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


                               FORM 10-Q


(Mark One)

[x]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                 OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended       June 30, 2001
                               ----------------------------------

                                  OR

[ ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                 OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to
                               --------------    ----------------
Commission file number             1-720
                       ------------------------------------------


                      PHILLIPS PETROLEUM COMPANY
        (Exact name of registrant as specified in its charter)


           Delaware                                73-0400345
-------------------------------               -------------------
(State or other jurisdiction of               (I.R.S. Employer
incorporation or organization)                Identification No.)


            Phillips Building, Bartlesville, Oklahoma  74004
            (Address of principal executive offices) (Zip Code)


                             918-661-6600
         (Registrant's telephone number, including area code)
                            ---------------

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.

                          Yes   X     No
                              -----      -----

The registrant had 256,197,607 shares of common stock, $1.25 par
value, outstanding at July 31, 2001.


<PAGE>



                     PART I. FINANCIAL INFORMATION


---------------------------------------------------------------------
Consolidated Statement of Income           Phillips Petroleum Company


                                           Millions of Dollars
                                    ---------------------------------
                                       Three Months      Six Months
                                          Ended             Ended
                                         June 30           June 30
                                    ---------------------------------
                                      2001     2000     2001     2000
                                    ---------------------------------
Revenues
Sales and other operating revenues  $4,849    5,331    9,717   10,066
Equity in earnings of affiliated
  companies                             94       86      121      107
Other revenues                          22       17       31       29
---------------------------------------------------------------------
    Total Revenues                   4,965    5,434    9,869   10,202
---------------------------------------------------------------------

Costs and Expenses
Purchased crude oil and products     2,378    3,184    4,887    6,267
Production and operating expenses      543      569    1,113    1,088
Exploration expenses                    64       73      131      124
Selling, general and
  administrative expenses              173      178      333      363
Depreciation, depletion and
  amortization                         329      298      651      532
Property impairments                    23        -       23        -
Taxes other than income taxes          150      111      304      173
Accretion on discounted liabilities      4        -        4        -
Interest expense                        82       99      166      160
Foreign currency transaction losses      1       21        8       39
Preferred dividend requirements
  of capital trusts                     13       13       26       26
---------------------------------------------------------------------
    Total Costs and Expenses         3,760    4,546    7,646    8,772
---------------------------------------------------------------------
Income before income taxes           1,205      888    2,223    1,430
Provision for income taxes             587      446    1,115      738
---------------------------------------------------------------------
Net Income                          $  618      442    1,108      692
=====================================================================

Net Income Per Share of Common
  Stock
    Basic                           $ 2.42     1.74     4.33     2.73
    Diluted                           2.40     1.73     4.31     2.71
---------------------------------------------------------------------

Dividends Paid                      $  .34      .34      .68      .68
---------------------------------------------------------------------

Average Common Shares Outstanding
  (in thousands)
    Basic                          255,809  253,986  255,683  253,852
    Diluted                        257,682  255,974  257,337  255,077
---------------------------------------------------------------------
See Notes to Financial Statements.


                                   1

<PAGE>



-----------------------------------------------------------------
Consolidated Balance Sheet             Phillips Petroleum Company

                                            Millions of Dollars
                                          -----------------------
                                          June 30     December 31
                                             2001            2000
                                          -----------------------
Assets
Cash and cash equivalents                 $    87             149
Accounts and notes receivable (less
  allowances of $16 million in 2001
  and $18 million in 2000)                  1,060           1,553
Accounts and notes receivable--affiliates     148             226
Inventories                                   533             357
Deferred income taxes                         159             191
Prepaid expenses and other current assets     215             130
-----------------------------------------------------------------
    Total Current Assets                    2,202           2,606
Investments and long-term receivables       3,292           2,999
Properties, plants and equipment (net)     15,124          14,784
Deferred income taxes                           7               -
Deferred charges                              129             120
-----------------------------------------------------------------
Total                                     $20,754          20,509
=================================================================

Liabilities
Accounts payable                          $ 1,514           1,822
Accounts payable--affiliates                  110              92
Notes payable and long-term debt due
  within one year                               4             262
Accrued income and other taxes                749             815
Other accruals                                403             501
-----------------------------------------------------------------
    Total Current Liabilities               2,780           3,492
Long-term debt                              6,268           6,622
Accrued dismantlement, removal and
  environmental costs                         819             702
Deferred income taxes                       2,144           1,894
Employee benefit obligations                  467             494
Other liabilities and deferred credits        574             562
-----------------------------------------------------------------
Total Liabilities                          13,052          13,766
-----------------------------------------------------------------

Company-Obligated Mandatorily
  Redeemable Preferred Securities of
  Phillips 66 Capital Trusts I and II         650             650
-----------------------------------------------------------------

Common Stockholders' Equity
Common stock--1,000,000,000 shares
  authorized at $1.25 par value
    Issued (306,380,511 shares)
      Par value                               383             383
      Capital in excess of par              2,186           2,153
    Treasury stock (at cost:
      2001--22,628,159 shares;
      2000--23,142,005 shares)             (1,132)         (1,156)
    Compensation and Benefits Trust (CBT)
      (at cost: 2001--27,556,573 shares;
      2000--27,849,430 shares)               (933)           (943)
Accumulated other comprehensive income       (128)           (100)
Unearned employee compensation--Long-
  Term Stock Savings Plan (LTSSP)            (252)           (263)
Retained earnings                           6,928           6,019
-----------------------------------------------------------------
Total Common Stockholders' Equity           7,052           6,093
-----------------------------------------------------------------
Total                                     $20,754          20,509
=================================================================
See Notes to Financial Statements.


                                 2

<PAGE>



-----------------------------------------------------------------
Consolidated Statement of              Phillips Petroleum Company
Cash Flows
                                              Millions of Dollars
                                              -------------------
                                                Six Months Ended
                                                    June 30
                                              -------------------
                                                 2001        2000
                                              -------------------
Cash Flows from Operating Activities
Net income                                    $ 1,108         692
Adjustments to reconcile net income to net
  cash provided by operating activities
    Non-working capital adjustments
      Depreciation, depletion and
        amortization                              651         532
      Property impairments                         23           -
      Dry hole costs and leasehold impairment      41          46
      Accretion on discounted liabilities           4           -
      Deferred taxes                              262          94
      Other                                       (52)         28
    Working capital adjustments*
      Increase in aggregate balance of
        accounts receivable sold                    -         118
      Decrease (increase) in other
        accounts and notes receivable             515        (109)
      Increase in inventories                    (172)        (83)
      Increase in prepaid expenses and
        other current assets                      (65)        (30)
      Decrease in accounts payable               (243)         (8)
      Increase (decrease) in taxes and
        other accruals                           (124)        306
-----------------------------------------------------------------
Net Cash Provided by Operating Activities       1,948       1,586
-----------------------------------------------------------------

Cash Flows from Investing Activities
Alaskan acquisition                                 8      (5,583)
Capital expenditures and investments,
  including dry hole costs                     (1,414)       (717)
Proceeds from contributing assets to joint
  venture                                           -       1,220
Proceeds from asset dispositions                  240          39
Long-term advances to affiliates and
  other investments                               (24)        (42)
-----------------------------------------------------------------
Net Cash Used for Investing Activities         (1,190)     (5,083)
-----------------------------------------------------------------

Cash Flows from Financing Activities
Issuance of debt                                    -       4,070
Repayment of debt                                (633)       (258)
Issuance of company common stock                   11          12
Dividends paid on common stock                   (174)       (173)
Other                                             (24)        (57)
-----------------------------------------------------------------
Net Cash Provided by (Used for) Financing
  Activities                                     (820)      3,594
-----------------------------------------------------------------

Net Change in Cash and Cash Equivalents           (62)         97
Cash and cash equivalents at beginning of
  period                                          149         138
-----------------------------------------------------------------
Cash and Cash Equivalents at End of Period    $    87         235
=================================================================
See Notes to Financial Statements.
*Net of acquisition and disposition of businesses.


                                3

<PAGE>



-----------------------------------------------------------------
Notes to Financial Statements          Phillips Petroleum Company


Note 1--Interim Financial Information

The financial information for the interim periods presented in
the financial statements included in this report is unaudited and
includes all known accruals and adjustments which Phillips
Petroleum Company (hereinafter referred to as "Phillips" or the
"company") considers necessary for a fair presentation of the
consolidated financial position of the company and its results of
operations and cash flows for such periods.  All such adjustments
are of a normal and recurring nature.

On March 31, 2000, Phillips and Duke Energy Corporation
contributed their midstream gas gathering, processing and
marketing businesses to Duke Energy Field Services, LLC (DEFS).
Effective July 1, 2000, Phillips and Chevron Corporation
(Chevron) contributed their chemicals businesses, excluding
Chevron's Oronite additives business, to Chevron Phillips
Chemical Company LLC (CPChem).  Both of these joint ventures are
being accounted for using the equity method of accounting, which
significantly impacts how the Gas Gathering, Processing, and
Marketing (GPM) and Chemicals segments' operations are reflected
in Phillips' consolidated income statement.  Under the equity
method of accounting, Phillips' share of a joint venture's net
income is recorded in a single line item on the income statement:
"Equity in earnings of affiliated companies."  Correspondingly,
the other income statement line items (for example, operating
revenues, operating costs, etc.) include activity related to the
GPM and Chemicals operations only up to the effective dates of
the joint ventures.  As a result, the two periods are not
comparable.


Note 2--Alaskan Acquisition

In the first quarter of 2001, Phillips completed the acquisition
of Atlantic Richfield Company's (ARCO) Alaskan businesses with
the final settlement of all remaining post-closing issues with
BP p.l.c. (BP).  In addition, Phillips has finalized its purchase
price determination and allocated the purchase price to specific
assets and liabilities.  Based on the appraised value of the
properties, plants and equipment acquired, no goodwill was
recorded in the purchase price allocation.


                                4

<PAGE>



During the first six months of 2001, net cash activity with BP
related to the acquisition was not material.  However, there was
a $121 million increase in property, plant and equipment during
the period due to the additional quantification and recognition
of certain non-cash liabilities of the acquired ARCO
businesses, primarily an additional accrual, on a discounted
basis, to cover environmental remediation activities required by
the state of Alaska at exploration and production sites formerly
owned by ARCO.  The expected expenditures for these remediation
activities are as follows: $23 million and $22 million in 2001
and 2002, respectively, and $16 million each in 2003, 2004 and
2005.  Remaining expenditures thereafter are expected to be
$98 million.  The effect of inflation, net of a 5 percent
discount factor, reduced the accrual by $17 million, resulting in
a fair value environmental liability of $174 million at June 30,
2001.


