FORM 10-K
                                UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
      (Mark One)
         [x]        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
             For the fiscal year ended       December 31, 1997
                                       --------------------------------
                                     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)

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

          Securities registered pursuant to Section 12(b) of the Act:

                                                 Name of each exchange
             Title of each class                  on which registered
      ----------------------------------       ------------------------
      Common Stock, $1.25 Par Value            New York, Pacific and
                                                Toronto Stock Exchanges
      Preferred Share Purchase Rights
        Expiring July 31, 1999                 New York Stock Exchange
      6.65% Notes Due March 1, 2003            New York Stock Exchange
      7.20% Notes Due November 1, 2023         New York Stock Exchange
      7.92% Notes Due April 15, 2023           New York Stock Exchange
      8.24% Trust Originated Preferred
        SecuritiesSM (and the guarantees
        with respect thereto)                  New York Stock Exchange
      8.49% Notes Due January 1, 2023          New York Stock Exchange
      8.86% Notes Due May 15, 2022             New York Stock Exchange
      9% Notes Due 2001                        New York Stock Exchange
      9.18% Notes Due September 15, 2021       New York Stock Exchange
      9 3/8% Notes Due 2011                    New York Stock Exchange

      Securities registered pursuant to Section 12(g) of the Act: None

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
                                                                ---    ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  [x]

Excluding shares held by affiliates, the registrant had 262,403,941 shares
of Common Stock, $1.25 Par Value, outstanding at January 31, 1998.  The
aggregate market value of voting stock held by non-affiliates of the
registrant was $11,545,773,404 as of January 31, 1998.  The registrant,
solely for the purpose of this required presentation, has deemed its Board
of Directors and the Compensation and Benefits Trust to be affiliates, and
deducted their stockholdings of 412,179 and 29,200,000 shares, respectively,
in determining the aggregate market value.

                     Documents incorporated by reference:
            Proxy Statement for the Annual Meeting of Stockholders
                           May 11, 1998 (Part III)


<PAGE>


                        TABLE OF CONTENTS

                              PART I

   Item                                                      Page
   ----                                                      ----

1. and 2.  Business and Properties...........................   1
             Corporate Structure and Current Developments....   1
             Segment and Geographic Information..............   3
               E&P (Exploration and Production)..............   3
               GPM (Gas Gathering, Processing and Marketing).  12
               RM&T (Refining, Marketing and Transportation).  14
               Chemicals.....................................  18
               Other.........................................  21
             Competition.....................................  23
             General.........................................  24
       3.  Legal Proceedings.................................  25
       4.  Submission of Matters to a Vote of
             Security Holders................................  25

                       --------------------

           Executive Officers of the Registrant..............  26

                             PART II

       5.  Market for Registrant's Common Equity and
             Related Stockholder Matters.....................  28
       6.  Selected Financial Data...........................  29
       7.  Management's Discussion and Analysis of
             Financial Condition and Results of
             Operations......................................  30
       8.  Financial Statements and Supplementary Data.......  68
       9.  Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure.......... 126

                             PART III

      10.  Directors and Executive Officers of the
             Registrant...................................... 127
      11.  Executive Compensation............................ 127
      12.  Security Ownership of Certain Beneficial
             Owners and Management........................... 127
      13.  Certain Relationships and Related Transactions.... 127

                             PART IV

      14.  Exhibits, Financial Statement Schedules,
             and Reports on Form 8-K......................... 128


<PAGE>



                              PART I

Unless otherwise indicated, "the company" and "Phillips" are used
in this report to refer to the business of Phillips Petroleum
Company and its consolidated subsidiaries.  Items 1 and 2,
Business and Properties, contain forward-looking statements
including, without limitation, statements relating to the
company's plans, strategies, objectives, expectations,
intentions, and adequate resources, and are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.  The words "forecasts," "intends,"
"possible," "potential," "targeted," "believe," "expect," "may,"
"plan" or "plans," "scheduled," "would," "could," "should,"
"anticipate," "estimate," "begin," 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 65.


Items 1 and 2.  BUSINESS AND PROPERTIES

CORPORATE STRUCTURE AND CURRENT DEVELOPMENTS

Phillips Petroleum Company was incorporated in Delaware on
June 13, 1917.  The company is headquartered where it was
founded, in Bartlesville, Oklahoma.  The company operates in four
business segments: (1) Exploration and Production (E&P) -- which
explores for and produces crude oil, natural gas and natural gas
liquids on a worldwide basis; (2) Gas Gathering, Processing and
Marketing (GPM) -- which gathers and processes both natural gas
produced by others and natural gas produced from the company's
own reserves, primarily in Oklahoma, Texas and New Mexico;
(3) Refining, Marketing and Transportation (RM&T) -- which
refines, markets and transports crude oil and petroleum products,
primarily in the United States; (4) Chemicals -- which
fractionates natural gas liquids and manufactures and markets a
broad range of petroleum-based chemical products on a worldwide
basis.  Support staffs provide technical, professional and other
services to the business segments.  At December 31, 1997,
Phillips employed 17,100 people, slightly less than the previous
year.


                                 1

<PAGE>



Phillips continued to focus on growth opportunities and operating
excellence in 1997.  Current developments include the following:

  o  Phillips and Mobil Corporation established an alliance in
     1996 for deep-water exploration in the Gulf of Mexico.
     Seismic data was acquired in 1997, and drilling is scheduled
     to begin in 1998.  Phillips currently holds a one-third
     ownership interest in 121 deep-water blocks.

  o  Work continued on the Ekofisk II redevelopment in 1997.  The
     new wellhead platform was completed in October 1996 and
     production from the first well began in early 1997.  Work
     continues on the new processing/transportation platform.
     Ekofisk II is scheduled for start-up in the fall of 1998.

  o  Phillips and its co-venturers are studying a plan to develop
     both blocks of the Bayu-Undan gas/condensate discovery in
     the Timor Sea Zone of Cooperation, initially as a gas-
     reinjection project.  Initial production is expected in
     2002.  A decision is pending on the location and type
     of facility to liquefy the natural gas at a later stage in
     the project's development.

  o  During 1997, Phillips and its co-venturers successfully bid
     on risk service contracts for three production fields in
     Venezuela with gross estimated reserves, after application
     of enhanced recovery efforts, of 650 million to 900 million
     barrels of oil.

  o  Phillips purchased oil and gas assets in the Zama/Virgo area
     of northwest Alberta, Canada.  The company's average working
     interest in the Zama/Virgo area ranges between 90 and
     100 percent for the oil and gas properties, with combined
     estimated net reserves of oil and natural gas of 100 million
     barrels-of-oil-equivalent (BOE).

  o  During third quarter 1997, Phillips and the Venezuelan state
     oil company signed a Principles of Agreement to build a
     58,000 barrels-per-day coker and related facilities at
     Phillips' Sweeny, Texas, Complex for the processing of
     heavier, lower-cost crude oil.

  o  The company and Qatar General Petroleum Corporation
     signed an agreement for the development of a new
     joint-venture petrochemical complex.  The complex would
     feature a 1.1 billion-pounds-per-year ethylene plant.  It
     would also feature manufacturing facilities capable of
     producing one billion pounds per year of polyethylene and a
     hexene-1 plant with a capacity of 100 million pounds per
     year.  Phillips would have a 49 percent interest in this
     project.


                                 2

<PAGE>



SEGMENT AND GEOGRAPHIC INFORMATION

Segment information about sales and other operating revenues,
earnings, total assets and additional information, located in
Note 19 -- Segment and Geographic Information in the Notes to
Financial Statements on pages 103 through 105, is incorporated
herein by reference.

Products which contributed more than 10 percent of consolidated
sales and other operating revenues follow:

                                        1997      1996      1995
                                        ------------------------
Crude Oil                                 23%       26        26
Petroleum Products                        41        42        41
Natural Gas                               15        14        12


E&P
---

The company's E&P segment explores for and produces crude oil,
natural gas and natural gas liquids on a worldwide basis and
produces coal in the United States.  Producing areas are the
United States (including the Gulf of Mexico), the Norwegian and
U.K. sectors of the North Sea, Canada, Nigeria and offshore
China.

The information listed below appears in the oil and gas
operations disclosures on pages 106 through 124 and is
incorporated herein by reference.

  o  Proved worldwide crude oil, natural gas, and natural gas
     liquids reserves.

  o  Net production of crude oil, natural gas and natural gas
     liquids.

  o  Average sales prices of crude oil, natural gas and natural
     gas liquids.

  o  Average production costs per BOE.

  o  Developed and undeveloped acreage.

  o  Net wells completed, wells in progress and productive wells.

In 1997, Phillips' worldwide crude oil production averaged
232,000 barrels per day, a 6 percent increase from
219,000 barrels per day in 1996.  In 1997, 67,000 barrels per day
of crude oil production was from the United States, down from
69,000 barrels per day in 1996.  Lower U.S. production was due to
general production declines, primarily from the Point Arguello,


                                 3

<PAGE>



South Marsh Island Blocks 146/147, and Prudhoe Bay fields.  This
decline was partially offset by new production from the Mahogany
subsalt field in the Gulf of Mexico.  Foreign crude oil
production was up 10 percent in 1997, reflecting higher
production in the U.K. sector of the North Sea with the start-up
of J-Block, and higher volumes from Norway.

E&P's worldwide production of natural gas liquids averaged
14,000 barrels per day in 1997, compared with 15,000 barrels per
day in 1996.  U.S. production accounted for 4,000 barrels per day
in 1997, the same as in 1996.

The company's worldwide production of natural gas averaged
1,472 million cubic feet per day in 1997, down 4 percent from
1996.  U.S. natural gas production decreased 7 percent in 1997,
to 1,024 million cubic feet per day, primarily attributable to
normal field declines, lower production from Blocks 70/71 in the
Garden Banks area of the Gulf of Mexico, and asset dispositions.
Higher production from the U.K. sector of the North Sea
contributed to a 5 percent increase in foreign natural gas
production in 1997.

Phillips' worldwide annual average crude oil sales price
decreased 8 percent in 1997, to $18.57 per barrel.  Both U.S. and
foreign average prices were lower.  E&P's annual average
worldwide natural gas sales price increased 9 percent, led by
11 percent higher sales prices in the United States.

The company's finding and development costs in 1997 were
$4.42 per BOE, compared with $7.55 in 1996.  Over the last five
years, Phillips' finding and development costs averaged $4.17 per
BOE.

At December 31, 1997, Phillips held a combined 33.9 million net
developed and undeveloped acres, a 26 percent increase from
26.8 million net acres at year-end 1996.  The increase in net
acreage is primarily attributable to new acreage in South Africa,
Peru, Greenland and Venezuela.  At year-end, the company held
acreage in 21 nations, and produced hydrocarbons in six.


E&P -- U.S. OPERATIONS

Phillips' alliance with Mobil Corporation to jointly explore
deep-water blocks in the Gulf of Mexico moved forward in 1997.
Three-dimensional seismic surveys were acquired in 1997 and a
drilling program is scheduled to begin in 1998, with two to four
exploratory wells planned annually over the next three to five
years.  The alliance covers 121 deep-water blocks, with Phillips
holding one-third of the ownership interests and Mobil two-
thirds.


                                 4

<PAGE>



The company has drilled the majority of its subsalt portfolio on
the continental shelf in the Gulf of Mexico.  Production has been
less than anticipated from the Mahogany field (Ship Shoal
Blocks 349/359), where work continues to boost output.  A fifth
production well has been completed, and recompletions are planned
in other producing zones.  In 1997, Mahogany's net production was
2,808 barrels of oil and 4.3 million cubic feet of natural gas
per day.  Phillips plans to develop the Agate field (Ship Shoal
South Block 361) by connecting it to the Mahogany platform,
located about six miles away.  First production from Agate is
expected in 1998.  Phillips owns a 37.5 percent interest in the
Mahogany field, and a 50 percent interest in the Agate field.

