VASTAR RESOURCES INC, 10-Q, 1998-08-06

VASTAR RESOURCES INC
10-Q, 1998-08-06
CRUDE PETROLEUM & NATURAL GAS

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<PAGE>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
COMMISSION FILE NUMBER 1-13108

VASTAR RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 95-4446177
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

15375 MEMORIAL DRIVE
HOUSTON, TEXAS 77079
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
__________________

(281) 584-6000
(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 [_]

NUMBER OF SHARES OF COMMON STOCK, $.01 PAR VALUE, OUTSTANDING AS OF
JUNE 30, 1998: 97,356,127.
<PAGE>

PART I. FINANCIAL INFORMATION

VASTAR RESOURCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

CONSOLIDATED STATEMENT OF INCOME

For the Three For the Six
Months Ended Months Ended
June 30, June 30,
---------------- ----------------
(Millions of dollars, 1998 1997 1998 1997
except per share amounts) ----- ----- ----- -----

REVENUES
Net sales and other operating
revenues............................. $219.2 $216.7 $436.6 $498.4
Earnings from equity affiliate........ 5.3 --- 10.6 ---
Other revenues........................ 4.2 13.2 24.9 15.1
------ ------ ------ ------
Net revenues....................... 228.7 229.9 472.1 513.5
------ ------ ------ ------
EXPENSES
Operating expenses.................... 39.1 36.2 73.6 68.9
Exploration expenses.................. 64.2 26.1 132.4 96.9
Selling, general and administrative
expenses............................. 14.2 16.5 26.2 31.2
Taxes other than income taxes......... 13.1 10.0 26.1 24.6
Depreciation, depletion and
amortization......................... 72.8 73.1 143.3 143.7
Interest.............................. 13.7 11.4 26.3 24.4
------ ------ ------ ------
Total expenses..................... 217.1 173.3 427.9 389.7
------ ------ ------ ------
Income before income taxes............ 11.6 56.6 44.2 123.8
Income tax (benefit) provision........ (21.2) (1.7) (36.6) 2.6
------ ------ ------ ------
Net income.......................... $ 32.8 $ 58.3 $ 80.8 $121.2
====== ====== ====== ======

Basic earnings per share.............. $ 0.34 $ 0.60 $ 0.83 $ 1.25
====== ====== ====== ======
Diluted earnings per share............ $ 0.34 $ 0.60 $ 0.83 $ 1.24
====== ====== ====== ======

Cash dividends paid per share
of common stock....................... $0.075 $0.075 $0.150 $0.150
====== ====== ====== ======

The accompanying notes are an integral part of
these consolidated financial statements.

-1-
<PAGE>

VASTAR RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)

June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
(Millions of dollars)

ASSETS
Current assets:
Cash and cash equivalents............................... $ 4.6 $ 10.2
Accounts receivable:
Trade................................................. 88.2 132.5
Related parties....................................... 103.9 111.6
Inventories............................................. 10.5 9.9
Prepaid expenses and other assets....................... 31.0 24.7
-------- --------
Total current assets.................................. 238.2 288.9
Oil and gas properties and equipment, net................ 1,730.2 1,591.4
Other long-term assets................................... 54.8 44.5
-------- --------
Total assets......................................... $2,023.2 $1,924.8
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade................................................. $ 217.3 $ 248.6
Related parties....................................... 10.5 60.7
Accrued liabilities..................................... 57.8 50.2
-------- --------
Total current liabilities............................ 285.6 359.5

Long-term debt........................................... 770.9 672.1
Deferred liabilities and credits......................... 212.5 213.6
Deferred income taxes.................................... 181.3 174.1

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized, 110,000,000
shares; issued and outstanding, 97,356,127 shares
as of June 30, 1998 and 97,304,127 shares as of
December 31, 1997....................................... 1.0 1.0
Capital in excess of par value of stock.................. 456.1 454.9
Accumulated earnings..................................... 115.8 49.6
-------- --------
Total stockholders' equity............................. 572.9 505.5
-------- --------
Total liabilities and stockholders' equity............. $2,023.2 $1,924.8
======== ========
</TABLE>

The accompanying notes are an integral part of
these consolidated financial statements.

-2-
<PAGE>

VASTAR RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------
1998 1997
----- -----
<S> <C> <C>
(Millions of dollars)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income.................................................. $ 80.8 $ 121.2
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization.................. 143.3 143.7
Deferred income taxes..................................... 7.2 72.6
Dry hole expense and undeveloped leasehold amortization... 82.6 45.5
Gain on asset sales....................................... (20.1) (10.9)
Net change in accounts receivable, inventories
and accounts payable..................................... (30.1) (0.6)
Other..................................................... (30.0) 0.6
Earnings from equity affiliate............................ (10.6) --
------- -------
Net cash provided by operating activities................... 223.1 372.1
------- -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties and equipment,
including dry hole costs................................... (363.3) (239.4)
Proceeds from asset sales................................... 43.9 12.9
Other....................................................... 2.8 (0.4)
------- -------
Net cash used by investing activities....................... (316.6) (226.9)
------- -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt issuance....................... 150.0 95.0
Repayments of long-term debt................................ (51.2) (230.1)
Dividends paid.............................................. (14.6) (14.6)
Other....................................................... 3.7 ---
------- -------
Net cash provided (used) by financing activities............ 87.9 (149.7)
------- -------

Net change in cash and cash equivalents..................... (5.6) (4.5)

Cash and cash equivalents at beginning of period............ 10.2 21.9
------- -------
Cash and cash equivalents at end of period.................. $ 4.6 $ 17.4
======= =======
</TABLE>

The accompanying notes are an integral part of
these consolidated financial statements.

-3-
<PAGE>

VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. INTRODUCTION.

The foregoing information is unaudited and has been prepared from the
records of Vastar Resources, Inc. ("Vastar" or the "Company"). In the opinion of
management, the financial information reflects all adjustments (consisting only
of items of a normal recurring nature) necessary for a fair presentation of the
Company's financial position and results of operations in conformity with
generally accepted accounting principles. Such statements are presented in
accordance with the requirements of Regulation S-X, which does not require all
disclosures normally required by generally accepted accounting principles or
those normally required on Form 10-K. These interim financial statements should
be read in conjunction with the annual financial statements and the Notes
thereto contained in the Company's Report on Form 10-K for the year ended
December 31, 1997, and Form 10-Q for the quarter ended March 31, 1998. Certain
previously reported amounts have been restated to conform with classifications
adopted in 1998.

NOTE 2. NET SALES AND OTHER OPERATING REVENUES.

For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------- ------------------
(Millions of dollars) 1998 1997 1998 1997
-------- --------- -------- --------

Sales and other operating revenues:
Unrelated parties.......... $ 195.7 $ 698.5 $412.3 $1,734.2
Related parties (1)........ 216.0 65.0 407.3 133.8
------- ------- ------ --------
Total..................... 411.7 763.5 819.6 1,868.0

Less:
Purchases (2).............. (190.1) (522.4) (378.7) (1,321.5)
Delivery expense........... (2.4) (24.4) (4.3) (48.1)
------- ------- ------ --------
Net sales and
other operating revenues... $ 219.2 $ 216.7 $436.6 $ 498.4
======= ======= ====== ========
- -----------------
(1) The weighted average lifting and purchase cost per Mcfe associated with
proprietary production and third-party purchased volumes multiplied by the
related party sales volumes results in average costs of $175.8 million and
$41.1 million for the three months ended June 30, 1998 and 1997,
respectively, and $337.0 million and $84.1 million for the six months ended June
30, 1998 and 1997, respectively.
(2) Includes purchases from related parties at a cost of $33.4 million and
$2.9 million for the three months ended June 30, 1998 and 1997, respectively,
and $57.3 million and $8.0 million for the six months ended June 30, 1998 and
1997, respectively.

-4-
<PAGE>

VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

NOTE 3. SOUTHERN COMPANY ENERGY MARKETING L.P. ("SCEM").

SCEM is a strategic marketing alliance created by the Company and Southern
Energy, Inc., a Delaware corporation ("SEI"), formerly known as SEI Holdings,
Inc. and a subsidiary of The Southern Company. Through its subsidiaries, Vastar
currently holds a 40 percent interest in SCEM, and SEI, through its
subsidiaries, currently holds a 60 percent interest. SCEM is engaged in the
business of trading and marketing natural gas, electricity and other energy-
related commodities. SCEM provides energy and energy-related commodities,
products and services to wholesale and retail customers in North America.
Transactions with SCEM are conducted on the basis of normal commercial
relationships, at prevailing market prices.

