SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ---------------------
Commission file number 1-720
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PHILLIPS PETROLEUM COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-0400345
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Phillips Building, Bartlesville, Oklahoma 74004
(Address of principal executive offices) (Zip Code)
918-661-6600
(Registrant's telephone number, including area code)
---------------
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
----- -----
The registrant had 261,995,388 shares of common stock, $1.25 par value,
outstanding at April 30, 1995.
<PAGE>
PART I. FINANCIAL INFORMATION
- -----------------------------------------------------------------
Consolidated Statement of Income Phillips Petroleum Company
Millions of Dollars
-------------------
Three Months Ended
March 31
-------------------
1995 1994*
-------------------
Revenues
Sales and other operating revenues $3,087 2,884
Equity in earnings of affiliated companies 29 17
Other revenues 8 23
- -----------------------------------------------------------------
Total Revenues 3,124 2,924
- -----------------------------------------------------------------
Costs and Expenses
Purchased crude oil and products 1,851 1,686
Production and operating expenses 476 516
Exploration expenses 43 45
Selling, general and administrative expenses 114 110
Depreciation, depletion, amortization and
retirements 211 204
Taxes other than income taxes 70 71
Interest and expense on indebtedness 68 76
Preferred dividend requirements of subsidiary 8 8
- -----------------------------------------------------------------
Total Costs and Expenses 2,841 2,716
- -----------------------------------------------------------------
Income before income taxes and subsidiary
stock transaction 283 208
Gain on subsidiary stock transaction - 20
- -----------------------------------------------------------------
Income before income taxes 283 228
Provision for income taxes 172 101
- -----------------------------------------------------------------
Net Income $ 111 127
=================================================================
Per Share of Common Stock
Net Income $ .43 .49
=================================================================
Dividends paid $ .28 .28
Average Common Shares Outstanding
(in thousands) 261,675 261,426
- -----------------------------------------------------------------
See Notes to Financial Statements.
*Certain amounts have been reclassified to conform to current
presentation.
1
<PAGE>
- -----------------------------------------------------------------
Consolidated Balance Sheet Phillips Petroleum Company
Millions of Dollars
-------------------------
March 31 December 31
1995 1994*
-------------------------
Assets
Cash and cash equivalents $ 198 193
Accounts and notes receivable (less
allowances: 1995--$18; 1994--$20) 1,415 1,462
Inventories 537 527
Deferred income taxes 191 203
Prepaid expenses and other current
assets 98 97
- -----------------------------------------------------------------
Total Current Assets 2,439 2,482
Investments and long-term receivables 725 708
Properties, plants and equipment (net) 8,177 8,042
Deferred income taxes 128 122
Deferred charges 93 99
- -----------------------------------------------------------------
Total $11,562 11,453
=================================================================
Liabilities
Accounts payable $ 1,253 1,371
Long-term debt due within one year 18 18
Accrued income and other taxes 1,006 847
Other accruals 244 285
- -----------------------------------------------------------------
Total Current Liabilities 2,521 2,521
Long-term debt 3,076 3,106
Accrued dismantlement, removal and
environmental costs 590 564
Deferred income taxes 1,021 961
Employee benefit obligations 353 341
Other liabilities and deferred credits 621 656
- -----------------------------------------------------------------
Total Liabilities 8,182 8,149
- -----------------------------------------------------------------
Preferred Stock of Subsidiary and Other
Minority Interests 351 351
- -----------------------------------------------------------------
Stockholders' Equity
Common stock--500,000,000 shares
authorized at $1.25 par value
Issued (277,180,511 shares)
Par value 346 346
Capital in excess of par 999 996
Treasury stock (at cost:
1995--15,408,910 shares;
1994--15,542,074 shares) (851) (859)
Foreign currency translation adjustments 41 16
Unearned employee compensation--Long-
Term Stock Savings Plan (LTSSP) (442) (451)
Retained earnings 2,936 2,905
- -----------------------------------------------------------------
Total Stockholders' Equity 3,029 2,953
- -----------------------------------------------------------------
Total $11,562 11,453
=================================================================
See Notes to Financial Statements.
*Certain amounts have been reclassified to conform to current
presentation.
2
<PAGE>
- -----------------------------------------------------------------
Consolidated Statement of Phillips Petroleum Company
Cash Flows
Millions of Dollars
-------------------
Three Months Ended
March 31
-------------------
1995 1994*
-------------------
Cash Flows from Operating Activities
Net income $ 111 127
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, amortization
and retirements 211 204
Dry hole costs and leasehold impairment 16 20
Deferred taxes (3) 4
Decrease (increase) in accounts and
notes receivable 68 (127)
Decrease (increase) in inventories (5) 19
Decrease in prepaid expenses and other
current assets 3 10
Decrease in accounts payable (131) (41)
Increase in taxes and other accruals 102 15
Other (20) (41)
- -----------------------------------------------------------------
Net Cash Provided by Operating Activities 352 190
- -----------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures and investments,
including dry hole costs (248) (217)
Proceeds from asset dispositions 19 79
Other investments (6) -
- -----------------------------------------------------------------
Net Cash Used for Investing Activities (235) (138)
- -----------------------------------------------------------------
Cash Flows from Financing Activities
Issuance of debt 154 471
Repayment of debt (178) (439)
Issuance of company stock 3 -
Dividends paid (73) (73)
Other (18) (14)
- -----------------------------------------------------------------
Net Cash Used for Financing Activities (112) (55)
- -----------------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents 5 (3)
Cash and cash equivalents at beginning
of period 193 119
- -----------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 198 116
=================================================================
See Notes to Financial Statements.
*Certain amounts have been reclassified to conform to current
presentation.
