ATLANTIC RICHFIELD CO /DE, 10-K405, 2000-03-01

ATLANTIC RICHFIELD CO /DE
10-K405, 2000-03-01
PETROLEUM REFINING

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<PAGE>

1999

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
March 1, 2000

Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
[No Fee Required]

For the fiscal year ended December 31, 1999 Commission file number 1--1196

[LOGO OF ARCO]

Atlantic Richfield Company
(Exact name of registrant as specified in its charter)

Delaware 23-0371610
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

333 South Hope Street, Los Angeles, California 90071
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (213) 486-3511
Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- -------------------------------
<S> <C>
Common Stock ($2.50 par value) New York Stock Exchange
Pacific Exchange, Inc.
Elektronische Borse Schweiz EBS
London Stock Exchange
$3.00 Cumulative Convertible Preference New York Stock Exchange
Stock ($1 par value) Pacific Exchange, Inc.
$2.80 Cumulative Convertible Preference New York Stock Exchange
Stock ($1 par value) Pacific Exchange, Inc.
Twenty year 10 7/8% Debentures Due July
15, 2005 New York Stock Exchange
Thirty year 9 7/8% Debentures Due March
1, 2016 New York Stock Exchange
Twenty-five year 9 1/8% Debentures Due
March 1, 2011 New York Stock Exchange
</TABLE>

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X

The aggregate market value of the voting stock held by nonaffiliates of the
registrant on December 31, 1999, based on the closing price on the New York
Stock Exchange composite tape on that date, was $28,185,890,778.

Number of shares of Common Stock, $2.50 par value, outstanding as of December
31, 1999: 323,048,817.
<PAGE>

TABLE OF CONTENTS

PART I

<TABLE>
<CAPTION>
Item Page
---- ----
<C> <S> <C>
1. and 2. Business and Properties....................................... 1
The Company................................................. 1
BP Amoco Combination........................................ 1
Review of 1999.............................................. 2
Exploration and Production Operations....................... 4
Refining and Marketing Operations........................... 9
All Other Operations........................................ 11
Capital Program............................................. 11
Patents..................................................... 11
Competition................................................. 11
Human Resources............................................. 12
Research and Development.................................... 12
Environmental Matters....................................... 12
3. Legal Proceedings............................................. 16
The Company................................................. 16
Environmental Proceedings................................... 19
Status of Litigation Regarding Proposed Combination with BP
Amoco....................................................... 19
Other Litigation............................................ 19
4. Submission of Matters to a Vote of Security Holders........... 20

PART II

5. Market for Registrant's Common Equity and Related Stockholder
Matters....................................................... 21
6. Selected Financial Data....................................... 22
7. and 8. Management's Discussion and Analysis of Financial Condition
and Results of Operations and Financial Statements and
Supplementary Data............................................ 23
Index to Consolidated Financial Statements and Financial
Statement Schedule.......................................... 23
Independent Accountants' Report............................. 24
Operating Review............................................ 25
Introduction............................................... 25
Results of Segment Operations.............................. 25
Consolidated Statement of Income........................... 30
Results of Consolidated Operations......................... 31
Consolidated Balance Sheet................................. 34
Consolidated Statement of Cash Flows....................... 35
Analysis of Cash Flows and Financial Condition............. 36
Market-Sensitive Instruments and Risk Management........... 37
Statements of Financial Accounting Standards Not Yet
Adopted.................................................... 39
Consolidated Statement of Changes in Stockholders' Equity.. 40
Safe Harbor for Forward-Looking Statements................. 41
</TABLE>

(i)
<PAGE>

TABLE OF CONTENTS--(Continued)

PART III

<TABLE>
<CAPTION>
Item Page
---- ----
<C> <S> <C>
Impact of the Year 2000 Issue................................ 42
Notes to Consolidated Financial Statements................... 43
Supplemental Information (Unaudited)......................... 62
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 67
10. Directors and Executive Officers of the Registrant.............. 68
Executive Officers of ARCO................................... 68
Directors of ARCO............................................ 70
Compliance with Section 16(a) of the Securities Exchange Act
of 1934...................................................... 71
11. Executive Compensation.......................................... 72
Compensation of Executive Officers........................... 72
Summary Compensation Table................................. 72
Option Grants for 1999..................................... 75
Aggregated Option Exercises in 1999 and Year-End Option
Values..................................................... 76
Outstanding Awards of Contingent Restricted Stock.......... 77
Estimated Regular Retirement Benefits...................... 78
Compensation of Board of Directors........................... 79
Change of Control Arrangements............................... 80
Committee Report on Executive Compensation................... 82
Five-Year Performance Graph.................................. 85
12. Security Ownership of Certain Beneficial Owners and Management.. 86
Stock Owned by Directors and Executive Officers.............. 86
Beneficial Ownership of ARCO Common Stock.................... 86
Change of Control Upon Closing of BP Amoco Combination....... 87
13. Certain Relationships and Related Transactions.................. 88
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K....................................................... 89
Exhibits........................................................ 89
Reports on Form 8-K............................................. 94
Consent of Independent Accountants.............................. 95
Signatures...................................................... 96
Schedule II--Valuation and Qualifying Accounts.................. 98
</TABLE>

(ii)
<PAGE>

PART I

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

The Company

The company began operations in 1866 as the Atlantic Petroleum Storage Com-
pany. The company's present name, Atlantic Richfield Company (ARCO), was
adopted in 1966 after Richfield Oil Corporation was merged into the company.
Sinclair Oil Corporation was merged into ARCO in 1969. ARCO acquired The Ana-
conda Company in 1977. ARCO became a Delaware corporation in 1985. ARCO ac-
quired Union Texas Petroleum Holdings, Inc. (UTP) in 1998. ARCO's principal
executive offices are currently at the ARCO Center, 333 South Hope Street, Los
Angeles, California 90071 (Telephone 213-486-3511). You can find additional
information about ARCO on our website at www.arco.com.
ARCO is a global oil and gas enterprise operating in two segments, explora-
tion and production (E&P) and refining and marketing (R&M). Its upstream ex-
ploration and production operations are focused primarily in Alaska, the Gulf
of Mexico and the Midcontinent in the United States (the latter two largely
through its 81.9% owned subsidiary, Vastar Resources, Inc. (Vastar)), the
United Kingdom North Sea, Indonesia, Venezuela, China and Algeria. The Alaska
oil production is integrated with ARCO's downstream refining and marketing op-
erations in the western United States. These include two refineries, branded
consumer marketing outlets in six western states and British Columbia, a ma-
rine fleet, and supporting pipelines and terminals.
You will find financial information about our two segments in Note 2 of
Notes to Consolidated Financial Statements on page 45.

BP Amoco Combination

On March 31, 1999, BP Amoco p.l.c. and ARCO reached agreement to combine
with each other in an all-share transaction. Following the stock split of BP
Amoco Ordinary Shares effective in October 1999, shareholders of ARCO will re-
ceive 1.64 BP Amoco American Depositary Shares for each share of ARCO stock
exchanged or, subject to election by the shareholder, Ordinary Shares. One BP
Amoco American Depositary Share represents 6 BP Amoco Ordinary Shares.
The merger was approved initially by both boards of directors, and in the
third quarter of 1999 by the shareholders of both BP Amoco and ARCO. In addi-
tion, on September 29, 1999, the European Commission announced approval of the
combination conditioned upon some North Sea asset sales. In early December
1999, an agreement was reached with the State of Alaska, under which BP Amoco
has agreed, in conjunction with the merger, to divest interests in certain
Alaskan North Slope oil properties, among other things.
On February 4, 2000, the Federal Trade Commission (FTC) filed a complaint in
U.S. District Court for the Northern District of California, No. C 00 0416 SI,
seeking a preliminary injunction to prevent closing of the combination between
ARCO and BP Amoco. The FTC had determined to challenge the combination in a 3
to 2 vote on February 2, 2000. The suit alleges that the transaction would vi-
olate section 7 of the Clayton Act by substantially lessening competition in
three areas: production and sale of Alaska North Slope crude oil to West Coast
refineries; bidding for rights to explore for oil and gas resources on the
Alaska North Slope; and increased concentration and loss of competition in
pipeline and oil storage in and into Cushing, Oklahoma with effects on trading
in light sweet crude oil futures. On February 22, 2000, the court consolidated
with the FTC lawsuit an action filed in the same court by the Attorneys Gen-
eral for the States of California, Oregon and Washington, No. C 00 0416 SI,

1
<PAGE>

challenging the combination on the first two grounds discussed above. The
court also granted the State of Alaska leave to intervene in the FTC's law-
suit. The court has set the weeks of March 20 and 27, 2000, for the hearing on
the FTC's motion for a preliminary injunction. ARCO and BP Amoco have agreed
not to close the transaction pending the earlier of the court's decision on
the preliminary injunction or April 15, 2000.
ARCO announced on February 11, 2000, that it is conducting a search for a
suitable buyer for certain elements of its ARCO Pipe Line Co. operations. The
potential sale is designed to address the Cushing-related concerns set forth
in the FTC's lawsuit. Any transaction would be contingent on completion of
ARCO's proposed combination with BP Amoco.
On February 28, 2000, the Board of Directors of ARCO voted to postpone the
Annual Meeting of Shareholders, normally held the first Monday in May, pending
further developments relating to the timing of the resolution of the judicial
proceedings and the closing of the combination.
ARCO believes that it has substantial and meritorious defenses to the FTC
and state lawsuits. It expects ultimately to be able to proceed with complet-
ing the combination with BP Amoco, either by prevailing in the litigation or
through settlement. However, there can be no assurance that the companies will
prevail in the legal proceedings, that an early judicial resolution can be ob-
tained, or that a settlement can be reached.

Review of 1999

Asset Portfolio Restructuring
ARCO made steady progress during 1999 implementing its strategy to focus on
key oil and gas businesses and regions. Successful strategic transactions in-
cluded increasing ARCO's interest in the oil-producing LL-652 Block in Venezu-
ela; reaching an agreement to sell ARCO Long Beach Inc. (ALBI); the sell-down
of ARCO's share of the Rhourde El Baguel field in Algeria; and the disposition
of Australian coal properties and Union Texas Petrochemicals.
In Venezuela, ARCO increased its interest in the LL-652 block in Lake Mara-
caibo to 36% by acquiring an additional 18% interest through an exchange for a
portion of ARCO's interest in the Hamaca heavy oil project in eastern Venezue-
la. ARCO also sold its remaining interest in Hamaca.
Although not consummated until January 31, 2000, in 1999 ARCO reached an
agreement to sell its interest in the Villano oil field in Ecuador. ARCO's
share of production from Villano in 1999 was 3,700 barrels per day.
In California, ARCO reached an agreement to sell its ownership in ALBI. The
sale is conditional upon obtaining approval from the Long Beach City Council
and the California State Lands Commission and is expected to close in the
first half of 2000. ARCO's share of production in 1999 was approximately
30,200 barrels per day.
ARCO entered into an agreement to sell down 40% of its interest in the proj-
ect for redevelopment of the Rhourde El Baguel field in Algeria. As of Febru-
ary 28, 2000, the sale had not been finalized.
In Tunisia, ARCO entered into an agreement to sell its interest in the
Ashtart offshore oil field. Closing of the sale took place in February 2000.
ARCO closed the sale of its interest in the Gordonstone coal mine, its in-
terest in the Blair Athol joint venture, and its stake in the Clermont coal
deposit, all in Queensland, Australia. In addition, an agreement with Stanwell
Power Company concerning the Curragh mine has cleared the way for renewed ef-
forts to sell that asset as well.
In March 1999, ARCO also sold its wholly owned subsidiary, Union Texas Pet-
rochemicals, obtained during the 1998 acquisition of UTP.

Oil and Gas Operations
ARCO and its partners in the Malaysia-Thailand Joint Development Area in the
Gulf of Thailand reached agreement to begin the sale of natural gas to Malay-
sia and Thailand by the first half of 2002. ARCO had ma-
2
<PAGE>

jor exploration successes through Vastar's two deep-water discoveries in the
Gulf of Mexico in 1999, in addition to two satellite field discoveries in
Alaska. ARCO's net reserves additions replaced 129% of worldwide production in
1999.

Polypropylene Start-up
At its Los Angeles Refinery, ARCO started up the West Coast's first polypropy-
lene manufacturing facility on December 31, 1999. ARCO operates the facility
and holds ownership and markets product through its 65% interest in a joint
venture.

Global Cost Reduction Program
In October 1998, ARCO announced it was undertaking a worldwide cost reduction
program designed to reduce (1) upstream and downstream operating and support
costs; (2) exploration spending; and (3) costs for the corporate center and
support services. In connection with this cost reduction program, ARCO di-
vested a number of non-strategic assets, which have facilitated the cost re-
ductions.
ARCO initially estimated that these cost reductions would save $350 million
in 1999 and would rise to annual cost savings of $500 million by 2000. Based
on 1999 year-end results, ARCO exceeded its target of $500 million of cost
savings in the first year. ARCO believes it can sustain cost savings of $650
million per year, as compared to 1998 baseline expenses. ARCO has budgeted
capital spending (additions to fixed assets) for 2000 at $2.6 billion. See
"Capital Program" at page 11.

3
<PAGE>

Exploration and Production Operations

General
ARCO conducts its worldwide oil and gas exploration and production operations
primarily in Alaska, the Midcontinent and offshore Gulf of Mexico in the
United States, and internationally in the United Kingdom North Sea, Indonesia,
Venezuela, China and Algeria.

Reserves

Proved oil and gas reserves as of December 31, 1999
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Petroleum Liquids Natural Gas
(Million barrels) (Billion cubic feet)
------------------------ ------------------------
U.S.(a) International(b) U.S.(c) International(d)
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Proved reserves......... 2,159 786 5,158 4,742
Proved developed re-
serves................. 1,562 407 4,439 2,653
</TABLE>
--------
(a) Includes 237 million barrels (MMB) proved and 108 MMB developed
attributable to Vastar.
(b) Includes 72 MMB proved and 42 MMB developed attributable to equity
interests.
(c) Includes 2,651 billion cubic feet (BCF) proved and 2,057 BCF
developed attributable to Vastar.
(d) Includes 861 BCF proved and 330 BCF developed attributable to equity
interests.

You can find additional information concerning oil and gas producing activi-
ties and estimates of proved oil and gas reserves under the caption Supplemen-
tal Information, Oil and Gas Producing Activities, beginning on page 62.
Production

Production Volumes
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Natural Gas
Petroleum Liquids (Million cubic feet
(Barrels per day) per day)
--------------------- ---------------------
Years Ended
December 31 U.S.(a) International U.S.(b) International
----------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C>
1999............................. 464,300 159,100 1,259 1,119
1998............................. 527,600 130,400 1,175 929
1997............................. 557,900 82,600 1,066 844
</TABLE>
--------
(a) Includes 60,000, 50,100, and 50,700 barrels per day (BPD) produced by
Vastar in 1999, 1998, and 1997, respectively.
(b) Includes 1,078 million, 988 million, and 882 million cubic feet per day
(MMCFD) produced by Vastar in 1999, 1998, and 1997, respectively.

Average sales prices and production costs
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------------------
1999 1998 1997
-------------------- ------------------- --------------------
U.S. International U.S. International U.S. International
------ ------------- ----- ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Average sales price
(including transfers)
per barrel of petroleum
liquids produced....... $12.83 $14.39 $9.43 $11.07 $15.63 $18.20
Average lifting cost per
equivalent barrel of
production............. 3.14 3.73 3.34 3.89 3.85 4.07
Average sales price per
thousand cubic feet
(MCF) of natural gas
produced............... 1.99 2.48 1.82 2.53 2.04 2.64
</TABLE>

4
<PAGE>

Exploration and Drilling Activity

Wells drilled to completion
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
U.S.(a) International U.S.(b) International U.S.(c) International
------- ------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net productive
exploratory wells
drilled................ 29 5 32 10 33 3
Net dry exploratory
wells drilled.......... 16 4 29 10 27 10
Net productive
development wells
drilled................ 309 11 573 27 563 23
Net dry development
wells drilled.......... 33 -- 37 -- 37 --
</TABLE>
--------
(a) Includes 23, 14, 198, and 30 wells, respectively, drilled by Vastar.
(b) Includes 23, 16, 187, and 35 wells, respectively, drilled by Vastar.
(c) Includes 18, 15, 162, and 27 wells, respectively, drilled by Vastar.

Current drilling activities as of December 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
U.S. International
---- -------------
<S> <C> <C>
Gross wells in process of drilling (including wells
temporarily suspended).................................. 32 41
Net wells in process of drilling (including wells
temporarily suspended).................................. 24 19
Waterflood projects in process........................... 5 5
Enhanced oil recovery operations......................... 16 --
</TABLE>

Number of productive wells as of December 31, 1999
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Oil Gas
--------------------------- ---------------------
U.S.(a)(b) International(c) U.S.(d) International
---------- ---------------- ------- -------------
<S> <C> <C> <C> <C>
Total gross productive
wells.................... 8,384 733 3,650 342
Total net productive
wells.................... 3,270 313 1,817 90
</TABLE>
--------
(a) Includes approximately 1,532 gross and 334 net multiple completions
for ARCO, of which there are 362 gross and 174 net multiple
completions for Vastar.
(b) Includes approximately 1,390 gross and 600 net wells, respectively,
attributable to Vastar.
(c) Includes approximately 87 gross and 40 net multiple completions.
(d) Includes approximately 2,793 gross and 1,467 net wells, respectively,
attributable to Vastar.

Petroleum rights acreage as of December 31, 1999(a)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Developed Undeveloped
Acreage Acreage
----------- -------------
Net Gross Net Gross
----- ----- ------ ------
(thousands)
<S> <C> <C> <C> <C>
U.S.
Alaska............................................ 205 388 1,380 2,439
Lower 48(b)....................................... 1,933 3,283 2,649 4,029
----- ----- ------ ------
Total U.S....................................... 2,138 3,671 4,029 6,468
International....................................... 296 673 40,754 84,229
----- ----- ------ ------
Total........................................... 2,434 4,344 44,783 90,697
===== ===== ====== ======
</TABLE>
--------
(a) Includes options and exploration rights.
(b) Includes 1,598,000 net developed acreage, 2,575,000 gross developed
acreage, 2,384,000 net undeveloped acreage and 3,475,000 gross
undeveloped acreage, respectively, held by Vastar.

5
<PAGE>

Delivery Commitments
ARCO has various long-term natural gas sales contracts covering the majority
of its production in Indonesia, the United Kingdom North Sea, and China.
ARCO's various annual delivery obligations under these contracts are substan-
tially limited to producible reserves from specific fields.
In the Lower 48, Vastar has various long-term natural gas sales contracts.
In connection with the formation in 1997 of Southern Company Energy Marketing
L.P. (SCEM), a strategic alliance limited partnership with the Southern Compa-
ny, Inc., Vastar entered into a gas purchase and sale agreement with SCEM. The
primary term expires December 31, 2007 and the prices are market-based. The
contract covers substantially all of the gas produced and owned or controlled
by Vastar. Excluded from this contract is gas which Vastar is committed to de-
liver under certain long-term gas marketing contracts with cogeneration facil-
ities pursuant to which Vastar delivered an average of 73 MMCFD in 1999. These
long-term contracts have an average remaining contract term of approximately
11 years. In 1999, the average price of gas sold under these contracts was ap-
proximately $2.69 per MCF. There have been no instances in the last three
years in which Vastar was unable to meet any significant natural gas delivery
commitment.

Alaska
Approximately 51% of ARCO's worldwide petroleum liquids production came from
ARCO's interests in Alaska, primarily in the Prudhoe Bay, Greater Kuparuk Area
and the Greater Point McIntyre Area fields on the North Slope of Alaska. AR-
CO's net liquids production from Alaska in 1999 decreased 8% to 319,100 BPD.
ARCO's interests in Alaska included net proved reserves of 1,907 million bar-
rels of oil equivalent (MMBOE) at December 31, 1999.
ARCO operates the eastern half of the Prudhoe Bay field and has a 21.87%
working interest in the oil rim production from the field and a 42.56% working
interest in the gas cap production. ARCO's net petroleum liquids production
from the Prudhoe Bay field averaged 158,700 BPD compared to 175,300 BPD in
1998.
ARCO is the sole operator of the Kuparuk River field, in which ARCO holds a
55.2% working interest. ARCO's share of production from the Kuparuk River
field was 110,800 net BPD of petroleum liquids during 1999, compared to
123,000 net BPD during 1998. The Kuparuk Enhanced Oil Recovery (EOR) Project,
which began operations in September 1996, added 17,000 net barrels of oil to
daily production by the end of 1999.
ARCO has working interests in five of six Greater Point McIntyre Area fields
as follows: 30.1% in Point McIntyre, 40.0% in Lisburne, and 50.0% in both West
Beach and North Prudhoe Bay State; ARCO also has a working interest in the
West Niakuk field where final working interest percentages have not yet been
determined. All six of the fields are processed through the Lisburne Produc-
tion Center, which ARCO operates. During 1999, liquids processed through the
Lisburne Production Center averaged 129,829 gross BPD, with 30,836 BPD net to
ARCO.
ARCO has several projects underway in Alaska that it expects will stop the
decline in Alaska production after 1999. The $150 million Prudhoe Bay Miscible
Injectant Expansion (MIX) project is designed to add 50 million gross barrels
of petroleum liquids to ultimate field recovery and 20,000 net BPD of petro-
leum liquids production in 2000. The project became operational in late 1999
and will be fully complete in early 2000. ARCO has a 78% interest in the Al-
pine field, which it is developing with Anadarko Petroleum. The field is ex-
pected to start up in mid-2000 at a gross rate of 44,000 BPD, and expected to
reach a peak production gross rate of 80,000 BPD. A $44 million EOR project at
Greater Point McIntyre will be completed in the second quarter of 2000.
Other developments in Alaska include an oil discovery in the Fiord accumula-
tion situated west of the Kuparuk River field near the Alpine field develop-
ment, and another discovery called Aurora, a new Prudhoe Bay satellite. These
discoveries added 40 MMB to proved reserves in 1999. ARCO was also successful
in the 1999 bidding round for National Petroleum Reserve Alaska leases, adding
92 tracts covering 447,000 acres for $55 million to its exploration portfolio.
ARCO transports all of its petroleum liquids produced from the North Slope
fields to market through the Trans Alaska Pipeline System (TAPS), an 800-mile
pipeline system that ties the North Slope of Alaska to

6
<PAGE>

the port of Valdez in south central Alaska. ARCO has a 22.2% weighted average
undivided ownership interest in TAPS. ARCO also owns approximately 22% of the
stock of Alyeska Pipeline Service Company, which constructed and now operates
TAPS for the owners. ARCO's undivided interest in TAPS is proportionately con-
solidated in the Alaska E&P operations for financial reporting purposes. TAPS
1999 throughput averaged approximately 1,078,000 BPD, down from 1,207,000 BPD
in 1998. ARCO operates five ocean-going tankers that transport the liquids
from Valdez to West Coast locations.

Lower 48

ARCO's consolidated Lower 48 operations had net production of 1,220 MMCFD of
natural gas and 145,200 BPD of petroleum liquids in 1999 as compared to 1,141
MMCFD and 180,900 BPD in 1998. ARCO replaced 156% of Lower 48 1999 production,
including consumption, on a BOE basis through its exploration and development
activities and purchases (net of sales).
The primary vehicle for ARCO's Lower 48 exploration and production opera-
tions is Vastar, of which ARCO owns 81.9%. Vastar, headquartered in Houston,
Texas, explores for, develops, produces and markets natural gas and petroleum
liquids in major producing basins in the Gulf of Mexico, the Gulf Coast, the
San Juan Basin/Rockies and the Midcontinent areas. You can obtain additional
information about Vastar, a copy of Vastar's 1999 Annual Report to Stockhold-
ers and 1999 Annual Report on Form 10-K by writing to Manager, Investor Rela-
tions, Vastar Resources, Inc., 15375 Memorial Drive, Houston, Texas 77079.
Vastar's telephone number is (281) 584-6000.
ARCO's Lower 48 exploration and production assets (other than Vastar) con-
sist primarily of oil and gas producing assets in the Permian Basin of west
Texas and southeast New Mexico. These assets accounted for reserves at Decem-
ber 31, 1999 of 334 MMBOE, of which 70% were petroleum liquids. In 1999, net
production from these assets was 78,800 barrels of oil equivalent per day
(BOEPD), down from 84,700 BOEPD in 1998. ARCO has reached an agreement to sell
its interest in ALBI, conditioned upon receiving various government approvals.
This interest accounted for reserves of approximately 99 MMBOE at December 31,
1999, and produced 30,200 BPD during 1999, down from 38,400 BPD in 1998.

International

ARCO's 1999 international petroleum liquids production averaged 159,100 BPD,
up from 130,400 BPD in 1998. Natural gas production in 1999 averaged 1,119
MMCFD, up from 929 MMCFD in 1998. ARCO's net proved reserves from its
international interests at December 31, 1999 were 1,577 MMBOE. ARCO's net
reserves additions replaced 92% of 1999 international production.
During 1999, ARCO and its partners continued development of the Shearwater
gas condensate field in the Central North Sea; start-up is expected in 2000.
ARCO's 1999 production from the United Kingdom North Sea was 451 MMCFD and
46,500 BPD.
ARCO has two liquefied natural gas (LNG) interests. The current operations
consist of a 37.81% working interest in the East Kalimantan joint venture that
produces natural gas and, to a lesser extent, oil and condensate from the
Sanga Sanga block. Substantially all the natural gas produced by the joint
venture is supplied to a liquefaction plant at Bontang Bay, pursuant to long-
term contracts with Pertamina, the Indonesian national oil company. The
Bontang plant converts the gas into LNG in parallel processing units called
"trains." Seven trains are currently in operation and an eighth is under con-
struction.
The second LNG interest, named Tangguh, continues under development. During
1999, the estimates of gross resources in the fields that will supply the
project increased to 18 trillion cubic feet (TCF); however, ARCO has not yet
recorded any reserves as proved. ARCO will operate the Wiriagar, Berau and
Muturi fields which will feed gas to the Tangguh project. It is anticipated
that the planned two-train LNG production facility will be operated by an In-
donesian company that will be jointly owned by Pertamina and the participants
in those production-sharing contracts that will supply gas to the plant.
In late 1998, ARCO acquired a 100% interest in a production-sharing contract
covering the Muriah Block, which is located in the central Java Sea and
7
<PAGE>

includes the Kepodang gas field. ARCO is currently negotiating an agreement
for the supply of gas from the Kepodang gas field to the Tambak Lorok power
plant. The power plant is expected to switch from diesel to natural gas in
2004.
ARCO's 1999 production from all Indonesian interests totaled 498 MMCFD and
25,900 BPD.
ARCO and its partners in the Malaysia-Thailand Joint Development Area in the
Gulf of Thailand agreed to commence sale of natural gas from one of their
fields to Malaysia and Thailand by the first half of 2002. The field initially
will supply almost 400 MMCFD.
In China, ARCO operates the Yacheng-13 gas field, from which ARCO obtained
net production of 114 MMCFD during 1999, down from 133 MMCFD in 1998.
ARCO's Venezuelan operations consist of risked service contracts covering
six blocks. Under a risked service contract, the contractor is responsible for
providing capital and technology for the redevelopment of the fields along
with costs of operating existing production. In exchange for providing and
funding overall operation and field development, the contractor is paid a per-
barrel service fee to cover reimbursement of costs plus profit. There are two
components to the fees, which include (i) a set fee for contractual baseline
production and (ii) a fee for incremental production. The fee for incremental
production is based on a sliding scale incentive mechanism, which is indexed
to a basket of international oil prices and overall field profitability. The
Venezuelan government maintains full ownership of all hydrocarbons in the
fields.
ARCO acquired from UTP interests in two risked service contracts covering
the Desarrollo Zulia Occidente (DZO) contract area (a 100% interest) and the
Boqueron contract area (a 60% interest). In acquiring DZO, ARCO assumed a po-
tential liability for making payments of up to a maximum of $15 million annu-
ally for six years. ARCO is the operator of the DZO and Boqueron blocks. ARCO
also has risked service contracts covering the Kaki (56%), Maulpa (56%) and
LL-652 (36%) blocks, as well as the La Vela exploration block.
As part of an asset portfolio restructuring, ARCO increased its interest in
the LL-652 block in Lake Maracaibo to 36% by acquiring an additional 18% in-
terest in exchange for a portion of ARCO's interest in the Hamaca heavy oil
project. The parties reached agreement and closed the transaction in early
January 2000. ARCO also sold its remaining interest in Hamaca.
Proved reserves and production quantities for Venezuelan operations are re-
corded based upon ARCO's net working interest in each of the contract areas,
"net" meaning reserves excluding royalties and interests owned by others per
the contractual arrangements. During 1999, net production from ARCO's Venezue-
lan interests was 32,000 BPD.
In Ecuador, ARCO entered into an agreement to sell its interest in the
Villano oil field. The sale closed on January 31, 2000.
ARCO also entered into agreements to dispose of a number of its remaining
exploration properties in Latin America.
In Algeria, ARCO has entered into an agreement to sell down 40% of its in-
terest in the redevelopment project for the Rhourde El Baguel field. ARCO is a
partner with Sonatrach, the Algerian state oil company, in the redevelopment
project. In 1999, ARCO recorded a loss of $175 million on the sale of its in-
terest. Although ARCO originally contracted with Elf for the sale of its in-
terest, Sonatrach has subsequently exercised its pre-emption rights. ARCO is
currently in the process of completing the disposition to Sonatrach. However,
at February 28, 2000, ARCO had not completed the sale of its interest.
In the Caspian Sea region, ARCO continues to participate through its 46%
ownership interest in LUKARCO, a joint venture with the Russian oil company
LUKOIL that holds a 54% interest. The LUKARCO joint venture holds a 5% inter-
est in the joint venture operating the Tengiz oil field in Kazakhstan and a
12.5% interest in the Caspian Pipeline Consortium (CPC), a multi-party effort
to build a 900-mile pipeline from the Tengiz field to the Black Sea via Rus-
sia. Under the terms of the joint venture arrangement, ARCO is obligated to
fund most of LUKARCO's 25% share of the construction costs of the CPC pipe-
line. In addition to the joint venture interest, ARCO owns approximately 8% of
LUKOIL's total equity, which at December 31, 1999 was valued at $714 million.
See Note 24 of Notes to Consolidated Financial Statements on page 60.

8
<PAGE>

Refining and Marketing Operations

ARCO's downstream operations include its two refineries on the West Coast,
branded retail gasoline outlets in six western states and British Columbia,
transportation operations including pipelines and terminals in California and
a marine fleet of ocean-going tankers, and a polypropylene plant at the
Los Angeles Refinery complex.

ARCO's two U.S. petroleum refineries are the Los Angeles Refinery in Carson,
California and the Cherry Point Refinery near Ferndale, Washington. Both of
these refineries have easy access to major supply sources and major markets
through ocean-going tankers, pipelines and other transportation facilities.

Refinery Capacity
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Annual Average Operable
Crude Distillation
Capacity(a)
(Barrels per day)
-----------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Los Angeles Refinery.................................. 260,000 260,000 260,000
Cherry Point Refinery................................. 222,700 202,000 202,000
------- ------- -------
Total............................................... 482,700 462,000 462,000
======= ======= =======
</TABLE>
--------
(a) Measured pursuant to standards of the American Petroleum Institute.

Refinery runs and petroleum products manufactured
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1999 1998 1997
------- ------- -------
(Equivalent barrels per
day)
<S> <C> <C> <C>
Crude oil refinery runs............................... 423,800 449,600 452,200
======= ======= =======
Petroleum products manufactured:
Gasoline............................................ 239,100 225,800 224,200
Jet fuels........................................... 82,700 92,000 106,700
Distillate fuels.................................... 68,100 76,600 73,100
Other(a)............................................ 82,100 93,400 85,300
------- ------- -------
Total(b).......................................... 472,000 487,800 489,300
======= ======= =======
</TABLE>
--------
(a) Includes chemical products, natural gas liquids (NGLs), petroleum coke
(green and calcined) and feedstocks, sulfur, middle-of-barrel
specialties and changes in unfinished stocks.
(b) Total manufactured petroleum products volumes exceed total crude oil
runs as a result of the expansion of petroleum product through
rearrangement of molecular structure and refinery blending of
oxygenates.

In December 1999, ARCO completed construction and achieved start-up of a
200,000 metric ton polypropylene resin manufacturing plant located at the Los
Angeles Refinery complex. ARCO holds a two-thirds interest in the joint
venture that owns the manufacturing facility and has begun marketing product
for export and for domestic U.S. consumption. Feedstock for the new
polypropylene facility, the only one on the West Coast, is supplied by the Los
Angeles Refinery under the joint venture agreement.
Since the June 1999 explosion and fire in Bellingham, Washington affecting
the Olympic Pipeline (in which ARCO has a 37.5% interest), that portion of the
pipeline system serving the company's Cherry Point Refinery has been shut down
pending investigation, repair, and examination of safety issues. Although
repairs have been completed, the federal Office of Pipeline Safety has not yet
authorized resumption of operations. Prior to the explosion and fire, the vast
majority of refined products supplied by Cherry Point to the Pacific Northwest
were

9
<PAGE>

transported via that pipeline. Loss of its use has caused the company to
transport those volumes by waterborne vessel or truck. As a result, because of
capacity limitations related to these alternate means of transportation, the
company has had to substantially reduce production volumes at Cherry Point. In
addition, transportation costs have increased. The company is seeking recom-
pense under the terms of its business interruption insurance policies, and is
examining other avenues of relief. It is uncertain when, and under what condi-
tions, the pipeline will be permitted to resume operations.

In connection with its refining operations, ARCO also produces calcined coke
and operates electric cogeneration facilities.

ARCO markets its gasoline under the ARCO(R) trademark. ARCO sells its
gasoline at ARCO branded retail outlets located in Arizona, California,
Nevada, Oregon, Utah and Washington, and in British Columbia. The company
currently has more than 1,700 branded retail outlets, which include franchisee
and company-operated am/pm(R) convenience stores and SmogPros(R) Service
Centers, along with traditional service stations. ARCO's am/pm franchises,
full scale convenience stores that also sell gasoline, make up about 60% of
the retail outlets. ARCO also sells gasoline to dealers and resellers who do
not use the ARCO brand in connection with retail sales.
To comply with federal Environmental Protection Agency (EPA) standards for
gasoline, the company has used the oxygenate methyl tertiary butyl ether
(MTBE) in making its reformulated gasoline. However, effective January 1,
2003, the State of California has mandated that gasoline in California may no
longer include MTBE as the oxygenate component. If current oil industry
efforts to reverse the California ban on the use of MTBE are unsuccessful, the
company likely will use ethanol to satisfy the federal oxygenate requirement.
Because of supply and delivery characteristics of ethanol as compared to MTBE,
the company's substitution of ethanol for MTBE may result in higher
manufacturing costs. Use of ethanol may also necessitate some capital
expenditures at the company's Los Angeles Refinery and distribution terminals.

ARCO markets jet fuel, calcined coke and NGLs to end-users and resellers.
ARCO sells jet fuels directly to airlines and the United States Department
of Defense. The company sells its calcined coke to U.S. and international
industrial consumers. ARCO sells NGLs directly to end-use customers, including
the Watson Cogeneration Facility, which is 51% owned by ARCO; ARCO also
markets NGLs through distributors. ARCO sells certain of its petroleum
products through cargo and bulk sales to commercial and industrial consumers.

Refined petroleum product sales
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1999 1998 1997
------- ------- -------
(Equivalent barrels per
day)
<S> <C> <C> <C>
Petroleum product sales:
Gasoline............................................ 314,500 308,700 281,900
Jet fuels........................................... 102,300 102,800 117,300
Distillate fuels.................................... 82,900 80,600 76,600
Other(a)............................................ 71,000 72,700 68,000
------- ------- -------
Total(b).......................................... 570,700 564,800 543,800
======= ======= =======
</TABLE>
--------
(a)Includes heavy fuel oils, NGLs, calcined and green coke.
(b) The total of petroleum product sales differs from the total of
petroleum products manufactured because of a number of factors: the
consumption of some products as refinery fuel, the exchange of
products with other refiners, changes in levels of product inventory,
and the purchase and sale of petroleum products not manufactured by
ARCO.