For the first five years of operation, Vastar is entitled to receive,
subject to certain exceptions, minimum cash distributions from SCEM of $20
million for the year 1998, $20 million for the year 1999, $25 million for the
year 2000, $30 million for the year 2001 and $30 million for the year 2002. As a
result of the minimum earnings distribution exceeding the Company's ownership
interest in SCEM's earnings for the six month period ending June 30, 1998, the
Company is recognizing its accrued share of the 1998 minimum earnings level
within the current period. For additional details regarding SCEM, refer to the
Company's Report on Form 10-K for the year ended December 31, 1997.

NOTE 4. EXPLORATION EXPENSES.

<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
-------------- ---------------
(Millions of dollars) 1998 1997 1998 1997
----- ----- ------ -----
<S> <C> <C> <C> <C>
Dry hole costs....................... $38.1 $ 4.6 $ 65.1 $31.0
Geological and geophysical........... 3.8 3.3 25.1 30.3
Undeveloped leasehold amortization... 8.7 7.7 17.5 14.5
Staff................................ 10.9 9.2 21.0 17.7
Lease rentals........................ 2.7 1.3 3.7 3.4
----- ----- ------ -----
Total............................... $64.2 $26.1 $132.4 $96.9
===== ===== ====== =====
</TABLE>

-5-
<PAGE>

VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)

NOTE 5. EARNINGS PER SHARE.

<TABLE>
<CAPTION>
For the Three
Months Ended
June 30,
-----------------------
1998 1997
------- -------
<S> <C> <C>
Basic earnings per share:
Income available to common shareholders
(millions of dollars).......................... $ 32.8 $ 58.3
Average shares of stock outstanding (thousands) 97,343 97,262
Basic earnings per share.......................... $ 0.34 $ 0.60

Diluted earnings per share:
Income available to common shareholders
(millions of dollars).......................... $ 32.8 $ 58.3
Incremental shares assuming the exercise
of stock options (thousands)..................... 647 255
Average shares of stock outstanding plus
effect of dilutive securities (thousands)........ 97,991 97,517
Diluted earnings per share........................ $ 0.34 $ 0.60

For the Six
Months Ended
June 30,
-----------------------
1998 1997
------- -------
Basic earnings per share:
Income available to common shareholders
(millions of dollars).......................... $ 80.8 $ 121.2
Average shares of stock outstanding (thousands) 97,324 97,262
Basic earnings per share.......................... $ 0.83 $ 1.25

Diluted earnings per share:
Income available to common shareholders
(millions of dollars).......................... $ 80.8 $ 121.2
Incremental shares assuming the exercise
of stock options (thousands)..................... 646 207
Average shares of stock outstanding plus
effect of dilutive securities (thousands)........ 97,970 97,469
Diluted earnings per share........................ $ 0.83 $ 1.24
</TABLE>

-6-
<PAGE>

VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)

NOTE 6. COMMITMENTS AND CONTINGENCIES.

The Company and its subsidiaries are involved in a number of lawsuits, all
of which have arisen in the ordinary course of the Company's business. The
Company believes that any ultimate liability resulting from any of these suits
will not have a material adverse effect on its financial position or results of
operations.

The operations and financial position of Vastar continue to be affected
from time to time in varying degrees by domestic and foreign political
developments as well as legislation and regulations pertaining to restrictions
on oil and gas production, imports and exports, natural gas regulation, taxes,
environmental regulations and cancellation or impairment of contract rights.
Both the likelihood of such occurrences and their overall effect on the Company
vary greatly and are not predictable. These uncertainties are part of a number
of items that Vastar has taken and will continue to take into account in
periodically establishing accounting reserves.

Vastar and Atlantic Richfield Company ("ARCO") have agreements whereby
Vastar has agreed to indemnify ARCO against certain claims or liabilities to
which ARCO could be subject relating to ARCO's historical ownership and
operation of the properties transferred by ARCO to Vastar upon the formation of
Vastar, including liabilities under laws relating to the protection of the
environment and liabilities arising out of certain litigation. ARCO has agreed
to indemnify Vastar with respect to other claims and liabilities and other
litigation matters not related to Vastar's business or properties as reflected
in its consolidated financial statements.

In September 1996, the Company entered into a contract with Diamond
Offshore Drilling Company for the major upgrade and operation of a
semisubmersible drilling rig, Ocean Victory, for a three-year deepwater drilling
program in the Gulf of Mexico, which commenced in November 1997. These contracts
have a remaining life of 2.7 years and a remaining cost of $145.0 million before
any reimbursement from partners or potential partners.

In connection with SCEM's marketing and risk activities, Vastar and
SEI have agreed to guarantee certain obligations of SCEM. The total amount of
the obligations to be guaranteed is set by the Board of Governors of SCEM.
Vastar and SEI have agreed, subject to certain limitations, to indemnify each
other for their respective pro rata share of any amount paid in connection with
these guarantees. Each company's pro rata share is equal to their respective
percentage ownership in SCEM at the time the guaranteed obligation is incurred.
In addition, Vastar's obligation to indemnify SEI, in years ending prior to
January 1, 2003, is limited, subject to certain limitations, to the amount which
Vastar has received from SCEM in excess of the minimum distributions for that
year. Similarly, if Vastar has not received its minimum distribution from SCEM

-7-
<PAGE>

VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)

NOTE 6. COMMITMENTS AND CONTINGENCIES - (continued).

in any year, SEI has agreed to indemnify Vastar, subject to certain limitations,
for all amounts paid by Vastar under these guarantees for that year.

The Company has significant credit risk exposure to SCEM and SEI. Neither
SCEM nor SEI has yet obtained a credit rating from any nationally recognized
statistical rating organization. The credit risk exposure consists of three
principal items. First, SCEM has promised to make certain minimum distributions
to Vastar during the first five years of SCEM's operations. SEI has guaranteed
this obligation as well as the amounts due to Vastar upon the exercise of
Vastar's option to sell its remaining interest on January 1, 2003. Second, SCEM
is obligated to pay and SEI has guaranteed payment for gas purchased under the
Gas Purchase and Sale Agreement between the Company and SCEM, pursuant to which
Vastar has agreed to sell substantially all of its natural gas production to
SCEM. Third, Vastar has been indemnified by SEI, with certain limitations, with
respect to amounts which Vastar may be required to pay under guarantees which
Vastar has provided to secure certain obligations of SCEM. If at December 31,
1998, SEI has not obtained and does not thereafter maintain in effect an
investment grade rating, SEI has agreed to provide certain credit enhancements
to secure the payment of SCEM's obligations under the Gas Purchase and Sale
Agreement and the minimum distributions. For additional details regarding SCEM,
refer to the Company's Report on Form 10-K for the year ended December 31, 1997.

The Company has performed and continues to perform ongoing credit
evaluations of its other customers and generally does not require collateral on
its credit sales. Any amounts anticipated as uncollectible are charged to income
and credited to a valuation account. The amounts included in the allowance for
uncollectible accounts receivable at June 30, 1998 and 1997, were insignificant.

NOTE 7. TAXES.

The (benefit) provision for taxes on income is comprised of the following:
<TABLE>
<CAPTION>

For the Three For the Six
Months Ended Months Ended
June 30, June 30,
---------------- ----------------
(Millions of dollars) 1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Federal:
Current............................... $(23.2) $(10.7) $(44.5) $(71.5)
Deferred.............................. 1.8 7.8 7.0 71.5
------ ------ ------ ------
Total federal........................ (21.4) (2.9) (37.5) 0.0
------ ------ ------ ------
State:
Current............................... 0.3 0.7 0.7 1.5
Deferred.............................. (0.1) 0.5 0.2 1.1
------ ------ ------ ------
Total state.......................... 0.2 1.2 0.9 2.6
------ ------ ------ ------
Total income tax (benefit) provision... $(21.2) $ (1.7) $(36.6) $ 2.6
====== ====== ====== ======
</TABLE>

-8-
<PAGE>

VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)

NOTE 7. TAXES - (continued).

