 barrels per day, processing a mixture of
Canadian heavy, high sulfur crudes, and domestic heavy, high sulfur crude oils
and low sulfur crude oils. Almost all crude oil processed at the refinery is
transported via pipeline. Products are delivered predominantly through a local
truck loading terminal to the east side of the Rockies but also by rail and
pipelines to other Colorado markets. The refined gasoline products from the
Denver refinery help supply Conoco's marketing operations in the Rocky Mountain
states.

The Denver refinery is a high conversion refinery that produces a full
range of products including gasolines, jet fuels, diesel and asphalt. The
refinery's upgrading units enable it to process a crude slate containing nearly
50 percent heavy, high sulfur crude. Conoco has a processing agreement with a
refinery located in Cheyenne, Wyoming, that has coking capabilities from which
the refinery receives intermediate feedstocks for processing into finished
products. The Denver refinery also supplies KC Asphalt, its 50/50 joint venture
with Koch Industries, with high quality asphalt products. Both of these ventures
enable Conoco to turn relatively low value intermediates into higher margin
products.

Billings Refinery

Conoco's Billings, Montana refinery has a crude and condensate capacity of
52,000 barrels per day, processing a mixture of over 80 percent Canadian heavy,
high sulfur crude plus domestic high sulfur and low sulfur crude oils all
delivered by pipeline. Products from the refinery are delivered via
company-owned pipelines, rail, and trucks, thereby supplying Conoco's extensive
branded marketing operations in eastern Washington and the northern Rocky
Mountain states. The refinery's proximity to its primary source of crude and its
ability to refine both low sulfur and heavy sulfur crudes provides Conoco with
significant competitive advantages.

The Billings refinery is a high conversion refinery that produces a full
range of products including gasolines, jet fuels, diesel and fuel grade
petroleum coke. The Billings refinery has a very high conversion rate and the
capability to process less expensive, very heavy, high sulfur crudes. A delayed
coker converts heavy, high sulfur residue into higher value light oils. A gas
oil hydrotreating unit and hydrogen plant improve the light oil production
yields and remove the additional sulfur contained in these heavy, high sulfur
crudes.

Marketing

In the United States, Conoco markets gasoline, utilizing the Conoco brand,
in 33 states, 20 of which represent primary markets, in the southeast,
mid-continent and Rocky Mountain regions. Market growth continues to be targeted
to those areas where Conoco can obtain a strong market share and areas that
leverage supply from its U.S. refineries and those distribution systems in which
it has an ownership position. Increasing operating market share has resulted in
particularly strong brand recognition in the Rocky Mountain and mid-continent
markets.

Conoco gasoline is sold through approximately 4,900 branded stations in the
United States, 95 percent through retail outlets owned by independent wholesale
marketers and five percent through 255 company-owned stores at year end 1998.
Conoco markets gasoline primarily through the wholesale channel in the United
States because it requires a lower capital investment than company-owned retail
stations but still provides a secure, branded outlet for Conoco's products.
Conoco operates retail stations to establish brand standards and image as well
as to better understand the independent distributors in order to provide
programs and services to them and the consumer.

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<PAGE> 81

Building on this knowledge, Conoco has recently introduced "breakplace(R),"
a new concept in convenience store design. This new format, involving the
complete redesign of an outlet's exterior and interior, is intended to increase
the frequency and transaction size of customer visits by catering to the needs
of the "convenience connoisseur." There were 34 breakplace(R) locations as of
December 31, 1998, and Conoco is licensing the trademark to marketers. Many more
stores in the network have adopted comprehensive offerings patterned after the
format, thereby supporting wholesale marketing and elevating Conoco's brand
perception to the consumer.

At year-end 1998, CFJ Properties, a 50/50 joint venture between Conoco and
Flying J, owned and operated 83 truck travel plazas that carry both the Conoco
and Flying J brands and provide a secure outlet for Conoco's diesel production.
In addition, bulk sales of all refined petroleum products are made to
commercial, industrial and spot market customers.

Transportation

Conoco has approximately 6,500 miles of crude and product mainline
pipelines in the United States, including those partially owned and/or operated
by affiliates. Conoco also owns and operates 38 finished product terminals, six
liquified petroleum gas terminals, one crude terminal and one coke-exporting
facility. Conoco's crude pipeline interests and terminals provide integral
logistical links between crude sources and refineries to lower crude costs. The
product pipelines serve as secure links between refineries and key products
markets. Conoco's U.S. pipeline system transported an average of 909,000 barrels
per day in 1998. Conoco's equity share of shipments on affiliate pipelines was
an additional 383,000 barrels per day.

Conoco currently operates a fleet of seven seagoing crude oil tankers,
principally of Liberian registry, including five double-hulled tankers. Conoco
operates a 100 percent double-hulled tanker and barge fleet in United States
waters. Four vessels are used to provide secure transportation to the Lake
Charles refinery, two others are in use in the Asia Pacific market and are
currently slated for disposition later this year, and another is on lease to a
third party for use as a shuttle tanker for the Heidrun field in the North Sea,
in which Conoco has an interest. An eighth vessel is being used as a floating
production storage and offtake vessel off the coast of Nigeria. Two additional
double-hulled tankers are currently under construction and will be joining the
fleet in the Gulf of Mexico in 1999.

EUROPE

Conoco's European refining and marketing activities are conducted in 17
countries. Conoco's primary European markets are in the United Kingdom and
Germany, which together accounted for 96 percent of its European downstream
after-tax earnings in 1998. Conoco also has marketing operations in Austria,
Belgium, Denmark, Finland, France, Luxembourg, Norway, Sweden, and Switzerland.
More recently Conoco has entered the faster growing markets in the Czech
Republic, Hungary, Poland, Slovakia, Spain and Turkey. The marketing operations
in Central and Eastern Europe are complemented by an equity interest in two
refineries in the Czech Republic.

Conoco's European downstream strategy has been to operate low cost, high
volume retail outlets in selected key markets where it has a competitive
advantage, pursue opportunities in growth regions, and maintain its Humber
refinery and the Mineraloel Raffinerie Oberrhein GmbH ("MiRO") joint venture
refinery, in the United Kingdom and Germany, as top performers in Europe. Conoco
plans to redirect cash generated by its mature European businesses to other
parts of upstream and downstream operations and to the identified European
growth markets.

Conoco invested approximately $180 million in its European downstream
operations in both 1997 and 1998 and expects to invest about $225 million in
1999. Conoco continues to implement relatively low-cost projects in its refining
operations designed to increase production and yields, while reducing feedstock
costs and operating expenses. Conoco plans to continue to direct capital
expenditures for marketing operations, which are expected to be approximately 50
percent of the European downstream total capital expenditures, toward
construction of new stations in growth markets, primarily in Central and Eastern
Europe and also in its areas of competitive strength in Germany, Austria and the
Nordic countries.
80
<PAGE> 82

Conoco's European downstream profitability is affected by several factors.
As with all refining operations, the difference between the market price of
refined products and the cost of crude oil is the major factor. Conoco's
European refineries are able to process lower cost crudes or upgrade other
feedstocks into high value finished products. In addition, since the United
Kingdom refinery also processes fuel oil as a feedstock, the price difference
between low sulfur fuel oil and finished products is important to earnings.
European operations also include significant retail marketing volumes, and
therefore earnings are driven by retail margins, fuel and convenience product
sales and operating expenses in the various countries where Conoco operates.

Refining

Conoco's principal European refining operations are located in the United
Kingdom, Germany and the Czech Republic. Since early 1996, Conoco's European
crude refining capacity has increased by approximately 52 percent, or 90,000
barrels per day, principally as a result of three factors:

- the expansion of Conoco's Humber refinery in the United Kingdom;

- the formation of the MiRO joint venture through consolidation with a
neighboring German refinery; and

- the purchase of a share in a joint venture owning two Czech Republic
refineries.

Conoco has continuously upgraded its refineries in Europe since the early 1990's
and the configuration and output of the refineries are two of Conoco's primary
sources of competitive advantage in Western Europe.

Conoco has undertaken a major capital investment program totaling
approximately $350 million from 1994 through 1998 to process lower cost
feedstocks and increase conversion capacity, product quality and energy
efficiency at the Humber refinery. Conoco plans to make more than $100 million
in capital expenditures at the Humber refinery in 1999 in order to continue to
improve reliability and efficiency and to make investments to meet clean fuel
specifications. Conoco is also participating in upgrading projects at its joint
venture owned refineries in Germany and the Czech Republic.

The following tables outline the rated crude and condensate distillation
capacity as of December 31 for each of the past five years and the annual
average daily crude and condensate and other inputs for each of the past five
years. The following table does not include Conoco's indirect 1.2 percent
interest in a 95,000 barrel per day refinery in Mersin, Turkey acquired as a
result of its marketing joint venture in Turkey. The refinery inputs table
includes feedstocks in addition to crude and condensate on which rated capacity
is based, and includes actual crude and condensate runs, which may exceed rated
capacity.

<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(THOUSANDS OF BARRELS PER DAY)
<S> <C> <C> <C> <C> <C>
REFINERY CRUDE AND CONDENSATE CAPACITY
Humber, United Kingdom................................ 180 180 180 130 130
MiRO, Germany(1)...................................... 54 54 43 43 43
Czech Republic(2)..................................... 29 29 29 -- --
--- --- --- --- ---
Total....................................... 263 263 252 173 173
=== === === === ===
</TABLE>

- ---------------

(1) The 1998 and 1997 figures represent Conoco's 18.75 percent interest in the
MiRO refinery complex at Karlsruhe, Germany. For the years 1996 and earlier,
Conoco's interest was 25 percent of the OMW refinery.

(2) Represents Conoco's 16.33 percent interest in two Czech Republic refineries.

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<PAGE> 83

Total crude and condensate........................ 239 209 190 179 171
Total other feedstocks............................ 61 68 90 87 74
</TABLE>

- ---------------

(1) The tie-in of a major expansion project and a major refinery maintenance
turnaround significantly affected the Humber Refinery's utilization in 1997
and 1996.

(2) The 1998 and 1997 figures represent Conoco's 18.75 percent interest in the
MiRO refinery complex at Karlsruhe, Germany. For 1996 and earlier, Conoco's
interest was 25 percent of the OMW refinery.

(3) Represents Conoco's 16.33 percent interest in two refineries in the Czech
Republic.

The yield of Conoco's European refineries by product and country for the
year ended December 31, 1998, was as follows:

<TABLE>
<CAPTION>
UNITED
KINGDOM GERMANY CZECH REPUBLIC
------- ------- --------------
<S> <C> <C> <C>
PERCENT OF TOTAL YIELD(1)
Motor gasoline.............................................. 37 40 19
Middle distillate........................................... 42 44 31
Residual fuel oil and asphalt............................... 9 8 23
Other(2).................................................... 12 8 27
</TABLE>

- ---------------

(1) Percentages are volume based, not weight based.

(2) Other products primarily include petroleum coke, lubricants and liquified
petroleum gases.

United Kingdom Refinery

Conoco's wholly owned Humber refinery is located in North Lincolnshire,
England, and has a crude and condensate capacity of 180,000 barrels per day.
Crude processed at the refinery is exclusively low or medium sulfur, supplied
primarily from the North Sea and includes lower cost, acidic crudes. The
refinery also processes up to 60,000 barrels per day of other intermediate
feedstocks, mostly vacuum gas oils and residual fuel oil, which many other
European refineries are not able to process. The refinery's location on the east
coast of England provides for cost-effective North Sea crude imports and product
exports to European and world markets.

The Humber refinery, one of the most sophisticated refineries in Europe, is
a fully integrated, high conversion refinery that produces a full slate of light
products and minimal fuel oil. In 1996, Conoco increased crude capacity at the
refinery and added a vacuum unit that allows the refinery to process up to
80,000 barrels per day of the less expensive, acidic North Sea crudes. The
refinery also has two coking units with associated calcining plants, which
upgrade the heavy "bottoms" and imported feedstocks into light oil products and
high value graphite and anode petroleum cokes. Approximately 50 percent of the
light oils produced in the refinery are marketed in the United Kingdom while the
other products are

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<PAGE> 84

exported to the rest of Europe and the United States. This gives the refinery
the flexibility to take full advantage of inland and global export market
opportunities.

Germany Refinery

The MiRO refinery in Karlsruhe, Germany, is a joint venture refinery with a
crude and condensate capacity of 285,000 barrels per day. The MiRO joint venture
arose from the combination in 1996 of the existing OMW refinery, in which Conoco
had a 25 percent share, with an adjacent Esso refinery. Conoco has an 18.75
percent interest in MiRO and Conoco's capacity share is 54,000 barrels per day.
The other owners of MiRO are DEA Mineraloel AG, Esso AG and Ruhr Oel GmbH, a
50/50 joint venture between Veba and PDVSA. Approximately 55 percent of the
refinery's crude feedstock is low cost, high sulfur crude. The MiRO refinery
complex is a fully integrated, high conversion refinery producing gasoline,
middle distillates, residual fuel oil and other products. The refinery has a
high capacity to convert lower cost feedstocks into high value products
primarily with a fluid catalytic cracker and delayed coker. The coker produces
both fuel grade and specialty calcined cokes.

The creation of the MiRO joint venture has improved the refinery's
competitiveness and was driven by the synergy that existed between the two
facilities. Integrated operations have yielded improved product slates, which
better match local demand, and increased processing efficiency, while retaining
operational flexibility for the partners. The refinery processes crude and
feedstock supplied by each of the partners in proportion to their respective
ownership interests. Streamlining the two operations has allowed Conoco to
eliminate less efficient processing units in both refineries, resulting in lower
operating costs.

Czech Republic Refineries

In late 1995, Conoco, through participation in the newly formed Czech
Refining Company, acquired an interest in two refineries in the Czech Republic.
The other owners of Czech Refining Company are Unipetrol A.S., Agip Petroli, and
Shell Overseas Investment B.V. The refinery at Litvinov has a crude and
condensate capacity of 109,800 barrels per day, and the Kralupy refinery has a
crude and condensate capacity of 67,500 barrels per day. Conoco's 16.33 percent
ownership share of the combined capacity is 29,000 barrels per day. Both
refineries process mostly high sulfur crude, with a large portion being Russian
export blend delivered by pipeline at an advantageous cost. The refineries have
an alternative crude supply via a pipeline from the Mediterranean.

Conoco expects that completion of a visbreaker project at the Litvinov
refinery scheduled for the year 2000 will increase conversion rates and
significantly reduce fuel oil production. The Kralupy refinery is currently a
hydroskimming facility, but Czech Refining Company has approved an investment in
major conversion facilities, to reduce fuel oil production and increase light
oil yields. The two Czech refineries are operated as a single entity with
intermediate streams moving between the two facilities. Czech Refining Company
markets finished products both inland and abroad. Conoco intends to use its
share of the light oil production to support an expanding retail marketing
network in Central and Eastern Europe.

Marketing

Conoco has marketing operations in 17 European countries. Conoco's European
marketing strategy is to sell primarily through owned, leased or joint venture
retail sites using a low cost, high volume, low price strategy. Conoco intends
to expand into identified growing markets, while concurrently strengthening its
market share in core markets such as Germany, Austria and the Nordic countries.
Conoco is standardizing its European retail operations in order to capture cost
savings and prepare for a more integrated Europe. Conoco is continuing to reduce
its cost structure for marketing activities while also optimizing the growing
income in the non-fuels sector. Conoco also markets aviation fuels, liquid
petroleum gases, heating oils, transportation fuels and marine bunkers to
commercial accounts and into the bulk or spot market.

Conoco uses the "Jet" brand name to market its retail products in its
wholly owned operations in Austria, Czech Republic, Denmark, Finland, Germany,
Hungary, Norway, Poland, Slovakia, Sweden and the United Kingdom. In Belgium and
Luxembourg, it markets under the "SECA" brand. Stations
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throughout Europe also display the "Conoco" brand. In addition, various joint
ventures in which Conoco has an equity interest market products in Spain under
the "Jet" brand, in Switzerland under the "OK Co-op" brand and in Turkey under
the "Tabas" or "Turkpetrol" brand names.

As of December 31, 1998, Conoco had 1,960 marketing outlets in its wholly
owned European operations, of which 1,424 were company-owned. Through its joint
venture operations in Turkey, Spain and Switzerland, Conoco also has an interest
in another 963 retail sites. The largest branded site networks are in Germany
and the United Kingdom, which account for 60 percent of the total branded units.
In Germany and Austria, 21 outlets were added during 1998. In the Nordic
countries, Conoco has expanded from its base of unmanned sites in Sweden and
Denmark into Norway and Finland with 11 new stations in the region. In response
to weak fuel margins in the United Kingdom over the past several years, Conoco
has restructured its operations, reducing the number of stations and focusing on
locations where Conoco has a competitive advantage, which has reduced its unit
breakeven cost structure.

Conoco has been expanding in targeted growth markets of the Czech Republic,
Poland, Hungary and Slovakia in Central and Eastern Europe, and has added 25
stations in the last year for a total of 126 stations at December 31, 1998.
Conoco expects to continue this expansion in order to capture the demand growth
and rising margins expected in these inland markets. This marketing expansion
allows Conoco to obtain further integration with products produced at the Czech
refineries. Similarly, Conoco has invested in the growing markets of Spain and
Turkey, where at the end of 1998, it had an interest through its joint ventures
in 115 and 761 sites. The joint venture marketing operation in Turkey also
provides Conoco with a strategic position and opportunity for upstream ventures
in this region.

ASIA PACIFIC

Conoco is looking to the Asia Pacific region for much of its long-term
downstream growth. Despite the recent economic downturn, Conoco expects the
Asian market, in the long-term, to grow faster than comparable markets. Conoco
intends to establish at least 100,000 barrels per day of equity refining
capacity in the region long-term and expand its marketing operations to
integrate with the refining supply and capitalize on market deregulation and
long-term regional demand growth.

The refinery in Melaka, Malaysia was built by a joint venture which is 40
percent owned by Conoco with partners Petronas, the Malaysian state oil company,
and Statoil and has a rated crude capacity of 100,000 barrels per day, of which
Conoco's share is 40,000 barrels per day. Start-up of the Melaka refinery was
initiated in August 1998 with the commissioning of the crude unit. Since
start-up of the refinery, all major operating units have proven their capability
to operate at design rates. After some early start-up adjustments, most units
are at full capacity and actual throughputs are being optimized according to
existing economic conditions. Initial crude unit operation was followed shortly
thereafter by the start-up of the reformer, hydrocracker and coker units. The
joint venture has a five-year tax holiday that commenced April 1, 1999. The
feedstocks for the refinery will consist of up to approximately 70 percent high
sulfur crude and 30 percent sweet crude.

This refinery capitalizes on Conoco's proprietary coking technology to
upgrade low-cost feedstocks to higher-margin products. Initial refinery units,
in addition to the fuels delayed coker, include:

- a crude and vacuum distillation unit;

- a vacuum gas oil hydrocracker;

- naphtha and diesel hydrotreater;

- catalytic reformer; and

- an isomerization unit.

The refinery is a high conversion facility that will produce a full range of
refined petroleum products.

Conoco intends to use its share of refined products from the refinery to
continue growing its retail marketing operations in Thailand, Malaysia and
throughout the Asia Pacific region. The balance of
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Conoco's share of production will be sold primarily in the spot market. Conoco
has its regional crude and product supply and disposition operations centrally
located in Singapore.

Conoco began marketing motor fuels in Thailand in 1993. Using a high
volume, low price strategy and marketing concepts and strategies that were new
to Thailand, Conoco has already established a significant presence in the Thai
retail market. Early in 1999, Conoco opened its 100th store in Thailand. Conoco
plans to build an additional 100 new retail outlets.

Conoco has launched a retail marketing joint venture in Malaysia with Sime
Darby Bhd., a company that has a major presence in the Malaysian business
sector. Capitalizing on the cost benefits of direct supply, the benefits of
being the first licensees since 1969 to establish retail marketing in Malaysia,
and the currently depressed prices of premium Malaysian real estate, Conoco will
initially target major markets within 125 miles of the Melaka refinery.
Construction commenced on the first of these stores in May 1999 and Conoco plans
to have six stores operating by the end of 1999.

SPECIALTY PRODUCTS

Conoco sells a variety of high value lubricants and specialty products to
commercial, industrial and wholesale accounts worldwide, including lubes such as
automotive and industrial lubricants and waxes, petroleum coke, solvents and
pipeline flow improvers. Conoco's experience has been that specialty products
are attractive because their premium prices generate higher margins and their
markets are generally less cyclical than commodity markets.

Conoco began marketing the HYDROCLEAR(R) brand of lubricants with the
start-up of the Excel Paralubes plant in 1997. The HYDROCLEAR(R) lubricants,
which are non-toxic, were designed to compete with synthetics for a range of
applications with difficult operating conditions. Conoco also produces specialty
petroleum products for global markets through Penreco.

Conoco's technical expertise in carbon upgrading positions it as a leader
in manufacturing and marketing specialty coke and coke products. Conoco
manufactures high quality graphite coke at its Lake Charles and Humber
refineries for use in the global steel industry. It also globally markets anode
and fuel coke produced at its Lake Charles, Ponca City, Billings and Humber
refineries. In addition, Conoco participates in the Asia Pacific coke market by
providing technical and marketing expertise to Conoco's PetroCokes joint venture
with Sumitomo and Japan Energy. In 1998, Conoco granted seven licenses for this
technology to other companies. Today Conoco's technology is used by more than
two dozen coking facilities -- a third of the world's delayed coking capacity.

Conoco is a leader in the worldwide market for pipeline flow improvers.
Conoco's "LiquidPower(R)" product is a flow improver for increasing petroleum
pipeline capacity by reducing friction loss. Conoco also uses "LiquidPower(R)"
in its own pipeline systems.

POWER

Conoco Global Power was founded in 1995 to leverage the economic advantages
of Conoco's energy production activities and offer integrated energy solutions
to customers by capitalizing on our strengths in managing major projects, risk
and industrial operations.

Conoco Global Power owns 37.5 percent of a Colombian joint venture located
in Barrancabermeja, Colombia along with Western Resources and five Colombian
companies. The joint venture built a natural gas-fired generation plant capable
of producing 160 megawatts of power, which became operational in August 1998.
The joint venture sells primarily to the local grid.

Conoco Global Power has entered into a joint venture agreement to build a
natural gas-fired cogeneration plant near Corpus Christi, Texas. Construction
has begun on the plant, which will be located adjacent to chemical complexes
owned by DuPont and OxyChem, Occidental Petroleum Corporation's chemicals
division and Conoco's partner in this joint venture. OxyChem will operate the
plant under a long-term contract and will purchase electricity and steam
production from the plant. The plant is

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designed to produce 440 megawatts of power and 1.1 million pounds per hour of
process steam. The plant will be a qualifying facility under the Public Utility
Regulatory Policies Act and expects to sell excess electricity in the Texas
power markets. Commercial operation of the plant is expected in the third
quarter of 1999.

Conoco Global Power and DuPont have signed letters of intent to develop
natural gas-fired cogeneration facilities at DuPont chemical facilities in the
United States, Spain, Luxembourg, Germany and the United Kingdom. In the United
States, the cogeneration facility will be located at DuPont's Orange, Texas
chemical complex. The proposed facility would be owned by a joint venture
between Conoco and a yet to be selected partner. The facility would provide
electric and process steam to the chemical complex, with much of the electric
output being sold as merchant power. DuPont would be the contract operator of
the facility under a long-term operating agreement. The plant is planned to
produce 440 megawatts of power and 780 thousand pounds per hour of process
steam. Construction is expected to commence in mid-1999 with commercial
operation scheduled in mid-2001. In Europe, the four plants, with a total
capacity of 510 megawatts, will provide needed electricity and steam for various
DuPont operations. Conoco also will sell surplus electric power to other
customers, including the local utilities. All four plants are expected to be in
operation by 2002.

CORE VALUES

Conoco is committed to four core values:

- operating safely;

- protecting the environment;

- behaving ethically; and

- valuing all people.

Conoco is a recognized industry leader in safety performance and in
protecting employees' health and the environment.

In 1998, Conoco achieved its lowest recordable injury rate on record for
both employees and contractors. A similar performance in 1997 earned Conoco the
lowest injury rate among all major petroleum companies reporting to the American
Petroleum Institute, an achievement matched in ten out of the last 15 years.

Conoco is also an innovator both at recycling materials and at operating in
environmentally sensitive areas. In the United Kingdom, for example, Conoco
recycled over 99 percent of four Viking gas platforms, which it decommissioned
in the North Sea. Conoco has also operated in the Aransas National Wildlife
Refuge in South Texas for 60 years. In 1990, Conoco took a major step toward oil
spill prevention as the first petroleum company to voluntarily commit to build
only double-hulled tankers -- a decision made before U.S. law mandated such
technology. During 1998, Conoco began operating fleets of 100 percent
double-hulled crude oil tankers and tank barges in U.S. waters, more than a year
ahead of its target date of 2000. Also in 1998, Conoco marked the 30th
anniversary of implementing one of the industry's first environmental policies,
which predates both World Environmental Day and Earth Day in the United States.

In order to maintain the highest ethical standards, Conoco established
clear guidelines on business ethics which every employee agrees to follow.
Conoco has established annual President's Awards for performance in safety,
environmental protection and valuing all people. A President's Award for ethical
behavior will be added in 1999. Valuing all people includes:

- seeking diversity in the workforce;

- nationalizing a significant portion of Conoco's workforce in each country
where it operates as soon as practicable;

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- responding to employee ideas and concerns;

- treating everyone with dignity and respect;

- sharing the financial success of Conoco with substantially all employees
through the "Conoco Challenge" program; and

- helping employees contribute fully in achieving business goals.

Conoco believes these core values result in a motivated workforce with
values and goals firmly aligned with the strategic aims of the business. They
provide guidance to employees in working to meet the expectations of customers,
partners and host governments, and in respecting the communities in which Conoco
does business. In addition, Conoco believes its commitment to core values helps
to reduce liabilities, manage risks and improve business performance.

ENVIRONMENTAL REGULATION

As with other companies and industries engaged in similar businesses,
Conoco's operations are subject to numerous federal, state, local, European
Union and other foreign environmental laws and regulations concerning its oil
and gas operations, products and other activities, including laws that implement
international conventions or protocols. In particular, these laws and
regulations:

- require the acquisition of permits;

- restrict the type, quantities and concentration of various substances
that can be released into the environment;

- limit or prohibit activities on lands lying within wilderness, wetlands
and other protected areas;

- regulate the generation, handling, storage, transportation, disposal and
treatment of hazardous materials and wastes; and

- impose criminal or civil liabilities for pollution resulting from oil,
natural gas and petrochemical operations.

Conoco must obtain government permits to conduct its operations. The
duration and success of obtaining these permits are contingent upon numerous
variables, many of which are not within Conoco's control. To the extent these
permits are required and not obtained, operations may be delayed or curtailed,
or Conoco may be prohibited from proceeding with planned exploration or
operation of facilities.

Conoco expects that environmental laws and regulations will have an
increasing impact on Conoco's operations in most of the countries in which it
operates, although it is impossible to predict accurately the effect of future
developments in these laws and regulations on its future earnings and
operations. Some risk of environmental costs and liabilities is inherent in
particular operations and products of Conoco, and Conoco may incur material
costs and liabilities to comply with existing and future environmental laws and
regulations.

To meet future environmental obligations, Conoco is engaged in a continuing
program to develop effective measures to protect the environment. This program
includes:

- research into reducing sulfur levels in heavy fuel oils and diesel fuel;

- reducing benzene content in gasoline;

- reducing vapor emissions at service stations;

- developing more effective methods of preventing, containing and
recovering offshore oil spills;

- reducing the release of pollutants from Conoco's refineries and other
facilities; and

- developing and installing monitoring systems at its facilities.

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AIR EMISSIONS

The operations of Conoco are subject to regulations controlling emissions
of air pollutants. The primary legislation affecting Conoco's U.S. air emissions
is the Federal Clean Air Act and its 1990 Amendments. Among other things, the
Clean Air Act requires all major sources of air emissions to obtain operating
permits. The Clean Air Act also revised the definition of "major source" such
that additional equipment involved in oil and gas production may now be covered
by the permitting requirements. Although the precise requirements of the Clean
Air Act are not yet known, Conoco may incur substantial capital, operating and
maintenance costs to comply with such requirements.

The Clean Air Act requires the EPA to promulgate regulations imposing
Maximum Achievable Control Technology standards to reduce emissions of hazardous
air pollutants from industrial facilities, such as Conoco's refineries,
transportation terminals and some crude oil production operations. The EPA has
promulgated standards that are applicable to some of Conoco's operations, and
Conoco's costs to comply with them have not been material. Maximum Achievable
Control Technology standards applicable to many of Conoco's other operations
have been proposed, but not finalized. Consequently, while it is not yet
possible to predict accurately the total expenditures that Conoco may incur to
comply with these standards, Conoco anticipates that these costs could be
substantial.

In May 1999, a federal appeals court remanded to the EPA for further
consideration two rules issued by the EPA in 1997 that revised the National
Ambient Air Quality Standards for ozone and particulate matter. These rules
would have required more stringent controls on stationary sources and
cleaner-burning fuels in some parts of the United States. The EPA plans to
appeal the court's decision. If these rules are ultimately reissued in
substantially the same form, Conoco may be required to incur substantial
expenditures to comply with the rules.

Under the Clean Air Act, the EPA has issued a number of standards that
regulate the composition of motor fuels, including gasoline and diesel fuels
produced and marketed by Conoco. These standards are designed to reduce
emissions of air pollutants from vehicles burning such fuels. In addition, many
other countries in which Conoco produces or markets motor fuels similarly
regulate the composition of such products or are proposing to do so. Conoco has
already incurred the costs of complying with such requirements that are
currently in effect.

The European Union recently enacted legislation that, among other things,
requires phased reductions of sulfur and aromatics content in gasoline and
diesel fuel and of benzene in gasoline. Conoco cannot yet predict accurately the
total actual expenditures that it may incur to comply with these requirements,
but it estimates capital expenditures to comply with the European Union
legislation will be $55 million in 1999, $80 million in 2000 and $160 million
between 2001 and 2004, depending on the nature of subsequent legislation. In the
U.S., the EPA has proposed regulations requiring a significantly lower level of
sulfur in gasoline. Conoco cannot predict the total actual expenditures that may
be incurred to produce motor fuels meeting specifications under any final rule
that may be issued, but such expenditures will likely be substantial.

In 1997, an international conference on global warming concluded an
agreement, known as the Kyoto Protocol, which called for reductions of emissions
that contribute to increases in atmospheric greenhouse gas concentrations. The
combustion of fossil fuels, such as crude oil, results in emissions of the type
sought to be reduced by the Kyoto Protocol. The treaty codifying the Kyoto
Protocol has not been ratified by the United States, but it may be in the
future. In addition, other countries where Conoco has interests, or may have
interests in the future, have made commitments to implement the Kyoto Protocol
and are in various stages of formulating applicable regulations. Although Conoco
cannot yet estimate accurately the total actual expenditures that may be
incurred by it as a result of the Kyoto Protocol, such expenditures could be
substantial.

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HAZARDOUS WASTE

Conoco currently owns or leases numerous properties that have been used for
many years for hard minerals production or natural gas and crude oil production.
Although Conoco used operating and disposal practices that were standard in the
industry at the time, wastes may have been disposed of or released on or under
the properties it owned or leased. In addition, some of these properties have
been operated by third parties over whom Conoco had no control.

The Comprehensive Environmental Response, Compensation, and Liability Act
and comparable state statutes can impose liability for the entire cost of
clean-up upon each of the owners and operators of sites or on persons who
disposed of or arranged for the disposal of hazardous waste found at such sites.
This liability can be imposed regardless of fault or the lawfulness of the
original disposal activity. The Resource Conservation and Recovery Act and
comparable state statutes govern the management and disposal of wastes. Although
CERCLA currently excludes petroleum from regulation, many state laws affecting
Conoco's operations impose clean-up liability for petroleum contamination. In
addition, although RCRA currently classifies some exploration and production
wastes as non-hazardous, such wastes could be reclassified as hazardous wastes.
If this occurs, exploration and production wastes would be subject to more
stringent requirements. If such a change in legislation were to be enacted, it
could have a significant impact on Conoco's operating costs, as well as the gas
and oil industry in general.

OIL SPILLS

Under the U.S. Federal Oil Pollution Act of 1990, the following can be held
liable regardless of fault for all removal costs and damage that result from a
discharge of oil into the navigable waters of the United States:

- owners and operators of onshore facilities and pipelines;

- lessees or permittees of an area in which an offshore facility is
located; and

- owners and operators of tank vessels.

These damages include, for example, natural resource damages, real and
personal property damages and economic losses. The Oil Pollution Act limits the
liability of owners and operators for removal costs and damages that result from
a discharge of oil to $350 million in the case of onshore facilities, $75
million plus removal costs in the case of offshore facilities, and in the case
of tank vessels, an amount based on gross tonnage of the vessel. However, these
limits do not apply if the discharge was caused by gross negligence or willful
misconduct, or by the violation of an applicable Federal safety, construction or
operating regulation by the owner or operator, its agent or subcontractor or in
specified other circumstances.

The Oil Pollution Act requires evidence of financial responsibility in an
amount of up to $150 million for some offshore facilities and also requires
offshore facilities, some onshore facilities and tank vessels to prepare spill
response plans, which Conoco has done, for responding to a "worst case
discharge" of oil. Failure to comply with these requirements or failure to
cooperate during a spill event may subject an owner or operator to civil or
criminal enforcement actions and penalties.

OFFSHORE PRODUCTION

Offshore oil and gas operations in U.S. waters are subject to regulations
of the United States Department of the Interior, which currently impose
liability regardless of fault upon the lessee under a Federal lease for the cost
of clean-up of pollution resulting from the lessee's operations, and such lessee
could be subject to liability for pollution damages. In the event of a serious
incident of pollution, the Department of the Interior may require a lessee under
Federal leases to suspend or cease operations in the affected areas.

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SOURCES OF SUPPLY

During 1998, Conoco supplemented its own crude oil production to meet its
refining requirements by the purchase of crude oil from both domestic and
international sources. Approximately 49 percent of the crude oil processed in
Conoco's U.S. refineries in 1998 came from U.S. sources. The remainder of crude
processed came principally from Venezuela, Mexico and Canada. During 1998,
Conoco's Humber refinery in the United Kingdom processed principally North Sea
crude oils. In the joint venture MiRO refinery, Conoco processed primarily
Mediterranean crude oils in 1998. Conoco's joint venture refineries in the Czech
Republic processed primarily Russian crudes.

To assure availability, Conoco maintains multiple sources for most raw
materials, supplies, services and equipment, with no one company supplying a
substantial portion of Conoco's needs. Conoco also routinely leases or charters
equipment, such as drilling rigs, offshore supply boats, seismic boats, pipeline
laying equipment, derrick barges and cranes. Availability of supply and/or cost
of such equipment has been a factor in the past, and could have a detrimental
impact on Conoco in the future.

RESEARCH AND DEVELOPMENT

The objectives of Conoco's research and development programs are to
discover new products, processes and business opportunities in relevant fields,
and to improve existing products and processes. Research and development also
focuses on optimizing existing assets and improving efficiency, safety and
environmental protection. Worldwide expenditures for research and development
amounted to approximately $42 million in 1998, $44 million in 1997 and $41
million in 1996.

PATENTS AND TRADEMARKS

Conoco owns and is licensed under various patents, which expire from time
to time, covering many products, processes and product uses. No individual
patent is of material importance to Conoco's business as a whole. During 1998,
Conoco was granted seven U.S. and 28 non-U.S. patents. Conoco also has
individual trademarks and brands for its products and services which are
registered in various countries throughout the world. None of these trademarks
and brands is considered material other than the "Conoco" and "Jet" brands.

OPERATING HAZARDS AND INSURANCE

Conoco's operations are subject to operating hazards such as well blowouts,
collapsed wells, explosions, uncontrolled flows of oil, natural gas or well
fluids, fires, formations with abnormal pressures, pipeline ruptures or spills,
refinery explosions, surface or marine transportation incidents, pollution,
releases of toxic gas and other environmental hazards and risks. In accordance
with customary industry practices, Conoco maintains insurance against some, but
not all, of such risks and losses. Given Conoco's risk profile and in accordance
with the practices of a number of major integrated, international energy
companies, Conoco does not carry business interruption insurance. Conoco's
decision not to carry business interruption insurance is based on several
factors, including its spread of risk over five wholly owned refineries, a
favorable loss history and loss prevention and safety programs. Conoco's
ownership of five refineries provides it with some ability to replace product
during periods of business interruption. Conoco has elected to retain the risk
where management believes the cost of insurance, although available, is
excessive relative to the risks presented. In addition, pollution and
environmental risks are generally not fully insurable.

PROPERTIES

Conoco owns its corporate headquarters, consisting of 16 three-story
buildings on a 62-acre site in Houston, Texas. Conoco owns and leases petroleum
properties and operates production processing, refining, marketing,
power-generating and research and development facilities worldwide. In addition,
Conoco operates sales offices, regional purchasing offices, distribution centers
and various other specialized service locations throughout the world.

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EMPLOYEES

Conoco had approximately 16,650 employees as of December 31, 1998.
Approximately 1,400 employees at Conoco's U.S. refineries are represented by the
Oil, Chemical and Atomic Workers International Union under separate bargaining
agreements for each refinery. These agreements cover wages, benefit matters,
grievance procedures and various employment conditions, and Conoco believes they
are typical of the refining industry in the U.S. In 1999, Conoco will reduce
staff by approximately 975 positions to improve operational efficiencies by
combining some functions in the United States and by more broadly sharing
services and more effectively deploying employees. For more information about
this restructuring, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Restructuring."

LEGAL PROCEEDINGS

On March 6, 1996, the Department of Justice filed a complaint in the United
States District Court for the District of Montana against Yellowstone Pipeline
Company and the Conoco Pipe Line Company as a 40 percent owner and operator of
Yellowstone Pipeline Company. The complaint alleges discharges of oil from a
Yellowstone Pipeline Company pipeline in January 1993 and seeks civil penalties
of up to $25,000 per day for each violation or up to $1,000 for each barrel of
oil discharged. The parties have reached an agreement to settle the case that
requires the parties to pay a penalty of $165,000 and construct a fish
passageway in the Jocko River to enhance the Bull Trout population. Final
settlement documents were entered by the court, and Conoco is in the process of
implementing the terms of the settlement agreement.

On January 5, 1999, Conoco paid $105,000 in penalties and agreed to perform
remediation at a cost of $200,000 to settle allegations made on June 18, 1998 by
the New Mexico Environmental Department that Conoco had failed to obtain a Clean
Air Act permit and violated conditions in existing permits at the Maljamar Gas
Plant and the MCA field.

On August 31, 1998, the Louisiana Department of Environmental Quality
issued a Notice of Violation against Conoco for failure to maintain equipment to
control emissions from the sulfur pits at the Lake Charles Refinery. On November
11, 1998, the department notified Conoco that it is seeking a fine of $300,000.
Conoco is contesting these allegations and the proposed penalty and is seeking a
hearing in this matter.

On February 18, 1999, the Oklahoma Department of Environmental Quality
issued a Notice of Violation to Conoco's Ponca City refinery alleging violations
of the Oklahoma Air Pollution Control Rules. This Notice of Violation may result
in the Department seeking monetary sanctions in excess of $100,000. Conoco
intends to vigorously defend the matter.

Conoco is subject to various lawsuits and claims involving a variety of
matters including, along with other oil companies, actions challenging oil and
gas royalty and severance tax payments based on posted prices, and claims for
damages resulting from leaking underground storage tanks. As a result of its
separation from DuPont, Conoco has also assumed responsibility for current and
future claims related to some discontinued chemicals and agricultural chemicals
businesses operated by Conoco in the past. Conoco cannot reasonably estimate the
effect on future financial results, because considerable uncertainty exists.
Conoco believes the ultimate liabilities resulting from such lawsuits and claims
may be material to results of operations in the period in which they are
recognized but that they will not materially affect the consolidated financial
position of Conoco.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Following is information concerning the current executive officers and
directors of Conoco. Each director holds office until his successor is duly
elected and qualified or until his resignation or removal if earlier. The board
is divided into three classes with staggered terms. Officers serve at the
discretion of the board and serve in their positions on a full-time basis.
Conoco's directors hold various positions as directors and executives of other
organizations, in addition to their duties as directors of Conoco. For more
information about the possible effects of Conoco's staggered board, see
"Description of Conoco Capital Stock -- Anti-Takeover Effects of Certificate and
By-Law Provisions -- Board of Directors."

<TABLE>
<CAPTION>
DIRECTORS TERM
NAME AGE(1) POSITION WITH CONOCO EXPIRING
- ---- ------ -------------------- --------------
<S> <C> <C> <C>
Archie W. Dunham..................... 60 Chairman, President and Chief Executive
Officer 2000
Ruth R. Harkin....................... 55 Director 2002
Frank A. McPherson................... 66 Director 2002
William K. Reilly.................... 59 Director 2000
William R. Rhodes.................... 64 Director 2001
A. R. "Tony" Sanchez, Jr............. 56 Director 2001
Franklin A. Thomas................... 65 Director 2000
Gary W. Edwards...................... 57 Executive Vice President, Refining,
Marketing, Supply and Transportation
Robert E. McKee III.................. 53 Executive Vice President, Exploration
Production
Robert W. Goldman.................... 57 Senior Vice President, Finance, and Chief
Financial Officer
Rick A. Harrington................... 54 Senior Vice President, Legal, and General
Counsel
</TABLE>

- ------------
(1) As of August 31, 1999.