3
<PAGE>
- -----------------------------------------------------------------
Notes to Financial Statements Phillips Petroleum Company
Note 1--Interim Financial Information
The financial information for the interim periods presented in
the financial statements included in this report is unaudited and
includes all known accruals and adjustments which Phillips
Petroleum Company (hereinafter referred to as "Phillips" or "the
company") considers necessary for a fair presentation of the
consolidated financial position of the company and its results of
operations and cash flows for such periods. All such adjustments
are of a normal and recurring nature.
Note 2--Inventories
Inventories consisted of the following:
Millions of Dollars
-----------------------
March 31 December 31
1995 1994
-----------------------
Crude oil and petroleum products $202 228
Chemical products 237 204
Materials, supplies and other 98 95
- -----------------------------------------------------------------
$537 527
=================================================================
Note 3--Properties, Plants and Equipment
Properties, plants and equipment included the following:
Millions of Dollars
-----------------------
March 31 December 31
1995 1994
-----------------------
Properties, plants and equipment
(at cost) $18,664 18,293
Less accumulated depreciation,
depletion and amortization 10,487 10,251
- -----------------------------------------------------------------
$ 8,177 8,042
=================================================================
Note 4--Debt
The company's wholly owned subsidiary, Phillips Petroleum Company
Norway, has a revolving credit facility with a group of
international banks for $500 million, of which $45 million had
been drawn at March 31, 1995. In addition, Phillips has a
$250 million letter-of-credit-supported commercial paper program
under which $127 million had been issued at March 31, 1995.
4
<PAGE>
Note 5--Income Taxes
The company's effective tax rates for the three-month periods
ended March 31, 1995 and 1994, were 61 and 44 percent,
respectively. The increase was due to a higher proportion of
foreign income taxed at higher rates and lower tax credits for
fuel produced from non-conventional sources. The reduction in
credits resulted from an exchange, in late 1994, of a variable
interest in the net proceeds from production of certain coal-seam
gas properties generating the credits.
Note 6--Contingent Liabilities
Environmental--The company is subject to federal, state and local
environmental laws and regulations. These may result in
obligations to remove or mitigate the effects on the environment
of the placement, storage, disposal or release of certain
chemical, mineral and petroleum substances at various sites. The
company is currently participating in environmental assessments
and cleanup under these laws at federal Superfund and comparable
state sites. In the future, the company may be involved in
additional environmental assessments, cleanups and proceedings.
HCC Litigation--On April 17, 1995, a trial began with eight of
the approximately 20 remaining claimants, who are seeking both
compensatory and punitive damages, primarily for alleged
psychological injury, from the October 23, 1989, explosion and
fire at Phillips 66 Company's Houston Chemical Complex. The
company believes that it has adequately provided for any
remaining claims.
Other Legal Proceedings--The company is a party to a number of
other legal proceedings pending in various courts or agencies for
which, in some instances, no provision has been made.
Other Contingencies--The company has contingent liabilities
resulting from throughput agreements with pipeline and processing
companies in which it holds stock interests. Under these
agreements, Phillips may be required to provide any such company
with additional funds through advances against future charges for
the shipping or processing of petroleum liquids, natural gas and
refined products.
In the case of all known contingencies, the company accrues a
charge for a loss when it is probable and the amount is
reasonably estimable. These accruals are not discounted for
delays in future payment and are not reduced for potential
insurance recoveries. Based on currently available information,
the company believes that it is remote that future costs related
to known contingent liability exposures will exceed current
accruals by an amount that would have a material adverse impact
on the company's financial statements.
5
<PAGE>
As facts concerning contingencies become known to the company,
the company reassesses its position both with respect to accrued
liabilities and other potential exposures. Estimates that are
particularly sensitive to future change include contingent
liabilities recorded for environmental remediation, tax and legal
matters. Estimated future environmental remediation costs are
subject to change due to such factors as the unknown magnitude of
cleanup costs, the unknown time and extent of such remedial
actions that may be required, and the determination of the
company's liability in proportion to other responsible parties.
Estimated future costs related to tax and legal matters are
subject to change as events evolve and as additional information
becomes available during the administrative and litigation
process.
Note 7--Cash Flow Information
Cash payments and noncash financing activities for the three-
month periods ended March 31 were as follows:
Millions of Dollars
-------------------
1995 1994
-------------------
Cash payments
Interest
Debt $52 55
Taxes and other 4 24
- -----------------------------------------------------------------
$56 79
=================================================================
Income taxes $29 82
- -----------------------------------------------------------------
Noncash financing activities
Treasury stock awards canceled under
incentive compensation plans - (5)
- -----------------------------------------------------------------
6
<PAGE>
- ------------------------------------------------------------------
Management's Discussion And Analysis Phillips Petroleum Company
RESULTS OF OPERATIONS
A summary of the company's net income, by business segment and
consolidated, follows:
Millions of Dollars
-------------------
Three Months Ended
March 31
-------------------
1995 1994
-------------------
Exploration and Production (E&P)
United States $ 60 66
Foreign 41 19
- -----------------------------------------------------------------
101 85
Gas Gathering, Processing and Marketing (GPM) (5) 4
Refining, Marketing and Transportation (RM&T) (5) 37
Chemicals 96 74
Corporate and Other (76) (73)
- -----------------------------------------------------------------
Net Income $111 127
=================================================================
Consolidated Results
Consolidated net income for the three-month period ended March 31,
1995, was $111 million, compared with $127 million for the same
period in 1994. Earnings included the following special items on
an after-tax basis:
Millions of Dollars
-------------------
Three Months Ended
March 31
-------------------
1995 1994
-------------------
Gain on subsidiary stock transaction $ - 20
Work force reduction charges (5) (5)
Foreign currency gains 1 -
Other items (6) 3
- -----------------------------------------------------------------
Total special items $(10) 18
=================================================================
Excluding the above special items, net operating income was
$121 million for the three-month period ended March 31, 1995,
compared with $109 million a year ago. This 11 percent increase
in net operating income is attributable to improved Chemicals
earnings, efficient operations and higher oil and gas production.
