================================================================================

                                  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 1-27


                                   TEXACO INC.
           (Exact name of the registrant as specified in its charter)


            Delaware                                        74-1383447
 (State or other jurisdiction of                        (I.R.S. Employer
  incorporation or organization)                       Identification No.)


       2000 Westchester Avenue
       White Plains, New York                                 10650
(Address of principal executive offices)                    (Zip Code)



        Registrant's telephone number, including area code (914) 253-4000


                                   ----------

     Texaco Inc. (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, and
(2) HAS BEEN subject to such filing requirements for the past 90 days.

     As of July 31, 1998,  there were outstanding  535,859,243  shares of Texaco
Inc. Common Stock - par value $3.125.

================================================================================



<PAGE>

                         PART I - FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                      TEXACO INC. AND SUBSIDIARY COMPANIES
                        STATEMENT OF CONSOLIDATED INCOME
            FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997
            ---------------------------------------------------------
                     (Millions of dollars, except as noted)

                                                                                             (Unaudited)
                                                                        -------------------------------------------------
                                                                        For the six months          For the three months
                                                                          ended June 30,               ended June 30,
                                                                        ------------------          --------------------
                                                                         1998           1997          1998           1997
                                                                         ----           ----          ----           ----
<S>                                                                    <C>            <C>          <C>             <C>    
         REVENUES
              Sales and services                                       $15,651        $22,796      $  7,729        $10,983
              Equity in income of affiliates, interest,
                  asset sales and other                                    540            729           315            513
                                                                       -------        -------      --------        -------
                                                                        16,191         23,525         8,044         11,496
                                                                       -------        -------      --------        -------
         DEDUCTIONS
              Purchases and other costs                                 12,086         17,969         5,972          8,671
              Operating expenses                                         1,225          1,571           645            790
              Selling, general and administrative expenses                 572            836           296            417
              Exploratory expenses                                         231            192            90             93
              Depreciation, depletion and amortization                     763            757           375            372
              Interest expense                                             234            203           116            102
              Taxes other than income taxes                                225            268           109            129
              Minority interest                                             30             37            15             16
                                                                       -------        -------      --------        -------
                                                                        15,366         21,833         7,618         10,590
                                                                       -------        -------      --------        -------

         Income before income taxes                                        825          1,692           426            906

         Provision for income taxes                                        224            141            84            335
                                                                       -------        -------      --------        -------

         NET INCOME                                                    $   601        $ 1,551      $    342        $   571
                                                                       -------        -------      --------        -------

         Preferred stock dividend requirements                         $    27             28      $     13        $    14
                                                                       -------        -------      --------        -------

         Net income available for common stock                         $   574        $ 1,523      $    329        $   557
                                                                       =======        =======      ========        =======

         Per common share (dollars)
              Basic net income                                         $  1.08        $  2.93      $   0.62        $  1.07
              Diluted net income                                       $  1.07        $  2.85      $   0.61        $  1.05

              Cash dividends paid                                      $  0.90        $  0.85      $   0.45        $ 0.425

         Average shares outstanding for computation
               of earnings per share (thousands)
              Basic                                                    531,232        519,328       530,550        519,375
              Diluted                                                  550,598        539,963       549,775        539,863



<FN>
                              See  accompanying   notes  to  consolidated  financial statements.
</FN>
</TABLE>


                                      - 1 -
<PAGE>

<TABLE>
<CAPTION>
                                            TEXACO INC. AND SUBSIDIARY COMPANIES
                                                 CONSOLIDATED BALANCE SHEET
                                          AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
                                          -----------------------------------------
                                                   (Millions of dollars)
                                                                                         June 30,                December 31,
                                                                                           1998                    1997
                                                                                        -----------              ------------
                                                                                        (Unaudited)
                                                                                        -----------
<S>                                                                                          <C>                    <C>    
ASSETS
   Current Assets
      Cash and cash equivalents                                                              $   345                $   311
      Short-term investments - at fair value                                                      48                     84
      Accounts and notes receivable, less allowance for doubtful
           accounts of  $20 million in 1998 and $22 million in 1997                            3,931                  4,230
      Inventories                                                                              1,214                  1,483
      Deferred income taxes and other current assets                                             344                    324
                                                                                             -------                -------
           Total current assets                                                                5,882                  6,432

   Investments and Advances                                                                    7,234                  5,097

   Properties, Plant and Equipment - at cost                                                  35,056                 38,956
   Less - accumulated depreciation, depletion and amortization                                20,281                 21,840
                                                                                             -------                -------
      Net properties, plant and equipment                                                     14,775                 17,116

        Deferred Charges                                                                         904                    955
                                                                                             -------                -------

           Total                                                                             $28,795                $29,600
                                                                                             =======                =======

LIABILITIES AND STOCKHOLDERS' EQUITY
   Current Liabilities
      Short-term debt                                                                        $   689                $   885
      Accounts payable and accrued liabilities
           Trade liabilities                                                                   1,866                  2,669
           Accrued liabilities                                                                 1,266                  1,480
      Estimated income and other taxes                                                           945                    960
                                                                                             -------                -------
           Total current liabilities                                                           4,766                  5,994