In the North Cook Inlet of Alaska, Phillips has completed
appraisal drilling of the Tyonek Deep prospect, in which the
company owns a 100 percent working interest.  Although the first
appraisal well did not encounter commercial quantities of
hydrocarbons, a second appraisal well, started in late 1997, was
successful, testing at a combined rate of 3,100 barrels of oil
per day.  Two development wells are planned for 1998.  Drilling
has taken place from the existing Tyonek platform, which has
continued to supply gas to the company's Kenai LNG facility.

Phillips owns a 10 to 25 percent interest in three satellite
fields of the Prudhoe Bay Unit: Schrader Bluff, S-Pad Kuparuk and
Northwest Eileen.  A two-well appraisal-drilling program
began in the fall of 1997 at Schrader Bluff, and a three-well
program began in early 1998 at Northwest Eileen.

Liquefied natural gas (LNG) sales volumes from the company's
Kenai, Alaska, plant decreased 8 percent in 1997, compared with
1996, due to slightly lower customer demand.  Through
refrigeration and compression techniques, and utilization of
Phillips' proprietary Optimized Cascade LNG technology, the
company liquefies natural gas produced from its North Cook Inlet
field, and transports the LNG to Japan, where it is reconverted
into dry gas at the receiving terminal.

Net production from the company's three jointly owned coal mines
was 1.8 million tons in 1997, compared with 2.9 million tons in
1996.  The mines are located in Louisiana, Texas and Wyoming.
Phillips has a 50 percent-equity interest in each.  The reduction
in coal production was due to reduced demand for production from
the Dry Fork mine in Wyoming.  However, as a result of
contractual minimum royalty payments to Phillips and the
allocation of most fixed costs to the operator at the present low
production level, the lower deliveries at Dry Fork did not
adversely impact Phillips' financial results.


                                 5

<PAGE>



Construction is scheduled to begin in 1998 on a lignite mine in
Mississippi with an expected capacity of 3.2 million-tons-per-
year.  Commercial production is expected to begin in 2000.
Phillips will own 75 percent of the mine, which will provide fuel
for a 440-megawatt power plant to be built and owned by a third
party in northeast Mississippi.


E&P -- NORWEGIAN OPERATIONS

Work continued on the Ekofisk II redevelopment in 1997.  The new
wellhead platform was completed during 1996, with production
starting in early 1997.  The new processing/transportation
platform was installed in September 1997.  Full operation of
Ekofisk II is scheduled to begin in the fall of 1998.

The Ekofisk, Eldfisk, Embla and Tor fields will be connected to
the Ekofisk II facilities, as well as some third-party fields.
It is currently anticipated that the remaining fields in the
Ekofisk area -- Cod, Albuskjell, Edda, and West Ekofisk -- will
be shut-in by the end of 1998 because tie-in of these fields to
the new Ekofisk II facilities was determined to be uneconomical
based on remaining reserves, existing platform operating costs
and tie-in costs.  However, a re-assessment of some of these
fields is ongoing and alternate development scenarios are being
studied.  The abandonment plans for these fields have not yet
been finalized by the company, and are not scheduled to be
submitted to the Norwegian authorities until 1999.  At
December 31, 1997, the company had accrued $44 million for
dismantlement and removal costs on these fields based on total
anticipated costs to Phillips of $48 million.  The combined
liquids production for these fields in 1997 was 1,900 barrels per
day, about 2 percent of the company's Norway production.

Phillips received government approval to proceed with a water
injection program at the Eldfisk field, the second largest field
in the Ekofisk area.  The project includes a new unmanned
platform, new pipelines and modification of existing facilities.
The platform, which will include water injection, gas lift and
gas injection equipment, is scheduled to begin operation in early
2000, and will be controlled from a nearby manned platform.  The
completed facility will include eight injection wells -- seven
for water and one for gas.  Total water injection capacity will
be 670,000 barrels per day, enough to serve Eldfisk and provide a
new source for the ongoing Ekofisk waterflood project 15 miles
away.  This project is expected to increase Phillips' net Eldfisk
oil production from about 13,000 barrels per day to a peak of
26,000 barrels per day in 2004.  At December 31, 1997, Phillips
owned a 37 percent working interest.


                                 6

<PAGE>



In 1996, the company was awarded a 30 percent operating interest
in four new blocks in the Norwegian sector of the North Sea, near
the Troll gas field.  The first exploratory well was a dry hole,
and work is ongoing to evaluate other prospects on the license.
Phillips was also awarded a 20 percent non-operating interest in
a block near the Norne field, where an exploratory well is
planned for the first quarter of 1998.

As part of its Norwegian operations in the North Sea, Phillips
acquired interests in two licenses offshore Denmark.  On one
license, the company participated in the discovery of a field
named Siri in December 1995.  A 1996 appraisal well was also
successful.  The operator is preparing for development of the
field, with first production expected in late 1998 at an
anticipated net rate to Phillips of 6,000 barrels per day.
Phillips holds a 12.5 percent interest in the Siri license.  A
successful exploratory well was drilled late in 1996 on the Siri
East, a separate prospect on the same license.  Siri East may be
developed as a satellite to Siri.  Phillips is the operator and
holds a 35 percent interest in the second license, located in the
westernmost part of the Danish shelf immediately south of the
Ekofisk area, where three-dimensional seismic data is being
evaluated.

Phillips was awarded 38.25 percent interest in a license offshore
western Greenland covering 2.3 million acres, effective
January 1, 1997.  Seismic data was acquired in the summer of
1997, and the first exploration well is planned for 1999.


E&P -- U.K. OPERATIONS

Commercial liquids production from J-Block began in April 1997,
following the commissioning of gas injection facilities on the
Judy platform.  Commercial gas production also began in 1997,
after legal issues with the gas buyer were settled.  In December
1997, net production averaged 23,000 barrels per day of liquids
and 108 million cubic feet per day of natural gas.  Phillips is
the operator of J-Block, with a 36.5 percent interest.

The J-Block platform is designed to process 100,000 barrels of
oil per day and 450 million cubic feet of natural gas per day.
This additional capacity provides the infrastructure needed to
cost-effectively develop other discoveries in the area.  The Jade
field, discovered in 1996, was successfully appraised in 1997.
Development options are being evaluated, with an expected
start-up in 2000 with a tie-in to the J-Block infrastructure.
Development options are being reviewed with the co-venturers and
the U.K. authorities.  Phillips is the operator with a
32.5 percent interest.


                                 7

<PAGE>



Also tying into the J-Block infrastructure will be the Janice
field, for which development approval was obtained in 1997.
Initial production is planned for 1998 at a net rate of
13,000 barrels of oil per day, and 5 million cubic feet per day
of natural gas.  Gas production from Janice will be transported
to the J-Block facility, while the oil production will be
transported to Teesside, England, through an existing pipeline.
Phillips has a 24.4 percent interest in Janice.

Phillips has an interest in two fields being developed in the
U.K. North Sea--Armada and Britannia.  Armada began production in
late 1997, averaging a net rate of 2,700 barrels of liquids and
44 million cubic feet of natural gas per day in December 1997.
Britannia is scheduled to begin production in mid-1998, averaging
net production of 2,800 barrels of liquids and 38 million cubic
feet of natural gas per day in 1999.  The company has an
11.45 percent interest in Armada and a 6.78 percent interest in
Britannia.

A discovery well was drilled in 1997 on a prospect that straddles
two blocks in the U.K. North Sea.  Named Kate, the well tested at
a combined rate from two intervals of 11,500 barrels of oil per
day, and 22 million cubic feet of natural gas per day.  Phillips
and its co-venturers operate the 22/28a block (in which Phillips
holds a 62.74 percent interest), while Shell U.K. Exploration and
Production Company (Shell) and its co-venturers operate block
22/23b.  The discovery well was funded 50/50 by the Phillips and
Shell groups.  An appraisal well is planned for 1998.  A
subsequent well, drilled by Shell in block 22/28a and funded
50/50 by the Phillips and Shell groups, also encountered a
potentially commercial hydrocarbon pay zone.

Phillips holds a 43.8 percent interest in the Renee field
(block 15/27) and a 27 percent interest in the Rubie field
(block 15/28b) in the U.K. North Sea.  A successful appraisal
well was drilled on Renee in 1997, and tested at a combined rate
from two intervals of 10,250 barrels of oil and 7 million cubic
feet of gas per day.  Phillips and its co-venturers will develop
the fields with subsea facilities tied into a third-party
floating production facility located about 13 miles away.  The
company plans five wells for the area.  Production could begin as
early as the fourth quarter of 1998, at a combined initial net
production rate of 9,000 barrels per day to Phillips.

In deep-water frontier areas of the Atlantic Ocean offshore the
United Kingdom and the Republic of Ireland, Phillips was awarded
46 blocks in two licensing rounds.  During the summer of 1997,
Phillips and its co-venturers conducted extensive seismic surveys
over much of the newly acquired acreage.  Further seismic
acquisition and the first exploratory well are planned for 1998.


                                 8

<PAGE>



E&P -- OTHER OPERATIONS

China:

In the South China Sea, Phillips' combined net production of
crude oil from its Xijiang facilities averaged 15,000 barrels per
day in 1997, the same as in 1996.  The company drilled a five-
mile extended-reach well from the Xijiang facilities to an
adjacent field, with production commencing in 1997.

Phillips' exploratory program on the Bozhong Block, off China's
northern coast in Bohai Bay, recorded two successful exploratory
wells.  The Peng Lai 14-3-1 was the company's first successful
well and the Bozhong 36-2-1 was the second.  An appraisal well
was started in early 1998.  Phillips is the operator and holds a
60 percent interest in the block.  China National Offshore Oil
Corporation has the right to acquire up to 51 percent interest in
any prospect development.


Nigeria:

In Nigeria, the company's non-operating interests in 23 fields
yielded net average crude oil production of 23,000 barrels per
day, 8 percent lower than 1996.  Information contained in
Management's Discussion and Analysis on page 64 related to the
company's oil mining leases in Nigeria is incorporated herein by
reference.


Australia:

Phillips and its co-venturers are studying a plan to develop both
blocks of the Bayu-Undan gas/condensate discovery in the Timor
Sea Zone of Cooperation as a single field, with BHP Petroleum
Pty. Ltd. as unit operator.  The field, located between Indonesia
and Australia, is planned to be developed initially as a
gas-reinjection project, with liquids production processed on a
floating processing, storage and offloading facility built from a
modified tanker.  Initial production is expected in 2002.

In 1997, a successful exploration well was drilled offshore
northwestern Australia at the Athena prospect, in which Phillips
holds a 50 percent interest.  The Athena well tested an extension
of a field discovered by an adjacent operator.  Phillips and the
operator of the adjacent field are discussing development options
for these reserves with owners of nearby production facilities.
In the same area, an unsuccessful exploratory well was drilled on
the Andromeda prospect, where the company also holds a 50 percent
interest.


                                 9

<PAGE>



Phillips was awarded a 40 percent interest in two offshore
licenses in the Carnarvon Basin, off the northwest shelf of
Australia.  The new licenses are on either side of the license
containing Athena and Andromeda.  Phillips plans to drill up to
10 wells in these three licenses over the next three years.


Venezuela:

Phillips entered into an agreement with a subsidiary of
Venezuela's state oil company, along with two other co-venturers,
to study the development of extra-heavy oil reserves from the
Hamaca region of the Orinoco Oil Belt in eastern Venezuela, and
to consider the establishment of an association to undertake the
project.  The agreement was approved by the Venezuelan Congress
in the summer of 1997, and engineering studies are under way,
with a decision regarding construction expected by year-end 1998.
Production could begin in 1999 at a net rate to Phillips of
2,000 barrels of oil per day, with peak net production reaching
40,000 barrels of oil per day by 2006.  Phillips has a 20 percent
interest in the project.

In mid-1997, Phillips obtained interests in three reactivation
blocks offshore western Venezuela:  La Vela (50 percent),
Ambrosio (100 percent) and LL-652 (20 percent).  Phillips will
operate the Ambrosio and La Vela blocks, and plans to drill new
wells and extend or re-complete certain existing wells.  In
addition, improved recovery technology will be utilized to fully
exploit the fields.  The company is conducting three-dimensional
seismic surveys on these blocks in 1998, with exploratory/
appraisal drilling scheduled to begin late in the year.  Phillips
and its co-venturers have approved a plan to expand production
and initiate a waterflood project on the LL-652 block.  Approval
of the development and improved recovery plans for the three
blocks is expected from Venezuela's national oil company in the
first quarter of 1998.