ARCO's marine fleet consists of seven tankers. Five transport crude oil from
Valdez, Alaska to Cherry Point, Washington and Long Beach, California and two
transport clean fuels products. ARCO's first Millennium class double-hulled
tanker, the Endeavour, was dedicated in October 1999 and is scheduled for
delivery in August 2000. Two additional double-hulled tankers are under
construction and are scheduled for delivery in 2001 and 2002, respectively.

10
<PAGE>

All Other Operations

ARCO's other operations during 1999 comprised its pipeline operations in the
Lower 48 and its aluminum rolling mill operations. In 1999, the Seaway Pipe-
line Company, a joint venture which is operated by ARCO Pipe Line Company, be-
gan an expansion project to increase the capacity of its 30-inch crude oil
pipeline by approximately 110,000 BPD. Following completion during 2000, the
pipeline's overall long-haul crude oil capacity will be approximately 350,000
BPD. You can find more details in Results of Segment Operations--Other
Operations on page 27.

Capital Program

ARCO's capital program includes spending for additions to fixed assets and
other capital expenditures. During 1999, the company spent approximately
$2.7 billion for additions to fixed assets. For 2000 ARCO plans to spend $2.6
billion for additions to fixed assets.
Key expenditures in 2000 will include continued development of the Alpine
field on the North Slope of Alaska, the Shearwater gas condensate field in the
United Kingdom North Sea, and continued development and exploration by Vastar
in the Gulf of Mexico. In downstream operations, the expenditures primarily
relate to construction of two new double-hulled marine tankers.
Future capital expenditures remain subject to business conditions affecting
the industry, as well as changes in environmental rules and regulations and
the tax laws. They are also subject to change based on the timing and the sta-
tus of the combination with BP Amoco.

Patents

ARCO owns numerous patents, many of which it makes generally available for
license to others in the petroleum industry. ARCO itself is a licensee under
certain patents that are available generally to the industry. ARCO's opera-
tions are not dependent upon any particular patent or patents or upon any ex-
clusive patent rights.

Competition

ARCO faces intense competition from a number of companies in both its E&P
and R&M operations. Several of its competitors are larger and have substan-
tially greater resources. In many areas outside the United States ARCO may be
in competition with state-owned or -sponsored companies for upstream explora-
tion and development projects. No single competitor, or small group of compet-
itors, dominates either of ARCO's operating segments.
Upstream, ARCO competes with numerous other companies in the oil and gas in-
dustry to locate and obtain new sources of oil and gas and to produce that oil
and gas in a cost-effective and efficient manner. Bidding for leases and ac-
quiring producing properties are characterized by intense competition. ARCO
believes its expertise in geological and geophysical technology enables it to
compete effectively in property acquisition, exploration and development in
those geographic areas where it is focusing its efforts. Another major compet-
itive factor is a company's cost structure for producing oil and gas. ARCO be-
lieves its cost structure enables it to compete on a cost-effective basis in
those areas of geographic focus.
Major factors affecting the profitability of the oil and gas industry are
the general price levels for crude oil and natural gas, which have typically
been volatile as a result of fluctuations in world, and sometimes local, eco-
nomic conditions and political events.
Downstream, ARCO competes with numerous companies in both its refining oper-
ations and its retail gasoline marketing. Key competitive methods include re-
fining operations that yield a greater proportion of high-margin products,
technological expertise in developing new products that meet environmental
specifications, and marketing operations that put a premium on high volume and
innovation. ARCO's refineries are

11
<PAGE>

among the most efficient in the industry and the company has been an industry
leader in developing reformulated gasoline. It has also sought to be a leader
in low-cost, high-volume retail marketing and distribution, combining
convenience stores and standardized automotive services with gasoline delivery
to spread station site costs and increase revenue.

ARCO ranked as the sixth largest U.S.-based oil company on the basis of rev-
enues in the April 1999 Fortune 500 list of U.S. industrial companies.

Human Resources

As of December 31, 1999, ARCO had approximately 16,600 full-time-equivalent
employees, of whom approximately 9% were represented by collective bargaining
agents.

Research and Development

Total research and development expenses were $28 million, $45 million and
$38 million in 1999, 1998 and 1997, respectively.

Environmental Matters

Site Remediation

ARCO is subject to federal, state and local environmental laws and regula-
tions, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (CERCLA or Superfund), and the Superfund
Amendments and Reauthorization Act of 1986 and the Resource Conservation Re-
covery Act of 1976 (RCRA). These regulations require ARCO to do some or all of
the following:

. Remove or mitigate the effects on the environment at various sites from the
disposal or release of certain substances;

. Perform restoration work at such sites; and

. Pay damages for loss of use and non-use values.

Environmental liabilities include personal injury claims allegedly caused by
exposure to toxic materials manufactured or used by ARCO.

ARCO is currently involved in environmental assessments and cleanups under
these laws at federal- and state-managed sites, as well as other clean-up
sites, including service stations, refineries, terminals, third party
landfills, former nuclear processing facilities, sites associated with
discontinued operations and sites that were formerly owned by ARCO or its
predecessors. This comprises 130 sites for which ARCO has been named a
potentially responsible party (PRP), along with other sites for which no
claims have been asserted. The number of PRP sites in and of itself is not a
relevant measure of liability because the nature and extent of environmental
concerns varies by site and ARCO's responsibility varies from sole
responsibility to very little responsibility. Future costs depend on numerous
unknown factors such as:

. Nature and extent of contamination;

. Timing, extent and method of remedial action;

. ARCO's proportional share of costs; and

. Financial condition of other responsible parties.

The environmental remediation accrual is updated at least annually, and at
December 31, 1999 was $686 million.

The amount accrued represents the estimated undiscounted costs that ARCO
will incur to complete the remediation of sites with known contamination. In
view of the uncertainties associated with estimating these costs (such as
differences of opinion between ARCO and various regulatory agencies with
respect to the appropriate method for remediating contaminated sites,
uncertainty as to the extent of contamination at various sites, and
uncertainty regarding ARCO's ultimate share of costs at various sites), it is
possible that actual costs could exceed the amount accrued; however, ARCO
estimates this amount to be no greater than $550 million. This estimate was
determined by applying Monte Carlo analysis to estimated site maximums on a
portfolio basis. Monte Carlo simulation

12
<PAGE>

is an analytical tool that uses computer-generated iterations to determine a
range of probable outcomes for a project or a portfolio of projects. ARCO's
specific use of Monte Carlo analysis involved determining a range of liability
outcomes for our portfolio of active sites. See Note 15 of Notes to
Consolidated Financial Statements on page 53 regarding environmental matters.
Approximately 60% of the reserve relates to sites associated with ARCO's
discontinued operations, primarily mining activities in the states of Mon-
tana, Utah and New Mexico. Another significant component relates to currently
and formerly owned or operated nuclear processing, and refining and marketing
facilities, and other sites that received wastes from these facilities. One
site represented 11% of the total accrual. No other site represented more than
7% of the total accrual. The remainder relates to sites with reserves ranging
from $1 million to $10 million per site. Substantially all amounts reserved
are expected to be paid out over the next six years. ARCO is also the subject
of certain material legal proceedings described below under the caption "Mate-
rial Environmental Litigation."

Clean Air
The Federal Clean Air Act Amendments of 1990 (the 1990 Clean Air Act Amend-
ments) and various state and local laws and regulations impose certain air
quality requirements. Among other things, the 1990 Clean Air Act Amendments
effectively require the manufacture and sale of reformulated and oxygenated
gasolines in areas not meeting specified air quality standards. The EPA win-
tertime oxygenate gasoline program became effective in the fall of 1993. The
EPA reformulated gasoline requirements became effective January 1, 1995 for
the nine U.S. cities, including Los Angeles and San Diego, and other areas
with the worst ozone pollution. The specifications for reformulated gasoline
of the California Air Resources Board (CARB), which are stricter than the EPA
requirements, became effective for retail sales on and after June 1, 1996. To
comply with the EPA air quality requirements and CARB standards, in 1995 ARCO
completed major modifications at its Los Angeles Refinery. To comply with fed-
eral EPA standards for gasoline, the company has used the oxygenate MTBE in
making its reformulated gasoline. However, effective January 1, 2003, the
State of California has mandated that gasoline in California may no longer in-
clude MTBE as the oxygenate component. If current oil industry efforts to re-
verse the California ban on the use of MTBE are unsuccessful, the company
likely will use ethanol to satisfy the oxygenate requirement. See page 10 for
a discussion of the effects on the Los Angeles Refinery of the California ban
on MTBE.
In 1993 the South Coast Air Quality Management District (AQMD), which sets
air quality standards for a five-county area of Southern California, including
Los Angeles County, adopted regulations requiring phased reductions of certain
pollutants. By 2003 the Los Angeles Refinery and the Wilmington calciner will
be required to achieve cumulative reductions from 1992 levels of oxides of ni-
trogen (NOx) of 63% and oxides of sulfur (SOx) of 83%. As part of the regula-
tions, AQMD created a Regional Clean Air Incentives Market (RECLAIM) program
under which regulated firms can earn credits for achieving emission reductions
below targeted levels. Those credits may then be bought and sold. The Los An-
geles Refinery plans to achieve the requisite levels of emission reductions by
a combination of reductions and acquisitions of credits, substantial amounts
of which have already been purchased. The AQMD is currently considering modi-
fications to the RECLAIM program, but nothing has yet been finalized.

Environment-Related Expenditures
For the past three years, the company's environment-related expenditures have
been comprised of both capital expenditures and operating expenses. Environ-
ment-related capital expenditures include the cost of projects to reduce
and/or eliminate pollution and contamination in the future and the cost of
modifications to the company's manufacturing facilities necessary to comply
with the aforementioned federal, state and local air quality laws and regula-
tions. Environment-related operating costs include both costs to eliminate,
control or dispose of pollutants, as well as costs to remediate previously
contaminated sites. Sites are remediated using a variety of techniques, in-
cluding on-site stabilization, bioremediation, soil removal, pump and treat
and other methods as deemed appropriate for each specific site.

13
<PAGE>

For the past three years, the company's environment-related capital expendi-
tures have averaged $216 million per year. The company anticipates environ-
ment-related capital expenditures of approximately $220 million and $190 mil-
lion for 2000 and 2001, respectively. For the past three years, the company's
operating expenses for the remediation of previously contaminated properties
either compelled or likely to be compelled in the foreseeable future by gov-
ernment or third parties have averaged approximately $170 million per year.
Cash payments for site remediation have averaged $143 million per year over
the same period. The company's operating expenses also include ongoing costs
of controlling or disposing of pollutants. For the past three years, the com-
pany estimates that its operating expenses related to these ongoing costs have
averaged approximately $185 million per year.
In addition to the reserve for environmental remediation costs, the company
has also accrued, as of December 31, 1999, $1.2 billion for the estimated
cost, net of salvage value, of dismantling facilities as required by contract,
regulation or law, and the estimated costs of restoration and reclamation of
land associated with such facilities.

Material Environmental Litigation

Pursuant to the authority provided under Superfund, the State of Montana as-
serted claims against ARCO for compensation for damage to natural resources up
to the maximum amount allowed by 42 United States Code (S)9607. Those alleged
damages, arising out of ARCO's or its predecessors' alleged activities, in-
cluded restoration and compensable damages, assessment costs, and prejudgment
interest. On December 12, 1983, a lawsuit, styled Montana v. ARCO (Case No.
CV-83-317-HLN-PGH), was filed in the United States District Court for the Dis-
trict of Montana. At the time trial commenced on March 3, 1997, the State's
claim was for damages of $767 million for alleged injuries to natural re-
sources resulting from mining and mineral processing operations. In addition,
the Confederated Salish and Kootenai Tribes of the Flathead Reservation
(Tribes) were granted a limited form of intervention in Montana v. ARCO. The
Tribes, as alleged trustees, asserted claims against ARCO for alleged injury
to and loss of natural resources located in the Clark Fork River Basin in
southwest Montana. The United States Department of Interior also stated an in-
tention to make a claim for natural resource damages in the Clark Fork River
Basin. In 1998 ARCO agreed to the terms of two consent decrees, under which
ARCO agreed to pay $135 million for settlement of $561 million of the State's
natural resource damage claims relating to the Clark Fork River Basin (exclud-
ing only the State's claims for restoration at three sites), $86 million pri-
marily for remediation at the Stream Side Tailings Operable Unit (SSTOU) in
the Clark Fork Basin, including a civil penalty of $1.8 million, and $20 mil-
lion to resolve natural resource damage claims by the Tribes and the United
States. These settlements were approved by the court on April 19, 1999. Re-
maining for disposition are the State's claims for $206 million of restoration
damages at three sites.
On June 23, 1989, the EPA filed a CERCLA cost-recovery action against ARCO,
styled U.S. v. ARCO, et al. (Case No. CV-89-039-BU-PGH), in the United States
District Court for the District of Montana, for oversight costs at several of
the Upper Clark Fork River Basin Superfund sites. Litigation is proceeding on
both the EPA's claims (in the approximate amount of $90 million, including
$14.7 million pertaining to the SSTOU) and ARCO's counterclaims against vari-
ous federal agencies. In the counterclaims, ARCO seeks contributions from the
federal agencies for remediation costs and for any natural resource damage li-
ability ARCO might incur in Montana v. ARCO. The settlements in Montana v.
ARCO, described above, resolved the claims and counterclaims in U.S. v. ARCO
pertaining to the SSTOU and may provide a framework for possible future set-
tlement of the remaining claims.
ARCO and its subsidiary, Atlantic Richfield Hanford Company (ARHCO), and
several other companies who have served as government contractors at the Han-
ford Nuclear Reservation in south central Washington State are named as defen-
dants in a consolidated complaint in the United States District Court for the
Eastern District of Washington, titled In re Hanford Nuclear Reservation Liti-
gation (CY-91-3015-AAM). In October 1994, the Department of Energy (DOE) de-
termined that the government will indemnify ARCO and ARHCO for any judgment or
settlement in the action

14
<PAGE>

pursuant to the contract between ARHCO and the Atomic Energy Commission and
the provisions of the Price-Anderson Act. On April 4, 1997, ARCO was served
with a new complaint making allegations similar to those already pending in
the litigation, filed by six individual Native Americans in the United States
District Court for the Western District of Washington, purportedly on behalf
of classes of Native Americans living near the Hanford Nuclear Reservation.
The DOE has indicated that it will indemnify ARCO and ARHCO with respect to
this new action as well. This action has been transferred to the United States
District Court for the Eastern District of Washington. On August 21, 1998, the
court issued a ruling that, if upheld on appeal, should result in the dis-
missal of ARHCO and ARCO from the case.
Following the March 1989 EXXON VALDEZ oil spill, numerous lawsuits seeking
compensatory and punitive damages and injunctions were filed by the State of
Alaska, the United States, and private plaintiffs against Exxon, Alyeska, and
Alyeska's owner companies (including ARCO, which has a 22% interest). Alyeska
and its owner companies have settled the civil damage claims by federal and
state governments and the lawsuits by private plaintiffs. Certain issues re-
lating to liability for the spill remain unresolved between the Exxon compa-
nies, on the one hand, and Alyeska and its owner companies, on the other hand.

Environmental Matters Relating to International Operations
ARCO's international operations, which are primarily located in the
United Kingdom North Sea, Indonesia, Venezuela, China, and Algeria, are
conducted in accordance with internationally acceptable environmental
standards and are also subject to foreign laws covering environmental matters,
as well as to contractual obligations relating to dismantlement and
abandonment. To date, ARCO has not incurred any significant expenditures for
environmental remediation, is not involved in any environmental cleanup, and
has not reserved any amount for environmental remediation, relating to its
operations in the United Kingdom North Sea, Indonesia, Venezuela, China, and
Algeria. ARCO has accrued approximately $216 million related to
decommissioning and abandonment of its production facilities in the United
Kingdom North Sea. This amount is part of the total of $1.2 billion accrued by
ARCO for the estimated cost of dismantling all of its facilities as required
by contract, regulation or law, and for the estimated costs of restoration and
reclamation of land associated with such facilities. The foreign environmental
laws and regulations have not had, and are not presently expected to have, a
material adverse effect on ARCO's financial results or position.

Conclusion
Environmental concerns, including the minimization and prevention of environ-
mental contamination from ongoing operations, and the cost-effective
remediations of existing contaminated sites, continue to be vital factors in
the company's future planning. See Note 15 of Notes to Consolidated Financial
Statements on page 53, and "Environmental Matters" on page 12.

15
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

The Company

On June 7, 1989, the City of New York, the New York City Housing Authority,
and the New York City Health and Hospitals Corporation brought suit in the Su-
preme Court of the State of New York for the County of New York (Case
No. 14365/89) against six alleged former lead pigment manufacturers or their
successors (including ARCO as successor to International Smelting and Refining
Company (IS&R), a former subsidiary of The Anaconda Company), and the Lead
Industries Association (LIA), a trade association. Plaintiffs sought to re-
cover damages in excess of $50 million including (i) past and future costs of
abating lead-based paint from housing owned by New York City and the New York
City Housing Authority (Housing Authority); (ii) other costs associated with
dealing with the presence of lead-based paint in that housing and privately-
owned housing; and (iii) any amounts paid by the City or the Housing Authority
to tenants because of injuries caused by the ingestion of lead-based paint.
Plaintiffs also seek punitive damages and attorney's fees. As a result of var-
ious court rulings, the plaintiffs' only remaining claims are for fraud and
restitution and indemnity. Two stipulated dismissals have further narrowed the
case. The City of New York and the New York City Health and Hospitals Corpora-
tion entered into a stipulated order dismissing with prejudice all of their
pending claims against ARCO and the other defendants. The remaining plaintiff,
the Housing Authority, then entered into another stipulated order dismissing
its claims as to all the Housing Authority properties except for two housing
projects.
On November 25, 1998, ARCO (as successor to IS&R) was named as a defendant
in a purported class action suit, Sabater, et al. v. Lead Industries Associa-
tion, et al. (Case No. 25533/98), filed in the Supreme Court of the State of
New York for the County of Bronx by the mothers of four minor plaintiffs. The
complaint also names the LIA and eight former lead pigment/paint manufactur-
ers. The plaintiffs seek, on behalf of themselves and a purported class of
children age six and under residing in dwellings in the City of New York con-
taining or presumed to contain lead paint, compensatory damages and injunctive
relief from all defendants, including orders requiring defendants to contrib-
ute to a court-administered fund to pay for (i) notification to class members
of the dangers of lead-based paint, (ii) abatement of properties where class
members reside and to pay for temporary relocation during abatement,
(iii) medical monitoring, including screening, testing, diagnosing, and treat-
ing of class members, and (iv) attorney fees. The complaint alleges causes of
action against the defendants for negligence, strict products liability, con-
spiracy, concert of action, and enterprise and market share liability.
On August 25, 1992, ARCO (as successor to IS&R) was added as a defendant to
a purported class action suit pending in the Court of Common Pleas in Cuyahoga
County (Cleveland), Ohio, Jackson, et al. v. The Glidden Company, et al. (Case
No. 236835), which seeks on behalf of the three named plaintiffs, and all
other persons similarly situated in the state of Ohio, money damages for inju-
ries allegedly suffered from exposure to lead paint, punitive damages, and an
order requiring defendants to remove and abate all lead paint applied to any
building in Ohio. The suit names as defendants, in addition to ARCO, the LIA
and 16 companies alleged to have participated in the manufacture and sale of
lead pigments and paints and includes causes of action for strict product lia-
bility, negligence, breach of warranty, fraud, nuisance, restitution, negli-
gent infliction of emotional distress, and enterprise, market share and alter-
native liability.
On September 20, 1999, ARCO (as successor to IS&R) and The Anaconda Company
were named by 11 homeowners as defendants in a purported class action suit
filed in the Circuit Court for Baltimore City, Maryland, Earl Cofield, et al.
v. Lead Industries Association, et al. (Case No. 24-C-99-004491). The amended
complaint, which also names 13 alleged former manufacturers of lead products,
the LIA, and the National Paint and Coatings Association, alleges causes of
action for negligent product design and failure to warn, supplier

16
<PAGE>

negligence, fraud and deceit, conspiracy, concert of action, aiding and abet-
ting, and products liability. This matter also incorporates causes of action
for nuisance, indemnification, and enterprise liability. The plaintiffs seek,
on behalf of themselves and a purported class of over 10,000 people living in
the State of Maryland whose pre-1978 residences allegedly were contaminated
with lead-based paint, compensatory and punitive damages and injunctive re-
lief, including orders requiring defendants to pay for (i) notification to
class members about the hazards of lead pigments, (ii) abatement of residences
where class members reside, (iii) a public education campaign concerning the
hazards of lead pigments, lead paint, and lead poisoning, and (iv) attorney
fees.
On October 12, 1999, ARCO (as successor to IS&R) was named as a defendant in
a lead paint lawsuit filed in Rhode Island Superior Court, Providence County
by Rhode Island Attorney General Sheldon Whitehouse, State of Rhode Island v.
Lead Industries Association, et al. (Case No. 99-5226). The complaint, which
also names seven former lead pigment manufacturers and the LIA, alleges causes
of action for public nuisance, violation of Rhode Island's Unfair Trade Prac-
tice and Consumer Protection Act, strict liability, negligence, negligent and
fraudulent misrepresentations, civil conspiracy, unjust enrichment, indemnity
and equitable relief to protect children. The State of Rhode Island seeks
compensatory and punitive damages, funding for a public education campaign
concerning the dangers of lead poisoning and injunctive relief that includes
an order requiring defendants to pay for the detection and abatement of lead
paint in all public and private buildings within the State that are accessible
to children.
On January 26, 2000, ARCO (as successor to IS&R and Anaconda Lead Products
Company) was named as a defendant in a lawsuit, City of St. Louis v. Lead In-
dustries Association, Inc. et al. (Cause No. 002-245), filed in the Circuit
Court for the City of St. Louis, Missouri by the City of St. Louis. The com-
plaint, which also names the LIA and seven former lead pigment/paint manufac-
turers, alleges causes of action for public nuisance, product liability, neg-
ligence, negligent and fraudulent misrepresentations, civil conspiracy, unjust
enrichment, and indemnity. The City of St. Louis alleges that it was obligated
to pay, has paid, and in the future will have to pay for the care of lead poi-
soned children and adults in the form of medical care, education programs,
abatement, and other costs associated with the hazards created by the defen-
dants, and is seeking compensatory and punitive damages.
In addition, the company is a defendant in several lawsuits brought by indi-
viduals that allege injury from exposure to lead paint. Such cases, in the ag-
gregate, are not material to the financial condition of the company.
On June 7, 1994, a purported class action was filed by several individuals
in United States District Court in Pittsburgh, Pennsylvania against ARCO and
Babcock & Wilcox Company (B & W) on behalf of persons "estimated to be in the
thousands" who lived or worked in Apollo and Parks Township, Pennsylvania, and
areas downwind of those places, from 1957 to the present. The suit, Hall, et
al. v. Babcock & Wilcox Company, et al. (Case No. 94-0951), claims that the
plaintiffs and alleged class members were exposed to releases of radioactive
and other toxic substances from two nuclear materials processing facilities
that have contaminated the air, soil, and surface and ground water in those
communities. The suit seeks damages for death and personal injury, diminution
in property values, costs of decontamination of property, injunctive relief
requiring defendants to establish a fund for medical monitoring, and punitive
damages. ARCO has been sued as the former owner of Nuclear Materials and
Equipment Corporation (NUMEC), the original owner and operator of the Apollo
and Parks Township facilities from March 1967 to November 1971. On Septem-
ber 17, 1998, the jury in a trial of eight "test-case" plaintiffs' claims re-
turned a verdict of $33.7 million jointly and severally against ARCO and B & W
and another $2.8 million just against B & W. On September 24, 1998, these
eight test-case plaintiffs withdrew their claim for punitive damages against
ARCO. On June 29, 1999, the court granted ARCO's and B & W's motions for a new
trial. On November 15, 1999, as part of amending its responsive pleading in
the Hall action, B & W filed a crossclaim against ARCO for contractual indem-
nity, common law indemnity, and contribution, seeking to be indemnified by
ARCO for any liability arising out of the Hall action. ARCO has moved to
strike the crossclaim, but the court has not yet ruled on ARCO's motion. The
claims of the eight test-case plaintiffs and of other plaintiffs remain for
trial or other disposition.
On April 13, 1995, a lawsuit was filed in United States District Court for
the Central District of Califor-
17
<PAGE>

nia titled ARCO, et al. v. UNOCAL (Case No. 95-2379-KMW-JRx). ARCO and five
other refiners sought a declaration that UNOCAL's U.S. Patent No. 5,288,393
(the '393 patent) is invalid and unenforceable. The '393 patent purports to
cover a substantial portion of the reformulated gasoline compositions that
were required by the State of California when the Phase II regulations of the
California Air Resources Board (CARB) went into effect in March 1996. In the
same lawsuit, UNOCAL filed a claim for infringement of the '393 patent against
ARCO and the five other refiners. On July 15, 1997, the first phase of trial
commenced and on October 14, 1997, the jury found in UNOCAL's favor on the is-
sues of whether ARCO and the other refiners had infringed the '393 patent and
whether that patent is valid. The jury also found that ARCO had produced ap-
proximately 149 million gallons of infringing gasoline during the first five
months of production. On November 3, 1997, the jury found that each refiner
owed UNOCAL $.0575 for each gallon of gasoline that infringed on UNOCAL's pa-
tent. On September 29, 1998, the court issued a judgment in favor of UNOCAL
for $10.3 million (including prejudgment interest) against ARCO for infringing
gallons during the first five months of production and for $1.5 million joint
and several against ARCO and the other five refiners for UNOCAL's attorneys
fees. ARCO and the other five refiners have appealed the decision to the Court
of Appeals for the Federal Circuit.
On June 7, 1996, the case of Aguilar, et al. v. Atlantic Richfield, et al.
(Case No. 700810) was brought in the Superior Court of California for the
County of San Diego against ARCO and eight other refiner-marketers of CARB re-
formulated gasoline. The plaintiffs allege that the defendants conspired to
restrict the supply, and thereby to raise the price, of CARB gasoline in vio-
lation of California state antitrust and unfair competition law. The plain-
tiffs seek to recover treble damages, restitution, attorneys fees, and injunc-
tive relief. The court has certified a class of California residents who
bought CARB gasoline after March 1, 1996 other than for resale. On October 17,
1997, the court granted the defendants' motion for summary judgment. On
January 23, 1998, the court granted the plaintiffs' motion for a new trial. On
January 31, 2000, the Court of Appeal for the Fourth Appellate District re-
versed the order granting a new trial and ordered the Superior Court to grant
summary judgment in favor of each defendant. On January 23, 1998, the case of
Gilley v. Atlantic Richfield, et al., [Case No. CV UU132BTM (RBB)] was filed
in the United States District Court for the Southern District of California.
The case, which is brought on behalf of a purported class of wholesale pur-
chasers of CARB gasoline including lessee and contract gasoline dealers,
claims violations of federal antitrust laws based upon factual allegations
that are essentially the same as those contained in the Aguilar complaint. On
October 22, 1998, ARCO was served with a complaint filed in the Superior Court
of California for the County of Sacramento entitled Cal-Tex Citrus Juice, et
al. v. Atlantic Richfield Company, et al. (Case No. 98AS05227). The complaint
is purportedly on behalf of a class of all direct or indirect purchasers of
California diesel fuel between March 19, 1996 and December 31, 1997 against
all California refiners of California diesel fuel. The complaint alleges vio-
lations of various state statutes by the defendants' alleged conspiracy to fix
prices of California diesel fuel and seeks treble damages and restitution.
On June 26, 1998, a purported class action was filed in the Court of Chan-
cery of the State of Delaware in New Castle County, McMullin v. Beran, et al.
(Case No. 16493NC) against ARCO, Lyondell Petrochemical Company, ARCO Chemical
Company, and the individual directors of ARCO Chemical relating to the acqui-
sition of ARCO Chemical by Lyondell. The suit is brought by an individual
shareholder of ARCO Chemical on behalf of all common stockholders, other
than defendants, and seeks rescission of the transaction, damages for the al-
legedly inadequate consideration being paid by Lyondell for the shares, and
attorneys' fees and costs. The plaintiff alleges that ARCO and the individual
directors of ARCO Chemical, who are alleged to be dominated and controlled by
ARCO, breached fiduciary duties to the minority shareholders. On December 1,
1999, the Court of Chancery issued an order dismissing the action on the
grounds that the complaint did not state a valid claim under Delaware law. The
plaintiff has appealed the order of dismissal.

18
<PAGE>

Environmental Proceedings

As discussed under the caption "Environmental Matters," ARCO is currently
participating in environmental assessments and cleanups at numerous operating
and non-operating sites under Superfund and comparable state laws, RCRA, and
other state and local laws and regulations, and pursuant to third party indem-
nification requests, and is the subject of material legal proceedings relating
to certain of these sites. See "Environmental Matters--Material Environmental
Litigation," beginning on page 14.

In addition to the matters reported herein, from time to time, certain of
ARCO's operating divisions and subsidiaries receive notices from federal,
state or local governmental entities of alleged violations of environmental
laws and regulations pertaining to, among other things, the disposal, emission
and storage of chemical and petroleum substances, including hazardous wastes.
Such alleged violations may become the subject of enforcement actions or other
legal proceedings and may involve monetary sanctions of $100,000 or more (ex-
clusive of interest and costs).

Status of Litigation Regarding
Proposed Combination with BP Amoco

On February 4, 2000, the Federal Trade Commission (FTC) filed a complaint in
U.S. District Court for the Northern District of California, No. C 00 0416 SI,
seeking a preliminary injunction to prevent closing of the combination between
ARCO and BP Amoco. The FTC had determined to challenge the combination in a 3
to 2 vote on February 2, 2000. The suit alleges that the transaction would vi-
olate section 7 of the Clayton Act by substantially lessening competition in
three areas: production and sale of Alaska North Slope crude oil to West Coast
refineries; bidding for rights to explore for oil and gas resources on the
Alaska North Slope; and increased concentration and loss of competition in
pipeline and oil storage in and into Cushing, Oklahoma with effects on trading
in light sweet crude oil futures. On February 22, 2000, the court consolidated
with the FTC lawsuit an action filed in the same court by the Attorneys Gen-
eral for the States of California, Oregon and Washington, No. C 00 0416 SI,
challenging the combination on the first two grounds discussed above. The
court also granted the State of Alaska leave to intervene in the FTC's law-
suit. The court has set the weeks of March 20 and 27, 2000 for the hearing on
the FTC's motion for a preliminary injunction. ARCO and BP Amoco have agreed
not to close the transaction pending the earlier of the court's decision on
the preliminary injunction or April 15, 2000.
ARCO announced on February 11, 2000 that it is conducting a search for a
suitable buyer for certain elements of its ARCO Pipe Line Co. operations. The
potential sale is designed to address the Cushing-related concerns set forth
in the FTC's lawsuit. Any transaction would be contingent on completion of
ARCO's proposed combination with BP Amoco.
On February 28, 2000, the Board of Directors of ARCO voted to postpone the
Annual Meeting of Shareholders, normally held the first Monday in May, pending
further developments relating to the timing of the resolution of the judicial
proceedings and the closing of the combination.
ARCO believes that it has substantial and meritorious defenses to the FTC
and state lawsuits. It expects ultimately to be able to proceed with complet-
ing the combination with BP Amoco, either by prevailing in the litigation or
through settlement. However, there can be no assurance that the companies will
prevail in the legal proceedings, that an early judicial resolution can be ob-
tained, or that a settlement can be reached.

Other Litigation

The company and its subsidiaries are defendants in numerous suits in which
they are not covered by insurance which involve smaller amounts than the mat-
ters described above. Although the legal responsibility and financial impact
in respect to such litigation cannot be ascertained, it is not anticipated
that these suits will result in the payment by the company or its subsidiaries
of monetary damages which in the aggregate would be material in relation to
the net assets of the company and its subsidiaries.
19
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 1999.

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

20
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

<TABLE>
<CAPTION>
1999 1998
---------------------------------------- --------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
---------- ---------- --------- -------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock:
Market price per share
High................. $98 3/8 $95 1/16 $88 15/16 $75 3/16 $72 7/16 $81 5/16 $82 1/4 $84 11/16
Low.................. $80 $84 1/4 $71 1/2 $52 1/2 $62 7/8 $56 1/4 $74 $70 3/8
Cash dividends per
share................. $0.7125 $0.7125 $0.7125 $0.7125 $0.7125 $0.7125 $0.7125 $0.7125
$3.00 Cumulative
Convertible Preference
Stock:
Market price per share
High................. $1,200 $1,200 $1,152 $857 $900 $ -- $1,047 1/8 $ --
Low.................. $1,198 3/4 $1,199 1/4 $1,095 $734 $900 $ -- $1,006 1/2 $ --
Cash dividends per
share................. $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 $0.75
$2.80 Cumulative
Convertible Preference
Stock:
Market price per share
High................. $460 $450 $413 $351 1/2 $340 $386 1/2 $388 3/4 $392
Low.................. $407 $399 1/2 $350 $259 $310 $288 $355 $346 1/4
Cash dividends per
share................. $0.70 $0.70 $0.70 $0.70 $0.70 $0.70 $0.70 $0.70
</TABLE>

Prices in the foregoing table are from the New York Stock Exchange composite
tape. On February 28, 2000, the high price per share was $69 and the low price
per share was $66 15/16.
As of December 31, 1999, the approximate number of holders of record of Com-
mon Stock of ARCO was approximately 76,500. The principal markets in which AR-
CO's Common Stock is traded are listed on the cover page.
The quarterly dividend rate for Common Stock was increased to $0.7125 per
share effective June 13, 1997. On January 24, 2000, a dividend of $0.7125 per
share was declared on Common Stock, payable on March 15, 2000, to stockholders
of record on February 25, 2000. Future cash dividends will depend on earnings,
financial conditions and other factors. Pending consummation of the combina-
tion with BP Amoco, the company presently expects that dividends will continue
to be paid.

21
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial information for ARCO:

<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------
1999(1) 1998(2)(3) 1997(2) 1996 1995(4)
------- ---------- ------- ------- -------
(Millions except per share amounts)
<S> <C> <C> <C> <C> <C>
Sales and other operating
revenues......................... $12,501 $10,303 $14,340 $14,094 $10,995
Income (loss) from continuing
operations....................... 1,345 (655) 1,331 1,261 685
Earnings (loss) per share from
continuing operations (basic)(5). 4.17 (2.05) 4.14 3.92 2.13
Earnings (loss) per share from
continuing operations
(diluted)(5)(6).................. 4.09 (2.05) 4.07 3.86 2.10
Net income........................ 1,422 452 1,771 1,663 1,376
Cash dividends per common
share(5)......................... 2.85 2.85 2.825 2.75 2.80
Total assets...................... 26,272 25,199 22,425 22,703 20,934
Long-term debt and capital lease
obligations...................... 5,698 4,332 3,619 4,745 5,813
</TABLE>
--------
(1) Includes $161 million after-tax loss on disposition of Algeria assets.
(2) See Notes 6 and 7 of Notes to Consolidated Financial Statements
regarding extraordinary item in 1997 and restructuring costs.
(3) Includes $925 million after-tax impairment of oil and gas properties.
(4) Dividends include a $0.05 per share redemption payment for Common
Stock purchase rights.
(5) Restated for the effect of 100% stock dividend issued June 13, 1997.
(6) No dilution assumed for 1998 due to antidilutive effect on loss from
continuing operations.

22
<PAGE>

ITEMS 7. AND 8. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS AND FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements and Financial Statement Schedule

<TABLE>
<CAPTION>
Schedule
No. Page
--- ----
<C> <S> <C>
Independent Accountants' Report............................... 24
Financial Statements:
Consolidated Statement of Income............................ 30
Consolidated Balance Sheet.................................. 34
Consolidated Statement of Cash Flows........................ 35
Consolidated Statement of Changes in Stockholders' Equity... 40
Notes to Consolidated Financial Statements.................. 43
Supplemental Information (Unaudited)........................ 62
Supporting Financial Statement Schedule Covered by the
Foregoing Independent Accountants' Report:
II Valuation and Qualifying Accounts........................... 98
</TABLE>

Schedules other than those listed above have been omitted since they are
either not required, are not applicable, or the required information is shown
in the financial statements or related notes.