Note 3--Inventories

Inventories consisted of the following:

                                            Millions of Dollars
                                          -----------------------
                                          June 30     December 31
                                             2001            2000
                                          -----------------------

Crude oil                                    $144             130
Petroleum products                            250              98
Materials, supplies and other                 139             129
-----------------------------------------------------------------
                                             $533             357
=================================================================


Note 4--Summarized Financial Data of Significant Equity
          Affiliates

Duke Energy Field Services, LLC

Phillips owns 30.3 percent of DEFS.  Phillips' consolidated
results of operations include 100 percent of the activity of its
gas gathering, processing and marketing business through
March 31, 2000, and its 30.3 percent share of DEFS' earnings
since that date.  Included in the GPM segment's operating results
in the second quarter and first six months of 2001 was a benefit
of $9 million and $18 million, respectively, representing the
amortization of the $824 million basis difference between the
book value of Phillips' contribution to DEFS and its 30.3 percent
equity interest in DEFS.  This difference is being amortized over
15 years, consistent with the term of Phillips' commitment to
purchase natural gas liquids from DEFS.


                                5

<PAGE>



Summarized financial information for DEFS (100 percent) for the
periods ended June 30, 2001, follows:

                                          Millions of Dollars
                                      ---------------------------
                                      Three Months     Six Months
                                      ------------     ----------

Revenues                                    $2,536          5,916
Income before cumulative effect of
  a change in accounting principle
  and income taxes                             116            259
Net income                                     116            258
-----------------------------------------------------------------


The members of DEFS are generally taxable on their respective
shares of income for U.S. and state income tax purposes.
Phillips' share of income taxes incurred directly by DEFS is
reported in equity in earnings, and as such is not included in
income taxes in Phillips' consolidated financial statements.


Chevron Phillips Chemical Company LLC

Phillips and Chevron each own 50 percent of the voting and
economic interests in CPChem.  Phillips' consolidated results of
operations include 100 percent of the activity of its chemicals
business through June 30, 2000, and its 50 percent share of
CPChem's earnings since that date.  Also included in the second
quarter and first six months of 2001 operating results was a
reduction of $1 million and $2 million, respectively, for the
amortization of the $117 million basis difference between the
book value of Phillips' contribution to CPChem and its 50 percent
interest in the equity of CPChem.  This basis difference is being
amortized over 20 years.

Summarized financial information for CPChem (100 percent) for the
periods ended June 30, 2001, follows:

                                          Millions of Dollars
                                      ---------------------------
                                      Three Months     Six Months
                                      ------------     ----------

Revenues                                    $1,665          3,519
Income (loss) before income taxes               32            (85)
Net income (loss)                               30            (88)
-----------------------------------------------------------------


The members of CPChem are generally taxable on their respective
shares of income for U.S. and state income tax purposes.
Phillips' share of income taxes incurred directly by CPChem is
reported in equity in earnings, and as such is not included in
income taxes in Phillips' consolidated financial statements.


                                6

<PAGE>



Note 5--Properties, Plants and Equipment

Properties, plants and equipment included the following:

                                            Millions of Dollars
                                          -----------------------
                                          June 30     December 31
                                             2001            2000
                                          -----------------------
Properties, plants and equipment
  (at cost)                               $25,056          24,383
Less accumulated depreciation,
  depletion and amortization                9,932           9,599
-----------------------------------------------------------------
                                          $15,124          14,784
=================================================================


Note 6--Debt

At June 30, 2001, Phillips had three bank credit facilities in
place, totaling $3 billion, available for its use either as
direct bank borrowings or as support for the issuance of
commercial paper.  The facilities include a $1.5 billion
revolving facility expiring in May 2002, a $1 billion revolving
facility expiring in October 2001, and a $500 million credit
agreement expiring in October 2005.  At June 30, 2001, the
company had no debt outstanding under these credit facilities,
but had $152 million in commercial paper outstanding, which is
supported 100 percent by the credit facilities.  This amount
approximates fair value.

Also at June 30, 2001, Phillips' Norwegian subsidiary had no
outstanding debt on its two $300 million revolving credit
facilities expiring in June 2004.


                                7

<PAGE>



Note 7--Comprehensive Income

Phillips' comprehensive income was as follows:

                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            2001          2000    2001       2000
                            ------------------   ----------------

Net income                  $618           442   1,108        692
After-tax changes in:
  Foreign currency
    translation adjustments   (5)          (18)    (27)       (35)
  Unrealized gain (loss)
    on securities              1            (1)     (1)         -
  Equity affiliates:
    Foreign currency
      translation             (4)           (3)     (3)        (6)
    Derivatives related        1             -       3          -
-----------------------------------------------------------------
Comprehensive income        $611           420   1,080        651
=================================================================


Accumulated other comprehensive income included:

                                             Millions of Dollars
                                            ---------------------
                                            June 30   December 31
                                               2001          2000
                                            ---------------------

Foreign currency translation adjustments      $ (97)          (70)
Unrealized gain on securities                     5             6
Equity affiliates:
  Foreign currency translation                  (39)          (36)
  Derivatives related                             3             -
-----------------------------------------------------------------
Accumulated other comprehensive income        $(128)         (100)
=================================================================


Note 8--Property Impairments

In the second quarter of 2001, the company committed to a plan to
sell its 12.5 percent interest in the Siri oil field, offshore
Denmark.  As a result, an impairment of $23 million (on both a
before- and after-tax basis) was recorded by the Exploration and
Production segment in the second quarter of 2001.  The sale is
expected to close in early 2002.  At June 30, 2001, the carrying
value of the Siri field was $9 million.  After considering the
impact of lowering the carrying value of the Siri field by the
$23 million impairment charge, the Siri field contributed net
income of $8 million and $10 million in the second quarter and
first six months of 2001, respectively.  The property's rapidly


                                8

<PAGE>



declining production and reduced recoverable reserves are
expected to result in significantly reduced contribution to net
income in future quarters.


Note 9--Contingencies

In the case of all known contingencies, except those acquired in
a purchase business combination (see Note 2--Alaskan Acquisition
in the Notes to Financial Statements), the company accrues an
undiscounted liability when the loss is probable and the amount
is reasonably estimable.  These liabilities are not reduced for
possible insurance recoveries.  If applicable, undiscounted
receivables are accrued for probable insurance or other third-
party recoveries.  For known contingencies acquired in a purchase
business combination, the accruals are initially recorded at fair
value and then accreted for the change in present value each
period thereafter.  If applicable, discounted receivables are
accrued for probable insurance or third-party recoveries
attributable to the discounted contingencies.  Based on currently
available information, the company believes that it is remote
that future costs related to known contingent liability exposures
will exceed current accruals by an amount that would have a
material adverse impact on the company's financial statements.

As facts concerning contingencies become known to the company,
the company reassesses its position both with respect to accrued
liabilities and other potential exposures.  Estimates that are
particularly sensitive to future change include contingent
liabilities recorded for environmental remediation, tax and legal
matters.  Estimated future environmental remediation costs are
subject to change due to such factors as the unknown magnitude of
cleanup costs, the unknown time and extent of such remedial
actions that may be required, and the determination of the
company's liability in proportion to other responsible parties.
Estimated future costs related to tax and legal matters are
subject to change as events evolve and as additional information
becomes available during the administrative and litigation
process.

Environmental--The company is subject to federal, state, local
and foreign environmental laws and regulations.  These may result
in obligations to remove or mitigate the effects on the
environment of the placement, storage, disposal or release of
certain chemical, mineral and petroleum substances at various
sites.  The company is currently participating in environmental
assessments and cleanup under these laws at federal Superfund and
comparable state sites.  In the future, the company may be
involved in additional environmental assessments, cleanups and
proceedings.


                                9

<PAGE>



Other Legal Proceedings--The company is a party to a number of
other legal proceedings pending in various courts or agencies for
which, in some instances, no provision has been made.

Other Contingencies--The company has contingent liabilities
resulting from throughput agreements with pipeline and processing
companies in which it holds stock interests.  Under these
agreements, Phillips may be required to provide any such company
with additional funds through advances, most of which can be
recovered through reductions of future charges for the shipping
or processing of petroleum liquids, natural gas and refined
products.


Note 10--Non-Mineral Operating Leases

During the second quarter of 2001, Phillips sold and leased back
the Polar Endeavour crude oil tanker.  This new, Millennium Class
double-hulled tanker was delivered to Phillips in the spring.
The tanker will be operated by Polar Tankers, a subsidiary of
Phillips.  The company received $205 million for the tanker.  The
lease has a ten-year term, expiring in June 2011.  The lease does
not contain a renewal option, but does contain a fixed-price
purchase option.  Also, the company has provided a guarantee of
the residual value at the end of the lease term.  The maximum
guaranteed residual value of $147 million is included in the
"remaining years" line in the table below.  The future minimum
lease payments due under the lease terms are:

                                                         Millions
                                                       of Dollars
                                                       ----------
2001                                                         $  7
2002                                                           15
2003                                                           15
2004                                                           15
2005                                                           15
Remaining years                                               226
-----------------------------------------------------------------
                                                             $293
=================================================================


Note 11--Income Taxes

The company's effective tax rates for the second quarter and first
six months of 2001 were 49 and 50 percent, respectively, compared
with 50 and 52 percent for each of the same periods a year ago.
The effective tax rate for the second quarter and first six months
of 2001 reflects a lower proportion of income in higher-tax-rate
jurisdictions, compared with the second quarter and first six
months of 2000.


                               10

<PAGE>



Note 12--Foreign Currency

The following table summarizes the foreign currency transaction
gains (losses) included in the company's reported net income:

                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            2001          2000   2001        2000
                            ------------------   ----------------
After-Tax
E&P                         $  2            (1)     4          (4)
RM&T                           -            (1)     3          (1)
Chemicals                      -             -      -          (1)
Corporate and Other           (2)          (16)   (14)        (20)
-----------------------------------------------------------------
Total                       $  -           (18)    (7)        (26)
=================================================================

Before-Tax
E&P                         $  1            (4)     3         (16)
RM&T                           1            (1)     3          (1)
Chemicals                      -             -      -          (1)
Corporate and Other           (3)          (16)   (14)        (21)
-----------------------------------------------------------------
Total                       $ (1)          (21)    (8)        (39)
=================================================================


                               11

<PAGE>



Note 13--Supplemental Cash Flow Information

Non-cash investing and financing activities and cash payments for
the six-month periods ended June 30 were as follows:

                                              Millions of Dollars
                                              -------------------
                                                2001         2000
                                              -------------------
Non-Cash Investing and Financing Activities
Investment in equity affiliate through
  exchange of non-cash assets and
  liabilities*                                $    -        1,068
Investment in properties, plants and
  equipment of ARCO's Alaskan businesses
  through the assumption of net non-cash
  liabilities of the acquired businesses         121           57
Investment in equity affiliate through
  direct guarantee of debt                        13           13
Note payable to purchase properties,
  plants and equipment                             8            -
Company stock issued under compensation
  and benefit plans                               18           21
Assets contributed to charities                    5            -
Change in fair value of securities                (5)           9
-----------------------------------------------------------------
Cash payments
Interest
  Debt                                        $  139          122
  Taxes and other                                 14           13
-----------------------------------------------------------------
                                              $  153          135
=================================================================
Income taxes                                  $  846          263
-----------------------------------------------------------------
*On March 31, 2000, Phillips combined its gas gathering,
 processing and marketing assets with the gas processing and
 gathering business of Duke Energy into DEFS.  See
 Note 4--Summarized Financial Data of Significant Equity
 Affiliates.