Other:

Phillips continued its exploration program on a block in the Borj
Messouda area of eastern Algeria.  The first two exploratory
wells, drilled over the past two years, were unsuccessful.  A
third well is scheduled to be drilled in the spring of 1998.

In two separate transactions, Phillips acquired an average
working interest ranging from 90 to 100 percent in the oil and
gas properties in the Zama/Virgo area in northwest Alberta,
Canada, with estimated total reserves of 100 million barrels-of-
oil-equivalent.


                                10

<PAGE>



In other exploration activity:

  o  Phillips signed an exploration and production-sharing
     contract with the Sultanate of Oman, which will allow
     Phillips to explore 4.6 million acres in southern Oman.
     Acquisition of seismic data began in late 1997.  The company
     has committed to drill five wells over the nine-year
     exploratory phase of the agreement, with the first well
     planned for 1999.

  o  In early 1997, Phillips signed a seven-year license
     agreement with Peru's state-owned oil company, which will
     enable Phillips to explore 2.5 million acres in southeastern
     Peru.  An exploration well is planned for late 1998.

  o  Phillips is acquiring seismic data in block 17/18 of the
     Indian Ocean, offshore South Africa.  Exploratory drilling
     is planned for early 1999.  Phillips is the operator
     of the 14.5 million acre sublease, with a 40 percent
     interest.


E&P -- RESERVES

In 1997, on a BOE basis, Phillips replaced 164 percent of the
reserves it produced during the year, compared with 71 percent in
1996.  The 1997 total includes replacement of 263 percent of
foreign production and 61 percent of U.S. production.  Excluding
acquisitions and related property dispositions, Phillips replaced
125 percent of its total worldwide production.

U.S. reserves decreased 3 percent, while foreign reserves
increased 14 percent.  Total worldwide proved reserves on a BOE
basis were 2.3 billion barrels at year-end.  Crude oil reserves
and natural gas liquids reserves rose 9 percent, and natural gas
reserves increased 2 percent.  Natural gas comprises 48 percent
of proved worldwide hydrocarbon reserves and 63 percent of U.S.
reserves.  Ninety-two percent of Phillips' proved reserves base
is located in North America and the North Sea.  From 1993 through
1997, Phillips' five-year-average BOE production replacement
equaled 126 percent.

Estimates of proved reserves are based upon reservoir
information, technology and economics available at the time the
estimates are made.  Adjustments are made to reflect changes in
economic conditions, results of drilling and production, and the
technical re-evaluation of reservoirs.

The company has not filed any figures with any other federal
authority or agency with respect to its estimated total proved
reserves at December 31, 1997.  No difference exists between the


                                11

<PAGE>



company's estimated total proved reserves for year-end 1996 and
year-end 1995, which are shown in this filing, and estimates of
these reserves shown in a filing with another federal agency in
1997.


DELIVERY COMMITMENTS

Phillips has a commitment to deliver a fixed and determinable
quantity of liquefied natural gas in the future to two utility
customers in Japan.  The company is obligated over the next three
years to supply a total of 134 billion cubic feet of liquefied
natural gas.  Production from one field in Alaska, with estimated
proved reserves greater than the company's obligation and
estimated production levels sufficient to meet the required
delivery amount, will be used to fulfill the obligation.

The company sells natural gas in the United States from its
producing operations under a variety of contractual arrangements.
Certain contracts generally commit the company to sell quantities
based on production from specified properties.  Other gas sales
contracts specify delivery of fixed and determinable quantities.
The quantities of natural gas the company is obligated to deliver
in the future in the United States, under existing contracts, are
not significant in relation to the quantities available from
production of the company's proved developed U.S. natural gas
reserves.


GPM
---

GPM gathers and processes both natural gas purchased from others
and natural gas produced from the company's E&P reserves.  The
natural gas liquids -- ethane, propane, butanes and pentanes --
are extracted and sold primarily to the company's Chemicals
operations, where they are used as feedstock or sold to outside
customers.  The residue gas is sold to outside customers or used
as fuel in company operations.  GPM owns 14 natural gas liquids
extraction plants, and operates or has an interest in three more.
The plants are located in Texas (11), Oklahoma (3), and New
Mexico (3).  In addition, GPM operates gas gathering systems with
approximately 28,000 miles of gathering pipelines, with some
19,800 active meter connections to producing wells.

In January 1997, GPM purchased, from Amoco Production Company,
gathering assets in the Permian Basin of West Texas that gathered
approximately 40 million cubic feet of natural gas per day and
produced approximately 8,000 barrels per day of natural gas
liquids.


                                12

<PAGE>



This purchase followed the late 1996 acquisition of gathering
assets, primarily located in northwest Oklahoma, from ANR
Pipeline Company.  Together, these acquisitions contributed to a
5 percent increase in natural gas liquids production in 1997,
compared with 1996.

Technology continued to play a key role in GPM's objectives of
providing superior customer service, and operating its plants and
systems efficiently and consistently.  A major improvement
effort -- adding distributive control system technology to all
GPM-owned and operated processing plants -- has begun and is
scheduled to be completed by the year 2000.  With this
technology, plant operations can be monitored from a central
control room and plant operators have more accurate and timely
information.  This improves operating consistency, increases the
extraction of natural gas liquids and lowers energy consumption.

An expansion of GPM's Spraberry plant, located in West Texas, was
completed in 1997.  Distributive control system technology,
additional processing equipment and turbine-driven compression
were added, increasing plant capacity 63 percent -- to 65 million
cubic feet of natural gas per day.

Further technological improvements in 1997 included the
continuation of remote monitoring and control equipment
installation at GPM's key field compression sites, scheduled to
be completed by the year 2000.  These improvements allow for the
monitoring of remote compressors from a central location,
providing a more efficient use of resources and reducing
compression downtime.

GPM also completed its installation of electronic flow
measurement and radio telemetry equipment.  Wellhead production
data, which was once collected manually, may now be transmitted
electronically, providing more timely and accurate data, giving
producers more flexibility in monitoring their well production.

GPM's raw gas throughput averaged 1,983 million cubic feet per
day in 1997, compared with 1,913 million cubic feet per day in
1996, reflecting the impact of the acquisitions and expansions
discussed above.  Raw gas purchased from Phillips E&P represented
approximately 8 percent of GPM's total 1997 throughput, compared
with 9 percent in 1996.


                                13

<PAGE>



GPM continued to be a significant U.S. producer of natural gas
liquids.  GPM's natural gas liquids production was as follows:

                                       Thousands of Barrels Daily
                                       --------------------------
                                       1997       1996       1995
                                       --------------------------

From Phillips E&P leasehold gas          15         17         19
From gas purchased outside Phillips     140        131        125
-----------------------------------------------------------------
                                        155        148        144
=================================================================


Residue gas sales were 1,046 million cubic feet per day in 1997,
compared with 1,076 million cubic feet per day in 1996.  GPM
sells residue gas under contracts with prices that change with
the gas markets.  Approximately 58 percent of the residue gas
sales volumes were sold under contracts with a term of one year
or longer in 1997, compared with 64 percent in 1996.  The
remaining residue gas sales volumes were either sold on a daily
or monthly basis.

At year-end 1997, gross raw natural gas supplies available for
processing through GPM-operated plants were estimated at
7.1 trillion cubic feet, the same as at year-end 1996.  At year-
end 1997 and 1996, respectively, these supplies included about
643 million and 651 million barrels of natural gas liquids,
assuming full ethane extraction.


RM&T
----

REFINING

The company owns and operates three refineries in the United
States having an aggregate rated crude oil capacity of
345,000 barrels per day, and has 50 percent ownership of a
refinery in Teesside, England.  The U.S. refineries are located
at Borger and Sweeny, Texas, and Woods Cross, Utah.  The
company's U.S. refineries ran at 91 percent of rated capacity in
1997, compared with 95 percent in 1996.  The lower utilization
rate was the result of maintenance turnarounds in 1997, an
external power outage that affected the Sweeny refinery, and a
weather-related operating interruption at the Borger refinery.
The average purchase cost of a barrel of crude oil delivered to
the U.S. refineries in 1997 was $19.67 per barrel, 10 percent
lower than in 1996.

Forty-four percent of the crude oil processed by Phillips' U.S.
refineries in 1997 was supplied from the United States, with the
majority of the remainder provided by purchases from the Middle
East, primarily Saudi Arabia, and, to a lesser extent, South


                                14

<PAGE>



America, the North Sea, and West Africa.  In 1996, 42 percent of
the crude oil processed came from the United States.

Net E&P production satisfied 65 percent of Phillips' 1997 crude
oil requirements, which consisted of U.S. refinery crude oil runs
(314,000 barrels per day) and crude oil supplied to the refinery
in Teesside, England (41,000 barrels per day).  The ratio of net
crude oil production to requirements for 1998 is estimated at
67 percent based on production forecasts of 258,000 barrels per
day and estimated crude oil requirements of 387,000 barrels per
day.  As in 1997, purchases in the United States; from the Middle
East, primarily Saudi Arabia; and, to a lesser degree, from South
America, the North Sea, and West Africa are expected to be the
major sources supplying the difference.

Output from refining operations -- automotive gasoline,
distillates, aviation fuels, chemical feedstocks and other
products -- averaged 366,000 barrels per day, compared with
384,000 barrels per day in 1996.  The decrease is attributable to
the lower capacity utilization rate in 1997.

In late 1997, the company created a new supply chain organization
aimed at improving the profitability of its RM&T operations.  The
effort involves improved coordination of materials handling from
feedstock acquisition through product supply and distribution to
final refined product sales.  Upon full implementation of the
management program in late 1998, expected benefits are improved
sales and production forecasting, improved inventory management,
and lower costs for crude oil and refined products acquisition
and transportation.

Phillips continued an extensive process control modernization of
its U.S. refineries in 1997.  With the start-up of central
control buildings at Sweeny and Woods Cross, and continued
connections of refinery units to the Borger control building, the
project neared the half-way point, with completion expected in
2001.  The modernization project is intended to improve safety,
operating efficiency and product yields, while reducing operating
costs.

Phillips and an affiliate of the Venezuelan state oil company
signed a Principles of Agreement in 1997 to build a
58,000 barrels-per-day coker and related facilities at the Sweeny
Complex.  Under the terms of the agreement, the producing unit of
the Venezuelan state oil company would supply up to
165,000 barrels per day of heavy Venezuelan crude oil to be
processed at the refinery.  Phillips and the Venezuelan state oil
company would each have a 50 percent interest in the project.  A
coker uses a thermal process to remove heavy materials from crude
oil and turn them into petroleum coke, a substitute for coal in
power generation.  The remaining liquids are then sent to other


                                15

<PAGE>



units in the refinery to be upgraded into more valuable products,
such as gasoline and distillates.  If the project goes forward,
construction could begin in late 1998, with completion in 2000.

Catalytic reforming is a key refinery process for producing large
quantities of high-octane gasoline, aromatics and hydrogen.  Over
the years, the industry's catalytic reforming technology has
advanced, making the process more efficient at increasing the
yields of higher-margin aromatics.  To capitalize on this
technology, Phillips is studying the replacement of two existing
catalytic reformers at its Sweeny facility with a new catalytic
reformer that can continue operations while the catalyst is
regenerated.  This would increase aromatics yields with only a
small reduction in gasoline production.  The project also would
provide more hydrogen, which would be needed for the proposed
coker.

In the first quarter of 1998 at the Sweeny Complex, Phillips and a
subsidiary of Central and South West Corporation (CSW) completed
the construction of a 325-megawatt cogeneration plant that
produces electricity from natural gas-powered turbines.  The heat
exhausted from the turbines will produce steam, supplying the
Sweeny Complex's needs and offering cost benefits for both CSW and
Phillips.  At the Borger facility, Phillips and a subsidiary of
Southwestern Public Service Company continued construction of a
200-megawatt cogeneration facility.  Scheduled for completion in
late 1998, the facility will produce electricity for the utility
and steam for use at the Borger Complex.