A reconciliation of the income tax (benefit) provision with tax at the
federal statutory rate for the specified period is as follows:

For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------ ----------------
(Millions of dollars) 1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income before taxes............. $ 11.6 $ 56.6 $ 44.2 $123.8
====== ====== ====== ======
Tax at the statutory rate....... $ 4.1 $ 19.8 $ 15.5 $ 43.3
Increase (reduction) in taxes
resulting from:
State income taxes (net
of federal effect)........... 0.2 0.8 0.6 1.7
Tax credits and other......... (25.5) (22.3) (52.7) (42.4)
------ ------ ------ ------
Income tax (benefit)
provision...................... $(21.2) $ (1.7) $(36.6) $ 2.6
====== ====== ====== ======
</TABLE>

During the first quarter of 1997, ARCO and Vastar agreed to a second
amendment to the Tax Sharing Agreement, effective January 1, 1997 (the "Second
Amendment"). The Second Amendment removed certain limitations under the original
agreement and generally allows Vastar to receive payment for all Section 29 tax
credits in the year generated provided ARCO is also able to utilize the credits
in that year. In return, the Company agreed to a 3.25 percent reduction in the
value of the Section 29 tax credits generated on or after January 1, 1997, from
properties acquired by the Company before June 1, 1995. ARCO and Vastar also
agreed to apply the same 3.25 percent reduction to the $61.4 million of Section
29 tax credits carried forward as of December 31, 1996, in exchange for
immediate payment upon execution of the Second Amendment. Accordingly, Vastar
received a payment from ARCO of $59.4 million on March 20, 1997. The first
quarter 1997 federal tax provision included a $(59.4) million current tax
benefit and a $61.4 million deferred tax expense related to the payment received
by Vastar in the first quarter of 1997 with respect to the tax credit
carryforward as of December 31, 1996.

For further information on the Tax Sharing Agreement, as amended, refer to
the Company's Report on Form 10-K for the year ended December 31, 1997.

-9-
<PAGE>

VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)

NOTE 8. LONG-TERM DEBT.

Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
June 30, December 31,
(Millions of dollars) 1998 1997
-------- ----------
<S> <C> <C>
8.75% Notes, due 2005.................... $149.5 $149.4
6.95% Notes, due 2006.................... 75.0 75.0
6.96% Notes, due 2007.................... 75.0 75.0
6.39% Notes, due 2008.................... 50.0 ---
6.00% Putable/Callable Notes, due 2010... 100.0 ---
Commercial Paper......................... 321.4 372.7
------ ------
Total.................................... $770.9 $672.1
====== ======
</TABLE>
In April 1998, Vastar issued $100 million of 6.00% Putable/Callable Notes
due April 20, 2010, Putable/Callable April 20, 2000. The Notes were issued under
the Indenture, dated as of January 1, 1995, as supplemented by the Supplemental
Indenture, dated May 18, 1995, and as further supplemented by the Second
Supplemental Indenture, dated April 16, 1998. The net proceeds of $99.9 million
were used to pay down debt incurred under the Company's Commercial Paper
Program. In addition, the Company sold its call option under the Notes to Union
Bank of Switzerland, London branch, and received $2.5 million, which was also
used to pay down debt incurred under the Company's Commercial Paper Program.

At June 30, 1998, Vastar had an outstanding interest swap covering $100
million related to the Putable/Callable Notes. The swap effectively changed the
fixed rate debt of 6.00 percent to a floating quarterly rate.

NOTE 9. SUBSEQUENT EVENTS.

On July 22, 1998, the Company declared a quarterly dividend of $0.075 per
share of common stock, payable on September 1, 1998, to stockholders of record
on August 7, 1998.

The agreement provides for the purchase by Vastar of all of the outstanding
shares of capital stock of Western Midway Company ("WMC"), a wholly owned
subsidiary of ARCO, for approximately $170 million in cash. WMC also has $300
million of existing long-term debt which will remain outstanding following the
closing of the transaction. The purchase price is subject to adjustment at
closing. The transaction is subject to a due diligence period which the parties
have certain rights to terminate the transaction. The effective date of the
transaction is July 1, 1998, and closing is scheduled for October 30, 1998.

-10-
<PAGE>

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

IMPACT OF THE MARKETING ALLIANCE.

In August 1997, the Company entered into a Formation Agreement with
Southern Energy, Inc., a Delaware corporation ("SEI"), formerly known as SEI
Holdings, Inc., a subsidiary of The Southern Company, to combine certain natural
gas and power trading and marketing operations of the two companies and create a
new energy services company. The new company is named Southern Company Energy
Marketing L.P. ("SCEM" or the "Venture"). Through its subsidiaries, Vastar
currently holds a 40 percent interest in the Venture, and SEI, through its
subsidiaries, currently holds a 60 percent interest. Pursuant to a two-phase
closing, SCEM began gas marketing effective September 1, 1997, and power
marketing effective January 1, 1998. The Company did not contribute its crude
oil or natural gas liquids marketing businesses to the Venture.

The Company is accounting for its interest in the Venture using the equity
method of accounting. Therefore, the Company's consolidated results after
September 1, 1997, no longer reflect its gas marketing activities in the
individual line items of the financial statements. For more details on the
Company's investment in SCEM and related matters, refer to the Company's Report
on Form 10-K for the year ended December 31, 1997.

Due to this change in accounting method for the gas marketing business, the
pro forma statistical and financial results for the three and six months ending
June 30, 1997, are provided below to reflect the Company's results as if the
equity method of accounting had been used during that time period. These pro
forma financial and statistical results are provided for information only. It is
based on historical information and does not reflect the actual results that
would have occurred had the Venture been in existence during this time period.

RESULTS OF OPERATIONS.

<TABLE>
<CAPTION>
Sales and production volumes and average price statistics for the specified
periods are as follows:
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
----------------------------- ----------------------------
Pro As Pro As
forma Reported forma Reported
1998 1997 1997 1998 1997 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Natural gas
Sales (MMcfd)*.............................. 1,394 1,168 2,774 1,347 1,172 3,218
Production (MMcfd).......................... 940 880 880 921 877 877
Average sales price (per Mcf)*.............. $ 2.00 $ 1.80 $ 2.09 $ 1.95 $ 2.10 $ 2.40
Average wellhead price (per Mcf)............ $ 1.94 $ 1.72 $ 1.72 $ 1.93 $ 2.02 $ 2.02

Crude oil
Sales (MBbld)*.............................. 116.9 102.4 102.4 118.5 100.3 100.3
Production (MBbld).......................... 35.0 35.8 35.8 35.5 34.8 34.8
Average realized price (per Bbl)*........... $14.36 $20.09 $20.09 $15.74 $22.05 $22.05

Natural gas liquids ("NGLs")
Production (MBbld).......................... 14.4 17.0 17.0 15.0 17.2 17.2
Average realized price (per Bbl)............ $ 9.35 $11.93 $11.93 $10.19 $13.72 $13.72

Total production (MMcfed)*................... 1,236 1,197 1,197 1,224 1,189 1,189
</TABLE>
- ---------------------
* As used in this Form 10-Q, the terms "Bcf," "MMcf" and "Mcf" mean billion,
million and thousand cubic feet, respectively; the terms "Bcfd," "MMcfd" and
"Mcfd" mean billion, million and thousand cubic feet per day, respectively;
the terms "MMBbl" and "MBbl" mean million and thousand barrels, respectively;
the term "Bbl" means barrel; the terms "MMBbld" and "MBbld" mean million and
thousand barrels per day, respectively; the term "MMcfed" means million cubic
feet equivalent per day. In calculating Mcf and Bbl equivalents, one Bbl is
deemed to equal six Mcf.

-11-
<PAGE>

RESULTS OF OPERATIONS - (continued).