Note 14--Remington Settlement

During the second quarter of 2001, Phillips reached an out-of-
court settlement with Remington Oil and Gas Corporation
(Remington) for two lawsuits Phillips brought against Remington
related to the company's net profits interest in South Pass 89,
offshore Louisiana.  Under the terms of the settlement, Remington
paid Phillips $42.5 million in cash and Remington stock.
Phillips is guaranteed a minimum price on the Remington stock,
assuring payment in full.  In return, Phillips assigned its
33 percent net profits interest in South Pass 89 to Remington.
As of July 31, 2001, Phillips had liquidated over one-half of its
Remington shares for proceeds of approximately $11 million.


                               12

<PAGE>



Note 15--Receivables Monetization

At June 30, 2001, the company had two agreements with bank-
sponsored entities for the revolving sale of undivided interests
in a pool of credit card and trade receivables, and receivables
from its E&P segment.  The two agreements combined allowed for
the sale of receivables of up to $500 million.  Interests
retained in the pool of receivables were measured and recorded at
face value, which is also fair value.  The company also incurred
a limited recourse obligation for bad debt experience for its
credit card and trade receivables, which is recorded at a fair
value that is equal to estimated bad debt experience rates.

Total cash flows received from and paid to the bank-sponsored
entities in the first six months of 2001 were as follows:

                                                         Millions
                                                       of Dollars
                                                       ----------
Receivables sold at December 31, 2000
  Under a revolving agreement                             $   400
  Under a non-revolving agreement                             100
New receivables sold                                        3,505
Cash collections remitted                                  (3,505)
-----------------------------------------------------------------
Receivables sold at June 30, 2001                         $   500
=================================================================
Discounts and other fees paid on
  revolving balances                                      $    12
-----------------------------------------------------------------


Note 16--Related Party Transactions

Significant transactions with affiliated parties were:

                                    Millions of Dollars
                          ---------------------------------------
                          Three Months Ended     Six Months Ended
                               June 30               June 30
                          ---------------------------------------
                          2001          2000     2001        2000
                          ---------------------------------------

Operating revenues (a)    $264           391      567         740
Purchases (b)              280           438      609         613
Operating expenses (c)      80            11      160          23
Selling, general and
  administrative
  expenses (d)              17            18       32          47
Interest income (e)          -             3        -           5
Interest expense (f)         2             -        4           -
-----------------------------------------------------------------


                               13

<PAGE>



(a) Phillips' E&P segment sells natural gas to DEFS for
    processing and marketing.  The company sells natural gas
    liquids, solvents and petrochemical feedstocks to CPChem and
    charges CPChem for the use of common facilities, such as
    steam generators, waste and water treaters, and warehouse
    facilities at its refining operations.

(b) Phillips purchases natural gas and natural gas liquids from
    DEFS and CPChem for use in its refinery processes and other
    feedstocks from various affiliates.

(c) Phillips pays processing fees to various affiliates--
    primarily Merey Sweeny, L.P. for the processing of heavy oil
    through the partnership's coker unit.

(d) Phillips charges both DEFS and CPChem for corporate services
    provided to the two equity companies under transition service
    agreements.  Phillips pays fees to its pipeline equity
    companies for transporting product and pays common facility
    fees to other affiliates.

(e) Prior to July 1, 2000, Phillips earned interest on loans to
    certain affiliates, primarily Sweeny Olefins Limited
    Partnership.

(f) Phillips paid interest to Merey Sweeny, L.P. for a loan
    related to improvements at the Sweeny Complex.

Elimination of the company's equity percentage share of profit or
loss on the above transactions was not material.


Note 17--Segment Disclosures

The company has organized its reporting structure based on the
grouping of similar products and services, resulting in four
operating segments:

(1)  Exploration and Production (E&P)--This segment explores for
     and produces crude oil, natural gas and natural gas liquids
     on a worldwide basis.  In April 2000, Phillips acquired
     ARCO's Alaskan businesses.  This acquisition significantly
     increased the E&P segment's revenues, earnings and assets.

(2)  Gas Gathering, Processing and Marketing (GPM)--This segment
     gathers and processes natural gas produced by Phillips and
     others.  Since March 31, 2000, Phillips' GPM segment has
     consisted primarily of its equity investment in DEFS.


                               14

<PAGE>



(3)  Refining, Marketing and Transportation (RM&T)--This segment
     refines, markets and transports crude oil and petroleum
     products in the United States.  This segment also
     fractionates and markets natural gas liquids.

(4)  Chemicals--This segment manufactures and markets
     petrochemicals and plastics on a worldwide basis.  Since
     July 1, 2000, Phillips' Chemicals segment has consisted
     primarily of its equity investment in CPChem.

Corporate and Other includes general corporate overhead; all
interest revenue and expense, including preferred dividend
requirements of capital trusts; certain eliminations; and various
other corporate activities, such as the company's captive
insurance subsidiary and tax items not directly attributable to
the operating segments.

The company evaluates performance and allocates resources based
on net income, among other items.  Intersegment sales are
recorded at prices that approximate market value.  There have
been no material changes in the basis of segmentation or in the
basis of measurement of segment net income since the 2000 annual
report.


                               15

<PAGE>



Analysis of Results by Operating Segment

                                          Millions of Dollars
                                   --------------------------------
                                          Operating Segments
                                   --------------------------------
                                       E&P    GPM   RM&T  Chemicals
Three Months Ended June 30, 2001   --------------------------------
Sales and Other Operating Revenues
  External customers               $ 2,162      -  2,687          -
  Intersegment                         100      -      1          -
-------------------------------------------------------------------
    Segment sales                  $ 2,262      -  2,688          -
===================================================================

Net income                         $   503     29    196          5
===================================================================

Three Months Ended June 30, 2000
Sales and Other Operating Revenues
  External customers               $ 1,762      -  2,721        848
  Intersegment                         155      -    177         80
-------------------------------------------------------------------
    Segment sales                  $ 1,917      -  2,898        928
===================================================================

Net income                         $   391     29     86         55
===================================================================


Six Months Ended June 30, 2001
Sales and Other Operating Revenues
  External customers               $ 4,470      -  5,246          -
  Intersegment                         240      -      3          -
-------------------------------------------------------------------
    Segment sales                  $ 4,710      -  5,249          -
===================================================================

Net income (loss)                  $ 1,084     64    242        (39)
===================================================================
Six Months Ended June 30, 2000
Sales and Other Operating Revenues
  External customers               $ 2,826    255  5,337      1,647
  Intersegment                         345    287    359        151
-------------------------------------------------------------------
    Segment sales                  $ 3,171    542  5,696      1,798
===================================================================

Net income                         $   632     80    109         81
===================================================================

Total Assets
  At June 30, 2001                 $14,145    142  3,456      2,078
-------------------------------------------------------------------
  At December 31, 2000             $13,834     77  3,420      2,170
-------------------------------------------------------------------



                                              Millions of Dollars
                                            -----------------------
                                            Corporate
                                            and Other  Consolidated
Three Months Ended June 30, 2001            -----------------------
Sales and Other Operating Revenues
  External customers                          $     -         4,849
  Intersegment (eliminations)                    (101)            -
-------------------------------------------------------------------
    Segment sales                             $  (101)        4,849
===================================================================

Net income (loss)                             $  (115)          618
===================================================================

Three Months Ended June 30, 2000
Sales and Other Operating Revenues
  External customers                          $     -         5,331
  Intersegment (eliminations)                    (412)            -
-------------------------------------------------------------------
    Segment sales                             $  (412)        5,331
===================================================================

Net income (loss)                             $  (119)          442
===================================================================


Six Months Ended June 30, 2001
Sales and Other Operating Revenues
  External customers                          $     1         9,717
  Intersegment (eliminations)                    (243)            -
-------------------------------------------------------------------
    Segment sales                             $  (242)        9,717
===================================================================

Net income (loss)                             $  (243)        1,108
===================================================================

Six Months Ended June 30, 2000
Sales and Other Operating Revenues
  External customers                          $     1        10,066
  Intersegment (eliminations)                  (1,142)            -
-------------------------------------------------------------------
    Segment sales                             $(1,141)       10,066
===================================================================

Net income (loss)                             $  (210)          692
===================================================================

Total Assets
  At June 30, 2001                            $   933        20,754
-------------------------------------------------------------------
  At December 31, 2000                        $ 1,008        20,509
-------------------------------------------------------------------


Note 18--Significant Transactions

Proposed Tosco Acquisition

On February 4, 2001, Phillips announced that it had agreed to
purchase Tosco Corporation (Tosco) in a $7 billion stock
transaction.  Under the terms of the agreement, Phillips would
issue 0.8 shares of its common stock for each Tosco share, and
would assume approximately $2 billion of Tosco's debt.  The
transaction has been approved by both companies' Boards of
Directors and in separate special shareholder meetings held on
April 11, 2001, shareholders of both Tosco and Phillips approved
the transaction.  Closing of the transaction remains subject to
customary regulatory review.  The transaction would be accounted
for using the purchase method of accounting.

Under the terms of the agreement, Phillips would acquire all of
Tosco's operations, including eight U.S. refineries with a total
capacity of 1.35 million barrels per day, one 75,000-barrel-per-day
refinery located in Cork, Ireland, and 6,300 retail outlets in
32 states.  In 2000, and the first six months of 2001, Tosco had


                               16

<PAGE>



revenues of approximately $25 billion and $13 billion,
respectively.  The combined RM&T operations would make Phillips one
of the largest refiners and marketers in the United States.


Note 19--New Accounting Standards

At the end of June 2001, the Financial Accounting Standards
Board (FASB) approved the issuance of FASB Statements No. 141,
"Business Combinations," and No. 142, "Goodwill and Other
Intangible Assets."  Although these two new standards, which are
scheduled to be adopted by the company on January 1, 2002, are
not expected to have a material impact on any of the company's
past business combinations, the goodwill accounting provisions of
Statement No. 142 are required for all purchase business
combinations occurring after June 30, 2001.  The anticipated
purchase business combination with Tosco Corporation in the third
quarter of 2001 is expected to result in the recording of a
material amount of goodwill which will immediately be subject to
the new rules.  Under FASB Statement No. 142, goodwill is not
amortized but is subjected to periodic impairment testing.

At the end of June 2001, the FASB approved the issuance of
Statement No. 143, "Accounting for Asset Retirement Obligations."
Statement No. 143 is required to be adopted by the company no
later than January 1, 2003, and will require major changes in the
accounting for asset retirement obligations, such as required
decommissioning of oil and gas production platforms, facilities
and pipelines.  Statement No. 143 requires entities to record the
fair value of a liability for an asset retirement obligation in
the period when it is incurred (typically when the asset is
installed at the production location).  When the liability is
initially recorded, the entity capitalizes a cost by increasing
the carrying amount of the related property, plant, and
equipment.  Over time, the liability is accreted for the change
in its present value each period, and the initial capitalized
cost is depreciated over the useful life of the related asset.
Upon adoption of Statement No. 143, the company will adjust its
recorded asset retirement obligations to the new requirements
using a cumulative-effect approach.  All transition amounts are
to be measured using the company's current information, current
assumptions, and current credit-adjusted, risk-free interest
rates.  The company will be studying the impact of Statement
No. 143 to quantify the potential impact of the new standard.


