Texaco has halted the decline in its U.S. oil and gas productionand expects to maintain first quarter levels through the rest ofthe year, Comptroller George Batavik told analysts Wednesday.

Texaco’s U.S. natural gas production was down for the quarter toabout 1.487 Bcf/d or 9% less than the 1.738 Bcf/d produced in 1Q98.U.S. crude oil and natural gas liquids production was 406 b/d inthe quarter just ended, down about 10% from the 452 b/d in 1Q98.

Responding to analysts’ questions on a Internet conference call,Batavik said that despite forecasts for higher oil and gas prices,Texaco had “no plans to adjust capital spending” to increaseproduction. Projects already underway should replace decliningproduction on the Gulf Coast and the Gulf of Mexico. Batavik saidTexaco expects the Gemini project in the Gulf to start producingabout 100 MMcf/d about mid-year, which would offset decliningnatural gas production rates.

Meanwhile Texaco Chairman Peter Bijur told the company’s annualmeeting in Rye, NY, “we think oil prices have turned the corner,”citing the OPEC countries’ decision to hold some production off themarket. Plus the world economy appears to be on the mend. Bijurcited hopeful signs from developing Asia, Europe, Russia andBrazil, with only Japan as “a serious soft spot.” A strongereconomy will require more energy this year and in 2000, Bijur said.

Bijur did not rule out new mergers or acquisitions for Texaco,but “we are not interested in a merger solely for the sake ofgetting bigger.” He pointed out there were other ways to improveshareholder value, including a successful exploration program andalliances such as those the company made last year in the U.S. withShell and Saudi Aramco. Texaco has targeted a total of $650 millionin costs to be eliminated this year and next.

“These cost cuts could boost Texaco’s return on capital employedby about 2%, which is the same level we calculate will be generatedby the savings announced through the Exxon/Mobil merger and theBP/Amoco merger.”

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