In 1995, the company introduced the Process for Safety
Excellence.  The process integrates well-defined safety
procedures into every aspect of day-to-day operations.  In 1997,
the second full year of implementation, the process helped
Phillips' three U.S. refineries reduce their recordable injuries
by 36 percent, compared with 1995.  In 1997, environmental
measures were added to the process.


MARKETING

In the United States, the company's wholesale and retail
operations market refined products in 26 states under the
Phillips 66 trademark.  Gasoline and other products are
distributed in the United States through approximately
7,500 retail outlets, bulk distributing plants, airport dealers
and marinas.  Of these, Phillips owns and operates 274 retail
outlets, and operates another 59 on leased property.

RM&T s total gasoline sales volumes in the United States
decreased slightly during the year.  Total distillates sales
volumes in RM&T decreased 6 percent in 1997.  Both decreases were


                                16

<PAGE>



the result of lower spot sales.  In total, RM&T petroleum
products sales in the United States, from both Phillips' refinery
output and purchased products, averaged 494,000 barrels per day
during 1997, compared with 506,000 barrels per day in 1996.

Phillips continued to build brand value in 1997 by expanding its
advertising and increasing its spending on marketer incentive and
support programs.  These programs assist marketers in upgrading
their service stations and stores, and adding new services, such
as express-pay machines that allow customers to pay for their
gasoline purchases at the pump with a credit card.

The company continued its retail-marketing expansion in 1997,
with the opening of 24 new retail outlets.  In addition,
10 existing units were razed and rebuilt.  Since the program
began in 1996, the company has acquired 24 retail outlets,
opened 31 new ones, and razed and rebuilt 16 others.

The new outlets feature larger convenience stores with improved
designs, fast-food offerings and a new brand name -- Kicks 66,
which will be displayed along with the Phillips shield.  The
majority of the additional retail units are in markets where
Phillips perceives it has a business or supply advantage.  The
Borger refinery and a network of pipelines and terminals aid
Phillips in supplying the Southwest and Rocky Mountain regions.
In addition, the Woods Cross refinery is positioned to supply the
Salt Lake City area.


TRANSPORTATION

Phillips' RM&T and Chemicals segments own or have an interest in
6,900 miles of common-carrier crude oil and products pipeline
systems, of which 6,000 miles are company operated.  The largest
segment of the total system consists of 2,000 miles of products
line extending from the Texas Panhandle to East Chicago, Indiana.
The pipeline mileage above does not include the company's
1.36 percent interest in the 800-mile Trans-Alaska Pipeline
System, which is a part of E&P operations.

In addition to two leased LNG tankers utilized in the company's
E&P operations, the company has a U.S.-flag tanker of 37,000 tons
under charter.  Phillips also owns or leases barges, tank cars,
hopper cars, corporate aircraft and trucks.

In early 1997, Phillips and its co-venturer in the Seaway
Pipeline Company (Seaway) entered a pipeline project to transport
gasoline and distillates from the Texas Gulf Coast to the
Midwest.  The system is expected to have an initial average
capacity of 85,000 barrels per day.  Scheduled for completion in
the second quarter of 1998, the project involves converting and


                                17

<PAGE>



expanding one of Seaway's existing crude oil pipelines to
transport refined products from Pasadena, Texas, to Cushing,
Oklahoma.  The project also includes building a new 148-mile
pipeline from Cushing to connect to Phillips' existing pipeline
system at Wichita, Kansas.  This connection provides access to
pipeline systems servicing the upper Midwest.

Phillips has signed a letter of intent to purchase a 25 percent
interest in Ultramar Diamond Shamrock Corporation's (UDS) El Paso
refined products terminal and pipeline system, a 408-mile
pipeline that extends from McKee, Texas, to El Paso, Texas, to
assist Phillips in supplying its retail expansion into the
Southwest.  UDS plans to expand the capacity of the El Paso
system from 40,000 barrels per day to 60,000 barrels per day in
1998.  Once completed, Phillips expects to increase its interest
in the terminal and pipeline system to 33 1/3 percent, with UDS
continuing as operator.  Phillips is no longer pursuing its
previous plan to build a pipeline from the Borger refinery to
El Paso.


Chemicals
---------

The Chemicals segment is composed of three vertically integrated
operations:

  1) Natural gas liquids (NGL) -- Processed (fractionated)
     natural gas liquids are sold to third parties or used as
     feedstocks by the company at its refineries or for producing
     chemicals.  The company owns and operates processing
     facilities at the Sweeny and Borger Complexes and has an
     interest in a plant in Conway, Kansas.

  2) Intermediate petrochemical products -- Primary products
     manufactured in this operation include ethylene, propylene,
     paraxylene and cyclohexane.  Major production facilities are
     located at the Sweeny Complex in Texas and in Puerto Rico.
     Phillips also owns an equity interest in an ethylene/
     propylene plant at the Sweeny Complex.

  3) Plastics products -- Products manufactured in this operation
     include polyethylene, polypropylene, K-Resin, plastic pipe
     and Ryton.  The company's major production facility is the
     Houston Chemical Complex (HCC), near Houston, Texas.  The
     company also owns an equity interest in a polyethylene plant
     in Singapore and a polypropylene plant at HCC.  Ryton is
     produced at the Borger Complex and plastic pipe is
     manufactured at six regionally located U.S. plants, as well
     as through a joint venture in Mexico.


                                18

<PAGE>



NGL

NGL is used as a feedstock to manufacture higher-value chemicals,
such as ethylene and propylene.  The NGL business operated at
85 percent of rated fresh-feed capacity for the year, compared
with 82 percent in 1996.  Total NGL fresh-feed processing
capacity is 250,000 barrels per day.


INTERMEDIATE PETROCHEMICALS

Phillips' ethylene and propylene are produced at the Sweeny
Complex, through both 100 percent-owned units and the
50 percent-owned Sweeny Olefins Limited Partnership (SOLP).  A
significant volume of ethylene is used within Phillips as a
feedstock for manufacturing polyethylene.  Propylene is used as a
feedstock for manufacturing polypropylene.

The company completed the restart of a 100 percent-owned ethylene
unit in 1997 that had been idle since 1992.  This project added
an additional 400 million pounds per year of ethylene capacity.
Phillips' share of the Sweeny Complex's annual ethylene and
propylene capacities, including SOLP, is 3.5 billion and
950 million pounds, respectively.

Paraxylene and cyclohexane are produced at the company's Puerto
Rico Core facility in Guayama, Puerto Rico; and cyclohexane is
also produced at the Sweeny Complex.  Paraxylene is a feedstock
for polyester resin, used to produce fibers and plastic soft-
drink bottles, while cyclohexane is used as a feedstock for
nylon.  In 1997, the company completed a paraxylene expansion at
Puerto Rico Core, increasing design capacity to 880 million
pounds per year.

As part of the company's growth strategy for its specialty
chemicals business, Phillips is constructing a 100 million-
pounds-per-year methyl mercaptan plant at its Borger Complex.
Construction began in mid-1997, with first production expected in
late 1998.  Methyl mercaptan is a sulfur-based chemical used in
the production of methionine, a feed supplement for poultry.
Methyl mercaptan is also a raw ingredient for agricultural
chemicals.  The new facility will use hydrogen sulfide produced
at the Borger Complex as feedstock.

Phillips plans to build a hexene-1 facility at HCC with an annual
capacity of 200 million pounds.  Construction is scheduled to
begin in 1998, with completion in 1999.  Hexene-1 is produced
from ethylene and is a key feedstock in the manufacturing of
high-density and linear low-density polyethylene.  Using
Phillips' new proprietary catalyst technology, hexene-1 can be


                                19

<PAGE>




produced with greater selectivity and purity than other processes
currently provide.


PLASTICS

At HCC, debottlenecking work continued in 1997 on the company's
polyethylene production.  By project completion, scheduled for
1999, HCC's high-density polyethylene capacity will be
2.2 billion pounds per year, compared with 2.0 billion pounds at
year-end 1997.  In 1997, HCC produced 1.8 billion pounds of
polyethylene, about the same as 1996, its highest ever annual
output of polyethylene.  Polyethylene is used to manufacture a
wide variety of plastic products.

The expansion of Phillips' 50 percent-owned Singapore
polyethylene facility, which supplies polyethylene to markets in
Asia and the Pacific Rim, was completed in 1997.  The expansion
brings the facility's total annual linear polyethylene capacity
to 860 million pounds.

In late 1995, Phillips and Shanghai Petrochemical Company Limited
(SPC) formed a joint venture to build and operate a linear
polyethylene plant near Shanghai, China, with an annual capacity
of 220 million pounds.  Construction began in 1996 and is
scheduled for completion in 1998.  Phillips will own a
40 percent-equity interest in the plant, which will use Phillips'
proprietary polyethylene technology.  The plant will be located
at the petrochemical complex owned by SPC, which will provide
ethylene feedstock to the new plant.  This project marks
Phillips' first downstream investment in China, and will
strengthen the company's position in the polyethylene market in
China.

Phillips and Qatar General Petroleum Corporation signed an
agreement for a joint venture to develop a new petrochemical
complex in Qatar.  The complex would have expected annual
capacities of 1.1 billion pounds of ethylene, 1 billion pounds of
polyethylene and 100 million pounds of hexene-1.  The
polyethylene facilities would use Phillips' proprietary
technology to produce high-density and linear low-density
polyethylene.  If the project goes forward, construction would
begin in 1999, with commercial production in early 2002.
Phillips would own a 49 percent interest.

In 1994, Phillips contributed its polypropylene assets to
Phillips Sumika Polypropylene Company (PSPC), a partnership
formed in 1992 between Phillips and Sumika Polymers America
Corporation (Sumika).  Sumika funded the construction of a new
PSPC polypropylene facility at HCC.  Construction began during


                                20

<PAGE>



the fourth quarter of 1994, and was completed in late 1996.  The
new gas-phase polypropylene facility's annual capacity is
270 million pounds, bringing PSPC's total annual production
capacity to 790 million pounds.  Phillips will eventually hold a
50 percent interest in PSPC.

K-Resin, a clear copolymer used in food and medical packaging, is
produced at HCC, with a current annual capacity of 270 million
pounds.  Phillips is planning to construct a new plant next to
existing facilities that will increase capacity to 370 million
pounds per year in 1999.

Phillips' Driscopipe division manufactures polyethylene pipe,
utilizing six U.S. manufacturing facilities.  Polyethylene pipe
is used in a variety of ways, including municipal water and
telecommunications applications.  A new leased manufacturing
facility in Hagerstown, Maryland, began production in 1997.
Also, the Driscopipe division formed a joint venture to
manufacture polyethylene pipe in Mexico, which will also serve as
its principal market.


Other
-----

The Corporate Technology organization provides a flexible,
cost-effective support team for the operating segments.  Examples
of Corporate Technology support in 1997 included:

o Upstream (E&P and GPM)

    - Geophysical and computer specialists continued to develop
      algorithms that produce clearer three-dimensional images
      of hydrocarbon reserves.

    - To support the vast computational requirements of
      three-dimensional seismology and other techniques, the
      company installed a Cray T3E computer.  This replaced an
      earlier Cray, cutting costs and increasing memory capacity
      and processing speed.

    - Three-dimensional seismic techniques, computer modeling of
      reservoirs, simulation of alternative production
      techniques and the analysis of water's effect on
      production aided the company in its E&P work at
      Bayu-Undan, Venezuela and the North Sea.


                                21

<PAGE>



o Downstream (RM&T and Chemicals)

    - At Phillips' Woods Cross, Utah, refinery, start-up of a
      new proprietary technology called Reduced Volatility
      Alkylation Process (ReVAP) is under way.  The technology,
      used in the production of unleaded gasoline, lessens the
      chance that airborne hydrogen fluoride emissions will
      escape a refinery in the event of an accidental release.