Note 20--Subsequent Event

On July 9, 2001, Phillips' Board of Directors approved a dividend
increase, raising the quarterly per share dividend to $.36, a
6 percent increase, effective with the September 4, 2001,
payment.


                               17

<PAGE>



-----------------------------------------------------------------
Management's Discussion and            Phillips Petroleum Company
Analysis of Financial Condition
and Results of Operations


Management's Discussion and Analysis contains forward-looking
statements including, without limitation, statements relating to
the company's plans, strategies, objectives, expectations,
intentions, and resources, that are made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform
Act of 1995.  The words "intends," "believes," "expects,"
"plans," "scheduled," "anticipates," "estimates," and similar
expressions identify forward-looking statements.  The company
does not undertake to update, revise or correct any of the
forward-looking information.  Readers are cautioned that such
forward-looking statements should be read in conjunction with the
company's disclosures under the heading: "CAUTIONARY STATEMENT
FOR THE PURPOSES OF THE 'SAFE HARBOR' PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995" beginning on page 44.


RESULTS OF OPERATIONS

Unless otherwise indicated, discussion of results for the three-
and six-month periods ending June 30, 2001, are based on a
comparison with the corresponding periods of 2000.


Consolidated Results

A summary of the company's net income by business segment
follows:

                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                             2001         2000    2001       2000
                            ------------------   ----------------
Exploration and Production
  (E&P)                     $ 503          391   1,084        632
Gas Gathering, Processing
  and Marketing (GPM)          29           29      64         80
Refining, Marketing and
  Transportation (RM&T)       196           86     242        109
Chemicals                       5           55     (39)        81
Corporate and Other          (115)        (119)   (243)      (210)
-----------------------------------------------------------------
Net income                  $ 618          442   1,108        692
=================================================================


                               18

<PAGE>



Net income is affected by transactions, defined by Management and
termed "special items," which are not representative of the
company's ongoing operations.  These transactions can obscure the
underlying operating results for a period and affect
comparability of operating results between periods.  The
following table summarizes the gains/(losses), on an after-tax
basis, from special items included in the company's reported net
income:

                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            2001          2000   2001        2000
                            ------------------   ----------------

Property impairments        $(23)            -    (23)          -
Net gains/(losses) on
  asset sales                  6            (5)     3           2
Pending claims and
  settlements                  2             6     (3)        (24)
Equity companies' special
  items                       32             -     27           -
Other items                    -             2     (1)          4
-----------------------------------------------------------------
Total special items         $ 17             3      3         (18)
=================================================================


Excluding the special items listed above, the company's net
operating income by business segment was:

                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                             2001         2000    2001       2000
                            ------------------   ----------------

E&P                         $ 504          396   1,089        619
GPM                            29           25      64         82
RM&T                          196           86     244        113
Chemicals                     (23)          51     (62)        79
Corporate and Other          (105)        (119)   (230)      (183)
-----------------------------------------------------------------
Net operating income        $ 601          439   1,105        710
=================================================================


Phillips' net income in the second quarter of 2001 was
$618 million, compared with net income of $442 million in the
second quarter of 2000.  Special items increased net income by
$17 million and $3 million in the second quarters of 2001 and
2000, respectively.  After excluding special items, net operating
income in the second quarter of 2001 was $601 million, compared
with $439 million in the second quarter of 2000.


                               19
<PAGE>



The increase in net operating income in the second quarter of
2001 was primarily the result of increased crude oil production,
higher U.S. natural gas prices, and improved RM&T earnings, as a
result of improved margins and higher refinery throughput
volumes.

Phillips' net income for the first six months of 2001 was
$1,108 million, a 60 percent increase from the corresponding
period in 2000.  Special items increased six-month net income by
$3 million in 2001, and they reduced the prior year's first six-
month net income by $18 million.  After excluding special items,
net operating income was 56 percent higher in the 2001 six-month
period.


Income Statement Analysis

On March 31, 2000, Phillips and Duke Energy Corporation (Duke
Energy) contributed their midstream gas gathering, processing and
marketing businesses to Duke Energy Field Services, LLC (DEFS).
Effective July 1, 2000, Phillips and Chevron Corporation
(Chevron) contributed their chemicals businesses, excluding
Chevron's Oronite additives business, to Chevron Phillips
Chemical Company LLC (CPChem).  Both of these joint ventures are
being accounted for using the equity method of accounting, which
significantly impacts how the GPM and Chemicals segments'
operations are reflected in Phillips' consolidated income
statement.  Under the equity method of accounting, Phillips'
share of a joint venture's net income is recorded in a single
line item on the income statement: "Equity in earnings of
affiliated companies."  Correspondingly, the other income
statement line items (for example, operating revenues, operating
costs, etc.) include activity related to the GPM and Chemicals
operations only up to the effective dates of the joint ventures.

Sales and other operating revenues decreased 9 percent in the
second quarter of 2001 and 3 percent in the six-month period
ended June 30, 2001.  Both periods reflect the reduction in
operating revenues resulting from the use of equity-method
accounting for the CPChem joint venture.  In addition, the six-
month period reflects the reduction in operating revenues from
the use of the equity method of accounting for the DEFS joint
venture.  Also contributing to the revenue reductions in both
periods was the sale of the company's U.K. downstream operations
at year-end 2000.  Partially offsetting these reductions in both
periods were higher natural gas prices, increased crude oil
production and higher petroleum product prices.


                               20

<PAGE>



Equity in earnings of affiliated companies increased 9 percent in
the second quarter of 2001 and 13 percent in the six-month
period.  Both periods benefited from increased equity earnings
from Merey Sweeny, L.P., a 50-percent-owned equity company that
owns and operates the coker unit at the Sweeny refinery.  The
June year-to-date period of 2001 also benefited from higher
equity earnings from DEFS.  Both periods included earnings
recorded by CPChem related to business interruption insurance
proceeds associated with the March 2000 explosion and fire at the
K-Resin facility located at the Houston Chemical Complex.  After
excluding the favorable impact of the insurance settlement,
Phillips incurred equity losses from its investment in CPChem in
both periods.

Other revenues improved 29 percent in the second quarter of 2001
and 7 percent in the first six months.  Both periods reflect an
increase in claims and settlements.

Purchased crude oil and products decreased 25 percent in the
second quarter of 2001 and 22 percent in the six-month period.
Both periods reflect the reduction in purchase costs resulting
from the use of equity-method accounting for the CPChem joint
venture, as well as lower crude oil acquisition costs for the
company's refineries.  The operation of the coker unit at the
Sweeny refinery has lowered the average purchase cost per barrel
of crude oil.  In addition, the six-month period reflects the
reduction in purchase costs from the use of the equity method of
accounting for the DEFS joint venture.

Management defines controllable costs as production and operating
expenses; selling, general and administrative expenses; and the
general administrative, geological, geophysical and lease rentals
component (G&G) of exploration expenses.  Controllable costs,
adjusted to exclude G&G expenses, decreased 4 percent in the
second quarter of 2001 and they decreased slightly in the six-
month period.  Both periods reflect the reduction in controllable
costs resulting from the use of equity-method accounting for the
CPChem joint venture.  In addition, the six-month period reflects
the reduction in controllable costs from the use of the equity
method of accounting for the DEFS joint venture.  These items
were mostly offset by new operating costs incurred as a result of
the Alaskan acquisition in April 2000; higher utility costs at
the company's refineries; and new coker-related, crude-processing
fees at the Sweeny refinery.


                               21

<PAGE>



Exploration expenses decreased 12 percent in the second quarter
of 2001, primarily due to lower foreign dry hole charges compared
with a year ago.  In the first six months of 2001, exploration
expenses increased 6 percent, mainly the result of higher
leasehold impairments, G&G costs, and U.S. dry hole charges,
partially offset by lower foreign dry hole expenses.

Depreciation, depletion and amortization (DD&A) increased
10 percent in the second quarter of 2001 and 22 percent in the
first six months.  The increases in both periods were primarily
the result of the company's larger asset base and higher
production rates following the Alaskan acquisition, partially
offset by the use of the equity method of accounting for the
CPChem joint venture.  In addition, DD&A in the six-month period
was reduced by the use of equity-method accounting for the DEFS
joint venture.  The company recorded a $23 million property
impairment in the second quarter of 2001 associated with the Siri
field, offshore Denmark.  See Note 8--Property Impairments in the
Notes to Financial Statements for additional information on the
Siri impairment.

Taxes other than income taxes increased 35 percent in the second
quarter of 2001 and 76 percent in the six-month period.  The
increases in both periods reflect higher production and property
taxes following the Alaskan acquisition in April 2000.

The company added a new line item to its income statement in the
second quarter of 2001 to disclose the accretion of discounted
liabilities.  The amount in the second quarter relates to
discounted environmental obligations in Alaska.  See Note 2--
Alaskan Acquisition in the Notes to Financial Statements for
additional information.

Interest expense decreased 17 percent in the second quarter of
2001, mainly the result of lower interest on debt (due to lower
average debt levels) and higher interest amounts being
capitalized (due mainly to projects in Alaska, the Timor Sea and
Venezuela).  Interest expense increased 4 percent in the first
six months of 2001, primarily the result of higher interest on
debt due to higher average debt levels, mostly offset by higher
capitalized interest.

Foreign currency transaction losses of $1 million and $8 million
were incurred in the second quarter and first six months of 2001,
respectively, compared with losses of $21 million and $39 million
in the corresponding periods of the prior year.  Preferred
dividend requirements were unchanged from the previous year in
both the second quarter and six-month period of 2001.