ARCHIE W. DUNHAM has been a director since July 1998. He has been President
and Chief Executive Officer of Conoco since 1996 and Chairman of the Board since
August 12, 1999. He joined Conoco in 1966 and subsequently held a number of
commercial and managerial positions within Conoco and DuPont. Mr. Dunham is also
a member of the boards of directors of Louisiana-Pacific Corporation and Phelps
Dodge Corporation. Mr. Dunham is a former Executive Vice President, Exploration
Production and Executive Vice President, Refining, Marketing, Supply and
Transportation for Conoco. He was also a Senior Vice President, Polymers and
Senior Vice President, Chemicals and Pigments for DuPont. He is a director of
the American Petroleum Institute, the U.S.-Russia Business Council and the
Greater Houston Partnership. He is Chairman of the United States Energy
Association, Vice-Chairman of the National Petroleum Council and a member of The
Business Council. Mr. Dunham is also a member of the Board of Visitors and the
Energy Center board of directors at the University of Oklahoma. He also serves
on the board of trustees of the Memorial Hermann Healthcare System in Houston,
the Houston Grand Opera, the Houston Symphony, the George Bush Presidential
Library and the Smithsonian Institution.

RUTH R. HARKIN has been a director since October 1998. She is Senior Vice
President, International Affairs and Government Relations of United Technologies
Corporation and Chair of United Technologies International, UTC's international
representation arm. Previously, Mrs. Harkin was the President and Chief
Executive Officer of the Overseas Private Investment Corporation in the Clinton
administration from 1993 to 1997. Mrs. Harkin was elected as a prosecutor in the
office of the County Attorney of Story County, Iowa in 1973. She also served as
Deputy General Counsel at the U.S. Department of Agriculture and was Of Counsel
at the law firm of Akin, Gump, Strauss, Hauer & Feld. Mrs. Harkin is a member of

92
<PAGE> 94

the Board of Visitors of the College of Business Administration, University of
Iowa. She also sits on the boards of the Center for National Policy and the
National Association of Manufacturers.

FRANK A. MCPHERSON has been a director since October 1998. He retired as
Chairman and Chief Executive Officer of Kerr-McGee Corporation on February 1,
1997. He joined Kerr-McGee in 1957 and held many technical, operational and
managerial positions, including President from 1980 to 1983. He is a past
director of the Federal Reserve Bank of Kansas City and the Oklahoma State
University foundation Board of Trustees. Mr. McPherson serves on the boards of
directors of Kimberly-Clark Corp., Bank of Oklahoma, Tri-Continental
Corporation, Seligman Quality Fund, Inc., Seligman Select Municipal Fund, Inc.
and the Seligman Group of Mutual Funds. He is also a member of the boards of the
American Petroleum Institute, Boys and Girls Clubs of America, Baptist Medical
Center, Oklahoma Chapter of Nature Conservancy, Oklahoma City Chamber of
Commerce, Oklahoma City Public School Foundation, Oklahoma Medical Research
Foundation and Oklahoma Foundation for Excellence in Education.

WILLIAM K. REILLY has been a director since October 1998. He is currently a
member of the board of directors of DuPont and is President and Chief Executive
Officer of Aqua International Partners, an investment group which finances water
improvements in developing countries. Formerly, Mr. Reilly was a visiting
professor at the Institute of International Studies at Stanford University and
served as Administrator of the U.S. Environmental Protection Agency from
February 1989 to January 1993. Mr. Reilly was president of the Conservation
Foundation from 1973 to 1989 and, after its affiliation with World Wildlife Fund
in 1985, served as President of both groups. He also serves on the boards of
Royal Caribbean International and Evergreen Holdings. He is Chairman of the
Board of the American Farmland Trust and serves on the boards of National
Geographic Society, World Wildlife Fund and Yale University. Mr. Reilly also
serves as a member of the board of the Presidio Trust of San Francisco.

WILLIAM R. RHODES has served as a director since October 1998. He is a Vice
Chairman of Citigroup Inc. and Citibank, N.A. Mr. Rhodes is Vice Chairman of the
Institute of International Finance, a director of the Private Export Funding
Corporation, a trustee and member of the Executive Council of the Council of the
Americas, an Executive Committee member of the Bretton Woods Committee and the
U.S.-Russia Business Council, and a founding member of the U.S. National
Advisory Council to the International Management Center. Other board memberships
include The Group of Thirty, the Americas Society, The African-American
Institute, CHIPCo, and the U.S.-Egypt Presidents' Council. He is also a member
of the Council on Foreign Relations, the Foreign Policy Association, and The
Bankers Roundtable. Mr. Rhodes is a past Chairman of the U.S. Advisory Committee
of the Export-Import Bank of the United States, past Chairman of the U.S.
section of the Venezuela-U.S. Business Council, past President of the Venezuela-
American Chamber of Commerce, and past President of the Bankers Association for
Foreign Trade. He is a Governor and Trustee of the New York and Presbyterian
Hospital and a director of the New York City Partnership and Chamber of
Commerce. He serves as a trustee of Brown University and Chairman of the Board
of Trustees of the Northfield Mount Hermon School.

A.R. "TONY" SANCHEZ, JR. has been a director since August 1999. He has been
active in the oil and gas industry since 1973. Mr. Sanchez has been the Chief
Executive Officer and Chairman of the Board for Sanchez Oil & Gas Corp. since
1974. He is also a member of the boards of directors of International BancShares
Corporation, Custom Tracks Corporation, the University of Texas System, the
University of Texas Foundation for Entrepreneurial Excellence, the Texas Water
Foundation, the Smithsonian Institution, Bethany House, the LBJ Foundation, the
American Petroleum Institute, the Independent Petroleum Institute of America,
the National Petroleum Council and the InterState Oil and Gas Compact
Commission, as well as the Texas Parks & Wildlife Commission and Little League
Baseball.

FRANKLIN A. THOMAS has been a director since October 1998. He has been a
consultant to the TFF Study Group, a non-profit initiative assisting development
in southern Africa, since April 1996. Mr. Thomas was President and Chief
Executive Officer of The Ford Foundation from 1979 to 1996. He also serves as a
director of ALCOA, Inc., Citigroup Inc., Cummins Engine Company, Inc., Lucent
Technologies, Inc. and PepsiCo, Inc.

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<PAGE> 95

GARY W. EDWARDS has been Executive Vice President of Conoco since 1991,
with responsibility for worldwide refining, marketing, supply and transportation
and was a Senior Vice President of DuPont until October 27, 1998. He joined
Conoco in 1963, working at various locations throughout the United States and in
the United Kingdom, and was formerly Conoco's Vice President, Refining Marketing
Europe; Vice President Refining, Marketing and Transportation; and Vice
President North American Marketing. Mr. Edwards has held a number of managerial
positions in Conoco Pipeline, Transportation, Natural Gas and Gas Products,
Logistics and Marketing. He is a Director of the American Petroleum Institute
and a previous director and Vice President of the European Petroleum Industry
Association in Brussels, Belgium. Mr. Edwards is a member of the Kansas State
University Engineering advisory council, and serves on the boards of the
Yellowstone Park Foundation, Theatre Under the Stars, Junior Achievement, Inc.
(National) as well as Junior Achievement of Southeast Texas, Target Hunger,
Private Sector Initiative, and the Houston Music Hall Foundation.

ROBERT E. MCKEE III has been an Executive Vice President for Conoco since
1992, with responsibility for worldwide exploration and production and was a
Senior Vice President of DuPont until October 27, 1998. He was formerly Conoco's
Executive Vice President for Corporate Strategy and Development, Senior Vice
President for Administration, Vice President of North American Refining and
Marketing and Vice President, Chairman and Managing Director of Conoco (UK)
Limited. Since he joined Conoco in 1967, Mr. McKee has worked at various
locations and held numerous managerial, operating, administrative and technology
positions both in the United State and overseas. He currently serves on the
board of directors of the American Petroleum Institute and is a former director
of Consol Energy Inc. and Consol Inc. In addition, he is Chairman of the
Southern Regional Advisory Board of the Institute of International Education and
a member of the advisory committee of the University of Texas Engineering
Department. Mr. McKee also serves as Chairman of the President's Council of the
Colorado School of Mines.

ROBERT W. GOLDMAN has been Senior Vice President, Finance, and Chief
Financial Officer of Conoco since 1998 and was its Vice President, Finance from
1991 to 1998. Mr. Goldman began his career with DuPont in 1965 and subsequently
held many technical and managerial positions within the finance, tax and
treasury functions. He is the former Vice President-Finance of DuPont (Mexico),
Vice President, Remington Arms Company and served as Director and Comptroller of
several operating departments of DuPont in Wilmington, Delaware. Mr. Goldman
transferred to Conoco in 1988 as Vice President and Controller. He is
co-chairman of Conoco's Risk Management Committee and is a member of the
American Petroleum Institute, a former chairman of its Accounting Committee and
currently serves on its Executive Committee of the General Committee on Finance.
He is also a member of the Financial Executives Institute and the Executive
Committee of the Board of Directors of the Alley Theatre in Houston, Texas.

RICK A. HARRINGTON has been Senior Vice President, Legal, and General
Counsel of Conoco since 1998 and was Vice President and General Counsel of
Conoco and Vice President and Assistant General Counsel of DuPont from 1994
until October 27, 1998. He joined DuPont in 1979 as a Senior Attorney, and
subsequently held the positions of Managing Counsel, Special Litigation, and
Vice President and General Counsel of Consolidation Coal Company. Prior to
joining DuPont, he was a partner in the firm of Arent, Fox, Kintner, Plotkin and
Kahn in Washington, D.C. where he specialized in antitrust litigation. Mr.
Harrington is a member of the bar of the District of Columbia, the District of
Columbia Court of Appeals and the Fifth Circuit Court of Appeals. He is
co-chairman of Conoco's Risk Management Committee and a director of the American
Corporate Counsel Association and is a member of its Policy Committee. He is
also a member of the American Petroleum Institute General Committee on Law and
the University of Kansas School of Business Dean's Board.

ELECTION AND COMPENSATION OF DIRECTORS

Conoco's restated certificate of incorporation provides that the board of
directors will consist of not less than six nor more than 15 directors. The
board of directors is classified into three classes. Each class consists, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire board of directors. The terms of office of the members
of one class of directors expire each year in rotation
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<PAGE> 96

so that the members of one class are elected at each annual meeting to serve for
full three-year terms, or until their successors are elected and qualified. The
current number of authorized directors is set at nine, but only seven positions
are occupied.

Directors who are employees of Conoco or DuPont receive no additional
compensation for serving on the board of directors. At the time of the initial
public offering, each nonemployee member of the board of directors received a
special grant of stock options to purchase 3,900 shares of Class A common stock
and a grant of 4,135 restricted stock units with respect to Class A common
stock. Future nonemployee directors, upon election to the board, will receive a
grant of restricted stock units with an aggregate value on the date of grant
equal to $95,000. On an annual basis, nonemployee directors will receive a fee
of $30,000, a grant of restricted stock units with an aggregate value on the
date of grant of $20,000, and options to purchase common stock with a present
value on the date of grant of $30,000.

Conoco awards stock options and restricted stock units under the terms of
its 1998 Stock and Performance Incentive Plan. Stock options have a term of ten
years and become exercisable in increments of one-third of the total grant on
the first, second and third anniversaries of the grant. The present value of
stock options is determined using a generally accepted stock option valuation
methodology. Restricted stock units are grants of units representing common
stock. Shares underlying restricted stock units granted to directors may not be
sold or voted for a period of three years, but dividend equivalents in the form
of additional units are credited during such period. Restricted stock units vest
immediately upon grant and stock options vest after six months of service as a
director.

Annual fees and awards of restricted stock units may be deferred under the
terms of Conoco's Deferred Compensation Plan for Nonemployee Directors, which is
established under the 1998 Stock and Performance Incentive Plan. An election to
defer must generally be made before the fiscal year in which it will be earned.
Once made, the election is generally irrevocable for the first year. The
deferred amounts are deemed to be invested, under the election of the
participant, in common stock or in an interest-bearing account.

Each deferral election will indicate the time and form of payment for the
amounts to be deferred. Distributions will be made in cash or common stock to
the participant at the time irrevocably selected on the deferral form, or, in
the event of the participant's death, to the participant's designated
beneficiary. Upon a change in control of Conoco, at the director's election, all
deferred amount, including deferred restricted stock units, may be paid in full.

Board members are also eligible to participate in the Directors' Charitable
Gift Plan. This plan provides that, upon a director's death, Conoco will donate
$200,000 per year for five years to tax-exempt educational institutions or
charitable organizations recommended by the director and approved by Conoco.
Each director will be fully vested in the Directors' Charitable Gift Plan after
completing one year of service as director. Conoco may fund the Directors'
Charitable Gift Plan through, among other vehicles, the purchase of life
insurance policies on the lives of the directors. Conoco will be the beneficiary
of and will own these policies. Employee directors may elect to participate in
the plan if they bear their allocable cost of the plan. Directors derive no
personal financial or tax benefit from the Directors' Charitable Gift Plan
because the charitable, tax-deductible donations and insurance proceeds, if any,
accrue solely to the benefit of Conoco.

A board member who serves as chairman of a standing board committee
receives a supplement of $5,000 annually. No additional fees are paid for
serving on board committees or for attending board or committee meetings.

COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT AND COMPLIANCE COMMITTEE

Members: Frank A. McPherson, Chairman
Ruth R. Harkin
A.R. "Tony" Sanchez, Jr.

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<PAGE> 97

Number of meetings in
1998: Two

Principal Functions:
The Audit and Compliance Committee is responsible for:

- overseeing Conoco's internal control structure, financial
reporting, and legal and ethical compliance program,
including strategic oversight of corporate safety, health
and environmental policy and direction;

- selecting an independent accounting firm, subject to
stockholder ratification, to audit Conoco's financial
statements;

- requesting that Conoco's subsidiaries engage independent
accountants, as deemed appropriate by the committee, to
audit their respective financial statements;

- receiving and acting on reports and comments from Conoco's
independent accountants;

- reviewing significant accounting principles employed in
Conoco's financial reporting;

- reviewing and recommending approval of Conoco's annual
financial statements;

- maintaining direct lines of communication with the board of
directors and Conoco's management, internal auditing staff
and independent accountants; and

- reporting to the board of directors a summary of its
findings and recommendations.

COMPENSATION COMMITTEE

Members: Franklin A. Thomas, Chairman
William K. Reilly
William R. Rhodes

Number of Meetings in
1998: Two

Principal Functions:
The Compensation Committee is responsible for:

- overseeing and administering Conoco's executive compensation
policies, plans and practices;

- approving and/or recommending to the board of directors
levels of compensation for the President and Chief Executive
Officer, as well as stock options; performance awards and
other stock-based awards for employee directors and senior
management;

- administering grants to management under Conoco's
stock-based compensation plans and adopting and/or
recommending to the full board of directors new plans or
changes in these programs; and

- overseeing succession planning for the Chief Executive
Officer and other key executives.

STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the number of shares of Class A and Class B
common stock beneficially owned on August 31, 1999, by each Conoco director,
executive officer named in the summary compensation table below and all
directors and executive officers as a group. The persons named in the table have
sole voting power and investment power with respect to all shares of Class A and
Class B common stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in the notes to the
table.

96
<PAGE> 98

BENEFICIAL OWNERSHIP TABLE

<TABLE>
<CAPTION>
CLASS A
SHARES CLASS B SHARES
BENEFICIALLY PERCENT BENEFICIALLY PERCENT
NAME OWNED(1)(2) OF CLASS OWNED(3) OF CLASS
- ---- ------------ -------- -------------- --------
<S> <C> <C> <C> <C>
Archie W. Dunham(4)............................. 3,114,126 1.6% 40,566 *
Ruth R. Harkin(5)............................... 8,273 * -- --
Frank A. McPherson.............................. 9,844 * 1,226 *
William K. Reilly............................... 7,184 * 275 *
William R. Rhodes............................... 51,223 * -- --
A.R. Sanchez.................................... -- -- 3,585 *
Franklin A. Thomas.............................. 6,223 * 161 *
Gary W. Edwards................................. 1,407,432 * 61,081 *
Robert E. McKee III(6).......................... 1,146,486 * 45,204 *
Robert W. Goldman(7)............................ 346,402 * 5,482 *
Rick A. Harrington.............................. 349,021 * 4,595 *
Directors and Executive Officers as a Group (11
persons)...................................... 6,515,285 3.3% 180,599 *
</TABLE>

- ---------------

* Less than 1%

(1) Includes restricted or deferred stock units credited under the 1998 Stock
and Performance Incentive Plan and the Deferred Compensation Plan for
Nonemployee Directors, the following number of which may be voted or sold
only upon the passage of time: Mr. Dunham -- 81,618; Ms. Harkin -- 4,923;
Mr. McPherson -- 6,044; Mr. Reilly -- 5,884; Mr. Rhodes -- 4,923; and Mr.
Thomas -- 4,923.

(2) Includes beneficial ownership of the following number of shares of Class A
common stock which may be acquired within 60 days of September 15, 1999
through stock options awarded under compensation plans: Mr.
Dunham -- 2,885,632; Ms. Harkin -- 1,300; Mr. McPherson -- 1,300; Mr.
Reilly -- 1,300; Mr. Rhodes -- 1,300; Mr. Thomas -- 1,300; Mr.
Edwards -- 1,378,661; Mr. McKee -- 1,131,805; Mr. Goldman -- 339,716; and
Mr. Harrington -- 342,661. Of such options, the following number are subject
to stock price hurdles which have not yet been met: Mr. Dunham -- 392,846;
Mr. Edwards -- 182,324; Mr. McKee -- 173,427; Mr. Goldman -- 52,562; and Mr.
Harrington -- 80,329.

(3) Includes restricted or deferred stock units credited under the 1998 Stock
and Performance Incentive Plan and the Deferred Compensation Plan for
Nonemployee Directors, the following number of which may be voted or sold
only upon the passage of time: Mr. Reilly -- 275; Mr. Sanchez -- 3,585; and
Mr. Thomas -- 161.

(4) Includes 10,100 shares of Class A common stock and 40,566 shares of Class B
common stock held in Dunham Management Trust, a revocable grantor trust.

(5) Includes 50 shares of Class A common stock owned by Ms. Harkin's daughter.

(6) Includes 200 shares of Class A common stock and 982 shares of Class B common
stock owned by Mr. McKee's son and 24,567 shares of Class B common stock
owned by the McKee Family Trust.

(7) Includes 1,471 shares of Class B common stock owned by Mr. Goldman's wife
and 83 shares of Class B common stock owned by Mr. Goldman's son.

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<PAGE> 99

COMPENSATION OF EXECUTIVE OFFICERS

Until October 1998, the executive officers named in the table below
participated in DuPont's compensation plans. The following table provides
information about the compensation of Conoco's chief executive officer and four
other most highly compensated executive officers during 1997 and 1998 without
regard to whether compensation was provided under DuPont's plans or Conoco's
plans. Two additional tables provide detailed information about these employees'
stock options.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------------
--------------------------------------- SHARES
OTHER RESTRICTED UNDERLYING
NAME AND ANNUAL STOCK OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS(3) GRANTED(4) COMPENSATION(5)
- ------------------ ---- -------- ---------- --------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Archie W. Dunham......... 1998 $901,261 $1,300,000 $29,946 $1,100,090 1,693,040 $51,750
President, Chief 1997 667,500 1,450,000 33,075 794,936 39,950
Executive Officer and
Director
Gary W. Edwards.......... 1998 469,460 389,000 16,347 567,974 27,620
Executive Vice 1997 431,320 725,000 24,044 364,648 25,715
President, Refining,
Marketing, Supply and
Transportation
Robert E. McKee III...... 1998 418,775 372,000 30,573 561,677 24,563
Executive Vice 1997 374,400 718,000 16,612 346,854 22,247
President, Exploration
Production
Robert W. Goldman........ 1998 262,750 140,000 6,211 164,191 15,390
Senior Vice President, 1997 236,700 292,000 1,513 105,672 13,958
Finance, and Chief
Financial Officer
Rick A. Harrington....... 1998 264,500 172,000 1,760 198,411 15,600
Senior Vice President, 1997 229,500 325,000 4,703 163,716 13,598
Legal, and General
Counsel
</TABLE>

- ---------------

(1) On average, approximately 25% of 1998 variable compensation (i.e., bonus)
was paid in Class A common stock, and about 25% of 1997 variable
compensation was paid in DuPont common stock.

(2) Other annual compensation consists solely of the reimbursement for the
payment of taxes.

(3) For 1998, Mr. Dunham received 47,830 restricted stock units with respect to
Class A common stock valued at $23 per unit. The stock units vest two years
from the date of grant. During the two-year period, dividend equivalents
will be credited to Mr. Dunham's account in the form of additional units.
These restricted stock units had an aggregate value of $998,451 on December
31, 1998 based on the closing price on the New York Stock Exchange on such
date of $20.875.

(4) Reflects, for 1998, new grants of Conoco stock options and, for 1997 and
1998, replacement grants of Conoco stock options at the time of the initial
public offering resulting from the election of the officers to surrender
DuPont stock options granted in 1997 and 1998 and receive Conoco stock
options having an equivalent appreciated value at the time of the initial
public offering. The number of shares of Class A common stock covered by the
replacement stock options was calculated by multiplying the number of shares
of DuPont common stock subject to the original DuPont options by a factor of
2.7376, and the exercise price of the options was decreased by dividing the
original exercise price by the same factor.

(5) 1998 amounts consist of matching contributions made under Conoco's Thrift
Plan and the following amounts credited under DuPont's savings restoration
plan: Mr. Dunham -- $42,150; Mr. Edwards -- $18,020; Mr. McKee -- $14,963;
Mr. Goldman -- $5,790 and Mr. Harrington -- $6,000.

98
<PAGE> 100

OPTION GRANTS TABLE

<TABLE>
<CAPTION>
INDIVIDUAL OPTION GRANTS IN 1998(1)(2) POTENTIAL REALIZABLE
----------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT ANNUAL RATES OF STOCK
SHARES OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS TERM(5)
OPTIONS GRANTED EXERCISE EXPIRATION -------------------------
NAME GRANTED IN 1998(3) PRICE(4) DATE 5% 10%
- ---- ---------- ---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Archie W. Dunham............................... 388,740 11.83% $21.73 02/03/2008 $ 5,313,532 $13,465,565
1,304,300 16.40 23.00 10/20/2008 18,866,178 47,810,551
Gary W. Edwards................................ 132,774 4.04 21.73 02/03/2008 1,814,835 4,599,159
435,200 5.47 23.00 10/20/2008 6,294,994 15,952,735
Robert E. McKee III............................ 126,477 3.85 21.73 02/03/2008 1,728,764 4,381,037
435,200 5.47 23.00 10/20/2008 6,294,994 15,952,735
Robert W. Goldman.............................. 40,791 1.24 21.73 02/03/2008 557,556 1,412,959
123,400 1.55 23.00 10/20/2008 1,784,932 4,523,363
Rick A. Harrington............................. 75,011 2.28 21.73 02/03/2008 1,025,295 2,598,306
123,400 1.55 23.00 10/20/2008 1,784,932 4,523,363
</TABLE>

- ---------------

(1) All options have a term of ten years and become exercisable in increments of
one-third of the total grant on the first, second and third anniversaries of
the grant. In addition, the options expiring on February 3, 2008 were to
become exercisable only upon a 20% increase in the price of DuPont's common
stock, which has occurred.

(2) The options expiring on February 3, 2008 were originally granted with
respect to DuPont common stock and the amounts shown represent the number of
shares of Conoco Class A common stock resulting from the replacement in
October 1998 of outstanding DuPont options with Conoco stock options, which
was intended to preserve the economic value of the DuPont options in
connection with the initial public offering. The number of shares of Conoco
Class A common stock covered by the replacement options was calculated by
multiplying the number of shares of DuPont common stock subject to the
original options by a factor of 2.7376, and the exercise price of the
options was decreased by dividing the original exercise price by the same
factor.

(3) Percent of total options granted to Conoco employees.

(4) The original exercise price for the options expiring on February 3, 2008 was
the average of the high and low prices of the DuPont common stock as
reported on the New York Stock Exchange Composite Transactions Tape on
February 4, 1998, the date of the grant. Such exercise price was adjusted by
dividing it by a factor of 2.7376 upon the replacement of the DuPont stock
options with Conoco stock options. The exercise price for the options
expiring on October 20, 2008 was the initial public offering price of
Conoco's Class A common stock on October 21, 1998, the date of the grant.

(5) Represents total appreciation over the exercise price at the assumed annual
appreciation rates of 5% and 10% compounded annually for the term of the
options.

99
<PAGE> 101

OPTION EXERCISES TABLE
(Aggregated Option Exercises in Last Fiscal Year
and Year-end Option Values)

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 1998 AT DECEMBER 31, 1998(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Archie W. Dunham.................. -- -- 1,928,446 2,085,886 $16,449,027 $666,895
Gary W. Edwards................... -- -- 1,007,016 750,298 9,444,625 309,513
Robert E. McKee III............... -- -- 771,156 735,104 6,502,665 294,410
Robert W. Goldman................. -- -- 232,426 216,753 1,955,829 89,229
Rick A. Harrington................ -- -- 196,177 278,760 1,166,709 136,400
</TABLE>

- ---------------

(1) No Conoco stock options were exercised in 1998. DuPont stock options were
exercised by the following officers in the amounts indicated: Mr. McKee,
14,708 shares with a realized value of $487,878; Mr. Goldman, 8,406 shares
with a realized value of $292,078; and Mr. Harrington, 23,492 shares with a
realized value of $925,806. The realized value represents the pre-tax gain,
which is the difference between the market value of the shares on the date
of exercise of the options and the exercise price.

(2) Represents the closing price as reported on the New York Stock Exchange for
Class A common stock on December 31, 1998 of $20.875, less the exercise
price for all outstanding exercisable and unexercisable options for which
the exercise price is less than such closing price. Exercisable options have
been held at least one year from the date of grant and have met applicable
stock price hurdles. Unexercisable options have been held for less than one
year or have not met the applicable stock price hurdles.

RETIREMENT BENEFITS

Retirement benefits for Conoco employees are provided under the Retirement
Plan of Conoco Inc., and are based on an employee's years of service and average
monthly pay during the employee's three highest paid years. Average monthly pay
for this purpose includes regular compensation and 100% of annual variable
compensation payments, but excludes other bonuses and compensation in excess of
limits imposed by the Internal Revenue Code of 1986. The Code limits the amount
of annual benefits which may be payable from the pension trust. Retirement
benefits in excess of these limitations are paid from Conoco's general revenues
under separate, nonfunded pension restoration plans.

The table below illustrates the straight-life annuity amounts payable under
the Conoco retirement plan and retirement restoration plans to Conoco employees
retiring at age 65 in 1998. These amounts reflect an offset based on Social
Security benefits. The current years of service credited for retirement benefits
for the named officers are as follows: 33 years for Archie W. Dunham; 35 years
for Gary W. Edwards; 31 years for Robert E. McKee III; 33 years for Robert W.
Goldman; and 19 years for Rick A. Harrington.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS ON SERVICE OF:
-------------------------------------------------------
SALARY AND VARIABLE COMPENSATION 30 YEARS 35 YEARS 40 YEARS 45 YEARS
-------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$ 450,000.............................. $ 208,000 $ 244,000 $ 280,000 $ 316,000
900,000............................. 424,000 496,000 568,000 640,000
1,350,000............................. 640,000 748,000 856,000 964,000
1,800,000............................. 856,000 1,000,000 1,144,000 1,288,000
2,250,000............................. 1,072,000 1,252,000 1,432,000 1,612,000
2,700,000............................. 1,288,000 1,504,000 1,720,000 1,936,000
</TABLE>

100
<PAGE> 102

SEVERANCE ARRANGEMENTS

Conoco has entered into an employment agreement with Archie W. Dunham for a
term ending December 20, 2003. Under the agreement, Mr. Dunham is entitled to an
annual base salary of $1.1 million, subject to annual review and increase,
bonuses and long-term equity-based compensation that are competitive with
industry practices, and participation in the most favorable incentive,
retirement, welfare and other benefits Conoco offers to its senior executives.

During the term of the agreement, Mr. Dunham has agreed not to terminate
his employment within six months following a "change of control", as defined in
the agreement. The agreement provides that if, during the term of the agreement,
Mr. Dunham's employment is terminated under any of the following circumstances:

- by Mr. Dunham or the company for any reason within 30 days following the
expiration of six months after a change in control;

- by Mr. Dunham at any time for "good reason", as defined in the agreement;
or

- by Conoco at any time other than for cause or by reason of Mr. Dunham's
death or disability;

Mr. Dunham will be entitled to the following:

- a lump sum severance payment equal to the sum of his salary, deferred
compensation and vacation accrued to the date of termination and the
salary and bonus that would have been payable to him through the earlier
of three years following the date of termination of his employment or
December 20, 2003, based on his then current salary and an annual bonuses
equal to the average of the two highest annual bonus awards to Mr. Dunham
in the three fiscal years preceding termination;

- welfare and other benefits continuation through the earlier of three
years following the date of termination of his employment or December 20,
2003, including a sum in cash, undiscounted, equal to the retirement
benefit he would have received if he had remained employed until December
20, 2003;

- under certain circumstances, grants of options, restricted stock and
other compensatory awards Mr. Dunham would have received had his
employment continued through the earlier of three years following the
date of termination of his employment or December 20, 2003;

- vesting of, and termination of restrictions on, any unvested equity- or
performance-based awards from Conoco; and

- if a change of control precedes termination of employment, or occurs
within one year following termination, Mr. Dunham may elect to cash out
equity-based compensatory awards at the highest price per share paid by
specified persons during the six month period prior to the date of the
change of control.

If Mr. Dunham's employment is terminated by Conoco for cause or by Mr.
Dunham for any reason other than good reason, in each case other than during the
30-day period following six months after a change of control, or if Mr. Dunham's
employment is terminated by reason of his death or disability, then he will
receive a lump sum severance payment equal to the sum of his salary, deferred
compensation and vacation accrued to the date of termination. If Mr. Dunham
remains employed until December 20, 2003, any termination of his employment
thereafter will be treated as a termination by Mr. Dunham for good reason.

Mr. Dunham will also be entitled to receive an additional payment
sufficient to compensate him for the amount of any excise tax imposed on
payments made under the agreement or otherwise pursuant to Section 4999 of the
Code and for any taxes imposed on that additional payment.

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Conoco has established the Conoco Inc. Key Employee Severance Plan, which
covers key employees of Conoco, including Gary W. Edwards, Robert E. McKee III,
Robert W. Goldman and Rick A. Harrington. The plan provides that if the
employment of a participant in the plan is terminated

- within two years of a "change in control" of Conoco; or

- after a "potential change in control" of Conoco but prior to a change in
control, whether or not a change in control ever occurs, in either case
by Conoco other than for "cause" or by the participant for "good reason",
as such terms are defined in the plan, the participant will be entitled
to:

(a) a lump sum severance payment equal to two or three times the sum of
his base salary and previous year's bonus;

(b) 24 or 36 months of benefits continuation; and

(c) a pro rata portion of the annual bonus for which he is eligible in
the year of termination and, if necessary, a gross-up payment
sufficient to compensate the participant for the amount of any
excise tax imposed on payment made under the plan or otherwise
pursuant to Section 4999 of the Code and for any taxes imposed on
such an additional payment.

The plan has a three-year term commencing on May 10, 1998, which term will
be extended, if necessary, upon a change in control so that it expires no
earlier than 24 months after such an event. Amounts payable under the plan will
be in lieu of any payments or benefits that may be payable to the severed
employee under any other plan, policy or program of Conoco relating to
severance.

Conoco has also established both the Conoco Inc. Key Employee Temporary
Severance Plan and the Conoco Inc. Temporary Severance Plan, each of which
covers key Conoco employees, including the officers named in the summary
compensation table. Under the Key Employee Temporary Severance Plan, if the
employment of a participant is involuntarily terminated due to a reduction in
force or if a participant experiences specified adverse employment changes,
including relocation and reductions in pay or position, the individual will be
entitled to one year's base salary and variable bonus. The Key Employee
Temporary Severance Plan expires in 2001. Under the Temporary Severance Plan,
benefits are paid to a participant upon termination of employment in the same
circumstances as are described under the Key Employee Temporary Severance Plan,
but only if such termination occurs after a "change in control", as defined in
the Temporary Severance Plan. Benefits under the Temporary Severance Plan are
equal to two weeks' pay for each completed year of service, up to a maximum of
52 weeks' pay. Amounts payable under both the Key Employee Temporary Severance
Plan and the Temporary Severance Plan are reduced by amounts payable pursuant to
any other severance plan, policy or program of Conoco.

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PRINCIPAL STOCKHOLDERS OF CONOCO COMMON STOCK

The following table sets forth information regarding the beneficial
ownership as of June 30, 1999 of shares of Class A and Class B common stock by
DuPont and each other person or entity known to Conoco to be a beneficial owner
of five percent or more of Conoco's voting securities.

PRINCIPAL STOCKHOLDERS TABLE

<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
--------------------- ----------------------
NUMBER PERCENT NUMBER PERCENT
NAME AND ADDRESS OF SHARES OF CLASS OF SHARES OF CLASS
- ---------------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Putnam Investments, Inc. and related
entities(1)..................................... 24,274,557 12.7% -- --
One Post Office Square
Boston, Massachusetts 02109
Capital Resources and Management Company(2)....... 22,139,000 11.6%
333 South Hope Street
Los Angeles, California 90071
Scudder Kemper Investments, Inc.(3)............... 20,555,439 10.8% -- --
345 Park Avenue
New York, New York 10154
Ark Asset Management Co., Inc.(4)................. 11,278,200 5.9% -- --
125 Broad Street
New York, New York 10004
Citigroup Inc.(5)
153 East 53rd Street
New York, New York 100043....................... 10,259,914 5.4% -- --
</TABLE>

- ---------------

(1) Based on a Schedule 13G/A filed with the SEC on July 9, 1999 by Putnam
Investments, Inc. ("PI"), a subsidiary of Marsh & McLennan Companies, Inc.
("MMC"), on behalf of itself, MMC, Putnam Investment Management, Inc.
("PIM") and The Putnam Advisory Company, Inc. ("PAC"). Consists of
20,020,855 shares beneficially owned by PIM and 4,253,702 shares
beneficially owned by PAC, both wholly owned registered investment advisors
of PI. Both subsidiaries have dispositive power over the shares as
investment managers, but each of the mutual funds' trustees have voting
power over shares held by each fund, and PAC has shared voting power over
the shares held by institutional clients. The address of MMC is 1166 Avenue
of the Americas, New York, New York 10036.

(2) Based on a Schedule 13G filed with the SEC on August 8, 1999. Capital
Resources and Management Company is deemed to be the beneficial owner of
these shares as a result of acting as investment advisor to various
investment companies.

(3) Based on a Schedule 13G/A filed with the SEC on July 16, 1999. Scudder
Kemper Investments, Inc. has sole voting power with respect to 2,791,900
shares, shared voting power with respect to 16,837,209 shares and sole
dispositive power with respect to 9,974,890.

(4) Based on a Schedule 13G filed with the SEC on February 4, 1999.

(5) Based on a Schedule 13G filed with the SEC on February 12, 1999. Consists
entirely of shares beneficially owned by subsidiaries of Citigroup Inc.
which individually qualify to file a Schedule 13G but whose beneficial
ownership does not exceed 5%. Citigroup Inc. has shared voting and
dispositive power over all these shares, but disclaims beneficial ownership
of all such shares.

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DESCRIPTION OF CONOCO CAPITAL STOCK

GENERAL

The authorized capital stock of Conoco consists of:

- 3.0 billion shares of Class A common stock, par value $.01 per share;

- 1.6 billion shares of Class B common stock, par value $.01 per share; and

- 250 million shares of preferred stock, par value $.01 per share.

There is no preferred stock outstanding on the date of this document. As of
August 31, 1999, there were approximately 190.5 million shares of Class A common
stock and 436.5 million shares of Class B common stock outstanding.

The following is a description of the material terms of Conoco's
certificate of incorporation affecting the relative rights of Conoco's capital
stock. The following description of the capital stock of Conoco is intended as a
summary only. For complete information, you should read Conoco's certificate of
incorporation and by-laws incorporated by reference as an exhibit to the
registration statement of which this document forms a part. To find out where
you can get copies of these documents, see "Where You Can Find More Information"
on page 112.

COMMON STOCK

VOTING RIGHTS

The holders of Class A common stock and Class B common stock generally have
identical rights, except that holders of Class A common stock have one vote per
share while holders of Class B common stock have five votes per share.
Generally, matters to be voted on by stockholders, including amendments to the
certificate of incorporation, must be approved by a majority vote of the holders
of Conoco common stock, voting together as a single class, subject to any voting
rights granted to holders of any preferred stock. However, a majority vote of
the affected class, voting separately, is also necessary for amendments of the
certificate of incorporation that would adversely affect the rights of the Class
A common stock or the Class B common stock. Holders of Class A common stock may
not vote on any change in the rights of the Class B common stock that would not
adversely affect their rights. A change relating to any one-for-one conversion
or exchange of the Class B common stock into or for Class A common stock shall
be deemed not to adversely affect the rights of the Class A common stock. Any
amendment to the certificate of incorporation to increase the authorized shares
of any class of capital stock of Conoco requires the approval only of a majority
of the votes entitled to be cast by the holders of Conoco common stock voting
together as a single class.

Holders of shares of Conoco's common stock may not cumulate their votes in
the election of directors. In cumulative voting, a stockholder has a number of
votes equal to the number to which his stockholdings would entitle him,
multiplied by the number of directors being elected. A stockholder can then vote
all of those votes in favor of one or more directors. This improves a minority
stockholder's ability to influence the election of specific directors.

DIVIDENDS

All holders of Conoco common stock will share equally on a per share basis
in any dividend declared by the board of directors, subject to any rights of any
outstanding preferred stock to receive dividends. If the board declares a stock
dividend, stockholders of each class of common stock must receive shares of the
class of stock they already hold. Additionally, all common stockholders must
receive the same number of dividend shares on a per share basis.

Conoco may not reclassify, subdivide or combine shares of either class of
common stock without simultaneously doing the same to shares of the other class.

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OTHER RIGHTS

If Conoco merges or consolidates with another corporation and shares of
common stock are converted into or exchangeable for shares of stock, other
securities or property, all holders of common stock, regardless of class, will
be entitled to receive the same kind and amount of payment for their shares.
This requirement can be waived by a majority vote of each class of holders of
common stock.

If Conoco is liquidated, dissolved or wound up, after full payment of any
required amounts to preferred stockholders, all holders of common stock,
regardless of class, will receive the same amount per share of any assets
distributed to common stock holders.

No shares of either class of common stock have any right to be redeemed or
to purchase additional shares of common stock or other securities of Conoco.

All the outstanding shares of Conoco common stock are validly issued, fully
paid and nonassessable.

PREFERRED STOCK

At the direction of its board of directors, Conoco may issue preferred
stock from time to time in one or more series. Conoco's board of directors may,
without any action by holders of common stock, adopt resolutions to issue
preferred stock, which may include voting, dividend, redemption, conversion,
exchange and liquidation rights as well as other rights and features of any
series of preferred stock. The Conoco board of directors, without stockholder
approval, may issue preferred stock with voting and other rights that could
adversely affect the voting power of the holders of the common stock and that
could hinder takeovers. Conoco has no current plans to issue any shares of
preferred stock. The ability of the board of directors to issue preferred stock
without stockholder approval may delay, defer or prevent a change in control of
Conoco or the removal of existing management.

For purposes of the rights plan described below, Conoco's board of
directors has designated 1.0 million shares of Series A junior participating
preferred stock, par value $.01 per share. For a description of the rights plan,
see "-- Anti-Takeover Effects of Certificate and By-law Provisions -- Rights
Plan."

ANTI-TAKEOVER EFFECTS OF CERTIFICATE AND BY-LAW PROVISIONS

GENERAL

The provisions of the certificate of incorporation and by-laws summarized
below may delay, deter, or prevent a tender offer or takeover attempt that a
stockholder might consider to be in its best interest, including offers or
attempts that might result in a premium being paid over the market price for the
common stock.

BOARD OF DIRECTORS

The certificate of incorporation and by-laws provide that the Conoco board
of directors is divided into three classes of directors, with the classes to be
as equal in number as possible. At the time of the initial public offering, the
classes were elected for one, two and three-year terms expiring at the annual
meeting of stockholders to be held in 1999, 2000 and 2001. Each director is to
hold office until his or her successor is duly elected and qualified. Beginning
with the 1999 annual meeting of stockholders, directors will be elected for
three-year terms.

