-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KcrEEPwNScOr2cFkOmsPmkSWYl7ZMw90ewMUv5R4PVYn9FuCCQM3zz3ZC7/aT4IB tri4fU/rMvEF4nso2bNj1A== 0000775483-98-000003.txt : 19980506 0000775483-98-000003.hdr.sgml : 19980506 ACCESSION NUMBER: 0000775483-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980505 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC RICHFIELD CO /DE CENTRAL INDEX KEY: 0000775483 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 230371610 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01196 FILM NUMBER: 98610482 BUSINESS ADDRESS: STREET 1: 515 S FLOWER ST CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134863511 10-Q 1 ARCO 1ST QT 1998 10-Q 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 March 31, 1998 Commission file number 1-1196 ________________ ATLANTIC RICHFIELD COMPANY (Exact name of registrant as specified in its charter) _________________ Delaware 23-0371610 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 515 South Flower Street Los Angeles, California 90071 (Address of principal executive offices) (Zip code) __________________ (213) 486-3511 (Registrant's telephone number, including area code) __________________ Not Applicable (Former name, former address and former fiscal year, if changed since last report) 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, $2.50 par value, outstanding as of March 31, 1998: 320,872,102. PART I. FINANCIAL INFORMATION
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENT OF INCOME Three Months Ended March 31, ------------------ 1998 1997 ---- ---- (Restated) (Millions except per share amounts) Revenues Sales and other operating revenues . . . . . . . . . $3,431 $4,850 Other revenues . . . . . . . . . . . . . . . . . . . 119 130 ----- ----- 3,550 4,980 ----- ----- Expenses Trade purchases. . . . . . . . . . . . . . . . . . . 1,306 2,234 Operating expenses . . . . . . . . . . . . . . . . . 843 886 Selling, general and administrative expenses . . . . 231 243 Depreciation, depletion and amortization . . . . . . 404 404 Exploration expenses (including undeveloped leasehold amortization). . . . . . . . . . . . . . 149 126 Taxes other than income taxes. . . . . . . . . . . . 175 216 Interest . . . . . . . . . . . . . . . . . . . . . . 115 166 ----- ----- 3,223 4,275 ----- ----- Income from continuing operations before income taxes and minority interest . . . . . . . . . 327 705 Provision for taxes on income. . . . . . . . . . . . . 90 224 Minority interest in earnings of subsidiaries. . . . . 27 21 ----- ----- Income from continuing operations. . . . . . . . . . . 210 460 Income from discontinued operations, net of income taxes of $3 (1998) and $12 (1997) . . . . . . 10 23 ----- ----- Net Income . . . . . . . . . . . . . . . . . . . . . . $ 220 $ 483 ===== ===== Earned per Share Continuing operations - Basic. . . . . . . . . . . . $ .65 $ 1.43 ===== ===== Continuing operations - Diluted. . . . . . . . . . . $ .64 $ 1.41 ===== ===== Net income - Basic . . . . . . . . . . . . . . . . . $ .69 $ 1.50 ===== ===== Net income - Diluted . . . . . . . . . . . . . . . . $ .67 $ 1.48 ===== ===== Cash Dividends Paid per Share of Common Stock. . . . . $.7125 $.6875 ===== =====
The accompanying notes are an integral part of these statements. - 1 -
ATLANTIC RICHFIELD COMPANY CONSOLIDATED BALANCE SHEET March 31, December 31, 1998 1997 ---- ---- (Restated) (Millions) Assets Current assets: Cash and cash equivalents . . . . . . . . . . $ 535 $ 487 Short-term investments. . . . . . . . . . . . 231 222 Accounts receivable . . . . . . . . . . . . . 1,411 1,535 Inventories . . . . . . . . . . . . . . . . . 981 940 Prepaid expenses and other current assets . . 279 226 ------ ------ Total current assets. . . . . . . . . . . . . 3,437 3,410 ------ ------ Investments and long-term receivables: Investments accounted for on the equity method 825 809 Other investments and long-term receivables . 1,542 1,859 ------ ------ 2,367 2,668 ------ ------ Net property, plant and equipment . . . . . . . 16,432 16,100 Net assets of discontinued operations . . . . . 1,333 1,309 Deferred charges and other assets . . . . . . . 1,590 1,554 ------ ------ Total assets. . . . . . . . . . . . . . . . . . $25,159 $25,041 ====== ======
The accompanying notes are an integral part of these statements. - 2 -
ATLANTIC RICHFIELD COMPANY CONSOLIDATED BALANCE SHEET March 31, December 31, 1998 1997 ---- ---- (Restated) (Millions) Liabilities and Stockholders' Equity Current liabilities: Notes payable . . . . . . . . . . . . . . . . . $ 2,149 $ 1,555 Accounts payable. . . . . . . . . . . . . . . . 1,015 1,259 Long-term debt due within one year. . . . . . . 186 187 Taxes payable . . . . . . . . . . . . . . . . . 436 364 Other . . . . . . . . . . . . . . . . . . . . . 1,207 1,242 ------ ------ Total current liabilities . . . . . . . . . . . 4,993 4,607 ------ ------ Long-term debt. . . . . . . . . . . . . . . . . . 4,411 4,412 Deferred income taxes . . . . . . . . . . . . . . 2,884 2,985 Other deferred liabilities and credits. . . . . . 3,584 3,578 Minority interest . . . . . . . . . . . . . . . . 778 779 Stockholders' equity: Preference stocks . . . . . . . . . . . . . . . 1 1 Common stock. . . . . . . . . . . . . . . . . . 807 807 Capital in excess of par value of stock . . . . 644 640 Retained earnings . . . . . . . . . . . . . . . 7,045 7,054 Treasury stock. . . . . . . . . . . . . . . . . (146) (170) Accumulated other comprehensive income. . . . . 158 348 ------ ------ Total stockholders' equity. . . . . . . . . . . 8,509 8,680 ------ ------ Total liabilities and stockholders' equity. . . . $25,159 $25,041 ====== ======
The accompanying notes are an integral part of these statements. - 3 -
ATLANTIC RICHFIELD COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS Three Months Ended March 31, ------------------ 1998 1997 ---- ---- (Millions) (Restated) Cash flows from operating activities: Net income from continuing operations. . . . . . . . . $ 210 $ 460 Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: Depreciation, depletion and amortization . . . . . . 404 404 Dry hole expense and undeveloped leasehold amortization 63 50 Net gain on asset sales. . . . . . . . . . . . . . . (21) (8) Income from equity investments . . . . . . . . . . . (9) (31) Dividends from equity investments. . . . . . . . . . 1 13 Minority interest in earnings of subsidiaries. . . . 27 21 Cash payments (greater) less than noncash provisions (53) 19 Deferred income taxes. . . . . . . . . . . . . . . . 36 (23) Changes in working capital accounts. . . . . . . . . (196) (47) Other. . . . . . . . . . . . . . . . . . . . . . . . 33 13 ----- ----- Net cash provided by operating activities. . . . . 