In E&P, net operating income was 36 percent higher, helped by the
highest crude oil production rate since the first quarter of
1987. Low residue gas prices continued to hamper earnings from
the company's GPM segment, while lower gasoline and distillate
margins resulted in a small net operating loss in RM&T.
7
<PAGE>
Chemicals margins remained strong, leading to an 81 percent
increase in net operating income compared with the same period a
year ago.
Three Months Ended
March 31
--------------------
Phillips at a Glance 1995 1994
--------------------
U.S. crude oil production (MBD) 84 91
Worldwide crude oil production (MBD) 225 207
U.S. natural gas production (MMCFD) 1,095 1,077
Worldwide natural gas production (MMCFD) 1,576 1,486
Worldwide natural gas liquids
production (MBD) 161 163
Liquefied natural gas sales (MMCFD) 131 114
Refinery utilization rate (%) 100 90
U.S. automotive gasoline sales (MBD) 312 282
U.S. distillates sales (MBD) 131 121
Worldwide petroleum products sales (MBD) 684 682
Natural gas liquids processed (MBD) 217 209
Ethylene production (MMlbs)* 634 656
Polyethylene production (MMlbs)* 440 468
- -----------------------------------------------------------------
*Includes equity in affiliates.
Segment Results
E&P Millions of Dollars
-------------------
Three Months Ended
March 31
-------------------
1995 1994
-------------------
Reported net income $101 85
Less special items (9) 4
- -----------------------------------------------------------------
Net operating income $110 81
=================================================================
Net operating income for the first quarter of 1995 from the
company's E&P segment increased 36 percent over the same quarter
in 1994. Higher crude oil, natural gas liquids and liquefied
natural gas revenues were partially offset by lower natural gas
revenues. Both U.S. and foreign crude oil sales prices and
foreign sales volumes were higher than a year ago, resulting in
higher crude oil revenues. Average worldwide crude oil
production in the first quarter of 1995 was the highest in eight
years, while average worldwide natural gas production was the
highest since the first quarter of 1980. Crude prices moved
higher in the first quarter of 1995 on uncertainties surrounding
political developments in the Middle East and a balancing of
global supply and demand. Natural gas liquids sales volumes were
higher, while both liquefied natural gas sales prices and volumes
increased, compared with a year ago. U.S. natural gas sales
prices were substantially lower.
8
<PAGE>
Sales prices, exploration expenses and operating statistics were:
Three Months Ended
March 31
---------------------
1995 1994
---------------------
Average Sales Prices
Crude oil (per barrel)
United States $15.02 10.98
Foreign 16.82 13.84
Worldwide 16.14 12.67
Natural gas--lease
(per thousand cubic feet)
United States 1.32 1.92*
Foreign 2.42 2.31
Worldwide 1.76 2.08*
- -----------------------------------------------------------------
*Restated.
Millions of Dollars
-------------------
Worldwide Exploration Expenses
Geological and geophysical $26 24
Leasehold impairment 9 5
Dry holes 7 15
Lease rentals 1 1
- -----------------------------------------------------------------
$43 45
=================================================================
Thousands of
Barrels Daily
-------------------
Operating Statistics
Crude Oil Produced
United States 84 91
Norway 97 81
United Kingdom 4 5
Nigeria 22 25
China 13 -
Canada 5 5
- -----------------------------------------------------------------
225 207
=================================================================
Natural Gas Liquids Produced
United States 5 5
Norway 9 8
Other areas 1 1
- -----------------------------------------------------------------
15 14
=================================================================
Millions of
Cubic Feet Daily
--------------------
Natural Gas Produced
United States (less gas
equivalent of liquids
shown above) 1,095 1,077
Norway* 316 262
United Kingdom* 112 96
Canada 53 51
- -----------------------------------------------------------------
1,576 1,486
=================================================================
*Dry basis.
Liquefied Natural Gas Sales 131 114
- -----------------------------------------------------------------
9
<PAGE>
U.S. E&P Millions of Dollars
- -------- -------------------
Three Months Ended
March 31
-------------------
1995 1994
-------------------
Reported net income $60 66
Less special items (4) 4
- -----------------------------------------------------------------
Net operating income $64 62
=================================================================
Net operating income was up slightly for the company's U.S. E&P
operations. Higher crude oil, natural gas liquids and liquefied
natural gas revenues, along with lower lifting costs, were mostly
offset by lower natural gas prices. Higher crude oil sales
prices contributed to the increased crude oil revenues. The
company's liquefied natural gas operations continued to benefit
from operating efficiencies resulting from use of the new, larger
tankers, as well as higher sales prices compared with the first
quarter of 1994. Natural gas prices remained low during the
quarter. The average first quarter 1995 price of $1.32 per
thousand cubic feet was 31 percent lower than the same period
last year. Natural gas prices trended downward during 1994 and
into the first quarter of 1995 as supplies outpaced demand.
Lifting costs were down, due primarily to asset dispositions and
generally lower costs across all operating regions.
U.S. crude oil production was lower in the first quarter of 1995,
compared with the first quarter of 1994, due primarily to normal
field declines and asset sales. U.S. natural gas production was
up slightly, due to increased production from the San Juan Basin,
partly offset by asset sales.
Special items in 1995 consisted of work force reduction charges.