The certificate of incorporation and by-laws provide that Conoco's board of
directors will initially consist of nine members. The certificate of
incorporation and by-laws also provide that Conoco shall have not less than six
nor more than 15 directors. A majority of the entire board of directors
determines the exact number of directors. The certificate of incorporation also
provides that any vacancies on the board will be filled by the majority vote of
the remaining directors, even if less than a quorum, or by a sole remaining
director. However, if a vacancy on the board of directors is caused by the
stockholders removing a director, then only the stockholders can fill the
vacancy, and the directors have no power to do so.

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Directors of Conoco may only be removed for cause by a majority vote of
stockholders.

"Cause" will exist if the board of directors has determined that removal of
a director is in the best interests of Conoco. If the board of directors has not
made that determination, then "cause" will exist only if:

- the director has been convicted, or when a director is granted immunity
to testify when another has been convicted, of a felony by a court and
such conviction is no longer subject to direct appeal;

- a majority of the directors or a court finds the director guilty of
willful misconduct in performing his duties to Conoco in a matter of
substantial importance to Conoco; or

- a court finds the director mentally incompetent, and the mental
incompetency directly affects his ability as a director of Conoco.

Whenever holders of preferred stock may elect directors of Conoco because
Conoco has not paid dividends or because of other defaults under the terms of
the preferred stock, any of those directors can only be removed as provided
under the terms of the preferred stock.

ADVANCE NOTICE PROCEDURES

In general, a stockholder wishing to nominate directors or bring up other
matters for consideration at an annual meeting of stockholders must notify
Conoco in writing between 90 and 120 days prior to the anniversary of the
previous year's annual meeting of stockholders. The notice must contain required
information about the person to be nominated or the matters to be brought before
the meeting and about the stockholder submitting the proposal.

SPECIAL MEETINGS

The certificate of incorporation and the by-laws provide that only the
chairman of the board or the board of directors may call special meetings of
stockholders and stockholders may not call special meetings. In addition, the
certificate of incorporation and the by-laws provide that stockholders may only
act at an annual or special meeting of stockholders and not by written consent.
No business other than that stated in the notice of such meeting may be
transacted at any special meeting.

FAIR PRICE PROVISION

The certificate of incorporation includes a "fair price" provision that
prohibits business combinations with related persons unless the following
conditions are met:

The holders of each class of common stock receive the same payment as the
other class and either:

- the payment is the same as the highest amount the related person
paid in a tender offer completed within one year of the date of the
definitive agreement for the business combination and the related
person purchased at least 50% of each class of common stock in the
tender offer; or

- the payment is not less than what the related person paid or agreed
to pay for any shares of Conoco's voting stock in a transaction
completed within one year of the date of the definitive agreement
for the business combination in which the related person became or
during which the related person was a 15% holder of any class of
Conoco's voting stock.

Alternatively, the transaction will be permitted if it is approved by a
majority of the continuing directors or:

- at least 80% of the votes entitled to be cast by the voting stock;

- at least 66 2/3% of the votes entitled to be cast by the voting
stock other than votes entitled to be cast by the related person;
and

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- a majority of the votes entitled to be cast by each class of common
stock, excluding the common stock owned by the related person, with
each class voting separately as a class.

The same percentage approvals are also required to amend the fair price
provisions. The fair price provision will not be applicable at such time as all
shares of Class B common stock have been converted into or exchanged for Class A
common stock.

Under the fair price provision, a related person is any person, other than
DuPont and its affiliates and associates, that beneficially owns 15 percent or
more of any class of Conoco's voting stock or is an affiliate of Conoco and at
any time within the preceding two-year period was the beneficial owner of 15
percent or more of any class of Conoco's voting stock.

The types of business combinations covered by the fair price provision are:

- any merger or consolidation of Conoco or any of its subsidiaries with a
related person or an affiliate of a related person;

- any sale, lease, exchange, transfer or other disposition of all or
substantially all of the assets of Conoco to a related person or an
affiliate of a related person;

- reclassifications, recapitalizations and other corporate actions
requiring a stockholder vote that would increase by more than one percent
the proportionate share of any class of voting stock beneficially owned
by the related person or an affiliate of a related person; and

- a dissolution of Conoco caused or proposed by a related person or an
affiliate of a related person.

A continuing director is a director who is unaffiliated with the related
person and who was a director before the related person became a related person,
and any successor of a continuing director who is unaffiliated with a related
person and is recommended or nominated to succeed a continuing director by a
majority of the continuing directors.

AMENDMENT

An 80% vote of Conoco's voting stock and a majority of the votes entitled
to be cast by the holders of each class of common stock, voting separately by
class is required to amend provisions of Conoco's certificate of incorporation
and by-laws relating to:

- stockholder action by written consent;

- the right to call special meetings of stockholders;

- advance notice procedures with respect to stockholder meetings;

- board of directors classification and removal provisions; and

- amendments changing the voting requirements for amendments.

The board of directors may also amend the by-laws.

RIGHTS PLAN

The board of directors has adopted a share purchase rights plan. Pursuant
to the rights plan, one preferred share purchase right accompanies each
outstanding share of Conoco common stock. We refer to these securities as
"rights". Each holder of a right is entitled to purchase from Conoco one
one-thousandth of a share of the junior participating preferred stock at a price
of $88, subject to adjustment. The description and terms of the rights are set
forth in a rights agreement between Conoco and First Chicago Trust Company of
New York. The following description is only a summary. For complete information
you should read the rights agreement, which has been incorporated by reference
as an exhibit to the registration statement of which this document is a part. To
find out where you can get a copy of the rights agreement, see "Where You Can
Find More Information" on page 112.

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The rights are attached to all shares of the currently outstanding common
stock and will attach to all common stock Conoco issues prior to the "rights
distribution date." That date would occur, except in some cases, on the earlier
of

(1) 10 business days following a public announcement that a person or group
of affiliated or associated persons (an "acquiring person") has acquired
beneficial ownership of

- 15 percent or more of the outstanding Class A common stock;

- 15 percent or more of the outstanding Class B common stock; or

- any combination of Class A common stock and Class B common stock
representing 15 percent or more of the votes of all shares entitled to
vote in the election of directors; or

(2) 10 business days, or such later date as the board of directors may
determine, following the start of a tender offer or exchange offer that would
result, if closed, in a person becoming an acquiring person,

Until the rights distribution date or earlier redemption or expiration of
the rights, the rights will only be transferred with the common stock. Until the
rights distribution date or earlier redemption or expiration of the rights, all
shares of common stock which are issued will have associated rights. As soon as
practicable following the rights distribution date, Conoco will mail separate
certificates evidencing the rights to holders of common stock, as of the close
of business on that date. From and after the rights distribution date, only
separate rights certificates will represent the rights.

The rights will not be exercisable until the rights distribution date. The
rights will expire on August 31, 2008, unless this date is extended or unless
Conoco redeems the rights earlier as described below.

If any person or group becomes an acquiring person, the rights held by the
acquiring person will become void. At that time each other holder of a right,
will from that time have the right to receive upon exercise that number of
shares of the class of common stock attributable to the right, having a then-
current market price of two times the exercise price of the right. If Conoco is
acquired in a merger or other business combination transaction or 50 percent or
more of its consolidated assets or earning power are sold after a person or a
group becomes an acquiring person, each holder of a right will from that time on
have the right to receive, upon exercising the right at the then-current
exercise price, a number of shares of common stock of the acquiring company
which has a then-current market price of two times the exercise price of the
right.

At any time until the tenth business day following the public announcement
that a person or group has become an acquiring person, the board of directors
may redeem all of the rights at a price of $.01 per right. If the board timely
orders the redemption of the rights, the rights will terminate on the
effectiveness of that action.

The board of directors may amend the terms of the rights without the
consent of the holders of the rights prior to the rights distribution date.
After the rights distribution date, the board may amend the rights agreement to
cure any ambiguity, to make changes that do not adversely affect the interests
of holders of rights, or to shorten or lengthen any time period under the rights
agreement; provided, however, that the board may not amend the rights to
lengthen a time period relating to when the rights may be redeemed if the rights
are not redeemable at that time.

Until a right is exercised, the holder of the right will have no rights as
a stockholder of Conoco, including, without limitation, the right to vote or to
receive dividends.

The board may adjust the number of outstanding rights and the number of
one-thousandths of a junior preferred share issuable upon exercise of each right
in the event of a stock split of or a common stock dividend on the common stock
or subdivisions, consolidations or combinations of the common stock occurring
prior to the rights distribution date.

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The board may adjust the purchase price payable, and the number of junior
participating preferred stock or other securities or property issuable, upon
exercise of the rights from time to time to prevent dilution in the event of
some transactions affecting the junior participating preferred stock.

With some exceptions, the rights agreement does not require Conoco to
adjust the purchase price until cumulative adjustments amount to at least one
percent of the purchase price. No fractional junior participating preferred
stock will be issued, other than fractions which are integral multiples of one
one-thousandth of a junior preferred share, which may, at Conoco's option, be
evidenced by depositary receipts. Instead of issuing fractional shares, an
adjustment in cash will be made based on the market price of the junior
participating preferred stock on the last trading day prior to the date of
exercise.

Junior participating preferred stock purchasable upon exercise of the
rights will not be redeemable. Each junior preferred share will be entitled to a
minimum preferential quarterly dividend payment of $0.01 per share but will be
entitled to an aggregate dividend of 1,000 times the dividend declared per share
of common stock. In the event of liquidation, the holders of the junior
participating preferred stock will be entitled to a minimum preferential
liquidation payment of $1,000 per share but will be entitled to an aggregate
payment of 1,000 times the payment made per share of common stock. Each junior
preferred share will have 1,000 votes voting together with the common stock.
Finally, in the event of any merger, consolidation or other transaction in which
shares of common stock are exchanged, each junior preferred share will be
entitled to receive 1,000 times the amount received per share of the common
stock. These rights are protected by customary anti-dilution provisions.

The rights have anti-takeover effects. The rights will cause substantial
dilution to any person or group that attempts to acquire Conoco without the
approval of the board of directors. The rights should not interfere with any
merger or other business combination approved by the board of directors prior to
the time that a person or group has acquired beneficial ownership of 15 percent
or more of the Class A common stock, Class B common stock or voting power of the
outstanding shares of common stock since the rights may be redeemed by Conoco
until such time.

DuPont is excluded from the definition of acquiring person and therefore
its ownership cannot trigger the distribution of rights under the rights plan.

CONTRACTUAL RELATIONS AMONG CONOCO, DUPONT AND RELATED ENTITIES

The certificate of incorporation provides that, if specified disclosure
conditions are satisfied and if fair as to Conoco as of the time it is
authorized, approved or ratified by the board of directors, by a committee
thereof or by the stockholders, no contract, agreement, arrangement or
transaction between:

- Conoco and DuPont,

- Conoco and one or more of the directors or officers of Conoco, DuPont or
a related entity, as defined below, or

- Conoco and any related entity

will be void or voidable solely because DuPont, any related entity or any one or
more of the officers or directors of Conoco, DuPont or any related entity are
parties to the contract, agreement, arrangement or transaction, or solely
because any such directors or officers are present at or participate in the
meeting of the board of directors or committee thereof that authorizes the
contract, agreement, arrangement or transaction or solely because his or their
votes are counted for such purpose, and DuPont, any related entity and such
directors and officers:

- will have fully satisfied and fulfilled their fiduciary duties to Conoco
and its stockholders with respect to the contract, agreement, arrangement
or transaction;

- will not be liable to Conoco or its stockholders for any breach of
fiduciary duty by reason of the entering into, performance or completion
of any such contract, agreement, arrangement or transaction;

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- will be deemed to have acted in good faith and in a manner such persons
reasonably believe to be in and not opposed to the best interests of
Conoco; and

- will be deemed not to have breached their duties of loyalty to Conoco and
its stockholders and not to have derived an improper personal benefit
therefrom.

A "related entity" is a corporation, partnership, association or other
organization in which one or more of Conoco's directors have a financial
interest.

DELAWARE BUSINESS COMBINATION STATUTE

Conoco is subject to Section 203 of the Delaware General Corporation Law,
which regulates corporate acquisitions. Section 203 prevents an "interested
stockholder," which is defined generally as a person owning 15% or more of a
corporation's voting stock or any affiliate or associate of that person, from
engaging in a broad range of "business combinations," with the corporation for
three years after becoming an interested stockholder unless:

- the board of directors of the corporation had previously approved either
the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;

- upon completion of the transaction which resulted in the stockholder
becoming an interested stockholder, that person owned at least 85 percent
of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares owned by persons who are
directors and also officers and shares owned in employee stock plans in
which participants do not have the right to determine whether shares held
subject to the plan will be tendered; or

- following the transaction in which that person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and holders of at least 66 2/3 percent of
the outstanding voting stock not owned by the interested stockholder.

Under Section 203, the restrictions described above also do not apply to
specific business combinations proposed by an interested stockholder following
the announcement or notification of designated extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors, if
such extraordinary transaction is approved or not opposed by a majority of the
directors who were directors prior to any person becoming an interested
stockholder during the previous three years or were recommended for election or
elected to succeed such directors by a majority of such directors.

LIMITATIONS ON DIRECTORS' LIABILITY

The certificate of incorporation provides that no director of Conoco shall
be liable to Conoco or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability

- for any breach of the director's duty of loyalty to Conoco or its
stockholders;

- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

- in respect of unlawful dividend payments or stock redemptions or
repurchases as provided in Section 174 of the Delaware General
Corporation Law; or

- for any transaction from which the director derived an improper personal
benefit.

These provisions eliminate the rights of Conoco and its stockholders suing
through stockholders' derivative suits on behalf of Conoco to recover monetary
damages against a director for breach of fiduciary duty as a director, including
breaches resulting from grossly negligent behavior, except in the situations
described above. Conoco's by-laws provide for indemnification of directors and
officers to the maximum extent permitted by Delaware law. Conoco has also
entered into indemnification agreements with each of

110
<PAGE> 112

its directors providing for indemnification of such directors to the fullest
extent permitted by applicable law.

LISTING

The Class A common stock and the Conoco Class B common stock are listed on
the NYSE under the symbols "COC.A" and "COC.B."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for Conoco common stock is First Chicago
Trust Company of New York.

LEGAL MATTERS

The validity of Conoco common stock being offered hereby has been passed
upon by Baker & Botts, L.L.P., Houston, Texas.

EXPERTS

The consolidated financial statements of Conoco as of December 31, 1998 and
1997, and for each of the three years in the period ended December 31, 1998
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

111
<PAGE> 113

WHERE YOU CAN FIND MORE INFORMATION

Conoco files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information filed by either company at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms.
Conoco's SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov." You can also obtain information about Conoco at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.

Conoco filed a registration statement on Form S-1 to register with the SEC
Conoco Class A and Class B common stock to be issued under Conoco Connection.
This document is a part of that registration statement. As allowed by SEC rules,
this document does not contain all the information you can find in the
registration statement or the exhibits to the registration statement.

You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is different. This
document is dated October 7, 1999. You should assume that the information
appearing in this document is accurate as of the date on the front cover of this
document only. The business, financial condition, results of operations and
prospects of Conoco may have changed since that date.

112
<PAGE> 114

CONOCO INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Consolidated Financial Statements

Report of Independent Accountants......................... F-2

Consolidated Statement of Income -- Years Ended December
31, 1998, 1997 and 1996................................ F-3

Consolidated Balance Sheet -- at December 31, 1998 and
1997................................................... F-4

Consolidated Statement of Stockholders' Equity/Owner's Net
Investment and Accumulated Other Comprehensive
Loss -- Years Ended December 31, 1998, 1997 and 1996... F-5

Consolidated Statement of Cash Flows -- Years Ended
December 31, 1998, 1997 and 1996....................... F-6

Notes to Consolidated Financial Statements................ F-7

Unaudited Financial Information

Supplemental Petroleum Data............................... F-38

Consolidated Quarterly Financial Data -- 1998 and 1997.... F-44

Interim Consolidated Financial Statements (Unaudited)

Consolidated Statement of Income -- Six Months Ended June
30, 1999 and 1998...................................... F-46

Consolidated Balance Sheet -- at June 30, 1999............ F-47

Consolidated Statement of Cash Flows -- Three Months Ended
June 30, 1999 and 1998................................. F-48

Notes to Interim Consolidated Financial Statements........ F-49
</TABLE>

Certain supplementary financial statement schedules have been omitted
because the information required to be set forth therein is either not
applicable or is shown in the financial statements or notes thereto.

F-1
<PAGE> 115

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and the Board of Directors of Conoco Inc.

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Conoco Inc. and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
of these statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Houston, Texas
February 15, 1999

F-2
<PAGE> 116

CONOCO INC.

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE)
<S> <C> <C> <C>
Revenues
Sales and Other Operating Revenues*............... $ 22,796 $ 25,796 $ 24,230
Other Income (Note 4)............................. 372 467 186
----------- ----------- -----------
Total Revenues............................ 23,168 26,263 24,416
----------- ----------- -----------
Costs and Expenses
Costs of Goods Sold and Other Operating
Expenses....................................... 13,840 16,226 14,560
Selling, General and Administrative Expenses...... 736 726 755
Stock Option Provision (Note 22).................. 236 -- --
Exploration Expenses.............................. 380 457 404
Depreciation, Depletion and Amortization.......... 1,113 1,179 1,085
Taxes Other Than on Income* (Note 5).............. 5,970 5,532 5,637
Interest and Debt Expense (Note 6)................ 199 36 74
----------- ----------- -----------
Total Costs and Expenses.................. 22,474 24,156 22,515
----------- ----------- -----------
Income Before Income Taxes.......................... 694 2,107 1,901
Provision for Income Taxes (Note 7)................. 244 1,010 1,038
----------- ----------- -----------
Net Income.......................................... $ 450 $ 1,097 $ 863
=========== =========== ===========
Earnings Per Share (Note 8)
Basic............................................. $ .95 $ 2.51 $ 1.98
Diluted........................................... $ .95 $ 2.51 $ 1.98
Weighted Average Shares Outstanding:
Class A**......................................... 37 -- --
Class B........................................... 437 437 437
----------- ----------- -----------
Total Basic............................... 474 437 437
Stock Options**................................... 1 -- --
----------- ----------- -----------
Total Diluted............................. 475 437 437
=========== =========== ===========
- ---------------
* Includes petroleum excise taxes.................. $ 5,801 $ 5,349 $ 5,461
** Earnings per share for the periods prior to the
Offerings was calculated using only Class B
Common Stock as required by SFAS 128 (see Note
8).
</TABLE>

See accompanying Notes to Consolidated Financial Statements

F-3
<PAGE> 117

CONOCO INC.

CONSOLIDATED BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31
------------------
1998 1997
------- -------
(IN MILLIONS)
<S> <C> <C>
Current Assets
Cash and Cash Equivalents................................. $ 394 $ 1,147
Marketable Securities..................................... -- 7
Accounts and Notes Receivable (Note 9).................... 1,191 1,497
Notes Receivable -- Related Parties (Note 3).............. -- 490
Inventories (Note 10)..................................... 807 830
Prepaid Expenses.......................................... 378 236
------- -------
Total Current Assets.............................. 2,770 4,207
Property, Plant and Equipment (Note 11)..................... 22,094 21,229
Less: Accumulated Depreciation, Depletion and
Amortization.............................................. (10,681) (10,401)
------- -------
Net Property, Plant and Equipment........................... 11,413 10,828
------- -------
Investment in Affiliates (Note 12).......................... 1,363 1,085
Long-Term Notes Receivable -- Related Parties (Note 3)...... -- 450
Other Assets (Note 13)...................................... 529 492
------- -------
Total............................................. $16,075 $17,062
======= =======
</TABLE>

<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY/OWNER'S NET INVESTMENT
<S> <C> <C>
Current Liabilities
Accounts Payable (Note 14)................................ $ 1,312 $ 1,090
Short-Term Borrowings -- Related Parties (Note 3)......... -- 644
Other Short-Term Borrowings and Capital Lease Obligations
(Note 15).............................................. 52 72
Income Taxes (Note 7)..................................... 199 545
Other Accrued Liabilities (Note 16)....................... 1,162 1,289
------- -------
Total Current Liabilities......................... 2,725 3,640
Long-Term Borrowings -- Related Parties (Note 3)............ 4,596 1,450
Other Long-Term Borrowings and Capital Lease Obligations
(Note 17)................................................. 93 106
Deferred Income Taxes (Note 7).............................. 1,714 1,739
Other Liabilities and Deferred Credits (Note 18)............ 2,200 1,922
------- -------
Total Liabilities................................. 11,328 8,857
------- -------
Commitments and Contingent Liabilities (Note 26)
Minority Interests (Note 19)................................ 309 309
Owner's Net Investment...................................... -- 8,087
Stockholders' Equity (Note 20)
Preferred Stock, $.01 par value:
250,000,000 shares authorized; none issued................ -- --
Class A Common Stock, $.01 par value:
3,000,000,000 shares authorized; 191,497,821 shares
issued................................................. 2 --
Class B Common Stock; $.01 par value:
1,600,000,000 shares authorized; 436,543,573 shares issued
and outstanding........................................ 4 --
Additional Paid-In Capital................................ 4,955 --
Accumulated Deficit....................................... (244) --
Accumulated Other Comprehensive Loss (Note 21)............ (274) (191)
Treasury Stock, at cost (249,863 Class A shares).......... (5) --
------- -------
Total Stockholders' Equity........................ 4,438 (191)
------- -------
Total Stockholders' Equity/Owner's Net
Investment....................................... 4,438 7,896
------- -------
Total............................................. $16,075 $17,062
======= =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements

F-4
<PAGE> 118

CONOCO INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY/OWNER'S NET
INVESTMENT AND ACCUMULATED OTHER COMPREHENSIVE LOSS
(NOTES 20 AND 21)

<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
OWNER'S NET COMMON PAID-IN ACCUMULATED COMPREHENSIVE COMPREHENSIVE TREASURY
INVESTMENT STOCK CAPITAL DEFICIT INCOME LOSS STOCK
----------- ------ ---------- ----------- ------------- ------------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996.............. $ 6,762 $ (8)
Comprehensive Income
Net Income......................... 863 $ 863
Other Comprehensive Income (Loss):
Foreign Currency Translation
Adjustment..................... (39)
Minimum Pension Liability
Adjustment..................... (10)
------
Other Comprehensive Loss....... (49) (49)
------
Comprehensive Income......... $ 814
======
Net Cash Contribution to Owner....... (993)
Other Transfer from Owner............ 4
------- -----
Balance December 31, 1996............ 6,636 (57)
Comprehensive Income
Net Income (Loss).................. 1,097 $1,097
Other Comprehensive Income (Loss):
Foreign Currency Translation
Adjustment..................... (121)
Minimum Pension Liability
Adjustment..................... (13)
------
Other Comprehensive Loss....... (134) (134)
------
Comprehensive Income......... $ 963
======
Net Cash Contribution from Owner..... 360
Other Transfers to Owner............. (6)
------- -----
Balance December 31, 1997............ 8,087 (191)
Comprehensive Income
Net Income (Loss).................. 694 $(244) $ 450
Other Comprehensive Income (Loss):
Foreign Currency Translation
Adjustment..................... (25)
Minimum Pension Liability
Adjustment..................... (58)
------
Other Comprehensive Loss....... (83) (83)
------
Comprehensive Income......... $ 367
======
Net Cash Contribution to Owner....... (512)
Dividends to Owner (Note 3).......... (8,200)
Other Transfers from Owner........... 433
Capitalization from Owner at
Offerings.......................... (502) $4 $ 498
Initial Public Offering.............. 2 4,226
Compensation Plans................... (5)
Treasury Stock Purchases............. $(5)
Stock Option Provision (Note 22)..... 236
------- -- ------ ----- ----- ---
Balance December 31, 1998............ $ -- $6 $4,955 $(244) $(274) $(5)
======= == ====== ===== ===== ===
</TABLE>

See accompanying Notes to Consolidated Financial Statements

F-5
<PAGE> 119

CONOCO INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1998 1997 1996
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash Provided by Operations
Net Income................................................ $ 450 $ 1,097 $ 863
Adjustments to Reconcile Net Income to Cash Provided by
Operations:
Depreciation, Depletion and Amortization............... 1,113 1,179 1,085
Dry Hole Costs and Impairment of Unproved Properties... 163 169 137
Stock Option Provision (Note 22)....................... 236 -- --
Inventory Write-down to Market (Note 10)............... 97 -- --
Deferred Income Taxes (Note 7)......................... (32) 16 10
Income Applicable to Minority Interests................ 21 24 19
Other Non-Cash Charges and Credits -- Net.............. (137) (271) 66
Decrease (Increase) in Operating Assets:
Accounts and Notes Receivable........................ 125 127 (280)
Inventories.......................................... (62) (79) 22
Other Operating Assets............................... (172) (96) 10
Increase (Decrease) in Operating Liabilities:
Accounts Payable and Other Operating Liabilities..... (85) 622 362
Accrued Interest and Income Taxes (Notes 6 and 7).... (344) 88 102
------- ------- -------
Cash Provided by Operations....................... 1,373 2,876 2,396
------- ------- -------
Investing Activities (Note 24)
Purchases of Property, Plant and Equipment................ (1,965) (2,644) (1,616)
Investments in Affiliates................................. (385) (339) (326)
Proceeds from Sales of Assets and Subsidiaries............ 721 565 328
Net Decrease (Increase) in Short-Term Financial
Instruments............................................ 31 381 (33)
------- ------- -------
Cash Used for Investing Activities................ (1,598) (2,037) (1,647)
------- ------- -------
Financing Activities
Short-Term Borrowings -- Receipts......................... -- 24 --
-- Payments..................... (26) (2) (90)
Other Long-Term Borrowings -- Receipts.................... -- 33 38
-- Payments............... (4) (3) (1)
Proceeds from Initial Public Offering (Notes 3 and 20).... 4,228 -- --
Treasury Stock Purchases.................................. (5) -- --
Transactions with Related Parties:
Notes Receivable -- Receipts........................... 444 9 402
-- Payments......................... (152) (617) (9)
Borrowings -- Receipts................................. 927 413 706
-- Payments................................ (5,434) (695) (520)
Net Cash Contribution From (To) Owner.................. (512) 360 (993)
Increase (Decrease) in Minority Interests (Note 19)....... (21) (21) 280
------- ------- -------
Cash Used for Financing Activities................ (555) (499) (187)
------- ------- -------
Effect of Exchange Rate Changes on Cash..................... 27 (39) (2)
------- ------- -------
Increase (Decrease) in Cash and Cash Equivalents............ (753) 301 560
Cash and Cash Equivalents at Beginning of Year.............. 1,147 846 286
------- ------- -------
Cash and Cash Equivalents at End of Year.................... $ 394 $ 1,147 $ 846
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Transactions with Related Parties (Note 3):
Dividends to Owner..................................... $(8,200)
Promissory Note Issued................................. 7,500
Notes Receivable Reduced............................... 700
Borrowings Contributed to Capital...................... (544)
-------
Total Non-Cash Financing Activities............... $ (544)
=======
</TABLE>

See accompanying Notes to Consolidated Financial Statements
F-6
<PAGE> 120

CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

1. BASIS OF PRESENTATION

Conoco Inc., including its consolidated subsidiaries, ("Conoco" or the
"Company") is an integrated, global energy company that is involved in the
Upstream and Downstream segments of the petroleum business. Activities of the
Upstream operating segment include exploring for, and developing, producing and
selling crude oil, natural gas and natural gas liquids. Activities of the
Downstream operating segment include refining crude oil and other feedstocks
into petroleum products, buying and selling crude oil and refined products and
transporting, distributing and marketing petroleum products. The Company has
four reporting segments for its Upstream and Downstream operating segments,
reflecting geographic division between the United States and International.
Corporate and Other includes general corporate expenses, financing costs and
other non-operating items, and results for electric power and related-party
insurance operations.

The initial public offering (the "Offerings") of the Class A Common Stock
of Conoco, a subsidiary of E.I. du Pont de Nemours and Company ("DuPont"),
commenced on October 21, 1998, and the Class A Common Stock began trading on the
New York Stock Exchange on October 22, 1998. The Offerings consisted of
191,456,427 shares of Class A Common Stock issued at a price of $23 per share,
and represented DuPont's first step in the planned divestiture of its entire
petroleum business. Through its ownership of 100% of the Company's Class B
Common Stock (436,543,573 shares), DuPont owned approximately 70% of the
Company's common stock representing approximately 92% of the combined voting
power of all classes of voting stock of the Company at December 31, 1998. The
holders of Class A Common Stock and Class B Common Stock generally have
identical rights, except that holders of Class A Common Stock are entitled to
one vote per share while holders of Class B Common Stock are entitled to five
votes per share on matters to be voted on by stockholders.

Effective at the time of the Offerings, Conoco's capital structure was
established and the transfer to Conoco of certain subsidiaries previously owned
by DuPont was substantially complete, resulting in direct ownership of those
subsidiaries. Accordingly, for periods subsequent to the Offerings, financial
information is presented on a consolidated basis.

Prior to the date of the Offerings, operations were conducted by Conoco
Inc., subsidiaries of Conoco Inc. and, in some cases, subsidiaries of DuPont.
The accompanying Consolidated Financial Statements for these periods are
presented on a carve-out basis prepared from DuPont's historical accounting
records, and include the historical operations of both entities owned by Conoco
and operations transferred to Conoco by DuPont at the time of the Offerings. In
this context, no direct ownership relationship existed among all the various
units comprising Conoco. Accordingly, DuPont and its subsidiaries' net
investment in Conoco ("Owner's Net Investment") is shown in lieu of
Stockholders' Equity in the Consolidated Financial Statements. Net Cash
Contributions from/to Owner prior to the Offerings include funds transferred
between Conoco and DuPont for operating needs, cash dividends paid and other
equity transactions.

The Consolidated Statement of Income includes all revenues and costs
directly attributable to Conoco, including costs for facilities, functions and
services used by Conoco at shared sites and costs for certain functions and
services performed by centralized DuPont organizations and directly charged to
Conoco based on usage. In addition, services performed by Conoco on DuPont's
behalf are directly charged to DuPont. The results of operations also include
allocations of DuPont's general corporate expenses through the date of the
Offerings.

Prior to the date of the Offerings, all charges and allocations of cost for
facilities, functions and services performed by DuPont organizations for Conoco
have been deemed to have been paid by Conoco to DuPont, in cash, in the period
in which the cost was recorded in the Consolidated Financial Statements.
Allocations of current income taxes receivable or payable are similarly deemed
to have been remitted, in cash, by or to DuPont in the period the related income
taxes were recorded. Subsequent to the Offerings,

F-7
<PAGE> 121
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

such costs are billed directly under transitional service agreements, and income
taxes are paid directly to the taxing authorities, or to DuPont, as appropriate.

All of the allocations and estimates in the Consolidated Financial
Statements are based on assumptions that management believes are reasonable
under the circumstances. However, these allocations and estimates are not
necessarily indicative of the costs and expenses that would have resulted if
Conoco had been operated as a separate entity for periods prior to the
Offerings.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The accounts of wholly owned and majority-owned subsidiaries are included
in the Consolidated Financial Statements. The equity method is used to account
for investments in corporate entities, partnerships and limited liability
companies in which the Company exerts significant influence, generally having a
20-50% ownership interest. The Company's 50.1 percent non-controlling interest
in Petrozuata C.A. in Venezuela is accounted for using the equity method because
the minority shareholder, a subsidiary of the national oil company of the
Republic of Venezuela, has substantive participating rights. Undivided interests
in oil and gas joint ventures and transportation assets are combined on a pro
rata basis. Other investments, excluding marketable securities, are carried at
cost.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and the disclosure of contingent assets and liabilities. Actual
results may differ from those estimates and assumptions.

Cash Equivalents

Cash equivalents represent investments with maturities of three months or
less from time of purchase. They are carried at cost plus accrued interest,
which approximates fair value.

Inventories

Inventories are carried at the lower of cost or market. Cost is determined
under the last-in, first-out ("LIFO") method for inventories of crude oil and
petroleum products. Cost for remaining inventories, principally materials and
supplies, is generally determined by the average cost method. Market is
determined on a regional basis and any lower of cost or market write-down is
recorded as a permanent adjustment to the cost of inventory.

Property, Plant and Equipment ("PP&E")

PP&E is carried at cost. Depreciation of PP&E, other than oil and gas
properties, is generally computed on a straight-line basis over the estimated
economic lives of the facilities, which for major assets range from 14 to 25
years. When assets that are part of a composite group are retired, sold,
abandoned or otherwise disposed of, the cost, net of sales proceeds or salvage
value, is charged against the accumulated reserve for depreciation, depletion
and amortization ("DD&A"). Where depreciation is accumulated for specific
assets, gains or losses on disposal are included in period income.

Maintenance and repairs are charged to expense; replacements and
improvements are capitalized.

Oil and Gas Properties

The Company follows the successful efforts method of accounting, under
which the costs of property acquisitions, successful exploratory wells,
development wells and related support equipment and facilities

F-8
<PAGE> 122
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

are capitalized. The costs of producing properties are amortized at the field
level on a unit-of-production method.

Unproved properties which are individually significant are periodically
assessed for impairment, whereas the impairment of individually insignificant
properties is provided by amortizing the costs based on past experience and the
estimated holding period. Exploratory well costs are expensed in the period the
well is determined to be unsuccessful. All other exploration costs, including
geological and geophysical costs, production costs and overhead costs, are
expensed in the period incurred.

The estimated costs of dismantlement and removal of oil and gas related
facilities are accrued over the properties' productive lives using the
unit-of-production method and recognized as a liability as the amortization
expense is recorded.

Impairment of Long-Lived Assets

Long-lived assets with recorded values that are not expected to be
recovered through future cash flows are written down to current fair value
through additional amortization or depreciation provisions. Fair value is
generally determined from estimated discounted future net cash flows. Upstream
properties are evaluated at the field level including both proved and
risk-adjusted unproved reserves.

Environmental Costs

Environmental expenditures are expensed or capitalized, as appropriate,
depending on their future economic benefit. Expenditures that relate to an
existing condition caused by past operations, and that do not have future
economic benefit, are expensed. Liabilities related to these future costs are
recorded on an undiscounted basis when environmental assessments and/or
remediation activities are probable and the costs can be reasonably estimated.

Stock Compensation

The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for stock options. Pro forma information regarding changes in net
income and earnings per share data if the accounting prescribed by Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", had been applied is presented in Note 22.

Income Taxes

The provision for income taxes has been determined using the asset and
liability approach of accounting for income taxes. Under this approach, deferred
taxes represent the future tax consequences expected to occur when the reported
amounts of assets and liabilities are recovered or paid. The provision for
income taxes represents income taxes paid or payable for the current year plus
the change in deferred taxes during the year. Deferred taxes result from
differences between the financial and tax bases of the Company's assets and
liabilities and are adjusted for changes in tax rates and tax laws when changes
are enacted. Valuation allowances are recorded to reduce deferred tax assets
when it is more likely than not that a tax benefit will not be realized.

Prior to the date of the Offerings, Conoco was included in the DuPont
consolidated tax return and the provision for income taxes was determined using
the loss benefit method. Under the loss benefit method, the current tax
provision or benefit is allocated based on the amount expected to be paid or
received from the consolidated group and benefits of losses and credit carry
forwards are recorded when such benefits are expected to be realized by members
of the consolidated group. The pro forma effect on the Consolidated

F-9
<PAGE> 123
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

Statement of Income reflecting the provision for income taxes on a separate
return basis prior to the Offerings is not material. For periods ending after
the Offerings, Conoco will file a separate tax return. Accordingly, for periods
subsequent to the Offerings, the provision for income taxes has been determined
on a separate tax return basis.

Provision has been made for income taxes on unremitted earnings of
subsidiaries and affiliates, except in cases in which earnings are deemed to be
permanently invested.

Foreign Currency Translation

Local currency is the functional currency for the Company's integrated
Western European petroleum operations. For subsidiaries whose functional
currency is the local currency, assets and liabilities denominated in local
currency are translated into United States dollars at end-of-period exchange
rates. The resultant translation adjustment is a component of Accumulated Other
Comprehensive Loss (see Note 21). Assets and liabilities denominated in other
than the local currency are remeasured into the local currency prior to
translation into United States dollars, and the resultant exchange gains or
losses, together with their related tax effects, are included in income in the
period in which they occur. Income and expenses are translated into United
States dollars at average exchange rates in effect during the period.

For subsidiaries where the United States dollar is the functional currency,
all foreign currency asset and liability amounts are remeasured into United
States dollars at end-of-period exchange rates, except for inventories, prepaid
expenses and property, plant and equipment, which are remeasured at historical
rates. Foreign currency income and expenses are remeasured at average exchange
rates in effect during the year, except for expenses related to balance sheet
amounts, which are remeasured at historical exchange rates. Exchange gains and
losses arising from remeasurement of foreign currency-denominated monetary
assets and liabilities are included in current period income.

Effective January 1, 1999, the Euro was adopted as the local currency by 11
countries participating in the European Economic and Monetary Union. For those
countries in which the Company operates, the Euro concurrently became the
functional currency.

Commodity Hedging and Trading Activities

The Company enters into energy-related futures, forwards, swaps, and
options in various markets to balance its physical systems, to meet customer
needs, and to manage its exposure to price fluctuations on anticipated crude
oil, natural gas, refined product and electric power transactions.

Under the Company's policy, hedging includes only those transactions that
offset physical positions and reduce overall Company exposure to price risk.
Trading is defined as any transaction that does not meet the definition of
hedging.

Gains and losses on hedging contracts are deferred and included in the
measurement of the related transaction. Changes in market values of trading
contracts are reflected in income in the period the change occurs.

In the event a derivative designated as a hedge is terminated prior to the
maturation of the hedged transaction, gains or losses realized at termination
are deferred and included in the measurement of the hedged transaction. If a
hedged transaction matures, is sold, extinguished or terminated prior to the
maturity of a derivative designated as a hedge of such transaction, gains or
losses associated with the derivative through the date the transaction matured
are included in the measurement of the hedged transaction and the derivative is
reclassified as for trading purposes. Derivatives designated as a hedge of

F-10
<PAGE> 124
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

an anticipated transaction are reclassified as for trading purposes if the
anticipated transaction is no longer likely to occur.

In the Consolidated Statement of Cash Flows, the Company reports the cash
flows resulting from its hedging activities in the same category as the related
item that is being hedged.

Recent Accounting Standards

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which the Company has adopted for the year ended December 31, 1998. This
standard requires disclosing segment information on the same basis used
internally for evaluating segment performance and deciding how to allocate
resources to segments. It also requires disclosure of revenue and long-lived
assets attributed to operations in individual countries outside the United
States for which such information is material. No substantive changes in segment
reporting resulted from this standard. The Company has four reporting segments
for its Upstream and Downstream operating segments, reflecting geographic
division between the United States and International. In addition, geographic
reporting changed with revenues and long-lived assets attributed to operations
in the United Kingdom, Germany and Norway disclosed separately.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
About Pensions and Other Postretirement Benefits," that revised disclosure
requirements for pension and other postretirement benefits. This statement did
not affect measurement of the expense of the Company's pension and other
postretirement benefits. The Company has adopted the disclosure requirements of
this Statement for the year ended December 31, 1998.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. SFAS No. 133 provides, if certain conditions
are met, that a derivative may be specifically designated as:

- a hedge of the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment (fair value hedge),

- a hedge of the exposure to variable cash flows of a forecasted transaction
(cash flow hedge), or

Under SFAS No. 133, the accounting for changes in fair value of a
derivative depends on its intended use and designation. For a fair value hedge,
the gain or loss is recognized in earnings in the period of change together with
the offsetting loss or gain on the hedged item. For a cash flow hedge, the
effective portion of the derivative's gain or loss is initially reported as a
component of other comprehensive income and subsequently reclassified into
earnings when the forecasted transaction affects earnings. For a foreign
currency hedge, the gain or loss is reported in other comprehensive income as
part of the cumulative translation adjustment. For all other items not
designated as hedging instruments, the gain or loss is recognized in earnings in
the period of change. The Company is required to adopt this Statement by the
first quarter of 2000 and is currently assessing its effect on the Consolidated
Financial Statements.

3. RELATED PARTY TRANSACTIONS

The Consolidated Financial Statements include significant transactions with
DuPont involving services (such as cash management, other financial services,
purchasing, legal, computer and corporate aviation)
F-11
<PAGE> 125
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

and general corporate expenses that were provided between Conoco and centralized
DuPont organizations. For periods prior to the Offerings, the costs of services
have been directly charged or allocated between Conoco and DuPont using methods
management believes are reasonable. These methods include negotiated usage
rates, dedicated asset assignment and proportionate corporate formulas involving
assets, revenues and employees. Such charges and allocations are not necessarily
indicative of what would have been incurred if Conoco had been a separate
entity.

Amounts charged and allocated to Conoco for these services were $121, $125
and $101 for the years 1998, 1997 and 1996, respectively, and are principally
included in Selling, General and Administrative Expenses. Conoco provided DuPont
services, such as computer, legal and purchasing, as well as certain technical
and plant operating services, which amounted to $61, $62 and $66 in 1998, 1997
and 1996, respectively. These charges to DuPont were treated as reductions, as
appropriate, of Cost of Goods Sold and Other Operating Expenses or Selling,
General and Administrative Expenses.