495 871 ----- ----- Cash flows from investing activities: Additions to fixed assets (including dry hole costs) (799) (488) Net cash used by short-term investments. . . . . . . (8) (29) Proceeds from asset sales. . . . . . . . . . . . . . 45 9 Investments and long-term receivables. . . . . . . . (2) (4) Other. . . . . . . . . . . . . . . . . . . . . . . . (33) 10 ----- ----- Net cash used by investing activities. . . . . . . (797) (502) ----- ----- Cash flows from financing activities: Repayments of long-term debt . . . . . . . . . . . . (66) (393) Proceeds from issuance of long-term debt . . . . . . 68 233 Net cash provided by notes payable . . . . . . . . . 582 17 Dividends paid . . . . . . . . . . . . . . . . . . . (229) (223) Treasury stock purchases . . . . . . . . . . . . . . (1) (17) Other. . . . . . . . . . . . . . . . . . . . . . . . (1) (4) ----- ----- Net cash provided (used) by financing activities . 353 (387) ----- ----- Cash flows from discontinued operations. . . . . . . . (4) 17 Effect of exchange rate changes on cash. . . . . . . . 1 (10) ----- ----- Net increase (decrease) in cash and cash equivalents . 48 (11) Cash and cash equivalents at beginning of period . . . 487 1,429 ----- ----- Cash and cash equivalents at end of period . . . . . . $ 535 $1,418 ===== =====
The accompanying notes are an integral part of these statements. - 4 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE A. Accounting Policies. Basis of Presentation. The foregoing financial information is unaudited and has been prepared from the books and records of the Company. Certain previously reported amounts have been restated to conform to classifications adopted in 1998. In the opinion of the Company, the financial information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations in conformity with generally accepted accounting principles. NOTE B. Comprehensive Income. Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 established new rules for the reporting of comprehensive income and its components. Comprehensive income comprises net income plus all other changes in equity from nonowner sources. ARCO's comprehensive income for the three-month periods ended March 31, 1998 and 1997 was as follows:
Three Months Ended March 31, ------------------ 1998 1997 ---- ---- (Millions) Net income . . . . . . . . . . . . . . . . . . $ 220 $ 483 After-tax changes in: Net unrealized gain on investments (a) . . . (186) 65 Foreign currency translation adjustment. . . (4) (50) ---- ---- Comprehensive income . . . . . . . . . . . . . $ 30 $ 498 ==== ==== (a) Primarily consists of a decline in ARCO's unrealized gain on its investment in LUKOIL, which had a fair value of approximately $1 billion at March 31, 1998, compared to a fair value of approximately $1.3 billion at December 31, 1997. The unrealized pretax gain in the LUKOIL investment at March 31, 1998, was $668 million.
The new disclosure had no impact on ARCO's net income, financial position, stockholders' equity or cash flows. Accumulated nonowner changes in equity (accumulated other comprehen- sive income) at March 31, 1998 and December 31, 1997 were as follows:
March 31, December 31, 1998 1997 --------- ------------ (Millions) Net unrealized gain on investments. . . . . . $ 420 $ 606 Foreign currency translation adjustment . . . (208) (204) Minimum pension liability . . . . . . . . . . (54) (54) ---- ---- Accumulated other comprehensive income. . $ 158 $ 348 ==== ====
- 5 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE C. Interim Segment Information.
March 31, 1998 - -------------- Explo- Refin- ration ing & Pro- & Mar- Chemi- All Unallo- (Millions) duction keting cals Other cated Total -------- ------ ------ ----- ------- ----- Sales and other operating revenues . $ 1,538 $1,352 $ 934 $ 40 $ 2 $ 3,866 Intersegment revenues . . . . . . (362) (12) (37) (21) (3) (435) ------ ----- ----- ----- ----- ------ Total. . . . . . . . . $ 1,176 $1,340 $ 897 $ 19 $ (1) $ 3,431 ====== ===== ===== ===== ===== ====== Income from con- tinuing operations . $ 182 $ 19 $ 84 $ 24 $ (99) $ 210 Income from discon- tinued operations. . - - - - 10 10 ------ ----- ----- ----- ----- ------ Net income . . . . . . $ 182 $ 19 $ 84 $ 24 $ (89) $ 220 ====== ===== ===== ===== ===== ====== Segment assets . . . . $13,211 $3,657 $4,069 $2,460 $1,762 $25,159 ====== ===== ===== ===== ===== ====== December 31, 1997 - ----------------- (Restated) Segment assets . . . . $13,269 $3,561 $4,116 $2,458 $1,637 $25,041 ====== ===== ===== ===== ===== ======
March 31, 1997 - -------------- (Restated) Explo- Refin- ration ing & Pro- & Mar- Chemi- All Unallo- (Millions) duction keting cals Other cated Total ------- ------ ------ ----- ------- ----- Sales and other operating revenues . $ 2,847 $1,692 $1,029 $ 44 $ 2 $ 5,614 Intersegment revenues. (671) (6) (62) (21) (4) (764) ------ ----- ----- ----- ----- ------ Total. . . . . . . . . $ 2,176 $1,686 $ 967 $ 23 $ (2) $ 4,850 ====== ===== ===== ===== ===== ====== Income from contin- uing operations. . . $ 452 $ 46 $ 50 $ 43 $ (131) $ 460 Income from discon- tinued operations. . - - - - 23 23 ------ ----- ----- ----- ----- ------ Net income . . . . . . $ 452 $ 46 $ 50 $ 43 $ (108) $ 483 ====== ===== ===== ===== ===== ====== /TABLE> As discussed in Note J, the Company's coal operations have been reported as discontinued at March 31, 1998. Accordingly, the income from and net assets of discontinued operations are included with unallocated items in the segment presentation above. At December 31, 1997, coal operations were included as part of "all other" for segment purposes. The prior period has been restated to conform to the current presentation. - 6 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE D. Investments. At March 31, 1998 and 1997, investments in debt securities were primarily composed of U.S. Treasury securities and corporate debt instruments and were principally included in short-term investments. Maturities generally ranged from one day to 20 months. Investments in LUKOIL common stock and Zhenhai Refining and Chemical Company convertible bonds were included in other investments and long-term receivables. At March 31, 1998 and 1997, all investments were classified as available-for- sale; there were no investments considered held-to-maturity. Investments were reported at fair value, with unrealized holding gains and losses, net of tax, reported in a separate component of stockholders' equity. The following summarizes investments in securities at March 31:
1998 1997 ---- ---- (Millions) Aggregate fair value . . . . . . . . . . . . . . $1,675 $1,842 Gross unrealized holding losses. . . . . . . . . 2 7 Gross unrealized holding gains . . . . . . . . . (684) (478) ----- ----- Amortized cost . . . . . . . . . . . . . . . . . $ 993 $1,371 ===== =====