   Long-Term Debt and Capital Lease Obligations                                                6,281                  5,507
   Deferred Income Taxes                                                                       1,803                  1,825
   Employee Retirement Benefits                                                                1,241                  1,224
   Deferred Credits and Other Noncurrent Liabilities                                           1,548                  1,639
   Minority Interest in Subsidiary Companies                                                     641                    645
                                                                                             -------                -------
           Total                                                                              16,280                 16,834
                                                                                             -------                -------
   Stockholders' Equity
      Market Auction Preferred Shares                                                            300                    300
      ESOP Convertible Preferred Stock                                                           440                    457
      Unearned employee compensation and benefit plan trust                                     (354)                 (389)
      Common stock (authorized: 700,000,000 shares, $3.125 par
           value; 567,606,290 shares issued)                                                   1,774                  1,774
      Paid-in capital in excess of par value                                                   1,669                  1,688
      Retained earnings                                                                       10,083                  9,987
      Other accumulated nonowner changes in equity
         Currency translation adjustment                                                        (107)                 (105)
         Minimum pension liability adjustment                                                    (14)                  (16)
         Unrealized net gain on investments                                                       33                     26
                                                                                             -------                -------
           Total other accumulated nonowner changes in equity                                    (88)                  (95)
                                                                                             -------                -------
                                                                                              13,824                 13,722
      Less - Common stock held in treasury, at cost                                            1,309                    956
                                                                                             -------                -------
         Total stockholders' equity                                                           12,515                 12,766
                                                                                             -------                -------
           Total                                                                             $28,795                $29,600
                                                                                             =======                =======


<FN>
                                See  accompanying  notes to consolidated financial statements.
</FN>
</TABLE>

                                       -2-
<PAGE>

<TABLE>
<CAPTION>
                                             TEXACO INC. AND SUBSIDIARY COMPANIES
                                       CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
                                       FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
                                       -----------------------------------------------
                                                    (Millions of dollars)
                                                                                                   (Unaudited)
                                                                                              -----------------------
                                                                                               For the six months
                                                                                                 ended June 30,
                                                                                              -----------------------
                                                                                              1998               1997
                                                                                              ----               ----
<S>                                                                                         <C>                <C>    
OPERATING ACTIVITIES
   Net income                                                                               $   601            $ 1,551
   Reconciliation to net cash provided by (used in)
      operating activities
         Receivable for refund of IRS deposits                                                    -               (700)
         Depreciation, depletion and amortization                                               763                757
         Deferred income taxes                                                                 (21)                185
         Exploratory expenses                                                                   231                192
         Minority interest in net income                                                         30                 37
         Dividends from affiliates less than
            equity in income                                                                   (116)              (144)
         Gains on asset sales                                                                   (58)              (287)
         Changes in operating working capital                                                  (316)               (89)
         Other - net                                                                              9                (52)
                                                                                            -------            -------
            Net cash provided by operating activities                                         1,123              1,450

INVESTING ACTIVITIES
   Capital and exploratory expenditures                                                      (1,503)            (1,451)
   Proceeds from asset sales                                                                    113                742
   Purchases of investment instruments                                                         (405)              (608)
   Sales/maturities of investment instruments                                                   458                657
   Payments from Equilon Enterprises LLC for prior years' capital expenditures                  463                  -
   Other - net                                                                                   25               (142)
                                                                                            -------            -------
            Net cash used in investing activities                                              (849)              (802)
FINANCING ACTIVITIES
   Borrowings having original terms in excess
      of three months
         Proceeds                                                                               967                221
         Repayments                                                                            (454)              (180)
   Net increase (decrease) in other borrowings                                                  201                (85)
   Purchases of common stock                                                                   (404)               (36)
   Dividends paid to the company's stockholders
      Common                                                                                   (479)              (441)
      Preferred                                                                                 (28)               (28)
   Dividends paid to minority shareholders                                                      (35)               (40)
                                                                                            -------            -------
            Net cash used in financing activities                                              (232)              (589)

CASH AND CASH EQUIVALENTS
      Effect of exchange rate changes                                                            (8)                (6)
                                                                                            -------            -------
      Increase during period                                                                     34                 53
      Beginning of year                                                                         311                511
                                                                                            -------            -------
      End of period                                                                         $   345            $   564
                                                                                            =======            =======




<FN>
                         See  accompanying   notes  to  consolidated financial statements.
</FN>
</TABLE>



                                       -3-
<PAGE>

<TABLE>
<CAPTION>
                                            TEXACO INC. AND SUBSIDIARY COMPANIES
                               CONDENSED STATEMENT OF CONSOLIDATED NONOWNER CHANGES IN EQUITY
                                  FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997
                               --------------------------------------------------------------
                                                    (Millions of dollars)
                                                                                    (Unaudited)
                                                                 ----------------------------------------------------
                                                                 For the six months             For the three months
                                                                   ended June 30,                  ended June 30,
                                                                ---------------------         -----------------------
                                                                1998             1997         1998               1997
                                                                ----             ----         ----               ----

<S>                                                            <C>              <C>         <C>                 <C>   
   NET INCOME                                                  $   601          $1,551      $   342             $  571
   Other nonowner changes in equity (net of tax)
      Currency translation adjustment                               (2)            (15)           -                 15
      Minimum pension liability adjustment                           2               -            -                  -
      Unrealized net gain (loss) on investments                      7              (1)           2                 10
                                                               -------          ------      -------             ------
                                                                     7             (16)           2                 25
                                                               -------          ------      -------             ------
   TOTAL NONOWNER CHANGES IN EQUITY                            $   608          $1,535      $   344             $  596
                                                               =======          ======      =======             ======
</TABLE>



                      TEXACO INC. AND SUBSIDIARY COMPANIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

Note 1. Formation of Equilon Enterprises LLC
--------------------------------------------

On January 15,  1998,  Texaco and Shell Oil  Company  reached  agreement  on the
formation  and  operational  start-up,  effective  January 1,  1998,  of Equilon
Enterprises LLC (Equilon),  a Delaware limited liability  company.  Equilon is a
joint  venture  that  combines  major  elements  of the  companies'  Western and
Midwestern U.S. refining and marketing  businesses and their nationwide trading,
transportation and lubricants businesses.  Texaco owns 44 percent and Shell owns
56 percent of Equilon.