                               22

<PAGE>



Segment Results

E&P
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                              2001        2000    2001       2000
                            ------------------   ----------------
                                     Millions of Dollars
                            -------------------------------------
Operating Income
Reported net income         $  503         391   1,084        632
Less special items              (1)         (5)     (5)        13
-----------------------------------------------------------------
Net operating income        $  504         396   1,089        619
=================================================================

                                      Dollars Per Unit
                            -------------------------------------
Average Sales Prices
Crude oil (per barrel)
    United States
      Alaska                $25.21       26.63   25.57      26.47
      Lower 48               24.15       26.99   25.60      27.35
      Total                  25.11       26.68   25.57      26.70
    Foreign                  27.18       27.26   26.30      27.20
    Worldwide                25.83       26.96   25.82      26.99
Natural gas--lease (per
  thousand cubic feet)
    United States
      Alaska                  1.54        1.44    1.67       1.44
      Lower 48                3.91        2.99    5.14       2.69
      Total                   3.77        2.95    4.93       2.68
    Foreign                   2.48        2.48    2.66       2.39
    Worldwide                 3.31        2.78    4.11       2.57
-----------------------------------------------------------------

                                     Millions of Dollars
                            -------------------------------------
Worldwide Exploration
  Expenses
General administrative;
  geological and
  geophysical; and lease
  rentals                   $   40          40      90         78
Leasehold impairment            15           5      26         10
Dry holes                        9          28      15         36
-----------------------------------------------------------------
                            $   64          73     131        124
=================================================================


                               23

<PAGE>



                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                              2001        2000    2001       2000
                            ------------------   ----------------
                                 Thousands of Barrels Daily
                            -------------------------------------
Operating Statistics
Crude oil produced
  United States
    Alaska                     340         198     344        103
    Lower 48                    34          34      34         35
-----------------------------------------------------------------
                               374         232     378        138
  Norway                       122         114     122        113
  United Kingdom                17          25      19         28
  Nigeria                       32          19      31         21
  China                         11          12      12         13
  Timor Sea                      7           8       8          7
  Canada                         1           7       -          6
  Denmark                        4           5       4          5
  Venezuela                      2           3       2          3
-----------------------------------------------------------------
                               570         425     576        334
=================================================================

Natural gas liquids produced
  United States
    Alaska*                     25          22      26         11
    Lower 48                     1           1       1          1
-----------------------------------------------------------------
                                26          23      27         12
  Norway                         5           5       5          5
  Other areas                    4           3       4          4
-----------------------------------------------------------------
                                35          31      36         21
=================================================================
*Includes 14,000 and 15,000 barrels per day in the second quarter
 and six-month period of 2001, respectively, that were sold from
 the Prudhoe Bay lease to the Kuparuk lease for reinjection to
 enhance crude oil production.  In the corresponding periods of
 2000, includes 13,000 and 7,000 barrels per day, respectively.

                                Millions of Cubic Feet Daily
                            -------------------------------------
Natural gas produced*
  United States
    Alaska                     156         132     169        127
    Lower 48                   728         766     725        767
-----------------------------------------------------------------
                               884         898     894        894
  Norway                       142         138     140        139
  United Kingdom               165         197     183        227
  Canada                        15          79      18         83
  Nigeria                       39          25      41         26
  Australia                     61           -      51          -
-----------------------------------------------------------------
                             1,306       1,337   1,327      1,369
=================================================================
*Represents quantities available for sale.  Excludes gas
 equivalent of natural gas liquids shown above.

Liquefied natural gas sales    115         116     116        116
-----------------------------------------------------------------


                               24

<PAGE>



Net operating income from Phillips' E&P segment increased
27 percent in the second quarter of 2001 and 76 percent in the
six-month period, compared with the corresponding periods in
2000.  The increases in both periods were primarily the result of
higher crude oil production resulting from the Alaskan
acquisition in April 2000 and the startup of the Alpine field in
Alaska in late 2000, as well as higher output from Norway and
Nigeria.  In addition, both periods benefited from higher U.S.
natural gas prices.

Phillips' average worldwide crude oil sales price remained steady
during the second quarter of 2001, averaging $25.83 per barrel,
compared with $25.81 per barrel in the first quarter of 2001.
These prices have been approximately 4 percent lower than the
corresponding periods of 2000.  U.S. natural gas prices peaked in
January 2001, and have trended downward every month since.  The
company's U.S. Lower 48 states' average natural gas price for the
month of June was $3.16 per thousand cubic feet.


U.S. E&P
--------
                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            2001          2000   2001        2000
                            ------------------   ----------------
Operating Income
Reported net income         $385           267    857         388
Less special items             9            (5)     7           2
-----------------------------------------------------------------
Net operating income        $376           272    850         386
=================================================================

Alaska                      $240           168    485         192
Lower 48                     136           104    365         194
-----------------------------------------------------------------
                            $376           272    850         386
=================================================================


Net operating income from the company's U.S. E&P operations
increased 38 percent in the second quarter of 2001 and
120 percent in the first six months.  The increases in both
periods were primarily attributable to higher crude oil
production and higher U.S. natural gas prices.

U.S. crude oil production increased 61 percent in the second
quarter of 2001, primarily due to the April 2000 Alaskan
acquisition, as well as to the startup of the Alpine field in
Alaska in late 2000.  U.S. crude oil production declined
2 percent compared with the first quarter of 2001, reflecting
normal seasonal declines in Alaska North Slope production.


                               25

<PAGE>



U.S. natural gas production declined slightly in the second
quarter of 2001, compared with the second quarter of 2000, as
field declines were partially offset by production acquired
through acquisitions.

Special items in the second quarter of 2001 consisted of a net
favorable result from claims and settlements.  In addition, the
six-month period also included a net loss on an asset
disposition.  Special items in the second quarter of 2000
primarily included a net loss on the disposition of certain of
the company's coal and lignite operations.  In the six-month
period of 2000, special items consisted of a net gain on asset
dispositions.


Foreign E&P
-----------
                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            2001          2000   2001        2000
                            ------------------   ----------------
Operating Income
Reported net income         $118           124    227         244
Less special items           (10)            -    (12)         11
-----------------------------------------------------------------
Net operating income        $128           124    239         233
=================================================================


Net operating income from the company's foreign E&P operations
increased 3 percent in both the second quarter and first six
months of 2001.  In both periods, earnings benefited from lower
dry hole charges, lower depreciation and depletion charges, and
lower production and operating expenses.  Foreign crude oil
production increased slightly in the second quarter and six-month
period of 2001.  Lower production of natural gas negatively
impacted earnings for the quarter and year-to-date period.  After-
tax foreign currency gains of $2 million and $4 million were
included in foreign E&P's net operating income in the second
quarter and first six months of 2001, respectively, compared with
after-tax losses of $1 million and $4 million in the
corresponding periods in 2000.

The company's Norwegian operations continued to operate well in
the second quarter of 2001, leading to a 7 percent increase in
crude oil production compared with the same period last year.
Crude oil production from Nigeria also improved on successful
development activities and an increase in quotas.  Crude oil
production was lower in the United Kingdom due to field declines
and operating problems, while Canadian crude oil production
declined as a result of asset sales.


                               26

<PAGE>



Foreign natural gas production declined 4 percent in the second
quarter of 2001, compared with the second quarter of 2000, as
field declines and operational problems in the United Kingdom and
Canadian assets sales were partially offset by new production
from offshore Australia.

Special items in the second quarter and six-month period of 2001
primarily consisted of the impairment of the Siri field, offshore
Denmark, totaling $23 million after-tax, partially offset by a
net gain on asset dispositions.  See Note 8--Property Impairments
in the Notes to Financial Statements for additional information
on the Siri field impairment.  Special items in the first six
months of 2000 primarily consisted of a deferred tax adjustment
resulting from a tax law change in Australia and a net gain on
property dispositions.


GPM
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                              2001        2000    2001       2000
                            ------------------   ----------------
                                     Millions of Dollars
                            -------------------------------------
Operating Income
Reported net income         $   29          29      64         80
Less special items               -           4       -         (2)
-----------------------------------------------------------------
Net operating income        $   29          25      64         82
=================================================================

                                      Dollars Per Unit
                            -------------------------------------
Average Sales Prices
U.S. natural gas liquids
  (per barrel--
  unfractionated)*          $20.24       19.90   22.81      19.66
-----------------------------------------------------------------

                                 Millions of Cubic Feet Daily
                            -------------------------------------
Operating Statistics**
Raw gas throughput           2,303       2,147   2,212      1,986
-----------------------------------------------------------------

                                  Thousands of Barrels Daily
                            -------------------------------------
Natural gas liquids
  production                   123         122     118        142
-----------------------------------------------------------------
 *Prices are based on index prices from the Mont Belvieu and
  Conway market hubs that are weighted by DEFS' natural gas
  liquids component and location mix.  The price for the June
  year-to-date period of 2000 is an estimate based on a weighted-
  average of Phillips' realized price in the first quarter of
  2000 and DEFS' index prices in the second quarter of 2000.
**Volumes represent Phillips' 30.3 percent of DEFS' production
  and throughput.  The volumes in the June year-to-date period of
  2000 are estimates based on a weighted-average of Phillips'
  production and throughput in the first quarter of 2000 and
  Phillips' share of DEFS' production and throughput in the
  second quarter of 2000.


                               27

<PAGE>



Net operating income from the GPM segment increased 16 percent in
the second quarter of 2001 and decreased 22 percent in the six-
month period.  Since Phillips combined its gas gathering,
processing and marketing business with Duke Energy's to form DEFS
on March 31, 2000, Phillips has used equity-method accounting for
its investment in DEFS, so the results for the second quarters of
2001 and 2000 are comparable.  However, results for the six-month
periods are not directly comparable.

Phillips' equity earnings from DEFS in the second quarter of 2001
increased primarily because of lower operating and administrative
costs and lower interest expense.  The lower earnings in the six-
month period of 2001 are primarily attributable to the lack of
interest expense charges in the first quarter of 2000 prior to
the formation of DEFS.

There were no special items in the second quarter or first six
months of 2001.  Special items in the second quarter of 2000
consisted of special current and deferred state tax items related
to the closing of the DEFS transaction.  In addition, the six-
month period of 2000 included work force reduction charges.


                               28

<PAGE>



RM&T
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                             2001         2000   2001        2000
                            ------------------   ----------------
                                     Millions of Dollars
                            -------------------------------------
Operating Income
Reported net income         $ 196           86    242         109
Less special items              -            -     (2)         (4)
-----------------------------------------------------------------
Net operating income        $ 196           86    244         113
=================================================================

                                      Dollars Per Gallon
                            -------------------------------------
Average Sales Prices
Automotive gasoline
  Wholesale                 $1.03          .97    .97         .91
  Retail                     1.22         1.12   1.13        1.06
Distillates                   .87          .81    .86         .81
-----------------------------------------------------------------

                                 Thousands of Barrels Daily
                            -------------------------------------
Operating Statistics
U.S. refinery crude oil
    Capacity                  368          360    368         360
    Crude runs                364          348    355         346
    Capacity utilization
      (percent)                99%          97     96          96
Natural gas liquids
  fractionation
    Capacity                  137          252    137         252
    Processed                 107          215    105         214
    Capacity utilization
      (percent)                78%          85     77          85
Refinery and natural gas
  liquids production          532          598    518         593
-----------------------------------------------------------------

Petroleum products outside
  sales
    United States
      Automotive gasoline
        Branded               262          249    252         239
        Unbranded              26           37     24          35
        Spot                   37           23     37          26
      Aviation fuels           47           39     45          38
      Distillates
        Wholesale and retail  111          116    109         112
        Spot                   14           22     21          25
      Natural gas liquids
        (fractionated)         83          104     92         123
      Other products           59           34     56          35
-----------------------------------------------------------------
                              639          624    636         633
    Foreign                     -           41      -          43
-----------------------------------------------------------------
                              639          665    636         676
=================================================================


                               29

<PAGE>



Net operating income from the RM&T segment increased 128 percent
in the second quarter of 2001 and 116 percent in the six-month
period.  The increases in both periods were attributable to
higher gasoline, distillates and other product margins
experienced by both the company's refining and wholesale
marketing operations.  The higher margins were partially offset
by higher operating expenses, mainly due to higher utility costs
at the refineries, as well as crude oil processing fees
associated with the new coker unit at the Sweeny refinery.