Investment activity for the three months ended March 31 was as follows:
1998 1997 ---- ---- (Millions) Gross purchases. . . . . . . . . . . . . . . . . $4,802 $2,641 Gross sales. . . . . . . . . . . . . . . . . . . 124 592 Gross maturities . . . . . . . . . . . . . . . . 4,598 2,551
Gross realized gains and losses were insignificant and were determined by the specific identification method. NOTE E. Inventories. Inventories at March 31, 1998 and December 31, 1997 comprised the following:
March 31, December 31, 1998 1997 --------- ------------ (Restated) (Millions) Crude oil and petroleum products. . . . . . $ 302 $ 247 Chemical products . . . . . . . . . . . . . 424 439 Other products. . . . . . . . . . . . . . . 24 24 Materials and supplies. . . . . . . . . . . 231 230 ---- ---- Total . . . . . . . . . . . . . . . . . . $ 981 $ 940 ==== ====
- 7 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE F. Capital Stock. Detail of the Company's capital stock was as follows:
March 31, December 31, 1998 1997 --------- ------------ (Thousands) $3.00 Cumulative convertible preference stock, par $1 . . . . . . . . . . . . . . . . $ 55 $ 56 $2.80 Cumulative convertible preference stock, par $1 . . . . . . . . . . . . . . . . 605 616 Common stock, par $2.50 . . . . . . . . . . . . 807,290 806,800 ------- ------- Total. . . . . . . . . . . . . . . . . . . $807,950 $807,472 ======= =======
NOTE G. Capitalization of Interest. Interest expense excludes capitalized interest of $18 million and $3 million for the three-month periods ended March 31, 1998 and 1997, respectively. NOTE H. Restructuring Programs. During 1997, the Company undertook several restructuring actions, primarily at ARCO Chemical Company, within the refining and marketing operations and at corporate headquarters. The following table summarizes the personnel-related amounts accrued as of December 31, 1997:
($ Millions) Funded Unfunded Short-term Long-term Long-term Terminations Benefits (a) Benefits (b) Benefits (c) Total ------------ ------------ ------------ ------------ ----- 1,200 $133 $5 $12 $150 (a) Severance and ancillary benefits. (b) Net increase in pension benefits to be paid from assets of qualified pension plans. (c) Net increase in non-qualified pension benefits and other postretire- ment benefits to be paid from Company funds.
Through March 31, 1998, approximately 700 employees have been terminated and approximately $40 million of severance and ancillary benefits have been paid and charged against the accrual. Payments made do not necessarily correlate to the number of terminations due to the ability of terminees to defer receipt of certain payments. - 8 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE I. Income Taxes. Provision for taxes on income:
Three Months Ended March 31, ------------------ 1998 1997 ---- ---- (Restated) (Millions) Federal: Current . . . . . . . . . . . . . . . . $ 17 $162 Deferred. . . . . . . . . . . . . . . . 39 (13) --- --- 56 149 --- --- Foreign: Current . . . . . . . . . . . . . . . . 31 52 Deferred. . . . . . . . . . . . . . . . (9) (10) --- --- 22 42 --- --- State: Current . . . . . . . . . . . . . . . . 6 33 Deferred. . . . . . . . . . . . . . . . 6 - --- --- 12 33 --- --- Total . . . . . . . . . . . . . . . . $ 90 $224 === ===
Reconciliation of provision for taxes on income with tax at federal statutory rate:
Three Months Ended March 31, -------------------------------------- 1998 1997 ------------------ ----------------- Percent Percent of of Pretax Pretax Amount Income Amount Income ------ ------- ------ ------- (Restated) (Millions) Income from continuing operations before income taxes and minority interest. . . . . . . . . . . . . . $ 327 100.0 $705 100.0 ==== ===== === ===== Tax at federal statutory rate. . . . $ 114 35.0 $247 35.0 Increase (reduction) in taxes resulting from: Dividend exclusion . . . . . . . . - - (8) (1.1) Subsidiary stock transaction . . . (13) (4.0) (22) (3.1) Taxes on foreign income in excess of statutory rate. . . . . . . . 15 4.6 14 2.0 State income taxes (net of federal effect). . . . . . . . . . . . . 8 2.4 21 3.0 Tax credits. . . . . . . . . . . . (31) (9.5) (25) (3.5) Other. . . . . . . . . . . . . . . (3) (1.0) (3) (0.5) ---- ----- --- ----- Provision for taxes on income. . . . $ 90 27.5 $224 31.8 ==== ===== === =====
- 9 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE J. Discontinued Operations. In March 1998, ARCO signed agreements to dispose of its U.S. coal oper- ations with Arch Coal. Operations covered by these agreements included the Black Thunder and Coal Creek mines in Wyoming, the West Elk mine in Colorado, and ARCO's 65% interest in three mines in Utah. A subsidiary of ARCO will sell the Colorado and Utah coal operations to Arch Coal. Simultaneously, ARCO will contribute its Wyoming coal operations and Arch will transfer various of its coal operations into a new joint venture that will be 99% owned by Arch and 1% owned by ARCO. The Company expects the transaction to be completed by the end of the second quarter of 1998. The net assets of discontinued operations at March 31, 1998 also include the net assets of ARCO's Australian coal mining operations. The Company expects to dispose of the Australian operations by March 31, 1999 and does not expect to incur a loss from the disposal of the U.S. and Australian coal assets. Revenues from the discontinued coal operations were $141 million and $203 million for the three months ended March 31, 1998 and 1997, respectively. NOTE K. Earned Per Share. The information necessary for the calculation of earned per share is as follows:
Three Months Ended March 31, 1998 ----------------------------- Income Shares Per share ------ ------ --------- (Millions, except per share amounts) Income from continuing operations . . . . . . $209.9 Less: Preference stock dividends. . . . . . . (.5) ----- Income from continuing operations available to common stockholders - basic EPS . . . . . . 209.4 320.6 $0.65 ===== ==== Income from discontinued operations, net of tax 10.4 ----- Net income available to common stockholders - basic EPS. . . . . . . . . . 219.8 320.6 $0.69 ==== Effect of dilutive securities: Contingently issuable shares (primarily options) 2.9 Convertible preference stock. . . . . . . . . .5 3.7 ----- ----- Net income available to common stockholders and assumed conversions - diluted EPS . . . . . 220.3 327.2 $0.67 ===== ==== Income from discontinued operations, net of tax (10.4) ----- Income from continuing operations available to common stockholders and assumed conversions - diluted EPS . . . . . . . . . $209.9 327.2 $0.64 ===== ===== ====
- 10 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE K. Earned Per Share (Continued).