Beginning  January 1, 1998, we are  accounting for our interest in Equilon using
the equity method.  Under this method,  we reclassified the net amount of assets
and  liabilities  of the businesses  contributed  to Equilon to Investments  and
Advances in the  Consolidated  Balance  Sheet.  We record our share of Equilon's
results of operations  on a one-line  basis to Equity in Income of Affiliates in
the  Consolidated  Statement  of Income.  Since  Equilon is a limited  liability
company,  we  record  the  provision  for  income  taxes and  related  liability
applicable  to our  share of  Equilon's  income  in our  consolidated  financial
statements.  Additionally, we now record transactions between Texaco and Equilon
as  outside  third-party  transactions.  This  change  to the  equity  method of
accounting results in significant variances between the 1998 and 1997 periods in
the individual line captions appearing in our financial statements.

The carrying amounts at January 1, 1998, of the principal assets and liabilities
of the  businesses  we  contributed  to Equilon  were $.2 billion of net working
capital  assets,  $2.8 billion of net  properties,  plant and  equipment and $.2
billion of debt.

Summarized  unaudited financial  information for Equilon,  for the six and three
month periods  ended June 30, 1998,  is presented  below on a 100% Equilon basis
(in millions of dollars):

<TABLE>
<CAPTION>
                                                                    For the six months          For the three months
                                                                    ended June 30, 1998          ended June 30, 1998
                                                                    -------------------          -------------------
<S>                                                                      <C>                           <C>   
                  Gross revenues                                         $12,095                       $6,070
                  Income before income taxes                             $   310                       $  198
</TABLE>

In  April,   1998,  we  received   $463  million  from   Equilon,   representing
reimbursement of certain capital expenditures incurred prior to the formation of
the joint  venture.  In July 1998,  we received  $149  million  from Equilon for
certain specifically identified assets transferred for value to Equilon.




                                      - 4 -
<PAGE>


Under the terms of a consent agreement  accepted by the Federal Trade Commission
and similar agreements with the attorneys general of California,  Hawaii, Oregon
and Washington,  certain assets will be divested,  including Shell's  Anacortes,
Washington  refinery,  certain  Texaco and Shell  marketing  assets in  southern
California and Hawaii, and certain pipeline interests.

On August 10,  1998,  Shell Oil  Company  sold its  ownership  in the  Anacortes
refinery to Tesoro  Petroleum  Corporation,  effective August 1, 1998. The total
cash purchase price was $237 million,  plus $39.6 million for estimated  working
capital,  which will be adjusted  at a later date to reflect  actual net working
capital.  Equilon is entitled to the net proceeds of the sale and any  resulting
gain or loss.



Note 2. Formation of Motiva Enterprises LLC
-------------------------------------------

Texaco,  Shell Oil Company and Saudi Aramco  reached  agreement on the formation
and  operational  start up,  effective July 1, 1998, of Motiva  Enterprises  LLC
(Motiva),  a Delaware limited liability company.  Motiva is a joint venture that
combines  Texaco's and Saudi  Aramco's  interests and major  elements of Shell's
Eastern and Gulf Coast U.S.  refining  and  marketing  businesses.  Texaco's and
Saudi Aramco's  interest in these  businesses were previously  conducted by Star
Enterprise (Star), a joint-venture partnership owned 50 percent by Texaco and 50
percent by Saudi Refining,  Inc., a corporate affiliate of Saudi Aramco.  Texaco
and Saudi  Refining,  Inc.,  each owns 32.5 percent and Shell owns 35 percent of
Motiva.

Beginning  July 1, 1998, we are  accounting for our interest in Motiva using the
equity  method.  Previously,  our interest in Star was also accounted for on the
equity method of accounting.  Accordingly, our investment in Motiva approximates
our previous investment in Star.


Note 3. Inventories
-------------------

The inventory accounts of Texaco Inc. and consolidated  subsidiary companies are
presented below (in millions of dollars):

<TABLE>
<CAPTION>
                                                                                                 As of
                                                                                --------------------------------------
                                                                                 June 30,                 December 31,
                                                                                   1998                       1997
                                                                                -----------               ------------
                                                                                (Unaudited)

<S>                                                                               <C>                       <C>   
     Crude oil                                                                    $  232                    $  308

     Petroleum products and petrochemicals                                           757                       893

     Other merchandise                                                                37                        59

     Materials and supplies                                                          188                       223
                                                                                  ------                    ------
          Total                                                                   $1,214                    $1,483
                                                                                  ======                    ======

</TABLE>

Note 4. Contingent Liabilities
------------------------------

Information  relative to commitments  and contingent  liabilities of Texaco Inc.
and  subsidiary  companies  is presented in Notes 16 and 18, pages 57-58 and 61,
respectively, of Texaco Inc.'s 1997 Annual Report to Stockholders.


                                   ----------


In the company's opinion, while it is impossible to ascertain the ultimate legal
and financial liability with respect to contingent  liabilities and commitments,
the aggregate  amount of such  liability in excess of financial  reserves is not
anticipated to be materially important in relation to the consolidated financial
position or results of operations of Texaco.


                                      - 5 -
<PAGE>

Note 5. Caltex Group of Companies
---------------------------------

Summarized  unaudited  financial  information for the Caltex Group of Companies,
owned 50% by Texaco and 50% by Chevron Corporation, is presented below on a 100%
Caltex Group basis (in millions of dollars):

<TABLE>
<CAPTION>

                                                                       For the six months       For the three months
                                                                         ended June 30,            ended June 30,
                                                                         --------------            --------------
                                                                         1998       1997           1998       1997
                                                                         ----       ----           ----       ----
<S>                                                                    <C>        <C>            <C>        <C>   
                  Gross revenues                                       $8,555     $9,127         $4,249     $4,433

                  Income before income taxes                           $  589     $  639         $  270     $ 319

                  Net income                                           $  426     $  386         $  222     $  200




                              * * * * * * * * * * *



In the determination of preliminary and unaudited  financial  statements for the
six-month and  three-month  periods ended June 30, 1998 and 1997, our accounting
policies have been applied on a basis  consistent  with the  application of such
policies  in our  financial  statements  issued  in our 1997  Annual  Report  to
Stockholders.  In our  opinion,  we have made all  adjustments  and  disclosures
necessary to present  fairly our results of operations  for such periods.  These
adjustments include normal recurring adjustments.  The information is subject to
year-end  audit by  independent  public  accountants.  We make no  forecasts  or
representations with respect to the level of net income for the year 1998.



