Document NNd93Ow5MzGYd9JJeKrDOze5V

ARCO, the Atlantic Richfield Company, is a worldwide, integrated hydrocarbons corporation with operations and subsidiaries encompassing all-aspects of the oil and gas business: exploration, production and marketing of crude oil, natural gas and natural gas liquids, and refining, marketing and transportation of petroleum products. ARCO also* mines and markets coal and has interests in two petrochemical companies. Its earliest predecessor. The Atlantic Refining Company, was founded on July 1. 1866. PNYC 00012845 Hig h l ig h t s Million* * c p t per share amount* FINANCIAL Total revenues Net income before accounting changes Net income Net income per share Dividends Dividends per share of common stock Additions to fixed assets Total assets Return on stockholders' equity* Return on capital employed* RESERVES Petroleum liquids -- million barrels: U.S. International Natural gas -- billion cubic feet: U.S. International Coal -- million tons recoverable: U.S. International OPERATIONS Oil and Gas production -- net Liquids -- barrels per day: ' U.S. International Natural gas -- million cubic feet per day: U.S. International Coal shipments--thousand tons: U.S. International Refining and Marketing -- barrels per day: Refinery crude runs Petroleum product sales (U.S.) Chemical sales--millions of pounds: Propylene oxide and derivatives Styrene monomer and derivatives *Calculated based on net income before accounting changes 19 9 4 mj 1992 SI 7.199 S 919 S 919 S 563 S 885 $ 5.50 $ 1.658 S24.563 14.8% 9.4% $19,183 S 269 S 269 S 1.66 S 879 S 5.50 S 2,070 S23,894 4.2% 5.1% SI 9.248 S 1,193 S 801 S 4.96 S 873 S 5.50 S 2,278 S24.256 17.6% 11.4% ` 2.246 222 2,259 206 2,517 211 4,615 3.493 4,725 3.280 5,185 3,117 1,279 227 .. -- 1,296 214 ............. 1,236 232 ..... .... 591,300 72,800 604,700 79,700 660,500 77.700 960 911 1,202 511 321 240 38,322 11,235 37,499 10,246 30,634 9,158 408,300 477,900 425,800 481,500 425,100 479,500 3,699 2.496 3,356 2,084 3,055 1,434 ARCO PNYC00128 4? To ARCO St o c k h o l d e r s r 1994 was a strong year for ARCO. Financial results improved in spite of lover crude oil prices, lover natural gas prices and a veaker U.S. West Coast refining and market ing environment. At the same time, ARCO's chemical interests had improved earnings as a result of a stronger U.S. economy. Net earnings for 1994 totaled $919 million, or $5.63 per share, vhich included an after-tax . net gain from special items of $40 million. In 1993, ve had earnings of $269 million, or $1.66 per share, after taking net special items charges of $545 million. These results shov that ARCO is beginning to reap the benefits of a lover overall cost structure and the changes ve have made in our approach to doing business. Restructuring has been an important part of the transition that ARCO has undergone in the past tvo years. While some of the bene fits are yet to be realized in hard numbers, ve can report savings in 1994 of $250 million after tax. We expect the savings vill grov to $400 million annually as the full impact of reduced staffing levels and other changes is realized by 1996. Although 1994 vas a tough year in terms of challenging operating conditions and hard decisions. ARCO made important progress. Let us reviev some of the major accomplishments: 1994 ACCOMPLISHMENTS * Our cost structure vas lovered and capital spending plans vere adjusted to improve cash flov and profitability, even in the lover price environment. This vas achieved vithout sacrificing grovth. *^Our U.S. natural gas company. Vaster Resources, Inc., completed an offering of 17 million shares of its common stock, vhich raised $480 million in the public capital markets. This vas the last major step in the restructuring of ARCO's Lover 48 oil and gas operations vhich ve started in 1993. Vaster is one of four discrete and self-supporting business units that ve created to lover the cost of these operations and make them more competitive. Today, Vaster*s cost structure is competitive vith the most efficient "independents'* in the oil and gas business. Significant advances vere made in several major long-term projects vhich promise benefits for many years: The Pagerungan and the Offshore Northvest Java Sea gas fields in Indonesia each completed their first full year of opera tion. as did the Orvell and Murdoch fields in the United Kingdom North Sea. We completed the fabrication, sealift PNYC 00012848 and installation of the second phase of the large-scale Gas Handling Expansion (GHX-2) at Prudhoe Bay on the North Slope of Alaska on schedule and under budget. Substantial progress was made in the con struction and development of our first natu ral gas field in the South China Sea. vhere we expect to start production by early 1996. We completed the Los Angeles refinery modifications necessary to meet federal Clean Air Act requirements for gasoline and stationary emissions on schedule and under budget. At the same time, ve introduced a new mid-grade gasoline to improve our product mix. We are also on track to meet the more demanding California gasoline specifica tions in 1996. The Gordonstone mine completed its first full year of operation, achieving a production level that establishes it as Australia's largest underground mine. ** Plans for upstream projects with substan tial promise of future grovth made progress: ARCO plans a large-scale enhanced oil recovery project at the Kuparuk River field on the North Slope of Alaska. This added 80 million barrels of reserves in 1994 and is expected to enhance production by 1997. In Ecuador, ve submitted a development plan for our Villano oil field in the Oriente Basin and have added 75 million barrels of oil reserves for this field. A preliminary agreement to develop addi tional reserves in the Rhourde El Baguel field in Algeria was reached. Work on the final agreement is continuing in 1995. This project would use ARCO's special