Three Months Ended March 31, 1997 ---------------------------- Income Shares Per share ------ ------ --------- (Millions, except per share amounts) Income from continuing operations . . . . . . . $460.3 Less: Preference stock dividends. . . . . . . . (.5) ----- Income from continuing operation available to common stockholders - basic EPS . . . . . . . 459.8 322.2 $1.43 ===== ==== Income from discontinued operations, net of tax 22.6 ----- Net income available to common stockholders - basic EPS . . . . . . . . . . 482.4 322.2 $1.50 ==== Effect of dilutive securities: Contingently issuable shares (primarily options) .8 Convertible preference stock. . . . . . . . . . .5 4.0 ----- ----- Net income available to common stockholders and assumed conversions - diluted EPS . . . . . . 482.9 327.0 $1.48 ===== ==== Income from discontinued operations, net of tax (22.6) ----- Income from continuing operations available to common stockholders and assumed conversions - diluted EPS . . . . . . . . . . $460.3 327.0 $1.41 ===== ===== ====
NOTE L. Supplemental Income Statement Information. Taxes other than income taxes comprised the following:
Three Months Ended March 31, ------------------ 1998 1997 ---- ---- (Restated) (Millions) Production/severance. . . . . . . . . . . . . . . $ 64 $112 Property. . . . . . . . . . . . . . . . . . . . . 49 44 Other . . . . . . . . . . . . . . . . . . . . . . 62 60 --- --- Total . . . . . . . . . . . . . . . . . . . . . $175 $216 === ===
- 11 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE M. Supplemental Cash Flow Information. Following is supplemental cash flow information for the three months ended March 31, 1998 and 1997:
Three Months Ended March 31, ------------------- 1998 1997 ---- ---- (Restated) (Millions) Gross sales and maturities of short-term investments. . $ 64 $ 611 Gross purchases of short-term investments . . . . . . . (72) (640) ------ ------ Net cash used by short-term investments . . . . . . . . $ (8) $ (29) ====== ====== Gross proceeds from issuance of notes payable . . . . . $ 5,916 $ 1,707 Gross repayments of notes payable . . . . . . . . . . . (5,334) (1,690) ------ ------ Net cash provided by notes payable. . . . . . . . . . . $ 582 $ 17 ====== ====== Gross noncash provisions charged to income. . . . . . . $ 75 $ 98 Cash payments of previously accrued items . . . . . . . (128) (79) ------ ------ Cash payments (greater) less than noncash provisions. . $ (53) $ 19 ====== ======
Interest paid during the three-month periods ended March 31, 1998 and 1997 was $128 million and $186 million, respectively. Income taxes paid during the three-month periods ended March 31, 1998 and 1997 were $37 million and $109 million, respectively. Changes in working capital accounts for the three-month periods ended March 31, 1998 and 1997 were as follows:
Three Months Ended March 31, ------------------ 1998 1997 ---- ---- (Restated) (Millions) Increase (decrease) to cash Accounts receivable. . . . . . . . . . . . . $ 113 $ 217 Inventories. . . . . . . . . . . . . . . . . (48) 9 Accounts payable . . . . . . . . . . . . . . (238) (305) Other working capital. . . . . . . . . . . . (23) 32 ---- ---- Total. . . . . . . . . . . . . . . . . . . $(196) $ (47) ==== ====
- 12 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE N. Other Commitments and Contingencies. ARCO has commitments, including those related to the acquisition, construction and development of facilities, all made in the normal course of business. Following the March 1989 EXXON VALDEZ oil spill, numerous lawsuits seeking compensatory and punitive damages and injunctions were filed by the State of Alaska, the United States and private plaintiffs against Exxon, Alyeska Pipeline Service Company ("Alyeska"), and Alyeska's owner companies (including ARCO, which owns approximately 22%). Alyeska and its owner companies have settled the civil damage claims by federal and state governments and the lawsuits by private plaintiffs. Certain issues relating to the liability for the spill remain unresolved between the Exxon companies, on the one hand, and Alyeska and its owner companies. ARCO and former producers of lead pigments have been named as defendants in cases filed by a municipal housing authority, two purported classes and several individuals seeking damages and injunctive relief as a consequence of the presence of lead-based paint in certain housing units. ARCO is also the subject of or party to other pending or threatened legal actions. The State of Montana is seeking recovery from ARCO of $767 million based on alleged injuries to natural resources resulting from ARCO's mining and mineral processing businesses formerly operated by Anaconda, ARCO's predecessor in Montana. ARCO is contesting this demand. ARCO is subject to other loss contingencies pursuant to federal, state and local environmental laws and regulations. These require ARCO to remove or mitigate the effects on the environment of the disposal or release of certain chemical, mineral and petroleum substances at various sites, perform certain restoration work on these sites and to pay damages for loss of use and non-use values. ARCO is currently participating in environmental assessments and cleanups under these laws at federal Superfund and state-managed sites, as well as other clean-up sites. ARCO may in the future be involved in additional environmental assessments and cleanups, including restoration of natural resources and damages for loss of use and non-use values. The amount of future costs will depend on such factors as the unknown nature and extent of contamination, the unknown timing, extent and method of remedial actions which may be required and the determination of ARCO's liability in proportion to other responsible parties. Environmental loss contingencies include claims for personal injuries allegedly caused by exposure to toxic materials manufactured or used by ARCO. ARCO continues to estimate the amount of these costs in periodically establishing reserves based on progress made in determining the magnitude of remediation costs, experience gained from sites on which remediation has been completed, the timing and extent of remedial actions required by the applicable governmental authorities and an evaluation of the amount of ARCO's liability considered in light of the liability and financial wherewithal of the other responsible parties. At March 31, 1998, the environmental remediation accrual was $759 million. As the scope of ARCO's obligations becomes more clearly defined, there may be changes in these estimated costs, which might result in future charges against ARCO's earnings. - 13 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE N. Other Commitments and Contingencies (Continued). ARCO's environmental remediation accrual covers federal Superfund and state-managed sites as well as other clean-up sites, including service stations, refineries, terminals, chemical facilities, third-party landfills, former nuclear processing facilities, sites associated