                              * * * * * * * * * * *



                      SUPPLEMENTAL MARKET RISK DISCLOSURES
                      ------------------------------------

Information  relative to Texaco's  market risk  sensitive  instruments  by major
category  at December  31, 1997 is  presented  in the  Supplemental  Market Risk
Disclosures on pages 69 and 70 of Texaco Inc.'s Annual Report to Stockholders.

Texaco's   forward   exchange   contracts   outstanding  at  June  30,  1998  of
approximately  $2,167  million net buy contracts  increased by $928 million from
the $1,239 million  outstanding at December 31, 1997. This increase  principally
resulted from the hedging of increased exposures to foreign currency denominated
net monetary assets and liabilities and from the hedging of increased  exposures
related to foreign currency denominated capital projects. As of June 30, 1998, a
hypothetical 10% change in currency exchange rates would generate an increase or
decrease in fair value of approximately  $217 million,  compared to $124 million
at December 31, 1997.  This would be offset by an opposite effect on the related
hedged exposures.





                                      - 6 -
<PAGE>

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

RESULTS OF OPERATIONS
---------------------

Texaco's net income for the second  quarter of 1998 was $342  million,  or $0.61
per share,  as compared  with $571 million,  or $1.05 per share,  for the second
quarter of 1997.  Net income for the first six months of 1998 was $601  million,
or $1.07 per share, as compared with $1,551 million, or $2.85 per share, for the
first six months of 1997. Both the 1998 and 1997 periods included special items.

Net income before special items for the second quarter of 1998 was $335 million,
or $0.60 per share, as compared with $440 million,  or $0.81 per share,  for the
second  quarter  of 1997.  For the first six months of 1998,  net income  before
special  items was $594  million,  or $1.06 per  share,  as  compared  with $932
million, or $1.71 per share, for the first six months of 1997.

Continuing  weak crude oil  prices  lowered  second  quarter  results.  Improved
margins  and higher  sales  volumes in the  international  downstream  and an 11
percent  increase in worldwide  production only partially  offset the effects of
lower oil prices.

During the second quarter of 1998:
  o  International   downstream  margins  and  volumes  were  strong;
  o  Worldwide daily production  increased 11 percent;
  o  Year-to-date cash operating expenses per barrel decreased six  percent; and
  o  Year-to-date stock repurchases totaled $400 million.

The  combination  of excessive  crude oil  inventories  and slower demand growth
continues to keep downward  pressure on prices.  Recently  announced  production
cuts by certain oil  producing  nations  should  lead to a better  supply/demand
balance  and  a  recovery  in  prices.  In  this  environment,  we  continue  to
strategically  position the company for long-term  profitability  by focusing on
increasing our reserve base.

Lower  crude oil  prices  helped to  improve  downstream  margins  in the second
quarter.  Texaco's  increasing  presence  in  Latin  American  markets  and  the
company's  operational  performance in Europe  contributed to improved  results.
Additionally,   profitability   has  been  maintained  in  the  Caltex  area  of
operations, despite the highly volatile business environment.

Texaco,  Shell Oil Company and Saudi  Refining,  Inc., a corporate  affiliate of
Saudi Aramco,  finalized agreements for the July 1, 1998 operational start-up of
Motiva Enterprises LLC. This U.S.  downstream alliance combines Eastern and Gulf
Coast  refining  and  marketing   operations.   Earlier  in  the  year,  Equilon
Enterprises LLC, a U.S. joint venture combining Texaco's and Shell's Western and
Midwestern downstream assets, began operations.

Results for 1998 and 1997 are  summarized  in the  following  table.  Details on
special items are included in the functional analysis which follows this table.


</TABLE>
<TABLE>
<CAPTION>

                                                                                            (Unaudited)
                                                                                            -----------
                                                                         For the six months           For the three months
                                                                           ended June 30,                ended June 30,
                                                                           --------------                --------------
                                                                         1998           1997          1998           1997
                                                                         ----           ----          ----           ----
                                                                                       (Millions of Dollars)
<S>                                                                    <C>            <C>            <C>             <C>  
Net income before special items                                        $   594        $   932        $  335          $ 440
                                                                       -------         ------        ------           ----
Gains on major asset sales                                                  20            174            20            174
Tax benefits on asset sales                                                 19              -            19              -
Alliance formation expenses                                                (32)             -           (32)             -
Financial reserves for various issues                                        -            (43)            -            (43)
U.S. tax issue                                                               -            488             -              -
                                                                       -------         ------        ------           ----
                                                                             7            619             7            131
                                                                       -------         ------        ------           ----
Total net income                                                       $   601         $1,551        $  342           $571
                                                                       =======         ======        ======           ====
</TABLE>

                                      - 7 -
<PAGE>


                               OPERATING EARNINGS


PETROLEUM AND NATURAL GAS
     EXPLORATION AND PRODUCTION
        United States

Exploration  and production  earnings in the U.S. for the second quarter of 1998
were $120 million, as compared with $189 million for the second quarter of 1997.
For the first six months of 1998 and 1997,  earnings  were $227 million and $500
million,  respectively.  Results for 1998 included a second quarter special gain
of $20 million from the sale of an interest in a natural gas pipeline. Excluding
the special  gain,  results for the second  quarter and first six months of 1998
totaled $100 million and $207 million, respectively. Results for 1997 included a
second quarter special charge of $43 million for the  establishment of financial
reserves for royalty and  severance tax issues.  Excluding  the special  charge,
results for the second quarter and first six months of 1997 totaled $232 million
and $543 million, respectively.