    - Researchers assisted the refineries in achieving savings
      in their crude oil and catalyst purchases by continuing to
      develop improved computer models of refining processes.
      These models are used to select the best crude oil and
      catalyst combinations.

    - A Phillips-developed antifoulant technology was
      demonstrated at the Sweeny Complex.  This technology
      reduces the production of contaminants, allowing furnaces
      used in ethylene production to operate more consistently.

    - Researchers and operations employees successfully tested
      metallocene catalysts in a commercial reactor at HCC in
      1996.  During 1997, the company further developed its
      metallocene catalyst technology, and started construction
      of a metallocene compounding facility that will ensure
      catalyst supplies through the year 2000.  Metallocenes are
      "precision" catalysts that provide more control over the
      structure and properties of polyethylene.  The ability to
      produce a broader range of polyethylene resins offers the
      company opportunities to expand into higher-value markets.

    - The company developed a catalyst that converts nearly all
      acetylene -- an unwanted by-product produced during
      ethylene manufacturing -- into additional ethylene.  This
      increases yields and reduces operating expenses.

Corporate Technology is also involved in a company-wide, long-
range effort to replace most of the company's older in-house-
developed and purchased computer systems, such as plant
maintenance, materials management and financial systems.  The new
systems will primarily use programs from SAP America, Inc. and,
for certain E&P operations, Oracle Corporation.  The goal is
improved access to business information by implementing common,
integrated computing systems across the company.  Phase-in of the
new client-server technology began January 1, 1997, and is
scheduled to be fully implemented by July 1, 1999.  Corporate
Technology is also involved in a company-wide Year 2000 project.
The "Year 2000" information contained in Management's Discussion
and Analysis on pages 59 and 60 is incorporated herein by
reference.


                                22

<PAGE>



Phillips received its 15,000th U.S. patent in January 1998.  At
the end of 1997, Phillips held a total of 4,345 active patents in
55 countries worldwide, including 1,658 active U.S. patents.
During 1997, the company received 77 patents in the United
States, and 420 foreign patents.  The profitability of any
business segment is not dependent upon any single patent,
trademark, license, franchise or concession.

The company's products and processes were licensed in
33 countries at year-end 1997, resulting in licensing revenues of
$112 million.  Polypropylene-related licenses contributed about
70 percent of the total, with polyethylene-related licenses
contributing 12 percent.


COMPETITION

All phases of the businesses in which Phillips is engaged are
highly competitive.  Phillips competes at various levels with
both petroleum and non-petroleum companies in providing energy,
chemicals and other products to the consumer.  Several of the
company's competitors are larger and have substantially greater
resources.

While Phillips is one of approximately 20 large public integrated
oil companies, and generally ranks in the middle of the group,
each of the segments in which Phillips operates is highly
competitive and characterized by a great number of competitors,
including state-owned companies.  No single competitor, or small
group of competitors, dominates any of Phillips' operating
segments.

Upstream, the company competes with numerous other companies in
the industry to locate and obtain new sources of supply, and to
produce oil and gas in a cost-effective and efficient manner.
The principal methods of competition include geological,
geophysical and engineering research and technology, experience
and expertise, and economic analysis in connection with property
acquisitions.

Downstream, competitive methods consist of product improvement
and new product development through research and technology, and
efficient manufacturing and distribution systems.  In the
marketing phase of the business, competitive factors include
product quality and reliability, price, advertising and sales
promotion, and development of customer loyalty to Phillips'
branded products.

Because Phillips is a significant U.S. producer of natural gas
liquids, the company has wide access to natural gas liquids
feedstocks, which are upgraded into chemicals and plastics.  The


                                23

<PAGE>



company's structure is well-integrated vertically -- with
businesses ranging from feedstocks to plastic pipe -- which helps
ensure markets for certain products.  A substantial percentage of
Phillips' olefins, for example, are typically used as a raw
material in plastic resins manufactured by the company.

Phillips' Corporate Technology organization is focused on
providing technical support to the company's operating segments.
Corporate Technology identifies technologies that drive Phillips'
core businesses, enhancing the company's competitive position in
areas ranging from reservoir characterization to improved
plastics manufacturing processes.


GENERAL

Phillips experienced a significant drop in the number of
recordable injuries during 1997.  The recordable injury rate for
1997 was 1.18 per 200,000 man-hours, which is 22 percent lower
than the 1996 rate of 1.52.  The rate of 1.18 compares very
favorably with the most recent American Petroleum Institute
industry recordable injury rate of 2.47, and sets a new record
for the company.

Company-sponsored research and development activities charged
against earnings were $56 million, $59 million and $51 million in
1997, 1996 and 1995, respectively.

The environmental information contained in Management's
Discussion and Analysis on pages 61 and 62 under the caption,
"Environmental" is incorporated herein by reference.  It includes
information on expensed and capitalized environmental costs for
1997 and those expected for 1998 and 1999.

International and domestic political developments and government
regulation are prime factors that may materially affect the
company's operations.  Such political developments and regulation
may impact price, production, allocation and distribution of raw
materials and products, including their import, export and
ownership; the amount of tax and timing of payment; and
environmental protection.  The occurrences and effect of such
events are not always predictable.


                                24

<PAGE>



Item 3.  LEGAL PROCEEDINGS

The following is a description of a legal proceeding involving
governmental authorities under federal, state and local laws
regulating the discharge of materials into the environment.
While it is not possible to predict the outcome of such
proceeding, if it were decided adversely to the company, there
would be no material effect on its consolidated financial
position.  Nevertheless, such proceeding is reported pursuant to
the Securities and Exchange Commission's regulations.

In December 1997, the Department of Justice, on behalf of the
Environmental Protection Agency (EPA), filed a complaint in the
Federal District Court in Utah, Salt Lake City, alleging that
Phillips violated the Utah State Implementation Plan of the
National Ambient Air Quality Standards for PM-10 (small
particulate matter) at its Woods Cross, Utah, refinery.  The
state of Utah, which has primary authority, concluded no action
should be taken against Phillips.  The EPA however, has claimed
that it has jurisdiction.  The EPA's over-filing complaint
alleges that Phillips failed to continuously operate an emission
monitor to test sulfur dioxide emissions from its sulfur recovery
unit tail gas incinerator, that Phillips exceeded its emission
limit on numerous occasions, and that the violations allegedly
ran from October 1994 to the present.  The complaint seeks
unspecified civil penalties and injunctive relief.  A demand has
been made for a civil penalty of $3 million.  The company
continues to vigorously defend itself against the allegations.
Discussions with the EPA and the Department of Justice in regard
to settlement of the matter are occurring.


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

None.


                                25

<PAGE>



               EXECUTIVE OFFICERS OF THE REGISTRANT

                                                          Officer
     Name                   Position Held          Age*    Since
     ----                   -------------          ---    -------

W. W. Allen          Chairman of the Board of       61      1988
                       Directors and Chief
                       Executive Officer

Knut Am              Senior Vice President          54      1996
                       Exploration and Production

C. L. Bowerman       Executive Vice President       58      1984
                     Director

R. G. Ceconi         Senior Vice President          55      1991
                       Corporate Engineering

Raj K. Gupta         Vice President                 55      1997
                       Strategic Planning

K. L. Hedrick        Executive Vice President       45      1994

J. L. Howe           Senior Vice President          53      1992
                       Chemicals and Plastics

J. C. Mihm           Senior Vice President          55      1988
                       Corporate Technology

T. C. Morris         Senior Vice President and      57      1993
                       Chief Financial Officer

J. J. Mulva          President and Chief Operating  51      1985
                       Officer
                     Director

M. J. Panatier**     President and Chief Executive  49      1994
                       Officer of Phillips Gas
                       Company

B. Z. Parker         Senior Vice President          50      1997
                       Refining, Marketing and
                       Transportation

Barbara J. Price     Vice President Health,         53      1992
                       Environment and Safety

J. Bryan Whitworth   Senior Vice President          59      1981
                       and General Counsel

------------------------
 *On February 1, 1998.
**Executive Officers of the Registrant is defined under the rules
  of the Securities and Exchange Commission so as to include in
  certain cases persons who are not officers of the company.
  Mr. Panatier, while an "Executive Officer" as so defined, is
  not an officer of the company.


                                26

<PAGE>



There is no family relationship among the officers named above.
Each officer of the company is elected by the Board of Directors
at its first meeting after the Annual Meeting of Stockholders and
thereafter as appropriate.  Each officer of the company holds
office from date of election until the first meeting of the
directors held after the next Annual Meeting of Stockholders or
until a successor is elected.  The date of the next annual
meeting is May 11, 1998.  All of the executive officers named
above have been employed by the company for more than five years.


                                27

<PAGE>



                             PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS

Quarterly Common Stock Prices and Cash Dividends Per Share

                                       Stock Price
                                   -------------------
                                      High         Low  Dividends
                                   -------------------  ---------
1997
First                              $46 7/8      40 1/8        .32
Second                              45          37 3/8        .34
Third                               52 1/4    42 15/16        .34
Fourth                              52 1/8      44 7/8        .34
-----------------------------------------------------------------

1996
First                              $40 1/8      31 1/8       .305
Second                              43 1/8      37 3/4       .305
Third                               44 1/8      38 7/8        .32
Fourth                              45 7/8      39 1/4        .32
-----------------------------------------------------------------

Closing Stock Price at December 31, 1997                  $48 5/8
Number of Stockholders of Record at January 31, 1998       59,272
-----------------------------------------------------------------


Phillips' common stock is traded primarily on the New York,
Pacific and Toronto stock exchanges.


                                28

<PAGE>



Item 6.  SELECTED FINANCIAL DATA

                      Millions of Dollars Except Per Share Amounts
                      --------------------------------------------
                          1997     1996     1995     1994     1993
                      --------------------------------------------
Sales and other
  operating revenues   $15,210   15,731   13,368   12,211   12,309
Income before
  extraordinary items      959    1,303      469      484      245
Net income                 959    1,303      469      484      243
Per common share --
  basic
    Income before
      extraordinary
      items               3.64     4.96     1.79     1.85      .94
    Net income            3.64     4.96     1.79     1.85      .93
Per common share --
  diluted
    Income before
      extraordinary
      items               3.61     4.91     1.78     1.84      .93
    Net income            3.61     4.91     1.78     1.84      .92
Total assets            13,860   13,548   11,978   11,453   11,035
Long-term debt           2,775    2,555    3,097    3,106    3,208
Company-obligated
  mandatorily
  redeemable preferred
  securities of
  Phillips Capital
  Trusts I and II          650      300        -        -        -
Cash dividends declared
  per common share        1.34     1.25    1.195     1.12     1.12
------------------------------------------------------------------


See Management's Discussion and Analysis of Financial Condition
and Results of Operations for a discussion of factors that will
enhance an understanding of this data.


                                29

<PAGE>



Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

February 23, 1998

Management's Discussion and Analysis is the company's analysis of
its financial performance and of significant trends that may
affect future performance.  It should be read in conjunction with
the financial statements and notes, and supplemental oil and gas
disclosures.  It contains forward-looking statements including,
without limitation, statements relating to the company's plans,
strategies, objectives, expectations, intentions, and adequate
resources, and are made pursuant to the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995.  The
words "forecasts," "intends," "possible," "potential,"
"targeted," "believe," "expect," "may," "plan" or "plans,"
"scheduled," "would," "could," "should," "anticipate,"
"estimate," "begin," 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 65.


RESULTS OF OPERATIONS

Consolidated Results

A summary of the company's net income, by business segment and
consolidated, follows:
                                            Millions of Dollars
                                          -----------------------
Years Ended December 31                    1997     1996*    1995*
                                          -----------------------

Exploration and Production (E&P)          $ 609      493      373
Gas Gathering, Processing and
  Marketing (GPM)                           101      144       10
Refining, Marketing and
  Transportation (RM&T)                     137       54       20
Chemicals                                   297      245      367
Corporate and Other                        (185)     367     (301)
-----------------------------------------------------------------
Net income                                $ 959    1,303      469
=================================================================
*Restated to reflect the transfer of the company's wholesale
 propane business from RM&T to Chemicals.  In addition, certain
 costs previously held at Corporate are now aligned with the
 operating segments.