Special items in 1994 included a favorable settlement related to
a net profits interest, partially offset by a contingency
accrual.
Foreign E&P Millions of Dollars
- ----------- -------------------
Three Months Ended
March 31
-------------------
1995 1994
-------------------
Reported net income $41 19
Less special items (5) -
- -----------------------------------------------------------------
Net operating income $46 19
=================================================================
Net operating income was up 142 percent in the company's foreign
E&P operations for the first quarter of 1995, compared with the
first quarter of 1994. Higher crude oil revenues were primarily
responsible for the $27 million improvement. Both higher sales
volumes, due to new production from offshore China and increased
production in Norway, and higher sales prices contributed to the
10
<PAGE>
increased crude oil revenues. Natural gas revenues were up
slightly, due to higher production volumes.
Foreign crude oil production increased 22 percent compared with a
year ago, primarily due to new production from offshore China and
continued higher production from Norway. Foreign natural gas
production was up 18 percent on higher production from both
Norway and the United Kingdom.
Special items in the first quarter of 1995 consisted of a tax
contingency accrual.
GPM Millions of Dollars
-------------------
Three Months Ended
March 31
-------------------
1995 1994
-------------------
Reported net income (loss) $(5) 4
Less preferred dividend requirements
of Phillips Gas Company (8) (8)
- -----------------------------------------------------------------
Net operating income $ 3 12
=================================================================
The company's GPM operations are conducted primarily through GPM
Gas Corporation, a wholly owned subsidiary of Phillips Gas
Company. In 1992, Phillips Gas Company issued preferred stock in
a public offering. The effect of the preferred dividend
requirements has been excluded in determining net operating
income.
Sales prices and operating statistics for GPM were:
Three Months Ended
March 31
---------------------
1995 1994
Average Sales Prices ---------------------
U.S. residue gas
(per thousand cubic feet) $ 1.40 2.12
U.S. natural gas liquids
(per barrel--unfractionated) 10.07 8.97
- -----------------------------------------------------------------
Millions of
Cubic Feet Daily
--------------------
Operating Statistics
Natural Gas Purchases
Outside Phillips 1,230 1,132
Phillips 198 208
- -----------------------------------------------------------------
1,428 1,340
=================================================================
Raw Gas Throughput 1,581 1,493
- -----------------------------------------------------------------
Residue Gas Sales
Outside Phillips 867 859
Phillips 145 86
- -----------------------------------------------------------------
1,012 945
=================================================================
11
<PAGE>
Three Months Ended
March 31
-------------------
1995 1994
-------------------
Thousands of
Barrels Daily
-------------------
Natural Gas Liquids Net Production
From Phillips E&P leasehold gas 20 22
From gas purchased outside Phillips 126 127
- -----------------------------------------------------------------
146 149
=================================================================
GPM's net operating income was $3 million, compared with
$12 million in the first quarter last year. Natural gas liquids
prices were up 12 percent when compared with the first quarter of
1994, but ended the quarter lower than the fourth quarter of last
year. Residue gas prices, on a quarterly average basis, declined
in the first quarter of 1995, marking the fourth consecutive
quarter of decline. Residue gas prices continue to be negatively
impacted by mild winter weather in North America and higher gas
storage levels than a year ago. Raw gas throughput was 6 percent
higher than a year ago, while residue gas sales were 7 percent
higher, reflecting GPM's strategy to acquire gathering systems or
expand existing ones. Natural gas liquids production declined
slightly, as a result of operating disruptions at two plants
during the first quarter of 1995.
RM&T Millions of Dollars
-------------------
Three Months Ended
March 31
-------------------
1995 1994
-------------------
Reported net income (loss) $(5) 37
Less special item - -
- -----------------------------------------------------------------
Net operating income (loss) $(5) 37
=================================================================
Sales prices and operating statistics for RM&T were:
Three Months Ended
March 31
-------------------
1995 1994
-------------------
Average Sales Prices (per gallon)
Automotive gasoline $.55 .50
Distillates .49 .51
Propane .36 .35
- -----------------------------------------------------------------
Operating Statistics
Refinery crude oil capacity
utilization 100% 90
- -----------------------------------------------------------------
12
<PAGE>
Three Months Ended
March 31
-------------------
1995 1994
-------------------
Thousands of
Barrels Daily
-------------------
Refinery Operations
Crude Oil Refined 320 287
- -----------------------------------------------------------------
Petroleum Products Outside Sales
United States
Automotive gasoline 307 259
Aviation fuels 31 32
Distillates 131 121
Propane 37 39
Other products 18 16
- -----------------------------------------------------------------
524 467
Foreign 49 61
- -----------------------------------------------------------------
573 528
=================================================================
RM&T ended the first quarter of 1995 with a small net operating
loss, compared with net operating income of $37 million in the
first quarter of 1994. RM&T's refineries continued to operate
efficiently in the first quarter, running at a crude oil capacity
utilization rate of 100 percent, while continuing to keep costs
low. However, higher crude oil feedstock costs--33 percent
higher than the first quarter of 1994--were not recoverable in
the petroleum products marketplace, resulting in lower margins,
particularly for gasoline and distillates, reflecting the lowest
industry-wide margins in many years. Phillips' average gasoline
wholesale prices for the quarter were $.55 per gallon, up only
moderately from $.50 per gallon a year ago. Wholesale distillate
prices, which hovered just above $.50 per gallon in 1994, dropped
below this mark in the first quarter of 1995, ending at $.49 per
gallon. The lower distillate prices reflect an unusually warm
winter in the United States, easing demand for fuel oils.