Phillips' refineries processed 364,000 barrels per day of crude
oil in the second quarter of 2001, yielding a 99 percent capacity
utilization rate.  This compares with 348,000 barrels per day
processed in the second quarter last year.  The improvement is
primarily the result of the new coker unit at the Sweeny
refinery, as well as to unscheduled maintenance activity at
Sweeny in the second quarter of 2000.  The coker unit allows for
the processing of heavier, lower-cost crude oil, reducing crude
oil purchase costs.  This contributed to the improved refining
margins in the second quarter and six-month period of 2001.

There were no special items in the second quarter of 2001.
Special items in the first six months of 2001 consisted of a
property impairment recorded by an equity-affiliate pipeline
company in the first quarter.  Special items in the six-month
period of 2000 consisted of contingency-related charges.


Chemicals
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                             2001         2000    2001       2000
                            ------------------   ----------------
                                     Millions of Dollars
                            -------------------------------------
Operating Income
Reported net income (loss)   $  5           55     (39)        81
Less special items             28            4      23          2
-----------------------------------------------------------------
Net operating income (loss)  $(23)          51     (62)        79
=================================================================

                                      Millions of Pounds
                            -------------------------------------
Operating Statistics
Production
  Ethylene                    828          878   1,656      1,768
  Polyethylene                498          665     977      1,227
  Styrene                      84            -     193          -
  Normal alpha olefins        125            -     255          -
-----------------------------------------------------------------


                               30

<PAGE>



The company's Chemicals segment posted net operating losses of
$23 million and $62 million in the second quarter and first six
months of 2001, respectively, compared with net operating income
of $51 million and $79 million in the corresponding periods of
2000.  On July 1, 2000, Phillips and Chevron combined their
worldwide chemicals businesses, excluding Chevron's Oronite
additives business, into CPChem.  Phillips is using the equity
method of accounting for its 50 percent interest in CPChem.

As a result of the CPChem transaction, earnings from Phillips'
Chemicals segment are not directly comparable between the second
quarter and first six months of 2001 and the corresponding
periods of 2000.  Factors affecting the results for the two
periods were:

o  Beginning in the third quarter of 2000, margins in the
   chemicals industry weakened due to higher feedstock prices in
   key product lines.  Margins continued to weaken in the fourth
   quarter, with the Chemicals segment posting a net operating
   loss of $41 million for the quarter.  Difficult market
   conditions continued in the first quarter of 2001, as margins
   in key product lines remained depressed.  Fuel and utility
   costs at manufacturing plants were also high.  In the second
   quarter of 2001, margins improved somewhat, but still remained
   low.  In addition, production facilities for certain products
   remained shut-in or operated at reduced rates for inventory
   control purposes due to market conditions.

o  CPChem's earnings in the first and second quarters of 2001
   were reduced by interest charges on financings.  In the first
   and second quarters of 2000, prior to the formation of
   CPChem, the Chemicals segment did not have interest expense.

Special items in the second quarter and six-month period of 2001
primarily consisted of business interruption insurance
settlements related to the March 2000 incident at the K-Resin
facilities at the Houston Chemical Complex.  Special items in
both the second quarter and first six months of 2000 related to
the 1999 and 2000 K-Resin incidents.


                               31

<PAGE>



Corporate and Other

                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                             2001         2000    2001       2000
                            ------------------   ----------------
Operating Results
Reported Corporate and
  Other                     $(115)        (119)   (243)      (210)
Less special items            (10)           -     (13)       (27)
-----------------------------------------------------------------
Adjusted Corporate and
  Other                     $(105)        (119)   (230)      (183)
=================================================================


Adjusted Corporate and Other includes:

Net interest                $ (62)         (70)   (130)      (113)
Corporate general and
  administrative expenses     (24)         (18)    (55)       (36)
Preferred dividend
  requirements                (10)         (10)    (20)       (21)
Other                          (9)         (21)    (25)       (13)
-----------------------------------------------------------------
Adjusted Corporate and
  Other                     $(105)        (119)   (230)      (183)
=================================================================


Net interest represents interest income and expense, net of
capitalized interest.  Net interest costs decreased 11 percent in
the second quarter of 2001, while increasing 15 percent in the
six-month period.  The decrease in net interest expense in the
second quarter of 2001 was mainly the result of lower interest on
debt (due to lower average debt levels) and higher interest
amounts being capitalized (due mainly to projects in Alaska, the
Timor Sea and Venezuela).  The increase in the first six months
of 2001 was primarily the result of higher interest on debt due
to higher average debt levels, mostly offset by higher
capitalized interest.

Corporate general and administrative expenses increased
33 percent in the second quarter of 2001, primarily the result of
increased amounts of staff costs and higher contributions,
corporate advertising and corporate transportation costs.
Corporate general and administrative expenses increased
53 percent in the six-month period of 2001, reflecting higher
benefit-related expenses, increased amounts of staff costs and
higher contributions, corporate advertising and corporate
transportation costs.


                               32

<PAGE>



Preferred dividend requirements represent dividends on the
preferred securities of the Phillips 66 Capital Trusts I and II.

The category "Other" consists primarily of the company's captive
insurance subsidiary, certain foreign currency transaction gains
and losses, and income tax and other items that are not directly
associated with the operating segments on a stand-alone basis.
Results from Other were improved in the second quarter of 2001,
mainly due to lower foreign currency transaction losses.  Results
from Other were lower in the six-month period of 2001, reflecting
higher income tax expenses not associated with the operating
segments, partially offset by lower foreign currency transaction
losses.

Special items in the second quarter and first six months of 2001
included environmental contingency accruals, as well as a loss on
the disposition of assets.  Special items in the six-month 2000
period primarily included costs related to the late-March 2000
K-Resin facility incident that was insured by the company's
captive insurance subsidiary.


                               33

<PAGE>



CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators
                                        Millions of Dollars
                                  -------------------------------
                                       At            At        At
                                  June 30   December 31   June 30
                                     2001          2000      2000
                                  -------------------------------

Current ratio                          .8            .7        .8
Total debt                         $6,272         6,884     8,127
Company-obligated
  mandatorily redeemable
  preferred securities             $  650           650       650
Common stockholders'
   equity                          $7,052         6,093     5,081
Percent of total debt to
  capital*                             45%           51        59
Percent of floating-rate
  debt to total debt                   13%           17        31
-----------------------------------------------------------------
*Capital includes total debt, company-obligated mandatorily
 redeemable preferred securities and common stockholders' equity.


During the first six months of 2001, funds of $1,948 million were
provided by operating activities, an increase of $362 million
over the same period of 2000, primarily driven by a $416 million
increase in net income.  The company used the cash provided by
operations to fund $1,414 million of its 2001 capital program,
retire debt of $633 million, and pay dividends.  Cash and cash
equivalents decreased $62 million since December 31, 2000.

At June 30, 2001, Phillips had three bank credit facilities in
place, totaling $3 billion, available for its use either as
direct bank borrowings or as support for the issuance of
commercial paper.  The facilities include a $1.5 billion
revolving facility expiring in May 2002, a $1 billion revolving
facility expiring in October 2001, and a $500 million credit
agreement expiring in October 2005.  At June 30, 2001, the
company had no debt outstanding under these credit facilities,
but had $152 million in commercial paper outstanding, which is
supported 100 percent by the credit facilities.  This amount
approximates fair value.

At June 30, 2001, Phillips' Norwegian subsidiary had two
$300 million revolving credit facilities that expire in June
2004.  No debt was outstanding under either of the facilities.


                               34

<PAGE>



In addition to its bank credit facilities, at June 30, 2001, the
company had agreements with bank-sponsored entities for the
revolving sale of undivided interests in a pool of up to
$500 million of credit card and trade receivables, all of which
were sold at June 30, 2001, (see Note 15--Receivables
Monetization in the Notes to Financial Statements).

Phillips has $200 million of master leasing arrangements, under
which it leases and supervises the construction of retail
marketing outlets.  At June 30, 2001, approximately $149 million
had been utilized under these arrangements.  The company also has
in place a $90 million leasing arrangement for its corporate
aircraft.  At June 30, 2001, $70 million had been utilized under
this arrangement.

In the second quarter of 2001, the company sold its first
Millennium Class tanker, the Polar Endeavour, for $205 million
and then leased back the tanker under a 10-year long-term
operating lease.

In September 2001, the company plans to fully redeem its
$300 million of 9.18 percent Notes due September 15, 2021, at
104.59 percent.  The redemption will be funded by issuing
commercial paper.

In the second quarter of 2001, Phillips and its co-venturers in
the Hamaca project secured approximately $1 billion in debt
financing for their extra-heavy crude oil project located in
Venezuela.  The Export-Import Bank of the United States provided
a guarantee supporting a 17-year-term $628 million bank facility.
Additionally, an unguaranteed $470 million 14-year-term
commercial bank facility was arranged for the project, of which
$400 million can be drawn until additional banks are added to the
syndicate bringing the total to $470 million.  No debt was
outstanding under the credit facilities at June 30, 2001.
Phillips holds a 40 percent interest in the Hamaca project, which
is operated on behalf of the co-venturers by Petrolera Ameriven.

Phillips sold its membership interests in Phillips Petroleum
Venezuela LLC to Perenco, an independent French oil company, in
the second quarter of 2001.  Phillips Petroleum Venezuela LLC's
primary asset was a 90 percent interest in the Operating Service
Agreement in the Ambrosio field.  Also in Venezuela, in a
separate transaction Phillips relinquished its 100 percent
interest in the Operating Service Agreement in the La Vela field
to Petroleos de Venezuela S.A.


                               35

<PAGE>



During the second quarter of 2001, Phillips reached an out-of-
court settlement with Remington Oil and Gas Corporation
(Remington) for two lawsuits Phillips brought against Remington
related to the company's net profits interest in South Pass 89,
offshore Louisiana.  Under the terms of the settlement, Remington
paid Phillips $42.5 million in cash and Remington stock.
Phillips is guaranteed a minimum price on the Remington stock,
assuring payment in full.  In return, Phillips assigned its
33 percent net profits interest in South Pass 89 to Remington.
As of July 31, 2001, Phillips had liquidated over one-half of its
Remington shares for proceeds of approximately $11 million.

On July 9, 2001, Phillips' Board of Directors approved a dividend
increase, raising the quarterly per share dividend to $.36, a
6 percent increase, effective with the September 4, 2001,
payment.


Capital Expenditures and Investments

                                        Millions of Dollars
                                  -------------------------------
                                                 Six Months Ended
                                                      June 30
                                  Estimated      ----------------
                                       2001       2001       2000
                                  ---------      ----------------

E&P
  Alaska                             $  914        478        120
  Lower 48                              269        201        117
  Foreign                             1,037        563        293
-----------------------------------------------------------------
                                      2,220      1,242        530
GPM                                       -          -         14
RM&T                                    246        143        104
Chemicals                                 -          -         62
Corporate and Other                      73         29          7
-----------------------------------------------------------------
                                     $2,539      1,414        717
=================================================================

United States                        $1,502        851        397
Foreign                               1,037        563        320
-----------------------------------------------------------------
                                     $2,539      1,414        717
=================================================================


On May 18, 2001, Phillips announced the extension of the Kuparuk
field through a discovery located approximately three miles west
of the Kuparuk field on the North Slope of Alaska.  The
accumulation is estimated to contain an additional 35 million
barrels of recoverable reserves and production from the satellite
field is expected to begin in 2003.  Phillips operates the
Kuparuk field and holds a 55.29 percent interest.