<TABLE>
<CAPTION>
The following table sets forth the statement of income for the specified periods:

For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------------------- ----------------------------
Pro As Pro As
forma Reported forma Reported
(Millions of dollars) 1998 1997 1997 1998 1997 1997
-------- --------- -------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Natural gas
Sales.................................. $ 253.4 $ 191.4 $ 526.4 $ 475.4 $ 445.6 $ 1,399.1
Purchases.............................. (91.5) (62.1) (375.8) (166.8) (142.5) (1,042.6)
Delivery expense....................... (0.5) (0.3) (17.0) (0.6) (0.3) (38.5)
------- ------- ------- ------- ------- ---------
Net sales - natural gas.............. 161.4 129.0 133.6 308.0 302.8 318.0
------- ------- ------- ------- ------- ---------
Crude oil
Sales.................................. 142.0 178.2 178.2 308.9 378.5 378.5
Purchases.............................. (95.2) (111.5) (111.5) (205.2) (236.7) (236.7)
Delivery expense....................... (1.1) (1.4) (1.4) (2.5) (3.0) (3.0)
------- ------- ------- ------- ------- ---------
Net sales - crude oil................ 45.7 65.3 65.3 101.2 138.8 138.8
------- ------- ------- ------- ------- ---------
NGLs and other
Sales.................................. 16.3 21.0 58.9 35.3 52.5 90.4
Purchases and other costs.............. (4.2) (2.5) (41.1) (7.9) (10.2) (48.8)
------- ------- ------- ------- ------- ---------
Net sales -
NGLs and other..................... 12.1 18.5 17.8 27.4 42.3 41.6
------- ------- ------- ------- ------- ---------
Net sales and other
operating revenues.................. 219.2 212.8 216.7 436.6 483.9 498.4
Earnings from equity affiliate 5.3 --- --- 10.6 7.3 ---
Other revenues.......................... 4.2 13.2 13.2 24.9 15.1 15.1
------- ------- ------- ------- ------- ---------
Net revenues......................... 228.7 226.0 229.9 472.1 506.3 513.5
------- ------- ------- ------- ------- ---------
EXPENSES
Operating expenses...................... 39.1 36.2 36.2 73.6 68.9 68.9
Exploration expenses.................... 64.2 26.1 26.1 132.4 96.9 96.9
Selling, general and
administrative expenses................ 14.2 12.7 16.5 26.2 24.2 31.2
Taxes other than income taxes........... 13.1 9.9 10.0 26.1 24.4 24.6
Depreciation, depletion and
amortization........................... 72.8 73.1 73.1 143.3 143.7 143.7
Interest................................ 13.7 11.4 11.4 26.3 24.4 24.4
------- ------- ------- ------- ------- ---------
Total expenses......................... 217.1 169.4 173.3 427.9 382.5 389.7
------- ------- ------- ------- ------- ---------
Income before income taxes.............. 11.6 56.6 56.6 44.2 123.8 123.8
Income tax (benefit) provision (21.2) (1.7) (1.7) (36.6) 2.6 2.6
------- ------- ------- ------- ------- ---------
Net income.............................. $ 32.8 $ 58.3 $ 58.3 $ 80.8 $ 121.2 $ 121.2
======= ======= ======= ======= ======= =========
</TABLE>

-12-
<PAGE>

SECOND QUARTER 1998 vs. PRO FORMA SECOND QUARTER 1997.

For the purpose of this analysis, the second quarter 1998 results are being
compared to the pro forma second quarter 1997 results.

Net income for the second quarter of 1998 was $32.8 million, compared to
$58.3 million for the second quarter of 1997. The 44 percent decrease in
earnings was primarily the result of increased exploration costs.

Natural gas sales increased by 32 percent to $253.4 million in the second
quarter of 1998 as compared to the same period last year. The higher revenues
were primarily the result of a seven percent increase in production available
for sale and higher commodity prices. Natural gas purchases during the second
quarter of 1998 increased from the same period last year due to an increase
in purchased volumes and average purchased price.

Average natural gas wellhead prices for the second quarter of 1998
increased $0.22 per Mcf from the second quarter of 1997 to $1.94 per Mcf. The
higher price realization was due to strong market demand as reflected in the
second quarter 1998 average price for Henry Hub of $2.23 per Mcf compared to
$2.12 per Mcf in the second quarter of last year. In addition, the Company
experienced reduced basis differentials (effectively higher prices) in the
second quarter of 1998 as compared to the same period last year for gas
production from the San Juan Basin. Hedging losses included in second quarter
1998 and second quarter 1997 were $2.1 million and $2.3 million, respectively.

Second quarter 1998 natural gas production increased by 60 MMcfd from the
same period last year. This increase was primarily a result of exploitation
efforts in the San Juan Basin, start-up of the High Island 117 and Ship Shoal
126 fields earlier in the year and a recent discovery in the South Panola field.
These increases more than offset natural field declines.

Crude oil sales in the second quarter of 1998 decreased $36.2 million from
the same period last year, primarily as a result of a significant decrease in
crude oil sales prices and slightly lower production available for sale.

Second quarter 1998 crude oil production decreased slightly to 35.0 MBbld
from second quarter 1997 levels. Volumes were impacted negatively by the ongoing
repair work at the partner-operated West Delta 106/107 production platform,
which was struck by a barge in the first quarter of this year.

Net sales for natural gas liquids and other products were down for the
second quarter of 1998 as compared to the same period last year. The decrease
was a result of a decrease in average NGL realized prices and a decrease in NGL
production available for sale. Realized prices for NGLs were lower in the second
quarter of 1998 as a result of depressed crude oil prices. Lower production
resulted from (1) the selective decisions by the Company and other operators to
bypass processing in favor of selling the wet gas stream due to the favorable
natural gas price market and (2) the election by the Company and other plant
operators to perform annual maintenance operations at several processing plants.

Other revenues decreased during the second quarter of 1998 as compared to
the same period last year. Second quarter 1997 included a one-time benefit of
$9.8 million from leasing of undeveloped leasehold mineral fee acreage in East
Texas.

Exploration costs for the second quarter of 1998 increased $38.1 million as
compared to the same period last year. The increase in costs was primarily a
result of higher dry hole costs. Dry hole expenses were $38.1 million in the
second quarter of 1998 as compared to $4.6 million in the same period last year.
The increase in dry hole costs was primarily a result of the timing of dry hole
decisions during the second quarter of 1998 as compared to the same time period
last year. The second quarter 1998 dry hole expense was primarily related to
four Gulf of Mexico wells: partner-operated deepwater wildcat Atwater Valley
136 and three Vastar-operated shelf wildcats at East Cameron 160, South Marsh
Island 169 and Ship Shoal 139.

Taxes other than income taxes also increased in the second quarter of 1998
as compared to the second quarter of 1997 as a result of higher gas prices and
volumes.

-13-
<PAGE>

SECOND QUARTER 1998 vs. PRO FORMA SECOND QUARTER 1997 - (Continued).

Interest expense for the second quarter of 1998 increased $2.3 million as
compared to the same period last year. The increase is the result of higher
average outstanding debt levels during the second quarter of 1998 as compared to
the second quarter of 1997.

The income tax benefit of $21.2 million in the second quarter of 1998 was
greater than in the same period last year because of lower pre-tax earnings and
higher tax credits. The income tax benefit for the second quarter of 1998 and
the second quarter of 1997 included the net benefit of $25.5 million and $22.2
million, respectively, of Internal Revenue Code Section 29 tax credits for non-
conventional fuels. The increase in tax credits in the second quarter of 1998
was primarily a result of higher tax credit-eligible production in the San Juan
Basin, acquisitions of tax credit-eligible properties in the last three quarters
of 1997 and the first quarter of 1998, and the increased tax credit rate.

SIX MONTHS ENDED JUNE 30, 1998 vs. PRO FORMA SIX MONTHS ENDED JUNE 30, 1997.

For the purpose of this analysis, the first six months of 1998 results are
being compared to the pro forma first six months of 1997 results.

Net income for the first six months of 1998 was $80.8 million, compared to
$121.2 million for the first six months of 1997. The 33 percent decrease in
earnings was primarily the result of lower crude prices and higher exploration
expenses.

Natural gas sales increased to $475.4 million in the first six months of
1998 as compared to the same period last year. The higher revenues were the
result of a five percent increase in production available for sale partially
offset by an seven percent decrease in average sales prices. Natural gas
purchases during the first six months of 1998 increased from the same period
last year, primarily as a result of higher purchased volumes, partially offset
by lower natural gas prices.

Average natural gas wellhead prices for the first six months of 1998
decreased $0.09 per Mcf from the first six months of 1997 to $1.93 per Mcf. The
lower price realization was driven by general market conditions, as reflected in
the first six months 1998 average price for Henry Hub of $2.22 per Mcf compared
to $2.55 per Mcf in the first six months of last year. Partially offsetting this
impact were:

(1) smaller realized hedging losses. The first six months of 1998 included $4.9
million in losses compared to $18.2 million in the same period last year;
and

(2) reduced basis differentials (effectively higher prices) for gas production
from the San Juan Basin.