Interest expense charged by DuPont was $264, $124 and $143 for the years
1998, 1997 and 1996, respectively, and reflects market-based interest rates. A
portion of this and other interest and debt expense was capitalized as cost
associated with major construction projects. Interest income from DuPont was
$43, $11 and $57 for the same years and also reflects market-based interest
rates.

Sales and Other Operating Revenues include sales of products from Conoco to
DuPont, principally natural gas and gas liquids to supply several DuPont plant
sites. These sales totaled $427, $420 and $413 for the years 1998, 1997 and
1996, respectively. Also included are revenues from insurance premiums charged
to DuPont for property and casualty coverage outside the United States. These
revenues totaled $20, $22 and $21 for the years 1998, 1997 and 1996,
respectively. Purchases of products from DuPont during these periods were not
material.

Subsequent to the Offerings, these intercompany arrangements between DuPont
and Conoco, excluding insurance coverage provided to DuPont, are being provided
under transition service agreements or other long-term agreements. It is not
anticipated that a change, if any, in these costs and revenues would have a
material effect on the Company's results of operations or consolidated financial
position.

Accounts and Notes Receivable include amounts due from DuPont of $80 and
$79 at December 31, 1998 and 1997, respectively, representing current month
balances of transactions between Conoco and DuPont, mainly product sales and
certain charges billed annually. Accounts Payable include amounts due DuPont of
$52 and $4 at December 31, 1998 and 1997, respectively. Other Liabilities
include accrued interest of $51 due DuPont at December 31, 1998.

Amounts representing notes receivable or borrowings from DuPont, including
its subsidiary organizations, are identified as related parties and presented
separately in the Consolidated Balance Sheet. The current portion of Notes
Receivable represents the accumulation of a variety of cash transfers and
operating transactions with DuPont. These balances are generally interest
bearing and represent net amounts of cash transferred for funding and cash
management purposes and amounts charged between the companies for certain
product and service purchases. At December 31, 1997, the long-term portion of
Notes Receivable and amounts shown for Short-Term and Long-Term Borrowings
represent borrowings between Conoco and DuPont with established due dates at
market-based interest rates, except for certain short-term non-interest bearing
borrowings due DuPont of $492. At December 31, 1998, related balances only
reflected long-term borrowings due DuPont as further described.

In July 1998, a dividend was declared and paid by the Company in the form
of a promissory note (the "Note") to DuPont in the aggregate principal amount of
$7,500 bearing interest at a rate of 6.0125 percent per annum and due on January
2, 2000. The Note may be voluntarily prepaid without penalty or premium. The
Note also provides for mandatory prepayments in the event cash proceeds are
realized by
F-12
<PAGE> 126
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

the Company from the incurrence of indebtedness or the issuance of equity
securities by the Company or its subsidiaries. The Note includes certain
covenants and customary events of default, including failure to pay interest
when due, certain events of bankruptcy of the Company and change of control. The
consent of DuPont is also required prior to the Company entering into certain
transactions.

In September 1998, the Company declared a dividend of $700 paid through a
reduction of notes receivable from DuPont and further certain intercompany notes
were created.

The net proceeds from the Offerings referred to in Note 1 were $4,228,
after deducting the underwriting discounts and commissions payable by the
Company. The Company used these net proceeds to repay indebtedness owed to
DuPont or purchase a portion of the indebtedness owed by certain subsidiaries of
the Company to DuPont as follows:

(a) to pay accrued interest ($124) on the $7,500 Note and then to
repay principal ($2,654) on such Note to the extent necessary to reduce the
principal amount to $4,846;

(b) to purchase certain intercompany notes denominated in Norwegian
Kroner with an aggregate principal amount of approximately $461 after
conversion to U.S. dollars, together with accrued interest ($9);

(c) to pay accrued interest ($8) and a portion of the principal ($820)
on a certain other intercompany note to the extent necessary to reduce the
principal amount to $7;

(d) to pay a portion of the principal ($152) on an intercompany demand
note which reduced the outstanding balance to $52.

During 1998, DuPont made capital contributions of $544 to the Company
reflecting the retirement of certain non-interest bearing borrowings of $492 and
the remaining balance of $52 on the foregoing demand note.

Subsequent to the Offerings, the Company made an additional principal
payment of $257 on the Note reducing the outstanding balance to $4,589 at
December 31, 1998. Aggregate borrowings from related parties at December 31,
1998, totaled $4,596 and reflected a weighted average interest rate of 6.0
percent with maturity on January 2, 2000.

On October 27, 1998, the Company and DuPont entered into a revolving credit
agreement under which DuPont will provide the Company with a revolving credit
facility in principal amount of up to $500. Loans under the revolving credit
agreement will be subject to mandatory repayment to the extent the Company's
cash and cash equivalents exceed $325 or such higher amount as the Company and
DuPont may agree. Loans under this facility bear interest at a rate equal to
30-day LIBOR plus 0.20 percent per annum and may be voluntarily prepaid without
penalty or premium. There was no outstanding debt under this facility on
December 31, 1998.

The Company is obligated to repay all outstanding debt owed to DuPont at
such time as DuPont's direct or indirect voting power in the Company falls below
50 percent of the outstanding voting power of the Company. The Company intends
to refinance outstanding related party debt owed to DuPont with a combination of
commercial paper and public debt in 1999.

F-13
<PAGE> 127
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

4. OTHER INCOME

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest income
Related parties (see Note 3).............................. $ 43 $ 11 $ 57
Other, net of miscellaneous interest expense.............. 46 66 67
---- ---- ----
89 77 124
Equity in earnings of affiliates (see Note 12).............. 22(1) 40 (25)
Gain on sales of assets(2).................................. 206 314 84
Exchange gain (loss)........................................ 51 27 (5)
Other -- net................................................ 4 9 8
---- ---- ----
$372 $467 $186
==== ==== ====
</TABLE>

- ---------------

(1) Includes a $5 charge for write-down of inventories to market in accordance
with the Company's inventory valuation policy (see Note 2).

(2) 1998 includes a gain of $89 from sale of certain Upstream properties in the
North Sea and the United States. 1997 includes a gain of $239 from sale of
certain Upstream properties in the North Sea.

5. TAXES OTHER THAN ON INCOME

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Petroleum excise taxes
U.S...................................................... $1,286 $1,201 $1,145
Non-U.S.................................................. 4,515 4,148 4,316
------ ------ ------
5,801 5,349 5,461
Payroll taxes.............................................. 42 43 48
Property taxes............................................. 64 63 55
Production and other taxes................................. 63 77 73
------ ------ ------
$5,970 $5,532 $5,637
====== ====== ======
</TABLE>

6. INTEREST AND DEBT EXPENSE

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest and debt cost incurred
Related parties (see Note 3).............................. $264 $124 $143
Other..................................................... 7 6 6
---- ---- ----
271 130 149
Less: Interest and debt cost capitalized.................... 72 94 75
---- ---- ----
Interest and debt expense................................... $199 $ 36 $ 74
==== ==== ====
</TABLE>

Interest paid (net of amounts capitalized) was $145 in 1998, $33 in 1997
and $77 in 1996.

F-14
<PAGE> 128
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

7. PROVISION FOR INCOME TAXES

<TABLE>
<CAPTION>
1998 1997 1996
---- ------ ------
<S> <C> <C> <C>
Current tax expense
U.S. federal............................................ $(57) $ 64 $ 155
U.S. state and local.................................... 10 5 8
Non-U.S. ............................................... 323 925 865
---- ------ ------
Total........................................... 276 994 1,028
---- ------ ------
Deferred tax expense
U.S. federal............................................ (51) 80 (78)
U.S. state and local.................................... (5) 8 --
Non-U.S. ............................................... 24 (72) 88
---- ------ ------
Total........................................... (32) 16 10
---- ------ ------
Provision for Income Taxes................................ 244 1,010 1,038
Foreign Currency Translation(1)........................... (22) -- --
Minimum Pension Liability(1).............................. (26) (7) (5)
---- ------ ------
Total Provision................................. $196 $1,003 $1,033
==== ====== ======
</TABLE>

- ---------------

(1) Represents respective deferred tax provisions for adjustments included in
other comprehensive loss (see Note 21).

Total income taxes paid worldwide were $714 in 1998, $935 in 1997 and $901
in 1996.

The significant components of deferred tax assets and liabilities at
December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
ASSET LIABILITY ASSET LIABILITY
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Property, plant and equipment....................... $ 233 $2,296 $ 182 $2,219
Employee benefits................................... 247 -- 166 --
Other accrued expenses.............................. 237 -- 273 --
Inventories......................................... -- 90 -- 102
Tax loss/tax credit carry forwards.................. 496 -- 417 --
Other............................................... 25 188 27 169
------ ------ ------ ------
Total..................................... $1,238 $2,574 $1,065 $2,490
====== ======
Valuation allowances................................ (423) (392)
------ ------
Net....................................... $ 815 $ 673
====== ======
</TABLE>

Valuation allowances, which reduce deferred tax assets to an amount that
will more likely than not be realized, increased $31 in 1998, primarily
reflecting increases in tax assets representing operating losses incurred in
exploration and start-up operations. Valuation allowances decreased by $22 in
1997, principally reflecting a $37 decrease related to tax assets representing
operating losses which the Company determined will more likely than not be
realized in future years. This decrease was partially offset by an increase of
$15 reflecting offsets to operating losses. Valuation allowances in 1996
increased by $52 to offset increases in deferred tax assets resulting primarily
from operating losses incurred in exploration and start-up operations.

F-15
<PAGE> 129
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

Under the tax laws of various jurisdictions in which the Company operates,
deductions or credits that cannot be fully utilized for tax purposes during the
current year may be carried forward, subject to statutory limitations, to reduce
taxable income or taxes payable in a future year. At December 31, 1998, the tax
effect of such carry forwards approximated $496. Of this amount, $312 has no
expiration date, $3 expires in 1999, $5 expires in 2000, $75 expires in 2001,
$46 expires in 2002, and $55 expires in 2003 and later years.

Current deferred tax liabilities (included in the Consolidated Balance
Sheet caption "Income Taxes") were $76 and $122 at December 31, 1998 and 1997,
respectively.

Current deferred tax assets included in Prepaid Expenses were $7 at
December 31, 1997. In addition, Other Assets includes deferred tax assets of $31
and $37 at December 31, 1998 and 1997, respectively.

An analysis of the Company's effective income tax rate follows:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal income tax rate..................... 35.0% 35.0% 35.0%
Higher effective tax rate on non-U.S. operations........... 7.8 13.9 21.6
Alternative fuels credit................................... (8.2) (3.0) (3.4)
Reduced tax benefit from Stock Option Provision............ 4.9 -- --
Realization of unbenefited loss from sale of subsidiary.... (4.6) -- --
Other -- net............................................... 0.3 2.0 1.4
---- ---- ----
Effective income tax rate.................................. 35.2% 47.9% 54.6%
==== ==== ====
</TABLE>

Earnings before income taxes shown below are based on the location of the
corporate unit to which such earnings are attributable. However, since such
earnings are often subject to taxation in more than one country, the income tax
provision shown above as U.S. or non-U.S. does not correspond to the earnings
set forth below.

At December 31, 1998 and 1997, respectively, unremitted earnings of
non-U.S. subsidiaries totaling $1,536 and $1,645 were deemed to be permanently
invested. No deferred tax liability has been recognized with regard to the
remittance of such earnings. It is not practicable to estimate the income tax
liability that might be incurred if such earnings were remitted to the United
States.

8. EARNINGS PER SHARE

Basic earnings per share (EPS) is computed by dividing net income (the
numerator) by the weighted average number of common shares outstanding plus the
effects of award and fee deferrals that are invested in Conoco stock units by
certain employees and directors of the Company (the denominator). Diluted EPS is
similarly computed, except that the denominator is increased to include the
dilutive effects of outstanding stock options awarded under Conoco's
compensation plans (see Note 22).

As described in Note 1, the Company's capital structure was established at
the time of the Offerings. In accordance with SEC Staff Accounting Bulletin No.
98, the capitalization of Class B Common Stock has been retroactively reflected
for the purposes of presenting earnings per share for periods prior to the

F-16
<PAGE> 130
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

Offerings. For the period subsequent to the Offerings, basic EPS reflects the
Class B Common Stock plus the weighted average from the date of the Offerings of
Class A Common Stock and deferred award units outstanding at the date of the
Offerings. Corresponding diluted EPS for 1998 includes an additional 1,659,816
shares representing the weight average dilutive effect of outstanding stock
options that resulted from the concurrent cancellation of DuPont stock options
at the date of the Offerings and issuance of options with respect to Class A
Common Stock.

The denominator is based on the following weighted average number of common
shares outstanding:

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Basic......................................... 473,826,632 436,543,573 436,543,573
Diluted....................................... 475,486,448 436,543,573 436,543,573
</TABLE>

Variable stock options for 1,724,146 shares of common stock were
outstanding at December 31, 1998, but were not included in the computation of
diluted EPS since the threshold price of $32.88 required for these options to be
vested had not been reached.

Common shares held as Treasury Stock are deducted in determining the number
of shares outstanding.

9. ACCOUNTS AND NOTES RECEIVABLE

<TABLE>
<CAPTION>
DECEMBER 31
---------------
1998 1997
------ ------
<S> <C> <C>
Trade....................................................... $ 805 $ 916
Related parties (see Note 3)................................ 80 79
Other....................................................... 306 502
------ ------
$1,191 $1,497
====== ======
</TABLE>

See Note 27 for a description of operating segment markets and associated
concentrations of credit risk.

10. INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1998 1997
------- -------
<S> <C> <C>
Crude oil and petroleum products............................ $ 661 $ 675
Other merchandise........................................... 22 25
Materials and supplies...................................... 124 130
------- -------
$ 807 $ 830
======= =======
</TABLE>

As a result of reduced crude oil and petroleum product price levels, a
write-down to market of $97 was made in the fourth quarter of 1998, in
accordance with the Company's inventory valuation policy (see Note 2). At
December 31, 1997, the excess of market over book value of inventories valued
under the LIFO method was $152. Inventories valued at LIFO represented 82
percent and 81 percent of consolidated inventories at December 31, 1998 and
1997, respectively.

During 1998, 1997 and 1996, certain LIFO inventory quantities were reduced
resulting in partial liquidation of the LIFO bases, with no material effect on
net income.

F-17
<PAGE> 131
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

11. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
GROSS NET
----------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Oil and Gas Properties
Unproved............................................. $ 1,159 $ 1,491 $ 942 $ 1,230
Proved............................................... 13,488 12,420 6,236 5,480
Other.................................................. 1,280 1,316 845 871
------- ------- ------- -------
Total Upstream............................... 15,927 15,227 8,023 7,581
Refining............................................... 3,834 3,803 1,958 1,952
Marketing and Distribution............................. 2,255 2,199 1,375 1,295
------- ------- ------- -------
Total Downstream............................. 6,089 6,002 3,333 3,247
Corporate(1)........................................... 78 -- 57 --
------- ------- ------- -------
$22,094 $21,229 $11,413 $10,828
======= ======= ======= =======
</TABLE>

- ---------------

(1) Includes aviation investment transferred from DuPont in 1998 and corporate
software.

Property, Plant and Equipment includes Downstream gross assets acquired
under capital leases of $41 at December 31, 1998 and 1997; related amounts
included in Accumulated Depreciation, Depletion and Amortization were $12 and
$10 at December 31, 1998 and 1997, respectively.

12. SUMMARIZED FINANCIAL INFORMATION FOR AFFILIATED COMPANIES

Summarized consolidated financial information for affiliated companies for
which Conoco uses the equity method of accounting (see Note 2, "Basis of
Consolidation") is shown below on a 100 percent basis. The most significant of
these affiliates are Malaysia Refining Company Sdn. Bhd. (40%), Petrozuata C.A.
(50.1% -- see Note 2), CFJ Properties (50%), Pocahontas Gas Partnership (50%),
Excel Paralubes (50%), Polar Lights Company (50%), and Ceska Rafinerska a.s.
(16.33%).

Dividends received from equity affiliates were $105 in 1998, $58 in 1997
and $85 in 1996.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
RESULTS OF OPERATIONS
Sales(1)................................................... $6,744 $7,521 $6,622
Earnings before income taxes............................... 358 556 305
Net income................................................. 252 345 140
Conoco's equity in earnings of affiliates (see Note 4)..... 22 40 (25)
</TABLE>

- ---------------

(1) Includes sales to Conoco of $574 in 1998, $568 in 1997 and $359 in 1996.

F-18
<PAGE> 132
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

<TABLE>
<CAPTION>
DECEMBER 31
----------------
1998 1997
------- ------
<S> <C> <C>
FINANCIAL POSITION
Current assets.............................................. $ 2,771 $2,543
Non-current assets.......................................... 8,682 6,826
------- ------
Total assets...................................... $11,453 $9,369
------- ------
Short-term borrowings(1).................................... $ 897 $ 550
Other current liabilities................................... 1,650 1,308
Long-term borrowings(1)..................................... 4,743 4,364
Other long-term liabilities................................. 1,119 645
------- ------
Total liabilities................................. $ 8,409 $6,867
------- ------
Conoco's investment in affiliates (includes advances)....... $ 1,363 $1,085
======= ======
</TABLE>

- ---------------

(1) Conoco's pro rata interest in total borrowings was $1,828 in 1998 and $1,586
in 1997, of which $967 in 1998 and $826 in 1997 were guaranteed by the
Company or DuPont, on behalf of, and indemnified by, the Company. These
amounts are included in the guarantees disclosed in Note 26.

At December 31, 1998, Conoco's equity in undistributed earnings of its
affiliated companies was $114.

13. OTHER ASSETS

<TABLE>
<CAPTION>
DECEMBER 31
----------------
1998 1997
------- ------
<S> <C> <C>
Prepaid pension cost (see Note 23).......................... $ 50 $ 71
Long-term receivables....................................... 71 74
Other securities and investments(1)......................... 116 100
Deferred pension transition obligation (see Note 23)........ 109 116
Other(2).................................................... 183 131
------- ------
$ 529 $ 492
======= ======
</TABLE>

- ---------------

(1) Includes $74 and $97 at December 31, 1998 and 1997, respectively,
representing marketable securities classified as available for sale and
reported at fair value. The remainder represents investments which are
reported at cost.

(2) Includes intangible assets of $14 and $15 at December 31, 1998 and 1997,
respectively.

14. ACCOUNTS PAYABLE

<TABLE>
<CAPTION>
DECEMBER 31
----------------
1998 1997
------ ------
<S> <C> <C>
Trade....................................................... $ 906 $ 969
Payables to banks........................................... 124 85
Related parties (see Note 3)................................ 52 4
Other....................................................... 230(1) 32
------ ------
$1,312 $1,090
====== ======
</TABLE>

- ---------------

(1) Includes $158 for property acquisitions.

F-19
<PAGE> 133
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

Payables to banks represent checks issued on certain disbursement accounts
but not presented to the banks for payment.

15. OTHER SHORT-TERM BORROWINGS AND CAPITAL LEASE OBLIGATIONS

<TABLE>
<CAPTION>
DECEMBER 31
---------------
1998 1997
------ ------
<S> <C> <C>
Industrial development bonds................................ $ 24 $ 24
Bank borrowings (foreign currency).......................... -- 21
Long-term borrowings payable within one year................ 26 25
Capital lease obligations................................... 2 2
------ ------
$ 52 $ 72
====== ======
</TABLE>

The Company has uncommitted short-term bank credit lines of approximately
$122 and $42 at December 31, 1998 and 1997, respectively. These lines are
denominated in United States dollars or various foreign currencies to support
general international operating needs. No significant advances were outstanding
under these lines at these respective dates.

The weighted average interest rate on other short-term borrowings
outstanding at December 31, 1998 and 1997, was 3.8 percent and 3.7 percent,
respectively.

16. OTHER ACCRUED LIABILITIES

<TABLE>
<CAPTION>
DECEMBER 31
---------------
1998 1997
------ ------
<S> <C> <C>
Taxes other than on income.................................. $ 354 $ 376
Operating expenses.......................................... 293 343
Payroll and other employee-related costs.................... 102 135
Restructuring costs(1)...................................... 82 --
Accrued postretirement benefits cost (see Note 23).......... 18 24
Other....................................................... 313 411
------ ------
$1,162 $1,289
====== ======
</TABLE>

- ---------------

(1) In December 1998, Conoco announced that as a result of a comprehensive
review of its assets and long-term strategy, Conoco was making
organizational realignments consistent with furthering the efficiency of
operations and taking advantage of synergies created by the upgrading of its
asset portfolio. The announced plans are being implemented in 1999 and will
result in a reduction of approximately 775 Upstream positions and 200
Downstream positions worldwide. About 75 percent of the Upstream positions
and about 50 percent of the Downstream positions affected will be in the
United States. These reductions largely reflect the elimination of
redundancies at all levels resulting from past and ongoing consolidation of
assets into operations requiring less employee support, as well as better
sharing of common services and functions across regions. Associated with
these announcements, Conoco recorded a charge of $82 pre-tax, or $52
after-tax, nearly all of which represents termination payments and related
employee benefits to be made to persons affected. The restructuring charge,
on a pre-tax basis, consisted of $31 for Upstream U.S., $36 for Upstream
International, $8 for Downstream U.S. and $7 for International Downstream.
At December 31, 1998, no persons left Conoco under implementation of these
realignment plans, and no payments had been made. Conoco expects the
restructuring efforts will be completed by year-end 1999.

F-20
<PAGE> 134
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

17. OTHER LONG-TERM BORROWINGS AND CAPITAL LEASE OBLIGATIONS

<TABLE>
<CAPTION>
DECEMBER 31
---------------
1998 1997
------ ------
<S> <C> <C>
5.75% notes due 2026........................................ $ 16 $ 16
6.50% notes due 2008........................................ 7 7
Other loans (various currencies) due 1999-2007(1)........... 29 30
Capitalization obligation to affiliate due 2008............. 11 --
Capitalization obligation to affiliate due 1999............. -- 20
Capital lease obligations................................... 30 33
------ ------
$ 93 $ 106
====== ======
</TABLE>

- ---------------

(1) Weighted average interest rates were 7.3 percent at December 31, 1998 and
1997, respectively.

Maturities of long-term borrowings, together with sinking fund requirements
for years ending after December 31, 1999, are $4 for each of the years 2000,
2001, 2002 and 2003.

18. OTHER LIABILITIES AND DEFERRED CREDITS

<TABLE>
<CAPTION>
DECEMBER 31
---------------
1998 1997
------ ------
<S> <C> <C>
Deferred gas revenue........................................ $ 371 $ 379(1)
Accrued postretirement benefits cost (see Note 23).......... 331 318
Accrued pension liability (see Note 23)..................... 320 230
Abandonment costs........................................... 297 310
Environmental remediation costs (see Note 26)............... 117 132
Related parties (see Note 3)................................ 51 --
Other....................................................... 713 553
------ ------
$2,200 $1,922
====== ======
</TABLE>

- ---------------

(1) 1997 includes $303 received from a contract for future sales of natural gas
to Centrica, a United Kingdom gas marketing company.

19. MINORITY INTERESTS

In 1996, certain upstream subsidiaries contributed assets with an aggregate
fair value of $613 to Conoco Oil & Gas Associates L.P. (COGA) for a general
partnership interest of 67 percent. The remaining 33 percent was purchased by
Vanguard Energy Investors L.P. (Vanguard) as a limited partner. The net result
of this transaction was to increase minority interests by $297.

Vanguard is entitled to a cumulative annual priority return on its
investment and participation in residual earnings at rates established in the
partnership agreement. The priority return rate, currently 6.52 percent, is
scheduled to be renegotiated in the second half of 1999. In the event the
parties are unable to agree on a new return rate, Vanguard has the option to
call for liquidation of the partnership, which could take place before December
31, 1999. Cash outflows arising from such liquidation should not be materially
different from the recorded amount of minority interest.

Vanguard's share of COGA's earnings was $22 or 25 percent in 1998 and $22
or 18 percent in 1997; the net minority interest in COGA held by Vanguard was
$302 and $301 on December 31, 1998 and 1997, respectively.

F-21
<PAGE> 135
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

20. STOCKHOLDERS' EQUITY

As described in Note 1, the Company's capital structure was established at
the time of the Offerings in October 1998.

At December 31, 1998, 4,600,000,000 shares of Class A and Class B Common
Stock were authorized and 628,041,394 shares were issued, including 249,863
Class A shares held in the treasury. A summary of activity in common shares
outstanding for the year 1998 is presented below:

<TABLE>
<CAPTION>
CLASS A CLASS B TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Issued in connection with the initial public
offering of Class A shares and recapitalization
of DuPont ownership (Class B shares)........... 191,456,427 436,543,573 628,000,000
Purchase of shares for treasury (to offset
dilution from issuances under compensation
plans)......................................... (250,000) -- (250,000)
Issued on exercise of stock options (including
137 from treasury)............................. 41,531 -- 41,531
----------- ----------- -----------
Common Shares Outstanding -- December 31, 1998... 191,247,958 436,543,573 627,791,531
=========== =========== ===========
</TABLE>

At December 31, 1998, 250,000,000 shares of Preferred Stock were
authorized, of which 1,000,000 shares were designated Series A Junior
Participating Preferred Stock and reserved for issuance on exercise of preferred
stock purchase rights under the Company's Share Purchase Rights Plan. Each
issued share of Class A and Class B Common Stock has one preferred stock
purchase Right attached to it. No preferred shares have been issued and the
Rights are not currently exercisable.

Net proceeds received from the Offerings totaled $4,228, after deduction
for underwriting discounts and commissions payable by the Company, and were used
to reduce indebtedness owed to DuPont (see Note 3). In addition, Additional
Paid-In Capital was increased by $236 during 1998 as a result of a corresponding
non-cash charge to compensation expense associated with changes in certain
outstanding compensation awards made at the time of the Offerings (see Note 22).

The Company declared a first quarter cash dividend on January 27, 1999, of
$.14 per share on each outstanding share of Class A Common Stock and Class B
Common Stock, payable March 12, 1999 to stockholders of record as of February
12, 1999. This initial dividend was determined on a pro rata basis covering the
period from October 27, 1998 to December 31, 1998, and is equivalent to $.19 per
share for a full quarter.

21. ACCUMULATED OTHER COMPREHENSIVE LOSS

Balances of related after-tax components comprising Accumulated Other
Comprehensive Loss are summarized below:

<TABLE>
<CAPTION>
DECEMBER 31
-------------
1998 1997
----- -----
<S> <C> <C>
Foreign Currency Translation Adjustment..................... $(185) $(160)
Minimum Pension Liability Adjustment (see Note 23).......... (89) (31)
----- -----
$(274) $(191)
===== =====
</TABLE>

F-22
<PAGE> 136
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

Changes in related components of other comprehensive income (loss) are
reported net of associated income tax effects as summarized below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------
1998 1997 1996
------------------------ ------------------------ ------------------------
INCOME AFTER- INCOME AFTER- INCOME AFTER-
PRETAX TAX TAX PRETAX TAX TAX PRETAX TAX TAX
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign Currency Translation
Adjustment............................. $ (47) $(22) $(25) $(121) $-- $(121) $(39) $-- $(39)
Minimum Pension Liability Adjustment..... (84) (26) (58) (20) (7) (13) (15) (5) (10)
----- ---- ---- ----- --- ----- ---- --- ----
Other Comprehensive Income (Loss)........ $(131) $(48) $(83) $(141) $(7) $(134) $(54) $(5) $(49)
===== ==== ==== ===== === ===== ==== === ====
</TABLE>

22. COMPENSATION PLANS

Until the date of the Offerings, employees of Conoco participated in
stock-based compensation plans administered through DuPont and involving options
to acquire DuPont common stock. At the time of the Offerings, Conoco employees
held a total of 10,964,917 stock options for DuPont common stock and 1,333,135
stock appreciation rights (SARs) with respect to DuPont common stock, and the
Company gave those persons the option, subject to specific country tax and legal
requirements, to participate in a program involving the cancellation of all or
part of their DuPont stock options or SARs and the issuance by the Company, upon
such cancellation, of comparable options to acquire Class A Common Stock or SARs
with respect to Class A Common Stock. The substitute stock options and other
awards have the same vesting provisions, option periods and other terms and
conditions as the DuPont options and awards they replaced. The substitute stock
options had the same ratio of the exercise price per share to the market value
per share, and the same aggregated difference between market value and exercise
price, as the DuPont stock options. A total of 8,921,508 DuPont stock options
and 745,358 DuPont SARs were cancelled with Conoco issuing 24,275,690 stock
options for Class A Common Stock and 2,279,834 SARs with respect to Class A
Common Stock with comparable terms and conditions. The program was deemed a
change in the terms of certain awards granted to Conoco employees. As a result,
the Company incurred a non-cash charge to compensation expense of $236 in the
fourth quarter of 1998, with a corresponding increase in Additional Paid-In
Capital. DuPont retained responsibility for delivery of DuPont common stock to
Conoco employees when DuPont stock options not cancelled are exercised.

AWARDS UNDER DUPONT PLANS

Stock option awards under the DuPont Stock Performance Plan were granted to
key employees of the Company prior to the Offerings and were "fixed" and/or
"variable". The purchase price of shares subject to option is the market price
of DuPont stock at the date of grant. In January 1997, a reload feature was
added to the Stock Performance Plan to accelerate stock ownership. Generally,
fixed options granted under the DuPont Stock Performance Plan are fully
exercisable one year after date of grant and expire ten years from date of
grant. However, awards in 1998 vest over a three-year period and, except for the
last six months of the ten-year option term, are exercisable when the market
price of DuPont common stock exceeds the option grant price by 20 percent.

During 1997, variable stock option grants were made to certain senior
management and subject to forfeiture if, within five years from the date of
grant, the market price of DuPont common stock did not achieve a price of $75
per share for 50 percent of the options and $90 per share for the remaining 50
percent. During 1998, before the Offerings, the $75 price was reached and
options with that hurdle became "fixed" and exercisable. All of the outstanding
variable DuPont options with a $90 per share hurdle price at the time of the
Offerings were cancelled and substituted with options for Conoco Class A Common
Stock with a hurdle price of $32.88 per share.

F-23
<PAGE> 137
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

From time to time, the DuPont Board of Directors has approved the adoption
of a worldwide Corporate Sharing Program. Under these programs, a majority of
the Company's employees received a one-time grant to acquire shares of DuPont
common stock at the fair market value at the date of grant. Option terms are
"fixed" and generally are exercisable one year after date of grant and expire
ten years from date of grant.

AWARDS UNDER CONOCO PLANS

The 1998 Stock and Performance Incentive Plan provides incentives to
certain corporate officers, non-employee directors and independent contractors
who can contribute materially to the success and profitability of the Company
and its subsidiaries and provides for substitution of certain existing DuPont
awards in connection with the Offerings. Awards may be in the form of cash,
stock, stock options or SARs with respect to Class A Common Stock. This plan
also provides for the Conoco Global Variable Compensation Plan, which is an
annual management incentive program for officers and certain non-officer
employees with awards made in cash and stock. Stock options and SARs granted
under the 1998 Stock and Performance Incentive Plan (except those granted to
substitute for DuPont awards) are awarded at market price on the date of grant,
have a ten year life, and generally vest one year from date of grant with
one-third becoming exercisable each of the first three years. For certain senior
management, shares otherwise receivable from the exercise of nonqualified
options with respect to Class A Common Stock granted under the 1998 Stock and
Performance Incentive Plan of Conoco to substitute for cancelled 1998 DuPont
stock options, as well as incremental new Conoco stock options granted at the
date of the Offerings, can be deferred as stock units for a designated future
delivery. The maximum number of shares of common stock and stock options granted
under the plan is limited to the higher of 20 million or 3.3 percent of
outstanding shares of Class A and Class B Common Stock. Awards made in
substitution for DuPont awards do not count against the number of shares
available under the plan. At December 31, 1998, 16,850,266 shares of Class A
Common Stock were available for issuance under the plan.

The Company adopted the 1998 Key Employee Stock Performance Plan to attract
and retain employees by enhancing the proprietary and personal interests of
employees in the success and profitability of the Company and to grant some
awards in substitution for certain existing DuPont awards in connection with the
Offerings. Awards to employees may be in the form of Company stock options or
SARs, both with respect to Class A Common Stock. Such awards granted under this
plan (except to substitute for DuPont awards) are awarded at market price on the
date of grant, have a ten year life, and generally vest one year from date of
grant with one-third becoming exercisable each of the first three years. The
maximum number of shares of common stock and stock options granted under the
plan is limited to the higher of 18 million or three percent of outstanding
Class A and Class B Common Stock. Awards made in substitution for DuPont awards
do not count against the number of shares available under the plan. At December
31, 1998, 14,484,936 shares of Class A Common Stock were available for issuance
under the plan.

Persons electing to substitute Conoco stock options with respect to Class A
Common Stock for DuPont stock options and persons receiving incremental new
Conoco stock options with respect to Class A Common Stock at the date of the
Offerings under the 1998 Stock and Performance Incentive Plan and the 1998 Key
Employee Stock Performance Plan are eligible for reload options upon the
exercise of stock options, with the condition that shares received from the
exercise of the original option may not be sold for at least two years. Reloads
are granted at the market price on the reload grant date and have a term equal
to the remaining term of the original option. The number of new options granted
under a reload option is equal to the number of shares required to satisfy the
total exercise price of the original option.

F-24
<PAGE> 138
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

The 1998 Global Performance Sharing Plan is a broad-based plan under which
grants of stock options and SARs with respect to Class A Common Stock were made
to certain non-officer employees on the date of the Offerings to encourage a
sense of proprietorship and an active interest in the financial success of
Conoco and its subsidiaries. The stock options and SARs were awarded at the
price of the Offerings ($23 per share), have a ten year life, and become
exercisable in one-third increments on the first, second and third anniversaries
of the grant date. There are no additional shares available for issuance under
this plan.

All stock options granted under Conoco plans are "fixed" and have no
intrinsic value at grant date except for those granted to substitute for
cancelled DuPont options. Accordingly, except for the fourth quarter 1998 charge
related to the one-time offer to cancel DuPont options and substitute Conoco
options, no compensation expense has been recognized for fixed options.

The following table summarizes activity for fixed and variable options for
the last three years:

<TABLE>
<CAPTION>
FIXED VARIABLE
---------------------- ---------------------
NUMBER WEIGHTED- NUMBER WEIGHTED-
OF AVERAGE OF AVERAGE
SHARES PRICE SHARES PRICE
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
DUPONT OPTIONS
January 1, 1996.................................. 7,811,547 $24.27 -- --
Granted........................................ 1,140,780 39.20 -- --
Exercised...................................... (1,781,277) 23.33 -- --
Forfeited...................................... (95,330) 26.38 -- --
---------- ------ --------- ------
December 31, 1996................................ 7,075,720 $26.88 -- --
Granted........................................ 2,761,416 52.90 1,259,600 $52.50
Exercised...................................... (730,383) 23.97 -- --
Forfeited...................................... (116,325) 50.44 -- --
---------- ------ --------- ------
December 31, 1997................................ 8,990,428 $35.14 1,259,600 $52.50
Granted........................................ 1,241,055 59.53 -- --
Reclassified................................... 629,800 52.50 (629,800) 52.50
Exercised...................................... (460,314) 24.64 -- --
Forfeited...................................... (65,852) 50.68 -- --
---------- ------ --------- ------
October 21, 1998 (Offerings date)................ 10,335,117 $39.50 629,800 $52.50
Cancelled for Conoco options................... (8,291,708) (629,800)
---------- ---------
Retained by DuPont............................. 2,043,409 --
CONOCO OPTIONS
Granted at Offerings date:
For cancelled DuPont options................... 22,551,544 $14.62 1,724,146 $19.18
New awards..................................... 9,721,750 23.00 -- --
Exercised........................................ (41,531) 14.18 -- --
Forfeited........................................ (53,840) 23.00 -- --
---------- ------ --------- ------
December 31, 1998................................ 32,177,923 $17.14 1,724,146 $19.18
</TABLE>

F-25
<PAGE> 139
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

The following table summarizes information concerning outstanding and
exercisable fixed Conoco options at December 31, 1998. For total variable
options outstanding at December 31, 1998, the weighted-average remaining
contractual life was 3.1 years.

<TABLE>
<CAPTION>
EXERCISE PRICE
--------------------------------------------------
$5.89- $8.90- $14.47- $21.73-
$8.41 $12.80 $21.64 $29.58
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Options outstanding......................... 2,766,632 7,335,094 9,281,970 12,794,227
Weighted-average remaining contractual life
(years)................................... 2.9 5.5 7.8 9.6
Weighted-average price...................... $ 7.60 $ 10.02 $ 17.94 $ 22.70
Options exercisable......................... 2,766,632 7,335,094 9,281,970 42,204
Weighted-average price...................... $ 7.60 $ 10.02 $ 17.94 $ 24.22
</TABLE>

Fixed options exercisable at the end of the last three years and the
weighted-average fair value of fixed options granted are as follows:

<TABLE>
<CAPTION>
CONOCO DUPONT OPTIONS
OPTIONS ------------------------------------
1998 1998* 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Options exercisable at year-end:
Number of shares.......................... 19,425,900 9,113,046 6,229,012 5,934,940
Weighted-average price.................... $ 13.49 $ 36.81 $ 27.26 $ 24.51
Weighted-average fair value of options
granted during the year:
New options............................... $ 4.15 $ 13.85 $ 12.84 $ 9.01
Options substituted for DuPont options.... $ 9.22
</TABLE>

- ---------------

* As of the date of the Offerings rather than year-end.

The fair value of Conoco variable options with a hurdle price of $32.88 per
share granted as substitutes for DuPont variable options was assumed to be zero.

The fair value of options is calculated using the Black-Scholes option
pricing model. Assumptions used were as follows:

<TABLE>
<CAPTION>
CONOCO OPTIONS DUPONT OPTIONS
------------------ --------------------------------
1998 1997
FIXED 1998 ---------------- 1996
NEW SUBSTITUTES FIXED FIXED VARIABLE FIXED
---- ----------- ----- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Dividend yield................................ 3.3% 3.3% 2.1% 2.2% 2.2% 2.6%
Volatility.................................... 20.0%* 20.0%* 19.9% 18.6% 18.6% 21.0%
Risk-free interest rate....................... 4.6% 4.4% 5.5% 6.4% 6.4% 5.4%
Expected life (years)......................... 5.8* 3.9* 5.8 5.6 5.7 6.0
</TABLE>

- ---------------

* Due to insufficient history, DuPont experience trends have been used to
estimate the volatility of Conoco stock and the expected life for exercise of
Conoco stock options.

F-26
<PAGE> 140
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

The following table sets forth pro forma information as if the Company had
adopted the optional recognition provisions of SFAS No. 123:

<TABLE>
<CAPTION>
1998 1997 1996
---- ----- -----
<S> <C> <C> <C>
Increase (Decrease) in:
Net income.................................................. $157 $ (28) $ (6)
Earnings per share
Basic..................................................... $.33 $(.06) $(.01)
Diluted................................................... $.33 $(.06) $(.01)
</TABLE>

Total fair value underpinning the pro forma disclosure for 1998 presented
above includes the fair value of new DuPont grants and a pro rata portion of new
Conoco grants made at the Offerings date, plus incremental fair value of the
Conoco stock options that were substituted for DuPont stock options granted
after the adoption of SFAS No. 123. The incremental fair value for cancellation
and substitution of stock options originally granted before adoption of SFAS No.
123 is zero because intrinsic value exceeds fair value.

Compensation expense recognized in income for stock-based employee
compensation awards was $229, $26 and $13 for 1998, 1997 and 1996, respectively,
with 1998 including a one-time charge of $236 for the cancellation of DuPont
stock options described above.

Prior to the Offerings, the Conoco Unit Option Plan awarded SARs with
respect to DuPont common stock to key salaried employees in certain grade levels
who showed early evidence of ability to assume significant responsibility and
leadership. At the time of the Offerings, 1,131,494 unit options were
outstanding of which 593,722 were cancelled and substituted with comparable SARs
with respect to Conoco Class A Common Stock under the 1998 Key Employee Stock
Performance Plan of Conoco. Effective with the Offerings, no new grants were
made or are planned out of the Conoco Unit Option Plan. At December 31, 1998,
outstanding unit options based on Conoco Class A Common Stock were 1,605,614. At
December 31, 1998 and 1997, outstanding unit options based on DuPont common
stock were 545,724 and 908,532, respectively. At these same dates, related
liability provisions totaled $22 and $27, respectively.

Through the date of the Offerings, certain Conoco employees who
participated in the DuPont Variable Compensation Plan received grants of stock
and cash. Overall amounts were dependent on financial performance of DuPont and
Conoco and other factors, and were subject to maximum limits as defined by the
plan. Amounts charged against earnings in anticipation of awards to be made
later were $39 in 1998, $38 in 1997 and $38 in 1996. Awards made for plan years
1998, 1997 and 1996 were $24, $45 and $38, respectively, with awards distributed
in 1999 for the 1998 plan year made out of the 1998 Stock and Performance
Incentive Plan of Conoco based on performance standards set previously in the
DuPont Variable Compensation Plan. Both the DuPont Variable Compensation Plan
and the 1998 Stock and Performance Incentive Plan of Conoco allow future
delivery of stock awards. Employees were offered the opportunity to cancel
DuPont shares granted under previous awards and receive substitute shares of
Conoco Class A Common Stock for designated future delivery under the 1998 Stock
and Performance Incentive Plan of Conoco. At December 31, 1998, 72,345 shares of
DuPont stock and 199,268 shares of Conoco Class A Common Stock are awaiting
delivery. A liability of $4 has been recognized for delivery of DuPont shares.