                               36

<PAGE>



Also in May 2001, Phillips announced exploratory discoveries
in the National Petroleum Reserve-Alaska (NPR-A) located west of
the Colville River on Alaska's North Slope.  Six wells and one
sidetrack well were drilled over the last two winters and five of
the wells and the sidetrack encountered oil or gas and
condensate.  Two of the wells were tested during the 2000-2001
winter; three others are temporarily suspended to allow further
evaluation during the 2001-2002 winter drilling season.  The
discoveries are located from 15 to 25 miles southwest of the
Alpine oil field.  Phillips operates the NPR-A leases and holds a
78 percent interest.

On July 25, 2001, Phillips announced the discovery of a satellite
oil field near the newly developed Alpine oil field on the North
Slope of Alaska.  The Nanuq accumulation is estimated to contain
more than 40 million barrels of gross recoverable reserves.  The
Nanuq discovery well was drilled in the 1999-2000 winter season
and a delineation well was drilled and placed on long-term test
production through the Alpine facilities during the 2000-2001
winter season.  Production has since been suspended.  Plans for
further delineation and development of the Nanuq field are under
evaluation.  The Nanuq accumulation is the second satellite field
to be discovered near Alpine.  The previously announced Fiord
satellite accumulation is estimated to contain more than
50 million barrels of gross recoverable reserves.  Phillips is
operator of and holds a 78 percent interest in the Alpine field
and its satellites.

During the second quarter of 2001, Phillips purchased 1 percent
of the Point Thomson field.  The company subsequently contributed
land to the Point Thomson unit owners in exchange for an
additional 4 percent interest.  Point Thomson is located east of
the Prudhoe Bay field on the western border of the Alaska
National Wildlife Refuge on the North Slope of Alaska.

In the second quarter of 2001, Phillips, along with the five
other owners of the Trans-Alaska Pipeline System, completed their
evaluation, studies, and environmental and duration reports
culminating in the filing of state and federal applications for
renewal of the pipeline's right-of-way through 2034.  The
existing state and federal right-of-way documents that permit the
800-mile pipeline expire in 2004.

The Regulatory Commission of Alaska did not approve Phillips'
request to purchase an additional 3.08 percent interest in the
Trans-Alaska Pipeline System (TAPS) from BP.  The company has
refiled its request with expanded reasons for approval for the
purchase of the additional interest in TAPS.  A decision is
expected before the end of the year.


                               37

<PAGE>



On July 11, 2001, the Polar Endeavour, the first of five double-
hulled Millennium Class tankers which Phillips is having built
for use in transporting Alaska North Slope crude oil to the U.S.
West Coast, entered the Alaska service.  The second tanker, the
Polar Resolution, was christened on March 3, 2001, and is
expected to enter service in early 2002.  Phillips expects to add
a new Millennium Class tanker to its fleet each year through
2005.  In addition to the five Millennium Class tankers already
built or under construction, the company has an option for two
additional tankers.  The option for the sixth ship is subject to
exercise in the third quarter of 2001; the seventh during the
fourth quarter of 2001.

On May 3, 2001, Phillips and its co-venturers announced the
successful completion and testing of the Kashagan West 1 well on
the Kazakhstan shelf in the Caspian Sea.  It is the second
exploration well drilled by the co-venturers in the Kashagan
structure and is located over 25 miles from the Kashagan East 1
discovery well.  Following completion of the Kashagan West 1
well, the drilling rig returned to Kashagan East and began an
appraisal drilling program.  Drilling of the first well of the
appraisal program, Kashagan East 2, located approximately six
miles northwest of Kashagan East 1, began in April.  Phillips
has a 7.14 percent interest in the north Caspian Sea venture.

Two of the co-venturers in the north Caspian Sea venture have
entered into agreements to sell their interests.  Phillips
intends to exercise its preemption rights and purchase its
proportionate share of those interests, the cost of which is
dependent upon the share the company obtains through the
preemption process.

In the second quarter of 2001, Phillips was selected to
participate in Saudi Arabia's largest natural gas initiative,
Core Venture 1, with a participating interest of 15 percent.  The
integrated gas project includes gas exploration, gas processing,
natural gas liquids transportation and fractionation,
petrochemical facilities, and combined power and desalination
facilities.

In China's Bohai Bay, development activities continued in the
second quarter of 2001 in line with the overall development plan
for Peng Lai 19-3 Phase I.  First production is scheduled for mid-
year 2002.  The overall Phase I development plan was agreed to by
the China National Offshore Oil Corporation and approved by
Chinese authorities in May 2001.


                               38

<PAGE>



In the United Kingdom sector of the North Sea, Phillips'
production platform, Jade, was completed in May 2001.
Commissioning work is expected to be complete and the platform
onstream before the end of the year.  Estimated recovery from the
Jade field is 380 billion cubic feet of gas and 30 million
barrels of oil.  Phillips is operator and holds a 32.5 percent
interest in the Jade field.

Also in the second quarter of 2001, Phillips and BP agreed to an
exchange related to interests in four license blocks on the
United Kingdom continental shelf.  The exchange, which is subject
to regulatory and partners' approvals, will increase Phillips'
equity in the producing field Britannia from 6.78 percent to
7.23 percent and increase Phillips' ownership position around the
company's core assets in the central North Sea--in particular
around the Jade field and associated J-Block infrastructure.

In the second quarter of 2001, Phillips continued pursuing the
company's goal of increasing its presence in high-potential
deepwater areas.  The company made progress toward securing three
prospective blocks for its growing deepwater portfolio--one in
Angola and two in Brazil.

Phillips announced on April 19, 2001, that it had successfully
completed and started up a new 6,000-barrel-per-day unit at its
Borger, Texas, refinery using the company's proprietary S Zorb
sulfur removal technology to significantly reduce sulfur content
in gasoline.  Refiners who license the technology can use it to
meet more stringent Environmental Protection Agency standards
which go into effect in 2004.  Phillips is currently working on
the application of S Zorb technology to diesel and expects to
complete a pilot plant by the end of 2001.

Effective April 25, 2001, Phillips acquired the Midcontinent-
region gasoline marketing assets of various subsidiaries of The
Coastal Corporation.  The assets included 101 company-operated
stores and the assumption of 45 Coastal branded-marketer supply
contracts covering 205 additional retail outlets.


Contingencies

Legal and Tax Matters

Phillips accrues for contingencies when a loss is probable and
the amounts can be reasonably estimated.  Based on currently
available information, the company believes that it is remote
that future costs related to known contingent liability exposures
will exceed current accruals by an amount that would have a
material adverse impact on the company's financial statements.


                               39

<PAGE>



On June 23, 1999, a flash fire occurred in a reactor vessel at
the K-Resin styrene-butadiene copolymer (SBC) plant at the
Houston Chemical Complex.  Two individuals employed by a
subcontractor, Zachry Construction Corporation (Zachry), were
killed and other workers were injured.  Ten lawsuits have been
filed in Texas in connection with the incident.  The first of
these lawsuits to go to trial, a wrongful death claim, ended in
December 2000.  The jury found that Phillips was negligent and
acted with malice in causing the June 23, 1999, incident.  The
parties to that lawsuit have agreed to settle all claims for a
confidential amount.  The remaining wrongful death action, which
is now consolidated with personal injury claims brought by three
other workers, is scheduled for trial in October 2001.  Phillips
is the named defendant in these actions.

Under the indemnification provisions of the subcontracting
agreement between Phillips and Zachry, Phillips has sought
indemnification from Zachry with respect to the claims of the
Zachry workers.  Phillips has, in addition, filed an action
against various Zachry insurers to obtain a declaration that
coverage is available in regard to the incident under policies
issued by them.  There are also provisions in the Contribution
Agreement, under which CPChem was formed, providing for
indemnification of Phillips by CPChem for damages stemming from
this incident.

On March 27, 2000, an explosion and fire occurred at Phillips'
K-Resin SBC plant at the Houston Chemical Complex due to the
overpressurization of an out-of-service butadiene storage tank.
The 370-million-pound-per-year K-Resin SBC facility, which was
contributed to CPChem on July 1, 2000, has been idle since that
time.  One employee was killed and several individuals, including
employees of both Phillips and its contractors, were injured.
Currently, there are thirteen lawsuits pending on behalf of 66
primary plaintiffs.  The litigation is currently in the discovery
stage with the first trial setting in November 2001.  Under the
indemnification provisions of subcontracting agreements with
Zachry and Brock Maintenance, Inc., Phillips has sought
indemnification from these subcontractors with respect to claims
made by their employees.  The Contribution Agreement, pursuant to
which CPChem was formed, does not require CPChem to indemnify
Phillips for liability arising out of this litigation.


                               40

<PAGE>



Environmental

Most aspects of the businesses in which the company engages are
subject to various federal, state, local and foreign
environmental laws and regulations.  Similar to other companies
in the petroleum and chemical industries, the company incurs
costs for preventive and corrective actions at facilities and
waste disposal sites.

Phillips may be obligated to take remedial action as the result
of the enactment of laws, such as the federal Superfund law, the
issuance of new regulations, or as a result of leaks and spills.
In addition, an obligation may arise when a facility is closed or
sold.  Most of the expenditures to fulfill these obligations
relate to facilities and sites where past operations followed
practices and procedures that were considered appropriate under
regulations, if any, existing at the time, but may now require
investigatory or remedial work to adequately protect the
environment or address new regulatory requirements.

At year-end 2000, Phillips reported 30 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP).  Since then, none of these
sites have been resolved and one new site has been added.  Of the
31 sites remaining at June 30, 2001, the company believes it has a
legal defense or its records indicate no involvement for
five sites.  At six other sites, present information indicates
that it is probable that the company's exposure is less than
$100,000 per site.  At five sites, Phillips has had no
communication or activity with government agencies or other PRPs
in more than two years.  Of the 15 remaining sites, the company
has provided for any probable costs that can be reasonably
estimated.  No one site represents more than 10 percent of the
total.

Phillips does not consider the number of sites at which it has
been designated potentially responsible by state or federal
agencies as a relevant measure of liability.  Some companies may
be involved in few sites but have much larger liabilities than
companies involved in many more sites.  Although liability of
those potentially responsible is generally joint and several for
federal sites and frequently so for state sites, the company is
usually but one of many companies cited at a particular site.  It
has, to date, been successful in sharing cleanup costs with other
financially sound companies.  Many of the sites at which the
company is potentially responsible are still under investigation
by the Environmental Protection Agency (EPA) or the state
agencies concerned.  Prior to actual cleanup, those potentially
responsible normally assess site conditions, apportion


                               41

<PAGE>



responsibility and determine the appropriate remediation.  In
some instances, Phillips may have no liability or attain a
settlement of liability.  Actual cleanup costs generally occur
after the parties obtain EPA or equivalent state agency approval.