13
<PAGE>
Chemicals Millions of Dollars
-------------------
Three Months Ended
March 31
-------------------
1995 1994
-------------------
Reported net income $96 74
Less special items - 21
- -----------------------------------------------------------------
Net operating income $96 53
=================================================================
Operating statistics for Chemicals were:
Three Months Ended
March 31
-------------------
1995 1994
-------------------
Millions of Pounds
Except as Indicated
-------------------
Operating Statistics
Production*
Ethylene 634 656
Polyethylene 440 468
Propylene 110 83
Polypropylene 105 100
Paraxylene 89 134
Cyclohexane (millions of gallons) 27 44
- -----------------------------------------------------------------
*Includes equity in affiliates.
Thousands of
Barrels Daily
-------------------
U.S. Petroleum Products Outside Sales
Automotive gasoline 5 23
Liquefied petroleum gas 70 83
Other products 36 48
- -----------------------------------------------------------------
111 154
=================================================================
Natural Gas Liquids Processed 217 209
- -----------------------------------------------------------------
Natural Gas Liquids Processing Capacity 227 227
- -----------------------------------------------------------------
The company's Chemicals segment net operating income continued to
improve, reaching $96 million in the first quarter of 1995. This
is 81 percent higher than the first quarter of 1994 and
43 percent higher than the fourth quarter of last year. While
higher olefins margins, particularly ethylene and propylene,
continued to drive the significant improvement in Chemicals'
earnings, they were joined in the first quarter by higher
polyethylene and polypropylene margins.
Demand for ethylene and propylene remained strong in the first
quarter of 1995. Minor industry turnarounds or shutdowns kept
supply of ethylene tight during most of the quarter, while
continued, though slowing, economic growth ensured strong demand.
14
<PAGE>
Near the end of the quarter, as industry turnarounds ended and
new industry capacity came online, supply and demand began to
move more into balance. Ethylene production was lower than a
year ago due to a scheduled turnaround at the Sweeny Olefins
Limited Partnership. Propylene remained in very tight supply
during the quarter, allowing for much improved margins over a
year ago. During the first quarter, the company's Puerto Rico
Core facilities had reduced production, due to expansion work and
the installation of new technology. The initial paraxylene
expansion was completed during the first quarter, which should
result in new, higher production rates in the second quarter.
The installation of the Aromax catalytic reforming technology is
scheduled to be completed late in the second quarter, allowing
cyclohexane production to return to normal levels, using a less
expensive feedstock mix.
Demand in the polyethylene plastics market remained steady in the
first quarter, resulting in strengthening margins. Signs of a
potentially stronger market in the second quarter have recently
appeared. Polyethylene production was down from a year ago as a
result of a reduction of the company's interest in Phillips
Petroleum Singapore Chemicals (Private) Limited effective
March 1, 1994. Demand for polypropylene, another plastic,
continued very strong in the first quarter. The tight supply of
propylene, a key feedstock, limited production of polypropylene
in the quarter. This resulted in high demand for the
polypropylene that could be produced, leading to improved margins
compared with the first quarter of 1994.
Special items in the first quarter of 1994 included an after-tax
gain of $20 million from a subsidiary stock transaction.
Corporate and Other Millions of Dollars
-------------------
Three Months Ended
March 31
-------------------
1995 1994
-------------------
Reported Corporate and Other $(76) (73)
Less special items (1) (7)
- -----------------------------------------------------------------
Adjusted Corporate and Other $(75) (66)
=================================================================
Adjusted Corporate and Other includes:
Corporate general and
administrative expenses $(28) (25)
Net interest (44) (49)
Other (3) 8
- -----------------------------------------------------------------
Adjusted Corporate and Other $(75) (66)
=================================================================
Corporate general and administrative expenses increased
$3 million compared with a year ago, due primarily to the timing
of charitable contributions.
15
<PAGE>
Net interest represents interest income and expense, net of
capitalized interest. Net interest decreased 10 percent in the
first quarter of 1995, compared with the first quarter of 1994,
due primarily to lower average debt, higher capitalized interest
associated with the J-Block development in the U.K. North Sea and
lower interest accruals associated with contingencies.
Other consists primarily of the company's insurance operations,
along with income tax items and other items that are not directly
associated with the operating segments on a stand-alone basis. A
small loss was incurred for the first quarter, compared with net
operating income of $8 million in the first quarter of the prior
year. The decrease was due primarily to higher environmental and
contingency accruals.
Special items in the first quarter of 1995 consisted of work
force reduction charges. Special items in the first quarter of
1994 included an asset sale and work force reduction charges.
Income Statement Analysis
Revenues
Total revenues for the three months ended March 31, 1995, were
$3.1 billion, compared with $2.9 billion for the same period in
1994. Sales and other operating revenues were up 7 percent, due
to moderately higher petroleum products sales prices and volumes,
higher crude oil sales prices and higher chemicals and plastics
revenues as a result of higher prices. These items were
partially offset by lower natural gas revenues resulting from low
natural gas prices and loss of revenues during the Puerto Rico
Core facility expansion and installation of new technology.
Higher ethylene and propylene margins increased earnings at the
company's 50 percent owned Sweeny Olefins Limited Partnership,
contributing to a 71 percent increase in equity in earnings of
affiliated companies.
Other revenues decreased 65 percent, mostly due to asset sales
recorded in the first quarter of 1994.
Total Costs and Expenses
Total costs and expenses increased 5 percent when comparing the
first quarter of 1995 with the first quarter of 1994.
Purchase costs increased 10 percent in the first quarter of 1995,
compared with the corresponding quarter a year ago. Higher crude
oil feedstock costs for the company's refineries, due to higher
crude oil prices, primarily contributed to the increase.
Petroleum product purchases were also higher, as the company
increased its spot market activity compared with a year ago.