Awards under the separate Conoco Challenge Program may be granted in cash
to employees not covered by the Variable Compensation Plan. This plan provides
awards based on meeting financial goals and upholding Conoco's core values.
Overall amounts are dependent on Company earnings and cash

F-27
<PAGE> 141
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

provided by operations and are subject to maximum limits as defined by the plan.
Amounts charged against earnings in anticipation of awards to be made later were
$22 in 1998, $49 in 1997 and $47 in 1996. Awards made for plan years 1998, 1997
and 1996 were $19, $47 and $47, respectively.

23. PENSIONS AND OTHER POSTRETIREMENT BENEFITS

The Company participates in the DuPont U.S. defined benefit pension plan,
which covers substantially all U.S. employees and has separate defined benefit
pension plans covering certain U.S. and non-U.S. employees. The benefits for
these plans are based primarily on years of service and employees' pay near
retirement. The Company's funding policy is consistent with the funding
requirements of federal laws and regulations.

With respect to the DuPont U.S. defined benefit pension plan, the Company
and DuPont agreed upon an amount of approximately $820 at the date of the
Offerings that will eventually be transferred to a separate trust for the
Company's pension plan. Ninety percent of this amount, adjusted for benefit
payments and investment return from the date of the Offerings, will be
transferred to the Company within six months following the date on which DuPont
owns neither 80 percent of the voting power nor 80 percent of the economic value
of the Common Stock, assuming certain conditions are satisfied. The remainder
will be transferred within a further 90-day period. The adjusted value subject
to transfer was approximately $878 at December 31, 1998. DuPont allocated the
pension obligations based on the Company's individual employees covered and
allocated the unrecognized prior service cost and unrecognized net gain in
proportion to the Company's projected benefit obligation to the total projected
benefit obligation of the DuPont plan. The projected benefit obligation
approximates $871 and $723 at December 31, 1998 and 1997, respectively, and the
prepaid pension asset recognized in the Consolidated Balance Sheet (see Note 13)
is $50 and $71 at December 31, 1998 and 1997, respectively. The net periodic
pension cost components included in the table below are also based on the
foregoing allocation factors.

Pension coverage for employees of the Company's non-U.S. subsidiaries is
provided, to the extent deemed appropriate, through separate plans. Obligations
under such plans are systematically provided for by depositing funds with
trustees, under insurance policies or by book reserves.

Conoco and certain subsidiaries also provide medical and life insurance
benefits to retirees and survivors. The associated plans, principally health,
are unfunded, and approved claims are paid from Company funds. Under the terms
of these plans, the Company reserves the right to change, modify or discontinue
the plans. Conoco has communicated to plan participants that any increase in the
annual health care escalation rate above 4.5 percent will be borne by the
participants and, therefore, result in no increase to the accumulated
postretirement benefit obligation or the other postretirement benefits cost.

<TABLE>
<CAPTION>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------- ------------------------
1998 1997 1996 1998 1997 1996
----- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
NET PERIODIC BENEFIT COST
Service cost........................................ $ 65 $ 60 $ 55 $ 7 $ 6 $ 7
Interest cost....................................... 94 88 76 21 18 16
Expected return on plan assets...................... (105) (98) (91) -- -- --
Amortization of prior service cost (credit)......... 9 2 2 (4) (4) (4)
Recognized actuarial loss (gain).................... (4) 1 (5) -- (1) (1)
----- ---- ---- --- --- ---
Net periodic benefit cost........................... $ 59 $ 53 $ 37 $24 $19 $18
===== ==== ==== === === ===
</TABLE>

F-28
<PAGE> 142
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

Information concerning benefit obligations, plan assets, funded status and
recorded values for these plans (excluding the DuPont U.S. defined benefit plan)
follows:

<TABLE>
<CAPTION>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- ---------------
1998 1997 1998 1997
------- ------- ------ ------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $ 682 $ 533 $ 301 $ 242
Service cost................................................ 33 28 7 6
Interest cost............................................... 44 39 21 18
Amendments.................................................. (4) -- -- --
Participant contributions................................... -- -- 3 3
Actuarial (gain) loss....................................... 160 113 43 58
Divestitures and other...................................... (17) (2) -- --
Benefits paid............................................... (32) (29) (25) (26)
----- ----- ----- -----
Benefit obligation at end of year........................... $ 866 $ 682 $ 350 $ 301
===== ===== ===== =====
CHANGE IN PLAN ASSETS
Fair Value of plan assets at beginning of year.............. $ 386 $ 323 $ -- $ --
Actual return on plan assets................................ 61 48 -- --
Employer contribution....................................... 26 28 22 23
Participant contributions................................... -- -- 3 3
Divestitures and other...................................... (14) -- -- --
Benefits paid............................................... (21) (13) (25) (26)
----- ----- ----- -----
Fair Value of plan assets at end of year.................... $ 438 $ 386 $ -- $ --
===== ===== ===== =====
Funded status of plans at end of year....................... $(428) $(296) $(350) $(301)
Unrecognized actuarial loss................................. 240 109 53 14
Unrecognized prior service cost (credit).................... 109 121 (52) (55)
----- ----- ----- -----
Net amount recognized at end of year........................ $ (79) $ (66) $(349) $(342)
===== ===== ===== =====
AMOUNTS RECOGNIZED IN CONSOLIDATED BALANCE SHEET AT END OF
YEAR
Accrued benefit liability:
Short-term (see Note 16).................................. $ -- $ -- $ (18) $ (24)
Long-term (see Note 18)................................... (320) (230) (331) (318)
Deferred pension cost (see Note 13)......................... 109 116 -- --
Accumulated other comprehensive loss(1)..................... 132 48 -- --
----- ----- ----- -----
Net amount recognized..................................... $ (79) $ (66) $(349) $(342)
===== ===== ===== =====
</TABLE>

- ---------------

(1) Before reduction for associated deferred tax savings of $43 and $17 at
December 31, 1998 and 1997, respectively (see Note 21).

F-29
<PAGE> 143
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

<TABLE>
<S> <C> <C> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS AT END OF YEAR
Discount rate(1)............................................ 6.50% 7.00% 6.50% 7.00%
Rate of compensation increase(1)............................ 5.15% 5.15% 5.15% 5.15%
Expected return on plan assets(1)........................... 9.00% 9.00% -- --
Health care escalation rate................................. -- -- 4.50% 4.50%
</TABLE>

- ---------------

(1) Represents rates for U.S. plans; similar economic assumptions were used for
non-U.S. plans, with the exception of the United Kingdom where discount
rates of 6 percent and 7.25 percent were used at year end 1998 and 1997,
respectively.

At December 31, 1998, U.S. defined benefit plan assets consisted
principally of common stocks, including 471,667 shares of DuPont.

24. INVESTING ACTIVITIES

Purchases of property, plant and equipment in 1997 include $929 for
Upstream natural gas properties in South Texas (see Supplementary Petroleum
Data).

Non-cash additions to property, plant and equipment totaled $162 and $127
for the years 1998 and 1997, respectively.

Proceeds from sales of assets in 1998 include $245 from the sale of certain
Upstream properties in the U.S. and North Sea, $156 for various U.S. Downstream
assets, and $54 from sale of a Downstream office building in Europe. Proceeds in
1997 include $272 from the sale of certain Upstream North Sea properties.

25. FINANCIAL INSTRUMENTS AND OTHER RISK MANAGEMENT ACTIVITIES

Conoco operates in the worldwide crude oil, refined product, natural gas,
natural gas liquids and electric power markets and is exposed to fluctuations in
hydrocarbon prices, foreign currency rates and interest rates that can affect
the revenues and cost of operating, investing and financing. Conoco's management
has used and intends to use financial and commodity-based derivative contracts
to reduce the risk in overall earnings and cash flow when the benefits provided
are anticipated to more than offset the risk management costs involved.

The Company has established a Financial Risk Management Policy Framework
that provides guidelines for entering into contractual arrangements
(derivatives) to manage the Company's commodity price, foreign currency rate and
interest rate risks. The Conoco Risk Management Committee has ongoing
responsibility for the content of this policy and has principal oversight
responsibility to ensure the Company is in compliance with the policy and that
procedures and controls are in place for the use of commodity, foreign currency
and interest rate instruments. These procedures clearly establish derivative
control and valuation processes, routine monitoring and reporting requirements,
and counterparty credit approval procedures. Additionally, the Company's
internal audit group conducts reviews of these risk management activities to
assess the adequacy of internal controls. The audit results are reviewed by the
Conoco Risk Management Committee and by management.

The counterparties to these contractual arrangements are limited to major
financial institutions and other established companies in the petroleum
industry. Although the Company is exposed to credit loss in the event of
nonperformance by these counterparties, this exposure is managed through credit
approvals, limits and monitoring procedures and limits to the period over which
unpaid balances are allowed to

F-30
<PAGE> 144
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

accumulate. The Company has not experienced nonperformance by counterparties to
these contracts, and no material loss would be expected from any such
nonperformance.

COMMODITY PRICE RISK

The Company enters into energy-related futures, forwards, swaps and options
in various markets to balance its physical systems, to meet customer needs and
to manage its price exposure on anticipated crude oil, natural gas, refined
product and electric power transactions.

These instruments provide a natural extension of the underlying cash market
and are used to physically acquire a portion of supply requirements as well as
to manage pricing of near-term physical requirements. The commodity futures
market has underlying principles of increased liquidity and longer trading
periods than the cash market and is one method of managing price risk in the
energy business.

Conoco's policy is to generally be exposed to market pricing for commodity
purchases and sales. From time to time, management may use derivatives to
establish longer-term positions to hedge the price risk for the Company's equity
crude oil and natural gas production as well as refinery margins.

FOREIGN CURRENCY RISK

Conoco has foreign currency exchange rate risk resulting from operations in
over 40 countries around the world. The Company does not comprehensively hedge
its exposure to currency rate changes, although it may choose to selectively
hedge exposures to foreign currency rate risk. Examples include firm commitments
for capital projects, certain local currency tax payments, and cash returns from
net investments in foreign affiliates to be remitted within the coming year.

At December 31, 1998, the Company had no open forward exchange contracts.
At December 31, 1997, the Company had open forward exchange contracts designated
as a hedge of firm foreign currency commitments. The notional amount of these
contracts was $50 and the estimated fair value was $38.

INTEREST RATE RISK

Prior to the Offerings, the Company had no significant interest rate risk
to manage. Subsequent to the Offerings, however, the Company intends to manage
any material risk arising from exposure to interest rates by using a combination
of financial derivative instruments as part of a program to manage the fixed and
floating interest rate mix of the total debt portfolio and related overall cost
of borrowing.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying values of most financial instruments are based on historical
costs. The carrying values of marketable securities, receivables, payables and
short-term obligations approximate their fair value because of their short
maturity. Long-term receivables from and long-term borrowings due to related
parties approximate fair value because associated interest rates are market
based. At December 31, 1998, however, long-term borrowings due related parties
included $4,589 at a fixed rate with fair value estimated at $4,624. Excluding
amounts due related parties, the estimated fair value of other long-term
borrowings outstanding at December 31, 1998 and 1997 of $93 and $106,
respectively, was $96 and $108, respectively. These estimates were based on
quoted market prices for the same or similar issues, or the current rates
offered to the Company for issues with the same remaining maturities.

F-31
<PAGE> 145
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

SUMMARY OF OUTSTANDING DERIVATIVE FINANCIAL INSTRUMENTS

Set forth below is a summary of the fair values, carrying amounts and
notional values of outstanding commodity financial instruments at December 31,
1998 and 1997.

Notional amounts represent the face amount of the contractual arrangements
and are not a measure of market or credit exposure. The fair value of swaps and
other over-the-counter instruments are estimated based on quoted market prices
of comparable contracts and approximate the gain or (loss) that would have been
realized if the contracts had been closed out at the balance sheet date.
Carrying amounts represent the receivable (payable) recorded in the Consolidated
Balance Sheet.

<TABLE>
<CAPTION>
FAIR CARRYING NOTIONAL
COMMODITY DERIVATIVES VALUE AMOUNT VALUE
--------------------- ----- -------- --------
<S> <C> <C> <C>
December 31, 1998:
Hedging................................................... $(10) $(6) $ 422
Trading................................................... 2 -- 330
December 31, 1997:
Hedging................................................... $ 10 $12 $1,037
Trading................................................... (2) (1) 1,089
</TABLE>

Estimated fair values for hedging instruments only represent the value of
the hedge component of the transactions and, thus, are not indicative of the
fair value of the Company's overall hedged position.

26. COMMITMENTS AND CONTINGENT LIABILITIES

The Company uses various leased facilities and equipment in its operations.
Future minimum lease payments under noncancelable operating leases are $246,
$226, $216, $199 and $194 for the years 1999, 2000, 2001, 2002 and 2003,
respectively, and $580 for subsequent years, and are not reduced by
noncancelable minimum sublease rentals due in the future in the amount of $69.
Rental expense under operating leases was $198 in 1998, $132 in 1997 and $118 in
1996.

The Company has various purchase commitments for materials, supplies,
services and items of permanent investment incident to the ordinary conduct of
business. In the aggregate, such commitments are not at prices in excess of
current market. In addition, at December 31, 1998, the Company has obligations
under international contracts to purchase, over periods up to 20 years, natural
gas at prices that were in excess of year-end 1998 market prices. No material
annual loss is expected from these long-term commitments.

The Company is subject to various lawsuits and claims involving a variety
of matters including, along with other oil companies, actions challenging oil
and gas royalty payments, severance tax payments and other payments, including
claims based on posted prices, and claims for damages resulting from leaking
underground storage tanks. As a result of the Separation Agreement with DuPont,
the Company has assumed responsibility for current and future claims related to
certain discontinued chemicals and agricultural chemicals businesses operated by
Conoco in the past. In general, the effect on future financial results is not
subject to reasonable estimation because considerable uncertainty exists. The
Company believes the ultimate liabilities resulting from such lawsuits and
claims may be material to results of operations in the period in which they are
recognized but will not materially affect the consolidated financial position of
the Company.

The Company is also subject to contingencies under environmental laws and
regulations that in the future may require the Company to take further action to
correct the effects on the environment of prior

F-32
<PAGE> 146
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

disposal practices or releases of petroleum substances by the Company or other
parties. The Company has accrued for certain environmental remediation
activities consistent with the policy set forth in Note 2. The Company has
assumed environmental remediation liabilities from DuPont related to certain
discontinued chemicals and agricultural chemicals businesses operated by Conoco
in the past that are included in the environmental accrual. At December 31, 1998
and 1997, such accrual amounted to $129 and $144, respectively, and, in
management's opinion, was appropriate based on existing facts and circumstances.
Under adverse changes in circumstances, potential liability may exceed amounts
accrued. Although future remediation expenditures in excess of current reserves
are possible, the effect of any such excess on future financial results is not
subject to reasonable estimation because of the considerable uncertainty
regarding the cost and timing of expenditures. In the event future monitoring
and remediation expenditures are in excess of amounts accrued, they may be
significant to results of operations in the period recognized but management
does not anticipate they will have a material adverse effect on the consolidated
financial position of the Company.

The Company has indirectly guaranteed various debt obligations under
agreements with certain affiliated and other companies to provide specified
minimum revenues from shipments or purchases of products. These indirect
guarantees totaled $18 and $19 at December 31, 1998 and 1997, respectively. The
Company, as of August 1, 1998, terminated a multiparty account banking agreement
that provided for the indirect guarantee of bank account overdrafts of certain
European DuPont subsidiaries. The Company now has a new multiparty banking
agreement that provides for the indirect guarantee of bank account overdrafts
for itself and its subsidiaries. Management believes the exposure under this
agreement is not material. In addition, the Company or DuPont, on behalf of and
indemnified by, the Company, had directly guaranteed obligations of certain
affiliated companies and others. These guarantees totaled $1,353 and $1,131 at
December 31, 1998 and 1997, respectively. The increase in 1998 is primarily
related to additional financing associated with the construction of drillships
and cogeneration facilities in South Texas. The balance at December 31, 1998,
includes a drillship construction guarantee of $260 that was eliminated through
successful completion in early 1999. No material loss is anticipated by reason
of such agreements and guarantees.

The Company's operations, particularly oil and gas exploration and
production, can be affected by changing economic, regulatory and political
environments in the various countries, including the United States, in which it
operates. In certain locations, host governments have imposed restrictions,
controls and taxes, and in others, political conditions have existed that may
threaten the safety of employees and the Company's continued presence in those
countries. Internal unrest or strained relations between a host government and
the Company or other governments may affect the Company's operations. Those
developments have, at times, significantly affected the Company's operations and
related results and are carefully considered by management when evaluating the
level of current and future activity in such countries.

Areas in which the Company has significant operations include the United
States, the United Kingdom, Norway, Germany, Venezuela, the United Arab
Emirates, Indonesia, Russia, Canada, the Czech Republic, Malaysia and Nigeria.

F-33
<PAGE> 147
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

27. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

Conoco is involved in both the Upstream and Downstream operating segments
of the petroleum business that comprise the structure used by senior management
to make key operating decisions and assess performance. Activities of the
Upstream operating segment include exploring for, and developing, producing and
selling, crude oil, natural gas and natural gas liquids. Activities of the
Downstream operating segment include refining crude oil and other feedstocks
into petroleum products, buying and selling crude oil and refined products and
transporting, distributing and marketing petroleum products. The Company has
four reporting segments for its Upstream and Downstream operating segments,
reflecting geographic division between the United States and International.
Corporate and Other includes general corporate expenses, financing costs and
other non-operating items, and results for electric power and related-party
insurance operations. The Company sells its products worldwide; however, in
1998, about 57 percent and 39 percent of sales were made in the United States
and Europe, respectively. Major products include crude oil, natural gas and
refined products that are sold primarily in the energy and transportation
markets. The Company's sales are not materially dependent on a single customer
or small group of customers. Transfers between segments are on the basis of
estimated market values.

<TABLE>
<CAPTION>
UPSTREAM DOWNSTREAM
----------------------- ----------------------- CORPORATE
UNITED UNITED AND
SEGMENT INFORMATION STATES INTERNATIONAL STATES INTERNATIONAL OTHER CONSOLIDATED
- ------------------- ------ ------------- ------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998
Sales and Other Operating Revenues(2)
Refined Products.......................... $ -- $ -- $ 6,082 $7,647 $ -- $13,729
Crude Oil................................. 14 774 2,650 299 -- 3,737
Natural Gas............................... 2,416 723 -- -- -- 3,139
Other..................................... 770 104 217 351 749 2,191
------ ------ ------- ------ ------ -------
Total............................... 3,200 1,601 8,949 8,297 749 22,796
Transfers Between Segments.................. 308 378 89 181 -- --
------ ------ ------- ------ ------ -------
Total Operating Revenues............ $3,508 $1,979 $ 9,038 $8,478 $ 749 $22,796
====== ====== ======= ====== ====== =======
Operating Profit............................ $ 223 $ 482 $ 149 $ 256 $ (379) $ 731
Equity in Earnings of Affiliates............ 1 (14) 56 (20) (1) 22
Corporate Non-Operating Items:
Interest and Debt Expense................. (199) (199)
Interest Income (net of misc. interest
expense)................................ 89 89
Other..................................... 51 51
Provision for Income Taxes.................. (5) (185) (70) (80) 96 (244)
------ ------ ------- ------ ------ -------
Net Income (Loss)(1)........................ $ 219 $ 283 $ 135 $ 156 $ (343) $ 450
====== ====== ======= ====== ====== =======
Capital Employed at December 31:
Excluding Investment in Affiliates........ $2,349 $2,849 $ 1,245 $ 989 $ 384 $ 7,816
Investment in Affiliates.................. 191 371 248 531 22 1,363
------ ------ ------- ------ ------ -------
Total(3)............................ $2,540 $3,220 $ 1,493 $1,520 $ 406 $ 9,179
====== ====== ======= ====== ====== =======
Depreciation, Depletion and Amortization.... $ 383 $ 457 $ 139 $ 133 $ 1 $ 1,113
Dry Hole Costs and Impairment of Unproved
Properties................................ $ 59 $ 104 $ 163
Other Significant Non-Cash Items:
Stock Option Provision.................... $ 236 $ 236
Inventory Write-down to Market............ $ 6 $ 63 $ 28 $ 97
Capital Expenditures and Investments(4)..... $ 788 $1,177 $ 201 $ 332 $ 18 $ 2,516
</TABLE>

F-34
<PAGE> 148
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

F-35
<PAGE> 149
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

<TABLE>
<CAPTION>
UPSTREAM DOWNSTREAM
----------------------- ----------------------- CORPORATE
UNITED UNITED AND
SEGMENT INFORMATION STATES INTERNATIONAL STATES INTERNATIONAL OTHER CONSOLIDATED
- ------------------- ------ ------------- ------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
1996
Sales and Other Operating Revenues(2)
Refined Products.......................... $ -- $ -- $ 7,355 $8,598 $ -- $15,953
Crude Oil................................. 29 1,359 2,897 1 -- 4,286
Natural Gas............................... 1,907 471 -- -- -- 2,378
Other..................................... 847 113 293 281 79 1,613
------ ------ ------- ------ ------ -------
Total............................... 2,783 1,943 10,545 8,880 79 24,230
Transfers Between Segments.................. 587 572 125 151 -- --
------ ------ ------- ------ ------ -------
Total Operating Revenues............ $3,370 $2,515 $10,670 $9,031 $ 79 $24,230
====== ====== ======= ====== ====== =======
Operating Profit............................ $ 328 $1,231 $ 244 $ 202 $ (118) $ 1,887
Equity in Earnings of Affiliates............ 11 (41) 8 (3) (25)
Corporate Non-Operating Items:
Interest and Debt Expense................. (74) (74)
Interest Income (net of misc. interest
expense)................................ 124 124
Other..................................... (11) (11)
Provision for Income Taxes.................. (25) (823) (80) (82) (28) (1,038)
------ ------ ------- ------ ------ -------
Net Income (Loss)(1)........................ $ 314 $ 367 $ 172 $ 117 $ (107) $ 863
====== ====== ======= ====== ====== =======
Capital Employed at December 31:
Excluding Investment in Affiliates........ $1,371 $3,042 $ 1,538 $1,195 $ 995 $ 8,141
Investment in Affiliates.................. 105 129 154 315 -- 703
------ ------ ------- ------ ------ -------
Total(3)............................ $1,476 $3,171 $ 1,692 $1,510 $ 995 $ 8,844
====== ====== ======= ====== ====== =======
Depreciation, Depletion and Amortization.... $ 307 $ 485 $ 156 $ 137 $ 1,085
Dry Hole Costs and Impairment of Unproved
Properties................................ $ 65 $ 72 $ 137
Capital Expenditures and Investments(4)..... $ 400 $ 864 $ 218 $ 462 $ 1,944
- ------------
(1) Includes After-Tax Benefits (Charges)
from Special Items:
1998
Asset Sales........................... $ 41 $ 54 $ -- $ 12 $ -- $ 107
Property Impairments.................. (32) (6) -- -- -- (38)
Inventory Write-downs................. (4) -- (40) (19) -- (63)
Employee Separation Costs............. (19) (23) (5) (5) -- (52)
Environmental Litigation Charges...... -- -- (28) -- (14) (42)
Stock Option Provision................ -- -- -- -- (183) (183)
------ ------ ------- ------ ------ -------
Total........................... $ (14) $ 25 $ (73) $ (12) $ (197) $ (271)
====== ====== ======= ====== ====== =======
1997
Asset Sales........................... $ 49 $ 191 $ -- $ -- $ -- $ 240
Property Impairments.................. -- (112) -- (55) -- (167)
Environmental Litigation Charges...... -- -- (23) -- -- (23)
Tax Rate Changes...................... -- 19 -- 11 -- 30
Total........................... $ 49 $ 98 $ (23) $ (44) $ -- $ 80
====== ====== ======= ====== ====== =======
</TABLE>

F-36
<PAGE> 150
CONOCO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)

(2) Includes sales of purchased products substantially at cost:

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Buy/sell supply transactions settled in cash:
Crude oil................................................. $2,728 $3,566 $2,820
Refined products.......................................... 438 683 729
Natural gas resales......................................... 1,109 773 560
Electric power resales...................................... 729 487 58
</TABLE>

(3) Capital Employed is equivalent to the sum of Stockholders' Equity/Owner's
Net Investment and Borrowings (both short-term and long-term portions).
Borrowings include amounts due related parties, net of associated Notes
Receivable. Amounts identified for operating segments comprise those assets
and liabilities not deemed to be of a general corporate nature, such as cash
and cash equivalents, financing-oriented items and aviation investment.

(4) Includes investments in affiliates.

<TABLE>
<CAPTION>
UNITED UNITED OTHER
GEOGRAPHIC INFORMATION STATES KINGDOM GERMANY NORWAY COUNTRIES CONSOLIDATED
- ---------------------- ------- ------- ------- ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998
Sales and Other Operating Revenues(1)... $12,878 $4,305 $2,881 $ 289 $2,443 $22,796
Long-Lived Assets at December 31(2)..... $ 5,122 $3,577 $ 195 $1,547 $ 972 $11,413
1997
Sales and Other Operating Revenues(1)... $15,229 $4,480 $3,007 $ 406 $2,674 $25,796
Long-Lived Assets at December 31(2)..... $ 4,956 $3,284 $ 168 $1,559 $ 861 $10,828
1996
Sales and Other Operating Revenues(1)... $13,386 $4,241 $3,260 $ 508 $2,835 $24,230
Long-Lived Assets at December 31(2)..... $ 4,086 $3,201 $ 203 $1,757 $ 835 $10,082
</TABLE>

- ---------------

(1) Revenues are attributed to countries based on location of the selling
entity.

(2) Represents Net Property, Plant and Equipment.

28. OTHER FINANCIAL INFORMATION

Research and development expenses were $42, $44 and $41 for the years 1998,
1997 and 1996, respectively.

F-37
<PAGE> 151

CONOCO INC.

SUPPLEMENTAL PETROLEUM DATA
(DOLLARS IN MILLIONS)
(UNAUDITED)

OIL AND GAS PRODUCING ACTIVITIES

Supplemental Petroleum Data disclosures are presented in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 69,
"Disclosures About Oil and Gas Producing Activities."

Accordingly, volumes of reserves and production exclude royalty interests
of others, and royalty payments are reflected as reductions in revenues.

RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES

<TABLE>
<CAPTION>
TOTAL WORLDWIDE UNITED STATES EUROPE OTHER REGIONS
------------------------ --------------------- ----------------------- ---------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996 1998 1997 1996
------ ------ ------ ----- ----- ----- ----- ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
COMPANIES
Revenues:
Sales.............. $1,938 $2,603 $2,479 $ 643 $ 787 $ 621 $ 831 $1,181 $1,204 $ 464 $ 635 $ 654
Transfers.......... 646 849 927 272 272 363 374 577 566 -- -- (2)
Exploration(1)....... (380) (457) (404) (128) (134) (151) (108) (131) (159) (144) (192) (94)
Production........... (806) (854) (755) (303) (320) (297) (382) (409) (372) (121) (125) (86)
DD&A................. (799) (827) (770) (345) (246) (282) (372) (419) (440) (82) (162)(2) (48)
Other(3)............. 148 321 69 104 106 48 48 215 (1) (4) -- 22
Income taxes......... (201) (847) (912) (36) (109) (47) (100) (393) (436) (65) (345) (429)
------ ------ ------ ----- ----- ----- ----- ------ ------ ----- ----- -----
Results of
operations....... 546 788 634 207 356 255 291 621 362 48 (189) 17
EQUITY AFFILIATES
Results of
operations......... (4) 30 32 4 7 7 5 29 25 (13) (6) --
------ ------ ------ ----- ----- ----- ----- ------ ------ ----- ----- -----
Total........ $ 542 $ 818 $ 666 $ 211 $ 363 $ 262 $ 296 $ 650 $ 387 $ 35 $(195) $ 17
====== ====== ====== ===== ===== ===== ===== ====== ====== ===== ===== =====
</TABLE>

- ---------------

(1) Includes exploration operating expenses, dry hole costs, impairment of
unproved properties and depreciation.

(2) Includes charges of $112 for impairment of non-revenue producing properties.

(3) Includes gain/(loss) on disposal of fixed assets and other miscellaneous
revenues and expenses.

F-38
<PAGE> 152

CONOCO INC.

SUPPLEMENTAL PETROLEUM DATA
(DOLLARS IN MILLIONS)
(UNAUDITED)

COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES(1)

<TABLE>
<CAPTION>
TOTAL WORLDWIDE UNITED STATES EUROPE OTHER REGIONS
------------------------ --------------------- ------------------- --------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996 1998 1997 1996
------ ------ ------ ---- ------ ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED COMPANIES
Property acquisitions
Proved(2)........................ $ 254 $ 152 $ 21 $ 24 $ 148 $ 14 $230(3) $ -- $ -- $ -- $ 4 $ 7
Unproved......................... 93 831 42 55 723(4) 41 25 95 -- 13 13 1
Exploration....................... 436 450 445 119 107 144 114 135 169 203 208 132
Development....................... 1,019 921 828 542 289 203 403 568 543 74 64 82
------ ------ ------ ---- ------ ---- ---- ---- ---- ---- ---- ----
Total...................... 1,802 2,354 1,336 740 1,267 402 772 798 712 290 289 222
EQUITY AFFILIATES
Total Equity Affiliates........... 564 263 19 30 12 5 2 2 14 532(5) 249(5) --
------ ------ ------ ---- ------ ---- ---- ---- ---- ---- ---- ----
Total...................... $2,366 $2,617 $1,355 $770 $1,279 $407 $774 $800 $726 $822 $538 $222
====== ====== ====== ==== ====== ==== ==== ==== ==== ==== ==== ====
</TABLE>

- ---------------

(1) These data comprise all costs incurred in the activities shown, whether
capitalized or charged to expense at the time they were incurred.

(2) Does not include properties acquired through property trades.

(3) Includes acquisition costs associated with petroleum reserves acquired in
the North Sea.

(4) Includes acquisition costs associated with gas reserves acquired in the
South Texas Lobo trend.

(5) Represents Conoco's equity share of the Petrozuata heavy oil venture in
Venezuela.

CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
TOTAL WORLDWIDE UNITED STATES EUROPE
--------------------------- ------------------------- -------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- ------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED COMPANIES
Gross costs:
Proved properties..... $13,488 $12,420 $11,914 $5,013 $4,676 $4,255 $6,942(1) $6,276 $6,268
Unproved properties... 1,159 1,491 913 634 774(2) 262 262 432 444
Less: Accumulated
DD&A.................. 7,469 7,201 6,886 2,983 2,907 2,816 3,182 3,008 2,954
------- ------- ------- ------ ------ ------ ------ ------ ------
Total net
costs.......... 7,178 6,710 5,941 2,664 2,543 1,701 4,022 3,700 3,758
EQUITY AFFILIATES
Net costs of equity
affiliates............ 976 441 199 66 45 37 132 147 162
------- ------- ------- ------ ------ ------ ------ ------ ------
Total........... $ 8,154 $ 7,151 $ 6,140 $2,730 $2,588 $1,738 $4,154 $3,847 $3,920
======= ======= ======= ====== ====== ====== ====== ====== ======

<CAPTION>
OTHER REGIONS
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
CONSOLIDATED COMPANIES
Gross costs:
Proved properties..... $1,533 $1,468 $1,391
Unproved properties... 263 285 207
Less: Accumulated
DD&A.................. 1,304 1,286 1,116
------ ------ ------
Total net
costs.......... 492 467 482
EQUITY AFFILIATES
Net costs of equity
affiliates............ 778(3) 249(3) --
------ ------ ------
Total........... $1,270 $ 716 $ 482
====== ====== ======
</TABLE>

- ---------------

(1) Includes acquisition costs associated with petroleum reserves acquired in
the North Sea.

(2) Includes acquisition costs associated with gas reserves acquired in the
South Texas Lobo trend.

(3) Represents Conoco's equity share of the Petrozuata heavy oil venture in
Venezuela.

F-39
<PAGE> 153

CONOCO INC.

SUPPLEMENTAL PETROLEUM DATA
(IN MILLIONS OF BARRELS)
(UNAUDITED)

ESTIMATED PROVED RESERVES OF OIL(1)

<TABLE>
<CAPTION>
TOTAL WORLDWIDE UNITED STATES EUROPE OTHER REGIONS
-------------------- ------------------ ------------------ ------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996 1998 1997 1996
----- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PROVED RESERVES OF
CONSOLIDATED COMPANIES
Beginning of year............. 893 926 933 277 299 294 421 413 408 195 214 231
Revisions and other changes... 42 54 55 14 3 11 20 43 36 8 8 8
Extensions and discoveries.... 41 62 75 15 12 31 6 44 35 20 6 9
Improved recovery............. 14 3 4 -- 3 4 11 -- -- 3 -- --
Purchase of reserves(2)....... 8 5 (1) -- 4 (1) 8 1 -- -- -- --
Sale of reserves(3)........... (16) (27) (12) (16) (11) (10) -- (16) -- -- -- (2)
Production.................... (119) (130) (128) (29) (33) (30) (56) (64) (66) (34) (33) (32)
----- ----- ---- --- --- --- --- --- --- --- --- ---
End of year(4)................ 863 893 926 261 277 299 410 421 413 192 195 214
----- ----- ---- --- --- --- --- --- --- --- --- ---
PROVED RESERVES OF EQUITY
AFFILIATES
Beginning of year............. 731 47 44 -- -- -- 51 47 44 680 -- --
Revisions and other changes... 5 10 8 -- -- -- 5 10 8 -- -- --
Extensions and discoveries.... -- 680 -- -- -- -- -- -- -- -- 680(5) --
Production.................... (8) (6) (5) -- -- -- (6) (6) (5) (2) -- --
----- ----- ---- --- --- --- --- --- --- --- --- ---
End of year................... 728 731 47 -- -- -- 50 51 47 678 680 --
----- ----- ---- --- --- --- --- --- --- --- --- ---
Total................. 1,591 1,624 973 261 277 299 460 472 460 870 875 214
===== ===== ==== === === === === === === === === ===
PROVED DEVELOPED RESERVES OF
CONSOLIDATED COMPANIES
Beginning of year............. 600 630 684 242 258 265 174 185 217 184 187 202
End of year................... 622 600 630 222 242 258 228 174 185 172 184 187
PROVED DEVELOPED RESERVES OF
EQUITY AFFILIATES
Beginning of year............. 43 39 32 -- -- -- 43 39 32 -- -- --
End of year................... 92 43 39 -- -- -- 42 43 39 50 -- --
</TABLE>

- ---------------

(1) Oil reserves comprise crude oil and condensate and natural gas liquids
expected to be removed for the Company's account from its natural gas
deliveries.

(2) Includes reserves acquired through property trades.

(3) Includes reserves disposed of through property trades.

(4) Includes reserves of 123, 87 and 89 at year-end 1998, 1997 and 1996,
respectively, attributable to Conoco Oil & Gas Associates L.P. in which
there is a minority interest with an approximate 20 percent average revenue
share (see Note 19).

(5) Represents Conoco's equity share of the Petrozuata heavy oil venture in
Venezuela.

F-40
<PAGE> 154

CONOCO INC.

SUPPLEMENTAL PETROLEUM DATA
(IN BILLION CUBIC FEET)
(UNAUDITED)

ESTIMATED PROVED RESERVES OF GAS

<TABLE>
<CAPTION>
TOTAL WORLDWIDE UNITED STATES EUROPE OTHER REGIONS
--------------------- ---------------------- --------------------- ---------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PROVED RESERVES OF
CONSOLIDATED COMPANIES
Beginning of year........... 5,491 5,063 4,709 2,235 1,822 1,891 3,060 3,068 2,649 196 173 169
Revisions and other
changes................... 25 134 41 18 -- 79 (20) 97 (39) 27 37 1
Extensions and
discoveries............... 961 518 780 624 453 176 111 59 574 226 6 30
Improved recovery........... -- 1 -- -- 1 -- -- -- -- -- -- --
Purchase of reserves(1)..... 116 270 41 4 264(2) 3 112 -- 36 -- 6 2
Sale of reserves(3)......... (281) (62) (71) (243) (46) (57) (38) (7) -- -- (9) (14)
Production.................. (510) (433) (437) (319) (259) (270) (172) (157) (152) (19) (17) (15)
----- ----- ----- ----- ----- ----- ----- ----- ----- --- --- ---
End of year(4).............. 5,802 5,491 5,063 2,319 2,235 1,822 3,053 3,060 3,068 430 196 173
----- ----- ----- ----- ----- ----- ----- ----- ----- --- --- ---
PROVED RESERVES OF EQUITY
AFFILIATES
Beginning of year........... 370 333 339 370 333 339 -- -- -- -- -- --
Revisions and other
changes................... (12) (6) -- (12) (6) -- -- -- -- -- -- --
Extensions and
discoveries............... 1 49 -- 1 49 -- -- -- -- -- -- --
Purchase of reserves........ 27 -- -- 27 -- -- -- -- -- -- -- --
Production.................. (5) (6) (6) (5) (6) (6) -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- --- --- ---
End of Year................. 381 370 333 381 370 333 -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- --- --- ---
Total............... 6,183 5,861 5,396 2,700 2,605 2,155 3,053 3,060 3,068 430 196 173
===== ===== ===== ===== ===== ===== ===== ===== ===== === === ===
PROVED DEVELOPED RESERVES OF
CONSOLIDATED COMPANIES
Beginning of year........... 3,061 2,843 2,933 1,801 1,672 1,733 1,091 1,041 1,071 169 130 129
End of year................. 3,991 3,061 2,843 1,828 1,801 1,672 1,954 1,091 1,041 209 169 130
PROVED DEVELOPED RESERVES OF
EQUITY AFFILIATES
Beginning of year........... 40 36 40 40 36 40 -- -- -- -- -- --
End of year................. 66 40 36 66 40 36 -- -- -- -- -- --
</TABLE>

- ---------------

(1) Includes reserves acquired through property trades.

(2) Includes reserves acquired in the South Texas Lobo trend.

(3) Includes reserves disposed of through property trades.

(4) Includes reserves of 121, 115 and 104 at year-end 1998, 1997 and 1996,
respectively, attributable to Conoco Oil & Gas Associates L.P. in which
there is a minority interest with an approximate 20 percent average revenue
share (see Note 19).

F-41
<PAGE> 155

CONOCO INC.

SUPPLEMENTAL PETROLEUM DATA
(UNAUDITED)

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES

The information on the following page has been prepared in accordance with
SFAS No. 69, which requires the standardized measure of discounted future net
cash flows to be based on year-end sales prices, costs and statutory income tax
rates and a 10 percent annual discount rate. Specifically, the per-barrel oil
sales prices used to calculate the December 31, 1998, data averaged $9.40 for
the United States, $10.69 for Europe and $10.67 for Other Regions, and the gas
prices per thousand cubic feet averaged approximately $1.70 for the United
States, $2.29 for Europe and $1.90 for Other Regions. Because prices used in the
calculation are as of December 31, the standardized measure could vary
significantly from year to year based on market conditions at that specific
date.

The projections should not be viewed as realistic estimates of future cash
flows nor should the "standardized measure" be interpreted as representing
current value to the Company. Material revisions to estimates of proved reserves
may occur in the future, development and production of the reserves may not
occur in the periods assumed, actual prices realized are expected to vary
significantly from those used and actual costs may also vary. The Company's
investment and operating decisions are not based on the information presented on
the following page, but on a wide range of reserve estimates that includes
probable as well as proved reserves, and on different price and cost assumptions
from those reflected in this information.

F-42
<PAGE> 156

CONOCO INC.