At June 30, 2001, contingent liability accruals of $11 million
and $6 million had been made for the company's PRP sites and
other environmental contingent liabilities, respectively.  In
addition, the company had accrued $227 million for other planned
remediation activities, including resolved state, PRP, and other
federal sites, as well as sites where no claims have been
asserted, for total environmental accruals of $244 million,
compared with $127 million at December 31, 2000.  The increase
in accrued environmental costs of $117 million in the first six
months of 2001 was primarily driven by an accrual for
remediation activities required by the state of Alaska at
exploration and production sites formerly owned by ARCO.
Because this accrual relates to environmental conditions that
existed when Phillips acquired the properties on April 26, 2000,
the charge impacted the allocation of the purchase price of the
acquisition, not the company's net income.

After an assessment of environmental exposures for cleanup and
other costs, the company makes accruals on an undiscounted basis
(unless acquired in a purchase business combination) for planned
investigation and remediation activities for sites where it is
probable that future costs will be incurred and these costs can
be reasonably estimated.  These accruals have not been reduced
for possible insurance recoveries.


NEW ACCOUNTING STANDARDS

At the end of June 2001, the FASB approved the issuance of FASB
Statements No. 141, "Business Combinations," No. 142, "Goodwill
and Other Intangible Assets," and No. 143, "Accounting for Asset
Retirement Obligations."  For additional information, see
Note 19--New Accounting Standards in the Notes to Financial
Statements, which is incorporated herein by reference.


OUTLOOK

On July 31, 2001, Phillips and its co-venturers in the Bayu-Undan
development project announced their unanimous decision to defer
indefinitely an investment commitment in a subsea pipeline
proposed to transport natural gas from the Bayu-Undan field in
the Timor Sea to Darwin, Australia.  This decision may prevent
commercialization of certain Timor Sea gas resources.


                               42

<PAGE>



The deferral reflects the need to resolve certain critical legal,
fiscal and taxation issues arising from the Timor Sea
Arrangement, which was entered into between the governments of
Australia and East Timor on July 5, 2001, before further
investment can proceed in either the pipeline or in any field
development.  However, this will not effect the Bayu-Undan gas
recycle project, which was approved by the Timor Gap Joint
Authority in early 2000 and which is expected to begin full
commercial production in early 2004.

The co-venturers plan to make every effort to work with the East
Timorese and Australian representatives to expedite a
satisfactory and commercial resolution of the outstanding issues.
The co-venturers are looking to East Timor to continue the
production sharing contracts in the same terms as the existing
contracts, as specifically provided for in the arrangement with
Australia.  Phillips also plans to continue to work with
prospective gas customers to secure the appropriate value from
the project for all stakeholders.

Oil prices started and ended the second quarter at about $25.60
for the benchmark West Texas Intermediate (WTI) crude, the lowest
prices since April 2000.  From early April 2001 through late May,
the petroleum market was dominated by concerns over a potential
shortage of gasoline in the United States.  Gasoline futures hit
all-time record highs and WTI returned to near $30.  In response
to the high prices and wider margins, U.S. refineries ran at
maximum rates and gasoline was imported into the U.S. market from
Europe and Southeast Asia.  Inventories built rapidly as
consumers also responded to the higher prices with reduced
demand.  The anticipated shortage was avoided and prices dropped
quickly.  Crude prices dropped again to the $25.60 level by the
end of the quarter as world supplies were seen as adequate going
into the third quarter.  OPEC production was approximately one
million barrels per day less during the second quarter compared
with the first quarter.  OPEC held quotas unchanged for the first
two months of the third quarter, but the cartel has recently
agreed to reduce production by another one million barrels per
day during September.  With higher seasonal demand, this action
is expected to support prices despite weakening worldwide
economic growth.

Concerns over tight supplies of natural gas in the U.S. also
eased over the quarter as inventories built to levels well above
last year's record low levels and above the five-year average.
Benchmark natural gas prices dropped from over $5 per thousand
cubic feet at the start of the quarter to near $3 at the end of
June.  A record level of North American gas drilling activity has
not yet yielded a significant increase in production.  The lower


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prices were more the result of current demand weakness than
supply strength, considering the weak economy, moderate weather
and industrial demand lost during the price peaks of last winter.


CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995

Phillips is including the following cautionary statement to take
advantage of the "safe harbor" provisions of the PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 for any forward-looking
statement made by, or on behalf of, the company.  The factors
identified in this cautionary statement are important factors
(but not necessarily all important factors) that could cause
actual results to differ materially from those expressed.  Where
any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement,
the company believes such assumptions or bases to be reasonable
and makes them in good faith.  Assumed facts or bases almost
always vary from actual results, and the differences between
assumed facts or bases and actual results can be material,
depending on the circumstances.  Where, in any forward-looking
statement, the company, or its Management, expresses an
expectation or belief as to future results, there can be no
assurance that the statement of expectation or belief will
result, or be achieved or accomplished.

The following are identified as important risk factors, but not
all of the risk factors, that could cause actual results to
differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the company:

o  Plans to implement Management's announced strategy for its
   four business segments are subject to: the completion of the
   announced acquisition of Tosco Corporation for RM&T; receipt
   of any approvals that may be required from state and federal
   government agencies and third parties; required disposition of
   assets, if any, to meet regulatory requirements; the
   successful development and operation of the company's current
   projects and the achievement of production estimates, cost
   savings and synergies that are dependent on the integration of
   personnel, business systems and operations; and the successful
   operation and financing of the DEFS and CPChem joint ventures.


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o  Plans to drill wells and develop offshore or onshore
   exploration and production properties are subject to: the
   company's ability to obtain agreements generally with co-
   venturers, partners and governments, including necessary
   permits; the satisfactory resolution of legal, fiscal, and tax
   issues with the governments of East Timor or Australia for the
   Bayu-Undan gas pipeline project; its ability to engage
   specialized drilling, construction and other contractors and
   equipment; its ability to obtain economical and timely
   financing; construction of pipelines, processing and
   production facilities for its Bohai Bay and Hamaca projects;
   geological, land, or sea conditions; world prices for oil,
   natural gas and natural gas liquids; adequate and reliable
   transportation systems, including the Trans-Alaska Pipeline
   System, the Valdez Marine Harbor Terminal, and the acquired
   and to-be-constructed crude oil tankers; and foreign and
   United States laws, including tax laws.

o  Plans for the construction, modernization or debottlenecking of
   refineries and the timing of production from such plants are
   subject to: approval from the company's and/or subsidiaries'
   Boards of Directors; obtaining loans and/or project financing;
   the issuance by foreign, federal, state, and municipal
   governments, or agencies thereof, of building, environmental
   and other permits; and the availability of specialized
   contractors, work force and equipment.  Production and delivery
   of the company's products are subject to: worldwide prices and
   demand for the products; availability of raw materials; and the
   availability of transportation in the form of pipelines,
   railcars, trucks or ships.

o  The ability to meet liquidity requirements, including the
   funding of the company's capital program from borrowings, asset
   sales, if any, and operations, is subject to: the negotiation
   and execution of various bank, project and public financings
   and related financing documents, the market for any such debt,
   and interest rates on the debt; the identification of buyers
   and the negotiation and execution of instruments of sale for
   any assets that may be identified for sale; changes in the
   commodity prices of the company's basic products of oil,
   natural gas and natural gas liquids, over which Phillips has no
   control, and to a lesser extent the commodity prices for its
   chemicals and other hydrocarbon products; its ability to
   operate its refineries and exploration and production
   operations consistently and safely, with no major disruption in
   production or transportation of such products; and the effect
   of foreign and domestic legislation of federal, state and
   municipal governments that have jurisdiction in regard to
   taxes, the environment and human resources.

o  Estimates of proved reserves, project cost estimates, and
   planned spending for maintenance and environmental remediation
   were developed by company personnel using the latest available
   information and data, and recognized techniques of estimating,
   including those prescribed by the U.S. Securities and Exchange
   Commission, generally accepted accounting principles and other
   applicable requirements.  Estimates of cost savings, synergies
   and the like were developed by the company from current
   information.  The estimates for reserves, supplies, costs,
   maintenance, remediation, savings and synergies can change
   positively or negatively as new information and data becomes
   available.


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                   PART II.  OTHER INFORMATION

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The company held a special shareholder meeting on April 11, 2000.
A brief description of each proposal and the voting results
follow:

  A company proposal to approve the acquisition of Tosco
  Corporation.

                  For         218,353,460
              Against          15,489,114
          Abstentions           2,202,961
            Not Voted          47,515,535

  A company proposal to amend Phillips Petroleum Company's
  charter to increase the number of authorized shares of
  common stock from 500 million to 1 billion.

                  For         233,438,136
              Against          24,260,109
          Abstentions           2,412,824
            Not Voted          23,450,001


The company held its annual stockholders' meeting on May 7, 2001.
A brief description of each proposal and the voting results
follow:

  A company proposal to elect nine directors.

                                      For      Against & Withheld
                              -----------------------------------
  Norman R. Augustine         256,214,256               3,909,466
  David L. Boren              256,142,318               3,981,404
  Robert E. Chappell, Jr.     256,480,129               3,643,593
  Robert M. Devlin            256,429,143               3,694,579
  Larry D. Horner             256,236,558               3,887,164
  J. J. Mulva                 256,203,496               3,920,226
  Randall L. Tobias           256,389,359               3,734,363
  Victoria J. Tschinkel       256,164,908               3,958,814
  Kathryn C. Turner           255,959,863               4,163,859

  A company proposal to approve the designation of Ernst &
  Young LLP as independent auditors for 2001.

                  For         255,180,920
              Against           3,324,547
          Abstentions           1,618,255
            Not Voted          23,437,348


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<PAGE>



A company proposal to authorize the 2002 Omnibus Securities Plan.

                  For         235,608,496
              Against          21,201,142
          Abstentions           2,963,134
            Not Voted          23,788,298

All nine nominated directors were elected, and the independent
auditors designated by the company were approved, and the
proposal to authorize the 2002 Omnibus Securities Plan was
approved.

Also on May 7, 2001, at the Phillips Board of Directors meeting
following the annual meeting, J. Stapleton Roy was elected as a
new director.  Mr. Roy has served as ambassador to both Indonesia
and the People's Republic of China during his foreign service
career.  The election of Mr. Roy and the retirement of
Mr. Eagleburger maintains the total number of Phillips directors
at 10, of which nine are outside directors.


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

Exhibits
--------

12     Computation of Ratio of Earnings to Fixed Charges.


Reports on Form 8-K
-------------------

During the three months ended June 30, 2001, the company filed
one report on Form 8-K, dated April 11, 2001, to report under
Item 9, pursuant to Regulation FD, that the company elected to
furnish the press release issued by it in connection with the
company's special stockholder meeting on April 11, 2001.


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                            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.


                                    PHILLIPS PETROLEUM COMPANY



                                       /S/ Rand C. Berney
                                   -----------------------------
                                           Rand C. Berney
                                   Vice President and Controller
                                    (Chief Accounting and Duly
                                        Authorized Officer)

August 10, 2001


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