Financial statements with respect to unconsolidated subsidiaries and 50%
owned companies are omitted per Rule 3-09(a) of Regulation S-X.

23
<PAGE>

INDEPENDENT ACCOUNTANTS' REPORT

To the Board of Directors and Shareholders
of Atlantic Richfield Company

In our opinion, the consolidated financial statements listed in the accompa-
nying index appearing on pages 30, 34, 35 and 40 present fairly, in all mate-
rial respects, the financial position of Atlantic Richfield Company and its
subsidiaries at December 31, 1999 and 1998, and the results of their opera-
tions and their cash flows for each of the three years in the period ended De-
cember 31, 1999, in conformity with accounting principles generally accepted
in the United States. In addition, in our opinion, the financial statement
schedule listed in the accompanying index appearing on page 98 presents fair-
ly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These finan-
cial statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these fi-
nancial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial state-
ments 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 presenta-
tion. We believe that our audits provide a reasonable basis for our opinion
expressed above.

PricewaterhouseCoopers LLP

Los Angeles, CA
January 31, 2000

24
<PAGE>

Operating Review

Introduction

In 1999, ARCO took a number of actions, primarily divestitures, to implement
its strategy of focusing on key oil and gas businesses. The divestitures in-
cluded both non-oil and gas businesses and non-core oil and gas properties. In
addition, ARCO achieved total before-tax cost reductions in operating, explo-
ration, and selling, general, and administrative (SG&A) expenses of over $740
million, compared to baseline 1998 expenses. This achievement in one year ex-
ceeded the two-year goal of $500 million announced in October 1998. All areas
of ARCO's business contributed to the cost reductions, which were increased by
expense timing factors. Adjusted for these items, ARCO believes that the sus-
tainable annual savings are on the order of $650 million. However, the event
which could have the greatest potential impact on the company in the future is
the proposed combination of BP Amoco and ARCO. The combination has been ap-
proved by the shareholders of both ARCO and BP Amoco. The European Commission
approved the transaction with some stipulations on September 29, 1999. On Feb-
ruary 4, 2000, the Federal Trade Commission (FTC) filed a complaint in the
United States District Court in San Francisco alleging that the combination
violated section 7 of the Clayton Act and filed a motion for preliminary in-
junction to enjoin BP Amoco from completing the combination. The status of the
combination is discussed in detail on page 1.
The Operating Review that follows explains the major changes in ARCO's key
businesses as related to prices, production volumes, sales, and expenses for
the years 1999 and 1998. Discontinued operations, unallocated expenses, and
other operations, which include Lower 48 pipelines and aluminum, are also ex-
amined. The consolidated results of these operations are examined in relation
to the Consolidated Statement of Income on page 30.

Results of Segment Operations

Exploration & Production

<TABLE>
<CAPTION>
Millions 1999 1998 1997
- -------------------------------------------
<S> <C> <C> <C>
Net income
(loss) $ 938 $ (616) $ 1,347
Special items
charge 190 1,002 -
---------------------------
Operating
results $ 1,128 $ 386 $ 1,347
---------------------------
</TABLE>

In 1999, ARCO's operating results from worldwide oil and gas exploration and
production operations were significantly impacted by higher crude oil prices
and, to a lesser extent, higher natural gas volumes and domestic natural gas
prices. In addition, as a result of the company's cost reduction program, com-
bined operating, exploration, and SG&A expenses before tax were more than $500
million lower, compared to 1998.
In 1999, special items included a net charge of $190 million after tax, pri-
marily for the loss on the disposition of a portion of ARCO's interest in the
Rhourde El Baguel field in Algeria and for the anticipated loss on the sale of
office space in Plano, Texas. Charges for impairment in 1999 were insignifi-
cant.
During 1999, ARCO's total production grew to 1,019,600 barrels of oil equiv-
alent per day (BOEPD), primarily due to increased international production,
which grew to 345,500 BOEPD.

Average Petroleum Liquids Sales Prices

<TABLE>
<CAPTION>
per barrel 1999 1998 1997
- ----------------------------------------
<S> <C> <C> <C>
U.S., including
Vastar $ 12.83 $ 9.43 $ 15.63
International
composite $ 14.39 $ 11.07 $ 18.20
Venezuela $ 7.42 $ 4.05 $ -
-----------------------
</TABLE>

ARCO's 1998 exploration and production operating results were significantly
impacted by lower crude oil prices and, to a lesser extent, higher exploration
expenses. The impact of lower natural gas prices was essentially offset by in-
creased natural gas production. The former Union Texas Petroleum Holdings,
Inc. (UTP)

25
<PAGE>

Results of Segment Operations

properties obtained through the purchase of UTP at the end of the second quar-
ter of 1998 contributed to a 4% increase in production volumes for the year.
The added revenues from that production were more than offset by the deprecia-
tion, depletion, and amortization (DD&A), which included the allocated pur-
chase price, and the operating costs associated with those properties.
In 1998, special items included after-tax charges of $925 million for the
impairment of oil and gas properties, including $507 million related to former
UTP properties. See page 32 of the "Results of Consolidated Operations" for a
further discussion of the 1998 impairment. Special items also included after-
tax charges of $107 million primarily for employee termination costs associ-
ated with restructuring. These charges were partially offset by tax-related
benefits of approximately $30 million.

Petroleum Liquids Production

<TABLE>
<CAPTION>
Barrels/day -
net 1999 1998 1997
- -------------------------------------------------
<S> <C> <C> <C>
Prudhoe Bay 158,700 175,300 198,500
Kuparuk River 110,800 123,000 128,200
Greater Point
McIntyre 30,800 41,500 50,200
Other Alaska 18,800 6,900 300
Vastar 60,000 50,100 50,700
Other Lower 48 85,200 130,800 130,000
International 159,100 130,400 82,600
-----------------------------------
Total 623,400 658,000 640,500
-----------------------------------
</TABLE>

The 1999 decrease in U.S. petroleum liquids production primarily resulted from
natural field declines in Alaska and the absence of production from California
heavy crude oil properties (other Lower 48) that produced approximately 32,000
barrels per day (BPD) in 1998. The California properties were exchanged in Oc-
tober 1998 for Gulf of Mexico exploration acreage and properties producing
both crude oil and natural gas that were ultimately sold to Vastar. The lower
Alaska petroleum liquids production primarily reflected natural field decline
at the Prudhoe Bay, Kuparuk River and Greater Point McIntyre fields partially
offset by increases in satellite field production.
The increased international petroleum liquids production primarily reflected
the impact of a full year of production contributed by former UTP properties
in 1999 versus only six months of production in 1998.
In 1998, increased petroleum liquids production primarily reflected 36,700
BPD contributed by the former UTP properties, partially offset by natural
field decline in Alaskan fields.
ARCO has begun development of the Alpine field and other satellite discover-
ies which will help stabilize production in Alaska after 1999.

Natural Gas Production

<TABLE>
<CAPTION>
Million cubic
feet/day - net 1999 1998 1997
- --------------------------------------------------------
<S> <C> <C> <C>
U.S., including Vastar 1,259 1,175 1,066
----------------------------------------
International
United Kingdom 451 369 368
Indonesia 247 293 314
Indonesia LNG 251 98 -
China 114 133 142
Other 56 36 20
----------------------------------------
Total International 1,119 929 844
----------------------------------------
</TABLE>

In 1999, the growth in international natural gas production reflected the im-
pact of a full year of production contributed by former UTP properties in 1999
versus only six months of production in 1998, along with increased production
from the United Kingdom North Sea. The growth was partially offset by a de-
crease in Indonesian natural gas production as a result of the impact of
higher natural gas prices on production sharing contracts. The increase in
U.S. natural gas production primarily resulted from Vastar's 9% growth in pro-
duction. Vastar's increased production reflected the production from the Gulf
of Mexico properties transferred to Vastar late in 1998, and production in-
creases achieved from new field startups and operational improvements at West
Cameron 645, Mississippi Canyon 148, the San Juan Basin and other fields.

Average Natural Gas Sales Prices

<TABLE>
<CAPTION>
per thousand cubic feet 1999 1998 1997
- ------------------------------------------------
<S> <C> <C> <C>
U.S., including Vastar $1.99 $1.82 $2.04
International (excluding LNG) $2.24 $2.54 $2.64
Indonesian LNG $3.29 $2.49 $ -
</TABLE>

26
<PAGE>

Results of Segment Operations

The 1998 growth in international natural gas production primarily reflected
167 million cubic feet per day (MMCFD) contributed from former UTP properties,
partially offset by declines of approximately 80 MMCFD associated with ARCO's
other properties, including a 53 MMCFD decline from Indonesia. In 1998,
Indonesian volumes fell due to the severe effect of the Asian financial crisis
on Indonesia's economy.

Refining & Marketing

<TABLE>
<CAPTION>
Millions 1999 1998 1997
- ----------------------------------------
<S> <C> <C> <C>
Net income $ 593 $ 281 $ 325
Special items
charge 3 - 38
-----------------------
Operating
results $ 596 $ 281 $ 363
-----------------------
</TABLE>

Improved operating results in 1999, compared to 1998, primarily resulted from
higher light product margins. The effect of West Coast refinery outages in the
second quarter of 1999 impacted supply in the second and third quarters re-
sulting in higher product realizations. The higher product sales prices were
partially offset by higher crude oil costs. Gasoline sales volumes increased
2% at existing ARCO retail outlets.
In 1998, light product margins were lower resulting in reduced operating re-
sults. Jet fuel imports from Asia into the West Coast marketing area led to
changes in product mix for refineries on the West Coast. This change increased
the supply of gasoline and diesel, causing margins to decline as gasoline and
diesel prices fell more than crude oil prices during the year.
The 1999 and 1998 net income included a benefit of approximately $44 million
and $17 million after tax, respectively, associated with the amortization of
the deferred pre-tax gain on the sale of ARCO's chemical interest. See "Gain
on Disposition of Discontinued Operations" on page 28.
In 1998, a special items charge of $13 million for personnel reductions as-
sociated with ARCO's cost reduction programs was offset by favorable legal
settlements. The 1997 special items charge primarily related to personnel re-
ductions associated with cost reduction programs.

Petroleum Products Sales

<TABLE>
<CAPTION>
Thousand barrels/day 1999 1998 1997
- -------------------------------------------
<S> <C> <C> <C>
Gasoline 314.5 308.7 281.9
Jet 102.3 102.8 117.3
Distillate 82.9 80.6 76.6
Other 71.0 72.7 68.0
----------------------
Total 570.7 564.8 543.8
----------------------
</TABLE>

ARCO has had steady growth in petroleum product sales volumes over the past
three years. In order to support this growth, refined products were purchased
from third parties to supplement ARCO's refinery production in 1999 and 1998.
Margins on the sale of purchased products are lower than on products produced.
The decreased jet fuel sales in 1999 and 1998, compared to 1997, reflected a
change in the production mix and turnarounds at ARCO's Cherry Point Refinery
in both 1999 and 1998.

Other Operations

<TABLE>
<CAPTION>
Millions 1999 1998 1997
- -----------------------------------------
<S> <C> <C> <C>
Net income $ 87 $ 111 $ 82
Special items
(benefit)
charge (6) (8) 7
------------------------
Operating
results $ 81 $ 103 $ 89
------------------------
</TABLE>

Results from ARCO's other operations comprise earnings from Lower 48 pipeline
operations and an aluminum rolling facility. Excluding the special items, the
decline in operating results in 1999 reflected decreased earnings from the
pipeline operations, primarily as a result of the transfer of certain pipeline
operations to the refining and marketing segment. This decline was partially
offset by a $3 million increase in equity earnings from the 50% owned Seaway
pipeline joint venture in the Midcontinent. The increase in 1998 earnings,
compared to 1997, primarily reflected improved operating results from the
Seaway pipeline joint venture.
Operating results from the aluminum operations were relatively flat for the
three years ended December 31, 1999.

27
<PAGE>

Results of Segment Operations

The 1999 special items included gains from asset sales. The 1998 special
items included gains from pipeline asset sales, partially offset by pipeline
restructuring charges. The 1997 special items included restructuring charges
for Lower 48 pipeline operations.

Unallocated Items

<TABLE>
<CAPTION>
Millions 1999 1998 1997
- ---------------------------------------------
<S> <C> <C> <C>
Unallocated net
income
(expense) $ 12 $ (228) $ (177)
Interest expense (285) (203) (246)
Income from
discontinued
operations - 179 267
Gain on
disposition of
discontinued
operations 77 928 291
Extraordinary
loss on
extinguishment
of debt - - (118)
---------------------------
Total $ (196) $ 676 $ 17
---------------------------
</TABLE>

After-tax charges for environmental remediation and restructuring were $24
million and $8 million in 1999, compared to $143 million and $48 million, re-
spectively, in 1998. This decrease, along with a reduction in corporate staff
and general expenses of approximately $90 million after tax, was only par-
tially offset by lower tax benefits and decreased interest income on short-
term investments, resulting in unallocated net income in 1999.
In 1998, unallocated net expense primarily included charges of $143 million
after tax for future environmental remediation, charges of $48 million after
tax for restructurings, corporate staff and general expenses, and interest
revenue.
In 1997, unallocated net expense primarily included charges of $179 million
after tax for future environmental remediation and reclamation, charges of $11
million after tax for restructurings, tax benefits related to affiliate stock
transactions, corporate staff and general expenses and interest revenue.
The environmental charges in 1998 and 1997 related both to current opera-
tions and natural resource damage liabilities in the state of Montana associ-
ated with previously discontinued mining operations. In 1997, ARCO adopted a
new environmental accounting standard and accrued the company's estimate of
post-remediation monitoring costs.
After-tax interest expense has declined over the last two years after taking
into account the effect of certain interest credits in 1998 and 1997. In 1998,
interest expense included interest on a tax refund of $94 million after tax,
whereas 1997 included reversal of reserves for tax-related interest of
$89 million after tax. The decrease is due primarily to higher capitalized in-
terest in 1999 and 1998. The impact of increased interest capitalization more
than offset the increase in combined short- and long-term debt outstanding
during 1999.

Extraordinary Loss on Extinguishment of Debt
The company incurred a loss of $192 million before tax, or $118 million after
tax, on early retirement of long-term debt during 1997. The early retirements
resulted in a pre-tax reduction in interest expense on long-term debt of ap-
proximately $100 million in 1998.

Gain on Disposition of Discontinued Operations

ARCO Chemical
In July 1998, ARCO sold its entire interest in ARCO Chemical to Lyondell Chem-
ical Company (Lyondell), an unrelated third party following ARCO's 1997 dispo-
sition of Lyondell stock, for cash proceeds of $4.6 billion. After deferral of
$313 million of the pre-tax gain as discussed below, ARCO recorded a net af-
ter-tax gain of $1.1 billion.
In 1999, adjustments for tax benefits resulted in the recording of an addi-
tional after-tax gain on disposition of $59 million.
Previously, the company entered into a 10-year purchase agreement with ARCO
Chemical providing for the delivery of fixed quantities of methyl tertiary bu-
tyl ether (MTBE) at a formula-based price. At the inception of the contract, a
liquid spot market for MTBE did not exist. As the spot market has developed,
the formula-based prices have historically been above spot market prices. Pro-
vision for loss on the contract was not necessary because ARCO Chemical was a
consolidated, majority-owned subsidiary of the company. ARCO believes that, at
the date of sale of ARCO Chemical to Lyondell, the pricing terms were above-
market as compared to similar toll-based contracts.

28
<PAGE>

Results of Segment Operations

The above-market MTBE contract value was reflected in the sale price of the
company's interest in ARCO Chemical. As a result, ARCO deferred $313 million
of the pre-tax gain on sale of the ARCO Chemical interest. This deferral rep-
resents the estimated discounted present value of the difference over the re-
maining term of the contract (which terminates in 2002) between the contract
price and the spot market price for MTBE. ARCO does not expect that the above-
market differential will decrease over the remaining term.
The deferral is being amortized over the remaining term of the contract on
the basis of annual volume over total contracted volume. The amortization and
recognition of imputed interest had a net favorable impact of approximately
$44 million and $17 million after tax on earnings of the refining and market-
ing segment in 1999 and 1998, respectively.

Coal
In the first quarter of 1999, ARCO sold its interests in two Australian coal
mines. ARCO sold its 80% interest in the Gordonstone coal mine and its 31.4%
interest in the Blair Athol Joint Venture. In 1998, ARCO recorded a $92 mil-
lion provision for the estimated loss on the disposal of the U.S. and Austra-
lian coal assets. In 1999, upon the sale of the interests in the Australian
mines the provision was reduced resulting in an after-tax gain of $22 million.
In June 1998, for cash consideration of approximately $1.1 billion, ARCO
disposed of its U.S. coal operations in a transaction with Arch Coal (Arch).
Operations disposed of included the Black Thunder and Coal Creek mines in Wyo-
ming, the West Elk mine in Colorado, and ARCO's 65% interest in three mines in
Utah. The Colorado and Utah mines were sold outright. ARCO contributed its Wy-
oming coal operations and Arch transferred various of its coal operations into
a new joint venture that is 99% owned by Arch and 1% owned by ARCO.

UTP Petrochemical
At the time of the UTP acquisition, ARCO determined the UTP petrochemical op-
erations would be divested as soon as possible. Accordingly, in 1998, $33 mil-
lion after tax was accrued as the estimated loss on disposal of the petrochem-
ical assets. In March 1999, ARCO sold the UTP petrochemical business and re-
corded an additional loss of $4 million.

Lyondell
In September 1997, all of ARCO's 9% Exchangeable Notes due September 15, 1997,
with an outstanding principal amount of $988 million, were redeemed with
Lyondell common stock owned by ARCO. ARCO then sold its remaining Lyondell
shares in a privately negotiated transaction. ARCO realized an aggregate pre-
tax gain of $633 million, or $291 million after tax, on the two transactions.

Income From Discontinued Operations

<TABLE>
<CAPTION>
Net income -
millions 1999 1998 1997
- -------------------------------------------------
<S> <C> <C> <C>
ARCO Chemical $ - $ 170 $ 92
Coal operations - 9 56
Lyondell - - 119
UTP
petrochemical
operations - - -
---------------------------------
Total $ - $ 179 $ 267
---------------------------------
</TABLE>

See Note 4 of Notes to Consolidated Financial Statements regarding discontin-
ued operations, beginning on page 47.

29
<PAGE>

Consolidated Statement of Income

<TABLE>
<CAPTION>
Millions, except per share
amounts 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Sales and other operating
revenues $ 12,501 $ 10,303 $ 14,340
Other revenues 554 506 417
----------------------------------------
Total revenues 13,055 10,809 14,757
----------------------------------------
EXPENSES
Trade purchases 4,893 3,959 6,405
Operating expenses 2,386 2,794 2,714
Selling, general and
administrative expenses 607 713 756
Exploration expenses (including
undeveloped leasehold
amortization) 386 629 508
Depreciation, depletion and
amortization 1,785 1,535 1,446
Impairment of oil and gas
properties 14 1,447 -
Taxes other than income taxes 475 506 640
Interest 398 259 343
Loss on disposition of Algeria
assets 175 - -
Restructuring costs 20 249 67
----------------------------------------
Total expenses 11,139 12,091 12,879
----------------------------------------
Income (loss) from continuing
operations before income
taxes,
minority interest and
extraordinary item 1,916 (1,282) 1,878
Provision (benefit) for taxes
on income 533 (651) 504
Minority interest in earnings
of subsidiaries 38 24 43
----------------------------------------
Income (loss) from continuing
operations before
extraordinary item 1,345 (655) 1,331
Income from discontinued
operations, net of income
taxes of $113 (1998) and
$74 (1997) - 179 267
Gain on disposition of
discontinued operations, net
of income taxes of $58
(1999), $1,620 (1998) and
$342 (1997) 77 928 291
----------------------------------------
Income before extraordinary
item 1,422 452 1,889
Extraordinary loss on
extinguishment of debt, net of
income taxes of $74 - - 118
----------------------------------------
Net income $ 1,422 $ 452 $ 1,771
----------------------------------------
Earnings per share:
Continuing operations
Basic $ 4.17 $ (2.05) $ 4.14
Diluted $ 4.09 $ (2.05) $ 4.07
Net income
Basic $ 4.41 $ 1.40 $ 5.51
Diluted $ 4.33 $ 1.40 $ 5.41
Weighted average equivalent
shares outstanding:
Basic 322.3 321.0 321.2
Diluted 328.8 321.0 327.4
</TABLE>

See Notes on pages 43 through 61.

30
<PAGE>

Results of Consolidated Operations

Income from Continuing Operations

The improvement in ARCO's income from continuing operations in 1999 primarily
reflected higher crude oil prices, increased refined products margins, lower
operating, exploration and SG&A expenses and higher natural gas volumes.
ARCO's 1998 operating results were down primarily because of lower crude oil
prices along with higher exploration expenses. The lower crude oil prices re-
duced operating income by nearly $800 million.

Earnings from Consolidated Operations

<TABLE>
<CAPTION>
Millions 1999 1998 1997
------------------------------------------------------------
<S> <C> <C> <C>
Income (loss)
from
continuing operations $ 1,345 $ (655) $ 1,331
Special items
charge
(benefit) 181 1,055 (2)
------------------------------------
Operating
results $ 1,526 $ 400 $ 1,329
------------------------------------

Special items
after tax
<CAPTION>
Millions 1999 1998 1997
------------------------------------------------------------
<S> <C> <C> <C>
Loss on
disposition of
Algeria assets $ 161 $ - $ -
Impairment of
oil and gas properties 9 925 -
Tax-related
benefits (33) (153) (248)
Environmental charges 27 145 184
Restructuring charges 13 172 40
Other, net 4 (34) 22
------------------------------------
Total charge (benefit) $ 181 $ 1,055 $ (2)
------------------------------------
</TABLE>

Revenues

In 1999, the increase in exploration and production sales revenues resulted
from higher petroleum liquids prices and natural gas production volumes, par-
tially offset by lower petroleum liquids volumes.
The decline in exploration and production revenues in 1998 resulted primar-
ily from lower petroleum liquids prices and natural gas marketing activity.
Effective September 1997, Vastar contributed certain of its natural gas mar-
keting operations to a joint venture with Southern Energy, Inc. The joint ven-
ture is accounted for on the equity method. As a result of the transfer of
those operations, the natural gas marketing sales and purchases volumes for
1999 and 1998 were significantly lower compared to 1997.

Sales and Other Operating Revenues

<TABLE>
<CAPTION>
Millions 1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Exploration &
production $ 7,022 $ 5,936 $ 9,550
Refining &
marketing 7,000 5,484 6,856
Other operations 56 170 193
Intersegment
eliminations (1,577) (1,287) (2,259)
-----------------------------------
Total $12,501 $ 10,303 $ 14,340
-----------------------------------
</TABLE>

In 1999, refining and marketing revenue primarily increased as a result of
higher refined products prices.
The decline in refining and marketing sales revenues in 1998 resulted from
lower refined products prices, only partially offset by increased gasoline
sales volumes.

Other Revenues
In 1999, higher other revenues, compared to 1998, reflected one-time legal
settlements and increased interest and rental income.
In 1998, other revenues increased primarily as a result of improved equity
earnings from ARCO's pipeline operations and gains from pipeline asset sales.

Expenses
Trade purchases for 1999 were higher primarily as a result of increased pur-
chases of finished and unfinished refined product from third parties and
higher crude oil prices associated with crude oil marketing activity.
In 1998, trade purchases, compared to 1997, were lower primarily as a result
of lower crude oil prices and the transfer of Vastar's natural gas marketing
operations to the Vastar-Southern Energy, Inc. joint venture.
Operating expenses declined in 1999 as a result of a decrease in exploration
and production operating costs of approximately $190 million before tax, com-
pared to 1998. This decline was due to the 1998 exchange of higher cost Cali-
fornia heavy crude oil properties for Gulf of Mexico crude oil and natural gas
properties, as well as the impact of the company's cost reduction program. In
addition, charges for future remediation and reclamation were $57 million in
1999, compared to $234 million in 1998. The 1998 charges related to both cur-
rent operations and to natural resource damage liabilities in the state of
Montana associated with previously discontinued mining operations.

31
<PAGE>

Results of Consolidated Operations

In 1998, operating expenses increased because of added expenses from UTP and
a $91 million provision associated with the exchange of California heavy crude
oil properties. Charges for future environmental remediation and reclamation
declined to $234 million before tax. In 1998, natural gas marketing delivery
charges declined following the transfer of operations to the Vastar-Southern
Energy, Inc. joint venture.
In 1997, operating expenses included charges of $300 million before tax for
future environmental remediation and reclamation as well as costs associated
with increased production from Rhourde El Baguel in Algeria and other new
field production.
The environmental charges in 1998 and 1997 related both to current opera-
tions and to natural resource damage liabilities in the state of Montana asso-
ciated with previously discontinued mining operations. In 1997, these charges
also related to the adoption of a new environmental accounting standard.
In 1999, SG&A expense declined primarily as a result of lower personnel
costs and a favorable adjustment to self-insurance reserves for estimated
claims incurred but not yet reported.
DD&A expense in 1999, compared to 1998, was higher as a result of a full
year of DD&A associated with the former UTP operations, which became a part of
ARCO's operations in the third quarter of 1998. In addition, DD&A expense also
increased as a result of increased natural gas production and higher average
depletive writeoff rates associated with Vastar's operations.
The higher DD&A expense in 1998 reflected the inclusion of the DD&A of for-
mer UTP operations in the third and fourth quarters of 1998.
Each year ARCO performs an impairment review of its oil and gas properties.
The 1999 impairment review resulted in insignificant charges related to a few
isolated properties. ARCO used a benchmark price of $25.60/bbl in preparing
its December 31, 1999 Supplemental Oil and Gas Information.
In the fourth quarter of 1998, after a year-long decline in crude oil pric-
es, ARCO determined that part of the oil price decline that had taken place
was permanent. Accordingly, ARCO revised its official crude oil price forecast
used for economic decision making during the fourth quarter of 1998. This
forecast was based on a West Texas Intermediate (WTI) benchmark price of $15
per barrel (bbl) in 1999, $16/bbl in 2000, and $17/bbl in 2001, with 2% esca-
lation thereafter. While crude oil prices reached as low as $12/bbl in Decem-
ber 1998, many oil industry expert forecasts considered crude oil prices in
that range to be unusually low and inappropriate for economic decision making.
ARCO used a benchmark price of $12.05/bbl in preparing its December 31, 1998
Supplemental Oil and Gas Information.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
121, in 1998 ARCO performed an impairment review to determine whether any of
ARCO's oil and gas properties were impaired based on the new crude oil price
forecast. Net undiscounted cash flows before tax were calculated and compared
to the net book value on a field-by-field basis. This included cash flows from
proved developed, proved undeveloped and potential oil and gas reserves, which
included both producing and non-producing reserves. The potential reserves
were calculated on a risk-weighted basis to include the uncertainties associ-
ated with field size, reservoir performance, technological development and
commercial risk. Where appropriate, contracted prices were used but did not
materially impact the result. For those fields where the net book value ex-
ceeded the net undiscounted cash flows before tax, the discounted future cash
flows before tax were calculated using a 10% discount rate factor. This re-
sulted in a pre-tax impairment charge of $1.4 billion in 1998. ARCO also
tested a downside case using WTI benchmark crude oil prices of $1/bbl lower
than each year of its official forecast. ARCO believes that prices below
$14/bbl are not sustainable and like most commodities will cycle around their
historical midpoints. The impaired properties included former UTP properties
in Pakistan, Venezuela and the U.K. North Sea, as well as other ARCO proper-
ties in California, the U.K. North Sea, North Africa and the Middle East.

32
<PAGE>

Results of Consolidated Operations

Significant downward revisions of these oil and gas reserves could result in
material impairment provisions in future years if crude oil prices permanently
decline below the price forecast used in determining the 1998 impairment. Ac-
counting rules do not permit the reversal of prior impairments if oil prices
rise.
The lower exploration expense in 1999 reflected a decline in geological and
geophysical and dry-hole expense in ARCO's international exploration opera-
tions and a decline in Vastar's dry-hole expense.
In 1998, ARCO's international exploration operations incurred increased geo-
logical and geophysical expense and dry-hole costs. Vastar had higher explora-
tion expenses of $35 million in 1998 primarily resulting from increased dry-
hole expense associated with deepwater drilling activity.
In 1999, taxes other than income taxes declined as lower production volumes
on which certain production taxes are based more than offset the increase in
crude oil prices.
Taxes other than income taxes decreased in 1998 primarily as the result of
the impact of lower crude oil prices and, to a lesser extent, lower volumes on
U.S. production taxes.
The 1999 interest expense was slightly lower, compared to 1998, after ad-
justing the 1998 interest expense for interest on a tax refund. The decline
resulted from the impact of increased interest capitalization more than off-
setting the increase in combined short and long-term debt outstanding during
1999.
The decrease in interest expense in 1998 primarily reflected increased capi-
talized interest compared to 1997.
In 1998, $229 million of the restructuring charges related to costs of elim-
inating approximately 1,200 positions specifically identified as of December
31, 1998. The $20 million of restructuring charges in 1999 relates to an ad-
justment of the 1998 accrual, primarily due to the elimination of additional
positions. The entire 1997 charge was for personnel-related costs. See Note 7
of Notes to Consolidated Financial Statements on page 49 regarding restructur-
ing costs.

Income Taxes
The company had an effective tax rate of 27.8% in 1999. An effective tax rate
lower than the statutory rate primarily reflected various tax credits and
other benefits, partially offset by taxes on foreign income in excess of stat-
utory rate. The company had a tax benefit in 1998 reflecting the company's
loss from continuing operations in that year.
33
<PAGE>

Consolidated Balance Sheet

<TABLE>
<CAPTION>
Millions 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 879 $ 657
Short-term investments 264 260
Accounts receivable 1,301 1,002
Inventories 430 475
Prepaid expenses and other current assets 184 317
-------------------
Total current assets 3,058 2,711
-------------------
Investments and long-term receivables:
Investments accounted for on the equity method 1,508 1,235
Other investments and long-term receivables 1,660 831
-------------------
Total investments and long-term receivables 3,168 2,066
-------------------
Net property, plant and equipment 18,466 18,762
Net assets of discontinued operations 67 339
Deferred charges and other assets 1,513 1,321
-------------------
Total assets $ 26,272 $ 25,199
-------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,672 $ 2,403
Accounts payable 830 976
Taxes payable 420 634
Long-term debt due within one year 11 399
Other 1,090 1,285
-------------------
Total current liabilities 4,023 5,697
-------------------
Long-term debt 5,698 4,332
Deferred income taxes 3,644 3,318
Dismantlement, restoration and reclamation 1,154 1,058
Other deferred liabilities and credits 2,770 2,955
Minority interest 297 259
-------------------
Total liabilities 17,586 17,619
-------------------
Stockholders' equity:
Preference stocks 1 1
Common stock, $2.50 par value; shares issued 326,713,278
(1999), 325,902,559 (1998)
shares outstanding 323,048,817 (1999), 321,315,367 (1998) 817 815
Capital in excess of par value of stock 889 863
Retained earnings 7,091 6,589
Treasury stock (279) (344)
Accumulated other comprehensive income (loss) 167 (344)
-------------------
Total stockholders' equity 8,686 7,580
-------------------
Total liabilities and stockholders' equity $ 26,272 $ 25,199
-------------------
</TABLE>

See Notes on pages 43 through 61.

34
<PAGE>

Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>
Millions 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing operations $ 1,345 $ (655) $ 1,213
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,785 1,535 1,446
Impairment of oil and gas properties 14 1,447 -
Dry-hole expense and undeveloped leasehold
amortization 235 303 235
Loss on Algeria asset disposal 175 - -
Income from equity investments (56) (78) (19)
Dividends from equity investments 65 37 26
Cash payments (greater) less than noncash
provisions (422) 184 61
Minority interest in earnings of subsidiaries 38 24 43
Net gain on asset sales (70) (61) (49)
Deferred income taxes 264 (539) 112
Extraordinary loss on extinguishment of debt - - 118
Changes in working capital accounts (654) 307 183
Other 83 58 2
--------------------------
Net cash provided by operating activities 2,802 2,562 3,371
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets, including dry-hole
costs (2,727) (3,551) (2,655)
Net proceeds from sale of ARCO Chemical and U.S.
coal assets - 3,988 -
Union Texas Petroleum acquisition - (2,707) -
Proceeds from asset sales 913 207 182
Net cash provided (used) by short-term investments (22) (33) 558
Investment in/advances to LUKARCO (144) (59) (227)
Investments and long-term receivables (13) (242) (202)
Other (4) (73) 6
--------------------------
Net cash used by investing activities (1,997) (2,470) (2,338)
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (1,019) (503) (1,558)
Proceeds from issuance of long-term debt 1,999 536 254
Net cash provided (used) by notes payable (695) 912 521
Dividends paid (920) (917) (908)
Treasury stock purchases (2) (32) (256)
Other 52 50 43
--------------------------
Net cash provided (used) by financing activities (585) 46 (1,904)
--------------------------
Cash flows from discontinued operations 13 85 (16)
Effect of exchange rate changes on cash (11) - (5)
--------------------------
Net increase (decrease) in cash and cash
equivalents 222 223 (892)
Cash and cash equivalents at beginning of year 657 434 1,326
--------------------------
Cash and cash equivalents at end of year $ 879 $ 657 $ 434
--------------------------
</TABLE>

See Notes on pages 43 through 61.

35
<PAGE>

Analysis of Cash Flows and Financial Condition

1999 Cash Inflows - (millions)
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
<TABLE>
<S> <C>
$2,802 Operations
$1,999 Long-term debt issuance
$ 913 Asset sales
$ 65 Other
</TABLE>

ARCO's 2000 capital spending program includes $2.6 billion for additions to
fixed assets, compared to $2.7 billion in 1999. Future capital expenditures re-
main subject to business conditions affecting the industry, as well as changes
in environmental rules and regulations and the tax laws. They are also subject
to change based on the timing and the status of the combination with BP Amoco.
Cash and cash equivalents and short-term investments totaled $1.1 billion at
year-end 1999, short-term borrowings were $1.7 billion and long-term debt due
within one year was $11 million.
Beginning in 1997 and continuing through the first quarter of 1999, the com-
pany utilized increased short-term borrowing in lieu of increased long-term
borrowing (other than long-term debt assumed in connection with the UTP acqui-
sition in 1998). While overall short-term borrowings were lower at December 31,
1999, compared to December 31, 1998, the company remained in a working capital
deficit position (currently $1.0 billion at December 31, 1999). Depending upon
the revenues earned and cash received from the sale of assets during 2000, the
company may increase total indebtedness during the course of the year.

2000 Budgeted Adds to Fixed Assets - (millions)
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
<TABLE>
<S> <C>
$ 850 Vastar
$ 690 International oil & gas
$ 475 Alaska
$ 90 Other Lower 48
$ 420 Refining & Marketing
$ 30 Other
</TABLE>
1999 Cash Outflows - (millions)
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
<TABLE>
<S> <C>
$2,727 Adds to fixed assets
$1,019 Repayment of long-term debt
$ 920 Dividends
$ 695 Repayment of short-term debt
$ 185 Other
</TABLE>

On January 27, 1999, ARCO filed a Form S-3 Registration Statement (S-3) for
the issuance of up to $1.5 billion of debt securities as determined by market
conditions. At December 31, 1999, ARCO had issued a total of $1 billion of
long-term debt securities under the S-3. As of February 28, 2000, the remaining
$500 million of debt securities that could be issued under the S-3 have not
been issued by the company.
At December 31, 1999, ARCO had unused committed bank credit facilities total-
ing $3.0 billion.
The company believes it has adequate resources and liquidity to fund future
cash requirements for working capital, capital expenditures, dividends and debt
repayments with cash generated from operations, existing cash balances, addi-
tional short- and long-term borrowing, and the sale of assets.
Effective June 13, 1997, ARCO had a 2-for-1 stock split in the form of a 100%
stock dividend and a 4% increase in the quarterly dividend.
In March 1999, Vastar issued $300 million of debt securities. During 1999,
Vastar had a revolving credit facility of $1.1 billion. The effective interest
rate for the debt outstanding under this facility averaged 5.9% for the year.
As of December 31, 1999, no debt was outstanding under the facility.