The first six months of 1998 natural gas production increased by 44 MMcfd
from the same period last year. This increase was primarily a result of
exploitation efforts in the San Juan Basin, the High Island 117 field start-up
and the recent discovery in the South Panola field. These increases more than
offset natural field declines.

Crude oil sales in the first six months of 1998 decreased $69.6 million
from the same period last year, as a result of a significant decrease in crude
oil sales prices, partially offset by slightly higher production available for
sale.

The first half of 1998 crude oil production increased slightly to 35.5
MBbld from the first half of 1997 levels primarily as a result of exploitation
efforts at Eugene Island 175, West Cameron 66 and production increases at Ship
Shoal 126.

Net sales for natural gas liquids and other products were down for the
first six months of 1998 as compared to the same period last year. The decrease
resulted from a 26 percent decrease in average NGL realized prices and a
decrease in NGL production available for sale. Lower production resulted from
(1) the selective decisions by the Company and other operators to bypass
processing in favor of selling the wet gas stream due to the favorable natural
gas price market and (2) the election by the Company and other plant operators
to perform annual maintenance operations at several processing plants.

-14-
<PAGE>

SIX MONTHS ENDED JUNE 30, 1998 vs. PRO FORMA SIX MONTHS ENDED JUNE 30, 1997 -
(Continued).

Other revenues increased during the first six months of 1998 as compared to
the same period last year primarily as a result of the $17.7 million pre-tax
gain associated with the $40.0 million payment received in the formation of SCEM
partially offset by the absence of a fee land bonus received during the first
six months of 1997.

Exploration costs for the first half of 1998 increased $35.5 million as
compared to the same period last year. The increase in costs was primarily a
result of higher dry hole costs. Dry hole expenses were $65.1 million in the
first half of 1998 as compared to $31.0 million in the same period last year.
The increase in dry hole costs was primarily a result of increased drilling
activity which resulted in more wells being decisioned in the first half of 1998
as compared to the first half of 1997. The dry hole expense for the first six
months of this year included five Gulf of Mexico wells: two partner-operated
deepwater wildcats, Garden Banks 258 and Atwater Valley 136 and three Vastar-
operated shelf wildcats at East Cameron 160, South Marsh Island 169 and Ship
Shoal 139.

As a result of the lower pre-tax income and higher tax credits, the Company
recognized an income tax benefit of $36.6 million in the first six months of
1998 compared to $2.6 million tax provision in the same period last year. The
income tax benefit for the first six months of 1998 and the provision for the
first six months of 1997 included the net benefit of $52.8 million and $42.4
million, respectively, of Internal Revenue Code Section 29 tax credits for non-
conventional fuels. The increase in tax credits in the first six months of 1998
was primarily a result of higher tax credit-eligible production in the San Juan
Basin, acquisitions of tax credit-eligible properties in the last three quarters
of 1997 and the first quarter of 1998 and a favorable adjustment of $1.7 million
in the first quarter of 1998 related to a 1997 tax credit rate adjustment.

LIQUIDITY AND CAPITAL RESOURCES.

In the first half of 1998, cash flow from operations was $223.1 million,
compared to $372.1 million for the same period in 1997. This decrease was due,
in part, to lower commodity product prices and higher working capital
requirements during the first half of 1998 as compared to the first half of
1997. In the first quarter 1997, the Company also received a one-time payment
from ARCO of $59.4 million related to the monetization of certain tax credit
carryforwards pursuant to an amendment of the Tax Sharing Agreement between the
Company and ARCO.

Net cash used in investing activities in 1998 was $316.6 million, an
increase over the first half 1997, primarily as a result of an increased
drilling program partially offset by the proceeds received in connection with
the transaction that resulted in the creation of SCEM.

The following table summarizes the Company's capital investments for the
comparative periods.

CAPITAL SPENDING SUMMARY

<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
---------------
(Millions of dollars) 1998 1997
------ ------
<S> <C> <C>
Exploratory drilling............... $101.3 $ 52.7
Development drilling............... 159.9 91.7
Property acquisitions.............. 54.6 69.0
Other additions.................... 47.5 26.0
------ ------
Total additions to property,
plant and equipment.............. 363.3 239.4
Geological and geophysical......... 25.1 30.3
------ ------
Total capital program.......... $388.4 $269.7
====== ======
</TABLE>
-15-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES - (Continued).

Exploratory and development drilling costs increased in the first six
months of 1998 as compared to the first six months of 1997, primarily as the
result of (i) increased drilling activity both in deepwater and on the Gulf of
Mexico shelf and (ii) higher rates paid to drilling rig operators.

Property acquisition costs in the first half of 1998 were lower as
compared to the same period last year primarily as a result of lower undeveloped
leasehold acquisitions. First quarter 1998 property acquisitions included
approximately $36.1 million for the purchase of 22 tracts in the March 18, 1998,
Outer Continental Shelf ("OCS") Central Gulf of Mexico Oil and Gas Lease Sale
169. During the first quarter of 1997, the Company spent approximately $58.0
million in the March 5, 1997, OCS Central Gulf of Mexico Oil and Gas Lease Sale
166.

Cash flow provided by financing activities was $87.9 million in the first
six months of 1998, which included a $98.8 million increase of long-term debt
(net of debt repayments).

In April 1998, Vastar issued $100 million of 6.00% Putable/Callable Notes
due April 20, 2010, Putable/Callable April 20, 2000. The Notes were issued under
the Indenture, dated as of January 1, 1995, as supplemented by the Supplemental
Indenture, dated May 18, 1995, and as further supplemented by the Second
Supplemental Indenture, dated April 16, 1998. The net proceeds of $99.9 million
were used to pay down debt incurred under the Company's Commercial Paper
Program. In addition, the Company sold its call option under the Notes to Union
Bank of Switzerland, London branch, and received $2.5 million, which was also
used to pay down debt incurred under the Company's Commercial Paper Program.

The Company's ratio of earnings to fixed charges for the six months ended
June 30, 1998 and 1997 was 2.6 and 6.1, respectively. This ratio was computed by
dividing earnings by fixed charges. For this purpose, earnings include income
before income taxes and fixed charges. Fixed charges include interest and
amortization of debt expenses and the estimated interest component of rental
expense.

On August 4, 1998, the Company announced the execution of an agreement to
acquire interests in 23 producing fields, approximately 40 undeveloped lease
blocks and other assets as part of a three-company transaction involving Vastar,
Atlantic Richfield Company ("ARCO") and Mobil Exploration & Producing U.S. Inc.
("Mobil"). The agreement provides for the purchase by Vastar of all of the
outstanding shares of capital stock of Western Midway Company ("WMC"), a wholly
owned subsidiary of ARCO, for approximately $170 million in cash, which the
Company intends to initially fund through existing working capital and
borrowings under the Company's Commercial Paper Program. WMC also has $300
million of existing long-term debt which will remain outstanding following the
closing of the transaction. The purchase price is subject to adjustment at
closing. The transaction is subject to a due diligence period during which the
parties have certain rights to terminate the transaction. The effective date of
the transaction is July 1, 1998, and closing is scheduled for October 30, 1998.

RISK MANAGEMENT AND MARKET-SENSITIVE INSTRUMENTS.

The Company uses various financial instruments for non-trading purposes in
the normal course of business to manage and reduce risks associated with price
volatility, contractual commitments and other market variables associated with
its natural gas and petroleum liquids production. These financial instruments
have the effect of locking in for specified periods the prices the Company will
receive for the volumes to which the financial instruments relate. As a result,
while these arrangements are structured to reduce the Company's exposure to
decreases in price associated with the hedged commodity, they can also limit the
benefit the Company might otherwise have received from any price increases
associated with the hedged commodity. Such risk management activities are
generally accomplished pursuant to exchange-traded futures and over-the-counter
options.

The Company realized approximately $4.1 million and $18.2 million of
pre-tax losses in the first six months of 1998 and 1997, respectively, as a
result of these hedging transactions for natural gas and crude oil. Since these
transactions were considered to be hedges on production, these losses were
included in sales and other operating revenues and were reflected in the average
sales price of the particular products.

-16-
<PAGE>

RISK MANAGEMENT AND MARKET-SENSITIVE INSTRUMENTS - (Continued).