U.S.  exploration  and  production  earnings in the second quarter and the first
half of 1998 were below last year's levels due to the continued deterioration of
crude oil prices.  Average  realized crude oil prices for the second quarter and
first half of 1998 were $10.72 and $11.26 per barrel; more than 36 percent lower
than the 1997  periods.  The  dramatic  declines in price  resulted  from rising
inventory levels and slowing  worldwide  demand growth.  Slightly higher natural
gas prices  benefited  second quarter 1998 results.  For the first half of 1998,
average  natural gas prices were $2.10 per MCF,  $.26 lower than last year.  The
lower natural gas prices were the result of milder weather, as well as increased
inventory levels in this year's first quarter.

Production  increased  10 percent for the second  quarter and 11 percent for the
first half of 1998. The increased production in the second quarter 1998 included
new  production  from the Arnold,  Oyster and Barite South fields located in the
Gulf of Mexico.  Both  periods of 1998  included  production  from the  Monterey
properties acquired in November of 1997.

The company continued to pursue new reserve opportunities in the Gulf of Mexico,
leading to higher exploration  expenses this year.  Exploration expenses for the
second  quarter and first half of 1998 were $51 million and $147 million  before
tax, $17 million and $71 million higher than the same periods of 1997.

         International

Exploration and production  earnings  outside the U.S. for the second quarter of
1998 were $51 million,  as compared with $240 million for the second  quarter of
1997.  For the first six months of 1998 and 1997,  earnings were $91 million and
$396 million,  respectively.  Results for 1997 included  second quarter  special
gains of $161  million  from the sales of a 15 percent  interest  in the Captain
Field in the U.K.  North Sea,  an interest in  Canadian  gas  properties  and an
interest in an Australian pipeline system.  Excluding the special gains, results
for the second quarter and first six months of 1997 totaled $79 million and $235
million, respectively.

International  exploration  and  production  earnings for the second quarter and
first half of 1998  declined  from 1997 as a result of lower  crude oil  prices.
Average  realized  crude oil prices were $11.42 per barrel for the quarter,  and
$11.68 for the first half of 1998,  decreasing 32 percent for the quarter and 36
percent for the first half.

Production  increased  13 percent for the second  quarter and 16 percent for the
first half of 1998.  Volumes in the U.K.  North Sea increased  from the Captain,
Erskine  and Galley  fields.  The Galley  field began  production  in the second
quarter of this year.  Production also increased in the Partitioned Neutral Zone
and  Colombia,  and as a result of our first  quarter 1998  acquisition  of a 20
percent  interest in the  Karachaganak  field in Kazakhstan.  Also,  exploratory
expenses in both periods were lower.




                                      - 8 -
<PAGE>

     MANUFACTURING, MARKETING AND DISTRIBUTION

         United States

Manufacturing,  marketing and  distribution  earnings in the U.S. for the second
quarter of 1998 were $64 million,  as compared  with $100 million for the second
quarter of 1997.  For the first six months of 1998 and 1997,  earnings were $111
million  and $106  million,  respectively.  Results  for 1998  included a second
quarter special charge of $32 million for alliance  formation  expenses,  mainly
our share of  announced  employee  severance  programs.  Excluding  the  special
charge,  results for the second quarter and first six months of 1998 totaled $96
million  and $143  million,  respectively.  Results  for 1997  included a second
quarter  special  gain of $13 million  from the sale of credit card  operations.
Excluding the special gain,  results for the second quarter and first six months
of 1997 totaled $87 million and $93 million, respectively.

In the U.S. downstream,  earnings for 1998 reflect the change in operations from
the formation of Equilon  Enterprises  LLC,  Texaco's  downstream  alliance with
Shell Oil Company.

During  this  year's  second  quarter,  margins  benefited  from lower crude oil
prices. Refining operations improved in the West and Midwest, while in the East,
results were adversely affected by downtime at several plants.

For the first  half of this year,  lower  crude  prices  benefited  product  and
lubricant  margins.  Crude oil trading  operations  also  contributed  to higher
results.  However, in the first quarter,  weather conditions weakened demand for
heating  oil on the East  Coast and  gasoline  on the West  Coast.  Also,  first
quarter  refining  results were affected by maintenance at the Martinez and Wood
River plants.

Earnings  for 1997  included  the adverse  effects of intense  competition  that
squeezed margins in the West Coast marketplace,  primarily in the first quarter.
Refinery fires late in 1996 and early in 1997 negatively affected product yields
and caused casualty loss expenses.

         International

Manufacturing,  marketing  and  distribution  earnings  outside the U.S. for the
second quarter of 1998 were $194 million,  as compared with $132 million for the
second quarter of 1997. For the first six months of 1998 and 1997, earnings were
$376 million and $236 million, respectively.

Refining  margins  improved  in the U.K.  and Panama due to lower  crude  costs.
Improved marketing results reflected increased sales volumes and higher margins,
primarily in the U.K.,  Brazil and other Latin  America  areas where  operations
have expanded.  Scandinavian  earnings improved  following the 1997 price war in
Norway.

In the Caltex area,  higher 1998 earnings were a result of lower crude costs and
partial recovery of the fourth quarter 1997 currency losses in Korea. However, a
significantly  higher  volume of product was sold into the lower  margin  export
market.


NONPETROLEUM

Nonpetroleum  losses for the second quarter of 1998 were $2 million, as compared
with  earnings of $1 million for the second  quarter of 1997.  For the first six
months of 1998, there were no earnings, as compared with earnings of $13 million
for the first six months of 1997.