36
<PAGE>

Market-Sensitive Instruments and Risk Management

The following discussion of the company's risk-management activities includes
"forward-looking statements" that involve risk and uncertainties. Actual re-
sults could differ materially from those projected in the forward-looking
statements.
At December 31, 1999 the company held a variety of financial instruments,
derivative instruments, and derivative-commodity instruments that are sensi-
tive to changes in interest rates, foreign exchange rates and commodity pric-
es.
To minimize the effects of interest rate and foreign currency fluctuations,
ARCO enters into the following transactions using derivatives: 1) foreign cur-
rency forward, option and swap contracts; 2) interest rate swaps; and 3) fi-
nancial futures contracts and over-the-counter Treasury options which are lim-
ited to investment portfolio hedging, alteration of portfolio duration and
changing asset mix. ARCO and its subsidiaries also engage in hedging strate-
gies involving forward and futures contracts, swaps and options covering part
of its natural gas and crude oil production to minimize the effects of commod-
ity price fluctuations.
The company uses simple, non-leveraged derivative instruments that are
placed with major institutions whose creditworthiness is continually moni-
tored. Risk management strategies are reviewed and approved by senior manage-
ment before being implemented. Policy controls limit the maximum amount of
positions that can be taken in any given instrument.
In the normal course of business, the company also faces risks that are ei-
ther nonfinancial or nonquantifiable. Such risks principally include country
risk, credit risk and legal risk and are not discussed or quantified in the
following analyses.

Interest Rate Risk
The fair value of the company's cash and short-term investment portfolio and
the fair value of notes payable at December 31, 1999, approximated carrying
value. Given the short-term nature of these instruments, market risk, as mea-
sured by the change in fair value resulting from a hypothetical 10% change in
interest rates, is not material.
The fair value of the company's long-term debt, including current maturi-
ties, was estimated to be $5.9 billion at December 31, 1999, and exceeded the
carrying value by $211 million. Market risk was estimated at $227 million,
representing potential increase in fair value resulting from a hypothetical
10% decrease in the company's weighted average long-term borrowing rate at De-
cember 31, 1999. Interest rate risk is mitigated by the use of floating rate
instruments, which comprise approximately $435 million of the company's long-
term debt, and a LIBOR-based fixed-to-floating rate swap on $100 million of
long-term debt.

Foreign Exchange Rate Risk
The company has bought foreign currency contracts (principally involving Euro-
pean currencies) to hedge anticipated foreign currency commitments and future
cash flows from overseas operations with varying maturities ranging from Janu-
ary 2000 to March 2000.
The hypothetical loss in cash flows of the combined foreign-exchange con-
tract positions is estimated to be $61 million. A hypothetical adverse change
of 10% in year-end exchange rates (a strengthening of the U.S. dollar), is as-
sumed. For purposes of the estimation, it was also assumed that the exercise
of the foreign currency contracts and the anticipated commitments or future
cash flows took place at the same time and at the hypothetical exchange rate.
The foreign currency amounts for the future cash flows were translated to
U.S. dollars by using the hypothetical exchange rate and the cash value of the
option, multiplied by the difference between the hypothetical and strike ex-
change rates to the option-contract amount.
At December 31, 1999, approximately $580 million of short-term investments
and $845 million of short-term debt were denominated in foreign currencies.
Assuming a hypothetical adverse change of 10% in year-end exchange rates (a
strengthening of the U.S. dollar), the company would experience a net increase
in cash flows from the short-term investments and debt of approximately $57
million.

Commodity Price Risk
From time to time, the company uses various hedging arrangements, predomi-
nantly natural gas swaps and

37
<PAGE>

Market-Sensitive Instruments and Risk Management

crude oil futures and options, to manage the company's exposure to price risk
from its natural gas and petroleum liquids production. These hedging arrange-
ments have the effect of locking in for specified periods (at predetermined
prices or ranges of prices) the prices the company will receive for the vol-
umes to which the hedge relates. As a result, while these hedging arrangements
are structured to reduce the company's exposure to decreases in price associ-
ated with the hedging commodity, they also limit the benefit the company might
otherwise have received from any price increases associated with the hedged
commodity.
At December 31, 1999, ARCO had entered into a series of crude oil futures
and options contracts and a series of forward natural gas contracts.
Based on year-end forward prices ARCO had a net liability of $1 million on
those contracts. The hypothetical incremental loss in earnings for the com-
bined commodity positions at year end is estimated to be $12 million, assuming
an increase in crude oil and natural gas year-end forward prices of 10%.
In order to calculate the hypothetical loss, the relevant parameters of the
commodity contracts are the type of commodity and the delivery price. The hy-
pothetical loss on the commodity contracts was estimated by calculating the
cash value of the contracts as the difference between the hypothetical and
contract delivery prices, then multiplying it by the contract amount.

Equity Price Risk
Other investments at December 31, 1999, included marketable equity securities
which are recorded at fair value of $846 million, including net unrealized
gains of $376 million. Those securities have exposure to price risk. The esti-
mated potential loss in fair value resulting from a hypothetical 10% decrease
in prices quoted by stock exchanges is $85 million.

Environmental Matters
ARCO is subject to federal, state and local environmental laws and regulations
that require the company to remove or mitigate the effect on the environment
of the disposal or release of certain chemical, mineral and petroleum sub-
stances at various sites. ARCO is currently participating in environmental as-
sessments and cleanups at numerous sites under these laws and may in the fu-
ture be involved in additional environmental assessments and cleanups.

Environmental Reserves*

<TABLE>
<CAPTION>
Millions 1999 1998 1997
- -----------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 870 $ 722 $ 524
Charges 57 234 300
Payments (241) (86) (102)
-------------------------------------
Ending balance $ 686 $ 870 $ 722
-------------------------------------
</TABLE>

* Total long-term and short-term liabilities

The amount accrued represents the estimated undiscounted costs that ARCO
will incur to complete the remediation of sites with known contamination. In
view of the uncertainties associated with estimating these costs, such as un-
certainty regarding the appropriate method for remediation of various sites
and regarding ARCO's ultimate share of costs, it is possible that actual costs
could exceed the amount accrued by as much as $550 million. This estimate was
determined by applying Monte Carlo analysis to estimated site maximums on a
portfolio basis. See Note 15 of Notes to Consolidated Financial Statements be-
ginning on page 53 regarding environmental matters.
The increased payments against the environmental reserves in 1999 reflected
a payment of $160 million in settlement of a majority of the State of
Montana's claims in a lawsuit resulting from mining and mineral processing
businesses formerly operated by Anaconda.
In addition to the provision for environmental remediation costs, $1.2 bil-
lion has been accrued for the estimated cost, net of salvage value, of disman-
tling facilities as required by contract, regulation or law, and for the esti-
mated costs of restoration and reclamation of land associated with such facil-
ities.

38
<PAGE>

Statements of Financial Accounting Standards
Not Yet Adopted

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires companies to adopt its provisions for all fiscal quarters of all
fiscal years beginning after June 15, 2000 (as deferred by SFAS No. 137).
Earlier application of all of the provisions of SFAS No. 133 is permitted, but
the provisions cannot be applied retroactively to financial statements of
prior periods. SFAS No. 133 standardizes the accounting for derivative
instruments by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. The company has not yet completed evaluating the impact of the
provisions of SFAS No. 133.

39
<PAGE>

Consolidated Statement of Changes in Stockholders' Equity

<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Preference Capital in Treasury Stock Comprehensive Retained
Millions Shares Dollars Stock Excess of Par Shares Dollars* Income (loss) Earnings Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 161.1 $ 403 $ 1 $ 628 0.1 $ (1) $ 178 $ 6,592 $ 7,801
-----------------------------------------------------------------------------------------------------
Net income 1,771 1,771
Other comprehensive
income:
Unrealized gain on
securities 381 381
Foreign currency
translation (185) (185)
Minimum pension
liability (26) (26)
-----------------------------------------------------------------------------------------------------
Total comprehensive
income 1,941
Common stock dividends (906) (906)
Preference stock
dividends (2) (2)
100% stock dividend 161.3 403 (403) -
Common stock issued 0.3 1 8 9
Treasury stock purchases 3.5 (256) (256)
Treasury stock issued 4 (1.3) 87 91
Other 2 2
-----------------------------------------------------------------------------------------------------
Balance December 31,
1997 322.7 $ 807 $ 1 $ 640 2.3 $ (170) $ 348 $ 7,054 $ 8,680
-----------------------------------------------------------------------------------------------------
Net income 452 452
Other comprehensive
income:
Unrealized loss on secu-
rities (681) (681)
Foreign currency trans-
lation (18) (18)
Minimum pension liabil-
ity 7 7
-----------------------------------------------------------------------------------------------------
Total comprehensive
income (loss) (240)
Common stock dividends (915) (915)
Preference stock
dividends (2) (2)
Common stock issued 3.2 8 226 234
Treasury stock purchases 3.2 (249) (249)
Treasury stock issued (3) (0.9) 75 72
-----------------------------------------------------------------------------------------------------
Balance December 31,
1998 325.9 $ 815 $ 1 $ 863 4.6 $ (344) $ (344) $ 6,589 $ 7,580
-----------------------------------------------------------------------------------------------------
Net income 1,422 1,422
Other comprehensive
income:
Unrealized gain on secu-
rities 303 303
Foreign currency trans-
lation 192 192
Minimum pension liabil-
ity 16 16
-----------------------------------------------------------------------------------------------------
Total comprehensive
income 1,933
Common stock dividends (918) (918)
Preference stock
dividends (2) (2)
Common stock issued 0.8 2 21 23
Treasury stock purchases - (2) (2)
Treasury stock issued 5 (0.9) 67 72
-----------------------------------------------------------------------------------------------------
Balance December 31,
1999 326.7 $ 817 $ 1 $ 889 3.7 $(279) $ 167 $ 7,091 $ 8,686
-----------------------------------------------------------------------------------------------------
</TABLE>

*At cost
See Notes on pages 43 through 61.

40
<PAGE>

Safe Harbor for Forward-Looking Statements*

ARCO's management from time to time may make forward-looking statements to in-
form existing and potential security holders regarding various matters. Such
statements are generally accompanied by words such as estimate, project, pre-
dict or expect, that convey the uncertainty of future events or outcomes.
These statements may include projections and estimates concerning the timing
and success of specific projects, the size and timing of cost reductions, the
level of future income, production volumes, size of hydrocarbon resources,
ability to replace reserves and levels of capital spending. Actual results
could differ materially based on numerous factors, including those described
below. Unless otherwise noted in the statements, ARCO does not intend to up-
date any forward-looking statements.

Likelihood of BP Amoco Combination
The closing of the combination with BP Amoco is subject to the outcome of the
pending litigation brought by the FTC. See page 1 for a detailed discussion of
the legal proceedings.

Price Volatility, Political, Economic and Regulatory Instability
Volatility in prices and margins affects all of the company's businesses. Vol-
atility is caused by a number of factors, including changes in market supply
and demand balances and fluctuations in political, regulatory and economic
climates throughout the world.
The ability to operate ARCO's businesses is dependent on the politics and
regulations in the U.S. and in the particular geographic regions where the
company operates. The ability to negotiate and implement specific projects in
a timely and favorable manner may be impacted by political considerations un-
related to or beyond the control of the company.

Level of Oil and Gas Prices
ARCO's management makes assumptions about the future prices of oil and gas for
various planning, budgetary and accounting disclosure purposes. Management ex-
pects that these assumptions will change over time and actual prices in the
future may differ from these estimates. Any substantial or extended decline in
actual prices could have a material adverse effect on ARCO's financial posi-
tion and results of operations, on the quantities of crude oil and natural gas
reserves that economically may be produced and on the quantity of proved re-
serves that may be attributed to our properties.

Production Rates and Reserve Replacement
Projecting future rates of oil and gas production is inherently imprecise.
Production rates of oil and gas reservoirs generally decline. Future produc-
tion rates can be affected by price volatility and the company's ability to
replace depleting reserves. There can be no assurances: (a) as to the level or
timing of success, if any that the company will have in acquiring or finding
and developing economically recoverable reserves; (b) that estimates of proved
reserves will not be revised in the future; or (c) that the actual quantities
of oil and gas ultimately recovered will not differ from the reserve esti-
mates.

Refining & Marketing
Overall profitability of the company's refining and marketing operations de-
pends heavily on the margin between the price of crude oil and/or purchased
products and the sales price of products produced and/or purchased. Volumes
produced and margins historically have been volatile and are impacted by mar-
ket demand, regulatory changes (particularly environmental regulations regard-
ing gasoline), the price of crude oil, and the ability of regional refiners
and the company to provide a sufficient supply of refined products.

Operating Hazards
Operations are subject to various hazards common to the industry, including
explosions, fires, uncontrollable spills, and damage from severe weather con-
ditions.

* The company desires to take advantage of the "safe harbor" provisions
contained in Section 27A of the Securities Act and Section 21B of the
Exchange Act and is including this statement in order to do so.

41
<PAGE>

Impact of the Year 2000 Issue

The Year 2000 issue (Y2K) arose from computer programs and embedded computer
chips being unable to distinguish between the year 1900 and the year 2000, re-
sulting in system failures or miscalculations that could cause operational
disruptions. The company's planning for possible Y2K disruptions was success-
ful, as no major problems occurred. The few incidents that did occur during
the actual transition from 1999 to 2000 were quickly analyzed, resolved,
and/or contingency plans implemented and had only minimal business impacts.
ARCO addressed its Y2K efforts in four phases: (1) inventory of Y2K items;
(2) assessment of criticality of these items and prioritization of remediation
efforts; (3) evaluation of various remediation strategies; and (4) the
remediation and testing of modifications or new software.
<TABLE>
<CAPTION>
Percent Total expended
complete at through
December December 31,
Areas addressed 31, 1999 1999 (millions)
- --------------------------------------------
<S> <C> <C>
Computing
integrity 100% $ 14
Asset integrity 100% 12
Commercial
integrity 100% 4
---------------------
Total costs $ 30
------------
</TABLE>

The total expended does not include ARCO's potential share of Y2K costs that
may have been incurred by partnerships and joint ventures in which the company
participates but is not the operator.

42
<PAGE>

Notes to Consolidated Financial Statements

Note 1 Accounting Policies

ARCO's accounting policies conform to accounting principles generally accepted
in the United States, including the "successful efforts" method of accounting
for oil and gas producing activities. Unless otherwise stated, the Notes to
Consolidated Financial Statements exclude discontinued operations.

Principles of Consolidation
The consolidated financial statements include the accounts of all subsidiar-
ies, ventures and partnerships in which a controlling interest is held, in-
cluding Vastar Resources, Inc., of which ARCO owned 81.9% of the outstanding
shares at December 31, 1999. ARCO also consolidates its interests in undivided
interest pipeline companies and in oil and gas joint ventures. ARCO uses the
equity method of accounting for companies where its effective ownership is be-
tween 20% and 50% and for other ventures and partnerships in which a control-
ling interest is not held.

Revenue Recognition
Revenues are generally recognized upon the passage of title, net of royalties,
if applicable.

Cash Equivalents
Cash equivalents consist of highly liquid investments, such as time deposits,
certificates of deposit and marketable securities other than equity securi-
ties, maturing within three months of purchase. Cash equivalents are stated at
cost, which approximates fair value.

Oil and Gas Unproved Property Costs
Unproved property costs are initially capitalized. Significant unproved prop-
erties are not amortized but are periodically assessed for impairment. Other
unproved properties are amortized on a composite basis, considering past suc-
cess experience and average property life. In general, costs of properties
surrendered or otherwise disposed of are charged to accumulated amortization.
Costs of successful properties are transferred to developed properties. Ex-
ploratory wells that find oil and gas reserves which cannot be classified as
proved within one year of discovery and do not continue to qualify as capital-
ized costs are charged to expense as dry-hole costs.

Fixed Assets
Fixed assets are recorded at cost and are written off on either the unit-of-
production or straight-line method based on the expected lives of individual
assets or groups of assets.
Upon disposal of assets depreciated on an individual basis, residual cost
less salvage value is included in current income. Upon disposal of assets de-
preciated on a group basis, unless unusual in nature or amount, residual cost
less salvage value is charged against accumulated depreciation.

Impairment of Long-lived Assets
Long-lived assets are assessed for possible impairment in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", whenever changes in economic or operating conditions indicate the carry-
ing amount may not be recoverable. If undiscounted future cash flows are less
than the carrying amount, an impairment loss is recognized to the extent the
carrying amount exceeds future discounted cash flows. For proved oil and gas
properties, the assessment is performed on an individual field basis and is
based on the company's price forecast used for economic decision making.

Dismantlement, Restoration and Reclamation Costs
The estimated costs, net of salvage value, of dismantling facilities or pro-
jects with limited lives or that are required to be dismantled by contract,
regulation or law, and the estimated costs of restoration and reclamation as-
sociated with oil and gas operations are accrued during production and classi-
fied as a long-term liability. Such costs are taken into account in determin-
ing depreciation, depletion and amortization.

Environmental Remediation
Environmental remediation costs are accrued as operating expenses based on the
estimated timing and extent of remedial actions required by applicable govern-
mental authorities and the amount of ARCO's liability in consideration of the
liability and financial wherewithal of other responsible parties. Estimated
liabilities are not discounted to present value.

43
<PAGE>

Notes to Consolidated Financial Statements

Stock-based Compensation
Employee stock options are accounted for under the intrinsic value method pre-
scribed by Accounting Principles Board Opinion (APB) No. 25.

Earnings per Share
Basic earnings per share is based on the average number of common shares out-
standing during each period. Diluted earnings per share includes as outstand-
ing certain contingently issuable shares, primarily stock options and convert-
ible preference stock. All earnings per share have been restated to give ef-
fect to the 100% stock dividend effective June 13, 1997.

Use of Estimates
The preparation of financial statements in conformity with accounting princi-
ples generally accepted in the United States requires management to make esti-
mates and assumptions that affect the reported amounts of assets and liabili-
ties and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Derivative Instruments
The company uses a variety of derivative instruments, both financial and com-
modity based, to minimize the market risks of commodity price, interest rate
and foreign currency fluctuations. The company does not hold or issue deriva-
tive instruments for trading purposes and is not a party to leveraged instru-
ments. All derivative instruments are off-balance sheet instruments; however,
net receivable or payable positions related to derivative instruments are car-
ried on the balance sheet. The nature of the transaction underlying a risk
management strategy, primarily whether or not the instrument qualifies as a
hedge, determines which accounting method is used.
In order to qualify for hedge accounting, the derivative instrument must be
designated and effective as a hedge.
Deferral accounting is used for the following types of transactions (if the
instrument qualifies as a hedge): future crude oil and natural gas production;
fixed-price crude oil and natural gas purchase and sale commitments; U.S. dol-
lar-denominated debt issued by a foreign subsidiary; debt denominated in a
foreign currency; and anticipated foreign currency commitments. Under this
method, deferred gains and losses are included in other assets or accrued lia-
bilities until the designated underlying item is recognized in income. Recog-
nized gains and losses are recorded in sales and other operating revenues,
other revenues or trade purchases depending on the underlying item associated
with the derivative. Instruments typically used in these transactions are
crude oil and natural gas swap and price collar contracts and some foreign
currency swap, forward and option contracts.
The accrual method of accounting is used for interest rate swap agreements
entered into by the company which convert the interest rate on fixed-rate debt
to a variable rate. Under the accrual method, each net payment or receipt due
or owed under the derivative is recognized in income in the period to which
the payment or receipt relates. Amounts to be paid/received under these agree-
ments are recognized as an adjustment to interest expense. The related amounts
payable to/receivable from the counterparties are included in other accrued
liabilities.
The fair value method of accounting is used for any derivative instrument
that does not qualify as a hedge. The fair value method, whereby gains and
losses associated with changes in fair value of a derivative instrument are
recognized currently in income or in accumulated other comprehensive income,
is used for the following derivative instruments: foreign currency forward and
option contracts associated with anticipated future cash flows related to
overseas operations, and foreign currency swap contracts associated with for-
eign-denominated intercompany debt with maturities exceeding one year. Pres-
ently, changes in fair value of all transactions accounted for under this
method are recognized currently in income and reported as other revenues.
Under all methods of accounting, the cash flows related to any recognized
gains or losses associated with derivative instruments are reported as cash
flows from operations.

44
<PAGE>

Notes to Consolidated Financial Statements

If a derivative instrument designated as a hedge is terminated prior to ex-
pected maturity, gains or losses are deferred and included in income when the
underlying hedged item is recognized in income.
When the designated item associated with a derivative instrument matures, is
sold, extinguished or terminated, gains or losses are recognized as part of
the gain or loss on sale or settlement of the underlying item. When a deriva-
tive instrument is associated with an anticipated transaction that is no
longer expected to occur, the gain or loss on the derivative is recognized im-
mediately in income.

Reclassifications
Certain previously reported amounts have been restated to conform to classifi-
cations adopted in 1999.

Note 2 Segment Information
Segment information has been prepared in accordance with SFAS No. 131, "Dis-
closure about Segments of an Enterprise and Related Information." ARCO has two
reportable segments: exploration and production (E&P) and refining and market-
ing (R&M). The segments were determined based upon types of products
produced/sold by each segment. Segment performance is evaluated based upon net
income, excluding interest expense.
The E&P segment is an aggregation of several business units engaged in one
or more of the following: the worldwide exploration, development and produc-
tion of petroleum liquids (crude oil, condensate and natural gas liquids) and
natural gas; the purchase and sale of petroleum liquids and natural gas; and
the transportation via pipeline of petroleum liquids within the State of Alas-
ka. The company's investments in the LUKARCO joint venture and LUKOIL common
stock are included in the E&P segment as well.
The R&M segment comprises the refining of crude oil, primarily from the
North Slope of Alaska; the marketing of petroleum products, primarily in the
West Coast region of the U.S.; and the transportation of petroleum liquids and
petroleum products via ocean-going tankers, primarily between Alaska and the
West Coast. The company's equity investment in Zhenhai Refining and Chemical
Company is included in the R&M segment as well.
Revenue from other operating segments is attributable to the pipeline trans-
portation and storage of petroleum liquids and petroleum products in the 48
contiguous United States.
Intersegment sales were made at prices approximating current market value.

45
<PAGE>

Notes to Consolidated Financial Statements

Segment Information
<TABLE>
<CAPTION>
1999
-------------------------------------------------------------
Exploration Refining & Unallocated
Millions & Production Marketing All Other Items Totals
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales and other
operating revenue:
U.S. $5,045 $6,941 $ 46 $ - $12,032
International 1,977 59 - 10 2,046
Intersegment revenues (1,563) - (4) (10) (1,577)
-------------------------------------------------------------
Total 5,459 7,000 42 - 12,501
Income from equity
affiliates 20 - 36 - 56
Interest revenue 30 25 - 71 126
Interest expense - - - 398 398
Depreciation, depletion
and amortization 1,501 268 9 7 1,785
Income tax expense
(benefit) 366 334 52 (219) 533
Net income (loss) 938 593 87 (196)(a) 1,422
Investment in equity
affiliates 972 190 342 4 1,508
Property, plant and
equipment (net):
U.S. 7,735 3,225 170 101 11,231
International 7,212 23 - - 7,235
Additions to fixed
assets 2,225 481 5 16 2,727
Segment assets 18,752 4,695 916 1,909(b) 26,272
<CAPTION>
1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales and other
operating revenue:
U.S. $ 4,374 $5,457 $ 156 $ - $ 9,987
International 1,562 27 - 14 1,603
Intersegment revenues (1,179) (14) (80) (14) (1,287)
-------------------------------------------------------------
Total 4,757 5,470 76 - 10,303
Income from equity
affiliates 25 19 34 - 78
Interest revenue 18 5 - 96 119
Interest expense - - - 259 259
Depreciation, depletion
and amortization 1,239 252 18 26 1,535
Income tax expense
(benefit) (563) 145 65 (298) (651)
Net income (loss) (616) 281 111 676(a) 452
Investment in equity
affiliates 661 219 344 11 1,235
Property, plant and
equipment (net):
U.S. 7,420 2,939 432 132 10,923
International 7,824 15 - - 7,839
Additions to fixed
assets 3,020 488 38 5 3,551
Segment assets 18,203 3,826 1,119 2,051(b) 25,199
<CAPTION>
1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales and other
operating revenue:
U.S. $ 7,920 $6,853 $ 177 $ 1 $14,951
International 1,630 3 - 15 1,648
Intersegment revenues (2,164) (3) (77) (15) (2,259)
-------------------------------------------------------------
Total 7,386 6,853 100 1 14,340
Income from equity
affiliates 5 8 6 - 19
Interest revenue 12 3 - 99 114
Interest expense - - - 343 343
Depreciation, depletion
and amortization 1,184 226 15 21 1,446
Income tax expense
(benefit) 653 161 47 (357) 504
Net income 1,347 325 82 17(a) 1,771
Investment in equity
affiliates 336 98 329 - 763
Property, plant and
equipment (net):
U.S. 6,734 2,714 470 146 10,064
International 3,496 - - - 3,496
Additions to fixed
assets 2,276 330 46 3 2,655
Segment assets 13,269 3,564 1,149 4,443(b) 22,425
</TABLE>
(a) Includes: income from discontinued operations of $179 and $267
in 1998 and 1997, respectively; gain on disposition of
discontinued operations of $77, $928 and $291 in 1999, 1998
and 1997, respectively; and extraordinary loss of $118 in
1997.
(b) Includes assets of discontinued operations of $67 (1999), $339
(1998) and $2,777 (1997).

46
<PAGE>

Notes to Consolidated Financial Statements

Note 3 Acquisition of
Union Texas Petroleum Holdings, Inc.

In June 1998, ARCO completed its tender offer for all outstanding common
shares of Union Texas Petroleum Holdings, Inc. (UTP) for approximately $2.5
billion, or $29 per share in cash. ARCO also purchased in a tender offer
1,649,500 shares of UTP's 7.14% Series A Cumulative Preferred Stock for ap-
proximately $200 million, or $122 per share in cash. UTP was a U.S.-based,
non-integrated oil and gas company with substantially all of its oil and gas
producing operations conducted outside of the U.S. in the United Kingdom sec-
tor of the North Sea, Indonesia, Venezuela and Pakistan.
The acquisition was accounted for as a purchase. The results of operations
of UTP are included in the consolidated financial statements of ARCO as of
July 1, 1998. The cost of the acquisition was allocated on the basis of the
estimated fair value of the assets acquired and liabilities assumed and there
are no contingencies or other matters that could affect the allocation of the
purchase cost.
The liabilities assumed included employee termination costs of $78 million.
The group of employees terminated included U.S. citizens employed in
exploration and production operations and corporate headquarters personnel. In
the third quarter of 1999 ARCO recorded an additional $8 million provision for
termination of UTP employees to reflect an increase in the estimated costs. At
December 31, 1999, ARCO had terminated 353 of the 357 employees to be
terminated and had paid out $82 million of the $86 million provided for
severance payments.
Liabilities assumed also included other costs associated with the merging of
UTP's businesses into ARCO's operations, such as lease and other contract
cancellation costs, totalling $18 million, of which $7 million were non-cash
charges. Approximately half of the cash costs were paid in 1999. All remaining
cash costs for severance, office lease and software maintenance contract
buyouts are expected to be paid out by the end of 2000.
The following unaudited pro forma summary presents information as if UTP had
been acquired as of the beginning of ARCO's fiscal years 1998 and 1997. The
pro forma amounts include certain adjustments, primarily to recognize
depreciation, depletion and amortization based on the allocated purchase price
of UTP assets, and do not reflect any benefits from economies which might be
achieved from combining operations. The pro forma information does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the combined
companies:

<TABLE>
<CAPTION>
Millions, except
per share amounts 1998 1997
- ----------------------------------------
<S> <C> <C>
Sales and other
operating revenues $ 10,570 $ 15,061
------------------
Income (loss) from
continuing
operations before
extraordinary item $ (702) $ 1,372
Income from and
gains on
discontinued
operations 1,107 590
Extraordinary loss - (118)
------------------
Net income $ 405 $ 1,844
------------------
Earnings (loss) per
share
Basic
Continuing
operations $ (2.19) $ 4.27
Discontinued
operations 3.45 1.84
Extraordinary
loss - (.37)
------------------
Net income $ 1.26 $ 5.74
------------------
Diluted
Continuing
operations $ (2.19) $ 4.19
Discontinued
operations 3.45 1.80
Extraordinary
loss - (.36)
------------------
Net income $ 1.26 $ 5.63
------------------
</TABLE>

Note 4 Discontinued Operations

Coal
In the first quarter of 1999, ARCO disposed of its interests in two Australian
coal mines. ARCO disposed of its 80% interest in the Gordonstone coal mine and
its 31.4% interest in the Blair Athol Joint Venture. At December 31, 1999, the
carrying value of the remaining Australian coal assets was $67 million and was
included as net assets of discontinued operations on the balance sheet.
In June 1998, ARCO disposed of its U.S. coal operations in a transaction
with Arch Coal. Operations disposed of included the Black Thunder and Coal
Creek mines in Wyoming, the West Elk mine in Colorado, and ARCO's 65% interest
in three mines in Utah. The

47
<PAGE>

Notes to Consolidated Financial Statements

Colorado and Utah mines were sold outright. ARCO contributed its Wyoming coal
operations and Arch Coal transferred various of its coal operations into a new
joint venture that is 99% owned by Arch Coal and 1% owned by ARCO.
In 1998, ARCO recorded a $92 million provision for the estimated loss on the
disposal of the U.S. and Australian coal assets. In 1999, upon completion of
the Australian sales noted above, the provision was reduced, resulting in an
after-tax gain of $22 million.

Chemicals
In July 1998, ARCO tendered its entire interest of 80 million shares of ARCO
Chemical Company common stock to Lyondell Chemical Company (Lyondell) for
$57.75 per share, or total cash proceeds of approximately $4.6 billion. After
deferral of $313 million of the pre-tax gain, ARCO recorded an after-tax gain
of approximately $1.1 billion in 1998 from the sale of the shares.
The $313 million deferral represents the estimated discounted present value
of the difference, over the remaining term of an above-market MTBE contract
between ARCO and ARCO Chemical, between the contract price and the spot market
price for MTBE. The deferral is being amortized over the remaining term of the
contract, ending in 2002, on the basis of annual volume over total contracted
volume.
In 1999, adjustments for tax benefits resulted in the recording of an addi-
tional after-tax gain of $59 million on the disposition of ARCO Chemical.
At the time of the acquisition of UTP, ARCO determined it would sell UTP's
petrochemical business. Accordingly, in 1998, ARCO recorded a $33 million af-
ter-tax provision for loss on the sale of the assets. If depreciation had not
been suspended for the last six months of 1998, the petrochemical business
would have had a loss of $5 million for 1998. In March 1999, ARCO sold the UTP
petrochemical business and recorded an additional loss of $4 million.
In September 1997, ARCO disposed of its 49.9% equity interest in Lyondell.
ARCO recorded an after-tax gain of $291 million on the disposition.
Revenues and net income from discontinued operations were as follows:

<TABLE>
<CAPTION>
Millions 1999 1998 1997
- ----------------------------------------
<S> <C> <C> <C>
Revenues:
ARCO Chemical $ - $ 1,990 $3,726
Coal operations $ 97 $ 338 $ 637
UTP
petrochemical $ 25 $ 58 $ -
Net income:
ARCO Chemical $ - $ 170 $ 92
Coal operations - 9 56
Lyondell - - 119
UTP
petrochemical - - -
--------------------
$ - $ 179 $ 267
--------------------
</TABLE>

Note 5 Accounting Changes
Effective January 1, 1999, ARCO adopted Statement of Position (SOP) 98-1, "Ac-
counting for the Costs of Computer Software Developed or Obtained for Internal
Use," and SOP 98-5, "Reporting on the Costs of Start-up Activities." SOP 98-5
states that costs of start-up activities should be expensed as incurred. The
implementation of SOP 98-5 did not have a material cumulative effect on ARCO's
results of operations (less than $0.01 per share). SOP 98-1 establishes crite-
ria for determining how the costs of developing or obtaining internal-use com-
puter software should be accounted for. SOP 98-1 was adopted prospectively and
therefore there was no cumulative effect of adoption.
Effective January 1, 1997, ARCO adopted SOP 96-1, "Environmental Remediation
Liabilities." The provisions include standards affecting the measurement, rec-
ognition and disclosure of environmental remediation liabilities. The effect
of initially applying the provisions of SOP 96-1 in 1997 was a decrease in net
income of $30 million ($0.09 per share).

Note 6 Extraordinary Item
During 1997, ARCO retired debt with a face value of $756 million prior to
maturity. The debt repurchases resulted in an extraordinary charge of $118
million against net income, after tax of $74 million.

48
<PAGE>

Notes to Consolidated Financial Statements

Note 7 Restructuring Costs
During 1998, ARCO recorded pre-tax charges of $229 million for the costs of
eliminating over 1,200 positions related to the downsizing of continuing oper-
ations, primarily E&P technical support, international E&P support operations
and the corporate headquarters. These 1,200 positions eliminated were specifi-
cally identified prior to December 31, 1998. During 1999, the reserve was in-
creased by $12 million, primarily to reflect additional terminations.
The following table summarizes the liabilities related to the 1998 restruc-
turing program, including $11 million transferred from the 1997 program dis-
cussed below:

<TABLE>
<CAPTION>
($ Millions)
Funded Unfunded
Short-term Long-term Long-term
Terminations Benefits(a) Benefits(b) Benefits(c) Total
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1,250 $103 $90 $58 $251
</TABLE>

(a) Severance payments and ancillary benefits such as relocation and
outplacement.
(b) Net increase in pension benefits to be paid from assets of qualified
plans.
(c) Net increase in non-qualified pension benefits and other postretirement
benefits to be paid from company funds.

Long-term benefits will be paid after retirement over the remaining lives of
the recipients or, for pension benefits, in a lump sum upon election. Long-
term benefits have been accrued in accordance with SFAS No. 88. As of December
31, 1999, approximately 1,160 employees have been terminated and approximately
$73 million of the short-term benefits have been paid and charged against the
accrual. Payments made do not necessarily correlate to the number of termina-
tions due to the ability of terminees to defer receipt of certain payments.
The remaining severance and ancillary benefits are expected to be paid by the
first quarter 2001.
In addition, in 1998 the company recorded a pre-tax charge of $20 million
related to office space and facilities that will be vacated with no future
economic benefit. Cash payments will be made through 2005, the remaining term
of the lease.
During 1997, ARCO recorded pre-tax charges of $67 million for personnel re-
ductions in refining and marketing operations and corporate headquarters. As
of December 31, 1999, $53 million was paid and $11 million was transferred to
reserves for the 1998 program, with a balance of $3 million remaining to be
paid. The transfer was necessary because when the 1998 program was announced,
certain employees who had not yet terminated under the 1997 program became el-
igible for 1998 program benefits. Approximately 480 employees were originally
planned to terminate under the 1997 program. About 400 people terminated under
the 1997 program, with the remainder transferred to the 1998 program.

Note 8 Inventories
Inventories are recorded when purchased, produced or manufactured and are
stated at the lower of cost or market. In 1999, approximately 76% of invento-
ries, excluding materials and supplies, were determined by the last-in, first-
out (LIFO) method. Materials and supplies and other non-LIFO inventories are
determined predominantly on an average cost basis.
Total inventories at December 31 comprised the following:

<TABLE>
<CAPTION>
Millions 1999 1998
- --------------------------------------
<S> <C> <C>
Crude oil and
petroleum products $ 199 $ 220
Other products 26 24
Materials and
supplies 205 231
---------------
Total $ 430 $ 475
---------------
</TABLE>

The excess of the current cost of inventories over book value was
approximately $246 million and $193 million at December 31, 1999 and 1998,
respectively.