The following table summarizes the Company's open positions as of June 30,
1998, which are used to manage the Company's exposure to natural gas prices.

<TABLE>
<CAPTION>
Remaining Contract Average Weighted
Financial Instrument Time Period Volume Average Prices
- -------------------- ------------------ --------- --------------
<S> <C> <C> <C>
Fixed Prices July - Dec 1998 165 MMcfd $ 2.14
Collars* July - Oct 1998 45 MMcfd $2.17 - $2.62
Collar July - Sept 1998 50 MMcfd $2.40 - $3.15
Puts Sold** July - Sept 1998 50 MMcfd $ 2.00
Collar Jan - Sept 1999 100 MMcfd $2.35 - $3.00
Puts Sold Jan - Sept 1999 100 MMcfd $ 2.05
</TABLE>
- ------------
* A "collar" is a financial instrument or a combination of financial
instruments that establishes a floor that allows the Company to receive no less
than an average stated price per Mcf and a ceiling that will not allow the
Company to receive more than an average stated price per Mcf.

** A "put" is an option contract that gives the holder the right to sell the
underlying security, such as a futures contract, at a specified price for a
certain fixed period of time.

As of June 30, 1998, the fair value (unrealized pre-tax loss or gain to the
Company) for the hedged transactions for the remainder of 1998 would be a $12.3
million loss for natural gas. This loss calculation is based on forward price
quotes from brokers and NYMEX forward prices as of June 30, 1998, which averaged
$2.50 per Mcf for the balance of the year. There were no outstanding oil hedges
as of June 30, 1998. The actual gains or losses realized by the Company from
such hedges may vary significantly from the foregoing amounts due to the
fluctuation of prices in the commodity markets. For example, a hypothetical ten
percent increase in the forward price quotes would increase the unrealized loss
for 1998 by approximately $7.7 million for natural gas. In order to calculate
the hypothetical loss, the relevant parameters of the futures contracts are the
type of commodity, the delivery price and the delivery location. Due to the
short period before expiration, time value of money is ignored in the
calculation. This analysis includes only the commodity derivative instrument and
not the exposure related to the underlying commodity. Natural gas prices
fluctuated between $1.99 per Mcf and $2.64 per Mcf (Henry Hub) and crude oil
prices fluctuated between $11.58 per Bbl and $16.13 per Bbl (NYMEX-WTI-at-
Cushing) during the second quarter of 1998.

The Company has long-term contracts with certain cogeneration facilities
which have an average remaining life of 12 years. These contracts cover an
average of 74 MMcfd of the Company's natural gas production for the remainder of
the year at an average price of $2.51 per Mcf.

During the first half of 1998, the Company's long-term sales commitments
did not exceed the total of proprietary production and other natural gas
production controlled through call rights with third-party producers and
marketing agreements with the Company's royalty owners.

The Company's Commercial Paper Program is subject to interest rate risk. An
increase in interest rates could increase interest expense. For example, a ten
percent increase in the London Interbank Offered Rate (a benchmark pursuant to
which the Company's interest rates may be set) would have increased interest
expense by $0.7 million and $1.1 million for the second quarter and the first
six months of 1998, respectively. Vastar may periodically elect to enter into
interest rate swap agreements with the objective of managing interest rate risk.

At June 30, 1998, Vastar had an outstanding interest rate swap covering
$100 million related to the Company's Putable/Callable Notes. The swap
effectively changed the fixed rate debt of 6.00 percent to a floating quarterly
rate.

-17-
<PAGE>

NEW ACCOUNTING STANDARD.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires all derivatives
to be recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In addition, all hedging relationships
must be designated, reassessed and documented pursuant to the provisions of SFAS
No. 133. SFAS No. 133 is effective for financial statements for fiscal years
beginning after June 15, 1999. The Company has not yet completed its evaluation
of the impact of the provisions of SFAS No. 133.

------------------------
Management cautions against projecting any future results based on present
earnings levels because of economic uncertainties, the extent and form of
existing or future governmental regulations and other possible actions by
governments.

The foregoing financial information is unaudited and has been prepared from
the books and records of the Company. In the opinion of Management, the
financial information reflects all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.

-18-
<PAGE>

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

There have been no material developments with respect to the Company's
legal proceedings as previously reported in the Company's Report on Form 10-K
for the period ending December 31, 1997 and the Company's Report on Form 10-Q
for the quarterly period ended March 31, 1998.

Item 4. Submission of Matters to a Vote of Security Holders.

The Company's Annual Meeting of Stockholders was held on May 20, 1998, in
Houston, Texas. Stockholders voted on the election of nine directors for a one-
year term expiring in 1999, the approval of the Company's Amended and Restated
Executive Long-Term Incentive Plan and the appointment of independent
accountants for the year 1998. The voting results on these matters were as
follows:

(a) Election of Directors:

<TABLE>
<CAPTION>
Votes Broker
Received Votes Non-
Nominee For Withheld Votes
- -------------------- ---------- --------- -----------
<S> <C> <C> <C>
Jimmie D. Callison 88,173,773 10,765 -0-
Terry G. Dallas 88,012,928 171,610 -0-
Charles D. Davidson 88,018,853 165,685 -0-
Marie L. Knowles 88,012,233 172,305 -0-
Robert C. LeVine 88,174,033 10,505 -0-
William D. Schulte 88,174,033 10,505 -0-
Steven J. Shapiro 88,018,736 165,802 -0-
William E. Wade, Jr. 88,012,823 171,715 -0-
Michael E. Wiley 88,018,578 165,960 -0-
</TABLE>

(b) Approval of the Company's Amended and Restated Executive Long-Term
Incentive Plan:

For: 88,072,950
Against: 67,114
Abstaining: 44,474
Broker Non-Vote: -0-

For: 88,156,901
Against: 16,009
Abstaining: 11,628
Broker Non-Vote: -0-

-19-
<PAGE>

Item 5. Other Information.

NOTICE OF PROPOSAL DEADLINE DATE

Rule 14a-8 promulgated under the Securities and Exchange Act of 1934, as
amended, specifies what constitutes timely submissions for a stockholder
proposal to be included in the Company's proxy statement for an annual or
special meeting of stockholders. If a stockholder desires to bring business
before an annual or special meeting which is not the subject of a proposal
timely submitted for inclusion in the Company's proxy statement, the stockholder
must follow the procedures outlined in the Company's Bylaws. Sections 4 b.,
4 c., and 4 d. of the Company's By-laws provide as follows:

"b. ANNUAL MEETINGS OF STOCKHOLDERS.

(i) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders may be made at
an annual meeting of stockholders (a) pursuant to the Company's notice of
meeting, (b) by or at the direction of the Board of Directors or (c) by any
stockholder of the Company who was a stockholder of record at the time of giving
of notice provided for in this Section 4, who is entitled to vote at the meeting
and who complies with the notice procedures set forth in this Section 4.

(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (c) of paragraph b. (i) of
this Section 4, the stockholder must have given timely notice thereof in writing
to the Secretary of the Company and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the Company
not later than the close of business on the sixtieth (60th) day nor earlier than
the close of business on the ninetieth (90th) day prior to the first anniversary
of the preceding year's annual meeting (except in the case of the Company's
first annual meeting, for which such notice shall be timely if delivered in the
same time period as if such meeting were a special meeting); provided, however,
that in the event that the date of the annual meeting is more than thirty (30)
days before or more than sixty (60) days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the Company. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (aa) the name and address of such
stockholder, as they appear on the Company's books, and of such beneficial owner
and (bb) the class, series and number of shares of Capital Stock of the Company
that are held of record and owned by such stockholder and such beneficial owner.

-20-
<PAGE>

(iii) Notwithstanding anything in the second sentence of paragraph
b.(ii) of this Article to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Company is increased
and there is no public announcement by the Company naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
seventy (70) days prior to the first anniversary of the preceding year's annual
meeting (or, if the annual meeting is held more than thirty (30) days before or
sixty (60) days after such anniversary date, at least seventy (70) days prior to
such annual meeting), a stockholder's notice required by this Section 4 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive office of the Company not later than close of business
on the tenth (10th) day following the day on which such public announcement is
first made by the Company.

c. Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Company's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the Company's
notice of meeting (i) by or at the direction of the Board of Directors or (ii)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by any stockholder of the Company who is a stockholder
of record at the time of giving of notice of the special meeting, who shall be
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section 4. In the event the Company calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the Company's notice
of meeting, if the stockholder's notice required by paragraph b.(ii) of this
Section 4 shall be delivered to the Secretary at the principal executive offices
of the Company not earlier than the ninetieth (90th) day prior to such special
meeting and not later than the close of business on the later of the sixtieth
(60th) day prior to such special meeting or the tenth (10th) day following the
day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting.

d. General.