                                      - 9 -
<PAGE>

                         CORPORATE/NONOPERATING RESULTS

Corporate  and  nonoperating  charges  for the  second  quarter of 1998 were $85
million, as compared with charges of $91 million for the second quarter of 1997.
Corporate  and  nonoperating  charges for the first six months of 1998 were $204
million,  as compared  with earnings of $300 million for the first six months of
1997. Results for 1998 included a second quarter special item of $19 million for
tax benefits attributable to the sale of an interest in a subsidiary.  Excluding
the special  gain,  charges for the second  quarter and first six months of 1998
totaled $104 million and $223 million,  respectively.  Results for the first six
months  of 1997  included  a  first  quarter  special  benefit  of $488  million
associated  with  an IRS  settlement.  Excluding  this  benefit,  corporate  and
nonoperating charges totaled $188 million for the first six months of 1997.

Corporate and nonoperating results for the second quarter and first half of 1998
included  increased  interest  expense due to higher debt levels.  Additionally,
results for 1998 included expenses for Texaco's corporate  advertising  campaign
introduced in the second half of 1997.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Our cash, cash equivalents and short-term  investments were $393 million at June
30, 1998, as compared with $395 million at year-end 1997.

During  1998,  our  operations  provided  cash of $1,123  million.  We raised an
additional  $711 million from net  borrowings and $113 million from asset sales.
We spent  $1,503  million on our capital and  exploratory  program and paid $542
million in dividends to common, preferred and minority shareholders.

At June 30, 1998, our ratio of debt to total  borrowed and invested  capital was
34.6%,  as compared with 32.3% at year-end 1997. At June 30, 1998, our long-term
debt included $1.6 billion of debt scheduled to mature within one year, which we
have both the intent and ability to refinance on a long-term  basis. We maintain
revolving credit facilities with commitments of $1.7 billion,  which were unused
at June 30, 1998.

Major debt activity during the first six months of 1998 follows:
o Borrowed  $300 million at 6% for seven years and $153  million of 
  Medium-Term Notes. 
o Borrowed $150 million at 5.92% for seven years to cover expenditures at
  our Erskine field in the U.K. North Sea.
o Borrowed $131 million for four years and entered into an associated 
  LIBOR-based floating rate swap to cover expenditures at our Tartan Field in 
  the U.K. North Sea.
o Borrowed  $94  million  from the  issuance of Zero  Coupon  Notes due 2005.
o Increased  commercial paper by $400 million,  to a total of $1.3 billion at 
  June 30, 1998.
o Repurchased approximately $200 million of 10.61% Notes that we assumed in last
  year's acquisition of Monterey Resources.

During the first  quarter of 1998,  we  purchased  about $100  million of common
stock in the open market. This completed a program under which we purchased $650
million of our common  stock during the last two years.  On March 30,  1998,  we
announced  that we will  purchase up to an  additional  $1 billion of our common
stock, subject to market conditions,  through open market purchases or privately
negotiated  transactions.  Under this additional program we purchased about $300
million  during the second quarter of 1998 and an additional $80 million in July
1998.

 In  April  1998,   we  received   $463  million  from   Equilon,   representing
reimbursement of certain capital expenditures incurred prior to the formation of
Equilon.  In  addition,  we received  $149 million from Equilon in July 1998 for
certain specifically identified assets transferred for value to Equilon.

We  consider  our  financial  position  to be  sufficiently  strong  to meet our
anticipated future financial requirements.


                                     - 10 -
<PAGE>

NEW ACCOUNTING STANDARDS
------------------------

In June 1997, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 131,  "Disclosures about Segments of an
Enterprise  and  Related   Information."   SFAS  131  requires  that  we  report
information  about our business  segments on the same basis used internally when
assessing performance and allocating  resources.  We will adopt SFAS 131 for our
1998  audited  financial  statements.  Presently,  we  disclose  in our  audited
financial statements  information about geographic segments only. We expect that
our  business  segments  will be  substantially  similar  to those we  presently
identify in the  Management's  Discussion and Analysis section of our Forms 10-K
and 10-Q.

In February 1998, the FASB issued SFAS 132, "Employers' Disclosure about Pension
and Other  Postretirement  Benefits."  We are required to adopt SFAS 132 for our
1998 audited financial  statements and will modify our disclosures  accordingly.
SFAS  132  does  not  affect  how  we  measure  expense  for  pension  or  other
postretirement benefits.

In June 1998, the FASB issued SFAS 133,  "Accounting for Derivative  Instruments
and  Hedging  Activities,"  effective  in  the  first  quarter  2000.  SFAS  133
establishes  new  accounting  rules and disclosure  requirements  for derivative
instruments. We will be assessing the impacts of SFAS 133.


CAPITAL AND EXPLORATORY EXPENDITURES
------------------------------------

Capital and exploratory  expenditures  were $1,881 million for the first half of
1998 and $1,798 million in 1997.

In the U.S.  upstream,  development  continued in the deepwater  Gulf of Mexico.
Expenditures  in 1998 also  increased for enhanced oil recovery  projects  using
advanced thermal recovery  techniques which raised  production from the acquired
Monterey  properties  and other  core  producing  fields.  Exploratory  expenses
increased as the company  continued  its program to grow oil and gas  production
and reserves.

Internationally,  slightly higher upstream  expenditures included our investment
in the Karachaganak  venture in Kazakhstan,  a discovered  reserve  opportunity.
Development work continued in the U.K. North Sea,  Indonesia and other promising
areas, while exploratory spending decreased in China.

Lower international  downstream  expenditures in the Caltex marketing areas were
due to higher 1997 service station investments in Hong Kong.

Texaco continues to carefully assess  investment  projects given the current and
projected  industry  environment.  The company  anticipates  some  adjustment in
spending by  deferring  non-critical  projects  into future  periods  should the
current low crude price environment persist.