Note 9 Investments
At December 31, 1999 and 1998, investments in debt securities were primarily
composed of U.S. Treasury securities and corporate debt instruments. Maturi-
ties generally ranged from one month to ten years. These investments are clas-
sified as short or long term depending on maturity. ARCO's investments in
LUKOIL common stock and Zhenhai Refining and Chemical Company convertible
bonds were included in other investments and long-term receivables. At Decem-
ber 31, 1999 and 1998, all investments were classified as available-for-sale
and were reported at fair value, with unrealized

49
<PAGE>

Notes to Consolidated Financial Statements

holding gains and losses, net of tax, reported in accumulated other comprehen-
sive income.
The following summarizes investments at December 31:

<TABLE>
<CAPTION>
Millions 1999 1998
- ----------------------------------------
<S> <C> <C>
Aggregate fair
value $ 1,501 $ 926
Gross unrealized
holding losses 7 135
Gross unrealized
holding gains (376) (13)
------------------
Amortized cost $ 1,132 $ 1,048
------------------
</TABLE>

Investment activity for the years ended December 31 was as follows:

<TABLE>
<CAPTION>
Millions 1999 1998
- -------------------------------------
<S> <C> <C>
Gross purchases $ 20,269 $ 15,118
Gross sales 746 463
Gross maturities 19,439 14,520
</TABLE>

Gross realized gains and losses were insignificant and were determined by
the specific identification method.
[LOGO OF ARCO]

Note 10 Fixed Assets
Property, plant and equipment at December 31 was as follows:

<TABLE>
<CAPTION>
1999 1998

Millions Gross Net Gross Net
- -------------------------------------------------
<S> <C> <C> <C> <C>
Exploration &
production $33,490 $14,947 $32,072 $15,244
Refining &
marketing 6,024 3,248 5,450 2,954
Other operations 279 170 649 432
Unallocated 264 101 1,151 132
----------------------------------
Total $40,057 $18,466 $39,322 $18,762
----------------------------------
</TABLE>

Expenses for maintenance and repairs for 1999, 1998 and 1997 were $292 mil-
lion, $387 million and $334 million, respectively.
In the fourth quarter of 1998, after a year-long decline in crude oil pric-
es, ARCO determined that part of the oil price decline that had taken place
was permanent. Accordingly, ARCO revised its official crude oil price forecast
used for economic decision making. This forecast was based on a West Texas In-
termediate (WTI) benchmark price of $15/bbl in 1999, $16/bbl in 2000, and
$17/bbl in 2001, with 2% escalation thereafter. While crude oil prices reached
as low as $12/bbl in December 1998, many oil industry expert forecasts con-
sider crude oil prices in that range to be unusually low and inappropriate for
economic decision making.
In accordance with SFAS No. 121, in 1998 ARCO performed an impairment review
to determine whether any of ARCO's oil and gas properties were impaired based
on the new crude oil price forecast. Net undiscounted cash flows before tax
were calculated and compared to the net book value on a field-by-field basis.
This included cash flows from proved developed, proved undeveloped and poten-
tial oil and gas reserves, which included both producing and non-producing re-
serves. The potential reserves were calculated on a risk-weighted basis to in-
clude the uncertainties associated with field size, reservoir performance,
technological development and commercial risk. Where appropriate, contracted
prices were used but did not materially impact the result. For those fields
where the net book value exceeded the net undiscounted cash flows before tax,
the discounted future cash flows before tax were calculated using a 10% dis-
count rate factor. This resulted in a pre-tax impairment charge of $1.4 bil-
lion in 1998. ARCO tested a downside case using WTI benchmark crude oil prices
of $1/bbl lower than each year of its official forecast. ARCO believes that
prices below $14/bbl are not sustainable and like most commodities will cycle
around their historical midpoints. The impaired properties included former UTP
properties in Pakistan, Venezuela and the U.K. North Sea, as well as other
ARCO properties in California, the U.K. North Sea, North Africa and the Middle
East. [LOGO OF ARCO]

Note 11 Short-term Borrowings and Bank Credit Facilities

Notes payable consist primarily of ARCO's commercial paper issued to a variety
of financial investors and institutions and any amounts outstanding under ARCO
credit facilities. The weighted average interest rate on notes payable out-
standing at December 31, 1999 and 1998, was 6.0% and 5.6%, respectively.

At December 31, 1999, ARCO had unused letters of credit totaling approxi-
mately $398 million.

50
<PAGE>

Notes to Consolidated Financial Statements

In 1999, ARCO and certain wholly owned subsidiaries had committed bank
credit facilities of approximately $3.1 billion. At December 31, 1999, there
were $57 million of borrowings under these committed facilities.
[LOGO OF ARCO]

Note 12 Long-term Debt
Long-term debt at December 31 comprised the following:

<TABLE>
<CAPTION>
Millions 1999 1998
- -------------------------------------------------------
<S> <C> <C>
5.55%, due in 2003 $ 500 $ --
5.9%, due in 2009 500 --
8 1/4%, due in 2022 245 245
8 1/2%, due in 2012 178 178
8 3/4%, due in 2032 159 159
9%, due in 2021 209 209
9%, due in 2031 97 97
9 1/8%, due in 2011 253 253
9 1/8%, due in 2031 155 155
9 7/8%, due in 2016 181 181
10 7/8%, due in 2005 410 410
Series A Medium-
Term Notes,(b) 8%(a) 84 110
Series B Medium-
Term Notes,(c) 8.34%(a) 250 250
ARCO Tresop Notes, 5.06%(d) -- 88
Variable rate, due in 2031, 3.57%(a) 265 265
Variable rate, due in 2032, 5.63%(a) 108 108
Capital Construction Fund, 5.51%(e) 391 --
Vastar:
Commercial paper,
6.6%(a) 226 219
LIBOR Revolving
Credit Agreement,
5.6%(d) -- 320
6% Putable/Callable
Notes, due in 2010 100 100
6.39%, due in 2008 50 50
6.50%, due in 2009 299 --
6.95%, due in 2006 75 75
6.96%, due in 2007 75 75
8.75%, due in 2005 150 150
Union Texas Petrole-
um:
6.66%, due in 2002 100 100
7.34%, due in 1999 -- 179
7.40%, due in 2038 150 150
8 1/4%, due in 1999 -- 100
8 3/8%, due in 2005 125 125
8 1/2%, due in 2007 75 75
Other 299 305
---------------------------------
Total, including
debt due within one
year 5,709 4,731
---------------------------------
Less debt due within
one year 11 399
---------------------------------
Long-term debt $ 5,698 $ 4,332
---------------------------------
</TABLE>

(a) Weighted average of interest rates at December 31, 1999.
(b) Maturities vary through 2011.
(c) Maturities vary through 2012.
(d) Weighted average of interest rates at December 31, 1998.
(e) The Capital Construction Fund is a related party. Maturities vary through
2032.

Maturities for the five years subsequent to December 31, 1999, are as fol-
lows:

<TABLE>
<CAPTION>
Millions 2000 2001 2002 2003 2004
- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
Maturities $ 11 $ 76 $ 151 $ 516 $ 243
</TABLE>

In 1996, Vastar established a $1.1 billion commercial paper program for is-
suance of unsecured notes with maturities of up to 270 days from the date of
issue. Vastar has agreed to maintain credit lines sufficient to support pay-
ment on the notes.
In 1996, Vastar consolidated existing unsecured revolving credit agreements
into a single facility. As of December 31, 1999, commitments under this facil-
ity, as amended to date, totaled $1.1 billion. The commitment expires March
31, 2002. As of December 31, 1999, no debt was outstanding under this facili-
ty. The effective rate of borrowings under this facility during 1999 averaged
5.9%. The credit facility is not guaranteed by ARCO. The agreement contains
covenants, the most restrictive of which require Vastar to maintain certain
financial ratios and minimum levels of tangible stockholders' equity and re-
strict encumbrance of assets.
In April 1998, Vastar issued $100 million of 6% Putable/Callable Notes due
April 20, 2010 Putable/Callable April 20, 2000. In 1998, Vastar also entered
into an interest rate swap covering the Putable/Callable Notes, which effec-
tively changed the 6% fixed rate to a floating rate. The effective interest
rate paid on these notes in 1999 was 5.3%. The financial impact of swaps in
1999 and 1998 was immaterial.
Approximately $3 million and $247 million of long-term debt was denominated
in foreign currencies at December 31, 1999 and 1998, respectively.
No material amounts of long-term debt are collateralized by ARCO assets.
[LOGO OF ARCO]

51
<PAGE>

Notes to Consolidated Financial Statements

Note 13 Interest
Interest for the years ended December 31 comprised the following:

<TABLE>
<CAPTION>
Millions 1999 1998 1997
- -------------------------------------------
<S> <C> <C> <C>
Long-term debt $ 413 $ 322 $ 417
Short-term debt 113 158 86
Other(a) 38 (115) (122)
-----------------------------
564 365 381
Capitalized
interest (166) (106) (38)
-----------------------------
Total interest
expense $ 398 $ 259 $ 343
-----------------------------
Total interest
paid in cash $ 377 $ 248 $ 390
-----------------------------
Interest income $ 126 $ 119 $ 114
-----------------------------
</TABLE>

(a) Includes $153 of interest on a tax refund in 1998 and $145 reversal from
partial tax audit settlements in 1997.

Note 14 Financial Instruments and Fair Value
ARCO does not hold or issue financial instruments for trading purposes.
ARCO enters into various types of foreign currency forward, option and swap
contracts. Foreign currency forward contracts are used to minimize foreign ex-
change exposures associated with U.S. dollar-denominated debt issued by a for-
eign subsidiary, anticipated foreign currency commitments and anticipated fu-
ture cash flows related to overseas operations.
At December 31, 1999, the notional amounts of foreign currency contracts
outstanding (principally involving European currencies) were $633 million,
with various maturities in 2000. At December 31, 1998, the notional amounts of
foreign currency contracts outstanding were $528 million.
Gains and losses on foreign currency forward contracts covering anticipatory
cash flows are recognized currently as other income or expense. Gains and
losses on foreign currency swaps associated with intercompany debt are recog-
nized currently in income and offset foreign exchange gains and losses on the
underlying intercompany loans. Gains and losses on other foreign currency con-
tracts are generally deferred and offset the transactions being hedged.
ARCO also uses various hedging arrangements to manage the exposure to price
risk for future natural gas and crude oil transactions. Gains and losses re-
sulting from these transactions are deferred and included in other assets or
accrued liabilities until realized in sales and other operating revenues as
the physical production required by the contracts is delivered.
During 1999, Vastar entered into a series of natural gas and crude oil price
collar and put agreements. At December 31, 1999, natural gas collars and puts
sold covering an average of 400 million cubic feet per day of production were
in place for the period January 2000 through March 2000. These agreements will
serve as hedges which secure weighted average prices on these volumes between
$2.54 and $3.27 per thousand cubic feet (on a Henry Hub basis) for market
prices in excess of $2.12/mcf. Crude oil collars and puts sold covered an av-
erage of 23,000 barrels per day of production for the period January 2000
through December 2000. These agreements will serve as hedges which secure
weighted average prices on these volumes between $18.80 and $23.31 per barrel
for market prices in excess of $15.80 per barrel.
At December 31, the carrying value and estimated fair value of ARCO's finan-
cial instruments are shown as assets (liabilities) in the table below:

<TABLE>
<CAPTION>
1999 1998
------------------------------------------
Carrying Fair Carrying Fair
Millions Value Value Value Value
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Non-derivatives:
Short-term
investments $ 264 $ 264 $ 260 $ 260
Equity method
investments 1,508 1,472 1,235 1,176
Other
investments and
long-term
receivables 1,660 1,660 831 831
Notes payable (1,672) (1,672) (2,403) (2,403)
Long-term debt,
including
current
maturities (5,709) (5,920) (4,731) (5,466)
Derivatives:
Foreign currency
forwards $ 2 $ 2 $ (1) $ (1)
Oil and gas
options and
swaps (20) (19) 40 47
Oil and gas
futures 21 18 (56) (59)
Commodity
futures 2 1 (12) (12)
Commodity
options 7 15 (2) (2)
</TABLE>

52
<PAGE>

Notes to Consolidated Financial Statements

All derivative instruments are off-balance-sheet instruments; however, net
receivable or payable positions related to derivative instruments are carried
on the balance sheet.
Short-term investments are carried at fair value. The fair value of notes
payable approximates carrying value due to its short-term maturities. Equity
method investments and other investments and long-term receivables were valued
at quoted market prices if available. For unquoted investment securities, the
reported fair value was estimated on the basis of financial and other informa-
tion. The fair value of ARCO's long-term debt was estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to ARCO for debt of the same remaining maturities. The fair value of
foreign currency contracts and interest rate swaps represented the amount to
be exchanged if the existing contracts had been settled at year end and was
estimated based on market quotes.
ARCO is exposed to credit risk in the event of nonperformance by the
counterparties. ARCO does not generally require collateral or other security
to support these financial instruments. The counterparties to these instru-
ments are major institutions deemed creditworthy by ARCO; ARCO does not antic-
ipate nonperformance by the counterparties.
[LOGO OF ARCO]

Note 15 Other Commitments and Contingencies
ARCO has commitments, including those related to the acquisition, construction
and development of facilities, all made in the normal course of business.
ARCO has guaranteed all of LUKARCO's obligations associated with the Caspian
Pipeline project, which amount to 25% of all funding requirements for this
project. The current estimates of total project funding requirements are be-
tween $2.2 to $2.4 billion.
Following the March 1989 EXXON VALDEZ oil spill, numerous federal, state and
private plaintiff lawsuits were brought against Exxon, Alyeska Pipeline Serv-
ice Company (Alyeska) and Alyeska's owner companies, including ARCO, which
owns approximately 22%. While all of the federal, state and private plaintiff
lawsuits have been settled, certain issues relating to liability for the spill
remain unresolved between Exxon and Alyeska (including its owner companies).
Lawsuits, including purported class actions and actions by governmental en-
tities, are pending or threatened against ARCO and others seeking damages,
abatement of housing units, and compensation for medical problems arising out
of the presence of lead-based paint in certain housing units. ARCO is unable
to predict the scope or amount of any such liability.
The State of Montana, along with the United States and the Salish and Koote-
nai Tribes, have been seeking recovery from ARCO for alleged injuries to natu-
ral resources resulting from mining and mineral processing businesses formerly
operated by Anaconda. In 1998, ARCO entered into two consent decrees, which
were approved by the court in 1999, settling all of the natural resources dam-
age claims of the United States and the tribes and the bulk of such claims of
the State of Montana. Remaining for disposition are the State's claims for
$206 million of restoration damages at three sites.
ARCO is subject to liability pursuant to various federal, state and local
environmental laws and regulations that require ARCO to do some or all of the
following:
. Remove or mitigate the effects on the environment at various sites from
the disposal or release of certain substances;
. Perform restoration work at such sites; and
. Pay damages for loss of use and non-use values.
The federal agencies involved with the sites include the Department of the In-
terior, Department of Justice and Environmental Protection Agency. Environmen-
tal liabilities include personal injury claims allegedly caused by exposure to
toxic materials manufactured or used by ARCO.
ARCO is currently involved in assessments and cleanups under these laws at
federal- and state-managed sites as well as other clean-up sites including
service stations, refineries, terminals, third-party landfills, former nuclear
processing facilities, sites associated with discontinued operations and sites
previously owned by

53
<PAGE>

Notes to Consolidated Financial Statements

ARCO or predecessors. This comprises 130 sites for which ARCO has been named a
potentially responsible party (PRP), along with other sites for which no
claims have been asserted. The number of PRP sites in and of itself is not a
relevant measure of liability because the nature and extent of environmental
concerns varies by site and ARCO's responsibility varies from sole responsi-
bility to very little responsibility.
ARCO may in the future be involved in additional assessments and cleanups.
Future costs depend on unknown factors such as:
. Nature and extent of contamination;
. Timing, extent and method of remedial action;
. ARCO's proportional share of costs; and
. Financial condition of other responsible parties.
The environmental remediation accrual is updated annually, at a minimum, and
at December 31, 1999 was $686 million. As these costs become more clearly de-
fined, they may require future charges against earnings. Applying Monte Carlo
analysis to estimated site maximums on a portfolio basis, ARCO estimates that
future costs could exceed the amount accrued by as much as $550 million.
Approximately 60% of the reserve related to sites associated with ARCO's
discontinued operations, primarily mining activities in the states of Montana,
Utah and New Mexico. Another significant component related to currently and
formerly owned chemical, nuclear processing, and refining and marketing facil-
ities, and other sites which received wastes from these facilities. One site
represented 11% of the total accrual. No other site represented more than 7%
of the total accrual. The remainder related to other sites with reserves rang-
ing from $1 million to $10 million per site. Substantially all amounts accrued
are expected to be paid out over the next six years.
Claims for recovery of remediation costs already incurred and to be incurred
in the future have been filed against various third parties. Many of these
claims have been resolved. ARCO has neither recorded any asset nor reduced any
liability in connection with unresolved claims.
Although any ultimate liability arising from any of the matters described
herein could result in significant expenses or judgments that, if aggregated
and assumed to occur within a single fiscal year, would be material to ARCO's
results of operations, the likelihood of such occurrence is considered remote.
On the basis of management's best assessment of the ultimate amount and timing
of these events, such expenses or judgments are not expected to have a mate-
rial adverse effect on ARCO's consolidated financial statements.
The operations and consolidated financial position of ARCO continue to be
affected by domestic and foreign political developments as well as legisla-
tion, regulations and litigation pertaining to restrictions on production, im-
ports and exports, tax increases, environmental regulations, cancellation of
contract rights and expropriation of property. Both the likelihood of such oc-
currences and their overall effect on ARCO vary greatly and are not predict-
able.
These uncertainties are part of a number of items that ARCO has taken and
will continue to take into account in periodically establishing reserves.
[LOGO OF ARCO]

Note 16 Taxes
The income tax provision for the years ended December 31 comprised the follow-
ing:

<TABLE>
<CAPTION>
Millions 1999 1998 1997
- ---------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ 26 $ (189) $ 241
Deferred 322 (7) 143
-----------------------------------
348 (196) 384
Foreign:
Current 227 91 108
Deferred (68) (486) (45)
-----------------------------------
159 (395) 63
State:
Current 16 (14) 43
Deferred 10 (46) 14
-----------------------------------
26 (60) 57
-----------------------------------
Provision
(benefit) for
taxes on income $ 533 $ (651) $ 504
-----------------------------------
Total income
taxes paid in
cash(a) $ 676 $1,417 $ 781
-----------------------------------
</TABLE>

(a) Includes cash taxes paid relating to the sale of discontinued operations.

A deferred tax expense of $189 million was recorded in 1999 versus a $426
million deferred tax benefit in 1998 and a $242 million deferred tax expense
in 1997 related to unrealized investment gains and losses included in accumu-
lated other comprehensive income.

54
<PAGE>

Notes to Consolidated Financial Statements

Major components of the net deferred tax liability at December 31 were as
follows:

<TABLE>
<CAPTION>
Millions 1999 1998
- ---------------------------------------
<S> <C> <C>
Depreciation,
depletion and
amortization $(4,573) $ (4,600)
Other (510) (389)
------------------
Total deferred tax
liabilities (5,083) (4,989)
------------------
Dismantlement and
environmental 619 664
Postretirement
benefits 285 293
Foreign excess tax
basis/loss
carryforwards 92 107
Other 443 607
------------------
Total deferred tax
assets 1,439 1,671
------------------
Valuation allowance - -
------------------
Net deferred income
tax liability $(3,644) $ (3,318)
------------------
</TABLE>

ARCO has federal loss carryforwards of $117 million which begin expiring in
2000. ARCO has foreign loss carryforwards of $21 million which begin expiring
in 2001.

Taxes other than income taxes for the years ended December 31 comprised the
following:

<TABLE>
<CAPTION>
Millions 1999 1998 1997
- ------------------------------------
<S> <C> <C> <C>
Property $135 $143 $146
Production/severance 237 227 359
Other 103 136 135
--------------
Total $475 $506 $640
--------------
</TABLE>

The domestic and foreign components of income from continuing operations be-
fore income taxes and minority interest, and a reconciliation of income tax
expense with tax at the effective federal statutory rate for the years ended
December 31 were as follows:

<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------------------
Millions Amount % Pretax Income Amount % Pretax Income Amount % Pretax Income
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes:
Domestic $1,620 84.6 $ 96 7.5 $1,647 87.7
Foreign 296 15.4 (1,378) (107.5) 231 12.3
------------------------------------------------------------------------
Total $1,916 100.0 $(1,282) 100.0 $1,878 100.0
------------------------------------------------------------------------
Tax at 35% $ 671 35.0 $ (449) (35.0) $ 657 35.0
Increase (reduction) in
taxes resulting from:
Taxes on foreign income
in excess of statutory
rate 12 0.6 32 2.5 21 1.1
Affiliate stock
transactions (30) (1.6) (51) (4.0) (109) (5.8)
State income taxes (net
of federal effect) 17 0.9 (39) (3.0) 37 2.0
Tax credits (143) (7.4) (123) (9.6) (106) (5.6)
Other 6 0.3 (21) (1.7) 4 0.1
------------------------------------------------------------------------
Provision (benefit) for
taxes on income $ 533 27.8 $ (651) (50.8) $ 504 26.8
------------------------------------------------------------------------
</TABLE>

Note 17 Employee Benefit Plans
ARCO and its subsidiaries sponsor numerous postretirement benefit plans. De-
fined benefit pension plans (Pension) provide to substantially all employees
pension benefits based on years of service and the employee's compensation,
primarily during the last three years of service. Defined postretirement bene-
fit plans (Other) provide health care and life insurance benefits to substan-
tially all employees who retire with ARCO having rendered the required years
of service, and to their spouses and eligible dependents. ARCO pays for the
cost of a benchmark health maintenance organization with employees responsible
for the differential cost, if any, of their selected option. Life insurance
benefits are partially paid for by retiree contributions, which vary based
upon coverage chosen by the retiree. ARCO has the right to terminate or modify
the plans at any time.

55
<PAGE>

Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------
Millions Pension Other Pension Other
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan obligations
Benefit obligation at
January 1 $(2,822) $(616) $(2,498) $(588)
Service cost (51) (7) (53) (7)
Interest cost (179) (41) (173) (39)
Actuarial gain (loss) 349 45 (96) (4)
Benefits paid 429 45 311 51
Special termination benefits - - (128) (19)
Acquisition - - (185) (24)
Divestiture 11 - - 14
--------------------------------
Benefit obligation at December 31 $(2,263) $(574) $(2,822) $(616)
--------------------------------
<CAPTION>
1999 1998
---------------------------------------------------------
Millions Pension Other Pension Other
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets
Fair value of assets
at January 1 $2,886 $ - $2,710 $ -
Actual return on assets 392 - 264 -
Company contributions 64 - 69 -
Benefits paid (429) - (311) -
Acquisition - - 154 -
Divestitute (10) - - -
--------------------------------
Fair value of assets
at December 31 $2,903 $ - $2,886 $ -
--------------------------------
Funded status
Assets greater (less) than obligations $ 640 $(574) $ 64 $(616)
Unrecognized actuarial (gain) loss (164) 8 300 53
Unrecognized prior service cost (benefit) 125 (191) 133 (206)
Unrecognized transition obligation (173) - (200) -
--------------------------------
Total recognized $ 428 $(757) $ 297 $(769)
--------------------------------
Balance sheet recognition Prepaid benefits $ 564 $ - $ 459 $ -
Accrued liabilities (205) (757) (257) (769)
Intangible asset 18 - 20 -
Accumulated other comprehensive income 51 - 75 -
--------------------------------
Total recognized $ 428 $(757) $ 297 $(769)
--------------------------------
</TABLE>

The projected benefit obligation, accumulated benefit obligation (ABO), and
fair value of plan assets for pension plans with ABO in excess of plan assets
were $252, $200 and $1, respectively, at December 31, 1999, and $285, $247 and
$0, respectively, at December 31, 1998.

<TABLE>
<CAPTION>
1999 1998
------------------------------------
Percent Pension Other Pension Other
- -------------------------------------------------
<S> <C> <C> <C> <C>
Assumptions
Discount rate 7.75 7.75 6.75 6.75
Expected return
on plan assets 10.5 n/a 10.5 n/a
Rate of salary
progression 4.0 4.0 4.0 4.0
</TABLE>

For measurement purposes, a 7% annual rate of increase in the per capita
cost of health care benefits was assumed for 1997 to 2001, after which the
rate was assumed to decrease to 5% and remain at that level thereafter.
A one-percentage-point change in assumed health care cost trend rates would
have the following effects:

<TABLE>
<CAPTION>
1999
--------------
Millions Increase Decrease
- ---------------------------------------
<S> <C> <C>
Total of service and
interest cost $ 4.7 $ (3.9)
Postretirement
benefit obligation $ 47.2 $ (39.5)
</TABLE>

<TABLE>
<CAPTION>
Million 1999 1998 1997
- ---------------------------------------------
<S> <C> <C> <C>
Components of net
benefit cost
Pension
benefits:
Service cost $ 51 $ 53 $ 53
Interest cost 179 173 174
Expected return
on plan assets (289) (281) (256)
Amortization of
transition
asset (27) (27) (27)
Amortization of
prior service
cost 8 7 8
Recognized
actuarial
(gain) loss 9 10 10
------------------------
Net benefit
(income) cost $ (69) $ (65) $ (38)
------------------------
Other
postretirement
benefits:
Service cost $ 7 $ 7 $ 7
Interest cost 41 39 40
Amortization of
prior service
cost (benefit) (15) (15) (15)
Recognized
actuarial
(gain) loss 1 - -
------------------------
Net benefit
(income) cost $ 34 $ 31 $ 32
------------------------
</TABLE>

Included in pension obligations are liabilities related to non-qualified
pension plans that provide retirement benefits in excess of current Internal
Revenue Service maximums. The company also has deferred compensation plans
that permit executives, outside directors and key employees to defer a portion
of their compensation (including bonuses). Amounts deferred accrue interest at
a defined rate and are not included as pension obligations. The liability for
deferred compensation and interest thereon was $343 million and $299 million
at December 31, 1999 and 1998, respectively, and is included in "other de-
ferred liabilities and credits" on the balance sheet. The liabilities for non-
qualified pension plans and deferred compensation are unfunded based on defi-
nitions of generally accepted accounting standards. However, to assist in
funding these liabilities, the company has invested in corporate-owned life
insurance policies. The cash surrender value

56
<PAGE>

Notes to Consolidated Financial Statements

of the policies supporting these liabilities was $572 million and $541 million
at December 31, 1999 and 1998, respectively, and is included in "deferred
charges and other assets" on the balance sheet.
[LOGO OF ARCO]

Note 18 Lease Commitments
Capital lease obligations are recorded at the present value of future rental
payments. The related assets are amortized on a straight-line basis.
At December 31, 1999, future minimum rental payments due under leases were
as follows:

<TABLE>
<CAPTION>
Capital Operating
Millions Leases Leases
- ---------------------------------------
<S> <C> <C>
2000 $ 3 $ 179
2001 3 175
2002 3 159
2003 3 152
2004 3 89
Later years 57 406
-------------
Total minimum lease
payments 72 $ 1,160
--------
Imputed interest
(rates ranging from
8% to 12%) 48
------
Present value of
minimum lease
payments included in
long-term debt $ 24
-------------
</TABLE>

Minimum future rental income under noncancellable subleases at December 31,
1999, amounted to $91 million.
Operating lease net rental expense for the years ended December 31 was as
follows:

<TABLE>
<CAPTION>
Millions 1999 1998 1997
- ----------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $ 190 $ 189 $ 109
Contingent
rentals - 2 -
Sublease rental income (22) (20) (11)
--------------------------------------------
Net rental
expense $ 168 $ 171 $ 98
--------------------------------------------
</TABLE>

No restrictions on dividends or on additional debt or lease financing exist
under ARCO's lease commitments. Under certain conditions, options exist to
purchase certain leased properties.

Note 19 Stock Options
Options to purchase shares of ARCO's common stock have been granted to execu-
tives, outside directors and key employees. The exercise price of each option
is equal to the fair market value of common stock at the date of grant. These
options become exercisable in varying installments and expire 10 years after
the date of grant. Options granted prior to 1997 vest over two years in equal
installments. Options granted subsequently vest equally over three years.
Transactions during 1999, 1998 and 1997 were as follows (restated to give ef-
fect to June 13, 1997 100% stock dividend):

<TABLE>
<CAPTION>
Weighted Average
Exercise Price
- ----------------------------------------------
<S> <C> <C>
Balance, January
1, 1997 7,633,422 $ 54.41
Granted 1,414,048 64.47
Exercised (1,022,100) 52.21
Cancelled (18,224) 61.18
---------------------------
Balance,
December 31,
1997 8,007,146 $ 56.45
---------------------------
Granted 1,862,840 73.73
Exercised (420,012) 49.85
Cancelled (37,647) 69.52
---------------------------
Balance,
December 31,
1998 9,412,327 $ 60.12
---------------------------
Granted 1,234,727 57.67
Exercised (851,288) 55.32
Cancelled (42,111) 68.12
---------------------------
Balance,
December 31,
1999 9,753,655 $ 60.19
---------------------------
</TABLE>

A summary of ARCO's fixed stock options as of December 31, 1999, 1998 and
1997, was as follows:

<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------
<S> <C> <C> <C>
Shares available
for option 9,618,570 8,523,492 8,247,671
Options
exercisable 7,308,855 6,803,228 6,064,856
Weighted average
exercise price
of options
exercisable $ 58.74 $ 56.01 $ 54.58
Weighted average
fair value of
options granted
during the year $ 15.46 $ 18.96 $ 14.27
Used to
calculate fair
value:
Risk-free
interest rate 5.02% 5.57% 6.38%
Expected life
(years) 10 10 10
Expected
volatility 30.29% 23.06% 18.17%
Expected
dividends 5.02% 3.85% 4.29%
</TABLE>

At December 31, 1999, exercise prices for options outstanding ranged from
$50.50 to $97.69 and the weighted average remaining contractual life was 5.99
years.
ARCO applies APB No. 25 in accounting for its fixed stock options. Accord-
ingly, no compensation cost has been recognized for options granted. The fol-
lowing table reflects pro forma net income and earnings per share had the com-
pany elected to adopt the fair value method under SFAS No. 123:

57
<PAGE>

Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $ 1,422 $ 452 $ 1,771
Pro forma $ 1,407 $ 440 $ 1,758
Earnings per
share
(diluted):
As reported $ 4.33 $ 1.40 $ 5.41
Pro forma $ 4.29 $ 1.36 $ 5.37
</TABLE>

These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options would be amortized to expense over
the vesting period, and additional options may be granted in future years.
ARCO awards contingent restricted stock to executives and key employees.
Contingent restricted stock may be converted to performance-based restricted
stock in various multiples depending on attainment of certain performance
criteria over a specified evaluation period. Restricted stock ultimately issued
is subject to a two-year restriction on transfer.
During 1999 and 1998, respectively, 236,412 and 184,488 shares of contingent
restricted stock were awarded at weighted average prices of $56.81 and $74.00,
net of forfeitures and retirements, with varying evaluation periods. During
1999 and 1998, 28,696 and 135,180 shares of restricted stock were issued at
weighted average prices of $56.81 and $73.93, respectively.
During 1999, 1998 and 1997, $21 million, $10 million, and $23 million was
recognized as expense for performance-based restricted stock, respectively.
Holders of options granted prior to 1997 accrue dividend share credits (DSCs)
on all shares under option. The amount of DSCs accrued is determined based upon
the quarterly dividend rate and fair market value of ARCO common stock as of
each quarterly record date. Upon exercise of options, holders receive
additional shares of common stock equal to DSCs accumulated. A summary of
ARCO's DSC activity was as follows:

<TABLE>
<CAPTION>
Shares
- ---------------------------------------
<S> <C>
Balance, December 31, 1996 1,695,986
Accrued 343,116
Paid out (396,250)
Cancelled (287)
---------
Balance, December 31, 1997 1,642,565
Accrued 316,486
Paid out (166,512)
Cancelled (83)
---------
Balance, December 31, 1998 1,792,456
Accrued 265,807
Paid out (323,845)
Cancelled --
---------
Balance, December 31, 1999 1,734,418
---------
</TABLE>

During 1999, 1998 and 1997, $34 million, $11 million, and $35 million was
recognized as expense for DSCs, respectively.

Note 20 Stockholders' Equity
Detail of capital stock as of December 31 was as follows:

<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------
<S> <C> <C>
$3.00 Cumulative
convertible
preference stock,
par $1:
Shares
authorized 78,089 78,089
Shares issued
and outstanding 40,869 51,608
Aggregate value
in
liquidation -
(thousands) $ 3,270 $ 4,129
$2.80 Cumulative
convertible
preference stock,
par $1:
Shares
authorized 833,776 833,776
Shares issued
and outstanding 493,126 573,336
Aggregate value
in liquidation-
(thousands) $ 34,519 $ 40,134
Common stock,
par $2.50:
Shares
authorized 600,000,000 600,000,000
Shares issued 326,713,278 325,902,559
Shares
outstanding 323,048,817 321,315,367
Shares held in
treasury 3,664,461 4,587,192
</TABLE>

Changes in preference stocks were due to conversions. The $3.00 cumulative
convertible preference stock is convertible into 13.6 shares of common stock.
The $2.80 cumulative convertible preference stock is convertible into 4.8
shares of common stock. Common stock is subordinate to the preference stocks
for dividends and assets. The $3.00 and $2.80 preference stocks may be redeemed
at the option of ARCO for $82 and $70 per share, respectively. ARCO has autho-
rized 75,000,000 shares of preferred stock, $.01 par, of which none were issued
or outstanding at December 31, 1999.

58
<PAGE>

Notes to Consolidated Financial Statements

At December 31, 1999, shares of ARCO's authorized common stock were reserved
as follows:

<TABLE>
<S> <C>
Conversions:
$3.00 Preference stock 555,818
$2.80 Preference stock 2,367,005
Stock option plans 19,372,225
Employee benefit plans 9,974,482
-----------
Total 32,269,530
-----------
</TABLE>

Under ARCO's incentive compensation plans, awards of ARCO's common stock may
be made to officers, outside directors and key employees.
[LOGO OF ARCO]

Note 21 Supplemental Cash Flow Information
The following is supplemental cash flow information for the years ended Decem-
ber 31:

<TABLE>
<CAPTION>
Millions 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-term investments:
Gross sales and maturities $ 168 $ 226 $ 1,784
Gross purchases (190) (259) (1,226)
----------------------------------
Net cash provided (used) $ (22) $ (33) $ 558
----------------------------------
Notes payable:
Gross proceeds $ 12,640 $ 14,978 $ 7,386
Gross repayments (13,335) (14,066) (6,865)
----------------------------------
Net cash provided $ (695) $ 912 $ 521
----------------------------------
Gross noncash provisions charged to income $ 247 $ 652 $ 500
Reserve reversal from partial tax audit
settlements - - (145)
Cash payments of
previously accrued items (669) (468) (294)
----------------------------------
Cash payments (greater) less than noncash
provisions $ (422) $ 184 $ 61
----------------------------------
Changes in working capital -increase
(decrease) to cash:
Accounts receivable $ (117) $ 19 $ 363
Inventories 36 8 (63)
Accounts payable (146) (60) (111)
Other working capital (427) 340 (6)
----------------------------------
$ (654) $ 307 $ 183
----------------------------------
</TABLE>

In conjunction with the acquisition of UTP, liabilities were assumed as fol-
lows:

<TABLE>
<CAPTION>
Millions
- ---------------------------------------
<S> <C>
Fair value of assets acquired $ 3,745
Cash paid (2,707)
--------
Liabilities assumed $ 1,038
--------
</TABLE>

Excluded from the Consolidated Statement of Cash Flows for the year ended
December 31, 1998 was the issuance of 2,725,030 shares of ARCO common stock to
a consolidated subsidiary in exchange for certain property, plant and equip-
ment owned by the subsidiary. The transaction was recorded at fair market val-
ue.
In October 1998, through a three-way exchange involving ARCO, Vastar and Mo-
bil, ARCO disposed of its California heavy crude properties. In the transac-
tion, an ARCO subsidiary holding the California properties traded the Califor-
nia properties for Mobil's interests in producing fields and exploration acre-
age in the Gulf of Mexico. In connection with the disposition, ARCO recorded
an impairment writedown of $147 million before tax, or $114 million after tax,
that was included in the impairment discussed in Note 10. Vastar then pur-
chased the ARCO subsidiary holding the Gulf of Mexico properties for $437 mil-
lion, including the assumption of $300 million of debt which was repaid in
first quarter 1999.
Excluded from the Consolidated Statement of Cash Flows for the year ended
December 31, 1997 was ARCO's use of Lyondell common stock to redeem its 9% Ex-
changeable Notes with an outstanding principal amount of $988 million.
[LOGO OF ARCO]

Note 22 Foreign Currency Transactions
Foreign currency transactions resulted in net losses of $1 million, $2 million
and $12 million in 1999, 1998 and 1997, respectively.
[LOGO OF ARCO]

59
<PAGE>

Notes to Consolidated Financial Statements
Note 23 Earnings Per Share

<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------------------------
(Millions, except per share
amounts) Income Shares Per Share Income Shares Per Share Income Shares Per Share
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations $1,345 $ (655) $1,331
Less: Preference stock dividends (2) (2) (2)
--------------------------------------------------------------------------------
Income (loss) from continuing
operations available to common
shareholders 1,343 322.3 $4.17 (657) 321.0 $(2.05) 1,329 321.2 $ 4.14
===== ===== =====
Discontinued operations 77 322.3 0.24 1,107 321.0 3.45 558 321.2 1.74
===== ===== =====
Extraordinary item - loss on
extinguishment of debt (118) 321.2 (0.37)
--------------------------------------------------------------------------------
Total income available to common
shareholders - basic EPS $1,420 322.3 $4.41 $ 450 321.0 $ 1.40 $1,769 321.2 $ 5.51
--------------------------------------------------------------------------------
Income (loss) from continuing
operations available to common
shareholders $1,343 322.3 $ (657) 321.0 $1,329 321.2
Contingently issuable shares
(primarily options) 3.3 - 2.3
$3.00 Convertible preference
stock 0.6 - 0.8
$2.80 Convertible preference
stock 2 2.6 - 2 3.1
--------------------------------------------------------------------------------
Income (loss) from continuing
operations available to common
shareholders 1,345 328.8 $4.09 (657) 321.0 $(2.05) 1,331 327.4 $ 4.07
===== ===== =====
Discontinued operations 77 328.8 0.24 1,107 321.0 3.45 558 327.4 1.70
===== ===== =====
Extraordinary item - loss on
extinguishment of debt (118) 327.4 (0.36)
--------------------------------------------------------------------------------
Total income available to common
shareholders and assumed
conversions - diluted EPS(a) $1,422 328.8 $4.33 $ 450 321.0 $ 1.40 $1,771 327.4 $ 5.41
--------------------------------------------------------------------------------
</TABLE>

(a) No dilution assumed for 1998 due to antidilutive effect on loss from
continuing operations.