(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 4 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 4. Except as otherwise provided by law or these By-Laws, the
chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in
this Section 4 and, if any proposed nomination or business is not in compliance
herewith to declare that such defective proposal or nomination shall be
disregarded.

(ii) For purposes of this Section 4, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Company with the Securities and Exchange Commission pursuant to Section 13, 14
or 15 (d) of the Exchange Act.

-21-
<PAGE>

(iii) Notwithstanding the foregoing provisions of this Section 4, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 4 shall be deemed to affect any rights
(i) of stockholders to request inclusion of proposals in the Company's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any class or series of Preferred Stock."

ANNOUNCEMENT OF AGREEMENT TO ACQUIRE PROPERTIES.

On August 4, 1998, the Company announced the substantial expansion of its
Gulf of Mexico shelf program through an agreement to acquire interests in 23
producing fields as part of a three-company transaction involving Vastar,
Atlantic Richfield Company ("ARCO") and Mobil Exploration & Producing U.S. Inc.
("Mobil"). Vastar expects that, when the transaction closes, the acquisition
will increase Vastar's reserves by approximately 11 percent and provide Vastar
with substantial opportunities for future field exploitation and extension
drilling.

The 23 producing fields comprise 45 lease blocks and 93 platforms with 295
active wells, as well as interests in more than 40 undeveloped lease blocks, all
in the central and western Gulf of Mexico. As of July 1, 1998, total proved
reserves with respect to the properties to be acquired are estimated at 360
billion cubic feet equivalent. The Company estimates that net production from
the acquired properties will average about 180 million cubic feet of natural gas
equivalent per day during 1999. Also included are interests in pipelines,
gathering lines and a shore base in Cameron, Louisiana.

The agreement provides for the purchase by Vastar of all of the outstanding
shares of capital stock of Western Midway Company ("WMC"), a wholly owned
subsidiary of ARCO, for $170 million in cash. WMC also has $300 million of
existing long-term debt which will remain outstanding following the closing of
the transaction. The purchase price is subject to certain adjustments at
closing.

Upon closing, WMC's assets will consist of the interests in the properties
described above, which will have been obtained by WMC from Mobil in an exchange
for certain WMC properties in California. The transactions are subject to a due
diligence period during which the parties have certain rights to terminate the
transaction. The effective date of the transaction is July 1, 1998, and the
closing is scheduled for October 30, 1998.

About 60 percent of the production from the acquired properties is expected
to be natural gas. The properties have yielded gross cumulative production of
more than 9.0 trillion cubic feet of gas equivalent (Tcfe) and net production of
more than 4.0 Tcfe.

As a subsidiary of Vastar, WMC would conduct the Company's evaluation and
exploitation programs on the properties during 1999 and beyond, and would serve
as operator of about half of the properties acquired. Vastar also anticipates
that it will sell several properties acquired in the transaction that have less
of a strategic fit with the Company's existing Gulf portfolio.

CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995

Except for the historical information, matters discussed in the Management's
Discussion and Analysis of Financial Condition and Results of Operations and in
Item 5 of this Form 10-Q are forward-looking statements that involve certain
assumptions, risks and uncertainties. Actual results could differ materially
based upon numerous factors, including: (i) the volatility and level of
hydrocarbon commodity prices, (ii) production rates and reserve replacement,
(iii) reserve estimates, (iv) the legal and regulatory environment, (v) drilling
and operating risks, (vi) competition, (vii) certain natural gas marketing
matters and (viii) other assumptions, risks and uncertainties which are further
detailed in the material on pages 9-11 in the Company's Report on Form
10-K for the year ended December 31, 1997.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits.
10 Amendment No. 1 to Credit Agreement, dated as of April 30,
1998, among Vastar, the Banks Parties thereto, the Co-Agents
listed therein and Morgan Guaranty Trust Company of New York,
as Agent
12 Computation of Ratio of Earnings to Fixed Charges
27.1 Financial Data Schedule for the Six Months Ending June 30, 1998
27.2 Financial Data Schedule for 1997 - Restated Earnings Per
Share - Diluted per Statement of Financial Accounting Standards
No. 128

(b) Reports on Form 8-K.

No Current Reports on Form 8-K were filed during the quarter ended
June 30, 1998 and through the date hereof.

-22-
<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.

VASTAR RESOURCES, INC.
(Registrant)

Dated: August 6, 1998 /s/ Joseph P. McCoy
------------------------------
Joseph P. McCoy
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)

-23-
<PAGE>

Exhibit Index

Exhibit No. Description
- ----------- ---------------------------------------------------------
10 Amendment No. 1 to Credit Agreement, dated as of April 30, 1998,
among Vastar, the Banks Parties thereto, the Co-Agents listed
therein and Morgan Guaranty Trust Company of New York, as Agent
12 Computation of Ratio of Earnings to Fixed Charges
27.1 Financial Data Schedule for the six months ending June 30, 1998
27.2 Financial Data Schedule for 1997 - Restated Earnings Per Share -
Diluted per Statement of Financial Accounting Standard No. 128

<PAGE>

EXHIBIT 10

AMENDMENT NO. 1 TO CREDIT AGREEMENT

AMENDMENT dated as of April 30, 1998 among VASTAR RESOURCES, INC. (with its
successors, the "Borrower"), the BANKS listed on the signature pages hereof
(with their successors, the "Banks"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Agent for the Banks (with its successors, the "Agent"), and the Co-Agents
listed on the signature pages hereof (with their successors, the "Co-Agents").

The parties hereto have heretofore entered into the Amended and Restated
Credit Agreement dated as of March 31, 1997 (the "Agreement"), and wish to amend
the Agreement as provided herein. The parties hereto therefore agree as
follows:

SECTION 1. Definitions; References. Unless otherwise specifically defined
herein, each term used herein which is defined in the Agreement shall have the
meaning assigned to such term in the Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference contained in the
Agreement shall from and after the date hereof refer to the Agreement as amended
hereby.

SECTION 2. Amendment of Sections 4.06 and 4.07. Sections 4.06 and 4.07 of
the Agreement are amended to read in full as follows:

SECTION 4.06. Financial Information. The combined balance sheet of
the Borrower as of December 31, 1997 and the related combined statements of
income and cash flows for the fiscal year then ended, reported on by
Coopers & Lybrand, copies of which have been delivered to each of the
Banks, fairly present, in conformity with generally accepted accounting
principles, the combined financial position of the Borrower as of such date
and its combined results of operations and cash flows for such 12-month
period.

SECTION 4.07. No Material Adverse Change. Since December 31, 1997
there has been no material adverse change in the business, operations,
affairs, assets, condition (financial or otherwise) or results of
operations of the Borrower and its Consolidated Subsidiaries, considered as
a whole.

<PAGE>

SECTION 3. Amendment of Section 5.07. Section 5.07 of the Agreement is
amended to read in full as follows:

SECTION 5.07. Consolidations, Mergers and Sales of Assets. The
Borrower will not consolidate or merge with or into any other Person;
provided that the Borrower may merge with another Person if (i) the
Borrower is the corporation surviving such merger and (ii) after giving
effect to such merger, no Default shall have occurred and be continuing;
provided, further, that the Borrower may consolidate or merge with or into
ARCO if (A) ARCO theretofore expressly assumes the obligations of the
Borrower hereunder and under the Notes by an instrument satisfactory in
form and substance to the Required Banks and (B) immediately after giving
effect to such consolidation or merger and such assumption, no Default
shall have occurred and be continuing. The Borrower and its Subsidiaries
will not sell, lease or otherwise transfer, directly or indirectly, all or
a substantial part of the assets of the Borrower and its Subsidiaries,
taken as a whole, to any Person (other than the Borrower or any wholly-
owned Subsidiary). A "substantial part of the assets of the Borrower and
its Subsidiaries, taken as a whole" means assets with a fair market value
equal to 51% or more of the amount of total debt and equity market
capitalization of the Borrower and its Subsidiaries and for the purposes of
the immediately preceding sentence shall be measured as of the end of the
fiscal quarter of the Borrower immediately preceding the effective date of
the sale, lease or transfer.