SUPPLEMENTAL PETROLEUM DATA
(DOLLARS IN MILLIONS)
(UNAUDITED)

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
<TABLE>
<CAPTION>
TOTAL WORLDWIDE UNITED STATES EUROPE
---------------------------- --------------------------- ---------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED COMPANIES
Future cash flows:
Revenues............. $20,340 $26,666 $ 34,366 $ 6,148 $ 8,355 $10,044 $11,376 $15,119 $19,364
Production costs..... (8,271) (9,251) (10,406) (2,665) (2,997) (3,085) (4,742) (5,387) (6,378)
Development costs.... (1,548) (1,586) (1,669) (370) (446) (283) (823) (1,094) (1,294)
Income tax expense... (3,904) (6,822) (10,364) (546) (1,175) (2,041) (2,239) (3,921) (5,179)
------- ------- -------- ------- ------- ------- ------- ------- -------
Future net cash
flows................ 6,617 9,007 11,927 2,567 3,737 4,635 3,572 4,717 6,513
Discounted to present
value at a 10% annual
rate................. (2,414) (3,384) (4,638) (1,055) (1,552) (2,088) (1,151) (1,679) (2,317)
------- ------- -------- ------- ------- ------- ------- ------- -------
Total(1)....... 4,203 5,623 7,289 1,512 2,185 2,547 2,421 3,038 4,196
------- ------- -------- ------- ------- ------- ------- ------- -------
EQUITY AFFILIATES
Future cash flows:
Revenues............. 5,327 8,520 1,971 1,001 893 968 427 651 1,003
Production costs..... (2,228) (2,640) (597) (346) (267) (242) (266) (315) (355)
Development costs.... (1,086) (1,300) (180) (191) (174) (157) (28) (30) (23)
Income tax expense... (425) (1,090) (496) (166) (161) (193) (63) (170) (303)
------- ------- -------- ------- ------- ------- ------- ------- -------
Future net cash
flows................ 1,588 3,490 698 298 291 376 70 136 322
Discounted to present
value at a 10% annual
rate................. (1,327) (2,886) (398) (220) (226) (277) (9) (44) (121)
------- ------- -------- ------- ------- ------- ------- ------- -------
Total.......... 261 604 300 78 65 99 61 92 201
------- ------- -------- ------- ------- ------- ------- ------- -------
Total.......... $ 4,464 $ 6,227 $ 7,589 $ 1,590 $ 2,250 $ 2,646 $ 2,482 $ 3,130 $ 4,397
======= ======= ======== ======= ======= ======= ======= ======= =======

<CAPTION>
OTHER REGIONS
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
CONSOLIDATED COMPANIES
Future cash flows:
Revenues............. $ 2,816 $ 3,192 $ 4,958
Production costs..... (864) (867) (943)
Development costs.... (355) (46) (92)
Income tax expense... (1,119) (1,726) (3,144)
------- ------- -------
Future net cash
flows................ 478 553 779
Discounted to present
value at a 10% annual
rate................. (208) (153) (233)
------- ------- -------
Total(1)....... 270 400 546
------- ------- -------
EQUITY AFFILIATES
Future cash flows:
Revenues............. 3,899 6,976 --
Production costs..... (1,616) (2,058) --
Development costs.... (867) (1,096) --
Income tax expense... (196) (759) --
------- ------- -------
Future net cash
flows................ 1,220 3,063 --
Discounted to present
value at a 10% annual
rate................. (1,098) (2,616) --
------- ------- -------
Total.......... 122 447 --
------- ------- -------
Total.......... $ 392 $ 847 $ 546
======= ======= =======
</TABLE>

- ---------------

(1) Includes $263, $372 and $686 at year-end 1998, 1997 and 1996, respectively,
attributable to Conoco Oil & Gas Associates L.P. in which there is a
minority interest with an approximate 20 percent average revenue share (see
Note 19).

SUMMARY OF CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES

<TABLE>
<CAPTION>
CONSOLIDATED COMPANIES EQUITY AFFILIATES
----------------------------- ---------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1........................................ $ 5,623 $ 7,289 $ 5,158 $ 604 $ 300 $ 151
Sales and transfers of oil and gas produced, net of
production costs.......................................... (1,778) (2,583) (2,647) (2) (56) (73)
Development costs incurred during the period................ 1,019 921 828 555 218 20
Net changes in prices and in development and production
costs..................................................... (3,948) (4,974) 2,525 (1,155) (1,242) 119
Extensions, discoveries and improved recovery, less related
costs..................................................... 838 818 1,630 1 1,181 4
Revisions of previous quantity estimates.................... 189 439 553 2 37 83
Purchases (sales) of reserves in place -- net............... (92) 36 (54) 18 -- --
Accretion of discount....................................... 916 1,312 931 84 55 25
Net change in income taxes.................................. 1,541 2,285 (1,676) 128 16 (152)
Other....................................................... (105) 80 41 26 95 123
------- ------- ------- ------- ------- -----
Balance at December 31...................................... $ 4,203 $ 5,623 $ 7,289 $ 261 $ 604 $ 300
======= ======= ======= ======= ======= =====
</TABLE>

F-43
<PAGE> 157

CONOCO INC.

CONSOLIDATED QUARTERLY FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1998
Sales and Other Operating Revenues(1)........... $5,736 $5,612 $5,916 $5,532
Cost of Goods Sold and Other Expenses(2)........ 5,327 5,374 5,620 5,954
Interest and Debt Expense....................... 1 -- 107 91
Net Income (Loss)............................... 316(5) 214(6) 183 (263)(7)
Earnings Per Share
Basic(3)...................................... $ .72 $ .49 $ .42 $ (.45)
Diluted(3).................................... $ .72 $ .49 $ .42 $ (.45)
Market Price of Common Stock(4)
High.......................................... $25 3/4
Low........................................... $19 3/8

1997
Sales and Other Operating Revenues(1)........... $6,560 $5,915 $6,671 $6,650
Cost of Goods Sold and Other Expenses(2)........ 5,898 5,501 6,269 6,452
Interest and Debt Expense....................... 15 9 7 5
Net Income...................................... 341 246(8) 289(9) 221(10)
Earnings Per Share
Basic(3)...................................... $ .78 $ .56 $ .66 $ .51
Diluted(3).................................... $ .78 $ .56 $ .66 $ .51
</TABLE>

- ---------------

(1) Excludes other income of $98, $40, $113 and $121 in each of the quarters in
1998 and $55, $70, $28 and $314 in each of the quarters in 1997.

(2) Excludes provision for income taxes.

(3) Earnings per share for the year may not equal the sum of the quarterly
earnings per share due to changes in average shares outstanding. Earnings
per share for the periods prior to the Offerings was calculated using only
Class B Common Stock, as required by SFAS 128 (see Note 8 to the
consolidated financial statements).

(4) The Company's Class A Common Stock is listed on the New York Stock Exchange
(trading symbol: COC) and commenced trading on October 22, 1998. Prices are
as reported in the New York Stock Exchange, Inc. Composite Transactions
Tape.

(5) Includes gain of $23 ($.04 per share-diluted) from sale of certain Upstream
properties.

(6) Includes net benefit of $3 ($.01 per share-diluted) reflecting: tax benefit
of $31 from sale of an international Upstream subsidiary and a $28 charge
for U.S. Downstream environmental litigation.

(7) Includes net charge of $297 ($.47 per share-diluted) reflecting: charges of
$183 for non-cash stock option compensation expense related to the
Offerings, $63 for write-down of inventories to market, $52 principally for
employee separation costs, $38 for impairment of long-lived Upstream
properties located in Texas and in the Gulf of Mexico, as well as a
write-down of a nonoperating gas plant in Texas and an exploration license
in Norway, and $14 for environmental litigation charges and gains of $41
from the sale of U.S. producing properties and $12 from sale of an office
building.

(8) Includes gain of $24 ($.04 per share-diluted) from sale of U.S. producing
properties.

F-44
<PAGE> 158

(9) Includes net benefit of $37 ($.05 per share-diluted) reflecting: gain of
$30 from sale of North Sea properties, benefit of $30 from foreign tax rate
changes, and charge of $23 for environmental litigation charges.

(10) Includes a net benefit of $19 ($.03 per share-diluted) reflecting: a gain
of $186 from the sale of North Sea and U.S. Upstream properties, a charge
of $112 for impairment of non-revenue producing properties, and a charge of
$55 for write-down of an office building held for sale.

F-45
<PAGE> 159

INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CONOCO INC.

CONSOLIDATED STATEMENT OF INCOME (NOTES 1 AND 3)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------
1999 1998
------- -------
(IN MILLIONS,
EXCEPT PER SHARE)
<S> <C> <C>
Revenues
Sales and Other Operating Revenues*....................... $11,563 $11,348
Other Income.............................................. 101 138
------- -------
Total Revenues.................................... 11,664 11,486
------- -------
Cost and Expenses
Cost of Goods Sold and Other Operating Expenses........... 6,887 6,754
Selling, General and Administrative Expenses.............. 383 370
Exploration Expenses...................................... 120 176
Depreciation, Depletion and Amortization.................. 584 505
Taxes Other Than on Income*............................... 3,246 2,896
Interest and Debt Expense................................. 150 1
------- -------
Total Cost and Expenses........................... 11,370 10,702
------- -------
Income Before Income Taxes.................................. 294 784
Provision for Income Taxes.................................. 97 254
------- -------
Net Income (Note 10)........................................ $ 197 $ 530
======= =======
Earnings Per Share (Note 4)
Basic..................................................... $ .31 $ 1.21
Diluted................................................... $ .31 $ 1.21
Weighted Average Shares Outstanding (Note 4)
Class A**................................................. 191 --
Class B................................................... 437 437
------- -------
Total Basic....................................... 628 437
Stock Options**........................................... 8 --
------- -------
Total Diluted..................................... 636 437
Dividends Per Share of Common Stock (Note 5)................ $ .33 $ --

- ---------------
* Includes petroleum excise taxes.......................... $ 3,156 $ 2,806

** Earnings Per Share for the period prior to the Offerings was calculated using
only Class B Common Stock as required by SFAS 128 (See Note 4).
</TABLE>

See Notes to Unaudited Interim Consolidated Financial Statements

F-46
<PAGE> 160

INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CONOCO INC.

CONSOLIDATED BALANCE SHEET (NOTES 1 AND 3)
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(IN MILLIONS)
<S> <C> <C>
Current Assets
Cash and Cash Equivalents................................. $ 252 $ 394
Accounts and Notes Receivable............................. 1,210 1,191
Inventories (Note 6)...................................... 858 807
Prepaid Expenses.......................................... 282 378
-------- --------
Total Current Assets.............................. 2,602 2,770
Property, Plant and Equipment............................... 22,240 22,094
Less: Accumulated Depreciation, Depletion and
Amortization.............................................. (11,043) (10,681)
-------- --------
Net Property, Plant and Equipment........................... 11,197 11,413
-------- --------
Investment in Affiliates.................................... 1,529 1,363
Other Assets................................................ 563 529
-------- --------
Total............................................. $ 15,891 $ 16,075
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts Payable.......................................... $ 1,163 $ 1,312
Other Short-Term Borrowings and Capital Lease
Obligations............................................ 1,019 52
Income Taxes.............................................. 107 199
Other Accrued Liabilities (Note 7)........................ 1,071 1,162
-------- --------
Total Current Liabilities......................... 3,360 2,725
Long-Term Borrowings-- Related Parties...................... -- 4,596
Other Long-Term Borrowings and Capital Lease Obligations.... 4,086 93
Deferred Income Taxes....................................... 1,667 1,714
Other Liabilities and Deferred Credits...................... 2,138 2,200
-------- --------
Total Liabilities................................. 11,251 11,328
-------- --------
Commitments and Contingent Liabilities (Note 8)
Minority Interests.......................................... 309 309
Stockholders' Equity
Preferred Stock, $.01 par value:
250,000,000 shares authorized; none issued................ -- --
Class A Common Stock, $.01 par value:
3,000,000,000 shares authorized; 191,497,821 shares
issued................................................. 2 2
Class B Common Stock, $.01 par value:
1,600,000,000 shares authorized; 436,543,573 shares issued
and outstanding........................................ 4 4
Additional Paid-In Capital................................ 4,986 4,955
Accumulated Deficit....................................... (260) (244)
Accumulated Other Comprehensive Loss (Note 9)............. (379) (274)
Treasury Stock, at cost (916,800 and 249,863 Class A
shares at June 30, 1999 and December 31, 1998,
respectively).......................................... (22) (5)
-------- --------
Total Stockholders' Equity........................ 4,331 4,438
-------- --------
Total............................................. $ 15,891 $ 16,075
======== ========
</TABLE>

See Notes to Consolidated Financial Statements

F-47
<PAGE> 161

INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CONOCO INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (NOTES 1 AND 3)
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------
1999 1998
------- ------
(IN MILLIONS)
<S> <C> <C>
Cash Provided by Operations
Net Income................................................ $ 197 $ 530
Adjustments to Reconcile Net Income to Cash Provided by
Operations:
Depreciation, Depletion and Amortization............... 584 505
Dry Hole Costs and Impairment of Unproved Properties... 55 68
Deferred Income Taxes.................................. 60 107
Income Applicable to Minority Interests................ 11 11
Other Noncash Charges and Credits -- Net............... (23) (55)
Decrease (Increase) in Operating Assets:
Accounts and Notes Receivable........................ (38) 85
Inventories.......................................... (70) (153)
Other Operating Assets............................... 41 (90)
Increase (Decrease) in Operating Liabilities:
Accounts Payable and Other Operating Liabilities..... 53 (191)
Accrued Interest and Income Taxes.................... (200) (269)
------- ------
Cash Provided by Operations....................... 670 548
------- ------
Investment Activities
Purchases of Property, Plant and Equipment................ (762) (941)
Investments in Affiliates................................. (175) (109)
Proceeds from Sales of Assets and Subsidiaries............ 38 348
Net Decrease (Increase) in Short-Term Financial
Instruments............................................ 4 (16)
------- ------
Cash Used for Investment Activities............... (895) (718)
------- ------
Financing Activities
Cash Dividends (Note 5)................................... (207) --
Treasury Stock Purchases.................................. (24) --
Short-Term Borrowings -- Net.............................. 984 (19)
Long-Term Borrowings -- Receipts.......................... 3,970 --
-- Payments...................... (20) (2)
Related Party Borrowings -- Receipts...................... 865 260
-- Payments................... (5,461) (62)
Related Party Notes Receivable -- Receipts................ -- 25
-- Payments............ -- (162)
Net Cash Contribution From (To) Owner..................... 2 (177)
Decrease in Minority Interests............................ (11) (12)
------- ------
Cash Provided by (Used for) Financing
Activities....................................... 98 (149)
------- ------
Effect of Exchange Rate Changes on Cash..................... (15) 1
------- ------
Decrease in Cash and Cash Equivalents....................... (142) (318)
Cash and Cash Equivalents at Beginning of Year.............. 394 1,147
------- ------
Cash and Cash Equivalents at June 30........................ $ 252 $ 829
======= ======
</TABLE>

See Notes to Consolidated Financial Statements

F-48
<PAGE> 162

CONOCO INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)

1. BASIS OF PRESENTATION

Conoco Inc., including its consolidated subsidiaries ("Conoco"), is an
integrated, global energy company that is involved in the Upstream and
Downstream operating segments of the petroleum industry. Activities of the
Upstream operating segment include exploring for, and developing, producing and
selling crude oil, natural gas and natural gas liquids. Activities of the
Downstream operating segment include refining crude oil and other feedstocks
into petroleum products, buying and selling crude oil and refined products and
transporting, distributing and marketing petroleum products. Conoco has four
reporting segments for its Upstream and Downstream businesses, reflecting
geographic division between the United States and International. Corporate and
other includes general corporate expenses, financing costs and other
non-operating items, and results for electric power and related-party insurance
operations.

The initial public offerings (the "Offerings") of the Class A common stock
of Conoco commenced on October 21, 1998, and the Class A common stock began
trading on the New York Stock Exchange on October 22, 1998. The Offerings
consisted of 191,456,427 shares of Class A common stock issued at a price of $23
per share, and represented E.I. du Pont de Nemours and Company's ("DuPont")
first step in the planned divestiture of Conoco. Through its ownership of 100
percent of Conoco's Class B common stock (436,543,573 shares), DuPont owned
approximately 70 percent of Conoco's common stock representing approximately 92
percent of the combined voting power of all classes of voting stock of Conoco at
June 30, 1999. The holders of Class A common stock and Class B common stock
generally have identical rights, except that holders of Class A common stock are
entitled to one vote per share while holders of Class B common stock are
entitled to five votes per share on matters to be voted on by stockholders.

Prior to the date of the Offerings, operations were conducted by Conoco
Inc., subsidiaries of Conoco Inc. and, in some cases, subsidiaries of DuPont.
The accompanying consolidated financial statements for the periods ended June
30, 1998 are presented on a carve-out basis prepared from DuPont's historical
accounting records, and include the historical operations of both entities owned
by Conoco and operations transferred to Conoco by DuPont at the time of the
Offerings. In this context, no direct ownership relationship existed among all
the various units comprising Conoco. Accordingly, net cash contributions from/to
owner prior to the Offerings included funds transferred between Conoco and
DuPont for operating needs, cash dividends paid and other equity transactions.

On July 12, 1999, DuPont commenced an exchange offer in which it offered
its stockholders the opportunity to receive 2.95 shares of Conoco Class B common
stock in exchange for each share of DuPont common stock validly tendered and
accepted in the exchange offer, up to a maximum of 147,980,872 DuPont shares.
The exchange offer expired on August 6, 1999, and DuPont announced the final
results of the exchange offer on August 12, 1999. As a result of the exchange
offer, all of the 436,543,573 shares of Class B common stock owned by DuPont
were distributed to DuPont stockholders. The exchange offer was the final step
in DuPont's planned divestiture of Conoco.

These consolidated interim financial statements are unaudited, but reflect
all adjustments that, in the opinion of management, are necessary to provide a
fair presentation of the financial position, results of operations and cash
flows for the dates and periods covered. All such adjustments are of a normal
recurring nature. Interim period results are not necessarily indicative of
results of operations or cash flows

F-49
<PAGE> 163
CONOCO INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)

for a full-year period. These interim financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in Conoco's 1998 Annual Report on Form 10-K as amended.

2. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

Effective January 1, 1999, Conoco adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities," issued by the American
Institute of Certified Public Accountants. This Statement requires that costs
related to start-up activities, including organization costs, be expensed as
incurred. Conoco's policy has been one of expensing organization and other
similar costs of start-up operations. Accordingly, there was no effect on
earnings due to the adoption of this pronouncement.

In June 1998, the Financial Accounting Standard Board ("FASB") issued
Statement on Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires that companies
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. SFAS No. 133 provides, if certain
conditions are met, that a derivative may be specifically designated as (1) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment (fair value hedge), (2) a hedge of
the exposure to variable cash flows of a forecasted transaction (cash flow
hedge), or (3) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security or a foreign-currency-denominated forecasted transaction (foreign
currency hedge). Under SFAS No. 133, the accounting for changes in fair value of
a derivative depends on its intended use and designation. For a fair value
hedge, the gain or loss is recognized in earnings in the period of change
together with the offsetting loss or gain on the hedged item. For a cash flow
hedge, the effective portion of the derivative's gain or loss is initially
reported as a component of other comprehensive income and subsequently
reclassified into earnings when the forecasted transaction affects earnings. For
a foreign currency hedge, the gain or loss is reported in other comprehensive
income as part of the cumulative translation adjustment. For all other items not
designated as hedging instruments, the gain or loss is recognized in earnings in
the period of change. In June 1999, the FASB approved the issuance of SFAS No.
137 deferring the effective date of SFAS No. 133 for one year. Consequently,
Conoco is required to adopt SFAS No. 133 by the first quarter of 2001 and is
currently assessing its effect on the consolidated financial statements.

3. RELATED PARTY TRANSACTIONS

The consolidated financial statements include significant transactions with
DuPont involving services (such as cash management, other financial services,
purchasing, legal, computer and corporate aviation) and general corporate
expenses that were provided between Conoco and DuPont organizations. For periods
prior to the Offerings, the costs of services were directly charged or allocated
between Conoco and DuPont using methods management believes are reasonable.
These methods include negotiated usage rates, dedicated asset assignment and
proportionate corporate formulas involving assets, revenues and employees. Such
charges and allocations were not necessarily indicative of what would have been
incurred if Conoco had been a separate entity.

Amounts charged and allocated to Conoco for these services were $8 and $38
for the second quarter of 1999 and 1998, respectively, and $15 and $72 for the
first six months of 1999 and 1998, respectively, and are principally included in
selling, general and administrative expenses. Conoco provided DuPont services
such as computer, legal and purchasing, as well as certain technical and plant
operating services, which amounted to $6 and $11 for the second quarter of 1999
and 1998, respectively, and $13 and $25 for

F-50
<PAGE> 164
CONOCO INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)

the first six months of 1999 and 1998, respectively. These charges to DuPont
were treated as reductions, as appropriate, of cost of goods sold and other
operating expenses and selling, general and administrative expenses.

Interest expense charged by DuPont was $19 and $28 for the second quarter
of 1999 and 1998, respectively, and $91 and $55 for the first six months of 1999
and 1998, respectively, and reflects market-based interest rates. A portion of
historical related party interest cost and other interest expense of $1 and $29
for the second quarter of 1999 and 1998, respectively, and $3 and $57 for the
first six months of 1999 and 1998, respectively, was capitalized as costs
associated with major construction projects. Interest income from DuPont was $17
for the second quarter of 1998, and $33 for the first six months of 1998, and
also reflects market-based interest rates.

Sales and other operating revenues include sales of products from Conoco to
DuPont, principally natural gas and gas liquids to supply several DuPont plant
sites. These sales totaled $88 and $99 for the second quarter of 1999 and 1998,
respectively, and $179 and $209 for the first six months of 1999 and 1998,
respectively. Also included, for the second quarter of 1998 and the first six
months of 1998, are revenues of $5 and $10 from insurance premiums charged to
DuPont for property and casualty coverage outside the United States. Purchases
of products from DuPont during these periods were not material. Subsequent to
the Offerings, these intercompany arrangements between DuPont and Conoco,
excluding insurance coverage provided to DuPont, are provided under transition
service agreements or other long-term agreements. It is not anticipated that a
change, if any, in these costs and revenues would have a material effect on
Conoco's results of operations or consolidated financial position.

Accounts and notes receivable include amounts due from DuPont of $64 and
$80 at June 30, 1999, and December 31, 1998, respectively, representing current
month balances of transactions between Conoco and DuPont, mainly product sales
and certain charges billed annually. Accounts payable include amounts due DuPont
of $10 and $52 at June 30, 1999, and December 31, 1998, respectively. Other
liabilities include accrued interest of $51 due DuPont at December 31, 1998.

In connection with the separation from DuPont, Conoco incurred indebtedness
to DuPont, consisting of a $7,500 dividend promissory note, other intercompany
notes and borrowings under a revolving credit agreement with DuPont. Amounts
representing borrowings from DuPont, including its subsidiary organizations, are
identified as related parties and presented separately in the consolidated
balance sheet. At December 31, 1998, Conoco had long-term borrowings from
related parties of $4,596, representing the balance under two promissory notes
due on or before January 2, 2000. At June 30, 1999, Conoco had no aggregate
related parties borrowings.

In April 1999, Conoco issued and sold in a public offering $4,000 in senior
fixed-rate debt securities with a weighted average interest rate of 6.49
percent. The net proceeds of this offering of $3,970 were used to repay a
portion of Conoco's separation-related indebtedness to DuPont. The remaining
debt owed to DuPont was repaid in May 1999 with proceeds from a commercial paper
program. The commercial paper program provides Conoco with up to $2,000 of
borrowing capacity and gives Conoco the ability to issue commercial paper at any
time with various maturities not to exceed 270 days. As of June 30, 1999, Conoco
had $988 of commercial paper outstanding, bearing a weighted average interest
rate of 5.26 percent.

Upon repayment of the indebtedness to DuPont, Conoco and DuPont terminated
the revolving credit agreement.

F-51
<PAGE> 165
CONOCO INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)

4. EARNINGS PER SHARE

Basic earnings per share ("EPS") is computed by dividing net income (the
numerator) by the weighted average number of common shares outstanding plus the
effects of award and fee deferrals that are invested in Conoco stock units by
certain employees and directors of Conoco (the denominator). Diluted EPS is
similarly computed, except that the denominator is increased to include the
dilutive effects of outstanding stock options awarded under Conoco's
compensation plans.

As described in Note 1, Conoco's capital structure was established at the
time of the Offerings. In accordance with SEC Staff Accounting Bulletin No. 98,
the capitalization of Class B common stock has been retroactively reflected for
the purposes of presenting earnings per share for the second quarter and first
six months of 1998. For the second quarter and first six months of 1999, basic
EPS reflects the Class B common stock plus the weighted average number of shares
of Class A common stock and deferred award units outstanding at June 30, 1999.
Corresponding diluted EPS for the second quarter and first six months of 1999
includes an additional 10,502,805 and 8,772,737 shares, respectively,
representing the weighted average dilutive effect of outstanding stock options
that resulted from the concurrent cancellation of DuPont stock options at the
date of the Offerings and the issuance of options with respect to Class A common
stock.

The denominator is based on the following weighted average number of common
shares outstanding:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Basic...................................................... 627,553,205 436,543,573
Diluted.................................................... 636,325,942 436,543,573
</TABLE>

Variable stock options for 1,724,146 shares of common stock were
outstanding at June 30, 1999, but were not included in the computation of
diluted EPS since the threshold price of $32.88 required for these options to be
vested had not been reached.

Common shares held as treasury stock are deducted in determining the number
of shares outstanding.

For the three months and six months ended June 30, 1999, stock options for
3,793 and 49,419 shares, respectively, of Class A common stock were antidilutive
and therefore were not included in the diluted earnings per share calculation
because the exercise price was greater than the average market price.

PRO FORMA EPS

Pro forma EPS for the second quarter and the first six months of 1998
includes the shares of Conoco Class A and Class B common stock and deferred
award units outstanding immediately after the Offerings as if the Offerings had
been completed in the beginning of the period presented. Pro forma basic EPS is
based on pro forma net income for the second quarter and the first six months of
1998 divided by the total Class A and Class B common stock plus deferred award
units outstanding immediately after the Offerings (basic shares). For pro forma
diluted EPS, basic shares have been adjusted to reflect the effect of
outstanding stock options immediately after the Offerings as though outstanding
for the periods presented. Pro forma net income reflects historical income for
the periods adjusted to give effect to the transactions substantially completed
in October 1998 directly associated with the Offerings and separation from
DuPont.

F-52
<PAGE> 166
CONOCO INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)

The reconciliation of historical net income to pro forma net income with
pro forma adjustments separately identified is as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------------------------------
1999 1998 1998
ACTUAL PRO FORMA ACTUAL
------------ ------------ ------------
<S> <C> <C> <C>
Historical net income............................. $ 197 $ 530 $ 530
Lower interest income(1)..................... -- (53) --
Incremental interest expense(2).............. -- (91) --
Related tax effects(3)....................... -- 36 --
------------ ------------ ------------
Net income...................................... $ 197 $ 422 $ 530
============ ============ ============
Earnings per share:
Basic........................................ $ .31 $ .67 $ 1.21
Diluted...................................... $ .31 $ .66 $ 1.21
Weighted average shares outstanding:
Basic........................................ 627,553,205 628,195,100 436,543,573
Diluted...................................... 636,325,942 636,746,186 436,543,573
</TABLE>

- ---------------

(1) Lower interest income due to settlement of related party notes receivables
and the impact of currency exchange rates on certain intercompany loans
purchased by Conoco from DuPont.

(2) Incremental interest expense resulting from Conoco's new debt structure.

(3) Tax effects associated with adjustments in (1) and (2) and the impact of the
calculation of income taxes on a separate return basis.

5. DIVIDENDS

<TABLE>
<CAPTION>
DIVIDENDS
1999 DIVIDENDS PAID PER SHARE
- ------------------- ---------
<S> <C>
First Quarter............................................. $0.14
Second Quarter............................................ $0.19
-----
Dividends Paid Through June 30, 1999...................... $0.33
=====
</TABLE>

On July 29, 1999, Conoco declared a quarterly cash dividend of $.19 per
share on each outstanding share of Class A and Class B common stock, payable on
September 11, 1999, to stockholders of record on August 13, 1999.

6. INVENTORIES

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Crude oil and petroleum products............................ $718 $661
Other merchandise........................................... 23 22
Materials and supplies...................................... 117 124
---- ----
$858 $807
==== ====
</TABLE>

F-53
<PAGE> 167
CONOCO INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)

7. RESTRUCTURING

In December 1998, Conoco announced, that as a result of a comprehensive
review of its assets and long-term strategy, Conoco was making organizational
realignments consistent with furthering the efficiency of operations and taking
advantage of synergies created by the upgrading of its asset portfolio. The
announced plans are being implemented in 1999 and will result in a reduction of
approximately 775 Upstream positions and 200 Downstream positions worldwide.
About three quarters of the Upstream positions and about half of the Downstream
positions affected will be in the United States. These reductions largely
reflect the elimination of redundancies at all levels resulting from past and
ongoing consolidation of assets into operations requiring less employee support
as well as better sharing of common services and functions across regions.
Associated with these announcements, Conoco recorded a charge in the fourth
quarter of 1998 of $82 pretax ($52 after-tax), nearly all of which represents
termination payments and related employee benefits to be made to persons
affected. During the first six months of 1999 approximately 465 persons left
Conoco under implementation of these realignment plans. The following table
shows the status of, and changes to, the restructuring reserve for the first six
months of 1999.

<TABLE>
<CAPTION>
AMOUNTS
-------
<S> <C>
Reserve at December 31, 1998............................... $ 82
Expenditures............................................. (23)
New accruals............................................. --
----
Reserve at June 30, 1999................................... $ 59
====
</TABLE>

We expect the restructuring efforts provided for in December 1998 will be
substantially completed by year-end 1999.

8. COMMITMENTS AND CONTINGENT LIABILITIES

Conoco has various purchase commitments for materials, supplies, services
and items of permanent investment incident to the ordinary conduct of business.
In the aggregate, such commitments are not at prices in excess of current
market. In addition, at June 30, 1999, Conoco had obligations under
international contracts to purchase, over periods up to 20 years, natural gas at
prices that were in excess of current market prices at June 30, 1999. No
material annual loss is expected from these long-term commitments.

Conoco is subject to various lawsuits and claims involving a variety of
matters including, along with other oil companies, actions challenging oil and
gas royalty and severance tax payments based on posted prices, and claims for
damages resulting from leaking underground storage tanks. As a result of the
separation agreement with DuPont, Conoco has also assumed responsibility for
current and future claims related to certain discontinued chemicals and
agricultural chemicals businesses operated by Conoco in the past. In general,
the effect on future financial results is not subject to reasonable estimation
because considerable uncertainty exists. Conoco believes the ultimate
liabilities resulting from such lawsuits and claims may be material to results
of operations in the period in which they are recognized but will not materially
affect the consolidated financial position of Conoco.

Conoco is also subject to contingencies pursuant to environmental laws and
regulations that in the future may require further action to correct the effects
on the environment of prior disposal practices or releases of petroleum
substances by Conoco or other parties. Conoco has accrued for certain
environmental remediation activities consistent with the policy set forth in
Note 2 to the consolidated financial statements

F-54
<PAGE> 168
CONOCO INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)

presented in Conoco's 1998 Form 10-K as amended. Conoco has assumed
environmental remediation liabilities from DuPont related to certain
discontinued chemicals and agricultural chemicals businesses operated by Conoco
in the past, which are included in the environmental accrual. At June 30, 1999,
such accrual amounted to $125 and, in management's opinion, was appropriate
based on existing facts and circumstances. Under adverse changes in
circumstances, potential liability may exceed amounts accrued. Although future
remediation expenditures in excess of current reserves are possible, the effect
of any such excess on future financial results is not subject to reasonable
estimation because of the considerable uncertainty regarding the cost and timing
of expenditures. In the event future monitoring and remediation expenditures are
in excess of amounts accrued, they may be significant to results of operations
in the period recognized but management does not anticipate they will have a
material adverse effect on the consolidated financial position of Conoco.

Conoco has indirectly guaranteed various debt obligations under agreements
with certain affiliated and other companies to provide specified minimum
revenues from shipments or purchases of products. At June 30, 1999, these
indirect guarantees totaled $9 and Conoco or DuPont, on behalf of and
indemnified by Conoco, had directly guaranteed $1,231 of the obligations of
certain affiliated companies and others. Conoco has a multiparty banking
agreement that provides for the indirect guarantee of bank account overdrafts
for itself and its subsidiaries. No material loss is anticipated by reason of
such agreements and guarantees.

9. COMPREHENSIVE INCOME

The following sets forth Conoco's comprehensive income for the periods
shown:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30
------------
1999 1998
----- ----
<S> <C> <C>
Net Income.................................................. $ 197 $530
Other Comprehensive Loss:
Foreign Currency Translation Adjustment................... (105) (27)
----- ----
Comprehensive Income........................................ $ 92 $503
===== ====
</TABLE>

10. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

Conoco is involved in both the Upstream and Downstream operating segments
of the petroleum industry. Activities of the Upstream operating segment include
exploring for, and developing, producing and selling, crude oil, natural gas and
natural gas liquids. Activities of the Downstream operating segment include
refining crude oil and other feedstocks into petroleum products, buying and
selling crude oil and refined products and transporting, distributing and
marketing petroleum products. Conoco has four reporting segments for its
Upstream and Downstream businesses, reflecting geographic division between the
United States and International. Corporate and other includes general corporate
expenses, financing costs and other non-operating items, and results for
electric power and related-party insurance operations. Conoco sells its products
worldwide. Major products include crude oil, natural gas and refined products
that are sold primarily in the energy and transportation markets. Conoco's sales
are not materially

F-55
<PAGE> 169
CONOCO INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE)
(UNAUDITED)

dependent on a single customer or small group of customers. Transfers between
segments are on the basis of estimated market values.

<TABLE>
<CAPTION>
UPSTREAM DOWNSTREAM
---------------------- ---------------------- CORPORATE
UNITED UNITED AND
SEGMENT INFORMATION STATES INTERNATIONAL STATES INTERNATIONAL OTHER CONSOLIDATED
- ------------------- ------ ------------- ------ ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Sales and Other Operating
Revenues.................... $1,407 $ 922 $4,665 $4,545 $ 24 $11,563
Transfers Between Segments.... 162 184 45 105 -- --
------ ------ ------ ------ ----- -------
Total Operating
Revenues.......... $1,569 $1,106 $4,710 $4,650 $ 24 $11,563
====== ====== ====== ====== ===== =======
Net Income (Loss)............. $ 92 $ 154 $ 45 $ 42 $(136) $ 197

SIX MONTHS ENDED JUNE 30, 1998
Sales and Other Operating
Revenues.................... $1,667 $ 808 $4,465 $4,069 $ 339 $11,348
Transfers Between Segments.... 165 219 46 86 -- --
------ ------ ------ ------ ----- -------
Total Operating
Revenues.......... $1,832 $1,027 $4,511 $4,155 $ 339 $11,348
====== ====== ====== ====== ===== =======
Net Income (Loss)(1).......... $ 144 $ 215 $ 86 $ 95 $ (10) $ 530
</TABLE>

- ---------------

(1) Includes after-tax benefits (charges) from special items:

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1998
Asset Sales................. $ -- $ 54 $ -- $ -- $ -- $ 54
Litigation Charges.......... -- -- (28) -- -- (28)
------ ------ ------ ------ ----- -------
Total............... $ -- $ 54 $ (28) $ -- $ -- $ 26
====== ====== ====== ====== ===== =======
</TABLE>

F-56
<PAGE> 170

CONOCO INC.'S DIRECT STOCK PURCHASE
& DIVIDEND REINVESTMENT PLAN

[CONOCO LOGO]

CONOCO CONNECTION

CORRESPONDENCE
For stockholder and CONOCO CONNECTION inquiries,
contact EquiServe:
First Chicago Trust Company of New York
CONOCO CONNECTION
c/o EquiServe
P.O. Box 2598
Jersey City, NJ 07303-2598
Telephone: (800) 317-4445
Outside the U.S. and Canada: 201-324-0313

If you wish to contact Conoco directly, you may write to:
Conoco Inc.
Shareholder Relations Department
P.O. Box 2197
Houston, TX 77252-2197
Telephone: (281) 293-6800

THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
<PAGE> 171

INFORMATION NOT REQUIRED IN PROSPECTUS

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Set forth below is a table of the registration fee for the Securities and
Exchange Commission, the filing fee for the National Association of Securities
Dealers, Inc., the listing fee for the New York Stock Exchange and estimates of
all other expenses to be incurred in connection with the issuance and
distribution of the securities described in this Registration Statement, other
than underwriting discounts and commissions:

<TABLE>
<S> <C>
SEC registration fee........................................ $14,578.32
NYSE listing fee............................................ *
Blue sky fees and expenses.................................. *
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Miscellaneous............................................... *
----------
Total............................................. $ *
==========
</TABLE>

- ---------------
* To be supplied by amendment.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation -- a "derivative action"),
if they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
action, and the statute required court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, by-laws,
disinterested director vote, stockholder vote, agreement or otherwise.

Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personably liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (1) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) for
payments of unlawful dividends or unlawful stock repurchases or redemptions, or
(4) for any transaction from which the director derived an improper personal
benefit.

Article 5E(2) of the certificate of incorporation of Conoco (the
"Registrant") provides that no director shall be personally liable to Conoco or
any of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (1) for any breach of the director's duty of
loyalty to Conoco or its stockholders, (2) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (3)
under section 174 of the Delaware General Corporation Law or (4) for any
transaction from which the director derived an improper personal benefit. Any
repeal or modification of such Article 5E(2) shall not adversely affect any
right or protection of a director of the Registrant for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
Conoco's by-laws provide for indemnification of directors and officers to the
maximum extent permitted by Delaware law.

I
<PAGE> 172

Conoco has entered into indemnification agreements with each of its
directors and persons named in the Prospectus constituting a part of this
Registration Statement (collectively, "Indemnitees"). Such agreements provide
that, to the fullest extent permitted by applicable law, Conoco shall indemnify
and hold each Indemnitee harmless from and against any and all losses and
expenses whatsoever (1) arising out of any event or occurrence related to the
fact that such Indemnitee is or was a director or officer of Conoco, is or was
serving in another capacity with Conoco, or by reason of anything done or not
done by such Indemnitee in such capacity and (2) incurred in connection with any
threatened, pending or completed legal proceeding.

The Registrant may provide liability insurance for each director and
officer for certain losses arising from claims or changes made against them
while acting in their capabilities as directors or officers of Registrant,
whether or not Registrant would have the power to indemnify such person against
such liability, as permitted by law.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
3.1 -- Second Amended and Restated Certificate of Incorporation of
Conoco Inc.(1)
3.2 -- By-laws of Conoco Inc. as amended May 12, 1999(2)
4.1 -- Specimen Certificate for shares of Class A Common Stock of
the Registrant(3)
4.2 -- Specimen Certificate for shares of Class B Common Stock of
the Registrant(3)
4.3 -- Preferred Share Purchase Rights Agreement(3)
4.4 -- Amendment to Preferred Share Purchase Rights Agreement(4)
4.5 -- Second Amendment to Preferred Share Purchase Rights
Agreement(5)
4.6 -- Indenture between Conoco and the Trustee relating to the
debt securities(6)
5.1 -- Opinion of Baker & Botts, L.L.P. regarding the legality of
the shares being registered(7)
10.1 -- Employment Agreement, dated September 23, 1999, between
Conoco and Archie W. Dunham(7)
10.2 -- Conoco Inc. Key Employee Severance Plan as amended(7)
10.3 -- Conoco Inc. Key Employee Temporary Severance Plan as
amended(7)
10.4 -- Conoco Salary Deferral & Savings Restoration Plan as
amended(7)
10.5 -- Directors' Charitable Gift Plan as amended(7)
10.6 -- 1998 Stock and Performance Incentive Plan as amended May 12,
1999(8)
10.7 -- 1998 Key Employee Stock Performance Plan as amended May 12,
1999(9)
10.8 -- Deferred Compensation Plan for Nonemployee Directors as
amended May 12, 1999(10)
10.19 -- Form Indemnity Agreement with Directors(3)
21.1 -- List of Principal Subsidiaries of the Registrant(11)
23.1 -- Consent of PricewaterhouseCoopers LLP(7)
24 -- Power of Attorney(12)
</TABLE>

- ---------------
(1) Incorporated by reference to exhibit 3.1 filed as part of Conoco's Form
10-Q for the quarter ended September 30, 1998.

(2) Incorporated by reference to exhibit 3.2 to Conoco's Form 10-Q for the
quarter ended March 31, 1999.

(3) Incorporated by reference to the exhibit of the same number filed as part
of Conoco's Registration Statement on Form S-1, File No. 333-60119.

(4) Incorporated by reference to Exhibit 4.6 of Conoco's Registration Statement
on Form S-8, File No. 333-65977.

II
<PAGE> 173

(5) Incorporated by Reference to Exhibit 4.1 of Conoco's Form 10-Q for the
quarter ended June 30, 1999.

(6) Incorporated by reference to exhibit 4.1 to Conoco's Registration Statement
on Form S-3, File No. 333-72291.

(7) Filed herein.

(8) Incorporated by reference to exhibit 10.2 to Conoco's Form 10-Q for the
quarter ended March 31, 1999.

(9) Incorporated by reference to exhibit 10.3 to Conoco's Form 10-Q for the
quarter ended March 31, 1999.

(10) Incorporated by reference to exhibit 10.1 to Conoco's Form 10-Q for the
quarter ended March 31, 1999.

(11) Incorporated by reference to exhibit 21.1 filed as part of Conoco's Form
10-K for the year ended December 31, 1998.

(12) Included on the signature page of this registration statement.

ITEM 22. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant under the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(a) To include any Prospectus required by Section 10(a)(3) of the
Securities Act:

(b) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of Prospectus filed
with the Commission under Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;

(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities

III
<PAGE> 174

offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

IV
<PAGE> 175

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on October 7, 1999.

CONOCO INC.