Note 24 Comprehensive Income
Effective January 1, 1998, the company adopted SFAS No. 130, "Reporting Compre-
hensive Income," which established new rules for the reporting of comprehensive
income and its components. Comprehensive income comprises net income plus all
other changes in equity from nonowner sources. The new disclosures had no im-
pact on ARCO's net income, financial position, stockholders' equity or cash
flows.
The related tax effects allocated to each component of other comprehensive
income at December 31 were as follows:

<TABLE>
<CAPTION>
Unrealized
Gain (Loss) Foreign Minimum
on Currency Pension
Millions Securities Translation Liability
- --------------------------------------------------
<S> <C> <C> <C>
1999
Pre-tax amount $ 492 $ 313 $ 27
Tax (expense)
benefit (189) (121) (11)
------------------------------------
Net-of-tax
amount $ 303 $ 192 $ 16
------------------------------------

1998
Pre-tax amount $ (1,107) $ (30) $ 11
Tax (expense)
benefit 426 12 (4)
------------------------------------
Net-of-tax
amount $ (681) $ (18) $ 7
------------------------------------
1997
Pre-tax amount $ 623 $ (299) $ (42)
Tax (expense)
benefit (242) 114 16
------------------------------------
Net-of-tax
amount $ 381 $ (185) $ (26)
------------------------------------
</TABLE>

60
<PAGE>

Notes to Consolidated Financial Statements

Accumulated nonowner changes in equity (accumulated other comprehensive in-
come) at December 31 were as follows:

<TABLE>
<CAPTION>
Millions 1999 1998
- ----------------------------------------
<S> <C> <C>
Net unrealized gain
(loss) on investments $ 228 $ (75)
Foreign currency
translation
adjustment (30) (222)
Minimum pension
liability (31) (47)
----------------
Accumulated other
comprehensive income
(loss) $ 167 $ (344)
----------------
</TABLE>

Unrealized gains (losses) on securities related primarily to changes in the
fair value of ARCO's investment in LUKOIL common stock, which had a fair value
of $714 million, $225 million and $1.3 billion at December 31, 1999, 1998 and
1997, respectively, and a book value of $342 million.
[LOGO OF ARCO]

Note 25 Research and Development
Expenditures for research and development totaled $28 million, $45 million and
$38 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
[LOGO OF ARCO]

Note 26 Unaudited Quarterly Results

<TABLE>
<CAPTION>
Millions, except
per share
amounts 1999 1998
- ------------------------------------------
<S> <C> <C>
Sales and other
operating
revenues
Quarter ended:
March 31 $ 2,415 $ 2,536
June 30 3,047 2,564
September 30 3,423 2,655
December 31 3,616 2,548
-------------------
Total $ 12,501 $ 10,303
-------------------
Income (loss)
from continuing
operations
before income
taxes and
minority
interest
Quarter ended:
March 31 $ 261 $ 190
June 30 524 32
September 30 430 (269)
December 31 701 (1,235)(a, b)
-------------------
Total $ 1,916 $ (1,282)
-------------------
Net income
(loss)
Quarter ended:
March 31 $ 165 $ 220
June 30 313 154
September 30 372 872(c)
December 31 572 (794)(a, b)
-------------------
Total $ 1,422 $ 452
-------------------
Earned (loss)
per share
Quarter ended:
March 31 $ 0.51 $ 0.67
June 30 $ 0.95 $ 0.47
September 30 $ 1.13 $ 2.67
December 31 $ 1.74 $ (2.47)
</TABLE>

(a) See Note 7 of Notes to Consolidated Financial Statements.
(b) Includes $925 impairment writedown.
(c) Includes $998 net gain on disposition of segments.

61
<PAGE>

Supplemental Information (Unaudited)

Oil and Gas Producing Activities
The Securities and Exchange Commission (SEC) defines proved oil and gas re-
serves as those estimated quantities of crude oil, natural gas, and natural
gas liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under exist-
ing economic and operating conditions. Proved developed oil and gas reserves
are reserves that can be expected to be recovered through existing wells with
existing equipment and operating methods.
Petroleum reserves are estimated by ARCO engineers. The estimates include
reserves in which ARCO holds an economic interest under production-sharing and
other types of operating agreements with foreign governments.
Reserves attributable to certain oil and gas discoveries were not considered
proved as of December 31, 1999 due to geological, technical or economic uncer-
tainties. Proved reserves do not include amounts that may result from exten-
sions of currently proved areas or from application of enhanced recovery
processes not yet determined to be commercial in specific reservoirs. Proved
reserves also do not include any reserves attributable to ARCO's 8% interest
in LUKOIL, a Russian oil company. Natural gas liquids comprise 11% of petro-
leum liquid proved reserves.
ARCO has no long-term supply contracts to purchase petroleum liquids or nat-
ural gas from foreign governments.

The changes in proved reserves for the years ended December 31 were as fol-
lows:

<TABLE>
<CAPTION>
Petroleum Liquids (million barrels) Natural Gas (billion cubic feet)
------------------------------------------------------------------------------------------------
Consolidated Consolidated
-------------------------- Other -------------------------- Other
U.S. International Total Reserves/1/ Worldwide U.S. International Total Reserves/1/ Worldwide
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserves at January 1,
1997 2,112 409 2,521 - 2,521 4,776 3,347 8,123 - 8,123
------------------------------------------------------------------------------------------------
Revisions 115 60 175 - 175 187 17 204 - 204
Improved recovery 10 - 10 - 10 28 3 31 - 31
Purchases 10 25 35 49 84 165 16 181 67 248
Extensions and
discoveries 89 55 144 - 144 308 352 660 - 660
Production (204) (29) (233) (1) (234) (389) (308) (697) - (697)
Consumed - - - - - (79) (10) (89) - (89)
Sales (1) - (1) - (1) (8) - (8) - (8)
------------------------------------------------------------------------------------------------
Reserves at December
31, 1997 2,131 520 2,651 48 2,699 4,988 3,417 8,405 67 8,472
------------------------------------------------------------------------------------------------
Revisions 72 (13) 59 2 61 33 (95) (62) (1) (63)
Improved recovery 30 - 30 - 30 6 5 11 - 11
Purchases 42 279 321 13 334 74 1,333 1,407 349 1,756
Exchanges (119) - (119) - (119) 184 - 184 - 184
Extensions and
discoveries 88 1 89 - 89 367 - 367 - 367
Production (192) (46) (238) (2) (240) (429) (325) (754) (14) (768)
Consumed - - - - - (79) (9) (88) - (88)
Sales (9) (3) (12) - (12) (27) - (27) - (27)
------------------------------------------------------------------------------------------------
Reserves at December
31, 1998 2,043 738 2,781 61 2,842 5,117 4,326 9,443 401 9,844
------------------------------------------------------------------------------------------------
Revisions 119 46 165 8 173 59 (58) 1 73 74
Improved recovery 51 4 55 - 55 47 - 47 - 47
Purchases 7 65 72 6 78 137 3 140 416 556
Extensions and
discoveries 121 - 121 - 121 380 - 380 - 380
Production (169) (56) (225) (3) (228) (460) (379) (839) (29) (868)
Consumed - - - - - (80) (11) (91) - (91)
Sales (13) (83) (96) - (96) (42) - (42) - (42)
------------------------------------------------------------------------------------------------
Reserves at December
31, 1999 2,159 714 2,873 72 2,945 5,158 3,881 9,039 861 9,900
------------------------------------------------------------------------------------------------
Proved developed
reserves:
At January 1, 1997 1,828 150 1,978 - 1,978 4,310 1,780 6,090 - 6,090
At December 31, 1997 1,821 204 2,025 7 2,032 4,467 1,643 6,110 10 6,120
At December 31, 1998 1,582 292 1,874 36 1,910 4,480 2,487 6,967 343 7,310
At December 31, 1999 1,562 365 1,927 42 1,969 4,439 2,323 6,762 330 7,092
</TABLE>

/1/Comprises reserves attributable to ARCO's ownership interest in equity
affiliates.

62
<PAGE>

Supplemental Information (Unaudited)

Included in ARCO's reserves are 100% of the reserves of Vastar, a consoli-
dated subsidiary of which ARCO owned 81.9% at December 31, 1999. Vastar's re-
serves comprised 11% and 51% of U.S. petroleum liquids and natural gas re-
serves, respectively, at December 31, 1999.
During 1999, net reserve additions replaced 129% of worldwide oil-equivalent
production. During the three-year period 1997-1999, ARCO's net reserve addi-
tions replaced 163% of worldwide oil-equivalent production.
Reserve additions in 1999 were spread fairly evenly among: extensions and
discoveries (primarily exploration successes in the Gulf of Mexico deepwater
and Alaska); purchases (primarily in the Malaysia-Thailand Joint Development
Area and a field under a risked service contract in Venezuela); and revisions.
Including contracts acquired with UTP, ARCO is a contractor to an affiliate
of the Venezuelan government under six risked service contracts. ARCO, either
solely or with partners, is responsible for providing capital and technology
for the redevelopment of the fields along with operating existing production.
In exchange for providing and funding overall operation and field development,
ARCO is paid a per-barrel service fee to cover reimbursement of costs plus
profit. There are two components to the fees, which include (1) a set fee for
contractual baseline production and (2) a fee for incremental production. The
fee for incremental production is based on a sliding scale incentive mecha-
nism, which is indexed to a basket of international oil prices and overall
field profitability.
Proved reserves and production quantities for Venezuelan operations are re-
corded based on ARCO's net working interest in each of the contract areas,
"net" meaning reserves excluding royalties and interests owned by others per
the contractual arrangements. The Venezuelan government maintains full owner-
ship of all hydrocarbons in the fields.
Natural gas from the North Slope of Alaska, other than that used in provid-
ing fuel in North Slope operations or sold to others on the North Slope, is
not presently economically marketable.
ARCO is actively evaluating various technical options for commercializing
North Slope gas. Among the options being studied are the construction of gas
transportation and liquefied natural gas (LNG) manufacturing facilities and
the development of a gas-to-liquids conversion process. ARCO is also working
with the State of Alaska to enhance the fiscal and regulatory climate for the
ultimate commercialization of North Slope gas resources. Significant technical
uncertainties and existing market conditions still preclude gas from such po-
tential projects being included in ARCO's reserves.
ARCO reports reserve estimates to various federal government agencies and
commissions. These estimates may cover various regions of crude oil and natu-
ral gas classifications within the United States and may be subject to man-
dated definitions. There have been no reports since the beginning of the last
fiscal year of total ARCO reserve estimates furnished to federal government
agencies or commissions which vary from those reported to the SEC.

63
<PAGE>

Supplemental Information (Unaudited)

The aggregate amounts of capitalized costs relating to oil and gas producing
activities and the related accumulated depreciation, depletion and amortiza-
tion as of December 31 were as follows:

<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------------------------------------------------
Millions U.S. International Total U.S. International Total U.S. International Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Proved properties $17,112 $11,222 $28,334 $ 16,348 $ 11,345 $ 27,693 $ 15,845 $ 6,026 $ 21,871
Unproved properties 428 1,153 1,581 622 1,142 1,764 365 447 812
------------------------------------------------------------------------------------------------------
17,540 12,375 29,915 16,970 12,487 29,457 16,210 6,473 22,683
Accumulated
depreciation,
depletion and
amortization 10,782 5,163 15,945 10,569 4,789 15,358 10,559 2,959 13,518
------------------------------------------------------------------------------------------------------
Net capitalized costs 6,758 7,212 13,970 6,401 7,698 14,099 5,651 3,514 9,165
------------------------------------------------------------------------------------------------------
Net capitalized costs of
equity affiliates* - 385 385 - 338 338 - 55 55
------------------------------------------------------------------------------------------------------
Total $ 6,758 $ 7,597 $14,355 $ 6,401 $ 8,036 $ 14,437 $ 5,651 $ 3,569 $ 9,220
------------------------------------------------------------------------------------------------------
</TABLE>

*ARCO's share

Costs, both capitalized and expensed, incurred in oil and gas producing ac-
tivities during the three years ended December 31 are set forth below. Prop-
erty acquisition costs represent costs incurred to purchase or lease oil and
gas properties. Exploration costs include costs of geological and geophysical
activity and drilling exploratory wells. Development costs include costs of
drilling and equipping development wells and construction of production facil-
ities to extract, treat and store oil and gas.

<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------------------------------------
Millions U.S. International Total U.S. International Total U.S. International Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property acquisition
costs:
Proved properties $149 $ 28 $ 177 $ 235 $2,594 $2,829 $ 92 $ 224 $ 316
Unproved
properties 14 5 19 72 512 584 100 8 108
Exploration costs 316 159 475 306 376 682 328 332 660
Development costs 875 832 1,707 1,102 1,200 2,302 692 794 1,486
--------------------------------------------------------------------------------------------
Total expenditures 1,354 1,024 2,378 1,715 4,682 6,397 1,212 1,358 2,570
--------------------------------------------------------------------------------------------
Costs incurred of
equity affiliates* - 88 88 - 499 499 - 109 109
--------------------------------------------------------------------------------------------
Total $1,354 $1,112 $2,466 $1,715 $5,181 $6,896 $1,212 $1,467 $2,679
--------------------------------------------------------------------------------------------
</TABLE>

*ARCO's share

64
<PAGE>

Supplemental Information (Unaudited)

Results of operations from oil and gas producing activities (including oper-
ating overhead) for the three years ended December 31 were as follows:

<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------------------------------
Millions U.S. International Total U.S. International Total U.S. International Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Sales $1,711 $1,663 $3,374 $1,535 $1,305 $2,840 $1,974 $1,349 $3,323
Transfers 1,379 - 1,379 1,077 - 1,077 2,074 - 2,074
Other 40 131 171 44 75 119 42 45 87
----------------------------------------------------------------------------------------------
3,130 1,794 4,924 2,656 1,380 4,036 4,090 1,394 5,484
Production costs 463 427 890 609 332 941 615 286 901
Production taxes 308 16 324 273 56 329 420 43 463
Exploration expenses 239 148 387 272 357 629 263 245 508
Depreciation,
depletion and
amortization 763 676 1,439 651 517 1,168 681 429 1,110
Impairment 8 6 14 180 1,267 1,447 - - -
Other operating
expenses 249 168 417 201 244 445 258 247 505
----------------------------------------------------------------------------------------------
Results before
income taxes 1,100 353 1,453 470 (1,393) (923) 1,853 144 1,997
Income tax
expense (benefit) 290 91 381 58 (532) (474) 609 11 620
----------------------------------------------------------------------------------------------
Results of operations
from oil and gas
producing
activities 810 262 1,072 412 (861) (449) 1,244 133 1,377
----------------------------------------------------------------------------------------------
Results from equity
affiliates* - 10 10 - (3) (3) - (6) (6)
----------------------------------------------------------------------------------------------
Total $ 810 $ 272 $1,082 $ 412 $ (864) $ (452) $1,244 $ 127 $1,371
----------------------------------------------------------------------------------------------
</TABLE>

*ARCO's share

The difference between the above results of operations and the amounts re-
ported for exploration and production segment net income in Note 2 of Notes to
Consolidated Financial Statements is primarily gains or losses on asset sales,
the exclusion of non-producing exploration and production units (Alaskan pipe-
lines, technical support), minority interest adjustments and, in 1998, re-
structuring costs related to oil and gas operations.
The standardized measure of discounted estimated future net cash flows re-
lated to proved oil and gas reserves at December 31 was as follows:

<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------------------------
Billions U.S. International Total U.S. International Total U.S. International Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Future cash inflows $ 53.6 $ 24.6 $ 78.2 $ 21.9 $ 16.2 $ 38.1 $ 36.7 $ 16.6 $ 53.3
Future development and
production costs 16.8 7.8 24.6 13.0 7.6 20.6 15.0 7.1 22.1
Future income tax
expense 12.9 5.8 18.7 2.3 2.9 5.2 7.3 3.5 10.8
----------------------------------------------------------------------------------------
Future net cash flows 23.9 11.0 34.9 6.6 5.7 12.3 14.4 6.0 20.4
10% annual discount 11.9 5.0 16.9 2.7 2.7 5.4 6.5 2.8 9.3
----------------------------------------------------------------------------------------
Standardized measure of
discounted future net
cash flows 12.0 6.0 18.0 3.9 3.0 6.9 7.9 3.2 11.1
----------------------------------------------------------------------------------------
Standardized measure of
discounted future net
cash
flows of equity
affiliates* - 0.5 0.5 - 0.1 0.1 - 0.1 0.1
----------------------------------------------------------------------------------------
Total $ 12.0 $ 6.5 $ 18.5 $ 3.9 $ 3.1 $ 7.0 $ 7.9 $ 3.3 $ 11.2
----------------------------------------------------------------------------------------
</TABLE>

*ARCO's share

65
<PAGE>

Supplemental Information (Unaudited)

Primary changes in the standardized measure of discounted estimated future
net cash flows for the years ended December 31 were as follows:

<TABLE>
<CAPTION>
Billions 1999 1998 1997
- -------------------------------------------
<S> <C> <C> <C>
Sales and
transfers of oil
and
gas, net of
production costs $(3.7) $ (2.7) $ (4.0)
Extensions,
discoveries and
improved
recovery, less
related costs 1.6 0.5 0.9
Revisions of
estimates of
reserves proved
in prior years:
Quantity esti-
mates 0.9 - 0.7
Net changes in
price and
production costs 17.0 (11.3) (8.4)
Purchases/sales (0.1) 3.1 0.5
Other (0.5) (0.6) (0.7)
Accretion of
discount 1.0 1.7 2.4
Development costs
incurred
during the
period 1.7 2.3 1.5
Net change in
income taxes (6.4) 2.8 2.3
-----------------------
Net change $11.5 $ (4.2) $ (4.8)
-----------------------
</TABLE>

Estimated future cash inflows are computed by applying year-end prices of
oil and gas to year-end quantities of proved reserves. Future price changes
are considered only to the extent provided by contractual arrangements.
Estimated future development and production costs are determined by estimating
the expenditures to be incurred in developing and producing the proved oil and
gas reserves at the end of the year, based on year-end costs and assuming
continuation of existing economic conditions. Estimated future income tax
expense is calculated by applying year-end statutory tax rates (adjusted for
permanent differences and tax credits) to estimated future pre-tax net cash
flows related to proved oil and gas reserves, less the tax basis of the
properties involved.
These estimates are furnished and calculated in accordance with requirements
of the Financial Accounting Standards Board and the SEC. Estimates of future
net cash flows presented do not represent management's assessment of future
profitability or future cash flows to ARCO. Management's investment and oper-
ating decisions are based on reserve estimates that include proved reserves
prescribed by the SEC as well as probable reserves, and on different price and
cost assumptions from those used here. Benchmark prices used in preparing the
Supplemental Oil and Gas Information were $25.60, $12.05, and $17.64 for the
years ended December 31, 1999, 1998 and 1997, respectively.
It should be recognized that applying current costs and prices and a 10%
standard discount rate does not convey absolute value. The discounted amounts
arrived at are only one measure of the value of proved reserves.

66
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

67
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS OF ARCO

SEC rules require the designation by the company of its officers who are
deemed "executive officers" for purposes of the proxy rules and insider report-
ing rules. The employees named below are ARCO's executive officers as of Febru-
ary 28, 2000. Designations for operating units have changed over time; names
given are those in effect at time position was held.

<TABLE>
<S> <C>
Mike R. Bowlin, 57 Mr. Bowlin has been Chairman of the Board of ARCO since July
Chairman of the Board 1995, Chief Executive Officer since July 1994, and a director
and Chief Executive since June 1992. He served as President (June 1993-January
Officer 1998), an Executive Vice President (June 1992-May 1993) and a
Senior Vice President of ARCO (August 1985-June 1992), President
of ARCO International Oil and Gas Company (November 1987-June
1992), President of ARCO Coal Company (August 1985-July 1987), a
Senior Vice President of International Oil and Gas Acquisitions
(July 1987-November 1987), a Vice President of ARCO (October
1984-July 1985) and a Vice President of ARCO Oil and Gas Company
(April 1981-December 1984). He has been an officer of the
company since 1984.
</TABLE>
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Michael E. Wiley, 49 Mr. Wiley has been President and Chief Operating Officer of ARCO
President and Chief since October 1998. He was an Executive Vice President of ARCO
Operating Officer (March 1997-September 1998) and a director (June 1997-May 1998).
He served as Chief Executive Officer of Vastar (January 1994-
March 1997) and President (September 1993-March 1997). Prior to
the formation of Vastar, he was Senior Vice President of ARCO
(June 1993-June 1994), President of ARCO Oil and Gas Company
(June-October 1993) and Vice President of ARCO and Manager of
ARCO Exploration and Production Technology (1991-1993). He has
been an officer of the company since 1997. He also serves as
Chairman of the Board of Vastar.
</TABLE>
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Marie L. Knowles, 53 Mrs. Knowles has been an Executive Vice President and the Chief
Executive Vice President Financial Officer of ARCO since July 1996. She was a director of
and Chief Financial ARCO (July 1996-May 1998). She served as a Senior Vice President
Officer of ARCO and President of ARCO Transportation Company (June 1993-
July 1996), Vice President and Controller of ARCO (July 1990-May
1993), Vice President of Finance, Control and Planning of ARCO
International Oil and Gas Company (July 1988-July 1990), and
Assistant Treasurer of Banking of ARCO (October 1986-July 1988).
She has been an officer of the company since 1990. She also
serves as a director of Vastar.
</TABLE>
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
J. Kenneth Thompson, 48 Mr. Thompson has been an Executive Vice President of ARCO since
Executive Vice President January 1998. He was a Senior Vice President of ARCO and
President of ARCO Alaska, Inc. (June 1994-January 1998). He was
a Vice President of ARCO and a Vice President of ARCO
Exploration and Production Technology (June 1993-June 1994) and
a Senior Vice President, Western District of ARCO Oil and Gas
Company (January 1990-June 1993). He has been an officer of the
company since 1993.
</TABLE>
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Donald R. Voelte, Jr., 47 Mr. Voelte has been an Executive Vice President since October
Executive Vice President 1998. He served as a Senior Vice President of ARCO (April 1997-
September 1998). He previously worked 22 years for the Mobil
Corporation, where his last position was President of Mobil Oil
Company's New Exploration and Producing Ventures (1994-April
1997). He has been an officer of the company since 1997. He also
serves as a director of Vastar.
</TABLE>

68
<PAGE>

<TABLE>
<S> <C>
Terry G. Dallas, 49 Mr. Dallas has been a Senior Vice President of ARCO since
Senior Vice President November 1996 and Treasurer since January 1994. He was a Vice
and Treasurer President of ARCO (June 1993-November 1996), the Vice President,
Corporate Planning (June 1993-January 1994), and Assistant
Treasurer, Corporate Finance of ARCO (1990-1993) and Manager,
Finance, Control and Planning, ARCO British, Ltd. (1988-1990).
He has been an officer of the company since 1993. He also serves
as a director of Vastar.
</TABLE>
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
John H. Kelly, 45 Mr. Kelly has been a Senior Vice President, Human Resources of
Senior Vice President ARCO since January 1997. He was Vice President, Human Resources
of ARCO (June 1993-January 1997). He served as Vice President,
Human Resources of ARCO Oil and Gas Company (August 1991-June
1993). He has been an officer of the company since 1993.
</TABLE>
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Kevin O. Meyers, 45 Mr. Meyers has been a Senior Vice President of ARCO since July
Senior Vice President 1998 and President of ARCO Alaska, Inc. since February 1998. He
was Senior Vice President, Prudhoe Bay Unit of ARCO Alaska, Inc.
(January 1996-January 1998) and the Vice President, Engineering
and Technology of ARCO International Oil and Gas Company
(February 1994-December 1995). He has been an officer of the
company since 1998.
</TABLE>
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Roger E. Truitt, 54 Mr. Truitt has been a Senior Vice President of ARCO and
Senior Vice President President of ARCO Products Company since November 1997. He was
Senior Vice President, Asia Region, ARCO International Oil and
Gas Company (November 1994-November 1997), a Senior Vice
President of ARCO Products Company (January 1994-November 1994)
and a Vice President of ARCO International Oil and Gas Company
(December 1991-December 1993). He has been an officer of the
company since 1997.
</TABLE>
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Bruce G. Whitmore, 55 Mr. Whitmore has been the Senior Vice President, General Counsel
Senior Vice President, and Corporate Secretary of ARCO since December 1994. He served
General Counsel and as Vice President and General Counsel of ARCO Chemical Company
Corporate Secretary (October 1990-December 1994) and as Associate General Counsel,
Finance and Corporate Affairs of ARCO (June 1986-September
1990). He has been an officer of the company since 1994.
</TABLE>
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Allan L. Comstock, 56 Mr. Comstock has been a Vice President and Controller of ARCO
Vice President and since June 1993. He was a Vice President of ARCO Chemical
Controller Company (October 1989-June 1993) and General Auditor of ARCO
(November 1985-October 1989). He has been an officer of the
company since 1993.
</TABLE>
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Dennis D. Schiffel, 56 Mr. Schiffel has been the Vice President, Corporate Planning of
Vice President ARCO since November 1998. He was the Vice President, Investor
Relations, of ARCO (1996-1998), the Vice President, Finance,
Planning and Control of ARCO International Oil and Gas Company
(1992-1996). He has been an officer of the company since 1998.
</TABLE>
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Beverly L. Thelander, 44 Ms. Thelander has been the Vice President, Communications,
Vice President Public Affairs and Investor Relations since November 1998. She
served as Vice President of Wholesale Marketing, Distribution
and Supply for ARCO Products Company (September 1996-October
1998), Vice President of Finance, Planning and Control of ARCO
Transportation Company (January 1994-August 1996), and
Controller of ARCO Products Company (October 1991-December
1993). She has been an officer of the company since 1998.
</TABLE>

69
<PAGE>

DIRECTORS OF ARCO

Set forth below are the members of the Board of Directors of ARCO at February
28, 2000. None of the directors except for Mike Bowlin, Chairman of the Board,
is an employee of ARCO.

<TABLE>
<S> <C>
Mike R. Bowlin, 57 Director since 1992. Chairman of the Board since July 1995.
Chairman of the Board Officer of ARCO since 1984. Director of Wells Fargo and
and Company. See page 68 for positions held as employee of ARCO.
Chief Executive Officer
of ARCO

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

Frank D. Boren, 65 Director of ARCO since 1990. Chairman of the Board of
Sustainable Conservation since 1999 and President (1992-
1999). President, The Nature Conservancy (January 1987-
January 1990), Partner, McNeill Enterprises (real estate)
(1980-1986 and January 1990-1999) and Partner in the law
firm of Paul, Hastings, Janofsky & Walker (1968-1980).

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

John Gavin, 69 Director of ARCO since 1989. Partner/Managing Director of
Hicks, Muse, Tate & Furst Latin America since 1995 and
Chairman of Gamma Holdings (international capital and
consulting) since January 1990. Former United States
Ambassador to Mexico. Director of Apex Mortgage Capital,
International Wire Holdings, Krause's Furniture, Inc., and
Hotchkis & Wiley Funds, a Merrill-Lynch Company.

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

Kent Kresa, 62 Director of ARCO since 1993. Chairman, President and Chief
Executive Officer of Northrop Grumman Corporation
(aerospace) since 1990. President and Chief Operating
Officer of Northrop Corporation (1987-1990). Director of
Avery Dennison Corporation.

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

Arnold G. Langbo, 63 Director of ARCO since 1998. Director of Kellogg Company
(cereal products) since 1990, Chairman of the Board since
1992, and Chief Executive Officer (1992-1999). President and
Chief Operating Officer (1990-1992). Director of Johnson &
Johnson, Whirlpool Corporation, and Weyerhaeuser.

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

David T. McLaughlin, 68 Director of ARCO since 1993. Chairman and Chief Executive
Officer of Orion Safety Products (formerly Standard Fusee
Corporation) since 1988, Retired President and Chief
Executive Officer of The Aspen Institute (1988-1997).
President Emeritus of Dartmouth College (1981-1987).
Chairman of the Board, CBS, Chairman of the Board, PartnerRe
Ltd., Director of Atlas Air.

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

John B. Slaughter, 65 Director of ARCO since 1989. Professor, University of
Southern California since 1999. President Emeritus of
Occidental College (1988-1999). Chancellor, University of
Maryland (1982-1988). Director of Avery Dennison
Corporation, International Business Machines Corporation,
Northrop Grumman Corporation and Solutia, Inc.

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

Gary L. Tooker, 60 Director of ARCO since January 1998. Director of Motorola,
Inc. (manufacturer of electronics products) since 1986,
former Chairman of the Board (1997-1999), Vice Chairman and
Chief Executive Officer (1993-1996) and President and Chief
Operating Officer (1990-1993). Director of Eaton
Corporation.
</TABLE>

70
<PAGE>

<TABLE>
<S> <C>
Henry Wendt, 66 Director of ARCO since 1987. Chairman of Global Health Care
Partners of DLJ Merchant Banking Partners, a Donaldson,
Lufkin & Jenrette Company (private equity investment) since
January 1997. Former Chairman of the Board of SmithKline
Beecham, PLC and its USA subsidiary SmithKline Beecham
Corporation (health care products) (1989-1994). Director of
Allergan, Inc. and West Marine Corp.

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

Gayle E. Wilson, 57 Director of ARCO since January 1999. Director of Chela
Financial, Inc. (secondary student loans) since 1999.
Trustee of the California Institute of Technology since
1995, Trustee of the Center for Excellence in Education
since 1986 (Chairperson 1992-1994), Board member of
Children's Institute International since 1985, Chairperson,
Advisory Committee for California Court Appointed Special
Advocates since 1992, Board member of the Center Theatre
Group since 1998, and Board member of Children's Hospital
Los Angeles Foundation since 1998.
</TABLE>

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Executive officers and directors and "beneficial owners" of more than ten per-
cent of the common stock or either class of the Preference Stocks must file
initial reports of ownership and reports of changes in ownership with the Se-
curities and Exchange Commission ("SEC") and the New York Stock Exchange pur-
suant to Section 16(a).

We have reviewed the reports and written representations from the executive
officers and directors. Based on this review, the company believes that all
filing requirements were met during 1999.

71
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Compensation
---------------------
Annual Compensation Awards Payouts
--------------------------------------- ------- ----------
Other Annual All Other
Compensation Options Restricted Compensation
Name & Position Year Salary ($) Bonus ($) ($) (#) Stock (#) ($)
(1) (2) (3) (4)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mike R. Bowlin 1999 $ 980,000 $1,557,710 $ 14,377 217,329 18,220 $131,270
Chairman of the Board 1998 $ 980,000 $ 740,000 $167,131 131,986 3,036 $117,722
Chief Executive Officer 1997 $1,017,693 $1,249,500 $121,584 122,098 12,144 $128,788
------------------------------------------------------------------------------------------------------
Michael E. Wiley (5) 1999 $ 642,308 $ 841,500 $ 16,731 96,436 7,100 $ 89,432
President 1998 $ 525,769 $ 332,500 $ 42,984 140,902 1,183 $ 59,553
Chief Operating Officer 1997 $ 497,692 $ 450,000 $ 18,879 85,698 4,732 $ 81,750
------------------------------------------------------------------------------------------------------
Marie L. Knowles 1999 $ 500,000 $ 662,010 $ 13,244 74,560 7,100 $ 82,193
Executive Vice President 1998 $ 500,000 $ 310,000 $ 47,437 46,571 1,183 $ 67,069
Chief Financial Officer 1997 $ 509,615 $ 475,000 $ 31,490 59,098 4,732 $ 73,279
------------------------------------------------------------------------------------------------------
J. Kenneth Thompson 1999 $ 455,000 $ 607,312 $ 35,645 67,841 3,928 $ 70,202
Executive Vice 1998 $ 449,231 $ 265,000 $185,166 82,961(6) 654 $ 59,391
President 1997 $ 368,654 $ 350,000 $ 24,352 26,868 2,616 $ 60,898
------------------------------------------------------------------------------------------------------
Donald R. Voelte, Jr. 1999 $ 455,000 $ 607,312 $ 12,541 67,841 4,104 $ 55,960
Executive Vice 1998 $ 414,173 $ 230,000 $ 37,027 75,690(7) 684 $ 44,409
President 1997 $ 306,154 $ 270,000 $713,197 142,019 2,736 $ 27,601
</TABLE>

Notes to Summary Compensation Table

(1) Other Annual Compensation. "Other Annual Compensation" includes the
following categories of income:

. income imputed under IRS rules that represents imputed interest on
relocation loans

. amounts of tax gross-ups for
[] relocation expense
[] financial counseling reimbursements
[] certain other items reported under IRS rules as imputed income

. amount of interest accrued under Executive Deferral Plan that exceeds
120% of a specified IRS rate.

. special payments in lieu of salary increases and a 1997 sign-on bonus
to Mr. Voelte.

(2) Types of Option Grants. Two types of option grants are made under the
Executive Long-Term Incentive Plan:

. regular annual option grants made in February of each year for the
preceding fiscal year

. special grants upon promotions and other special circumstances.

Special grants. Special grants were as follows:

<TABLE>
<S> <C> <C>
Mr. Thompson
Executive Vice
President...... 36,390 options January 1998
Mr. Voelte
Senior Vice
President...... 119,000 options April 1997
Executive Vice
President...... 41,150 options October 1998
Mr. Wiley
Executive Vice
President...... 26,600 options March 1997
President and
Chief Operating
Officer........ 82,300 options October 1998
</TABLE>

Number of Dividend Share Credits. The number of dividend share credits accrued
during each year with respect to options granted prior to 1997 are shown
below:

<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Mr. Bowlin 20,796 22,150 21,149
Mr. Wiley none none none
Mrs. Knowles 3,899 4,475 4,526
Mr. Thompson 2,487 2,974 3,198
Mr. Voelte none none none
</TABLE>

72
<PAGE>

Notes to Summary Compensation Table

Computation of Dividend Share Credits. Dividend share credits are allocated to
an optionee's account whenever dividends are declared on common stock. The
number of credits is computed by

. multiplying the dividend rate per share times

(1) the number of eligible options plus
(2) the number of dividend share credits then accrued

. and dividing the resulting number by the fair market value of the
common stock on the dividend record date.