YEAR 2000
---------

The Year  2000  ("Y2K")  problem  concerns  the  inability  of  information  and
technology-based   operating   systems  to   properly   recognize   and  process
date-sensitive  information  beyond  December  31,  1999.  This could  result in
systems  failures and  miscalculations  which could cause business  disruptions.
Equipment that uses a date, such as computers and operating control systems, may
be affected.  This includes  equipment used by our customers and  suppliers,  as
well as by utilities and governmental entities that provide critical services to
us.

Many of our systems and related  software are already Y2K compliant.  We have an
ongoing Y2K compliance program.  This program is actively reviewing all hardware
and software  associated with our mainframe  computers,  personal  computers and
client/servers,  telecommunications  and  embedded  systems  found in  equipment
throughout our producing,  refining,  transportation  and marketing  operations.
This program consists of identifying and inventorying all software  applications
and systems,  making  required  modifications,  and  testing.  There are similar
ongoing compliance programs in our major affiliates.

                                     - 11 -
<PAGE>


Based on information  currently available,  we estimate that the costs to modify
our  systems to achieve Y2K  compliance  will not exceed $75  million,  of which
about $20 million has been spent through June 30, 1998.

We are also  gathering  information  about the Y2K  readiness of  utilities  and
governmental entities and of our customers and suppliers.  Since we cannot state
with certainty whether our operations will be materially  adversely  affected by
their  compliance  problems,  we are  developing  contingency  plans in order to
minimize the negative impacts on Texaco if they are not Y2K ready.

 Our goal is to have all critical Texaco systems Y2K compliant  during the first
half of 1999.  This should allow time before the  millennium  change to validate
the system modifications and complete contingency plans for customers, suppliers
and others who may not be Y2K  compliant.  While there can be no assurance  that
all such  modifications and plans will be successful,  we do not expect that any
disruptions  will  have a  material  adverse  effect  on our  overall  financial
position, results of operations, or liquidity.

The foregoing  constitutes a  "forward-looking  statement" within the meaning of
Section 27A of the Securities Act of 1933. It is based on  management's  current
expectations,  estimates and  projections,  which could  ultimately  prove to be
inaccurate.  Factors  which could affect our ability to be Y2K  compliant by the
end of 1999 include the failure of customers,  suppliers,  governmental entities
and others to achieve compliance, the inaccuracy of certifications received from
them, and a shortage of necessary programmers, hardware and software.







                           PART II - OTHER INFORMATION


Item 1. Legal Proceedings
-------------------------


Reference is made to the  discussion of Contingent  Liabilities in Note 4 to the
Consolidated  Financial  Statements  of this Form 10-Q,  Item 1 of Texaco Inc.'s
Form 10-Q for the quarterly  period ended March 31, 1998 and to Item 3 of Texaco
Inc.'s  1997  Annual  Report  on Form  10-K,  which are  incorporated  herein by
reference.










                                     - 12 -
<PAGE>


Item 5. Other Information
-------------------------

<TABLE>
<CAPTION>
                                                                                             (Unaudited)
                                                                                             -----------
                                                                         For the six months           For the three months
                                                                           ended June 30,                ended June 30,
                                                                           --------------                --------------
                                                                          1998          1997           1998          1997
                                                                          ----          ----           ----          ----
                                                                                        (Millions of dollars)
FUNCTIONAL NET INCOME
---------------------
<S>                                                                     <C>            <C>          <C>             <C>   
Operating earnings
   Petroleum and natural gas
      Exploration and production
         United States                                                  $  227         $  500       $   120         $  189
         International                                                      91            396            51            240
                                                                        ------         ------       -------         ------
           Total                                                           318            896           171            429
                                                                        ------         ------       -------         ------
      Manufacturing, marketing and distribution
         United States                                                     111            106            64            100
         International                                                     376            236           194            132
                                                                        ------         ------       -------         ------
           Total                                                           487            342           258            232
                                                                        ------         ------       -------         ------

           Total petroleum and natural gas                                 805          1,238           429            661

   Nonpetroleum                                                              -             13            (2)             1
                                                                        ------         ------       -------         ------
           Total operating earnings                                        805          1,251           427            662

Corporate/Nonoperating                                                    (204)           300           (85)           (91)
                                                                        ------         ------       -------         ------

           Total net income                                             $  601         $1,551       $   342         $  571
                                                                        ======         ======       =======         ======


CAPITAL AND EXPLORATORY EXPENDITURES
------------------------------------
   Exploration and production
         United States                                                  $  899         $  781       $   423         $  429
         International                                                     551            546           261            264
                                                                        ------         ------       -------         ------
           Total                                                         1,450          1,327           684            693
                                                                        ------         ------       -------         ------
   Manufacturing, marketing and distribution
         United States                                                     183            152            95             92
         International                                                     228            308           129            207
                                                                        ------         ------       -------         ------
           Total                                                           411            460           224            299
                                                                        ------         ------       -------         ------

   Other                                                                    20             11             6              7
                                                                        ------         ------       -------         ------
           Total                                                        $1,881         $1,798       $   914         $  999

   Exploratory expenses included above
         United States                                                  $  147         $   76       $    51         $   34
         International                                                      84            116            39             59
                                                                        ------         ------       -------         ------

           Total                                                        $  231         $  192       $    90         $   93
                                                                        ======         ======       =======         ======

</TABLE>










                                     - 13 -
<PAGE>

<TABLE>
<CAPTION>
                                                                                             (Unaudited)
                                                                         -------------------------------------------------
                                                                         For the six months           For the three months
                                                                           ended June 30,                ended June 30,
                                                                         --------------------         --------------------
                                                                         1998            1997         1998            1997
                                                                         ----            ----         ----            ----
OPERATING DATA
--------------
Exploration and Production
--------------------------

<S>                                                                     <C>            <C>           <C>            <C>   
United States
-------------
     Net production of crude oil and natural
         gas liquids (000 BPD)                                             449            385           447            385
     Net production of natural gas - available
         for sale (000 MCFPD)                                            1,721          1,666         1,703          1,677