By: /s/ ROBERT W. GOLDMAN
------------------------------------
Name: Robert W. Goldman
Title: Senior Vice President,
Finance,
and Chief Financial
Officer

POWER OF ATTORNEY

Each person whose signature appears below appoints Archie W. Dunham, Robert
W. Goldman and Rick A. Harrington, and each of them, severally, as his true and
lawful attorney or attorneys-in-fact and agent or agents, each of whom shall be
authorized to act with or without the other, with full power of substitution and
resubstitution, for him and in his name, place and stead in his capacity as a
director or officer or both, as the case may be, of Conoco Inc., a Delaware
corporation (the "Company"), to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and all documents or
instruments necessary or appropriate to enable the Company to comply with the
Securities Act of 1933, and to file the same with the Securities and Exchange
Commission, with full power and authority to each of said attorneys-in-fact and
agents to do and perform in the name and on behalf of each such director or
officer, or both, as the case may be, each and every act whatsoever that is
necessary, appropriate or advisable in connection with any or all of the
above-described matters and to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them or their substitutes, may lawfully do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on October 7, 1999.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ ARCHIE W. DUNHAM Chairman, President and Chief Executive Officer
- ---------------------------------------------------
Archie W. Dunham

/s/ ROBERT W. GOLDMAN Senior Vice President, Finance, and Chief Financial Officer
- --------------------------------------------------- (Principal Financial Officer)
Robert W. Goldman

/s/ W. DAVID WELCH Controller (Principal Accounting Officer)
- ---------------------------------------------------
W. David Welch

/s/ RUTH R. HARKIN Director
- ---------------------------------------------------
Ruth R. Harkin

/s/ FRANK A. MCPHERSON Director
- ---------------------------------------------------
Frank A. McPherson
</TABLE>

V
<PAGE> 176

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Director
- ---------------------------------------------------
William K. Reilly

/s/ WILLIAM R. RHODES Director
- ---------------------------------------------------
William R. Rhodes

/s/ A.R. SANCHEZ Director
- ---------------------------------------------------
A.R. Sanchez

/s/ FRANKLIN A. THOMAS Director
- ---------------------------------------------------
Franklin A. Thomas
</TABLE>

VI
<PAGE> 177

EXHIBIT INDEX

- ---------------
(1) Incorporated by reference to exhibit 3.1 filed as part of Conoco's Form
10-Q for the quarter ended September 30, 1998.

(2) Incorporated by reference to exhibit 3.2 to Conoco's Form 10-Q for the
quarter ended March 31, 1999.

(3) Incorporated by reference to the exhibit of the same number filed as part
of Conoco's Registration Statement on Form S-1, File No. 333-60119.

(4) Incorporated by reference to Exhibit 4.6 of Conoco's Registration Statement
on Form S-8, File No. 333-65977.

(5) Incorporated by Reference to Exhibit 4.1 of Conoco's Form 10-Q for the
quarter ended June 30, 1999.

(6) Incorporated by reference to exhibit 4.1 to Conoco's Registration Statement
on Form S-3, File No. 333-72291.

(7) Filed herein.

(8) Incorporated by reference to exhibit 10.2 to Conoco's Form 10-Q for the
quarter ended March 31, 1999.

(9) Incorporated by reference to exhibit 10.3 to Conoco's Form 10-Q for the
quarter ended March 31, 1999.

(10) Incorporated by reference to exhibit 10.1 to Conoco's Form 10-Q for the
quarter ended March 31, 1999.

(11) Incorporated by reference to exhibit 21.1 filed as part of Conoco's Form
10-K for the year ended December 31, 1998.

(12) Included on the signature page of this registration statement.

<PAGE> 1
EXHIBIT 5.1

[BAKER & BOTTS LETTERHEAD]

001349.0165 October 6, 1999

Conoco Inc.
600 North Dairy Ashford
Houston, Texas 77079

Gentlemen:

As set forth in the Registration Statement on Form S-1 (the
"Registration Statement") to be filed by Conoco Inc., a Delaware corporation
(the "Company"), with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), relating to the sale
of up to 500,000 shares of Class A common stock, par value $.01 per share, and
1,500,000 shares of Class B common stock, par value $.01 per share, of the
Company (the "Shares") under Conoco Connection, the Company's dividend
reinvestment and direct stock purchase plan (the "Plan"), we are passing upon
certain legal matters in connection with the Shares for the Company. At your
request, we are furnishing this opinion to you for filing as Exhibit 5.1 to the
Registration Statement.

In our capacity as your counsel in the connection referred to above, we
have examined the Amended and Restated Certificate of Incorporation and Bylaws
of the Company, each as amended to date, and the originals, or copies certified
or otherwise identified, of corporate records of the Company, including minute
books of the Company as furnished to us by the Company, certificates of public
officials and of representatives of the Company, statutes and other instruments
and documents as a basis for the opinions hereinafter expressed. In giving such
opinions, we have relied upon certificates of officers of the Company and of
public officials with respect to the accuracy of the material factual matters
contained in such certificates.

We have assumed that all signatures on all documents examined by us are
genuine, that all documents submitted to us as originals are accurate and
complete, that all documents submitted to us as copies are true and correct
copies of the originals thereof and that all information submitted to us was
accurate and complete. In addition, we have assumed for purposes of paragraph 2
below that the consideration received by the Company for the Shares will be not
less than the par value of the Shares.

<PAGE> 2

Conoco Inc. -2- October 6, 1999

On the basis of the foregoing, and subject to the assumptions,
limitations and qualifications set forth herein, we are of the opinion that:

1. The Company is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware.

2. With respect to such of the Shares that are to be issued either
as newly issued shares or as treasury shares by the Company, such
Shares have been duly authorized; and when issued in accordance with
the terms and provisions of the Plan, such Shares will be validly
issued, fully paid and nonassessable.

3. With respect to such of the Shares that are to be purchased in
the open market on behalf of the Plan, such Shares have been duly
authorized and validly issued and are fully paid and nonassessable.

The opinions set forth above are limited in all respects to the General
Corporation Law of the State of Delaware as in effect on the date hereof.

We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. In giving such consent, we do not
admit that we are within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission thereunder.

Very truly yours,

BAKER & BOTTS, L.L.P.

<PAGE> 1
EXHIBIT 10.1

EMPLOYMENT AGREEMENT

<PAGE> 2

TABLE OF CONTENTS

PAGE
----
<S> <C> <C>

1. Employment Period........................................................................................1
2. Terms of Employment......................................................................................1
(a) Position and Duties..............................................................................1
(b) Compensation.....................................................................................2
(i) Base Salary.............................................................................2
(ii) Annual Bonus............................................................................2
(iii) Incentive, Savings and Retirement Plans.................................................2
(iv) Welfare Benefit Plans...................................................................2
(v) Expenses................................................................................3
(vi) Fringe Benefits and Perquisites.........................................................3
(vii) Office and Support Staff................................................................3
(viii) Vacation................................................................................3
(ix) Long-Term Incentive Compensation........................................................3
(x) Financial and Tax Planning..............................................................3
(xi) Life Insurance..........................................................................3
3. Termination of Employment................................................................................4
(a) Death or Disability..............................................................................4
(b) Cause............................................................................................4
(c) Good Reason; Window Period.......................................................................5
(d) Other Termination by the Executive...............................................................6
(e) Notice of Termination............................................................................6
(f) Date of Termination..............................................................................6
4. Obligations of the Company upon Termination..............................................................6
(a) Good Reason; During a Window Period; Other than for Cause or Death or Disability.................6
(b) Death or Disability (Including After a Change of Control and During a Window Period).............9
(c) Cause Outside a Window Period....................................................................9
(d) Other Termination by the Executive...............................................................9
(e) Expiration of Employment Period..................................................................9
5. Non-Exclusivity of Rights...............................................................................10
6. Full Settlement; Resolution of Disputes.................................................................10
7. Certain Additional Payments by the Company..............................................................11
8. Confidential Information................................................................................13
9. Change of Control.......................................................................................14
10. Successors..............................................................................................17
11. Miscellaneous...........................................................................................18
</TABLE>

-i-
<PAGE> 3

EMPLOYMENT AGREEMENT

This AGREEMENT (the "Agreement"), by and between CONOCO INC.,
a Delaware corporation (the "Company"), and ARCHIE W. DUNHAM (the "Executive"),
is dated as of the 23rd day of September, 1999, and is to be effective as
of the Agreement Effective Date (as defined in Section 11(i)).

In entering into this Agreement, the Board of Directors of the
Company (the "Board") desires to provide the Executive with substantial
incentives to continue to serve the Company as Chairman of the Board, President
and Chief Executive Officer and a member of the Board performing at the highest
level of leadership and stewardship, without distraction or concern over
compensation, benefits or tenure, to manage the Company's future growth and
development, and to maximize the returns to the Company's stockholders.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1. Employment Period. As of the Agreement Effective Date, the
Company hereby agrees to continue to employ the Executive, and the Executive
hereby agrees to accept employment with the Company, in accordance with, and
subject to, the terms and provisions of this Agreement, for the period (the
"Employment Period") commencing on the Agreement Effective Date and ending on
the date the Executive attains age 65.

2. Terms of Employment.

(a) Position and Duties.

(i) During the Employment Period, the Executive shall be the
Company's Chairman of the Board, President and Chief Executive Officer.
The Executive shall be based in the Company's principal offices within
the Houston, Texas metropolitan area, but it is contemplated that the
Executive will be required to travel outside that area, with frequency
and duration no more onerous than is consistent with the travel
required of the Executive during the one-year period preceding the
Agreement Effective Date.

(ii) During the Employment Period, excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote substantially full attention and time during
normal business hours to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, to use the Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities. During the
Employment Period, it shall not be a violation of this Agreement for
the Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
on a part-time basis at educational institutions and (C) manage
personal investments, so long as such activities do not interfere with
the performance of the Executive's responsibilities as an employee of
the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such

-1-
<PAGE> 4

activities have been conducted by the Executive during employment with
the Company prior to the Agreement Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Agreement Effective Date
shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.

(b) Compensation.

(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary of not less than $1,100,000.00
("Annual Base Salary"), which shall be paid in accordance with the
Company's regular payroll practices. Commencing on January 1, 2000, and
thereafter during the Employment Period, the Annual Base Salary shall
be reviewed at least annually and shall be increased at any time and
from time to time as shall be substantially consistent with competitive
industry practice but in no event less than increases consistent with
increases in base salary generally awarded in the ordinary course of
business to other executives of the Company, taking into account the
Executive's unique position with the Company. Any increase in Annual
Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be
reduced after any such increase, and the term "Annual Base Salary," as
utilized in this Agreement, shall refer to Annual Base Salary as so
increased.

(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year or portion thereof
during the Employment Period, an Annual Bonus opportunity (the "Annual
Bonus") in an amount substantially consistent with competitive industry
practice, prorated for any period consisting of less than 12 full
months.

(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in
all incentive, savings and retirement plans that are tax-qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended
("Code"), and in all plans that are supplemental to any such
tax-qualified plans, in each case to the extent that such plans are
applicable generally to other executives of the Company, but in no
event shall such plans provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit
opportunities that are, in each case, less favorable to the Executive,
in the aggregate, than the most favorable plans of the Company. As used
in this Agreement, the term "most favorable" shall, when used with
reference to any plans, practices, policies or programs of the Company,
be deemed to refer to the plans, practices, policies or programs of the
Company, as in effect at any time during the Employment Period and
provided generally to other executives of the Company, that are most
favorable to the Executive.

(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in

-2-
<PAGE> 5

and shall receive all benefits under all welfare benefit plans,
practices, policies and programs provided by the Company (including,
without limitation, medical, prescription, dental, vision, disability,
salary continuance, group life and supplemental group life, accidental
death and travel accident insurance plans and programs) to the extent
applicable generally to other executives of the Company, but in no
event shall such plans, practices, policies and programs provide the
Executive with benefits that are less favorable, in the aggregate, than
the most favorable such plans, practices, policies and programs of the
Company.

(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company.

(vi) Fringe Benefits and Perquisites. During the Employment
Period, the Executive shall be entitled to fringe benefits and
perquisites in accordance with the most favorable plans, practices,
programs and policies of the Company.

(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments at least equal to the most
favorable of the foregoing provided to the Executive by the Company at
any time during the Employment Period, and to secretarial and other
assistance to the extent needed to fulfill his corporate
responsibilities at least equal to the most favorable of the foregoing
provided to the Executive by the Company at any time during the
Employment Period.

(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company.

(ix) Long-Term Incentive Compensation. In addition to Base
Salary, Annual Bonus and other elements of compensation described in
Section 2(b) or otherwise in this Agreement, the Executive periodically
shall be awarded incentive compensation awards consisting of one or
more of stock options, stock appreciation rights, restricted stock,
stock units or performance awards, having in the aggregate target
values consistent with each of (A) the Executive's position and (B)
competitive industry practice.

(x) Financial and Tax Planning. The Executive shall be
entitled to reimbursement of (A) reasonable expenses incurred with
respect to preparation of his personal income tax returns and (B)
reasonable costs of financial counseling.

(xi) Life Insurance. The Company shall provide the Executive
with term life insurance in an amount equal to the Executive's Annual
Base Salary multiplied by four, which insurance may be provided through
one or more group policies and/or the purchase of an individual policy.
The Executive agrees to submit to physical examinations as reasonably
requested by the Company for purposes of obtaining such insurance.

-3-
<PAGE> 6

Notwithstanding the foregoing provisions of this Section 2(b), prior to a Change
of Control, the Company may reduce or modify amounts and benefits described in
this Section 2(b) to the extent that such changes are applicable to all of the
Company's senior executives.

3. Termination of Employment.

(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that a Disability of the Executive has
occurred during the Employment Period, it may give to the Executive written
notice in accordance with Section 11(d) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the later of (i) the date the
Executive would otherwise be placed on permanent disability status under the
Company's disability programs for United States salaried employees and (ii) the
30th day after receipt of such notice by the Executive, provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties (such later date being the
"Disability Effective Date"). For purposes of this Agreement, "Disability" shall
mean the absence of the Executive from the Executive's duties with the Company
on a full-time basis for 180 consecutive business days as a result of incapacity
due to mental or physical illness or injury which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).

(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean the Company's termination of the Executive's
employment for any of the following: (i) the Executive's final conviction of a
felony crime against the Company involving moral turpitude or (ii) the
Executive's deliberate and intentional continuing failure to substantially
perform his duties and responsibilities hereunder (except by reason of the
Executive's incapacity due to physical or mental illness or injury) for a period
of 45 days after the Required Board Majority has delivered to the Executive a
written demand for substantial performance hereunder which specifically
identifies the bases for the Required Board Majority's determination that the
Executive has not substantially performed his duties and responsibilities
hereunder (that 45-day period being the "Grace Period"); provided, that for
purposes of this clause (ii), the Company shall not have Cause to terminate the
Executive's employment unless (A) at a meeting of the Board called and held
following the Grace Period in the city in which the Company's principal
executive offices are located, of which the Executive was given not less than 10
days' prior written notice and at which the Executive was afforded the
opportunity to be represented by counsel, to appear and to be heard, the
Required Board Majority shall adopt a written resolution that (1) sets forth the
Required Board Majority's determination that the failure of the Executive to
substantially perform his duties and responsibilities hereunder has (except by
reason of his incapacity due to physical or mental illness or injury) continued
past the Grace Period and (2) specifically identifies the bases for that
determination, and (B) the Company, at the written direction of the Required
Board Majority, shall deliver to the Executive a Notice of Termination for Cause
to which a copy of that resolution, certified as being true and correct by the
secretary or any assistant secretary of the Company, is attached. "Required
Board Majority" means, at any

-4-
<PAGE> 7
time, a majority of the members of the Board at that time, which majority
includes at least a majority of those members of the Board who have never been
employed by the Company or any subsidiary of the Company.

(c) Good Reason; Window Period. The Executive's employment may
be terminated during the Employment Period by the Executive for Good Reason, or
during a Window Period by the Executive without any reason. For purposes of this
Agreement, "Window Period" shall mean the 30-day period immediately following
elapse of six months after the occurrence of any Change of Control as defined in
Section 9 of this Agreement. For purposes of this Agreement, "Good Reason" shall
mean:

(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2 of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith that is remedied by the Company promptly after receipt of
notice thereof given by the Executive;

(ii) any failure by the Company to comply with any of
the provisions of this Agreement not specifically addressed in parts
(iii) through (vi) below, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith that is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;

(iii) the Company's requiring the Executive to be
based at any office outside the Houston metropolitan area;

(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement;

(v) the failure to continue the Executive as Chairman
of the Board; or

(vi) any failure by the Company to comply with and
satisfy the requirements of Section 10 of this Agreement; provided that
(A) the successor described in Section 10(c) has received, at least 10
days prior to the Date of Termination (as defined in subparagraph (f)
below), written notice from the Company or the Executive of the
requirements of such provision, and (B) such failure to be in
compliance with and satisfy the requirements of Section 10 continues as
of the Date of Termination.

Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the Company is terminated
within one year prior to the date on which the Change of Control occurs, unless
it is reasonably demonstrated by the Company that such termination of employment
(x) was not at the request of a third party who has taken steps reasonably
calculated to effect the Change of Control and (y) otherwise did not arise in

-5-
<PAGE> 8

connection with or anticipation of the Change of Control, then any such
termination shall be deemed for Good Reason.

(d) Other Termination by the Executive. The Executive's
employment (and status as a member of the Board) may be terminated voluntarily
by the Executive at any time during the Employment Period and, if other than (i)
during a Window Period, (ii) at a time when the Executive is eligible to
terminate his employment for Good Reason or (iii) by retirement on or after the
date that the Executive has attained age 65 ("Normal Retirement"), is referred
to herein as an "Other Termination by the Executive." The Executive agrees not
to cause termination of employment to occur, except by reason of a Normal
Retirement, for Good Reason or Disability, within six months following a Change
of Control.

(e) Notice of Termination. Any termination shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 11(d) of this Agreement. The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Company hereunder or preclude the Executive or the
Company from asserting such fact or circumstance in enforcing the Executive's or
the Company's rights hereunder.

(f) Date of Termination. For purposes of this Agreement, the
term "Date of Termination" means (i) if the Executive's employment is terminated
by the Company for Cause, by the Executive during a Window Period or for Good
Reason, or as an Other Termination by the Executive, the date of receipt of the
Notice of Termination or any later date specified therein, as the case may be,
(ii) if the Executive's employment is terminated by the Company other than for
Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.

4. Obligations of the Company upon Termination.

(a) Good Reason; During a Window Period; Other than for Cause
or Death or Disability. If, during the Employment Period, (x) the Company shall
terminate the Executive's employment other than for Cause or death or
Disability, (y) the Executive shall terminate employment for Good Reason or (z)
the Executive's employment shall be terminated during a Window Period by the
Company or by the Executive for any reason other than death or Disability:

(i) the Company shall pay or provide to or in respect of the
Executive the following amounts and benefits:

-6-
<PAGE> 9

A. in a lump sum in cash, within 10 days after the
Date of Termination, an amount equal to the sum of (1) the
Executive's Annual Base Salary through the Date of
Termination, (2) any deferred compensation previously awarded
to or earned by the Executive (together with any accrued
interest or earnings thereon) and (3) any compensation for
unused vacation time for which the Executive is eligible in
accordance with the most favorable plans, policies, programs
and practices of the Company, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses
(1), (2) and (3) shall be hereinafter referred to as the
"Accrued Obligation");

B. in a lump sum in cash, undiscounted, within 10
days after the Date of Termination, an amount equal to the
amount of Annual Base Salary that would have been paid to the
Executive pursuant to this Agreement for the period (the
"Remaining Employment Period") beginning on the Date of
Termination and ending on the earlier of (x) the date that is
three years following the Termination Date and (y) the date
that the Executive attains age 65 (the "Final Expiration
Date") if the Executive's employment had not been terminated
plus the Annual Bonus that would have been paid or awarded to
or for the benefit of the Executive during the Remaining
Employment Period if the Executive's employment had not been
terminated and if the amount of the Annual Bonus for each
fiscal year or portion thereof during such period were equal
to the average of the two highest Annual Bonuses paid or
awarded to or for the benefit of the Executive in respect of
the three full fiscal years preceding the Date of Termination,
prorated in the case of any period of less than a full fiscal
year;

C. in a lump sum in cash, undiscounted, within 30
days after the Date of Termination, an amount equal to the
economic equivalent of the benefits the Executive (and his
dependents or beneficiaries) would have received or become
entitled to under Section 2(b)(iii) of this Agreement for the
Remaining Employment Period if the Executive's employment had
not been terminated;

D. effective as of the Date of Termination, (1) if
the Executive has not received a grant of stock options in
respect of any calendar year during the Employment Period or
the Remaining Employment Period, for each such calendar year,
a stock option grant covering the same number of shares and on
the same terms and conditions as the average of the prior
stock option grants to the Executive for the three full fiscal
years preceding the Date of Termination, prorated in the case
of any period of less than a full fiscal year, and (2) if the
Executive has not received a grant of restricted stock and/or
restricted stock units and/or other similar equity-based
awards in respect of any calendar year during the Employment
Period or the Remaining Employment Period, for each such
calendar year, a grant covering the same number of shares and
on the same terms and conditions as the average of the prior
grants of such awards to the Executive for the three full
fiscal years preceding the Date of Termination, prorated in
the case of any period of less than a full fiscal year;
provided that any awards required by (1) or (2) shall be
prorated based on the length of the Remaining

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<PAGE> 10

Employment Period as compared to the customary terms of such
awards for purposes of a recipient becoming entitled to full
vesting in such award; and

E. effective as of the Date of Termination, (1)
immediate vesting and exercisability of, and termination of
any restrictions on sale or transfer (other than any such
restriction arising by operation of law) with respect to, each
and every stock option, restricted stock award, restricted
stock unit award and other equity-based award and performance
award (each, a "Compensatory Award") that is outstanding as of
a time immediately prior to the Date of Termination, (2) the
extension of the term during which each and every Compensatory
Award may be exercised by the Executive until the earlier of
(x) the first anniversary of the Date of Termination or (y)
the date upon which the right to exercise any Compensatory
Award would have expired if the Executive had continued to be
employed by the Company under the terms of this Agreement
until the Final Expiration Date and (3) if a Change of Control
precedes or occurs within one year following the Date of
Termination, at the sole election of the Executive, in
exchange for any or all Compensatory Awards that are either
denominated in or payable in Common Stock (as defined in
Section 9 hereof), an amount in cash equal to the excess of
(x) the Highest Price Per Share over (y) the exercise or
purchase price, if any, of such Compensatory Awards. As used
herein, the term "Highest Price Per Share" shall mean the
highest price per share that can be determined to have been
paid or agreed to be paid for any share of Common Stock by a
Covered Person (as defined below) at any time during the
six-month period immediately preceding any Change of Control.
As used herein, the term "Covered Person" shall mean any
Person other than an Exempt Person (in each case as defined in
Section 9 hereof) who (I) is the Beneficial Owner (as defined
in Section 9 hereof) of 20% or more of the outstanding shares
of Common Stock or 20% or more of the combined voting power of
the outstanding Voting Stock (as defined in Section 9 hereof)
of the Company at any time during the Employment Period, (II)
is a Person who has any material involvement in proposing or
effectuating the Change of Control (as defined in Section 9
hereof), (III) is an assignee of or has otherwise succeeded to
any shares of Common Stock or Voting Stock of the Company
which were at any time during the Employment Period
"beneficially owned" (as defined in Section 9 hereof) by any
Person identified in clause (I) or (II) of this definition, if
such assignment or succession shall have occurred in the
course of a privately negotiated transaction rather than an
open market transaction, or (IV) is described in Section
3(c)(vi) hereof. For purposes of determining whether a Person
is a Covered Person, the number of shares of Common Stock or
Voting Stock of the Company deemed to be outstanding shall
include shares of which the Person is deemed the Beneficial
Owner, but shall not include any other shares which may be
issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants
or options. In determining the Highest Price Per Share, the
price paid or agreed to be paid by a Covered Person will be
appropriately adjusted to take into account (W) distributions
paid or payable in stock, (X) subdivisions of outstanding
stock, (Y) combinations of shares of stock into a smaller
number of shares and (Z) similar events.

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<PAGE> 11

(ii) for the Remaining Employment Period, or such longer
period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to them
in accordance with the most favorable plans, programs, practices and
policies described in Sections 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated (such continuation of
such benefits for the applicable period herein set forth shall be
hereinafter referred to as "Welfare Benefit Continuation"). For
purposes of determining eligibility of the Executive for retiree
benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until the Final
Expiration Date and to have retired on such date; and

(iii) for the Remaining Employment Period, to the extent not
previously paid or provided, the Company shall timely pay or provide to
the Executive and/or the Executive's family any other amounts or
benefits required to be paid or provided, or which the Executive and/or
the Executive's family is eligible to receive, pursuant to this
Agreement and under any plan, program, policy or practice or contract
or agreement of the Company as in effect and applicable generally to
other executives and their families on the Agreement Effective Date or,
if more favorable to the Executive, as in effect generally thereafter
with respect to other executives of the Company and their families
(such other amounts and benefits shall be hereinafter referred to as
the "Other Benefits").

(b) Death or Disability (Including After a Change of Control
and During a Window Period). If the Executive's employment is terminated by
reason of the Executive's death or Disability during the Employment Period
(regardless of whether a Change of Control has occurred or whether such
termination occurs during a Window Period), this Agreement shall terminate
without further obligations to the Executive under this Agreement, other than
the payment of Accrued Obligations which shall be paid to the Executive, or the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days after the Date of Termination.

(c) Cause Outside a Window Period. If the Executive's
employment shall be terminated for Cause during the Employment Period and other
than during a Window Period, this Agreement shall terminate without further
obligations to the Executive under this Agreement, other than the payment of the
Accrued Obligations. In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days after the Date of Termination.

(d) Other Termination by the Executive. If an Other
Termination by the Executive occurs during the Employment Period, this Agreement
shall terminate without further obligations to the Executive under this
Agreement, other than the payment of Accrued Obligations. In such case, all
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days after the Date of Termination.

(e) Expiration of Employment Period. Notwithstanding any other
provision of this Agreement, if the Executive remains employed until the
expiration of the Employment

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<PAGE> 12

Period, any termination of employment thereafter shall be treated as a
termination by the Executive with Good Reason.

5. Non-Exclusivity of Rights. Except as provided in Section 4
of this Agreement, nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of, or any contract or agreement with, the Company
at or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as such
plan, policy, practice or program or contract or agreement is superseded by this
Agreement.

6. Full Settlement; Resolution of Disputes.

(a) The Company's obligation to make payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set off, counterclaim, recoupment, defense, mitigation or other
claim, right or action which the Company may have against the Executive or
others. The Company agrees to pay promptly as incurred, to the fullest extent
permitted by law, all legal fees and expenses that the Executive may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others as to the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any such payment pursuant to this Agreement) plus, in each case, interest on
any delayed payment at the annual percentage rate which is three percentage
points above the interest rate shown as the Prime Rate in the Money Rates column
in the then most recently published edition of The Wall Street Journal
(Southwest Edition), or, if such rate is not then so published on at least a
weekly basis, the interest rate announced by Chase Bank Texas, N.A. (or its
successor), from time to time, as its "Base Rate" (or prime lending rate), from
the date those amounts were required to have been paid or reimbursed to the
Executive until those amounts are finally and fully paid or reimbursed;
provided, however, that in no event shall the amount of interest contracted for,
charged or received hereunder exceed the maximum non-usurious amount of interest
allowed by applicable law.

(b) If there shall be any dispute between the Company and the
Executive concerning (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause or Disability,
(ii) in the event of any termination of employment by the Executive, whether
Good Reason existed, (iii) whether termination occurred during a Window Period
or after expiration of the Employment Period, or (iv) the benefits to be
provided in respect of any termination of the Executive's employment with the
Company, then, unless and until there is a final, nonappealable judgment by a
court of competent jurisdiction declaring that such termination was for Cause or
Disability or that the determination by the Executive of the existence of Good
Reason was improper or that the termination did not occur during a Window Period
or after expiration of the Employment Period, or that the Executive or the
Executive's beneficiary or estate claimed improper benefits upon termination,
the Company

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<PAGE> 13

shall pay all amounts, and provide all benefits, to the Executive and/or the
Executive's family or other beneficiaries, as the case may be, that the Company
would be required to pay or provide pursuant to the applicable provisions of
Section 4 hereof as though such termination were by the Company without Cause or
by the Executive with Good Reason or by either party during a Window Period or
after expiration of the Employment Period, or the benefits that the Executive or
the Executive's beneficiary or estate claimed were properly payable hereunder.

7. Certain Additional Payments by the Company.

(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7 (a "Payment")) would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes) with respect to Payments, including, without limitation, any
income taxes (and any interest and penalties imposed with respect thereto) and
Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by PricewaterhouseCoopers LLP (the "Accounting Firm"); provided, however, that
the Accounting Firm shall not determine that no Excise Tax is payable by the
Executive unless it delivers to the Executive a written opinion (the "Accounting
Opinion") that failure to report the Excise Tax on the Executive's applicable
federal income tax return would not result in the imposition of a negligence or
similar penalty. In the event that PricewaterhouseCoopers LLP has served, at any
time during the two years immediately preceding a Change of Control Date, as
accountant or auditor for the individual, entity or group that is involved in
effecting or has any material interest in a Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations and perform the other functions specified in this Section 7
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company, the Accounting Firm shall make all determinations required under
this Section 7, shall provide to the Company and the Executive a written report
setting forth such determinations, together with detailed supporting
calculations, and, if the Accounting Firm determines that no Excise Tax is
payable, shall deliver the Accounting Opinion to the Executive. Any Gross-Up
Payment, as determined pursuant to this Section 7, shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
report. Subject to the remainder of this Section 7,

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<PAGE> 14

any determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment") consistent with the
calculations required to be made hereunder. In the event that it is ultimately
determined in accordance with the procedures set forth in Section 7(c) that the
Executive is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred, and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.

(c) The Executive shall notify the Company in writing of any
claims by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than 30 days after the Executive actually
receives notice in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid;
provided, however, that the failure of the Executive to notify the Company of
such claim (or to provide any required information with respect thereto) shall
not affect any rights granted to the Executive under this Section 7 except to
the extent that the Company is materially prejudiced in the defense of such
claim as a direct result of such failure. The Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which he
gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company notifies
the Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:

(i) give the Company any information reasonably requested by
the Company relating to such claim;

(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney selected by the Company and
reasonably acceptable to the Executive;

(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and

(iv) if the Company elects not to assume and control the
defense of such claim, permit the Company to participate in any
proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 7(c), the Company shall have the right, at its sole option, to
assume the defense of and control all proceedings in connection with such
contest, in which case it may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with

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<PAGE> 15

the taxing authority in respect of such claim and may either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis, and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's right to assume the
defense of and control the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder, and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim, and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid, and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.

8. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement) (referred to herein as "Confidential Information"). After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of this Section 8
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement. Also, within 14 days after the termination
of Executive's employment for any reason, the Executive shall return to Company
all documents and other tangible items containing Company information which are
in the Executive's possession, custody or control.

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<PAGE> 16

9. Change of Control.

As used in this Agreement, the terms set forth below shall
have the following respective meanings:

"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in
effect on the date of this Agreement.

"Associate" shall mean, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated organization or
other entity (other than the Company or a subsidiary of the Company) of which
such Person is an officer or general partner (or officer or general partner of a
general partner) or is, directly or indirectly, the Beneficial Owner of 10% or
more of any class of equity securities, (b) any trust or other estate in which
such Person has a substantial beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity and (c) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person.

"Beneficial Owner" shall mean, with reference to any
securities, any Person if:

(a) such Person or any of such Person's Affiliates and
Associates, directly or indirectly, is the "beneficial owner" of (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement)
such securities or otherwise has the right to vote or dispose of such
securities, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subsection (a) as a result
of an agreement, arrangement or understanding to vote such security if
such agreement, arrangement or understanding: (i) arises solely from a
revocable proxy or consent given in response to a public (i.e., not
including a solicitation exempted by Rule 14a-2(b)(2) of the General
Rules and Regulations under the Exchange Act) proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act
and (ii) is not then reportable by such Person on Schedule 13D under
the Exchange Act (or any comparable or successor report);

(b) such Person or any of such Person's Affiliates and
Associates, directly or indirectly, has the right or obligation to
acquire such securities (whether such right or obligation is
exercisable or effective immediately or only after the passage of time
or the occurrence of an event) pursuant to any agreement, arrangement
or understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, other rights, warrants or options,
or otherwise; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to "beneficially own," (i) securities tendered
pursuant to a tender or exchange offer made by such Person or any of
such Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange or (ii) securities issuable upon
exercise of Exempt Rights; or

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<PAGE> 17

(c) such Person or any of such Person's Affiliates or
Associates (i) has any agreement, arrangement or understanding (whether
or not in writing) with any other Person (or any Affiliate or Associate
thereof) that beneficially owns such securities for the purpose of
acquiring, holding, voting (except as set forth in the proviso to
subsection (a) of this definition) or disposing of such securities or
(ii) is a member of a group (as that term is used in Rule 13d-5(b) of
the General Rules and Regulations under the Exchange Act) that includes
any other Person that beneficially owns such securities;

provided, however, that nothing in this definition shall cause a Person engaged
in business as an underwriter of securities to be the Beneficial Owner of, or to
"beneficially own," any securities acquired through such Person's participation
in good faith in a firm commitment underwriting until the expiration of 40 days
after the date of such acquisition. For purposes hereof, "voting" a security
shall include voting, granting a proxy, consenting or making a request or demand
relating to corporate action (including, without limitation, a demand for a
stockholder list, to call a stockholder meeting or to inspect corporate books
and records) or otherwise giving an authorization (within the meaning of Section
14(a) of the Exchange Act) in respect of such security.

The terms "beneficially own" and "beneficially owning" shall
have meanings that are correlative to this definition of the term "Beneficial
Owner."

"Change of Control" shall mean any of the following occurring
on or after the Agreement Effective Date:

(a) any Person (other than an Exempt Person) shall become the
Beneficial Owner of 20% or more of the shares of Common Stock then
outstanding or 20% or more of the combined voting power of the Voting
Stock of the Company then outstanding; provided, however, that no
Change of Control shall be deemed to occur for purposes of this
subsection (a) if such Person shall become a Beneficial Owner of 20% or
more of the shares of Common Stock or 20% or more of the combined
voting power of the Voting Stock of the Company solely as a result of
(i) an Exempt Transaction or (ii) an acquisition by a Person pursuant
to a reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (i), (ii) and (iii) of subsection (c) of this definition are
satisfied;

(b) individuals who, as of the Agreement Effective Date,
constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Agreement
Effective Date whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board; provided, further, that there shall be excluded, for this
purpose, any such individual whose initial assumption of office occurs
as a result of any actual or threatened election contest that is
subject to the provisions of Rule 14a-11 of the General Rules and
Regulations under the Exchange Act;

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<PAGE> 18

(c) the shareholders of the Company shall approve a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more than
70% of the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation and the
combined voting power of the then outstanding Voting Stock of such
corporation beneficially owned, directly or indirectly, by all or
substantially all of the Persons who were the Beneficial Owners of the
outstanding Common Stock immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the outstanding Common Stock, (ii) no Person
(excluding any Exempt Person or any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 20% or more of the Common Stock then
outstanding or 20% or more of the combined voting power of the Voting
Stock of the Company then outstanding) beneficially owns, directly or
indirectly, 20% or more of the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding
Voting Stock of such corporation and (iii) at least a majority of the
members of the board of directors of the corporation resulting from
such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
or initial action by the Board providing for such reorganization,
merger or consolidation; or

(d) the shareholders of the Company shall approve (i) a
complete liquidation or dissolution of the Company unless such
liquidation or dissolution is approved as part of a plan of liquidation
and dissolution involving a sale or disposition of all or substantially
all of the assets of the Company to a corporation with respect to
which, following such sale or other disposition, all of the
requirements of clauses (ii)(A), (B) and (C) of this subsection (d) are
satisfied, or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a
corporation, with respect to which, following such sale or other
disposition, (A) more than 70% of the then outstanding shares of common
stock of such corporation and the combined voting power of the Voting
Stock of such corporation is then beneficially owned, directly or
indirectly, by all or substantially all of the Persons who were the
Beneficial Owners of the outstanding Common Stock immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition,
of the outstanding Common Stock, (B) no Person (excluding any Exempt
Person and any Person beneficially owning, immediately prior to such
sale or other disposition, directly or indirectly, 20% or more of the
Common Stock then outstanding or 20% or more of the combined voting
power of the Voting Stock of the Company then outstanding) beneficially
owns, directly or indirectly, 20% or more of the then outstanding
shares of common stock of such corporation and the combined voting
power of the then outstanding Voting Stock of such corporation and (C)
at least a majority of the members of the board of directors of such
corporation were members of the Incumbent Board at the time of the
execution of the initial agreement or initial action of the Board
providing for such sale or other disposition of assets of the Company.

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"Common Stock" shall mean the Class A common stock, par value
$.01 per share, of the Company and the Class B common stock, par value $.01 per
share, of the Company.

"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

"Exempt Person" shall mean any of the Company, any subsidiary
of the Company, any employee benefit plan of the Company or any subsidiary of
the Company, and any Person organized, appointed or established by the Company
for or pursuant to the terms of any such plan.

"Exempt Rights" shall mean any rights to purchase shares of
Common Stock or other Voting Stock of the Company if at the time of the issuance
thereof such rights are not separable from such Common Stock or other Voting
Stock (i.e., are not transferable otherwise than in connection with a transfer
of the underlying Common Stock or other Voting Stock), except upon the
occurrence of a contingency, whether such rights exist as of the Agreement
Effective Date or are thereafter issued by the Company as a dividend on shares
of Common Stock or other Voting Securities or otherwise.

"Exempt Transaction" shall mean an increase in the percentage
of the outstanding shares of Common Stock or the percentage of the combined
voting power of the outstanding Voting Stock of the Company beneficially owned
by any Person solely as a result of a reduction in the number of shares of
Common Stock then outstanding due to the repurchase of Common Stock or Voting
Stock by the Company, unless and until such time as (a) such Person or any
Affiliate or Associate of such Person shall purchase or otherwise become the
Beneficial Owner of additional shares of Common Stock constituting 1% or more of
the then outstanding shares of Common Stock or additional Voting Stock
representing 1% or more of the combined voting power of the then outstanding
Voting Stock, or (b) any other Person (or Persons) who is (or collectively are)
the Beneficial Owner of shares of Common Stock constituting 1% or more of the
then outstanding shares of Common Stock or Voting Stock representing 1% or more
of the combined voting power of the then outstanding Voting Stock shall become
an Affiliate or Associate of such Person.

"Person" shall mean any individual, firm, corporation,
partnership, association, trust, unincorporated organization or other entity.

"Voting Stock" shall mean, with respect to a corporation, all
securities of such corporation of any class or series that are entitled to vote
generally in the election of directors of such corporation (excluding any class
or series that would be entitled so to vote by reason of the occurrence of any
contingency, so long as such contingency has not occurred).

10. Successors.

(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of, and be enforceable by, the Executive's
heirs, executors and other legal representatives.

-17-
<PAGE> 20

(b) This Agreement shall inure to the benefit of, and be
binding upon, the Company and may only be assigned to a successor described in
Section 10(c).

(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.

11. Miscellaneous.

(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to principles
of conflict of laws that would require the application of the laws of any other
state or jurisdiction.

(b) The Executive acknowledges that the Company currently has
and may in the future institute comprehensive security programs associated with
the Executive and his position with the Company. The Executive further
acknowledges that such programs are instituted by the Company to protect the
Company's interest in the Executive's continued performance of his
responsibilities as Chairman of the Board, President and Chief Executive
Officer. To that end, the Executive agrees to comply with such programs and, to
the extent practicable, to cause members of his family to comply with such
programs if such individuals are covered thereby. The Executive further
acknowledges that the Company has a substantial interest in the health of the
Executive and agrees to comply with preventive medical policies and programs
established by the Company. Such policies currently include a requirement that
the Executive annually obtain a complete physical examination at the Mayo Clinic
(or another facility of similar stature at the election of the Executive).

(c) This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and heirs, executors and other legal representatives.

(d) All notices and other communications hereunder shall be in
writing and shall be given, if by the Executive to the Company, by telecopy or
facsimile transmission at the telecommunications number set forth below and, if
by either the Company or the Executive, either by hand delivery to the other
party or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:

-18-
<PAGE> 21

If to the Executive:

Mr. Archie W. Dunham
Conoco Inc.
600 North Dairy Ashford
Petroleum Building, Suite PE3034
Houston, Texas 77079-6651

If to the Company:

Conoco Inc.
600 North Dairy Ashford
Houston, Texas 77079-6651
Telecommunications Number: (281) 293-1054
Attention: General Counsel

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

(e) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.

(f) The Company may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.

(g) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
or during a Window Period pursuant to Section 3(c) of this Agreement, shall not
be deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.

(h) This Agreement supersedes that certain Severance
Agreement, dated May 10, 1998, between the parties. The provisions of this
Agreement shall govern in the event of a conflict or inconsistency with respect
to any other agreement concerning Executive's employment relationship with the
Company, including the provisions of any benefit plan, program or practice.

(i) This Agreement shall be effective as of August 17, 1999
(the "Agreement Effective Date").

-19-
<PAGE> 22

IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.

CONOCO INC.