The value of the accrued dividend share credits is not fixed until the
eligible options are exercised, surrendered or canceled. The value, which
is received in shares of stock or cash, is equal to the number of accrued
credits allocated to the options being exercised multiplied by the fair
market value of the common stock on the date of exercise. Until the option
exercise date the optionee has no right to their value.

(3) Restricted Stock Awards. The Executive Long-Term Incentive Plan was
amended in 1997 to provide for grants of restricted stock. Participants
may earn restricted stock based on ARCO's total return to shareholders as
measured against that of a peer group. The table shows the original grants
for each of the years listed, before the re-investment of dividends. A
table showing the outstanding number of shares of contingent restricted
stock, which may be issued in the form of restricted stock upon maturation
of the performance period, is included at page 77.

1999 Grant Date Values. The value of the awards for 1999 (issued on
February 28, 2000), based on the fair market value of $68.81 per share on
the date of issuance, for each named officer is shown below:

<TABLE>
<S> <C>
Mr. Bowlin $1,253,718
Mr. Wiley $ 488,551
Mrs. Knowles $ 488,551
Mr. Thompson $ 270,286
Mr. Voelte $ 282,396
</TABLE>

Year-End Values for 1997 and 1998 Grants. The value of the shares of
restricted stock awarded for the years 1997 and 1998, based on the fair
market value of $86.50 per share on December 31, 1999, for each named
officer is shown below:

<TABLE>
<S> <C>
Mr. Bowlin $1,391,527
Mr. Wiley $ 542,219
Mrs. Knowles $ 542,219
Mr. Thompson $ 299,756
Mr. Voelte $ 313,506
</TABLE>

The year-end valuation of the restricted stock includes quarterly dividends
reinvested in restricted stock following the grant date.

None of these year end or grant date values gives effect to the diminution
in value attributable to the restrictions on such stock.

73
<PAGE>

Notes to Summary Compensation Table

(4) All Other Compensation includes the amounts shown below:

<TABLE>
<CAPTION>
Mr. Mr. Mrs. Mr. Mr.
Year Bowlin Wiley Knowles Thompson Voelte
---- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Executive
Supplementary 1999 $78,400 $51,385 $40,000 $36,400 $36,400
Savings Plan 1998 $78,400 $42,061 $40,000 $35,938 $33,134
contributions 1997 $81,416 $39,815 $40,769 $29,492 $ 9,846
Incremental
Executive 1999 $ -- $ -- $ -- $ -- $ --
Medical 1998 $ -- $ -- $ -- $ -- $ --
Plan premiums* 1997* $ 5,309 $ 4,496 $ 5,309 $ 5,309 $ 2,654
Financial 1999 $13,200 $19,400 $17,200 $17,200 $13,200
Counseling 1998 $ 8,000 $ -- $ 8,000 $ 6,200 $ 4,650
reimbursements 1997 $ 8,000 $12,400 $ 8,000 $ 6,200 $10,600
Executive Life 1999 $39,670 $18,647 $24,993 $16,602 $ 6,360
Insurance Plan** 1998 $27,509 $10,455 $15,312 $10,919 $ 2,888
1997 $29,488 $16,595 $14,692 $12,305 $ 1,885
Long-Term Disability 1999 $ -- $ -- $ -- $ -- $ --
Plan imputed 1998 $ 3,813 $ 7,037 $ 3,757 $ 6,333 $ 3,737
income 1997 $ 4,575 $ 8,444 $ 4,509 $ 7,592 $ 2,616
</TABLE>

* Represents premium for period ended July 1, 1997, when this plan was
terminated.

** SEC rules require the reporting of value received in respect of
executive life insurance. These numbers have been calculated pursuant to
SEC rules.

(5) Mr. Wiley's salary for the first three months of 1997 was paid to him by
Vastar where he held the position of Chief Executive Officer and
President. He now serves as Chairman of the Board of Vastar. Mr. Wiley
was elected Executive Vice President of ARCO on March 31, 1997, and was
elected President and Chief Operating Officer in October 1998.

(6) Mr. Thompson was elected Executive Vice President in January 1998. He was
previously a Senior Vice President of ARCO.

(7) Mr. Voelte was elected Executive Vice President in October 1998. He
joined ARCO as a Senior Vice President in April 1997.

74
<PAGE>

Option Grants for 1999
<TABLE>
<CAPTION>
Individual Grants(1)
---------------------------------------------------
% of Total Potential Realizable Value at
Options Assumed Annual Rates of Stock
Options Granted to Exercise Price Appreciation for Option
Granted Employees Price Term(2)
Name (#) for 1999 ($/Sh) Expiration Date
------------------------------------------
5% 10%
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
M. R. Bowlin 217,329 12.1% $68.81 February 28, 2010 $ 9,403,826 $ 23,834,471
- --------------------------------------------------------------------------------------------------
M. E. Wiley 96,436 5.4% $68.81 February 28, 2010 $ 4,172,786 $ 10,576,138
- --------------------------------------------------------------------------------------------------
M. L. Knowles 74,560 4.2% $68.81 February 28, 2010 $ 3,226,211 $ 8,176,995
- --------------------------------------------------------------------------------------------------
J. K. Thompson 67,841 3.8% $68.81 February 28, 2010 $ 2,935,480 $ 7,440,122
- --------------------------------------------------------------------------------------------------
D. R. Voelte, Jr. 67,841 3.8% $68.81 February 28, 2010 $ 2,935,480 $ 7,440,122
- --------------------------------------------------------------------------------------------------
Appreciated Per Share Stock Price(3) $ 112.59 $ 179.28
- --------------------------------------------------------------------------------------------------
Estimated Value to All Stockholders(3) $14,042,932,075 $35,587,057,681
- --------------------------------------------------------------------------------------------------
</TABLE>
Notes to Option Grant Table

(1) General. Option grants were made pursuant to the Executive Long-Term
Incentive Plan. These options:

. are granted at an exercise price equal to 100% of the fair market value
on the date of grant,

. become exercisable over a three-year period

. in the case of options issued prior to April 1, 1999, which become
exercisable immediately upon a change of control and

. expire in ten years.

Specific. The options having an exercise price of $68.81 were granted on
February 28, 2000 based on individual and company performance for 1999.
They vest in three equal portions on February 28, 2001, February 28, 2002,
and February 28, 2003, and are not subject to accelerated vesting upon a
change of control.

(2) We are required by the SEC to use a 5% and a 10% assumed rate of
appreciation over the ten-year option term. This does not represent the
company's estimate or projection of future common stock performance. If
the company's common stock does not appreciate in value, the named
executive officers will not receive any benefit from the options.

(3) Based on total number of common shares outstanding on December 31, 1999 of
323,048,817 and the 1999 weighted average grant price of $69.12.

75
<PAGE>

Aggregated Option Exercises in 1999
and Year-End Option Values
(As of December 31, 1999)

<TABLE>
<CAPTION>
Total Number Value of in-the-Money
of Unexercised Options Unexercised Options at
Shares at Year-End(1) Year-End(2)(3)
Acquired Value ------------------------- -------------------------
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#)(4) ($) (#) (#) ($) ($)

- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
M. R. Bowlin 0 0 561,874 241,188 $16,591,778 $5,567,593

- ---------------------------------------------------------------------------------------------
M. E. Wiley 0 0 64,483 162,117 $ 1,056,825 $3,364,720

- ---------------------------------------------------------------------------------------------
M. L. Knowles 0 0 122,181 96,842 $ 3,277,578 $2,121,717

- ---------------------------------------------------------------------------------------------
J. K. Thompson 0 0 89,632 94,869 $ 2,339,983 $2,037,003

- ---------------------------------------------------------------------------------------------
D. R. Voelte, Jr. 0 0 100,906 116,803 $ 1,906,842 $2,475,388
</TABLE>

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

Notes to Option Exercise Table

(1) Options awarded prior to 1997 carry with them the right to a potential
payment in respect of dividend share credits. See Note (2) of Notes to
Summary Compensation Table on pages 72-73.

(2) Closing price of ARCO common stock on December 31, 1999 was $86.50.

(3) For illustrative purposes only, set forth below are the hypothetical
aggregate values of both in-the-money exercisable options and
unexercisable options, including the value of the dividend share credits
accrued through December 31, 1999 in respect of options granted prior to
1997.

These calculations assume these options were exercised on December 31, 1999
at the closing price of $86.50. All unexercisable in-the-money options were
granted in 1997 or later and therefore do not carry with them the right
to dividend share credits.

<TABLE>
<CAPTION>
Year-End In-the-Money
Option Values, Including
Dividend Share Credit Values
-----------------------------------------
Exercisable Options Unexercisable Options
------------------- ---------------------
<S> <C> <C>
Mr. Bowlin $27,794,854 $5,567,593
Mr. Wiley $ 1,056,825 $3,364,720
Mrs. Knowles $ 5,003,734 $2,121,717
Mr. Thompson $ 3,592,317 $2,037,003
Mr. Voelte $ 1,906,842 $2,475,388
</TABLE>

(4) Represents number of options exercised; underlying shares were sold for
"value realized."

76
<PAGE>

1985 Executive Long-Term Incentive Plan Outstanding Awards of Contingent
Restricted Stock

Set forth below are the grants of shares of Contingent Restricted Stock out-
standing on February 28, 2000.

There were no new grants of Contingent Restricted Stock made on February 28,
2000.

<TABLE>
<CAPTION>
Performance Potential Future
Number of or Other Payouts
Shares of Period Number of Shares
Contingent Until ----------------------
Grant Restricted Maturation Minimum Target Maximum
Name Year Stock or Payout (#) (#) (#)

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

<S> <C> <C> <C> <C> <C> <C>
Mike R. Bowlin 2000 0 -- 0 0 0
1999 35,918 1999-2001 0 35,918 107,754
1998 27,566 1998-2000 0 27,566 82,698

- ----------------------------------------------------------------------------
Michael E. Wiley 2000 0 -- 0 0 0
1999 15,948 1999-2001 0 15,948 47,844
1998 10,668 1998-2000 0 10,668 32,004

- ----------------------------------------------------------------------------
Marie L. Knowles 2000 0 -- 0 0 0
1999 12,674 1999-2001 0 12,674 38,022
1998 10,668 1998-2000 0 10,668 32,004

- ----------------------------------------------------------------------------
J. Kenneth Thompson 2000 0 -- 0 0 0
1999 12,674 1999-2001 0 12,674 38,022
1998 5,656 1998-2000 0 5,656 16,968

- ----------------------------------------------------------------------------
Donald R. Voelte, Jr. 2000 0 -- 0 0 0
1999 9,400 1999-2001 0 9,400 28,200
1998 4,845 1998-2000 0 4,845 14,535
</TABLE>

Shares of contingent restricted stock are awarded at the beginning of each
performance measurement period. The number of contingent shares is adjusted at
the end of the performance measurement period based on the company's total
shareholder return relative to the companies in the comparison group, with ac-
tual awards ranging from zero to three times the number of contingent re-
stricted stock shares. The contingent shares are converted into performance-
based restricted stock shares at the end of a three-year performance measure-
ment period. Typically, the restricted shares will vest fully after two addi-
tional years of service, during which time dividends will be reinvested in
ARCO stock.

77
<PAGE>

Estimated Regular Retirement Benefits

The following table shows estimated annual regular pension benefits payable to
officers and other key employees upon retirement on January 1, 2000 at age 65
under the provisions of ARCO's qualified pension plan as well as its non-qual-
ified supplementary retirement plan, based on remuneration and years of serv-
ice.

<TABLE>
<CAPTION>
Average
final
earnings
(average of
highest
three
consecutive
years of
base salary
plus
Annual
Incentive Approximate annual benefit for years of
Plan membership service indicated(1)(2)
awards)
-------------------------------------------------------------
15 Years 20 Years 25 Years 30 Years 35 Years 40 Years
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$2,250,000 $518,000 $691,000 $864,000 $1,037,000 $1,210,000 $1,373,000
2,000,000 461,000 614,000 768,000 921,000 1,075,000 1,220,000
1,750,000 403,000 537,000 672,000 806,000 940,000 1,067,000
1,500,000 345,000 460,000 575,000 690,000 806,000 914,000
1,250,000 287,000 383,000 479,000 575,000 671,000 761,000
1,000,000 230,000 306,000 383,000 459,000 536,000 609,000
750,000 172,000 229,000 287,000 344,000 401,000 456,000
500,000 114,000 152,000 190,000 228,000 267,000 303,000
250,000 56,000 75,000 94,000 113,000 132,000 150,000
</TABLE>

Notes To Estimated Regular Retirement Benefits.

(1) The amounts shown are based upon a number of assumptions, including:

. Retirement date of January 1, 2000.

. Payment option: benefit for the life of employee, with a minimum payment
period of 60 months. If a lump sum or other payment option is elected,
the amount will change.

. Benefits are not subject to deduction for Social Security benefits or
other offsets.

(2) Credited years of service at December 31, 1999:

<TABLE>
<S> <C>
Mr. Bowlin 31 years
Mr. Wiley 27 years 8 months
Mrs. Knowles 26 years
Mr. Thompson 26 years
Mr. Voelte 2 years 9 months
</TABLE>

78
<PAGE>

Compensation of Board of Directors

Directors' Fees
Directors' fees, paid only to directors who are not ARCO employees, are as
follows:

<TABLE>
<S> <C>
Annual board retainer
fee $52,000
Annual committee chair
retainer fee $10,000
Fee for each board and
committee meeting
attended $ 1,000
</TABLE>

At least 65% of the annual retainer fee is paid in restricted stock as de-
scribed below.

Restricted Stock Plan for Outside Directors
Under the Company's Restricted Stock Plan for Outside Directors, each non-em-
ployee director is required to receive at least 65% of the cash value of the
annual retainer fee in the form of restricted stock. A director may elect to
receive the entire value of the annual retainer and other fees in restricted
stock. In February of each year, the applicable number of shares of restricted
stock to be issued to each non-employee director is calculated and the shares
are deposited in an account maintained by First Chicago Trust Company.

When the Restricted Stock Plan was adopted as of January 1, 1997, the re-
tirement plan for outside directors was terminated, and each participant re-
ceived a grant of restricted stock during 1997 equal to the value of the di-
rector's accrued retirement benefits. In addition, participants on March 31,
1997 were given the opportunity for a one-time conversion of their cash defer-
ral plan account balances into restricted stock.

All dividends are reinvested in shares of restricted stock. The restrictions
are lifted following the director's normal retirement from the Board of Direc-
tors.

No member of the Board of Directors serves on the committee administering
this plan.

Stock Option Plan for Outside Directors
Under the Stock Option Plan for Outside Directors, each newly elected director
is granted ten-year options to purchase 5,000 shares of common stock at the
fair market value of the stock on the date of grant; the option vests 30 days
following the grant.

Prior to 1997, each director received a one-time grant of options to pur-
chase 1,000 shares of common stock. These pre-1997 options (now options for
2,000 shares following the 1997 stock split) also carry with them the right to
receive dividend share credits. Dividend share credits are described on page
73.

No member of the Board of Directors serves on the committee administering
this plan.

79
<PAGE>

Change of Control Arrangements

General
Prior to the approval of the merger agreement with BP Amoco on March 31, 1999,
the Board of Directors had adopted change of control arrangements that applied
generally to employees, including the named executive officers.
In connection with approval of the merger agreement, the Board modified some
of these change of control provisions. The change of control arrangements that
will become effective upon consummation of the merger with BP Amoco are de-
scribed below.

Effect of BP Amoco Combination on Change of Control Arrangements
Pursuant to the merger agreement between BP Amoco and ARCO, the consummation
of the merger will be considered a change of control within the meaning of AR-
CO's various change of control arrangements. BP Amoco and ARCO agreed that all
of the change of control provisions would become operative immediately follow-
ing the consummation of the merger. The merger agreement also specifically
provides that all ARCO stock-related benefits automatically will be converted
into the right to purchase or receive BP Amoco ordinary shares, which will be
issued in the form of BP Amoco ADSs. The consummation of the merger is subject
to the outcome of the pending litigation. See "BP Amoco Combination" on page
1.

Severance Benefits
Executive officers whose employment is involuntarily or constructively
terminated within 24 months following a change of control will receive
severance benefits that include:

(1) an enhancement of the normal retirement benefit, known as the "5+5" be-
cause the enhancement adds five years of age and five years of service
to the normal retirement benefit, payable in the form of a lump sum or
an annuity,
(2) a severance benefit equal to the product of one and one-half weeks of
pay for each year of continuous service, capped at 36 weeks of pay,
payable in a lump sum,
(3) a cash amount equal to the excess, if any, by which the amount equal to
three times the executive's total current compensation exceeds the sum
of (1) plus (2) above. Current compensation is defined as annualized
current base salary plus (a) the greater of the amount of the average
cash bonus paid during the last three years or the target bonus for the
current year plus (b) the average of any payment in lieu of merit
awards over the preceding three years,
(4) payment of the executive's pro-rated target Annual Incentive Plan (AIP)
award, and
(5) the continuation of health, dental and life insurance coverage for 36
months.

The sum of (1), (2) and (3) above constitutes the severance allowances set
forth below. For purposes of this presentation, a lump sum payout has been as-
sumed, and the amounts shown have been calculated as the present value of that
lump sum amount on December 31, 2000, using a discount rate of 6.6%.

<TABLE>
<CAPTION>
Severance
Allowances
----------
<S> <C>
Mike R. Bowlin ...................................................... $7,421,364
Michael E. Wiley..................................................... 5,352,694
Marie L. Knowles..................................................... 3,785,241
J. Kenneth Thompson.................................................. 3,024,004
Donald R. Voelte, Jr................................................. 2,532,312
</TABLE>

Other Change of Control Benefits
All executive officers, regardless of post-merger employment status, will re-
ceive the following benefits upon a change of control:

(1) crediting of prospective dividend share credits (future undeclared and
unpaid dividends),
(2) vesting of a pro-rated number of shares in respect of contingent stock
awards,
(3) lifting of restrictions on restricted stock, and
(4) vesting of previously unvested stock options, other than options issued
after April 1, 1999.

In addition to the change of control-related benefits, upon termination of
employment, each of the named executive officers will receive normal retire-
ment benefits, including payments under the retirement plan, the supplementary
executive retirement plan and the executive deferral plan,

80
<PAGE>

and will continue to hold previously vested options and other stock rights.
The date of actual receipt of certain of the retirement benefits will depend
on an individual's age and length of service at the time of termination and on
individual payout elections.
Prospective Dividend Share Credits (DSCs). Under ARCO's Executive Long-Term
Incentive Plan (LTIP), for all option grants made prior to 1997, DSCs are
credited to an optionee's account whenever dividends are declared on ARCO
common stock. The number of credits is computed by multiplying the dividend
rate per share times the sum of (1) the number of eligible options and (2) the
number of DSCs then accrued and then dividing the resulting number by the
stock price on the dividend record date. Upon exercise of options having the
right to DSCs, the option holder is entitled to receive an additional number
of shares equal to the number of DCSs then accrued with respect to the options
being exercised. Upon a change of control, the number of prospective DSCs yet
to be accrued for the remaining term of a particular option grant are
accelerated and vested.
Conversion and Vesting of Contingent Restricted Stock. Under the LTIP, since
1997, grants of contingent restricted stock have been awarded having one- to
three-year performance periods. At the conclusion of the performance period,
grants of restricted stock are made in amounts ranging from zero to three
times the number of contingent shares awarded, depending on ARCO's performance
relative to a peer group of other oil and gas companies. Upon a change of
control, a prorated number of shares of common stock are granted based on the
portion of the three-year performance cycle completed.
Restricted Stock. Under the LTIP, performance based restricted stock was
granted in each of 1999 and 2000, with each grant having a two-year restricted
period. Dividends paid after the grant date have been reinvested in additional
restricted stock. Under the change of control provisions, the restricted stock
vests immediately upon the consummation of the merger.
Unvested Options. All unvested options granted prior to April 1, 1999, none
of which has the right to DSCs, will vest upon the change of control. The
unvested options granted for 1999 in February 2000 (shown on the chart on page
75) will not vest upon the change of control, nor do they have the right to
DSCs. In addition, the net value of each executive's vested options (and
related DSCs) already has accrued to his or her account regardless of the
change of control.
Tax Gross-Up Payment. Under the change of control arrangements, ARCO is
obligated to make additional tax gross-up payments to officers and certain
other key employees deemed under Internal Revenue Code Sections 280G and 4999
to have received an "excess parachute payment." In general, Section 4999
imposes an excise tax equal to 20% of that payment. A parachute payment is any
payment that is contingent on change of control. In addition to making a
payment equal to the amount of the excise tax, ARCO is also obligated to gross
up the amount of the excise tax payment by an amount that completely offsets
the effect of additional taxable income resulting from the excise tax payment
and the gross-up process. The actual amounts deemed to be excess parachute
payments and the related excise tax and gross-up amounts for each of the five
named officers, as well as for the other employees eligible for the tax gross-
up, cannot be reasonably determined until the time of actual termination when
all relevant facts are known.

Non-Employee Directors
The benefit plans covering ARCO's non-employee directors contain change of
control provisions that provide for accelerated vesting of certain benefits,
but do not otherwise result in increased benefits for the non-employee direc-
tors. The outside directors will, however, become vested in their restricted
stock holdings upon consummation of the merger. As described above, the merger
agreement provides that all rights to ARCO common stock will become rights to
BP Amoco ADSs upon consummation of the merger.

Indemnification, Directors' and Officers' Insurance
For a period of six years following completion of the combination, BP Amoco
will indemnify and provide directors' and officers' liability insurance for
individuals who were directors or officers of ARCO prior to completion of the
combination for their acts or omissions in that capacity.

81
<PAGE>

Committee Report on Executive Compensation

The Organization and Compensation Committee of ARCO's Board of Directors ad-
ministers ARCO's executive compensation program. At the meeting held on Febru-
ary 28, 2000, the Compensation Subcommittee ("the Committee"), consisting of
those directors who have neither served as an employee nor officer of the Com-
pany, met to determine the Company's 2000 executive compensation program.

Compensation Philosophy

ARCO's executive compensation philosophy is designed to attract, retain, and
motivate the best managerial talent available in line with three central
themes:

. Alignment with the long-term interests of our shareholders;

. Accountability for results by linking executives to Company, business
unit and individual performance; and

. Attraction, motivation and retention of critical talent.

The Committee annually conducts a full review of the performance of ARCO and
its executives in determining compensation levels. The Committee normally con-
siders various qualitative and quantitative indicators of Company and individ-
ual performance in determining the level of compensation for ARCO's Chief Ex-
ecutive Officer ("CEO") and its other executive officers. The Committee evalu-
ates ARCO's performance on both a short- and long-term basis. The Committee's
review includes an analysis of quantitative measures, such as Total Share-
holder Return ("TSR"), Return on Shareholders' Equity ("ROSE"), Return on Cap-
ital Employed ("ROCE"), reserve replacement and finding costs, and percent
change in operating and net income. The Committee believes that management
should maintain a balance between actions that foster long-term value
creation, as well as short-term performance. The Committee also considers
qualitative measures such as leadership, experience, strategic direction, com-
munity representation and social responsibility. In addition, for performance
assessment purposes, the Committee also took into consideration the fact that
the Company has operated under a pending merger agreement with BP Amoco since
April 1, 1999.
The Committee evaluates total executive compensation in light of the opera-
tional and financial performance and compensation practices of an oil industry
comparison group ("Comparison Group") composed of large, integrated petroleum
companies against which the Company directly competes for executive talent.
Currently, the Comparison Group is comprised of Chevron, Conoco, Exxon Mobil,
Occidental, Phillips, Texaco and Unocal. Beginning January 1, 2000, because of
Mobil's merger with Exxon, the Committee approved the addition of Amerada Hess
to the Comparison Group. The Comparison Group is used as the reference stan-
dard for establishing award levels under the Company's Annual Incentive Plan
("AIP") and Long-Term Incentive Plan ("LTIP").
Depending on the Company's performance and individual performance, the Com-
mittee determines appropriate base salary, annual incentive award and long-
term incentive award levels for the Company's executives. In 1999, the Commit-
tee did not apply any specific quantitative formulae in arriving at its com-
pensation decisions on base salary and long-term incentive awards. The Commit-
tee did apply specific quantitative formulae, as described below, in arriving
at its annual incentive award decisions for 1999 performance.

Components of Executive Compensation

Base Salary

Base salaries are targeted at the market (50th percentile) of the Comparison
Group in order to increase the at-risk, performance orientation of the compen-
sation program and to better align the fixed compensation costs of the Company
with industry practice. Because base salaries are generally at the 50th per-
centile there will not be an add-to-base program for 2000.

Annual Incentive Plan

The CEO and the other executive officers may receive annual incentive com-
pensation awards, under the
82
<PAGE>

Company's Annual Incentive Plan (AIP), that are intended to reward the execu-
tives for their contribution to the Company's short-term performance. Under
the plan, AIP awards are determined by a performance-based formula that in-
cludes the Company's three-year average ROSE, three-year average reserve re-
placement (adjusted by finding, development and acquisition costs), and the
annual percent change in adjusted net income. All three performance measures
are assessed on a relative basis versus performance of the Comparison Group.
Target AIP award levels are set for each participant, expressed as a per-
centage of base salary, at approximately the 50th percentile of the Comparison
Group bonus awards. The target bonus awards for all participants establish a
target bonus pool, which is then adjusted up- or downward based on actual Com-
pany performance. Each performance measure is weighted equally and awards are
based on ARCO's rank on each measure versus the companies in the Comparison
Group. Actual awards can range from zero to three times the target award. The
AIP also limits the funding pool available for award payments to 2% of the
Company's adjusted net income. The Committee reviews the target award calcu-
lated for each named executive officer and adjusts awards as appropriate in
light of both Company and individual performance. AIP awards for all other ex-
ecutives are also adjusted for individual performance.

Long-Term Incentive Plan

The CEO and the other executive officers may also receive incentive compen-
sation awards under the Company's Long-Term Incentive Plan ("LTIP"). In deter-
mining grants under the Company's LTIP, the Committee establishes a target in-
vestment value for each executive grade level based on its evaluation of com-
petitive long-term incentive compensation practices of the Comparison Group.
The actual grant size to an executive will be based on individual performance.
Normally, the LTIP target investment value is delivered in the form of stock
options and contingent restricted stock. For 2000, because of the pending
merger with BP Amoco, the entire target investment value will be comprised of
stock options.

Compensation of Named Executive Officers

In evaluating the compensation for the Executive Officers, the Committee
recognized that ARCO had excellent performance in 1999. Despite operating
within a pending merger environment, compared to 1998, the Company's earnings
substantially increased to $1.5 billion. The earnings increase, in turn, led
to an increase in the Company's 1999 ROSE to 18.8%. Additionally, the
Company's 1999 TSR was 37%. ARCO's 1999 ROSE and TSR performance ranked first
when compared to the Comparison Group companies.
ARCO's excellent performance was also reflected in performance-based formula
that governs the AIP. Under the Company's AIP for 1999, awards were determined
based on the ranking of the three performance measures relative to those of
the Comparison Group. ARCO's one-year income growth was 165% that ranked first
relative to the Comparison Group. ARCO's three-year ROSE of 15.5% tied for
first place among the Comparison Group companies. ARCO's three-year average
reserve replacement was 164% that ranked third relative to the Comparison
Group. Adjusting the reserve replacement for finding, development and acquisi-
tion costs ("FD&A") reduced the relative payout for this category by 25%. The
resulting AIP award multiple was 1.71. Under the AIP, the Committee has the
discretion to increase the award multiple of any individual criterion up to
0.5 for substantially improved performance on an absolute basis. Because AR-
CO's earnings increased by 165% the Committee awarded an additional 0.5 for
the earnings growth criterion that increased the total AIP award multiple to
1.87.
Based on the Company's performance and compensation philosophy, the Commit-
tee approved the following compensation for the Chairman and CEO, Mr. Bowlin,
and guidelines for the other Named Executive Officers ("NEOs") listed in the
Summary Compensation Table:

Mr. Bowlin

. For 1999, Mr. Bowlin did not receive a salary increase. Mr. Bowlin's sal-
ary of $980,000 is positioned at the market of the Comparison Group's
CEO's salaries.

83
<PAGE>

. Pursuant to the Company's AIP for performance year 1999, Mr. Bowlin was
awarded a bonus of $1,557,710, which was 1.87 times his target award of
$833,000.
. An LTIP award that brought Mr. Bowlin's total compensation level to ap-
proximately the 50th to 60th percentile of the peer group's total compen-
sation levels. Under this approach, Mr. Bowlin was awarded 217,329 stock
options.
. For the performance period January 1, 1997 through December 31, 1999, us-
ing a 21-day average stock price at the beginning and end of the period
as dictated by the plan, ARCO's TSR of 11.4% placed the Company fifth
relative to the Comparison Group. The resulting award multiple for the
three-year contingent restricted stock shares was 1.0. Mr. Bowlin's
three-year contingent restricted stock grant was converted to 18,220
shares of performance-based restricted stock with a two year vesting pe-
riod.

Other Named Executive Officers

No base salary increases were granted to Named Executive Officers. The Com-
mittee also approved bonus awards pursuant to the AIP formula and provisions,
and LTIP awards that brought their total compensation level to approximately
the 50th to 60th percentile of the peer group's total compensation levels.

Deductible Compensation Limitation

Section 162(m) of the Internal Revenue Code limits the deductibility to the
Company of cash compensation in excess of $1 million paid to the CEO and the
four highest compensated NEOs during any taxable year, unless such
compensation meets certain requirements. The Company is allowed to fully
deduct compensation paid to executives under the long-term plans. At the
February 28, 2000 meeting, the Committee certified ARCO's performance relative
to the Comparison Group for the 1999 performance year.

Awards under the AIP are not intended to qualify as performance-based
compensation for purposes of Section 162(m) due to the Committee's ability to
apply upward or downward discretion based on a subjective evaluation of
performance. The Company believes that better alignment of the interests of
executives with those of shareholders will be achieved by allowing the
Committee to determine awards within the guidelines of the AIP. Any reduction
in tax deductibility from award payments is not expected to be material to the
results of the Company in any year.

The Compensation Subcommittee

<TABLE>
<S> <C>
Henry Wendt, Chairman David T. McLaughlin
Frank D. Boren John B. Slaughter
Kent Kresa Gary L. Tooker
Arnold G. Langbo Gayle E. Wilson
</TABLE>

February 28, 2000

84
<PAGE>

FIVE-YEAR PERFORMANCE GRAPH

The graph below compares the cumulative total shareholder return ("TSR") of
the company with the cumulative return on the S&P 500 Stock Index, the S&P Do-
mestic Oil Index and a peer group (the "Comparison Group"). The Comparison
Group is composed of eight companies with whom the company competes and whose
aggregate asset profile includes extensive domestic and international explora-
tion and production operations. The company believes its overall performance
goals and international expansion goals make the Comparison Group an appropri-
ate benchmark. The company also believes that currently its asset profile cor-
responds more closely to the aggregate asset profile of S&P Domestic Oil Index
and therefore includes this index as an additional reference.
Comparison Of Five-Year Cumulative Total Return (1)

ARCO

Comparative Financial Performance
Stock Return with Dividends Reinvested
(Pretax Average Annual Returns)
[GRAPH]

<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ARCO $100.0 $114.2 $143.0 $179.6 $152.1 $208.5
Comparison Group(/2/) $100.0 $131.0 $162.0 $196.4 $231.8 $265.1
S&P Domestic Oil w/o
ARCO(/3/) $100.0 $113.7 $142.2 $167.9 $134.8 $161.1
S&P 500 $100.0 $137.5 $169.1 $225.4 $289.9 $350.8
</TABLE>
(1) Assumes the value of the investment in ARCO common stock and each index
was $100 on December 31, 1994 and that all dividends are reinvested.

(2) Comparison group includes Chevron, Conoco, Exxon, Mobil, Occidental,
Phillips, Texaco and Unocal, weighted for market capitalization as of the
beginning of each year of the five-year period. Exxon and Mobil were
weighted separately even though their merger took place in late 1999.

(3) Standard & Poor's Domestic Integrated Oil Index, adjusted to exclude ARCO,
which consists of Amerada Hess, Ashland Oil, Conoco, Kerr-McGee,
Occidental, Phillips, Sun, Tosco, and USX-Marathon.

85
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Stock Owned by Directors and Executive Officers

This table indicates the number of shares of common stock owned by the
executive officers and directors as of February 1, 2000. This number includes
options exercisable within 60 days of February 1, 2000 and dividend share
credits accrued with respect to options granted prior to 1997. The total
number of shares owned by all directors and executive officers is less than
1%. Unless otherwise noted in a footnote, each individual has sole voting and
investment power for the shares indicated below. None of the executive
officers or directors owns any shares of the Preference Stocks.

The column on the far right shows the total number of shares owned by each in-
dividual. In addition to the amounts listed in the first three columns, the
total includes:

. shares held directly

. shares held by the trustees under ARCO's employee savings plans

. shares held by the transfer agent in a dividend reinvestment account and

. shares held in family trusts.

Beneficial Ownership of ARCO Common Stock

<TABLE>
<CAPTION>
Amount and Nature of Shares Beneficially Owned as of February 1, 2000
-------------------------------------------------------------------------------
Right to Acquire
------------------------------------
Aggregate
Dividend Share Restricted Number of Shares
Name Options Credits Stock Beneficially Owned
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank D. Boren 2,000 (1) 1,028 (1) 3,856 (3) 8,883
- ----------------------------------------------------------------------------------------------------
Mike R. Bowlin 674,339 (2) 135,755 (2) 16,087 (4) 835,784
- ----------------------------------------------------------------------------------------------------
John Gavin 2,000 (1) 1,028 (1) 4,573 (3) 9,600
- ----------------------------------------------------------------------------------------------------
Marie L. Knowles (5)(6) 168,318 (2) 21,125 (2) 6,268 (4) 198,455
- ----------------------------------------------------------------------------------------------------
Kent Kresa 2,000 (1) 658 (1) 7,838 (3) 12,497
- ----------------------------------------------------------------------------------------------------
Arnold G. Langbo 5,000 (1) 0 (1) 1,402 (3) 6,402
- ----------------------------------------------------------------------------------------------------
David T. McLaughlin 2,000 (1) 721 (1) 9,484 (3) 12,442
- ----------------------------------------------------------------------------------------------------
John B. Slaughter 2,000 (1) 1,028 (1) 3,889 (3) 6,917
- ----------------------------------------------------------------------------------------------------
J. Kenneth Thompson 132,422 (2) 15,224 (2) 3,465 (4) 153,142
- ----------------------------------------------------------------------------------------------------
Gary L. Tooker 5,000 (1) 0 (1) 1,098 (3) 7,098
- ----------------------------------------------------------------------------------------------------
Donald R. Voelte, Jr. 159,401 (2) 0 (2) 3,624 (4) 163,312
- ----------------------------------------------------------------------------------------------------
Henry Wendt 2,000 (1) 1,028(1) 17,252 (3) 23,592
- ----------------------------------------------------------------------------------------------------
Michael E. Wiley (5) 112,694 (2) 0 (2) 6,268 (4) 120,708
- ----------------------------------------------------------------------------------------------------
Gayle E. Wilson 5,000 (1) 0 (1) 574 (3) 5,574
- ----------------------------------------------------------------------------------------------------
All Directors and
Executive Officers as
a Group 1,665,542 226,156 100,474 2,035,690 (7)
</TABLE>

86
<PAGE>

Notes to Beneficial Stock Ownership Table

(1) Granted pursuant to the Stock Option Plan for Outside Directors. This plan
is described on page 79.

(2) The options and related dividend share credits were granted pursuant to the
Executive Long-Term Incentive Plan. The number of dividend share credits
accrued are related to options granted prior to 1997. See footnote (2)
beginning on page 72 for more details regarding dividend share credits.