     Total net production (000 BOEPD)                                      736            663           731            665

     Natural  gas sales (000 MCFPD)                                      3,908          3,700         3,934          3,561

     Average U.S. crude (per bbl)                                       $11.26         $18.29        $10.72         $16.95
     Average U.S. natural gas (per mcf)                                 $ 2.10         $ 2.36        $ 2.05         $ 2.02
     Average WTI (Spot) (per bbl)                                       $15.26         $21.38        $14.62         $19.97
     Average Kern (Spot) (per bbl)                                      $ 8.31         $15.07        $ 7.75         $14.11

International
-------------
     Net production of crude oil and natural
         gas liquids (000 BPD)
         Europe                                                            154            116           149            118
         Indonesia                                                         155            147           156            153
         Partitioned Neutral Zone                                          106             92           105             94
         Other                                                              69             67            67             68
                                                                        ------         ------        ------         ------
              Total                                                        484            422           477            433
     Net production of natural gas - available
         for sale (000 MCFPD)
         Europe                                                            251            207           245            172
         Colombia                                                          196            156           185            173
         Other                                                             118             93           112             83
                                                                        ------         ------        ------         ------
              Total                                                        565            456           542            428

     Total net production (000 BOEPD)                                      578            498           567            504

     Natural gas sales (000 MCFPD)                                         721            574           665            528

     Average International crude (per bbl)                              $11.68         $18.22        $11.42         $16.91
     Average U.K. natural gas (per mcf)                                 $ 2.64         $ 2.73        $ 2.64         $ 2.59
     Average Colombia natural gas (per mcf)                             $ 0.91         $ 1.09        $ 0.92         $ 1.12

Worldwide
---------
     Total net production (000 BOEPD)                                    1,314          1,161         1,298          1,169

</TABLE>




                                     - 14 -
<PAGE>

<TABLE>
<CAPTION>
                                                                                            (Unaudited)
                                                                         -------------------------------------------------
                                                                         For the six months           For the three months
                                                                           ended June 30,                ended June 30,
                                                                         -------------------          --------------------
                                                                         1998           1997          1998            1997
                                                                         ----           ----          ----            ----
OPERATING DATA
--------------
<S>                                                                     <C>             <C>           <C>            <C>
Manufacturing, Marketing and Distribution
-----------------------------------------

United States
-------------
     Refinery input (000 BPD)
         Western U.S.                                                      377            413           396            418
         Eastern U.S.                                                      323            332           333            328
                                                                         -----          -----         -----          -----
              Total                                                        700            745           729            746

     Refined product sales (000 BPD)
         Gasolines                                                         530            505           554            512
         Avjets                                                            168             92           164             94
         Middle Distillates                                                184            215           188            216
         Residuals                                                         107             72           119             59
         Other                                                             165            119           181            117
                                                                         -----          -----         -----          -----
              Total                                                      1,154          1,003         1,206            998

International
-------------
     Refinery input (000 BPD)
         Europe                                                            371            341           367            335
         Caltex                                                            428            411           419            414
         Latin America/West Africa                                          64             59            70             55
                                                                         -----          -----         -----          -----
              Total                                                        863            811           856            804

     Refined product sales (000 BPD)
         Europe                                                            582            495           602            494
         Caltex                                                            589            574           586            561
         Latin America/West Africa                                         444            391           460            406
         Other                                                              51             55            56             74
                                                                         -----          -----         -----          -----
              Total                                                      1,666          1,515         1,704          1,535

</TABLE>









                                     - 15 -
<PAGE>

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

(a)  Exhibits

    --      (2)  Copy of the Asset Transfer and Liability Assumption Agreement 
                 dated as of July 1, 1998, among the parties, for the
                 formation of Motiva Enterprises LLC.

    --     (11)  Computation of Earnings Per Share of Common Stock.

    --     (12)  Computation of Ratio of Earnings to Fixed Charges of Texaco on
                 a Total Enterprise Basis.

    --     (20)  Copy of Texaco  Inc.'s  Annual  Report  on Form 10-K  for  the
                 fiscal  year ended  December  31, 1997  (including  portions of
                 Texaco Inc.'s Annual Report to Stockholders  for the year 1997)
                 and a copy of Texaco Inc.'s  Quarterly  Report on Form 10-Q for
                 the quarterly  period ended March 31, 1998, as previously filed
                 by the Registrant with the Securities and Exchange  Commission,
                 File No. 1-27.

     --    (27)  Financial Data Schedule.

(b) Reports on Form 8-K:

     During the second quarter of 1998, the Registrant  filed Current Reports on
Form 8-K for the following events:

     1.   April 1, 1998 (date of earliest event reported: March 30, 1998)

          Item 5.  Other  Events  --  reported  that  Texaco  announced  a stock
          repurchase program for up to $1 billion.

     2.   April 23, 1998 (date of earliest event reported: April 23, 1998)

          Item 5. Other Events -- reported that Texaco issued an Earnings  Press
          Release for the first quarter 1998.

     3.   April 29, 1998 (date of earliest event reported: April 28, 1998)

          Item 5. Other Events -- reported that  stockholders of Texaco approved
          an amendment to the company's  Rights  Agreement dated March 16, 1989.
          The  amendment  extends the  expiration  date of the Rights  Agreement
          until May 1, 2004.





                                     - 16 -
<PAGE>

                                   SIGNATURES
                                   ----------



     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.




                                                                Texaco Inc.
                                                           ---------------------
                                                                (Registrant)




                                                    By:         R.C. Oelkers
                                                           ---------------------
                                                                (Comptroller)




                                                    By:           R.E. Koch
                                                           ---------------------
                                                           (Assistant Secretary)




Date:    August 11, 1998
         ---------------











                                     - 17 -