with discontinued operations and sites formerly owned by ARCO. ARCO has been named a potentially responsible party ("PRP") for 133 sites. The number of PRP sites in and of itself is not a relevant measure of liability, because the nature and extent of environmental concerns varies by site and ARCO's share of responsibility varies from sole responsibility to very little responsibility. ARCO reviews all PRP sites, along with other sites as to which no claims have been asserted, in estimating the amount of the accrual. ARCO's future costs at these sites could exceed the amount accrued by as much as $500 million. Approximately 55% of the reserve related to sites associated with ARCO's discontinued operations, primarily mining activities in the states of Montana, Utah and New Mexico. Another significant component related to currently and formerly owned chemical, nuclear processing, and refining and marketing facilities, and other sites which received wastes from these facilities. The remainder related to other sites with reserves ranging from $1 million to $10 million per site. No one site represents more than 10% of the total reserve. Substantially all amounts accrued are expected to be paid out over the next five to six years. Claims for recovery of remediation costs already incurred and to be incurred in the future have been filed against various third parties. Many of these claims have been resolved. ARCO has neither recorded any asset nor reduced any liability in connection with unresolved claims. Although any ultimate liability arising from any of the matters described herein could result in significant expenses or judgments that, if aggregated and assumed to occur within a single fiscal year, would be material to ARCO's results of operations, the likelihood of such occurrence is considered remote. On the basis of management's best assessment of the ultimate amount and timing of these events, such expenses or judgments are not expected to have a material adverse effect on ARCO's consolidated financial statements. The operations and consolidated financial position of ARCO continue to be affected from time to time in varying degrees by domestic and foreign political developments as well as legislation, regulations and litigation pertaining to restrictions on production, imports and exports, tax increases, environmental regulations, cancellation of contract rights and expropriation of property. Both the likelihood of such occurrences and their overall effect on ARCO vary greatly and are not predictable. These uncertainties are part of a number of items that ARCO has taken and will continue to take into account in periodically establishing reserves. - 14 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE O. Subsequent Event. On May 4, 1998, ARCO announced that it has signed a definitive merger agreement with Union Texas Petroleum ("UTP") under which ARCO will acquire for cash all outstanding shares of UTP common stock for $29 per share in a transaction valued at approximately $3.3 billion, including debt and preferred stock of UTP. The agreement was approved unanimously by both boards of directors. Under the terms of the merger agreement, ARCO will commence an all-cash tender offer for all of UTP's outstanding common stock on or prior to May 8, 1998. Any shares not purchased in the tender offer will be acquired for $29 per share cash pursuant to a merger after completion of the tender offer. As of March 31, 1998, UTP had approximately 85.25 million shares outstanding. The transaction is subject to usual closing conditions, including regulatory approvals. ARCO excepts the tender offer will be completed by the end of the second quarter. UTP is a Houston-based oil and gas company with 1997 sales of $909 million and assets of $2.0 billion. UTP has major operations in Indonesia, the North Sea, Venezuela and Pakistan. - 15 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter 1998 vs. First Quarter 1997 Consolidated Earnings The earnings decline in 1998 primarily reflected lower crude oil prices and, to a lesser extent, lower U.S. natural gas prices, the absence of earnings from Lyondell Petrochemical Company ("Lyondell") and lower refining and marketing margins, partially offset by higher earnings from ARCO Chemical Company ("ARCO Chemical") and lower interest expense. For the first quarter of 1998, a special items benefit of $8 million consisted of a deferred tax benefit, partially offset by charges for future environmental remediation. There were no net special items for the first quarter of 1997 as charges for future environmental remediation, primarily related to implementation of a new accounting standard, were offset by benefits from deferred taxes and changes in certain reserves. After-tax Segment Earnings
1998 1997 ---- ---- (Millions) Exploration and production . . . . . . . . . . . $ 182 $ 452 Refining and marketing . . . . . . . . . . . . . 19 46 Chemicals. . . . . . . . . . . . . . . . . . . . 84 50 Other operations . . . . . . . . . . . . . . . . 24 43 Interest expense . . . . . . . . . . . . . . . . (82) (112) Other unallocated expenses . . . . . . . . . . . (17) (19) ---- ---- Income from continuing operations. . . . . . . 210 460 Discontinued operations. . . . . . . . . . . . . 10 23 ---- ---- Net income . . . . . . . . . . . . . . . . . . $ 220 $ 483 ==== ====
Exploration and Production ARCO's earnings from worldwide oil and gas exploration and production operations in 1998 were significantly impacted by lower crude oil prices and, to a lesser extent, lower U.S. natural gas prices. A $23 million increase in exploration expense in the 1998 first quarter was primarily geological and geophysical and dryhole expenses associated with international exploration. - 16 - Average Oil & Gas Prices
1998 1997 ---- ---- U.S. Petroleum liquids - per barrel (bbl) Alaska . . . . . . . . . . . . . . . . . . . $10.26 $17.98 Lower 48, including Vastar . . . . . . . . . $12.68 $19.29 Composite average price. . . . . . . . . . . $11.10 $18.38 Natural gas - per thousand cubic feet (mcf). . $ 1.89 $ 2.32 International Petroleum liquids - per bbl. . . . . . . . . . $12.59 $20.79 Natural gas - per mcf. . . . . . . . . . . . . $ 2.69 $ 2.64
Petroleum Liquids and Natural Gas Production
1998 1997 ---- ---- Net Production U.S. Petroleum liquids - bbl/day Alaska . . . . . . . . . . . . . . . . . 364,100 398,900 Vastar . . . . . . . . . . . . . . . . . 51,600 51,100 Other Lower 48 . . . . . . . . . . . . . 140,500 124,800 Total. . . . . . . . . . . . . . . . . 556,200 574,800 Natural gas - mcf/day. . . . . . . . . . . 1,091,700 1,049,200 Barrels of oil equivalent (BOE)/day* . . . 738,100 749,700 International Petroleum liquids - bbl/day. . . . . . . . 86,200 70,400 Natural gas - mcf/day. . . . . . . . . . . 847,600 878,400 BOE/day. . . . . . . . . . . . . . . . . . 227,500 216,800 Total net production BOE/day . . . . . . . . 965,600 966,500 ____________ * Natural gas converted at the ratio of 6 mcf to 1 barrel of liquid.