16
<PAGE>
These items were partially offset by lower raw gas purchase costs
at GPM, due to lower natural gas prices, and lower purchases at
the Puerto Rico Core facilities, due to expansion work and the
installation of new technology taking place there.
Production and operating expenses were $40 million lower than the
first quarter of last year. The company's cost improvement
efforts continued to contribute to improved earnings. Lower
costs across most operating segments resulted in the 8 percent
savings.
Exploration expenses were down marginally in the first quarter,
compared with the first quarter of 1994. Lease impairment
expenses were up $4 million, while foreign dry hole expense was
down $6 million.
Selling, general and administrative expenses were up slightly
over the same period a year ago, primarily due to higher
charitable contributions, and environmental and benefit plan
accruals, partially offset by the effect of asset sales.
Depreciation, depletion and amortization was 3 percent higher,
reflecting the effect of the offshore China E&P production
project coming on line late in 1994. Taxes other than income
taxes changed only slightly compared with a year ago.
Interest expense was 11 percent lower in the first quarter of
1995, compared with the first quarter of 1994. Lower average
debt, higher capitalized interest associated with the company's
J-Block E&P project and lower interest accruals associated with
contingencies all contributed to the reduced interest costs.
Income Taxes
The company's effective tax rates for the three-month periods
ended March 31, 1995 and 1994, were 61 and 44 percent,
respectively. The increase was due to a higher proportion of
foreign income taxed at higher rates and lower tax credits for
fuel produced from non-conventional sources. The reduction in
credits resulted from an exchange, in late 1994, of a variable
interest in the net proceeds from production of certain coal-seam
gas properties generating the credits.
17
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars
-------------------------------
At At At
March 31 December 31 March 31
1995 1994 1994
-------------------------------
Current ratio 1.0 1.0 1.0
Long-term debt $3,076 3,106 3,238
Preferred stock of subsidiary $ 345 345 345
Stockholders' equity $3,029 2,953 2,750
Percent of long-term debt
to capital* 48% 49 51
Percent of floating-rate debt
to total debt 22% 23 26
- -----------------------------------------------------------------
*Capital includes long-term debt, preferred stock of subsidiary
and stockholders' equity.
Cash from operations increased $162 million during first quarter
1995, compared with the same period in 1994. This increase can
be attributed in part to $50 million generated from the sale of
credit card receivables during the first quarter of 1995. During
the first quarter of 1994, a $79 million tax payment for a
previously recorded accrual and $20 million in payments for
previously recorded contingencies reduced cash, contributing
significantly to the variation in cash from operating activities
between the two periods.
During first quarter 1995, the company sold $50 million of credit
card receivables under an agreement entered into during the
quarter with a bank-sponsored entity. The one-year agreement
provides for the revolving sale of up to $115 million of
receivables generated by credit card sales and includes four
one-year renewal options.
At March 31, 1995, $127 million of the company's $250 million
letter-of-credit-supported commercial paper program had been
issued and Phillips Petroleum Company Norway, a wholly owned
subsidiary, had drawn $45 million of its $500 million revolving
credit facility.
On April 10, 1995, Phillips' Board of Directors approved a
9 percent increase in the dividend rate for the company's common
stock, raising the per share dividend to $.305 quarterly, a
$1.22 annual rate, effective with the quarterly dividend payable
June 1, 1995. This is the first increase in the quarterly
dividend since the fourth quarter of 1990.
As part of the company's continuous improvement efforts,
reductions of approximately 200 positions were identified during
the first quarter of 1995, resulting in a before-tax charge of
$7 million. Since cost control is an important part of
continuous improvement, additional accruals may be necessary as
more opportunities for improvement are identified.
18
<PAGE>
Capital Expenditures and Investments
Millions of Dollars
-------------------
Three Months Ended
March 31
-------------------
1995 1994
-------------------
E&P $147 158
GPM 29 22
RM&T 22 13
Chemicals 42 21
Corporate and Other 8 3
- -----------------------------------------------------------------
$248 217
=================================================================
United States $152 130
Foreign 96 87
- -----------------------------------------------------------------
$248 217
=================================================================
In March 1995, the company signed agreements with ARCO Pipeline
Company to form a new partnership, Seaway Pipeline Company
(Seaway), to transport crude oil through pipelines from the
Houston Gulf Coast area to refineries and other markets in the
mid-continent area. Phillips plans to contribute its natural gas
Seagas Pipeline to the jointly owned partnership, pending receipt
of Federal Energy Regulatory Commission approval to abandon gas
service in Seagas Pipeline. Approval is expected in late 1995 or
early 1996.
Contingencies
Legal and Tax Matters
On April 17, 1995, a trial began with eight of the approximately
20 remaining claimants, who are seeking both compensatory and
punitive damages, primarily for alleged psychological injury,
from the October 23, 1989, explosion and fire at Phillips 66
Company's Houston Chemical Complex. The company believes that it
has adequately provided for any remaining claims.
Phillips accrues for contingencies when a loss is probable and
the amounts can be reasonably estimated. Based on currently
available information, the company believes that it is remote
that future costs related to known contingent liability exposures
will exceed current accruals by an amount that would have a
material adverse impact on the company's financial statements.
19
<PAGE>
Environmental
Most aspects of the businesses in which the company engages are
subject to various federal, state, local and foreign
environmental laws and regulations. Similar to other companies
in the petroleum and chemical industries, the company incurs
costs for preventive and corrective actions at facilities and
waste disposal sites.
Phillips may be obligated to take remedial action as the result
of the enactment of laws, such as the federal Superfund law, the
issuance of new regulations, or as a result of leaks and spills.