(3) Granted pursuant to the Restricted Stock Plan for Outside Directors. This
plan is described on page 79.

(4) Restricted stock is granted to the executive officers and other key
employees pursuant to the Executive Long-Term Incentive Plan. The total
shown includes additional shares of restricted stock acquired through
the automatic reinvestment of dividends through February 1, 2000. For more
details regarding restricted stock, see footnote (3) beginning on page 73.

(5) Four of ARCO's executive officers are directors of the company's 81.9%-
owned subsidiary, Vastar Resources, Inc. As of the date of this table,
these officers owned the number of shares of or options to purchase common
stock of Vastar shown below.

<TABLE>
<S> <C>
Mr. Dallas 605 shares
Mrs. Knowles 400 shares
Mr. Voelte 0 shares
Mr. Wiley 332,278 shares
</TABLE>

(6) Does not include 11,761 shares owned by her spouse, as to which shares she
disclaims beneficial ownership.

(7) Includes 6,312 shares owned jointly by spouses which are subject to shared
voting and investment power.

Change of Control Upon Closing of BP Amoco Combination

In the event of the closing of the merger between ARCO and BP Amoco, BP Amoco
will have effective control of ARCO.

87
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

88
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1 and 2. Financial Statements and Financial Statement Schedules: These
documents are listed in the Index to Consolidated Financial
Statements and Financial Statement Schedule.

3. Exhibits:

2.1 Agreement and Plan of Merger Among BP Amoco p.l.c., Atlantic
Richfield Company and Prairie Holdings, Inc. dated as of March
31, 1999, as amended as of July 12, 1999, filed with the
Commission as Exhibit 2 to ARCO's report on Form 10-Q for the
quarterly period ended September 30, 1999, under File No. 1-
1196 and incorporated herein by reference.

2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of
July 12, 1999, filed with the Commission as Exhibit 2.1 to
ARCO's report on Form 10-Q for the quarterly period ended
September 30, 1999, under File No. 1-1196 and incorporated
herein by reference.

3.1 Restated Certificate of Incorporation of Atlantic Richfield
Company ("ARCO") as of June 27, 1994, filed with the
Securities and Exchange Commission (the "Commission") as
Exhibit 3 to ARCO's report on Form 10-Q for the quarterly
period ended June 30, 1994, under File No. 1-1196 and
incorporated herein by reference.

3.2 By-Laws of ARCO as amended through November 23, 1998, filed
with the Commission as Exhibit 3 to ARCO's Current Report on
Form 8-K dated November 23, 1998, under File No. 1-1196 and
incorporated herein by reference.

4.1 Rights Agreement dated as of July 24, 1995 between ARCO and
First Chicago Trust Company of New York, as Rights Agent,
filed with the Commission as Exhibit 4 to ARCO's report on
Form 10-Q for the quarterly period ended June 30, 1995, under
File No. 1-1196 and incorporated herein by reference.

4.2 Indenture dated as of May 15, 1985 between ARCO and The Chase
Manhattan Bank, N.A., filed with the Commission on January 27,
1999 as Exhibit 4.2 to ARCO's Registration Statement on Form
S-3 (No. 333-71293), under File No. 1-1196 and incorporated
herein by reference.

4.3 Indenture, dated as of January 1, 1992, between ARCO and The
Bank of New York, filed with the Commission on January 27,
1999 as Exhibit 4.3 to ARCO's Registration Statement on
Form S-3 (No. 333-71293, under File No. 1-1196) and incorpo-
rated herein by reference.

4.4 Instruments defining the rights of holders of long-term debt
which is not registered under the Securities Exchange Act of
1934 are not filed because the total amount of securities
authorized under any such instrument does not exceed 10% of
the consolidated total assets of the Company. The Company
agrees to furnish a copy of any such instrument to the
Commission upon request.

89
<PAGE>

10.1(a)* Atlantic Richfield Company Supplementary Executive Retirement
Plan, as adopted by the Board of Directors of ARCO on March
26, 1990 and effective as of October 1, 1990, filed with the
Commission as Exhibit 10.2 to ARCO's report on Form 10-K for
the year 1990, under File No. 1-1196 and incorporated herein
by reference.

10.1(b)* Amendment No. 1 to the Atlantic Richfield Company
Supplementary Executive Retirement Plan, effective as of March
22, 1993, filed with the Commission as Exhibit 10 to ARCO's
report on Form 10-Q for the quarterly period ended June 30,
1993, under File No. 1-1196 and incorporated herein by
reference.

10.1(c)* Amendment No. 2 to the Atlantic Richfield Company
Supplementary Executive Retirement Plan, effective as of
February 28, 1994, filed with the Commission as Exhibit
10.1(c) to ARCO's report on Form 10-K for the year 1995, under
File No. 1-1196 and incorporated herein by reference.

10.1(d)* Amendment No. 3 to the Atlantic Richfield Company
Supplementary Executive Retirement Plan, effective as of
August 1, 1997, filed with the Commission as Exhibit 10.1(d)
to ARCO's report on Form 10-K for the year 1997, under File
No. 1-1196 and incorporated herein by reference.

10.1(e)* Amendment No. 4 to the Atlantic Richfield Company
Supplementary Executive Retirement Plan, effective as of
August 1, 1997, filed with the Commission as Exhibit 10.1 to
ARCO's report on Form 10-Q for the quarterly period ended
September 30, 1998, under File No. 1-1196 and incorporated
herein by reference.

10.1(f)* Amendment No. 5 to the Atlantic Richfield Company
Supplementary Executive Retirement Plan, effective as of May
1, 1997, filed with the Commission as Exhibit 10.1(f) to
ARCO's report on Form 10-K for the year 1998, under File No.
1-1196 and incorporated herein by reference.

10.2(a)* Atlantic Richfield Company Executive Deferral Plan, as adopted
by the Board of Directors of the Company on March 26, 1990 and
effective as of October 1, 1990, filed with the Commission as
Exhibit 10.3 to ARCO's report on Form 10-K for the year 1990,
under File No. 1-1196 and incorporated herein by reference.

10.2(b)* Amendment No. 1 to the Atlantic Richfield Company Executive
Deferral Plan, effective as of July 27, 1992, filed with the
Commission as Exhibit 10.2(b) to ARCO's report on Form 10-K
for the year 1992, under File No. 1-1196 and incorporated
herein by reference.

10.2(c)* Amendment No. 2 to the Atlantic Richfield Company Executive
Deferral Plan, effective as of February 28, 1994, filed with
the Commission as Exhibit 10.2(c) to ARCO's report on Form 10-
K for the year 1995, under File No. 1-1196 and incorporated
herein by reference.

10.2(d)* Amendment No. 3 to the Atlantic Richfield Company Executive
Deferral Plan, effective as of January 1, 1997, filed with the
Commission as Exhibit 10.2(d) to ARCO's report on Form 10-K
for the year 1997, under File No. 1-1196 and incorporated
herein by reference.

10.2(e)* Amendment No. 4 to the Atlantic Richfield Company Executive
Deferral Plan, effective as of January 1, 1997, filed with the
Commission as Exhibit 10.2 to ARCO's report on Form 10-Q for
the quarterly period ended September 30, 1998, under File No.
1-1196 and incorporated herein by reference.

90
<PAGE>

10.2(f)* Amendment No. 5 to the Atlantic Richfield Company Executive
Deferral Plan, effective as of May 1, 1997, filed with the
Commission as Exhibit 10.2(f) to ARCO's report on Form 10-K
for the year 1998, under File No. 1-1196 and incorporated
herein by reference.

10.3(a)* Atlantic Richfield Company Executive Supplementary Savings
Plan II, as amended, restated and effective as of July 1,
1988, filed with the Commission as Exhibit 10.6(b) to ARCO's
report on Form 10-K for the year 1988, under File No. 1-1196
and incorporated herein by reference.

10.3(b)* Amendment No. 1 to the Atlantic Richfield Company Executive
Supplementary Savings Plan II, as amended and effective as of
January 1, 1989, filed with the Commission as Exhibit 10.6(b)
to ARCO's report on Form 10-K for the year 1989, under File
No. 1-1196 and incorporated herein by reference.

10.3(c)* Amendment No. 2 to the Atlantic Richfield Company Executive
Supplementary Savings Plan II, as amended and effective as of
July 1, 1994, filed with the Commission as Exhibit 10.4(c) to
ARCO's report on Form 10-K for the year 1994, under File No.
1-1196 and incorporated herein by reference.

10.3(d)* Amendment No. 3 to the Atlantic Richfield Company Executive
Supplementary Savings Plan II, as amended and effective as of
August 5, 1996, filed with the Commission as Exhibit 10.4(d)
to ARCO's report on Form 10-K for the year 1996, under File
No. 1-1196 and incorporated herein by reference.

10.4* Atlantic Richfield Company Policy on Financial Counseling and
Individual Income Tax Service, as revised and effective
January 1, 1997, filed with the Commission as Exhibit 10.4 to
ARCO's report on Form 10-K for the year 1998, under File No.
1-1196 and incorporated herein by reference.

10.5(a)* Annual Incentive Plan, as adopted by the Board of Directors of
ARCO on November 26, 1984, and effective as of that date, as
amended through February 28, 1994, filed with the Commission
as Exhibit 10.6 to ARCO's report on Form 10-K for the year
1994, under File No. 1-1196 and incorporated herein by
reference.

10.5(b)* Amendment No. 3 to the Annual Incentive Plan, effective as of
January 1, 1995, filed with the Commission as Exhibit 10.6(b)
to ARCO's report on Form 10-K for the year 1995, under File
No. 1-1196 and incorporated herein by reference.

10.5(c)* Amendment No. 4 to the Annual Incentive Plan, effective as of
February 24, 1997, filed with the Commission as Exhibit
10.5(c) to ARCO's report on Form 10-K for the year 1997, under
File No. 1-1196 and incorporated herein by reference.

10.5(d)* Amendment No. 5 to the Atlantic Richfield Company Annual
Incentive Plan, effective as of July 28, 1997, filed with the
Commission as Exhibit 10.3 to ARCO's report on Form 10-Q for
the quarterly period ended September 30, 1998, under File No.
1-1196 and incorporated herein by reference.

10.5(e)* Amendment No. 6 to the Atlantic Richfield Company Annual
Incentive Plan, effective as of July 28, 1997, filed with the
Commission as Exhibit 10.4 to ARCO's report on Form 10-Q for
the quarterly period ended September 30, 1998, under File No.
1-1196 and incorporated herein by reference.

91
<PAGE>

10.6(a)* Atlantic Richfield Company's 1985 Executive Long-Term
Incentive Plan, as adopted by the Board of Directors of ARCO
on May 28, 1985, and effective as of that date, as amended
through July 28, 1997, filed with the Commission as Exhibit
10.6 to ARCO's report on Form 10-K for the year 1997, under
File No. 1-1196 and incorporated herein by reference.

10.6(b)* Amendment No. 10 to the Atlantic Richfield Company 1985
Executive Long-Term Incentive Plan, effective as of July 18,
1997, filed with the Commission as Exhibit 10.5 to ARCO's
report on Form 10-Q for the quarterly period ended September
30, 1998, under File No. 1-1196 and incorporated herein by
reference.

10.6(c)* Amendment No. 11 to the Atlantic Richfield Company 1985
Executive Long-Term Incentive Plan, effective as of July 18,
1997, filed with the Commission as Exhibit 10.6 to ARCO's
report on Form 10-Q for the quarterly period ended September
30, 1998, under File No. 1-1196 and incorporated herein by
reference.

10.6(d)* Amendment No. 12 to Atlantic Richfield Company 1985 Executive
Long-Term Incentive Plan, effective March 23, 1999, filed with
the Commission as Exhibit 10.3 to ARCO's report on Form 10-Q
for the quarterly period ended September 30, 1999, under File
No. 1-1196 and incorporated herein by reference.

10.6(e) Amendment No. 13 to Atlantic Richfield Company 1985 Executive
Long-Term Incentive Plan, effective March 31, 1999, filed with
the Commission as Exhibit 10.4 to ARCO's report on Form 10-Q
for the quarterly period ended September 30, 1999, under File
No. 1-1196 and incorporated herein by reference.

10.6(f)* Amendment No. 14 to Atlantic Richfield Company 1985 Executive
Long-Term Incentive Plan, effective December 10, 1999, filed
herewith.

10.6(g)* Amendment No. 15 to Atlantic Richfield Company 1985 Executive
Long-Term Incentive Plan, effective February 15, 2000, filed
herewith.

10.7(a)* Atlantic Richfield Company Executive Life Insurance Plan--
Summary Plan Description, effective as of June 28, 1990, filed
with the Commission as Exhibit 10.8 to ARCO's report on Form
10-K for the year 1993, under File No. 1-1196 and incorporated
herein by reference.

10.7(b)* Amendment No. 1 to the Atlantic Richfield Company Executive
Life Insurance Plan, effective July 28, 1997, filed with the
Commission as Exhibit 10.7(b) to ARCO's report on Form 10-K,
under File No. 1-1196 and incorporated herein by reference.

10.7(c)* Amendment No. 2 to the Atlantic Richfield Company Executive
Life Insurance Plan, effective July 28, 1997, filed with the
Commission as Exhibit 10.7(c) to ARCO's report on Form 10-K,
under File No. 1-1196 and incorporated herein by reference.

10.7(d)* Amendment No. 3 to the Atlantic Richfield Company Executive
Life Insurance Plan, effective May 1, 1997, filed with the
Commission as Exhibit 10.7(d) to ARCO's report on Form 10-K,
under File No. 1-1196 and incorporated herein by reference.

10.8(a)* Atlantic Richfield Company Executive Long-Term Disability
Plan--Summary Plan Description, effective as of January 1,
1994, filed with the Commission as Exhibit 10.9 to ARCO's
report on Form 10-K for the year 1993, under File No. 1-1196
and incorporated herein by reference.

92
<PAGE>

10.8(b)* Amendment No. 1 to the Atlantic Richfield Company Executive
Long-Term Disability Plan, effective as of February 28, 1994,
filed with the Commission as Exhibit 10.9(b) to ARCO's report
on Form 10-K for the year 1995, under File No. 1-1196 and
incorporated herein by reference.

10.8(c)* Amendment No. 2 to the Atlantic Richfield Company Executive
Long-Term Disability Plan, effective May 1, 1997, filed with
the Commission as Exhibit 10.8(c) to ARCO's report on Form 10-
K, under File No. 1-1196 and incorporated herein by reference.

10.9 Amendment No. 6 to the Atlantic Richfield Company Special
Termination Allowance Plan which contains the current change
of control provisions applicable to the Company's executive
management team, including its five most highly compensated
executive officers, effective as of July 28, 1997, filed with
the Commission as Exhibit 10.7 to ARCO's report on Form 10-Q
for the quarterly period ended September 30, 1998, under File
No. 1-1196 and incorporated herein by reference.

10.10 Form of Indemnity Agreement filed with the Commission as
Exhibit 99 to ARCO's Registration Statement on Form S-3 (No.
333-71293) under File No. 1-1196 and incorporated herein by
reference.

10.11(a)* Stock Option Plan for Outside Directors effective as of
December 17, 1990, filed with the Commission as Exhibit 10.14
to ARCO's report on Form 10-K for the year 1990, under
File No. 1-1196 and incorporated herein by reference.

10.11(b)* Amendment No. 1 to the Stock Option Plan for Outside
Directors, effective as of June 22, 1992, filed with the
Commission as Exhibit 10.13(b) to ARCO's report on Form 10-K
for the year 1992, under File No. 1-1196 and incorporated
herein by reference.

10.11(c)* Amendment No. 2 to the Stock Option Plan for Outside Directors
amended effective as of April 1, 1997, filed with the
Commission as Exhibit 10.10(c) to ARCO's report on Form 10-K
for the year 1997, under File No. 1-1196 and incorporated
herein by reference.

10.11(d)* Amendment No. 3 to the Stock Option Plan for Outside Directors
amended effective as of April 1, 1997, filed with the
Commission as Exhibit 10.10(d) to ARCO's report on Form 10-K
for the year 1997, under File No. 1-1196 and incorporated
herein by reference.

10.12(a)* Deferral Plan for Outside Directors, effective as of October
1, 1990, filed with the Commission as Exhibit 10.13(a) to
ARCO's report on Form 10-K for the year 1995, under File No.
1-1196 and incorporated herein by reference.

10.12(b)* Amendment No. 1 to the Deferral Plan for Outside Directors,
effective as of July 27, 1992, filed with the Commission as
Exhibit 10.13(b) to ARCO's report on Form 10-K for the
year 1995, under File No. 1-1196 and incorporated herein by
reference.

10.12(c)* Amendment No. 2 to the Deferral Plan for Outside Directors
effective as of July 22, 1996, filed with the Commission as
Exhibit 10.11(c) to ARCO's report on Form 10-K for the year
1997, under File No. 1-1196 and incorporated herein by
reference.

10.13* Special Incentive Plan, as adopted by the Board of Directors
of ARCO on February 28, 1994, and as effective on that date,
is included in Appendix C to the Company's 1994 Proxy
Statement filed with the Commission under File No. 1-1196 and
incorporated herein by reference.

93
<PAGE>

10.14* 1997 Restricted Stock Plan For Outside Directors effective as
of January 1, 1997, filed with the Commission as Exhibit 10.13
to ARCO's report on Form 10-K for the year 1997, under File
No. 1-1196 and incorporated herein by reference.

21 Subsidiaries of the Registrant.

23 Consent of PricewaterhouseCoopers LLP.**

27 Financial Data Schedule.

Copies of exhibits will be furnished upon prepayment of 25 cents per page.
Requests should be addressed to the Corporate Secretary.
- --------
* Management compensatory plans filed as exhibits hereto pursuant to Item
14(c) of Form 10-K.
** Included on page 95 of this Form 10-K.

(b) Reports on Form 8-K:

The following Current Reports on Form 8-K were filed during the quarter
ended December 31, 1999, and thereafter through March 1, 2000:

<TABLE>
<CAPTION>
Date of Report Item No. Financial Statements
-------------- -------- --------------------
<S> <C> <C>
February 9, 2000 5 None
</TABLE>

94
<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the following registration
statements of Atlantic Richfield Company: Registration Statement on Form S-3
(No. 333-71293), Registration Statement on Form S-8 (No. 333-33151),
Registration Statement on Form S-8 (No. 33-43830), Registration Statement on
Form S-8 (No. 33-21558), Registration Statement on Form S-8 (No. 333-33153),
Registration Statement on Form S-8 (No. 333-26901), Post-Effective Amendment
No. 4 to Registration Statement on Form S-8 (No. 33-21160), Post-Effective
Amendment No. 4 to Registration Statement on Form S-8 (No. 33-23639),
Registration Statement on Form S-8 (No. 333-26901), Post-Effective Amendment
No. 4 to Registration Statement on Form S-8 (No. 33-21162), Post-Effective
Amendment No. 4 to Registration Statement on Form S-8 (No. 33-21553), Post-
Effective Amendment No. 4 to Registration Statement on Form S-8 (No. 33-
23640), Registration Statement on Form S-8 (No. 333-26901), Post-Effective
Amendment No. 4 to Registration Statement on Form S-8 (No. 33-21552), and
Registration Statement on Form S-8 (No. 333-33245), of our report dated
January 31, 2000, on our audits of the consolidated financial statements and
financial statement schedule of Atlantic Richfield Company as of December 31,
1999 and 1998 and for each of the three years in the period ended December 31,
1999, which report is included in this Annual Report on Form 10-K.

PricewaterhouseCoopers LLP

Los Angeles, California
March 1, 2000

95
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused the amendment to this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

ATLANTIC RICHFIELD COMPANY

/s/ Michael E. Wiley
By: _________________________________
Michael E. Wiley
President and Chief
Operating Officer

February 28, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the regis-
trant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Mike R. Bowlin Chairman of the Board and February 28,
__________________________________ Chief Executive Officer 2000
Mike R. Bowlin

/s/ Marie L. Knowles Executive Vice President and February 28,
____________________________________ Chief Financial Officer 2000
Marie L. Knowles
Principal financial officer

/s/ Frank D. Boren Director February 28,
____________________________________ 2000
Frank D. Boren

/s/ John Gavin Director February 28,
__________________________________ 2000
John Gavin

Director February ,
__________________________________ 2000
Kent Kresa
</TABLE>

96
<PAGE>

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Arnold G. Langbo Director February 28,
____________________________________ 2000
Arnold G. Langbo

Director February ,
____________________________________ 2000
David T. McLaughlin

/s/ John B. Slaughter Director February 28,
____________________________________ 2000
John B. Slaughter

/s/ Gary L. Tooker Director February 28,
____________________________________ 2000
Gary L. Tooker

/s/ Henry Wendt Director February 28,
____________________________________ 2000
Henry Wendt

/s/ Gayle E. Wilson Director February 28,
____________________________________ 2000
Gayle E. Wilson

/s/ Allan L. Comstock Vice President and February 28,
____________________________________ Controller 2000
Allan L. Comstock
Principal accounting officer
</TABLE>

97
<PAGE>

SCHEDULE II

ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

(millions of dollars)

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

<TABLE>
<CAPTION>
(Column A) (Column B) (Column C) (Column D) (Column E)
- ------------------------------------------------------------------------------
Additions
----------------
Balance at Charged Charged Deductions Balance at
beginning to to other from close of
Description of period income accounts reserves period
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year 1999
Amounts deducted from
applicable assets:
Accounts receivable....... $ 5 $ 1 $ 29 $-- $ 35
Affiliated companies
accounted for on the
equity method............ 8 -- -- -- 8
Reserves included in other
deferred liabilities and
credits and other current
liabilities:
Dismantlement, restoration
and reclamation.......... 1,058 142 -- 46 1,154
Reduction in force........ 131 24 2 112 45
Insurance ................ 174 19 -- 24 169
Environmental remediation. 870 53 4 241 686
Other..................... 395 26 -- 103 318

Year 1998
Amounts deducted from
applicable assets:
Accounts receivable....... $ 3 $ 2 -- -- $ 5
Affiliated companies
accounted for on the
equity method............ 8 -- -- -- 8
Reserves included in other
deferred liabilities and
credits and other current
liabilities:
Dismantlement, restoration
and reclamation.......... 966 64 73 45 1,058
Reduction in force........ 73 185 79 206 131
Insurance ................ 158 48 -- 32 174
Environmental remediation. 722 234 -- 86 870
Other..................... 151 363 -- 119 395
Year 1997
Amounts deducted from
applicable assets:
Accounts receivable....... $ 6 -- -- $ 3(a) $ 3
Affiliated companies
accounted for on the
equity method............ 8 -- -- -- 8
Reserves included in other
deferred liabilities and
credits and other current
liabilities:
Dismantlement, restoration
and reclamation.......... 909 78 -- 21 966
Reduction in force........ -- 70 12 9 73
Insurance ................ 169 20 -- 31 158
Environmental remediation. 524 300 -- 102 722
Other..................... 213 15 (12) 65 151
</TABLE>
- --------
(a) Write-off for uncollectible accounts, net of recoveries.

98
<PAGE>

EXHIBIT INDEX

Exhibit Description

3. Exhibits:

Exhibit Description

10.6(f)* Amendment No. 14 to Atlantic Richfield Company 1985 Executive
Long-Term Incentive Plan, effective December 10, 1999, filed
herewith.

10.6(g)* Amendment No. 15 to Atlantic Richfield Company 1985 Executive
Long-Term Incentive Plan, effective February 15, 2000, filed
herewith.

xhibitE Description

10.10 Form of Indemnity Agreement filed with the Commission as
Exhibit 99 to ARCO's Registration Statement on Form S-3 (No.
333-71293) under File No. 1-1196 and incorporated herein by
reference.

Exhibit Description

21 Subsidiaries of the Registrant.

23 Consent of PricewaterhouseCoopers LLP.**

27 Financial Data Schedule.

<PAGE>

AMENDMENT NO. 14
TO
ATLANTIC RICHFIELD COMPANY
1985 EXECUTIVE LONG-TERM INCENTIVE PLAN
_____________________________

Pursuant to the power of amendment reserved therein, the Atlantic Richfield
Company 1985 Executive Long-Term Incentive Plan (the "Plan") is hereby amended,
effective immediately, with respect to any Anticipatory Change of Control or
Change of Control related to a merger of a subsidiary of BP Amoco p.l.c. with
and into Atlantic Richfield Company (the "ARCO BPA Merger"), as follows:

A new Article VI is added to the Plan to read as follows:

"ARTICLE VI
ARCO BPA MERGER

Section 1. Purpose and Application of the Provisions of Article VI

If the ARCO BPA Merger is consummated prior to the conclusion of
any Performance Period, as defined in Article I, Section 2(n) of the Plan
relating to any outstanding grants of Contingent Restricted Stock ("CRS"), as
defined in Article I, Section 2(h) of the Plan, then, notwithstanding any other
provision of the Plan, the following provisions shall apply.

Section 2. Performance Ranking Measurement

The ARCO Performance Ranking, as defined in Article I, Section
2(o) of the Plan, will be calculated using each of the following four methods
under Subparagraphs (a) through (d) and whichever of the four methods produces
the highest Award Multiple, as calculated in the general calculation of the
Performance-Based Restricted Stock Payment Schedule, as defined in Article I,
Section 2(q) of the Plan, shall be used to determine the number of shares of
Common Stock to be awarded to an Eligible Employee:

(a) (1) The TSR of ARCO means the sum of the dividends and
appreciation or depreciation of the price of a share of Common Stock over the
first to occur of (i) the end of the established measurement period for the
applicable grant of CRS, and (ii) the date that ARCO Common Stock ceases trading
on the New York Stock Exchange (NYSE). If Section 2(a)(1)(ii) is used, the
beginning and ending stock price used to calculate the TSR of ARCO shall be the
average of the closing price on the ten NYSE trading days prior to the last NYSE
trading day of ARCO Common Stock, on the last NYSE trading day of ARCO Common
Stock, and on the ten NYSE trading days following the last NYSE trading day of
ARCO Common Stock, using the closing price on

1
<PAGE>

the NYSE of a BP Amoco ADS multiplied by the Exchange Ratio as defined in
Article 1.3.2 of the Agreement and Plan of Merger, dated as of March 31, 1999
among BP Amoco p.l.c., Atlantic Richfield Company and Prairie Holdings, Inc.
(the "Exchange Ratio") to determine the price of ARCO Common Stock for the last
ten NYSE trading days.

(2) The TSR of each member of the Comparison Group, as
defined in Article I, Section 2(f) of the Plan ("Comparison Group TSR") means
the sum of the dividends and appreciation or depreciation of the price of a
share of Common Stock over the same measurement period used for ARCO Common
Stock in Subsection (1) above. The beginning and ending stock price used to
calculate the TSR of each member of the Comparison Group shall be the average of
the closing price on the ten NYSE trading days prior to ARCO's last NYSE trading
day, on the last NYSE trading day of ARCO Common Stock and on the ten NYSE
trading days following ARCO's last NYSE trading day.

(b) (1) The TSR of ARCO means the sum of the dividends and
appreciation or depreciation of the price of a share of Common Stock over the
first to occur of (i) the end of the established measurement period for the
applicable grant of CRS, and (ii) the date that ARCO Common Stock ceases trading
on the NYSE. If Section 2(b)(1)(ii) is used, the beginning and ending stock
price used to calculate the TSR of ARCO shall be the average of the closing
price on the ten NYSE trading days prior to ARCO's last NYSE trading day, on the
last NYSE trading day of ARCO Common Stock, and on the ten NYSE trading days of
ARCO Common Stock following ARCO's last NYSE trading day, using the closing
price on the NYSE of a BP Amoco ADS multiplied by the Exchange Ratio to
determine the price of ARCO Common Stock for each of the above twenty-one days
(the ten days before ARCO's last NYSE trading day, ARCO's last NYSE trading day
and the ten days following ARCO's last NYSE trading day).

(2) Comparison Group TSR means sum of the dividends and
appreciation or depreciation of the price of a share of Common Stock over the
same measurement period used for ARCO Common Stock in Subsection (1) above. The
beginning and ending stock price used to calculate the TSR of each member of the
Comparison Group shall be the average of the closing price on the ten NYSE
trading days prior to last NYSE trading day of ARCO Common Stock on the ARCO's
NYSE trading day, and on the ten NYSE trading days following ARCO's last NYSE
trading day.

(c) (1) The TSR of ARCO means the sum of the dividends and
appreciation or depreciation of the price of a share of Common Stock over the
first to occur of (i) the end of the established measurement period, or (ii) the
date that ARCO Common Stock ceases trading on the NYSE. If Section 2(c)(1)(ii)
is used, the beginning and ending stock price used to calculate the TSR of ARCO
shall be the average of the closing price on the twenty NYSE trading days prior
to the last NYSE trading day of ARCO Common Stock and on the last NYSE trading
day of ARCO Common Stock.

2
<PAGE>

(2) Comparison Group TSR means sum of the dividends and
appreciation or depreciation of the price of a share of Common Stock over the
same measurement period used for ARCO Common Stock in Subsection (1) above. The
beginning and ending stock price used to calculate the TSR of each member of the
Comparison Group shall be the average of the closing price on the twenty NYSE
trading days prior to ARCO's last NYSE trading day, and on the last NYSE trading
day of ARCO Common Stock.

(d) (1) The TSR of ARCO means the sum of the dividends and
appreciation or depreciation of the price of a share of Common Stock over the
first to occur of (i) the end of the established measurement period, or (ii) the
date that ARCO Common Stock ceases trading on the NYSE. If Section 2(d)(1)(ii)
is used, the beginning and ending stock price used to calculate the TSR of ARCO
shall be the average of the closing price on the twenty NYSE trading days prior
to ARCO's last NYSE trading day and on the last NYSE trading day of ARCO Common
Stock, using the closing price on the NYSE of a BP Amoco ADS multiplied by the
Exchange Ratio to determine the price of ARCO Common Stock for each of the above
twenty-one days (the twenty days before ARCO's last trading day and ARCO's last
trading day).

(2) Comparison Group TSR means sum of the dividends and
appreciation or depreciation of the price of a share of Common Stock over the
same measurement period used for ARCO Common Stock in Subsection (1) above. The
beginning and ending stock price used to calculate the TSR of each member of the
Comparison Group shall be the average of the closing price on the twenty NYSE
trading days prior to ARCO's last NYSE trading day, and on the last NYSE trading
day of ARCO Common Stock.

Section 3. Comparison Group - ARCO BPA Merger

Should the merger of Mobil Corporation with Exxon Corporation be
consummated prior to the end of a Performance Period for any of the outstanding
CRS grants, a new company will not be selected to replace Mobil Corporation.
Instead, the actual TSR performance of Mobil Corporation will be used through
the day the common stock of Mobil Corporation ceases trading on the NYSE. In
addition, for the time period commencing on the date when the common stock of
Mobil Corporation ceases trading on the NYSE and ending on the close of an
applicable Performance Period, as defined in Article I, Section 2(n) of the
Plan, the TSR of Mobil Corporation will be measured by multiplying the price of
a share of common stock of Exxon Corporation by the Exchange Ratio in the Merger
Agreement between Exxon Corporation and Mobil Corporation in effect as of the
completion date of such merger.

3
<PAGE>

Section 4. Grant of Performance-Based Restricted Stock - ARCO BPA Merger

Upon the consummation of the ARCO BPA Merger, only Sections 1, 2
and 3 of this Article VI will be used to calculate the number of shares to be
granted for all outstanding CRS grants, and the implementation or actions
regarding these or any other provisions of the Plan related to effecting these
provisions shall be done without any further approvals, actions or changes.

Section 5. Exercise of Stock Options

There shall be no execution of any directions to exercise a Stock
Option on the day immediately preceding the date of the ARCO BPA Merger and on
the date of the ARCO BPA Merger and any directions to exercise Stock Options
which are pending execution on such dates or are received for execution on such
dates shall be executed commencing on the first day following the date of the
ARCO BPA Merger on which an ADS of BP Amoco is traded on the New York Stock
Exchange."

Executed this 10th day of December, 1999.

ATTEST ATLANTIC RICHFIELD COMPANY

BY: [signed by Armineh Simonian] BY: [signed by John H. Kelly]
-------------------------------- -------------------------------
JOHN H. KELLY
Senior Vice President
Human Resources

<PAGE>

AMENDMENT NO. 15
TO
ATLANTIC RICHFIELD COMPANY
1985 EXECUTIVE LONG-TERM INCENTIVE PLAN
_____________________________

1. Article I, Section 2(f) of the plan is amended to read as follows:

"(f) "Comparison Group" means:

(i) Chevron Corporation, Conoco Inc., Exxon Mobil Corporation,
Occidental Petroleum Corporation, Phillips Petroleum Company, Texaco Inc.
and Unocal Corporation; provided, however, that if any member of the
Comparison Group ceases to exist during a Performance Period ("Terminated
Member") the Organization and Compensation Committee of the Board of
Directors (the "Committee") shall designate another entity as a member of
the Comparison Group ("New Member"), which entity shall have
characteristics as common as possible with the existing members of the
Comparison Group, as determined in the sole discretion of the Committee;
provided, further that the performance of the Terminated Member shall be
used to calculate the Company Performance Ranking through the date it
ceased to exist and the performance of the New Member shall be used to
calculate the Company Performance Ranking for the remainder of the
Performance Period.

(ii) For the 1997-1999 Performance Period, a new company will not be
selected to replace Mobil Corporation. Instead, the actual TSR performance
of Mobil Corporation will be used through the day the Common Stock of Mobil
Corporation ceases trading on the NYSE. In addition, for the time period
commencing on the date when the Common Stock of Mobil Corporation ceases
trading on the NYSE and ending on the close of an applicable Performance
Period, as defined in Article I, Section 2(n) of the Plan, the TSR of Mobil
Corporation will be measured by multiplying the price of a share of Common
Stock of Exxon Mobil Corporation by 1.32015."

1
<PAGE>

2. Article V, Section 9(d) of the Plan is amended to read as follows:

"(d) The Plan may not be amended or terminated on or after a Change
of Control until all outstanding Stock Options have been exercised or
expired and all payments of Contingent Restricted Stock under the Plan have
been made, except as deemed necessary by BP Amoco to make administrative
modifications provided that any such modification does not adversely affect
the rights or benefits of any Participant, other than a modification which
has a de minimis effect on a Participant's rights, benefits or
obligations."

Executed this 15th day of February, 2000.

ATTEST ATLANTIC RICHFIELD COMPANY

BY: [signed by Armineh Simonian] BY: [signed by John H. Kelly]
------------------------------- ----------------------------
JOHN H. KELLY
Senior Vice President
Human Resources

<PAGE>

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>
Percentage of
Voting
Securities
Owned by
Organized Immediate
Name of Company Under Laws of Parent
--------------- ------------- -------------
<S> <C> <C>
Atlantic Richfield Company (Registrant)........... Delaware
Subsidiaries of Registrant in consolidated
financial statements, as of December 31, 1999:
ARCO Alaska, Inc................................ Delaware 100.0
ARCO Transportation Alaska, Inc. ............... Delaware 100.0
Vastar Resources, Inc. ......................... Delaware 81.9
ARCO British Limited............................ Delaware 100.0
</TABLE>

The subsidiaries whose names are not listed above, if considered in the
aggregate as a single subsidiary, would not constitute a significant
subsidiary.

<PAGE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 879
<SECURITIES> 264
<RECEIVABLES> 1,301
<ALLOWANCES> 0
<INVENTORY> 430
<CURRENT-ASSETS> 3,058
<PP&E> 40,057
<DEPRECIATION> 21,591
<TOTAL-ASSETS> 26,272
<CURRENT-LIABILITIES> 4,023
<BONDS> 5,698
0
1
<COMMON> 817
<OTHER-SE> 7,868
<TOTAL-LIABILITY-AND-EQUITY> 26,272
<SALES> 12,501
<TOTAL-REVENUES> 13,055
<CGS> 9,553
<TOTAL-COSTS> 9,939
<OTHER-EXPENSES> 195
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 398
<INCOME-PRETAX> 1,916
<INCOME-TAX> 533
<INCOME-CONTINUING> 1,345
<DISCONTINUED> 77
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,422
<EPS-BASIC> 4.17
<EPS-DILUTED> 4.09

</TABLE>