The reduction in U.S. petroleum liquids production primarily resulted from maintenance downtime and natural field declines in the Prudhoe Bay field in Alaska. Increased production from the Rhourde El Baguel field in Algeria and from the addition (effective July 1, 1997) of the Ashtart field in Tunisia were the primary reasons for the increase in international liquids production. The reduction in international natural gas volumes in 1998 reflected higher natural gas takes in the United Kingdom, more than offset by lower natural gas takes from Indonesia gas fields and the Yacheng 13 field in the South China Sea. Production from the United Kingdom natural gas fields increased by approximately 55 million cubic feet per day, while production from Indonesia gas fields and the Yacheng 13 field decreased by approximately 62 million and 20 million cubic feet per day, respectively. - 17 - Refining and Marketing In the 1998 first quarter, refining and marketing margins decreased as realized prices for gasoline, jet fuel and diesel all fell due to higher West Coast inventories. The excess inventories on the West Coast were caused by high levels of jet fuel imports from Asia, where the financial crisis reduced demand, and the weather-related impact from above-normal rainfall. Higher operating expenses in the first quarter of 1998 reflected primarily $25 million before tax in turnaround expenses. The integration of over 200 Thrifty gasoline retail sites into ARCO's retailing network in California and the newly acquired sites in Vancouver, British Columbia contributed to an 11% increase in retail gasoline volumes. West Coast Petroleum Products Sales
1998 1997 ---- ---- Volumes (barrels/day) Gasoline . . . . . . . . . . . . . . . . . . . . 295,400 265,000 Jet. . . . . . . . . . . . . . . . . . . . . . . 110,200 118,900 Distillate . . . . . . . . . . . . . . . . . . . 77,900 77,700 Other. . . . . . . . . . . . . . . . . . . . . . 63,400 61,600 ------- ------- Total. . . . . . . . . . . . . . . . . . . . . 546,900 523,200 ======= =======
Chemicals For the chemicals segment, reflecting ARCO's 82.3% interest in ARCO Chemical, the 1998 earnings were primarily attributable to higher core product (propylene oxide (PO), PO derivatives, and toluene di-isocyanate (TDI)) volumes and ARCO Chemical's cost reduction program. Selling, general and administrative and research and development expenses decreased $20 million. Core product margins also improved as lower feedstock costs were only partially offset by lower sales prices. Those margin improvements were partially offset by margin decreases in co-products, methyl tertiary butyl ether (MTBE) and styrene monomer (SM). Average sales prices were generally lower in 1998, reflecting lower feedstock costs, ongoing competition in PO derivatives and TDI markets, the negative effects of a stronger U.S. dollar on foreign sales, lower prices in Asian markets and lower prices for co-products, MTBE and SM. Other Operations The 1998 results from ARCO's other operations included the earnings from Lower 48 pipeline and aluminum operations. The 1997 first quarter included $30 million in after-tax earnings from ARCO's equity interest in Lyondell. ARCO disposed of its interest in Lyondell in the third quarter of 1997. - 18 - Discontinued Operations In March 1998, ARCO signed agreements to dispose of its U.S. coal oper- ations with Arch Coal. Operations covered by these agreements include the Black Thunder and Coal Creek mines in Wyoming, the West Elk mine in Colorado and ARCO's 65% interest in three mines in Utah. A subsidiary of ARCO will sell the Colorado and Utah coal operations to Arch Coal. Simultaneously, ARCO will contribute its Wyoming coal operations and Arch Coal will transfer various of its coal operations into a new joint venture that will be 99% owned by Arch Coal and 1% owned by ARCO. The lower earnings in 1998 from ARCO's discontinued coal operations primarily resulted from lower sales prices and volumes. Consolidated Revenues
1998 1997 ---- ---- (Millions) Sales and other operating revenues Exploration and production . . . . . . . . . . . $1,538 $2,847 Refining and marketing . . . . . . . . . . . . . 1,352 1,692 Chemicals. . . . . . . . . . . . . . . . . . . . 934 1,029 Other . . . . . . . . . . . . . . . . . . . . . 42 46 Intersegment eliminations. . . . . . . . . . . . (435) (764) ----- ----- Total. . . . . . . . . . . . . . . . . . . . . $3,431 $4,850 ===== =====
The decline in exploration and production sales and other operating revenues resulted primarily from lower natural gas marketing activity and lower petroleum liquids prices. Effective September 1, 1997, Vastar Resources, Inc. (Vastar) contributed the majority of its natural gas marketing operations to a joint venture with the Southern Company. As a result of the transfer of those operations, total natural gas sales volumes decreased to 2.4 billion cubic feet per day in the 1998 first quarter, down from 4.8 billion cubic feet per day in the 1997 first quarter. Refining and marketing sales and other operating revenues decreased primarily because of lower refined products prices, partially offset by higher gasoline volumes. Consolidated Expenses Trade purchases were lower primarily as a result of lower natural gas marketing activity and crude oil prices. The lower operating expenses in 1998 primarily reflected the absence of charges for future