                                30

<PAGE>




Earnings for the three years included the following special items
on an after-tax basis:

                                            Millions of Dollars
                                           ----------------------
                                           1997     1996     1995
                                           ----------------------

Kenai liquefied natural gas (LNG)
  tax settlement                           $ 83      565        -
Property impairments                        (46)    (183)     (51)
Net gains on asset sales                     16       14        -
Work force reduction charges                 (3)      (2)     (31)
Foreign currency gains (losses)             (17)      41       (3)
Pending claims and settlements               15      (18)     (12)
Other items                                   -       (5)     (14)
-----------------------------------------------------------------
Total special items                        $ 48      412     (111)
=================================================================


Net operating income, which excludes the above items, was
$911 million in 1997, $891 million in 1996 and $580 million in
1995.


1997 vs. 1996

E&P's net operating income was strong again in 1997, only
slightly below 1996.  Growth projects and higher natural gas
prices mitigated the impact of 8 percent lower crude oil sales
prices.  GPM's results decreased 35 percent, primarily as a
result of lower natural gas liquids prices.

Net operating income from Downstream operations increased
27 percent in 1997, leading to a 2 percent increase in the
company's net operating income in 1997, compared with 1996.
RM&T's earnings increased $50 million -- 56 percent -- mainly as
a result of improved refinery gasoline margins.  Chemicals' net
operating income increased 17 percent, reflecting higher ethylene
margins and sales volumes, partially offset by lower aromatics
margins and sales volumes.


1996 vs. 1995

The company's E&P, GPM and RM&T segments all contributed to
significantly higher net operating income in 1996, compared with
1995.  The improvement in E&P's net operating income resulted
from higher worldwide crude oil and U.S. natural gas sales
prices.  GPM's net operating income increased almost sevenfold,
due to much improved margins, lower operating expenses and higher
raw gas throughput volumes.


                                31

<PAGE>



RM&T's operating earnings in 1996 more than doubled those of
1995, reflecting higher distillates and gasoline margins, along
with lower operating expenses.  In Chemicals, net operating
income declined as a result of lower margins for ethylene,
polyethylene and paraxylene.  These items were partially offset
by improved results from K-Resin and higher ethylene and
polyethylene sales volumes.


Phillips at a Glance

                                           1997     1996     1995
                                          -----------------------

U.S. crude oil production (MBD)              67       69       79
Worldwide crude oil production (MBD)        232      219      222
U.S. natural gas production (MMCFD)       1,024    1,102    1,078
Worldwide natural gas production (MMCFD)  1,472    1,527    1,481
Worldwide natural gas liquids
  production (MBD)                          169      163      159
Liquefied natural gas sales (MMCFD)         119      130      125
Refinery utilization rate (%)                91       95       97
U.S. automotive gasoline sales (MBD)        335      340      331
U.S. distillates sales (MBD)                130      138      135
Worldwide petroleum products sales (MBD)    685      702      696
Natural gas liquids processed (MBD)         213      205      199
Ethylene production (MMlbs)*              3,171    2,587    2,465
Polyethylene production (MMlbs)*          2,039    2,048    1,797
Polypropylene production (MMlbs)*           439      327      418
Paraxylene production (MMlbs)               552      622      578
-----------------------------------------------------------------
*Includes Phillips' share of equity affiliates' production.


Income Statement Analysis

1997 vs. 1996

Sales and other operating revenues decreased 3 percent in 1997,
reflecting lower revenues from the sale of crude oil and
petroleum products, partially offset by higher natural gas
revenues and higher revenues from the company's chemicals and
plastics operations.  The amount of crude oil sold in Phillips'
buy/sell marketing activities, utilized to supply crude oil to
the company's domestic refineries, decreased in 1997, lowering
crude oil revenues.  This was also the primary reason for the
reduction in purchase costs in 1997.  The decrease in petroleum
products revenues in 1997 was due to both lower sales prices and
volumes.


                                32

<PAGE>



Equity in earnings of affiliated companies was $126 million in
1997, compared with $4 million in 1996.  The 1996 period was
reduced by an investment impairment of $78 million related to
Point Arguello equity companies.  In addition, equity earnings
from the company's interest in the Sweeny Olefins Limited
Partnership (SOLP) was much improved in 1997, reflecting higher
ethylene margins and sales volumes.  This was partially offset by
lower earnings in 1997 from two equity companies in the plastics
business line.  Other revenues increased 22 percent in 1997,
primarily as a result of higher interest income and revenues
associated with an environmental recovery project.

After adjustment for special items, controllable costs --
primarily production and operating expenses and selling, general
and administrative expenses -- increased 8 percent in 1997.
Expenses were higher due to increased production costs associated
with new volumes from expansions in the Chemicals segment; new
production from E&P's J-Block and Armada in the U.K. North Sea;
worldwide growth initiatives; and higher maintenance,
well-workover and fuel-gas costs.  Exploration expenses decreased
5 percent in 1997, reflecting lower foreign dry hole expenses.

After adjusting for special items, depreciation, depletion and
amortization (DD&A) increased 7 percent in 1997, primarily
related to J-Block, which came online in mid-1997.  Special items
primarily included E&P impairments in the Gulf of Mexico and the
U.K. North Sea in 1997, and in 1996, Canada and Point Arguello,
offshore California.  1996 also included an impairment of certain
retail service stations.

Taxes other than income taxes decreased slightly in 1997, as
lower foreign taxes were mostly offset by higher production
taxes.

Interest expense decreased 9 percent in 1997, reflecting lower
average debt levels in 1997 and higher capitalized interest
related to the Ekofisk II project.  Preferred dividend
requirements increased 74 percent in 1997, as a result of the
issuance of mandatorily redeemable preferred securities in May
1996 and January 1997.  The redemption of Phillips Gas Company's
preferred stock in December 1997 will lower preferred dividend
requirements in 1998 by approximately $32 million.


1996 vs. 1995

Sales and other operating revenues increased 18 percent in 1996,
compared with 1995, as a result of higher sales prices for crude
oil, natural gas and petroleum products.  Equity earnings of
affiliated companies declined significantly in 1996, compared
with 1995.  Over 60 percent of the decrease was a result of an


                                33

<PAGE>



investment impairment related to Point Arguello equity companies.
The remainder of the decrease was primarily attributable to lower
earnings from the company's interest in SOLP.  Other revenues
increased $46 million in 1996, primarily as a result of higher
net gains on asset sales and higher interest income.

Total costs and expenses were 14 percent higher in 1996, compared
with 1995, primarily as a result of higher purchase costs,
reflecting higher prices for crude oil, natural gas and petroleum
products.


                                34

<PAGE>



Segment Results

E&P
                                       1997       1996*      1995*
                                     ----------------------------
                                          Millions of Dollars
                                     ----------------------------
Operating Income
Net income                             $609        493        373
Less special items                      (25)      (159)       (61)
-----------------------------------------------------------------
Net operating income                   $634        652        434
=================================================================

                                           Dollars Per Unit
                                     ----------------------------
Average Sales Prices
Crude oil (per barrel)
    United States                    $17.41      18.96      14.98
    Foreign                           19.02      20.89      17.16
    Worldwide                         18.57      20.28      16.43
Natural gas -- lease
  (per thousand cubic feet)
    United States                      2.33       2.10       1.37
    Foreign                            2.63       2.52       2.50
    Worldwide                          2.45       2.25       1.77
-----------------------------------------------------------------

Average Production Costs per
  Barrel-of-Oil-Equivalent
United States                        $ 4.85       4.30       4.19
Foreign                                3.99       4.22       4.36
Worldwide                              4.42       4.26       4.26
-----------------------------------------------------------------

Finding and Development Costs per
  Barrel-of-Oil-Equivalent
United States                        $ 7.21       6.24       2.79
Foreign                                3.85       8.34       4.23
Worldwide                              4.42       7.55       3.54
-----------------------------------------------------------------
*Restated to reflect that certain costs previously held at
 Corporate are now aligned with the operating segments.

                                         Millions of Dollars
                                     ----------------------------
Worldwide Exploration Expenses
Geological and geophysical             $140        127        126
Leasehold impairment                     22         28         30
Dry holes                                69         89         36
Lease rentals                            11         10          6
-----------------------------------------------------------------
                                       $242        254        198
=================================================================



                                35

<PAGE>



                                       1997       1996       1995
                                     ----------------------------
                                      Thousands of Barrels Daily
                                     ----------------------------
Operating Statistics
Crude oil produced
  United States                          67         69         79
  Norway                                104         99        100
  United Kingdom                         18          6          3
  Africa                                 23         25         24
  China                                  15         15         11
  Canada                                  5          5          5
-----------------------------------------------------------------
                                        232        219        222
=================================================================

Natural gas liquids produced
  United States                           4          4          5
  Norway                                  7          8          8
  Other areas                             3          3          2
-----------------------------------------------------------------
                                         14         15         15
=================================================================

                                     Millions of Cubic Feet Daily
                                     ----------------------------
Natural gas produced
  United States (less gas equivalent
    of liquids shown above)           1,024      1,102      1,078
  Norway*                               275        291        299
  United Kingdom*                       122         81         46
  Canada                                 51         53         58
-----------------------------------------------------------------
                                      1,472      1,527      1,481
=================================================================
*Dry basis.

Liquefied natural gas sales             119        130        125
-----------------------------------------------------------------


1997 vs. 1996

E&P, the company's largest operating segment, recorded another
excellent earnings performance in 1997, with net operating income
of $634 million, only slightly lower than last year's strong
results.  Several important growth projects benefited 1997
results, including the start-ups of J-Block and Armada in the
U.K. North Sea, and a full year's production from the Mahogany
subsalt field in the Gulf of Mexico.  Also positively affecting
E&P's net operating income in 1997 were higher worldwide natural
gas sales prices and higher crude oil production from the
Norwegian North Sea.  Factors that lowered 1997 net operating
income, compared with 1996, were lower crude oil sales prices;
lower U.S. crude oil and gas production; higher U.S. production
costs; and lower tax benefits from capital investments in Norway
associated with Ekofisk II.


                                36

<PAGE>



Phillips' average worldwide crude oil sales price was $18.57 per
barrel in 1997, 8 percent lower than 1996.  Crude oil prices
generally trended downward during the first six months of 1997,
before stabilizing in the third quarter due to unanticipated
industry supply disruptions and tight inventory levels.  Although
the fourth quarter's average price was little changed from the
third quarter, prices declined throughout the fourth quarter,
with Phillips' December prices at their lowest level since 1995.
Crude oil prices in the fourth quarter were under pressure from
warmer-than-normal weather that lowered seasonal demand, and
rising industry-wide production levels.


1996 vs. 1995

E&P's net operating income in 1996 was 48 percent higher than in
1995.  This strong performance was driven by higher worldwide
crude oil and U.S. natural gas sales prices.


U.S. E&P
--------
                                          Millions of Dollars
                                       --------------------------
                                       1997       1996*      1995*
                                       --------------------------
Operating Income
Net income                             $360        320        239
Less special items                      (17)      (136)       (44)
-----------------------------------------------------------------
Net operating income                   $377        456        283
=================================================================
*Restated to reflect that certain costs previously held at
 Corporate are now aligned with the operating segments.


1997 vs. 1996

Net operating income decreased 17 percent in the company's U.S.
E&P operations in 1997.  Higher lease gas sales prices --
11 percent higher than a year ago -- were more than offset by
lower crude oil and lease gas production, lower crude oil
sales prices, and higher production costs.  In addition, benefits
received from the allocation of foreign tax credits were lower as
well.

U.S. crude oil production declined 3 percent in 1997, reflecting
natural field declines at Point Arguello, offshore California;
Prudhoe Bay, Alaska; and South Marsh Island Blocks 146/147, Gulf
of Mexico.  These declines were partially offset by new
production from the Mahogany subsalt field in the Gulf of Mexico.