In addition, an obligation may arise when a facility is closed or
sold. Most of the expenditures to fulfill these obligations
relate to facilities and sites where past operations followed
practices and procedures that were considered appropriate under
regulations, if any, existing at the time, but may now require
investigatory or remedial work to adequately protect the
environment or address new regulatory requirements.
At year-end 1994, Phillips reported 56 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP). Of these sites, 15 were
resolved during the quarter through consent decrees, deposits
into trust funds or otherwise. Six sites were also added during
the quarter. Of the 47 sites remaining at March 31, 1995, the
company believes it has a legal defense or its records indicate
no involvement for 15 sites. At seven other sites, present
information indicates that it is probable that the company's
exposure is less than $100,000 per site. At 12 sites, Phillips
has had no communication or activity with government agencies or
other PRPs in more than two years. Of the 13 remaining sites,
the company has provided for any probable costs that can be
reasonably estimated.
Phillips does not consider the number of sites at which it has
been designated potentially responsible by state or federal
agencies as a relevant measure of liability. Some companies may
be involved in few sites but have much larger liabilities than
companies involved in many more sites. Although liability of
those potentially responsible is generally joint and several for
federal sites and frequently so for state sites, the company is
usually but one of many companies cited at a particular site. It
has, to date, been successful in sharing cleanup costs with other
financially sound companies. Many of the sites at which the
company is potentially responsible are still under investigation
by the Environmental Protection Agency (EPA) or the state
agencies concerned. Prior to actual cleanup, those potentially
responsible normally assess site conditions, apportion
responsibility and determine the appropriate remediation. In
some instances, Phillips may have no liability or attain a
settlement of liability. Actual cleanup costs generally occur
after the parties obtain EPA or equivalent state agency approval.
20
<PAGE>
At March 31, 1995, accruals of $7 million had been made for the
company's unresolved PRP sites. In addition, the company has
accrued $98 million for other planned remediation activities,
including resolved state, PRP, and other federal sites, as well
as sites where no claims have been asserted, and $15 million for
other environmental contingent liabilities, for total
environmental accruals of $120 million. No one site represents
more than 10 percent of the total.
After an assessment of environmental exposures for cleanup and
other costs, the company makes accruals on an undiscounted basis
for planned investigation and remediation activities for sites
where it is probable that future costs will be incurred and these
costs can be reasonably estimated. These accruals have not been
reduced for possible insurance recoveries. Based on currently
available information, the company believes that it is remote
that future costs related to known contingent liability exposures
will exceed current accruals by an amount that would have a
material adverse impact on the company's financial statements.
OUTLOOK
Higher than expected well rates, lower than anticipated water
production and completion of the development wells ahead of
schedule have resulted in better than expected production rates
from the Xijiang field in the China Sea. Production was
initially projected to peak at 66,000 gross barrels of crude oil
per day in 1996, but in April 1995, the daily production rate hit
69,591 gross barrels per day. Phillips realized an average daily
production rate during March of 19,245 net barrels per day.
Also in China, in April 1995, Phillips began seismic exploration
of the Bozhong Block 11/05, located 200 miles southeast of
Beijing in Bohai Bay. The company has a contract with China's
Ministry of Foreign Trade and Economic Cooperation for five wells
and 10,000 kilometers of 2-D seismic and 200 square kilometers of
3-D seismic over five years. Drilling is expected to begin in
late 1996 or early 1997.
In April, Phillips and its co-venturers declared that the
Mahogany field in the Gulf of Mexico is commercial and will be
developed. Mahogany is the oil industry's first commercial
subsalt oil development in the Gulf of Mexico. Discovered in
1993, the field is located in 370 feet of water 80 miles offshore
Louisiana on Ship Shoal South Addition. Initial gross
production, expected in December 1996, is expected to be about
22,000 barrels of oil per day and 30 million cubic feet of gas
per day. At this level of production, Mahogany could increase
Phillips' U.S. oil production by about 8 percent. Construction
is expected to begin in May 1995 on a platform capable of
handling up to 45,000 barrels of oil per day and 100 million
cubic feet of gas per day. Platform installation is planned for
the third quarter of 1996, and first production is expected in
21
<PAGE>
December of that year. Phillips is operator of the Mahogany
field with a 37.5 percent working interest.
Also in April 1995, the company and its co-venturer completed the
Mahogany No. 3 well. The well successfully encountered its
primary objective, the zone that tested 7,200 barrels of oil per
day in the No. 1 discovery well. The deeper sands, first
encountered in the No. 2 appraisal well, did not bear commercial
quantities of oil or gas and the well has been suspended for use
as a future production well. Work on the Mahogany No. 4
appraisal well began May 1, 1995, to evaluate both the main field
pay zones and potential pay zones in deeper sands.
During the first quarter of 1995, Phillips and its partners
discovered natural gas and condensate offshore northwest
Australia in the Zone of Cooperation A in the Timor Sea, an area
jointly administered by Australia and Indonesia. The Phillips-
operated well was used to conduct four drill stem tests, which
flowed a combined rate of 90 million cubic feet of gas per day
and 5,250 barrels of condensate per day. Commerciality and
future plans for the discovery have not been determined, pending
further study of potential markets and the drilling and test
results. Phillips has a 37.5 percent interest in the block.
Subsequent to the Ekofisk II agreement in 1994, Phillips and its
co-venturers reached an agreement to realign ownership interests
in certain pipeline and onshore processing assets related to
production in the North Sea. The agreement, awaiting approval
from the Norwegian Ministry of Industry and Energy, will increase
Phillips' ownership in certain oil transportation and processing
assets, and decrease Phillips' ownership in certain gas
transportation assets. No cash will be involved in this
realignment, and no change in the financial book value or
economic value of the transportation and processing ownership
interests held by Phillips will result from this transaction.