environmental remediation related to the adoption of a new accounting standard in the first quarter of 1997 and the absence of gas marketing delivery charges. The lower taxes other than income taxes in 1998 primarily resulted from the impact of lower crude oil prices on U.S. production taxes. The lower interest expense in 1998 resulted from a $1.7 billion reduction of long-term debt in 1997. - 19 - Income Taxes The Company's effective tax rate was 27.5% in the 1998 first quarter, compared to 31.8% in the 1997 first quarter. The lower effective tax rate in 1998 primarily reflected that the Company had approximately the same level of tax credits in both periods, while income before income taxes was more than 50% lower in the first quarter of 1998 compared to the same period in 1997. Liquidity and Capital Resources
1998 ---- (Millions) Cash flow provided (used) by: Operations . . . . . . . . . . . . . . . . . . . $ 495 Investing activities . . . . . . . . . . . . . . $(797) Financing activities . . . . . . . . . . . . . . $ 353
The net cash used by investing activities in the first quarter 1998 included expenditures for additions to fixed assets of $799 million. The Company expects total capital expenditures for additions to fixed assets to approximate $3.8 billion for the full year 1998. The net cash provided by financial activities in the first quarter of of 1998 included net proceeds of $582 million from the issuance of short- term debt and proceeds of $68 million from the issuance of long-term debt. These proceeds were partially offset by repayments of long-term debt of $66 million and dividend payments of $229 million. Cash and cash equivalents and short-term investments totaled $766 million, and short-term borrowings were $2.3 billion at the end of the first quarter of 1998. Primarily as a result of the $1.7 billion repayments of long-term debt in 1997 and the increased use of short-term borrowing, the Company is in a working capital deficit position of approximately $1.6 billion at March 31, 1998. It is expected that future cash requirements for working capital requirements, capital expenditures, dividends and debt repayments will come from cash generated from operating activities, existing cash balances, and future financings. In addition, ARCO expects to receive proceeds from its disposal of its U.S. coal assets of $1.14 billion. On May 4, 1998, ARCO announced that it has signed a definitive merger agreement with Union Texas Petroleum ("UTP") under which ARCO will acquire for cash all outstanding shares of UTP common stock for $29 per share in a transaction valued at approximately $3.3 billion, including debt and preferred stock of UTP. ARCO expects the tender offer to be completed by the end of the second quarter of 1998 and plans to finance the transaction using commercial paper and other short-term borrowings backed by existing and additional bank facilities. ARCO expects the transaction will add 140,000 barrels per day of oil equivalent ("BOE") to 1998 production, and proved reserves of 573 million BOE. UTP is a Houston-based oil and gas company with 1997 sales of $909 million and assets of $2.0 billion. ____________________ 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. - 20 - PART II. OTHER INFORMATION Item 1. Legal Proceedings. 1. Reference is made to the disclosure on page 12 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (hereinafter, the "1997 Form 10-K Report") regarding Montana v. ARCO, ex rel. (Case No. CV-83-317-HLN-PGH). The State's claim, as of January 1, 1998, was for damages of $767 million for alleged injuries to natural resources resulting from mining and mineral processing operations. 2. Reference is made to the disclosure on page 14 of the 1997 Form 10-K Report regarding Stanley Marshall, et al. v. ARCO (Case No. 3217). On September 8, 1997, a jury found in favor of the plaintiffs and on March 19, 1998, the trial court entered the Second Modified Judgment on the verdict awarding $3.8 million in actual damages, $50 million in exemplary damages, $13.4 million in attorneys fees, and $1.7 million in pre-judgment interest. 3. Reference is made to the disclosure on page 14 of the 1997 Form 10-K Report regarding ARCO, et al. v. UNOCAL (Case No. 95-2379-KMW-JRx). The inequitable conduct phase was tried in December 1997 without a jury. No decision on that phase has been rendered by the court. The court also has to rule on UNOCAL's claim for $2.6 million in attorneys fees. After final judgment is entered, an appeal to the Court of Appeals for the Federal Circuit is available. 4. Reference is made to the disclosure on pages 14-15 of the 1997 Form 10-K Report regarding Aguilar, et al. v. Atlantic Richfield, et al. (Case No. 700810). The defendants have appealed from the order granting a new trial, and the plaintiffs have cross-appealed from the summary judgment. 5. Reference is made to the Company's 1997 Form 10-K Report for information on other legal proceeding matters reported therein. Item 4. Submission of Matters to a Vote of Security Holders. The Company's annual meeting of stockholders was held on May 4, 1998. The stockholders elected all the Company's nominees for director, who constitute the entire Board of Directors. The Stockholders also approved the appointment of Coopers & Lybrand L.L.P. as the Company's independent auditors for 1998. The votes were as follows: 1. Election of Directors.