By: /s/ Robert W. Goldman
-----------------------------------------
Robert W. Goldman, Senior Vice President,
Finance, and Chief Financial Officer

/s/ Archie W. Dunham
--------------------------------------------
Archie W. Dunham

-20-

<PAGE> 1
EXHIBIT 10.2

CONOCO INC.
KEY EMPLOYEE SEVERANCE PLAN

The Company hereby adopts the Conoco Inc. Key Employee
Severance Plan for the benefit of certain employees of the Company and its
subsidiaries, on the terms and conditions hereinafter stated. All capitalized
terms used herein are defined in Section 1 hereof. This Plan is intended to be a
plan maintained primarily for the purpose of providing deferred compensation for
a select group of management or highly compensated employees, within the meaning
of Title I of the Employee Retirement Income Security Act of 1974, as amended
and shall be interpreted in a manner consistent with such intention.

SECTION 1. DEFINITIONS. As hereinafter used:

1.1 "Affiliate" shall have the meaning set forth in Rule
12(b)(2) promulgated under Section 12 of the Exchange Act.

1.2 "Beneficial Owner" shall have the meaning set forth in
Rule 13(d)(3) under the Exchange Act.

1.3 "Board" means the Board of Directors of the Company.

1.4 "Cause" means (i) the willful and continued failure by the
Eligible Employee to substantially perform the Eligible Employee's duties with
the Employer (other than any such failure resulting from the Eligible Employee's
incapacity due to physical or mental illness), or (ii) the willful engaging, not
in good faith, by the Eligible Employee in conduct which is demonstrably
injurious to the Company or its subsidiaries, monetarily or otherwise.

1.5 "Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:

(i) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such
Person any securities acquired directly from the Company)
representing 30% or more of the combined voting power of the
Company's then outstanding securities, excluding any Person
who becomes such a Beneficial Owner in

<PAGE> 2

connection with a transaction described in clause (A) of
paragraph (iii) below; or

(ii) the following individuals cease for any
reason to constitute a majority of the number of directors
then serving: individuals who, on the date hereof, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or
recommended; or

(iii) there is consummated a merger or
consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation, other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit
plan of the Company or any subsidiary of the Company, at least
50% of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing 30%
or more of the combined voting power of the Company's then
outstanding securities; or

<PAGE> 3

assets to an entity, at least 50% of the combined voting power
of the voting securities of which are owned by stockholders of
the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale.

Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.

1.6 "Code" means the Internal Revenue Code of 1986, as it may
be amended from time to time.

1.7 "Company" means the Conoco, Inc. or any successors
thereto.

1.8 "Eligible Employee" means any employee that is a Tier 1
Employee or a Tier 2 Employee. An Eligible Employee becomes a "Severed
Employee" once he or she incurs a Severance.

1.9 "Employer" means the Company or any of its subsidiaries.

1.10 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.

1.11 "Excise Tax" shall mean any excise tax imposed under
section 4999 of the Code.

1.12 "Good Reason" means the occurrence, on or after the date
of a Change in Control or prior to a Change in Control under the circumstances
described in clauses (x) or (y) of the third sentence of Section 1.19 hereof
(treating all references in paragraphs (i) through (iii) below to a "Change in
Control" as references to a "Potential Change in Control"), and without the
Eligible Employee's written consent, of (i) the assignment to the Eligible
Employee of duties in the aggregate that are inconsistent with the Eligible
Employee's level of responsibility immediately prior to the date of the Change
in Control or any diminution in the nature or status of the Eligible Employee's
responsibilities from those in effect immediately prior to the

<PAGE> 4

date of the Change in Control; (ii) a reduction by the Company in the
Eligible Employee's annual base salary or any adverse change in the Eligible
Employee's aggregate annual and long term incentive compensation opportunity
from that in effect immediately prior to the Change in Control which change is
not pursuant to a program applicable to all comparably situated executives of
the Company; or (iii) the relocation of the Eligible Employee's principal place
of employment to a location more than thirty-five (35) miles from the Eligible
Employee's principal place of employment immediately prior to the date of the
Change in Control.

1.13 "Gross-Up Payment" shall have the meaning set forth in
Section 2.4 hereof.

1.14 "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its Affiliates
(including, without limitation, E.I. du Pont de Nemours and Company), (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or any of its Affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.

1.15 "Plan" means the Conoco, Inc. Key Employee Severance
Plan, as set forth herein, as it may be amended from time to time.

1.16 "Plan Administrator" means the person or persons
appointed from time to time by the Board which appointment may be revoked at any
time by the Board.

1.17 "Potential Change in Control" shall be deemed to have
occurred if:

(a) the Company enters into a written agreement, the
consummation of which would result in the occurrence
of a Change in Control; or

(b) any Person (including the Company) publicly announces
an intention to take or to consider taking actions
which if consummated would constitute a Change in
Control.

<PAGE> 5

1.18 "Public Offering" shall mean the initial sale of common
equity securities of the Company pursuant to an effective registration statement
(other than a registration on Form S-4 or S-8 or any successor or similar forms)
filed under the Securities Act of 1933.

1.19 "Severance" means the termination of an Eligible
Employee's employment with the Employer on or within two years following the
date of the Change in Control, (i) by the Employer other than for Cause, or (ii)
by the Eligible Employee for Good Reason. An Eligible Employee will not be
considered to have incurred a Severance if his employment is discontinued by
reason of the Eligible Employee's death or a physical or mental condition
causing such Eligible Employee's inability to substantially perform his duties
with the Employer, including, without limitation, such condition entitling him
or her to benefits under any sick pay or disability income policy or program of
the Employer. For purposes of this Plan, the Eligible Employee's employment
shall be deemed to have been terminated following a Change in Control by the
Employer without Cause or by the Eligible Employee with Good Reason, if (x) the
Eligible Employee's employment is terminated by the Employer without Cause
following a Potential Change in Control and prior to a Change in Control
(whether or not a Change in Control ever occurs) and such termination was at the
request or direction of a Person who has entered into a written agreement with
the Company or an Affiliate of the Company the consummation of which would
constitute a Change in Control or (y) the Eligible Employee terminates his
employment for Good Reason following a Potential Change in Control and prior to
a Change in Control (whether or not a Change in Control ever occurs) and the
circumstance or event which constitutes Good Reason occurs at the request or
direction of such Person. Notwithstanding anything herein to the contrary, Good
Reason shall not be deemed to have occurred unless the Company shall have been
given (1) written notice of the Eligible Employee's assertion that an event
constituting Good Reason has occurred, which notice shall be given not less than
30 days prior to the Severance Date to which such notice relates, and (2) a
reasonable opportunity to cure such occurrence during such 30 day period.

1.20 "Severance Date" means the date on or after the date of
the Change in Control on which an Eligible Employee incurs a Severance.

1.21 "Severance Pay" means the payment determined pursuant to
Section 2.1 hereof.

<PAGE> 6

1.22 "Tier 1 Employee" means any employee of the Employer
listed on Schedule A attached hereto.

1.23 "Tier 2 Employee" means any employee of the Employer
listed on Schedule B attached hereto.

SECTION 2. BENEFITS.

2.1 Each Tier 1 Employee and Tier 2 Employee who incurs a
Severance shall be entitled to receive Severance Pay equal to the sum of his or
her annual base salary and annual incentive compensation, multiplied by (i) 3,
in the case of a Tier 1 Employee and (ii) 2, in the case of a Tier 2 Employee.
For purposes of this Section, annual base salary shall be determined immediately
prior to the Severance Date (without regard to any reductions therein which
constitute Good Reason) and annual incentive compensation shall be deemed to
equal the annual incentive compensation earned by such employee pursuant to the
annual bonus or incentive plan maintained by the Company in respect of the
fiscal year ending immediately prior to such employee's Severance Date. The
Severance Pay shall be in lieu of any payments or benefits which may otherwise
be payable to the Severed Employee pursuant to any severance plan, policy or
program of the Company.

2.2 Severance Pay (as well as any amount payable pursuant to
Section 2.5 hereof) shall be paid to an eligible Severed Employee in a cash lump
sum, as soon as practicable following the Severance Date, but in no event later
than 10 business days immediately following the expiration of the revocation
period, if any, applicable to the Severed Employee's release, described in
Section 2.8.

2.3 For a period immediately following the Severance Date of
(i) 36 months for Tier 1 Employees and (ii) 24 months for Tier 2 Employees, the
Company shall arrange to provide the Eligible Employee and his dependents life,
disability, accident and health insurance benefits substantially similar to
those provided to the Eligible Employee and his dependents immediately prior to
the Severance Date, at no greater cost to the Eligible Employee than the cost to
the Eligible Employee immediately prior to such date. Benefits otherwise
receivable by the Eligible Employee pursuant to this Section 2.3 shall be
reduced to the extent benefits of the same type are received by or made
available to the Eligible Employee during the applicable period (and any such
benefits received by or made available to the Eligible Employee shall be
reported to the Company by the Eligible Employee).

<PAGE> 7

2.4 If a Severed Employee becomes entitled to Severance Pay,
then if any of the payments or benefits received or to be received by such
Severed Employee in connection with the Change in Control or his termination of
employment (whether pursuant to the terms of this Plan or any other plan,
arrangement or agreement) (such payments or benefits, excluding the Gross-Up
Payment, being hereinafter referred to as the "Total Payments") will be subject
to the Excise Tax, the Company shall pay to the Severed Employee an additional
amount (the "Gross-Up Payment") such that the net amount retained by the Severed
Employee, after deduction of any Excise Tax on the Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments. The Gross-Up Payment, if
any, shall be paid to an eligible Severed Employee in a cash lump sum, as soon
as practicable following the Severance Date, but, in any event, not later than
10 business days immediately following the expiration of the revocation period,
if any, applicable to the Severed Employee's release, described in Section 2.8.

In the event that the Excise Tax is finally determined to be
less than the amount taken into account hereunder in calculating the Gross-Up
Payment, the Severed Employee shall repay to the Company, within five (5)
business days following the time that the amount of such reduction in the Excise
Tax is finally determined, the portion of the Gross-Up Payment attributable to
such reduction, plus interest on the amount of such repayment at 120% of the
semiannual compounding short term Applicable Federal Rate published with respect
to the month in which occurs the Severance Date. In the event that the Excise
Tax is determined to exceed the amount taken into account hereunder in
calculating the Gross-Up Payment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or additions payable by the Severed
Employee with respect to such excess) within five (5) business days following
the time that the amount of such excess is finally determined. The Severed
Employee shall notify the Company immediately of the assertion by any taxing
authority of any underpayment of tax. The Severed Employee and the Company shall
each reasonably cooperate with the other in connection with any administrative
or judicial proceedings concerning the existence or amount of liability for
Excise Tax with respect to the Total Payments and in resolving any dispute with
any taxing authority regarding any asserted underpayment of Excise Tax.

<PAGE> 8

2.5 Each Tier 1 Employee and Tier 2 Employee who incurs a
Severance shall be entitled to receive the employee's full salary through the
Severance Date and, notwithstanding any provision of the Company's annual
incentive plan to the contrary, a cash lump sum amount equal to a pro rata
portion to the Severance Date of the aggregate value of the annual incentive
compensation award to such Severed Employee for the then uncompleted fiscal year
under such plan, calculated by multiplying the award earned by the Severed
Employee during the most recently completed fiscal year, by the fraction
obtained by dividing the number of full months and any fractional portion of a
month during said fiscal year through the Severance Date by twelve.

2.6 The Company will pay to each Eligible Employee all
reasonable legal fees and expenses incurred by such Eligible Employee in
pursuing any claim under the Plan, which claim is successful in any part.

2.7 The Company shall be entitled to withhold from amounts to
be paid to the Severed Employee hereunder any federal, state or local
withholding or other taxes or charges which it is from time to time required to
withhold.

2.8 No Severed Employee shall be eligible to receive Severance
Pay or other benefits under the Plan unless he or she first executes a written
release substantially in the form attached as Exhibit A hereto, (or, if the
Severed Employee was not a United States employee, a similar release which is in
accordance with the applicable laws in the relevant jurisdiction).

SECTION 3. PLAN ADMINISTRATION.

3.1 The Plan Administrator shall administer the Plan and may
interpret the Plan, prescribe, amend and rescind rules and regulations under the
Plan and make all other determinations necessary or advisable for the
administration of the Plan, subject to all of the provisions of the Plan.

3.2 In the event of a claim by an Eligible Employee as to the
amount or timing of any payment or benefit, such Eligible Employee shall present
the reason for his or her claim in writing to the Plan Administrator. The Plan
Administrator shall, within fourteen (14) days after receipt of such written
claim, send a written notification to the Eligible Employee as to its
disposition. Except as provided in the preceding portion of this Section 3.2,
all disputes under this Plan shall be settled exclusively by binding arbitration
in Houston, Texas, in accordance with the rules of

<PAGE> 9

the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction.

3.3 The Plan Administrator may delegate any of its duties
hereunder to such person or persons from time to time as it may designate.

3.4 The Plan Administrator is empowered, on behalf of the
Plan, to engage accountants, legal counsel and such other personnel as it deems
necessary or advisable to assist it in the performance of its duties under the
Plan. The functions of any such persons engaged by the Plan Administrator shall
be limited to the specified services and duties for which they are engaged, and
such persons shall have no other duties, obligations or responsibilities under
the Plan. Such persons shall exercise no discretionary authority or
discretionary control respecting the management of the Plan. All reasonable
expenses thereof shall be borne by the Employer.

SECTION 4. PLAN TERM; AMENDMENT.

The Plan shall be effective as of May 10, 1998 and shall
terminate on the third anniversary thereof; provided, however, that if a Change
in Control shall have occurred on or prior to such third anniversary, the Plan
shall terminate no earlier than twenty-four (24) months beyond the month in
which such Change in Control occurred. The Plan may be amended by the Board.
Notwithstanding the foregoing, the Plan may not be amended, if such amendment
would be adverse to the interests of any Eligible Employee, without such
Eligible Employee's written consent. No Plan termination shall affect the rights
of any Eligible Employee under this Plan, without such Eligible Employee's
written consent. Notwithstanding anything to the contrary contained herein,
additional Eligible Employees may be added to Schedule A and Schedule B attached
hereto prior to a Public Offering by the Compensation Committee of E.I. du Pont
de Nemours and Company, and following a Public Offering by the Board.

SECTION 5. GENERAL PROVISIONS.

5.1 Except as otherwise provided herein or by law, no right or
interest of any Eligible Employee under the Plan shall be assignable or
transferable, in whole or in part, either directly or by operation of law or
otherwise, including without limitation by execution, levy, garnishment,
attachment, pledge or in any manner; no attempted assignment or transfer thereof
shall be effective; and no right or interest of any Eligible Employee under the
Plan shall be liable for, or subject to, any obligation

<PAGE> 10

or liability of such Eligible Employee. When a payment is due under this Plan to
a Severed Employee who is unable to care for his or her affairs, payment may be
made directly to his or her legal guardian or personal representative.

5.2 If the Company is obligated by law or by contract to pay
severance pay, a termination indemnity, notice pay, or the like, or if the
Company is obligated by law to provide advance notice of separation ("Notice
Period"), then any Severance Pay hereunder shall be reduced by the amount of any
such severance pay, termination indemnity, notice pay or the like, as
applicable, and by the amount of any compensation received during any Notice
Period.

5.3 Neither the establishment of the Plan, nor any
modification thereof, nor the creation of any fund, trust or account, nor the
payment of any benefits shall be construed as giving any Eligible Employee, or
any person whomsoever, the right to be retained in the service of the Employer,
and all Eligible Employees shall remain subject to discharge to the same extent
as if the Plan had never been adopted.

5.4 If any provision of this Plan shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions hereof, and this Plan shall be construed and enforced as if such
provisions had not been included.

5.5 This Plan shall be binding upon the heirs, executors,
administrators, successors and assigns of the parties, including each Eligible
Employee, present and future, and any successor to the Employer.

5.6 The headings and captions herein are provided for
reference and convenience only, shall not be considered part of the Plan, and
shall not be employed in the construction of the Plan.

5.7 The Plan shall not be funded. No Eligible Employee shall
have any right to, or interest in, any assets of any Employer which may be
applied by the Employer to the payment of benefits or other rights under this
Plan.

5.8 Any notice or other communication required or permitted
pursuant to the terms hereof shall have been duly given when delivered or mailed
by United States Mail, first class, postage prepaid, addressed to the intended
recipient at his, her or its last known address.

5.9 This Plan shall be construed and enforced according to the
laws of the State of Delaware.

<PAGE> 11

Exhibit A

WAIVER AND RELEASE OF CLAIMS

In consideration of, and subject to, the payments to be made to me by
Conoco Inc., a Delaware corporation (the "Company") or any of its subsidiaries,
pursuant to the Severance Agreement between the Company and me dated as of May
11, 1998 (the "Agreement"), which I acknowledge that I would not otherwise be
entitled to receive, I hereby waive any claims I may have for employment or
re-employment by the Company or any subsidiary or parent of the Company after
the date hereof, and I further agree to and do release and forever discharge the
Company or any subsidiary or parent of the Company, and their respective past
and present officers, directors, shareholders, employees and agents from any and
all claims and causes of action, known or unknown, arising out of or relating to
my employment with the Company or any subsidiary or parent of the Company, or
the termination thereof, including, but not limited to, wrongful discharge,
breach of contract, tort, fraud, the Civil Rights Acts, Age Discrimination in
Employment Act, Employee Retirement Income Security Act, Americans with
Disabilities Act, or any other federal, state or local legislation or common law
relating to employment or discrimination in employment or otherwise.

Notwithstanding the foregoing or any other provision hereof, nothing in
this Waiver and Release of Claims shall adversely affect (i) my rights under the
Agreement; (ii) my rights to benefits other than severance benefits under plans,
programs and arrangements of the Company or any subsidiary or parent of the
Company which are accrued but unpaid as of the date of my termination; or (iii)
my rights to indemnification under any indemnification agreement, applicable law
and the certificates of incorporation and bylaws of the Company and any
subsidiary or parent of the Company, and my rights under any director's and
officers' liability insurance policy covering me.

I acknowledge that I have signed this Waiver and Release of Claims
voluntarily, knowingly, of my own free will and without reservation or duress
and that no promises or representations have been made to me by any person to
induce me to do so other than the promise of payment set forth in the first
paragraph above and the Company's acknowledgement of my rights reserved under
the second paragraph above.

Signature: Dated:
----------------------------- --------------

<PAGE> 1
EXHIBIT 10.3

CONOCO INC.
KEY EMPLOYEE TEMPORARY SEVERANCE PLAN

The Company hereby adopts the Conoco Inc. Key Employee Temporary
Severance Plan for the benefit of certain employees of the Company and its
subsidiaries, on the terms and conditions hereinafter stated. All capitalized
terms used herein are defined in Section 1 hereof. This Plan is intended to be a
welfare plan maintained primarily for a select group of management or highly
compensated employees, within the meaning of Title I of the Employee Retirement
Income Security Act of 1974, as amended and shall be interpreted in a manner
consistent with such intention.

SECTION 1. DEFINITIONS. As hereinafter used:

1.1 "Affiliate" shall have the meaning set forth in Rule 12(b)(2)
promulgated under Section 12 of the Exchange Act.

1.2 "Beneficial Owner" shall have the meaning set forth in Rule 13(d)(3)
under the Exchange Act.

1.3 "Board" means the Board of Directors of the Company.

1.4 "Change in Control" shall be deemed to have occurred if the event set
forth in any one of the following paragraphs shall have occurred:

(i) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company) representing 30% or more of the combined
voting power of the Company's then outstanding securities, excluding
any Person who becomes such a Beneficial Owner in connection with a
transaction described in clause (A) of paragraph (iii) below; or

(ii) the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board and any
new director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by
the Company's stockholders was approved or recommended by a vote of
at least two-thirds (2/3) of the directors then still in office who
either were directors on the date hereof or whose appointment,
election or nomination for election was previously so approved or
recommended; or

(iii) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any
other corporation other than (A) a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately

<PAGE> 2

prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in
combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or
any subsidiary of the Company, at least 50% of the combined voting
power of the securities of the Company or such surviving entity or
any parent thereof outstanding immediately after such merger or
consolidation, or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then outstanding
securities; or

(iv) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets, other than a
sale or disposition by the Company of all or substantially all of
the Company's assets to an entity, at least 50% of the combined
voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale.

1.5 "Code" means the Internal Revenue Code of 1986, as it may be amended
from time to time.

1.6 "Company means the Conoco Inc. or any successors thereto.

1.7 "Employer" means the Company or any of its subsidiaries.

1.8 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

1.9 "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its Affiliates
(including, without limitation, E.I. du Pont de Nemours and Company), (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or any of its Affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.

2
<PAGE> 3

1.10 "Plan" means the Conoco Inc. Key Employee Temporary Severance Plan,
as set forth herein, as it may be amended from time to time.

1.11 "Plan Administrator" means the person or persons appointed from time
to time by the Board which appointment may be revoked at any time by the Board.

1.12 "Potential Change in Control" shall be deemed to have occurred if:

(a) the Company enters into a written agreement, the consummation of
which would result in the occurrence of a Change in Control; or

(b) any Person (including the Company) publicly announces an intention
to take or to consider taking action which if consummated would
constitute a Change in Control.

1.13 "Public Offering" shall mean the initial sale of common equity
securities of the Company pursuant to an effective registration statement (other
than a registration on Form S-4 or S-8 or any successor or similar forms) filed
under the Securities Act of 1933.

SECTION 2. ELIGIBILITY REQUIREMENTS

You must be in Salary Grade 8 or above and meet both of the following
requirements at the time of your termination to be eligible for Key Employee
Temporary Severance Plan benefits:

o You must be a regular, full-time employee or a regular, part-time employee
(but you must have worked at least 1 year as a regular, full-time employee
immediately before going to regular part-time status) and

o You must have at least 1 full year of service from your most recent date
of employment or reemployment.

If you are not in Salary Grade 8 or above and do not meet both of these
requirements, you are not eligible to participate in the Plan or to receive
severance benefits.

SECTION 3. QUALIFYING EVENTS

You must meet the eligibility requirements and at least one of the
qualifying events outlined below to receive Plan benefits.

o You are terminated due to a reduction in force or

o Your current job is abolished or restructured to the extent it is not a
comparable position(1) or

o Your current job is moved, essentially as it currently exists, to a
location outside the immediate geographic area(2) or

- -------------
(1) A job is considered a comparable position if it is within one salary grade
(or equivalent) of your current salary grade and the base salary is at least 80
percent of your base salary.

3
<PAGE> 4

o You are displaced by an individual returning from a Company-approved leave
of absence (such as military or educational leave), or

o After a Change in Control, your Salary Grade level is reduced so that you
are no longer eligible for benefits under this Plan.

You will not be eligible to receive Plan benefits if you have any "disqualifying
events," even if you have met the eligibility requirements and have a qualifying
event.

SECTION 4. DISQUALIFYING EVENTS

You are not eligible to receive Plan benefits if any of the following
events apply, even if you have met the eligibility requirements and a qualifying
event has occurred.

You are disqualified if you are:

o Discharged by the Company for cause or if you resign;

o Offered and refuse a comparable position in the immediate geographic area
with Conoco, DuPont, or an affiliated company;

o On a temporary assignment (including an expatriate assignment) or "special
project" (including domestic assignments) and are offered and refuse a
comparable position at the location from which you departed.

o Terminated or if you resign prior to the Company-designated termination
date;

o Terminated while on personal leave of absence;

o A Conoco store employee;

o Represented by a collective bargaining agreement;

o Scheduled off temporarily due to emergencies beyond management's control,
such as fire, flood, strike, power failure, or transportation difficulty
(including transportation strikes that force total or partial suspension
of operations);

o Disabled on the date of termination and have qualified for Social Security
disability benefits or, in the opinion of the Integrated Health Services
Division, will qualify for such benefits as a result of a disability that
exists on the date you are terminated;

- -------------
(2) A job is considered in the immediate geographic area if the distance from
your residence to the location of the new position is not more than 35 miles
greater than the distance from your residence to the location of your previous
position.

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<PAGE> 5

o Offered employment under an agreement between Conoco, DuPont, or an
affiliated company and a

1. purchaser or recipient of Company assets, entered into in connection
with the transfer or sale of such assets, or

2. third-party provider of services to Conoco, entered into in
connection with the "outsourcing" or provision of such services,

if you:

a. accept the offered employment or

b. reject the offered employment and the offered employment is a
comparable position(1) in the immediate geographic area.(2)

The important points to remember are that to be eligible for Plan
benefits, you must meet the eligibility requirements, have a qualifying event,
and not have a disqualifying event.

SECTION 5. AMOUNT OF SEVERANCE PAY

Plan benefits shall be equal to the sum of an employee's annual base
salary and most recent annual global variable compensation payment. For purposes
of this Section, annual base salary shall be determined immediately prior to the
date a qualifying event occurs and annual global variable compensation shall be
deemed to equal the annual global variable compensation earned by such employee
pursuant to the annual bonus or global variable compensation plan maintained by
the Company in respect to the fiscal year ending immediately prior to the date a
qualifying event occurs. Plan benefits shall be in lieu of any payments or
benefits which may otherwise be payable pursuant to any other severance plan,
policy or program of the Company. If it is determined that an employee has a
right to a payment pursuant to any other severance plan, policy or program of
the Company, the amount of benefits payable under this Plan shall be reduced by
the amount payable pursuant to any other severance plan, policy or program of
the Company.

The Company shall be entitled to withhold from amounts to be paid
hereunder, any federal, state or local withholding or other taxes or charges
which it is from time to time required to withhold.

SECTION 6. PAYMENT OPTIONS

You have four optional forms of payment:

o Lump sum at time of departure;

o 50 percent at time of departure and 50 percent the following January,
without interest.

o 50 percent in the January after departure and 50 percent in the following
January, without interest; or

o Semimonthly payments until equivalent severance amount is paid, without
interest.

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<PAGE> 6

SECTION 7. REEMPLOYMENT AS A REGULAR EMPLOYEE

If you have received severance pay from Conoco, DuPont, or any affiliated
company and are reemployed as a regular, full-time employee or a regular,
part-time employee by any of these companies, you will be required to reimburse
the respective company a pro rata amount of severance pay for any unexpired
period. The reimbursement amount will be determined by multiplying the number of
days absent times the daily rate of severance pay (determined by U.S. HR
Leveraged Services). For example, if you received 6 weeks (30 days) of severance
pay and were reemployed on a regular, full-time basis after 4 weeks (20 days),
you would be required to pay 2 weeks (10 days) of severance pay.

If you are reemployed, terminated, and again qualify for severance pay,
the benefit calculation will be based on your total years of service (including
the second or subsequent service period), rather than solely on the length of
the second or subsequent service period. The second severance amount paid will
be the amount resulting from the following calculation: total severance pay
benefits (based on equated employment date and total full years of service)
minus any previous severance payments already received and not repaid to the
Company.

SECTION 8. PLAN ADMINISTRATION

The Plan Administrator shall administer the Plan and may interpret the
Plan, prescribe, amend and rescind rules and regulations under the Plan and make
all other determinations necessary or advisable for the administration of the
Plan, subject to all of the provisions of the Plan.

The Plan Administrator may delegate any of its duties hereunder to such
persons or persons from time to time as it may designate.

The Plan Administrator is empowered, on behalf of the Plan, to engage
accountants, legal counsel and such other personnel as it deems necessary or
advisable to assist it in the performance of its duties under the Plan. The
functions of any such persons engaged by the Plan Administrator shall be limited
to the specified services and duties for which they are engaged, and such
persons shall have no other duties, obligations or responsibilities under the
Plan. Such persons shall exercise no discretionary authority or discretionary
control respecting the management of the Plan. All reasonable expenses thereof
shall be borne by the Employer.

In carrying out its responsibilities under the Plan, including, but not
limited to the review of all claims for benefits under the Plan, the Plan
Administrator shall have full and exclusive discretionary authority to interpret
the terms of the Plan and to determine all issues concerning eligibility for and
entitlement to Plan benefits in accordance with the terms of the Plan.

SECTION 9. PLAN TERMINATION AND/OR AMENDMENT

The Plan shall be effective as of May 10, 1998 and shall terminate on the
third anniversary thereof. The Plan may be amended by the Board or its delegee;
provided, however, that any such amendment during the period that E.I. du Pont
de Nemours and Company owns at least (50%) of the combined voting power of the
Company's then outstanding securities must be approved by E.I. du Pont de
Nemours and Company. Notwithstanding the foregoing, after a Change of Control,
the Plan may not be amended, if such amendment would be adverse to the interest
of any eligible employee, without such eligible employee's written consent.
After a

6
<PAGE> 7

Change in Control, no Plan termination, except as provided in the first sentence
of this Section 9., shall affect the rights of any eligible employee under this
Plan, without such eligible employee's written consent.

SECTION 10. GENERAL PROVISIONS

Except as otherwise provided herein or by law, no right or interest of any
employee under the Plan shall be assignable or transferable, in whole or in
part, either directly or by operation of law or otherwise, including without
limitation by execution, levy, garnishment, attachment, pledge or in any manner,
no attempted assignment or transfer thereof shall be effective; and no right or
interest of any employee under the Plan shall be liable for, or subject to, any
obligation or liability of such employee. When a payment is due under this Plan
to an employee who is unable to care for his or her affairs, payment may be made
directly to his or her legal guardian or personal representative.

If the Company is obligated by law or by contract to pay severance pay, a
termination indemnity, notice pay, or the like, or if the Company is obligated
by law to provide advance notice of separation ("Notice Period"), then any
payment hereunder shall be reduced by the amount of any such severance pay,
termination indemnity, notice pay or the like, as applicable, and by the amount
of any compensation received during any Notice Period.

Neither the establishment of the Plan, nor any modification thereof, nor
the creation of any fund, trust or account, nor the payment of any benefits
shall be construed as giving any employee, or any person whomsoever, the right
to be retained in the service of the Employer, and all employees shall remain
subject to discharge to the same extent as if the Plan had never been adopted.

If any provision of this Plan shall be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provisions hereof, and
this Plan shall be construed and enforced as if such provisions had not been
included.

This Plan shall be binding upon the heirs, executors, administrators,
successors and assigns of the parties, including each employee, present and
future, and any successor to the Employer.

The headings and captions herein are provided for reference and
convenience only, shall not be considered part of the Plan, and shall not be
employed in the construction of the Plan.

The Plan shall not be funded. No employee shall have any right to, or
interest in, any assets of any Employer which may be applied by the Employer to
the payment of benefits or other rights under this Plan.

Any notice or other communication required or permitted pursuant to the
terms hereof shall have been duly given when delivered or mailed by United
States Mail, first class, postage prepaid, addressed to the intended recipient
at his, her or its last known address.

This Plan shall be construed and enforced according to the laws of the
State of Delaware.

7
<PAGE> 8

SECTION 11. ADMINISTRATIVE PROCEDURES IF A CLAIM IS DENIED

Claims for benefits from the Plan must be submitted in writing to the Plan
Administrator.

If a claim is wholly or partial denied, you will be notified in writing of
the denial within 90 calendar days after U.S. HR Leveraged Services in Ponca
City receives the claim, unless special circumstances require an extension. If
an extension is required, you will be notified in writing of the extension
within 90 calendar days after filing the claim. The written notice will explain
the reason for the delay and estimate a decision date. In no case will the
extension period exceed 180 calendar days from date of receipt of the claim.

You will be advised in writing by the Plan Administrator or the insurance
carrier of the specific reasons for such denial, referred to pertinent Plan
provisions on which the denial is based and provided a description of any
additional material or information required to perfect the claim, an explanation
of why such material or information is necessary, and appropriate information as
to the steps to be taken if you wish to submit your claim for review.

By written request to the Plan Administrator within 60 calendar days after
receipt of notice of denial or partial denial, you may seek review by the Plan
Administrator of such denial or partial denial. You, or your duly authorized
representative, may review pertinent documents relating to the denial and submit
issues and comments in writing.

The Plan Administrator will render a written decision to you within 60
calendar days following receipt of the review request, unless special
circumstances require an extension of time. In that case, a decision will be
rendered no later than 120 calendar days following receipt of your request. If
such an extension is required, written notice of the extension will be furnished
to you prior to the start of the extension.

The Plan Administrator's decision will be furnished to you in writing and
will contain specific reasons for the decision and specific references to
pertinent Plan provisions on which the denial is based.

<PAGE> 1
EXHIBIT 10.4

CONOCO INC.

SALARY DEFERRAL & SAVINGS RESTORATION PLAN

I. PURPOSE

The purpose of the Salary Deferral & Savings Restoration Plan (Plan) is
to provide an eligible employee with the opportunity to defer, until
termination of employment, receipt of salary that, because of
compensation limits imposed by law, is ineligible to be considered in
calculating benefits within the Company's tax-qualified defined
contribution plans and thereby recover benefits lost because of that
restriction.

II. ADMINISTRATION

The administration of this Plan is vested in the Employee Benefit Plans
Board (EBPB). The EBPB may adopt such rules as it may deem necessary
for the proper administration of the Plan, and may appoint such persons
or groups as may be judged necessary to assist in the administration of
the Plan. The EBPB's decision in all matters involving the
interpretation and application of this Plan shall be final. The EBPB
shall have the discretionary right to determine eligibility for
benefits hereunder and to construe the terms and conditions of this
Plan.

III. ELIGIBILITY

An employee of the Company who is participating in the Company's
tax-qualified defined contribution plans and whose annual base
compensation exceeds the amount prescribed in Internal Revenue Code
Section 401(a)(17) shall be eligible to participate in this Plan
(hereinafter "Participant").

For purposes of this Plan, the term "Company" means Conoco Inc., any
wholly-owned subsidiary or part thereof and any joint venture or
partnership in which Conoco Inc. has an ownership interest, provided
that such entity (1) adopts this Plan with the approval of Conoco Inc.
and (2) agrees to make the necessary financial commitment in respect of
any of its employees who become Participants in this Plan.

Participation in this Plan is entirely voluntary.

<PAGE> 2
IV. PARTICIPANT ACCOUNTS

A. PARTICIPANT CONTRIBUTIONS

Participant may elect to defer receipt of a percentage of annual base
compensation in excess of the amount prescribed in Internal Revenue
Code Section 401(a)(17), and have the dollar equivalent of the deferral
percentage credited to a Participant Account under this Plan. The
deferral percentage elected under this Plan shall not exceed that
allowed in the tax-qualified defined contribution plans of the Company
in which (s)he participates. Except as provided below, such deferral
election will be made prior to the beginning of each calendar year and
will be irrevocable for that calendar year.

For purposes of a Participant's first year of participation in this
Plan, the compensation deferral election must be made no later than 30
days prior to the first day of the month for which compensation is
deferred and will be irrevocable for the remainder of that calendar
year.

B. COMPANY CONTRIBUTIONS

To the extent that a Participant makes a deferral election under the
terms of subparagraph (A) above, the Company will credit to that
Participant's Account in this Plan an amount equivalent to the Company
matching contribution that would be provided to that Participant under
the terms of the Company's tax-qualified defined contribution plans in
which (s)he is participating.

C. EARNINGS EQUIVALENTS

Credits for Participant Contributions and Company Contributions shall
be treated as having been invested in one or more of the investment
options available in the Company's tax-qualified defined contribution
plans in which (s)he is participating. Additional credit (or debit)
amounts will be posted to the Participant's Account in this Plan based
on the performance of those investment options.

The Participant shall have the right to:

1. Designate which investment options are to be used in valuing
his/her Account under this Plan, subject to the rules
governing investment direction in the Company's tax-qualified
defined contribution plan in which (s)he is participating;
and/or

2. Change the designated investment options used in valuing
his/her Account under this Plan, subject to the rules
governing investment direction and/or transfers among funds in
the Company's tax-qualified defined contribution plans in
which (s)he is participating.

<PAGE> 3

D. CREDITS TO ACCOUNTS

1. Participant Contributions, Company Contributions and Earnings
Equivalents shall be credited (or debited) to the
Participant's Account under this Plan as unfunded book entries
stated as cash balances, and will not be payable to
Participants until such time as employment with the Company
terminates. The cash balances in Participant Accounts shall be
unfunded general obligations of the Company, and no
Participant shall have any claim to or security interest in
any asset of the Company on account thereof.

2. For each employee of Conoco Inc. who was participating in the
DuPont Salary Deferral & Savings Restoration Plan (DuPont
Plan) immediately prior to January 1, 1999, an amount
equivalent to Participant Contributions, Company Contributions
and Earnings Equivalents under the DuPont Plan credited (or
debited) to the Participant's Account under the DuPont Plan
shall be credited to the Participant's Account under this Plan
as unfunded book entries stated as cash balances, and will not
be payable to Participants until such time as employment with
the Company terminates. The cash balances in Participant
Accounts shall be unfunded general obligations of the Company
and no Participant shall have any claim to or security
interest in any asset of the Company on account thereof.

V. VESTING

Participant Contributions and Company Contributions and Earnings
Equivalents shall be vested at the time such amounts are credited to
the Participant's Account.

VI. PAYMENT OF BENEFITS

Amounts payable under this Plan shall be delivered in a cash lump sum
as soon as practicable after termination of employment unless the
Participant irrevocably elects under rules prescribed by the EBPB to
receive payments in a series of annual installments. All payments under
this Plan shall be made by, and all expenses of administering this Plan
shall be borne by, the Company.

VII. RIGHT TO MODIFY

The Company reserves the right to change or discontinue this Plan in
its discretion by action of the Board of Directors or its delegee.

<PAGE> 1
EXHIBIT 10.5

CONOCO INC.

DIRECTORS' CHARITABLE GIFT PLAN

1. PURPOSE OF THE PLAN

The purpose of the Directors' Charitable Gift Plan (the "Plan") is to
acknowledge the service of members of the Board of Directors (the
"Board") of Conoco Inc. (the "Company"); recognize the mutual interest
of the Company and its Directors in support of eligible educational and
charitable organizations; and enhance the Directors' total compensation
package.

Each eligible Director of the Company will recommend that the Company
make a donation of up to $1,000,000 to the eligible tax-exempt
organization(s) (the "Organization(s)") designated by the Director. The
donation will be made in the Director's name in five equal annual
installments, with the first installment to be made as soon as
practicable after the death of the Director or former Director.

2. ELIGIBILITY

Each member of the Board of Directors who serves for a minimum of one
year shall be eligible to participate in the Plan. The Plan will not be
effective for a Director until he or she completes all required
enrollment procedures for the Plan.

3. DIRECTOR'S RECOMMENDATION

Each eligible Director shall make a written recommendation to the
Company, on a form approved by the Company for this purpose,
designating the Organization(s) which he or she intends to be the
recipient(s) of the Company's donation to be made in the Director's
name. A Director may revise or revoke such recommendation prior to his
or her death by signing a new recommendation form and submitting it to
the Company.

4. ORGANIZATIONS

In order to be eligible to a receive a donation, an Organization must
initially, and at the time a donation is to be made in whole or in
part, qualify to receive tax-deductible donations under the Internal
Revenue Code and be reviewed and approved by the Company. An
Organization will be approved by the Company unless it determines, in
the exercise of good faith judgment, that a donation to the
Organization would be detrimental to the best interests of the Company.
Private foundations are not eligible to receive donations under the
Plan.

5. AMOUNT AND TIMING OF DONATION

Each Director may recommend one Organization to receive a Company
donation of $1,000,000, or two or more Organizations to receive
donations aggregating $1,000,000. Each Organization must be recommended
to receive a donation of at least $100,000. The donation will be made
by the Company in five equal annual installments, with the first
installment to be made as soon as practicable after the death of the
Director or former Director. If a Director recommends more than one
Organization to receive a donation, each will receive a prorated
portion of each annual installment. Each annual installment payment
will be divided among the Organizations in the

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<PAGE> 2

same proportion as the total donation amount has been allocated among
the Organizations by the Director.

6. VESTING

Each Director will be fully vested in the Plan upon completion of one
year of service as a Director.

The Board has authority not to make a donation if it determines that a
Former Director has willfully engaged in activity which is harmful to
the Company's interest.

7. FUNDING AND PLAN ASSETS

The Company may fund the Plan, or it may choose not to fund the Plan.
If the Company elects to fund the Plan in any manner, neither the
Directors nor their recommended Organization(s) shall have any rights
or interests in any assets of the Company identified for such purpose.
Nothing contained in the Plan shall create, or be deemed to create, a
trust, actual or constructive, for the benefit of a Director or any
organization recommended by a Director to receive a donation, or shall
give, or be deemed to give, any Director or recommended Organization
any interest in any assets of the Plan or the Company. If the Company
elects to fund the Plan through life insurance policies, a
participating Director agrees to cooperate and fulfill the enrollment
requirements necessary to obtain insurance on his or her life.

8. AMENDMENT OR TERMINATION

The Board of Directors may amend, suspend, or terminate this Plan at
any time without the consent of the Directors or former Directors
participating in the Plan.

9. ADMINISTRATION

Except as otherwise specifically provided, the Plan shall be
administered by the Company. The Company's determination with respect
to any questions arising as to interpretation of the Plan shall be
final, conclusive, and binding on all interested parties.

Amended by Board Resolution
August 17, 1999

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 of
Conoco Inc. of our report dated February 15, 1999 relating to the consolidated
financial statements of Conoco Inc., which appear in such Registration
Statement. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.

PRICEWATERHOUSECOOPERS LLP

Houston, Texas
October 5, 1999