exper tise in enhancing oil recovery by using miscible gas injection and could add nearly 250 million barrels of reserves over the project's life. We acquired operatorship and a 27.5% interest in an exploration and production sharing contract for part of the Qatar North Gas Field, among the world's largest. Discussions on development of the field and transportation facilities are underway while markets for the gas are being explored. ^During 1994, we added a total of 365 mil lion barrels of oil equivalent reserves, replacing 106% of our 1994 oil and gas production. * ARCO made an important overseas refining investment in 1994 by acquiring a 9.9% interest in China's Zhenhai Refining and Chemical Company Limited, which is south of Shanghai in the port of Ningbo. Additionally, ve are studying coal mining and power generation ventures in China. ARCO Chemical Company entered into a long term arrangement to market Rhone-Poulenc's production of toluene di-isocyanate (TDI). a key ingredient in polyurethanes. PNYC 012849 ~ taternationai t* In early 1995, our transportation opera tion formed a partnership with another oil company that will provide significant pipeline capacity to meet increasing market demand for transporting offshore crude oil from the Gulf of Mexico to the midcontinent area. We expect this venture to be fully operational by early 1996. For the longer term, ve are looking at a range of projects which are outside of our core businesses, including those that would use our large gas resources, such as power generation in China and Indonesia. We are also studying a potentially major oil pro duction and upgrading project in Venezuela. FIVE KEY GOALS The 1994 accomplishments represent impor tant steps toward five key goals that we share at ARCO. These goals were reflected in every action we took in 1994 and those we will pursue in 1995 and beyond: 1. Return ARCO to a leading position among its peers in Total Return to Stockholders. Our 1994 total return to stockholders was 2.0%. This compared with the Standard & Poor's industry index, which was 1.3%, while our peer group average was 6.1%. We took action in 1994 that will begin restoring ARCO to a leading position within the industry. 2. Provide a solid, long-term future for the company through a portfolio of projects that offer increased earnings potential. Upstream, we will continue to access new reserves at economic rates of return through a balanced program that includes explora tion. development or redevelopment projects, and acquisitions, particularly those near existing operations. Downstream, we are investing to capitalize on our leadership position in West Coast refining and marketing. The changing product composition requirements present new oppor tunities for us to enhance our high volume/ low cost, high quality/low price position. ARCO Chemical will continue to Invest in and expand its core businesses, allowing it to maintain its world leadership position. 3. Continue the transformation of ARCO from a predominantly domestic company to a global company. * Overseas revenues from all of our inter national upstream operations grew by 5% in 1994. We expect these revenues to continue growing and become a larger contributor to our operations. * In addition to our upstream oil. gas and coal projects overseas, we expect strong growth from downstream projects, including chemicals, refining and marketing. 4. Develop and motivate a world-class work force. We recognize a world-class work force is a world-class asset and critical to our success. ARCO PNYC 00012850 * Bowfln. toft ta*s * <j*g Ptont M*ehnle Cart Miam and $up**i** Alton CalHhon during a vMt to tha Waat Texas natural gas pncmalnQ fadlttyi A positive vamp* of ongoing attantion to *orfcar safaty, tt>a ARCO Permian plant he* achlavad mora than 000,000 hours, or 10 yeer*. worked without any loot time injuries. ARCO has a rich tradition in this regard; with the restructure behind us, we can reassert the importance of our people in light of a different competitive environment. 5. Maintain ARCO's traditional core values in terms of corporate citizenship, business ethics, and environment, health and safety. ARCO and its employees are widely recog* nized as excellent corporate citizens. In 1994, for one example. ARCO's Gordon Galloway received the China Friendship Award, by which the People's Republic of China recognized his (and ARCO's) contributions to both the social and economic improvement of its people Gordon is president of ARCO China, Inc., which is developing that nation's first off shore natural gas field. ARCO's people use sensitive and Innovative approaches to doing their jobs more effec tively. In 1994, we received national recog nition for the only environmental award among 10 "Innovations in State and Local Government'' awards, given jointly by the Ford Foundation and Harvard's John F. Kennedy School of Government. This award came two years after an ARCO oil field became the 6.000-acre Coles Levee Ecosystem Preserve in a unique partnership between the California Fish and Game Department and ARCO Western Energy. ARCO continues to produce from che field while managing the preserve and earning land use credits for other projects. SUBSTANTIAL CAPITAL COMMITMENT To achieve these goals, we will commit sub stantial capital annually and maintain flexibility for "opportunity" projects. For 1995 , we have budgeted $1.9 billion, of which $1.2 billion will be devoted to upstream projects and exploration. In 1994, we spent $1.65 billion on capital projects with $1 billion spent on upstream activities. We believe ARCO is in a very strong position, with a new lower cost structure, a growing pro duction profile and a portfolio of promising projects. We are looking forward to a posi tive future. Lodwrick M. Cook Chairman of the Board Mike R. Bowlin President. Chief Executive Officer and Chief Operating Officer February 27. 1995 ARCO 7 PNYC 00012851