Votes Votes For Withheld --------- -------- Frank D. Boren 274,263,633 1,772,330 Mike R. Bowlin 274,305,184 1,730,779 John Gavin 274,171,357 1,864,606 Kent Kresa 274,336,291 1,699,672 Arnold G. Langbo 274,356,484 1,679,479 David T. McLaughlin 274,269,955 1,766,008 John B. Slaughter 274,184,205 1,851,758 Gary L. Tooker 274,337,126 1,698,837 Henry Wendt 271,207,865 4,828,098
- 21 - 2. Appointment of Coopers & Lybrand L.L.P. For 274,550,338 Against 610,960 Abstain 874,665 3. Stockholders' proposal requesting the review and development of guidelines for country selection and report to stockholders. For 8,521,090 Against 228,183,603 Abstain 15,242,504 Broker Non-Votes 24,088,766 4. Stockholders' proposal requesting additional reporting of political contributions. For 11,518,902 Against 229,007,827 Abstain 11,420,468 Broker Non-Votes 24,088,766 5. Stockholders' proposal request for company investigation. For 7,438,512 Against 228,464,575 Abstain 16,044,110 Broker Non-Votes 24,088,766 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 27 Financial Data Schedule. 99 Press Release dated May 4, 1998 announcing ARCO's merger agreement with Union Texas Petroleum. (b) Reports on Form 8-K. No Current Reports on Form 8-K were filed during the quarter ended March 31, 1998 and through the date hereof. - 22 - 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. ATLANTIC RICHFIELD COMPANY (Registrant) /s/ ALLAN L. COMSTOCK Dated: May 5, 1998 _____________________________ ALLAN L. COMSTOCK Vice President and Controller (Duly Authorized Officer and Principal Accounting Officer) - 23 - EX-27 2 FINANCIAL DATA SCHEDULE 3-MONTHS MAR 1998
5 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. 1,000,000 3-MOS DEC-31-1998 MAR-31-1998 $ 535 231 1,411 0 981 3,437 36,094 19,662 25,159 4,993 4,411 0 1 807 7,701 25,159 3,431 3,550 2,728 2,877 0 0 115 327 90 210 10 0 0 220 $0.69 $0.67
EX-99 3 PRESS RELEASE DATED 5/4/98 ARCO [LOGO] Media Relations 515 South Flower Street Los Angeles CA 90071-2201 Telephone 213 486 3385 Facsimile 213 486 0169 FOR IMMEDIATE RELEASE May 4, 1998 ARCO ANNOUNCES MERGER AGREEMENT WITH UNION TEXAS PETROLEUM $3.3 BILLION DEAL SUBSTANTIALLY INCREASES ARCO'S INTERNATIONAL PRODUCTION AND RESERVES KKR, CONTROLLING 25.6% OF UNION TEXAS STOCK, SIGNS COMMITMENT TO TENDER UNION TEXAS INTEREST TO ARCO LOS ANGELES AND HOUSTON -- ARCO (NYSE: ARC) and Union Texas Petroleum (NYSE: UTH) announced today that they have signed a definitive merger agreement under which ARCO will acquire for cash all outstanding shares of Union Texas common stock for $29 per share in a transaction valued at approximately $3.3 billion, including debt and preferred stock of Union Texas. The agreement was approved unanimously by the Boards of Directors of both companies. In connection with the transaction, ARCO has obtained a commitment from Kohlberg Kravis Roberts & Co. to tender its holdings of 25.6 percent of the outstanding Union Texas common shares pursuant to the tender offer. ARCO Chairman and Chief Executive Officer Mike R. Bowlin called the agreement "an important building block" for the company. "This acquisition is consistent with our strategy of building scale and presence in 5 to 6 core producing areas as a means of creating shareholder value," Bowlin added. "Over 90 percent of Union Texas' assets are located in ARCO's core producing areas, specifically Venezuela, Indonesia, the North Sea and Alaska. The combination of the two companies solidifies ARCO's position as a Page 2 significant player in those regions and is another step toward accomplishing our goal of becoming a great global player." Bowlin noted that "the transaction is especially attractive to ARCO because of the exceptional degree of overlap between the assets of the two companies and the ability to implement significant cost reductions as a consequence." Bowlin said he expects the combination to eventually yield after-tax cost savings of at least $85 million per year. The transaction is expected to add 140,000 barrels per day of oil equivalent (BOE) to ARCO's 1998 production. Union Texas expects strong production growth over the near term from assets such as the Britannia field in the North Sea, the Boqueron and DZO concessions in Venezuela, and the Alpine field in Alaska. The transaction will also add 573 million barrels of proved reserves for a gross cost of $5.76 per BOE. ARCO estimates it is paying approximately $5 per proved BOE based on costs attributable to producing oil and gas assets. In addition, probable and possible reserves also have been identified for future development. "In addition to strengthening our core areas," Bowlin noted, "Union Texas offers several new venture options to ARCO, ranging from its long-established operations in Pakistan to its growing position in Kazakhstan and Azerbaijan in the Caspian region. Finally, Union Texas' long-term experience in Indonesia's LNG business should prove valuable as we continue development and marketing of ARCO's Tangguh gas reserves." Page 3 John Whitmire, Chairman and Chief Executive Officer of Union Texas, said that "ARCO's tender offer reflects the proven value and potential of Union Texas Petroleum. Over the past two years, Union Texas' management team and our employees around the world have made significant progress in creating exciting growth prospects for our company in areas such as Venezuela, Kazakhstan, China and Northern Africa. I believe it was Union Texas' growth performance that attracted ARCO to our organization." Bowlin said he expects the acquisition to be accretive to operating cash flow in the first year and only modestly dilutive to earnings through next year. He noted that there is little downside risk in this transaction as Union Texas' production from known resources is rising and the cost reductions anticipated are totally within ARCO's control. ARCO expects the tender offer will be completed by the end of the company's second quarter. ARCO plans to finance the transaction using commercial paper and other short-term borrowings backed by existing and additional bank facilities. Under the terms of the merger agreement, ARCO will commence an all-cash tender offer for all of Union Texas' outstanding common stock on or prior to May 8, 1998. Any shares not purchased in the tender offer will be acquired for $29 per share in cash pursuant to a merger after completion of the tender offer. As of March 31, 1998, Union Texas had approximately 85.25 million shares outstanding. The transaction is subject to usual closing conditions, including regulatory approvals. Page 4 Union Texas Petroleum is a Houston-based oil and gas company with 1997 sales of $909 million and assets of $2.0 billion. In addition to its Caspian Sea exploration projects and major operations in Indonesia, the North Sea and Venezuela, the company also has operations in Pakistan, where it produces approximately 45 percent of the country's domestic oil output. ARCO is a Los Angeles-based integrated oil and gas company with 1997 earnings of $1.8 billion and global assets of $25.3 billion. Worldwide operations include all aspects of exploration, production and marketing of crude oil, natural gas, and natural gas liquids, as well as refining, marketing and transportation of petroleum products. ARCO is also the majority owner of ARCO Chemical Company. # # # [Some of the matters discussed in this news release are forward-looking statements that involve risks and uncertainties. Actual results could differ materially based on numerous factors, including the realized level of crude oil and natural gas production and other risks detailed from time to time in the company's SEC reports, including the 1997 report on Form 10-K.] For information call: ARCO: (Media) Albert Greenstein, 213-486-3384; (Investors) Dennis Schiffel, 213-486-1511 UTP: (Media) Carol Cox, 713-968-2714; (Investors) John Zimmerman, 713-968-2740 -----END PRIVACY-ENHANCED MESSAGE-----