U.S. natural gas production decreased 7 percent in 1997,
primarily attributable to normal field declines, lower production
from Garden Banks Blocks 70/71 in the Gulf of Mexico, and asset
dispositions.  A major Garden Banks well was shut-in during part
of the year for workover activity.


                                37

<PAGE>



Special items in 1997, on an after-tax basis, primarily included
charges of $31 million for property impairments, a net gain on
asset sales of $7 million and a reversal of a contingent
liability of $7 million.  Special items in 1996 on an after-tax
basis included charges of $119 million for the impairment of the
Point Arguello field and associated facilities, including
adjustments to abandonment accruals.  Also included were various
contingency accruals totaling $24 million, the most significant
of which related to an unfavorable court judgment regarding
producing properties in Alabama, which the company has appealed
to the Alabama Supreme Court.


1996 vs. 1995

Net operating income increased 59 percent in the company's U.S.
E&P operations in 1996, compared with 1995.  The higher average
U.S. natural gas sales price -- 53 percent higher than 1995 --
was the main factor accounting for the sharp increase in
earnings.  Other positive influences on operating income included
higher natural gas production, higher crude oil sales prices and
higher LNG revenues.  These factors were partially offset by
lower crude oil production and higher exploration expenses.

U.S. crude oil production declined in 1996 as a result of
continuing production declines from the Point Arguello field,
general field declines in the Gulf of Mexico and Prudhoe Bay, and
the effect of non-strategic property dispositions.  U.S. natural
gas production increased slightly in 1996, compared with 1995.
The increase was attributable to new production from Garden Banks
Blocks 70/71, which came online in mid-year 1995; and property
acquisitions in south Louisiana, partially offset by lower
production from South Marsh Island Blocks 146/147.

Special items in 1995 included property impairments of
$35 million after-tax associated with the adoption of Financial
Accounting Standards Board (FASB) Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," along with work force reduction charges, a
net loss on asset dispositions and a contingency accrual.


                                38

<PAGE>



Foreign E&P
-----------
                                          Millions of Dollars
                                       --------------------------
                                       1997       1996*      1995*
                                       --------------------------
Operating Income
Net income                             $249        173        134
Less special items                       (8)       (23)       (17)
-----------------------------------------------------------------
Net operating income                   $257        196        151
=================================================================
*Restated to reflect that certain costs previously held at
 Corporate are now aligned with the operating segments.


1997 vs. 1996

Net operating income from the company's foreign E&P operations
increased 31 percent in 1997, reflecting higher crude oil and
natural gas production and higher natural gas sales prices,
partially offset by lower crude oil prices.  The J-Block and
Armada fields in the U.K. North Sea came online in 1997,
benefiting both financial results and production statistics for
the year.

Foreign crude oil production increased 10 percent in 1997, while
foreign natural gas production increased 5 percent.  The crude
oil production increases are attributable to new production from
J-Block, and, to a lesser extent, higher production from the
Norwegian North Sea.  New J-Block and Armada production
contributed to the increased natural gas production in 1997.

Special items in 1997 on an after-tax basis included property
impairments of the Ann and Allison fields in the U.K. North Sea
totaling $11 million, as well as foreign currency transaction
losses of $6 million, and a net gain on asset sales of
$9 million.  Special items in 1996 consisted primarily of a
$25 million after-tax impairment of certain Canadian proved
properties.


1996 vs. 1995

Net operating income from the company's foreign E&P operations
increased 29 percent in 1996, compared with 1995.  The
improvement was a result of higher crude oil sales prices and, to
a lesser degree, higher natural gas sales prices.  In addition,
tax benefits resulting from capital investments in Norway
associated with the Ekofisk II redevelopment also contributed to
the improved results.  These items were partially offset by
higher exploration expenses resulting from unsuccessful
exploratory wells.


                                39

<PAGE>



Foreign crude oil production increased 5 percent in 1996,
compared with 1995, with the increase primarily attributable to
offshore China and the U.K. sector of the North Sea.  Foreign
natural gas production increased 5 percent in 1996, as lower
demand for Norway production was more than offset by higher
production and increased demand in the U.K. sector of the North
Sea.

Special items in 1995 included after-tax work force reduction
charges of $8 million, after-tax property impairments of
$6 million, a contract settlement and foreign currency losses.


GPM
                                       1997       1996       1995
                                     ----------------------------
                                          Millions of Dollars
                                     ----------------------------
Operating Income
Net income                             $101        144         10
Less special items                        9          3        (11)
-----------------------------------------------------------------
Net operating income                   $ 92        141         21
=================================================================

                                          Dollars Per Unit
                                     ----------------------------
Average Sales Prices
U.S. residue gas
  (per thousand cubic feet)          $ 2.42       2.20       1.49
U.S. natural gas liquids
  (per barrel -- unfractionated)      12.60      14.49      10.07
-----------------------------------------------------------------

                                     Millions of Cubic Feet Daily
                                     ----------------------------
Operating Statistics
Natural gas purchases
  Outside Phillips                    1,371      1,360      1,247
  Phillips                              158        178        194
-----------------------------------------------------------------
                                      1,529      1,538      1,441
=================================================================

Raw gas throughput                    1,983      1,913      1,620
-----------------------------------------------------------------

Residue gas sales
  Outside Phillips                      990      1,002        833
  Phillips                               56         74        184
-----------------------------------------------------------------
                                      1,046      1,076      1,017
=================================================================

                                      Thousands of Barrels Daily
                                     ----------------------------
Natural gas liquids net production
  From Phillips E&P leasehold gas        15         17         19
  From gas purchased outside
    Phillips                            140        131        125
-----------------------------------------------------------------
                                        155        148        144
=================================================================


                                40

<PAGE>



1997 vs. 1996

The company's gas gathering, processing and marketing segment
reported solid net operating income of $92 million in 1997.
However, this was 35 percent lower than the outstanding earnings
performance in 1996.  Natural gas liquids (NGL) prices, a key
performance driver in this industry, while strong at $12.60 per
barrel, were still 13 percent lower than 1996's $14.49 per
barrel, resulting in lower margins and operating income for GPM.
In addition, operating expenses were higher in 1997, reflecting
acquisitions made in late 1996 and early 1997, the reactivation
in late 1997 of an idled processing plant, and higher repair and
maintenance costs associated with projects to improve plant and
system operating consistency.

GPM's unfractionated NGL sales prices generally stayed in the
$11 to $13 per barrel range in 1997, similar to 1996's profile,
with the exception of the fourth quarter of 1996.  In that
quarter, NGL prices increased significantly, reaching almost
$21 per barrel in December 1996.  NGL sales volumes increased
5 percent in 1997, primarily as a result of acquisitions and
improved operating consistency.

Residue gas sales prices continued to benefit from the effect of
increased industry demand and lower natural gas storage levels
experienced in 1996, resulting in average residue gas prices
increasing 10 percent in 1997.  However, prices declined sharply
in December 1997 from the previous month, dropping 26 percent to
$2.33 per thousand cubic feet, reflecting the warmer-than-normal
winter weather.  Residue gas sales volumes decreased slightly in
1997, reflecting field production declines in the Austin Chalk
area of south central Texas.

Special items in 1997 represented the settlement of a processing-
rights dispute with a producer-gatherer.  Special items in 1996
included a gain on the sale of an NGL plant and gathering system,
as well as a favorable adjustment to previously accrued work
force reduction charges.


1996 vs. 1995

GPM's net operating income increased substantially in 1996,
compared with 1995.  The $120 million improvement was a result of
much improved margins, due to sharply higher NGL and residue gas
sales prices and higher raw gas throughput volumes.  Earnings
also benefited from significantly lower operating expenses.

NGL production volumes increased 3 percent, mainly due to
conversion of the Linam Ranch plant in New Mexico to a cryogenic
facility, which provided more efficient NGL recovery rates, and


                                41

<PAGE>



acquisitions completed at the end of 1995.  The 6 percent
increase in residue gas sales volumes in 1996 was primarily the
result of the acquisitions completed at the end of 1995.

Controllable costs were 20 percent lower in 1996, compared with
1995, reflecting continuous cost improvement efforts, such as
technology enhancements, plant modernizations, plant
consolidations and re-engineering efforts completed in 1995.

Special items in 1995 consisted of work force reduction charges.


RM&T
                                       1997       1996*      1995*
                                       --------------------------
                                          Millions of Dollars
                                       --------------------------
Operating Income
Net income                             $137         54         20
Less special items                       (2)       (35)       (11)
-----------------------------------------------------------------
Net operating income                   $139         89         31
=================================================================

                                            Dollars Per Unit
                                       --------------------------
Average Sales Prices (per gallon)
Automotive gasoline -- wholesale       $.66        .67        .58
Automotive gasoline -- retail           .82        .83        .74
Distillates                             .60        .64        .52
-----------------------------------------------------------------

                                       Thousands of Barrels Daily
                                       --------------------------
Operating Statistics
U.S. refinery crude oil
  Rated capacity                        345        345        345
  Crude runs                            314        329        333
  Capacity utilization (percent)         91%        95         97
  Refinery production                   366        384        392
-----------------------------------------------------------------

Petroleum products outside sales
  United States
    Automotive gasoline -- wholesale    285        291        286
    Automotive gasoline -- retail        37         37         35
    Aviation fuels                       28         25         29
    Distillates                         130        138        135
    Other products                       14         15         18
-----------------------------------------------------------------
                                        494        506        503
  Foreign                                42         46         45
-----------------------------------------------------------------
                                        536        552        548
=================================================================
*Restated to reflect the transfer of the company's wholesale
 propane business from RM&T to Chemicals.  In addition, certain
 costs previously held at Corporate are now aligned with the
 operating segments.


                                42

<PAGE>



1997 vs. 1996

RM&T's net operating income increased for the second consecutive
year, reaching $139 million in 1997 -- a 56 percent increase over
1996.  Improved margins from the company's U.S. refineries
primarily contributed to the increased RM&T earnings in 1997.
Crude oil acquisition costs were 10 percent lower in 1997, which
resulted in improved gasoline margins.  Net operating income also
improved on higher margins for certain other refinery products,
partially offset by higher refinery costs, reflecting higher
utilities and maintenance expenses.

The company's refineries ran at 91 percent of capacity in 1997,
4 percent lower than the year before.  The decrease was the
result of maintenance turnarounds, an external power outage that
affected the Sweeny refinery during the second quarter of 1997,
and a weather-related operating interruption at the Borger
refinery.

Results for RM&T's marketing business were slightly lower than a
year ago, mainly the result of lower gasoline margins.  Earnings
benefited from higher revenues from convenience-store sales and
services.  The company continued to build its brand value through
increased spending on marketer incentive and support programs and
advertising.

Special items in 1997 included certain costs associated with a
power outage at the Sweeny refinery.  Special items in 1996
consisted primarily of a $38 million after-tax impairment of
certain retail service stations.


1996 vs. 1995

RM&T's net operating income in 1996 more than doubled that of
1995.  The $55 million improvement was the result of higher
distillates margins, and, to a lesser extent, higher gasoline
margins and lower operating expenses.  Phillips' average
distillates sales price for 1996 ended the year $.12 per gallon
higher -- 23 percent -- than 1995.

The company's U.S. refineries ran at 95 percent of capacity in
1996, averaging 329,000 barrels of crude oil daily.  This was
slightly lower than 1995, when a new company throughput record
was set, due to maintenance turnarounds during the first half of
1996.

Special items in 1995 included an inventory write-down and work
force reduction charges.


                                43

<PAGE>



Chemicals
                                       1997       1996*      1995*
                                      ---------------------------
                                          Millions of Dollars
                                      ---------------------------
Operating Income
Net income                             $297        245        367
Less special items                        3         (7)        (4)
-----------------------------------------------------------------
Net operating income                   $294        252        371
=================================================================

                                          Millions of Pounds
                                          Except as Indicated
                                      ---------------------------
Operating Statistics
Production**
  Ethylene                            3,171      2,587      2,465
  Polyethylene                        2,039      2,048      1,797
  Propylene                             486        418        434
  Polypropylene                         439        327        418
  Paraxylene                            552        622        578
  Cyclohexane (millions of gallons)     164        169        133
-----------------------------------------------------------------

                                      Thousands of Barrels Daily
                                      ---------------------------
U.S. petroleum products
  outside sales
    Automotive gasoline                  13         12         10
    Liquefied petroleum gas             103        101         98
    Other products                       33         37         40
-----------------------------------------------------------------
                                        149        150        148
=================================================================

Natural gas liquids
  Rated processing capacity             250        250        227
  Liquids processed                     213        205        199
-----------------------------------------------------------------
 *Restated to reflect the transfer of the company's wholesale
  propane business from RM&T to Chemicals.  In addition, certain
  costs previously held at Corporate are now aligned with the
  operating segments.
**Includes Phillips' share of equity affiliates' production.