Intended to align ownership of these assets with expected future
usage, the agreement also will transfer operatorship of the gas
transportation and processing system from the Phillips Norway
Group to Statoil once Statoil becomes the primary user of the gas
transportation system.
As a result of the Ekofisk II project, personnel requirements
will be significantly reduced in Norway. In April, Phillips
Petroleum Company Norway announced that it had identified 1,200
positions which will be eliminated over the next four years, as
work on Ekofisk II is completed. An accrual for severance
benefits will be provided during second quarter 1995.
The third and final redetermination of equity shares in the
Audrey gas field, located in the U.K. sector of the North Sea,
was completed in March 1995, with an effective date of October 1,
1995. As a result, Phillips' net remaining reserves in the
Audrey field are estimated to increase by 14 billion cubic feet,
and gas revenues are expected to increase $7 million and
$28 million in 1995 and 1996, respectively.
22
<PAGE>
The company's U.S. E&P segment continues with its program to
identify and dispose of non-strategic assets. These property
dispositions are not expected to have a material impact on
reserves, production or associated earnings.
The realized prices of the company's chemical products remained
strong during the first quarter of 1995, but ethylene prices are
expected to begin declining later this year. Start-up of Aromax
catalytic reforming technology at the Phillips Puerto Rico Core
facility, a project begun in 1994 to broaden the range of
hydrocarbon feedstocks that can be used in the production of
cyclohexane, is now scheduled for late in the second quarter of
this year. The second phase of the company's expansion of
paraxylene production to 818 million pounds annually at the
Puerto Rico Core petrochemical facility is being modified to
reduce both cost and downtime and is now scheduled for completion
during the first quarter of 1996.
Phillips average worldwide crude oil sales price realized during
the first quarter 1995 increased 27 percent over the same period
last year. Current market expectations for crude oil prices
indicate a decline over the remainder of 1995. Gas sales prices
were 15 percent lower than the same period last year. Current
market expectations reflect a seasonal increase in prices over
the course of the year.
To meet its liquidity requirements, including funding its capital
program, the company will look primarily to cash generated from
operations and financing.
23
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule.
Reports on Form 8-K
- -------------------
During the three months ended March 31, 1995, the company has not
filed any reports on Form 8-K.
24
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PHILLIPS PETROLEUM COMPANY
/s/ L. F. Francis
----------------------------------
L. F. Francis
Controller and General Tax Officer
(Chief Accounting and Duly
Authorized Officer)
May 11, 1995
25
<PAGE>
Exhibit 12
PHILLIPS PETROLEUM COMPANY AND CONSOLIDATED SUBSIDIARIES
TOTAL ENTERPRISE
Computation of Ratio of Earnings to Fixed Charges
Millions of Dollars
---------------------------
Three Months Ended March 31
1995 1994*
---------------------------
(Unaudited)
Earnings Available for Fixed Charges
Income before income taxes $283 228
Distributions less than equity in earnings
of less-than-fifty-percent-owned companies (5) (5)
Fixed charges, excluding capitalized
interest and the portion of the
preferred dividend requirements of a
subsidiary not previously deducted
from income** 92 97
- -----------------------------------------------------------------------------
$370 320
=============================================================================
Fixed Charges
Interest and expense on indebtedness,
excluding capitalized interest $ 73 79
Capitalized interest 5 2
Preferred dividend requirements of
a subsidiary 21 14
One-third of rental expense, net of
subleasing income, for operating leases 8 8
- -----------------------------------------------------------------------------
$107 103
=============================================================================
Ratio of Earnings to Fixed Charges 3.5 3.1
- -----------------------------------------------------------------------------
*Restated.
**Includes amortization of capitalized interest totaling approximately
$3 million in 1994 and 1993.
Earnings available for fixed charges include, if any, the company's equity in
losses of companies owned less than fifty percent and having debt for which
the company is contingently liable. Fixed charges include the company's
proportionate share, if any, of interest relating to the contingent debt.
In 1990 and 1988, respectively, the company guaranteed a $400 million bank
loan and $250 million of notes payable for the Long-Term Stock Savings Plan
(LTSSP), an employee benefit plan. In 1994, the notes payable were
refinanced with a $131 million term loan, and the $400 million loan was
amended. Consolidated interest expense included $1 million of interest
attributable to the LTSSP borrowings for the first quarter of 1995, while
interest related to LTSSP borrowings in first quarter of 1994 was minimal.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Phillips Petroleum Company as of March 31, 1995,
and the related consolidated statement of income for the three month period
ended March 31, 1995, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 198
<SECURITIES> 0
<RECEIVABLES> 1,433
<ALLOWANCES> 18
<INVENTORY> 537
<CURRENT-ASSETS> 2,439
<PP&E> 18,664
<DEPRECIATION> 10,487
<TOTAL-ASSETS> 11,562
<CURRENT-LIABILITIES> 2,521
<BONDS> 3,076
<COMMON> 494
0
0
<OTHER-SE> 2,535
<TOTAL-LIABILITY-AND-EQUITY> 11,562
<SALES> 3,087
<TOTAL-REVENUES> 3,124
<CGS> 2,581<F1>
<TOTAL-COSTS> 2,765<F2>
<OTHER-EXPENSES> 8<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 283
<INCOME-TAX> 172
<INCOME-CONTINUING> 111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
<FN>
<F1>Purchased crude oil and products + Production and operating expenses +
Exploration expenses + Depreciation, depletion, amortization & retirements.
<F2>CGS + Selling, general and administrative expenses + Taxes other than income
taxes.
<F3>Preferred dividend requirements of subsidiary.
</FN>
</TABLE>