SECTION 4. Designation of Co-Agent. Citibank, N.A. is hereby designated a
Co-Agent under the Agreement.

SECTION 5. Representations and Warranties. The Borrower hereby represents
and warrants that as of the date hereof and after giving effect hereto:

(i) no Default under the Agreement has occurred and is continuing;
and

(ii) each representation and warranty of the Borrower set forth in
the Agreement is true and correct as though made on and as of this date.

SECTION 6. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.

SECTION 7. Counterparts; Conditions to Effectiveness. This Amendment may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective as of the date hereof when the
Agent shall have received duly executed counterparts hereof signed by the
Borrower and the Required

<PAGE>

Banks (or, in the case of any party as to which an executed counterpart shall
not have been received, the Agent shall have received telegraphic, telex or
other written confirmation from such party of execution of a counterpart hereof
by such party).

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.

VASTAR RESOURCES, INC.

By: /s/ Steven J. Shapiro
---------------------------------
Title: Senior Vice President and
Chief Financial Officer

<PAGE>

MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Bank and Agent

By: /s/ Kevin McCann
---------------------------------
Title: Vice President

CITIBANK, N.A.,
as Bank and Co-Agent

By: /s/ J. Christopher Lyons
---------------------------------
Title: Vice President

NATIONSBANK OF TEXAS, N.A.,
as Bank and Co-Agent

By: /s/
-------------------------------
Title:

CHASE BANK OF TEXAS, N.A.
as Bank and Co-Agent

By: /s/ James G. Nicholas
--------------------------------
Title: Executive Vice President

<PAGE>

UNION BANK OF SWITZERLAND,
as Bank and Co-Agent

By: /s/ W. Benson Vance
----------------------------------
Title: Assistant Vice President

By: /s/ J. Finley Biggerstaff
----------------------------------
Title: Assistant Vice President

BANK OF MONTREAL

By: /s/ J.B. Whitmore
---------------------------------
Title: Director

THE BANK OF NEW YORK

By: /s/ Raymond J. Palmer
--------------------------------
Title: Vice President

THE BANK OF NOVA SCOTIA

By: /s/ F.C.H. Ashby
--------------------------------
Title: Senior Manager
Loan Operations

<PAGE>

CREDIT LYONNAIS NEW YORK
BRANCH

By: /s/ Philippe Soustra
-------------------------------
Title: Senior Vice President

THE FUJI BANK, LIMITED

By: /s/ Masahito Fukuda
------------------------------
Title: Joint General Manager

THE INDUSTRIAL BANK OF JAPAN,
LIMITED, NEW YORK BRANCH

By: /s/ Kensaku Iwata
-------------------------------------
Title: Senior Vice President & Deputy General
Manager, Houston Office

LONG-TERM CREDIT BANK OF
JAPAN, LTD.

By: /s/ Douglas Whiddon
----------------------------------------
Title: Senior Vice President

MELLON BANK, N.A.

By: /s/ Roger E. Howard
---------------------------------------
Title: Vice President

<PAGE>

SOCIETE GENERALE

By: /s/ Richard A. Erbert
--------------------------------------
Title: Vice President

WACHOVIA BANK OF GEORGIA, N.A.

By: /s/ Paige Mesaros
-------------------------------------
Title: Vice President

BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION

By: /s/ Paul C. Colon
-------------------------------------
Title: Vice President

THE DAI-ICHI KANGYO BANK, LIMITED

By: /s/ Masatsugu Morishita
-----------------------------------
Title: Sr. Vice President & Joint General
Manager

PNC BANK, NATIONAL ASSOCIATION

By: /s/ John R. Way
----------------------------------
Title: Assistant Vice President

<PAGE>

ROYAL BANK OF CANADA

By: /s/ Linda M. Stephens
----------------------------------
Title: Senior Manager

THE SUMITOMO BANK, LIMITED

By: /s/ William R. McKown, III
----------------------------------
Title: Vice President & Manager

BARCLAYS BANK PLC

By: /s/ Salvatore Esposito
----------------------------------
Title: Director

KREDIETBANK, N.V.

By: /s/ Robert Snauffer
----------------------------------
Title: Vice President

By: /s/ Tod R. Angus
----------------------------------
Title: Vice President

<PAGE>

VASTAR RESOURCES, INC.
EXHIBIT 12
STATEMENT SETTING FORTH DETAIL OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)

For the Six
Months Ended
June 30,
--------------
(Millions of dollars, 1998 1997
except ratio amounts) ----- ------

Income from continuing operations
before income taxes, minority
interest and cumulative effect of
change in accounting principle(1)..... $44.2 $123.8
Fixed Charges:
Interest expense charged to income,
and portion of rentals
representative of interest(2)......... 27.1 24.4
Capitalized Interest.................. --- ---
----- ------

Total fixed charges................... 27.1 24.4
----- ------
Earnings (1) + (2).................... $71.3 $148.2
===== ======

Ratio of earnings to fixed charges.... 2.6 6.1
===== ======

The Company has no issuances of preferred stock.

<PAGE>

<ARTICLE> 5
<LEGEND>
Notes: Vastar Resources, Inc: Financial Data Schedule for the six months ending
June 30, 1998. This schedule contains summary financial information extracted
from the Consolidated Statement of Income and the Consolidated Balance Sheet and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,600
<SECURITIES> 0
<RECEIVABLES> 192,100
<ALLOWANCES> 0
<INVENTORY> 10,500
<CURRENT-ASSETS> 238,200
<PP&E> 5,477,600
<DEPRECIATION> 3,747,400
<TOTAL-ASSETS> 2,023,200
<CURRENT-LIABILITIES> 285,600
<BONDS> 770,900
0
0
<COMMON> 1,000
<OTHER-SE> 571,900
<TOTAL-LIABILITY-AND-EQUITY> 2,023,200
<SALES> 436,600
<TOTAL-REVENUES> 472,100
<CGS> 243,000
<TOTAL-COSTS> 375,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,300
<INCOME-PRETAX> 44,200
<INCOME-TAX> (36,600)
<INCOME-CONTINUING> 80,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,800
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.83

</TABLE>

<PAGE>

<ARTICLE> 5
<LEGEND>
Notes: Vastar Resources, Inc: financial Data Schedule for the four quarters in
1997. The diluted EPS has been restated to reflect the change in the EPS
calculation mandated by SFAS NO. 128. This schedule contains summary financial
information extracted from the Consolidated Statement of Income and the Balance
Sheet and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 10,200 14,400 17,400 22,800
<SECURITIES> 0 0 0 0
<RECEIVABLES> 244,100 193,800 296,500 299,900
<ALLOWANCES> 0 0 0 0
<INVENTORY> 9,900 10,700 13,000 10,300
<CURRENT-ASSETS> 288,900 302,000 374,400 373,600
<PP&E> 5,189,800 4,985,700 4,831,300 4,760,700
<DEPRECIATION> 3,598,400 3,519,500 3,447,000 3,387,800
<TOTAL-ASSETS> 1,924,800 1,788,600 1,758,700 1,746,500
<CURRENT-LIABILITIES> 359,500 327,700 326,600 386,900
<BONDS> 672,100 636,300 643,300 630,300
0 0 0 0
0 0 0 0
<COMMON> 1,000 1,000 1,000 1,000
<OTHER-SE> 504,500 444,800 399,000 348,000
<TOTAL-LIABILITY-AND-EQUITY> 1,924,800 1,788,600 1,758,700 1,746,500
<SALES> 986,400 724,800 498,400 281,700
<TOTAL-REVENUES> 1,013,700 745,300 513,500 283,600
<CGS> 492,500 358,800 237,200 117,900
<TOTAL-COSTS> 668,000 493,200 334,100 188,700
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 47,800 35,900 24,400 13,000
<INCOME-PRETAX> 234,600 169,500 123,800 67,200
<INCOME-TAX> (5,900) (4,100) 2,600 4,300
<INCOME-CONTINUING> 240,500 173,600 121,200 62,900
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 240,500 173,600 121,200 62,900
<EPS-PRIMARY> 2.47 1.78 1.25 0.65
<EPS-DILUTED> 2.46 1.78 1.24 0.65

</TABLE>