1997 vs. 1996

Chemicals' net operating income increased 17 percent in 1997,
primarily on the strength of higher ethylene margins and volumes,
partially offset by lower margins and sales volumes at the Puerto
Rico Core facility, and higher costs associated with worldwide
growth initiatives.  In total, earnings in the plastics business
were about the same as in 1996.

Ethylene production volumes increased 23 percent in 1997, boosted
by the completion of a project to restart a 100 percent-owned
400 million-pound ethylene unit that had been idle since 1992.
In addition, an incremental debottlenecking project was completed
in late 1996 at the 50 percent-owned Sweeny Olefins Limited
Partnership.


                                44

<PAGE>



Paraxylene and cyclohexane are produced at the company's Puerto
Rico Core facilities.  Paraxylene margins were much lower than a
year ago, due to weakening demand and surplus industry capacity.
In addition, production volumes declined 11 percent in 1997,
primarily as a result of the plant being down most of the first
quarter of the year due to a paraxylene expansion project, which
increased the facility's total annual capacity to 880 million
pounds.

Polyethylene margins were higher than a year ago and production
of polyethylene remained strong during 1997.  Combined, this
resulted in improved earnings performance from this business
line.

Phillips has an equity interest in a partnership that owns the
polypropylene production facilities at the Houston Chemical
Complex (HCC).  The company's polypropylene production from these
facilities increased 34 percent in 1997, reflecting expanded
capacity attributable to a new, gas-phase polypropylene unit
completed in late 1996.  However, the return from the company's
equity share was lower in 1997, due to lower polypropylene
margins.

Special items in 1997 primarily consisted of a gain on the
settlement of a license-related contingency.  Special items in
1996 represented a tax item related to the company's Puerto Rico
Core operations.


1996 vs. 1995

Chemicals' net operating income declined 30 percent in 1996,
compared with the strong results from 1995, when industry
conditions were much more favorable.  Lower margins for ethylene,
polyethylene and paraxylene were primarily responsible for the
decrease in operating income.  Higher sales volumes for ethylene
and polyethylene, along with improved results from K-Resin
operations and improved NGL margins, partially offset the
earnings decline.

Ethylene margins ended 1996 much lower than 1995, as rising NGL
feedstock costs, particularly late in the year, could not be
recovered in the marketplace.  Ethylene production volumes were
5 percent higher in 1996 than in 1995.

Paraxylene margins began to decline in the second quarter of
1996, and trended downward the remainder of the year.  Weakening
demand, coupled with surplus industry capacity, combined to drive
margins down.  Paraxylene production was 8 percent higher than a
year ago, as the first phase of a paraxylene expansion at the


                                45

<PAGE>



Puerto Rico Core facility was completed in mid-1995, partially
offset by weather-related downtime in 1996.

In the company's plastics operations, polyethylene and
polypropylene margins were lower in 1996 than 1995, due to
softening industry conditions.  The company's HCC facility turned
in an excellent operating performance in 1996, with its highest
annual polyethylene output ever.

Special items in 1995 included property impairments on an after-
tax basis of $3 million.


Corporate and Other
                                            Millions of Dollars
                                          -----------------------
                                           1997     1996*    1995*
                                          -----------------------
Operating Results
Corporate and Other                       $(185)     367     (301)
Less special items                           63      610      (24)
-----------------------------------------------------------------
Adjusted Corporate and Other              $(248)    (243)    (277)
=================================================================


Adjusted Corporate and Other includes:

Corporate general and
  administrative expenses                 $ (72)     (76)     (75)
Net interest                               (113)    (147)    (173)
Preferred dividend requirements             (71)     (43)     (32)
Other                                         8       23        3
-----------------------------------------------------------------
Adjusted Corporate and Other              $(248)    (243)    (277)
=================================================================
*Restated to reflect that certain costs previously held at
 Corporate are now aligned with the operating segments.


1997 vs. 1996

Corporate general and administrative expenses decreased 5 percent
in 1997, reflecting increased allocations of corporate costs to
the operating segments, primarily related to information
technology.

Net interest represents interest income and expense, net of
capitalized interest.  Net interest was lower in 1997, due to
higher capitalized interest and lower debt levels.  In addition,
interest income was higher in 1997 as a result of increased cash
balances during most of the year.

Preferred dividend requirements includes dividends on Phillips
Gas Company preferred stock (which was redeemed in December
1997), and on the preferred securities of the Phillips 66
Capital I (Trust I) and Phillips 66 Capital II (Trust II) trusts.


                                46

<PAGE>



The Trust I securities were issued in May 1996 and the Trust II
securities were issued in January 1997, which resulted in the
higher preferred dividend requirements in 1997.

Other consists primarily of the company's captive insurance
subsidiary, along with income tax and other items that are not
directly associated with the operating segments.  Other was
adversely impacted in 1997 by lower results from the captive
insurance subsidiary, as well as higher income taxes not directly
associated with the operating segments.

Special items in 1997 included an $83 million favorable
resolution of U.S. income tax issues covering the years 1983
through 1986, related primarily to income from the company's
Kenai liquefied natural gas facility.  Also included were
contingency accruals, and foreign currency transaction losses of
$11 million, due to the revaluing of an intercompany,
sterling-denominated receivable.  Special items in 1996 primarily
included an after-tax gain of $565 million related to the
favorable settlement of the Kenai LNG tax case and favorable
foreign currency gains of $40 million after-tax.


1996 vs. 1995

Corporate general and administrative expenses were about the same
in 1996 as in 1995, due to lower salary costs being offset by
higher costs for employee incentive compensation programs and
other employee benefits.

Net interest was lower in 1996, compared with 1995, due to lower
interest on tax contingencies, primarily as a result of the
favorable resolution of the Kenai LNG tax case.

The Trust I securities issued in May 1996 resulted in higher
preferred dividend requirements in 1996, compared with 1995.

In 1996, Other benefited from lower tax accruals not directly
associated with operating segments.

Special items in 1995 included property impairments on an after-
tax basis of $7 million, contingency accruals and work force
reduction charges.


                                47

<PAGE>



CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
                                            Millions of Dollars
                                            Except as Indicated
                                           ----------------------
                                             1997    1996    1995
                                           ----------------------

Current ratio                                 1.1     1.1      .9
Total debt                                 $3,009   3,129   3,116
Preferred stock of subsidiary              $    -     345     345
Company-obligated mandatorily
  redeemable preferred securities          $  650     300       -
Common stockholders' equity                $4,814   4,251   3,188
Percent of total debt to capital*              36%     39      47
Percent of floating-rate debt to
  total debt                                   30%     22      22
-----------------------------------------------------------------
*Capital includes total debt, preferred stock of subsidiary,
 company-obligated mandatorily redeemable preferred securities
 and common stockholders' equity.


Cash from operations increased $160 million during 1997.
Included in both 1997 and 1996 were cash refunds from the
Internal Revenue Service (IRS) of $107 million and $400 million,
respectively, as a result of the favorable resolution of the
Kenai LNG tax case.  Excluding the cash impact of these refunds,
cash from operations increased $453 million.  Contributing to
this increase were a $20 million increase in net operating income
and a $161 million settlement related to J-Block gas production
in the U.K. sector of the North Sea (see Note 8 -- J-Block
Settlement).  In addition, cash from operations in 1996 included
a $200 million reduction in the balance of accounts receivable
sold, while the receivable monetization program was inactive in
1997.

During 1997, the Phillips 66 Capital II trust completed a
$350 million underwritten public offering of 8% Capital
Securities.  The sole asset of the trust is $361 million of the
company's 8% Junior Subordinated Deferrable Interest Debentures
due 2037.  Phillips owns all of the common stock of the trust,
and fully and unconditionally guarantees the trust's obligation
under the securities.

Also during the year, the company's subsidiary, Phillips Gas
Company, redeemed its 13,800,000 shares of Series A 9.32%
Cumulative Preferred Stock at par for $345 million, plus accrued
dividends of $3 million.  This redemption will reduce Phillips'
fixed charges by approximately $32 million annually.

During 1997, cash balances decreased $452 million.  This decrease
in cash, together with $2.2 billion in cash from operating
activities and the issuance of the $350 million of company-
obligated mandatorily redeemable preferred securities, was used


                                48

<PAGE>



to fund the company's $2 billion capital spending program, to
retire the 9 1/2% Notes due 1997, to redeem the PGC preferred
stock and to pay common stock dividends.  Capital expenditures in
1997 were about $500 million higher than in 1996, primarily due
to E&P acquisitions in Canada and Venezuela.

Phillips' equity base continued to strengthen in 1997, with the
percentage of total debt to capital at its lowest level in
14 years and the company's current ratio at 1.1 for the second
consecutive year.

The company's short-term liquidity position at December 31, 1997,
was stronger than indicated because the current cost of the
company's inventories was approximately $457 million greater than
their last-in, first-out (LIFO) carrying value.

During 1997, Phillips' Board of Directors approved the company's
third dividend increase in three years, raising the quarterly per
share dividend to $.34, a 6 percent increase, effective with the
June 2, 1997, payment.

In 1997, the company announced a stock repurchase program that
authorized the expenditure of up to $150 million to repurchase
shares of the company's common stock through December 31, 1999.
As a separate and additional program, in February 1998, Phillips'
Board of Directors authorized the repurchase of up to
$500 million of the company's common stock by year-end 1998.
Through February 20, 1998, approximately $115 million worth of
shares had been repurchased.  In conjunction with the first
repurchase program, in late 1997, the company issued put options
on a notional 400,000 shares of the company's common stock at an
exercise price of $45 per share.  If the options have intrinsic
value on their maturity date, the company can elect physical
settlement, net share settlement, or net cash settlement.  Put
options on 200,000 notional shares having a maturity date of
January 29, 1998, were settled for a small cash payment.  The
options on the remaining 200,000 shares mature April 29, 1998.

The company expanded its master leasing arrangement, under which
it leases and supervises the construction of retail outlets, from
$50 million to $100 million in 1997.  The company also entered
into a $75 million master leasing arrangement to upgrade its
fleet of corporate planes during the year.

The company has agreements with a bank-sponsored entity for the
revolving sale of credit card and trade receivables.  During
1997, these agreements were extended until September 1998, the
expiration date of the supporting liquidity facilities for the
bank-sponsored entity related to these agreements.  The maximum


                                49

<PAGE>



aggregate amount of receivables that can be sold and outstanding
under both agreements is limited to $200 million, none of which
was outstanding at December 31, 1997.  However, on January 9,
1998, credit card and trade receivables totaling $200 million
were sold under the facilities.

At December 31, 1997, no portion of the company's $500 million
shelf registration of debt securities, which became effective in
1994, had been issued.

To meet its liquidity requirements, including funding its capital
program, the company will look primarily to existing cash
balances, cash generated from operations and financing.


Financial Instrument Market Risk

Phillips Petroleum Company and certain of its subsidiaries hold
derivative contracts and financial instruments that have cash
flow or earnings exposure to changes in commodity prices, foreign
exchange rates, or interest rates.  Financial and commodity-based
derivative contracts are used to limit the risks inherent in some
foreign currency fluctuations and some crude oil, natural gas and
related products price changes faced by the company.  In the
past, the company has, on occasion, hedged interest rates, and
may do so in the future should certain circumstances or
transactions warrant.

Phillips' Board of Directors has adopted a policy governing the
use of derivative instruments, which requires every derivative
used by the company to relate to an underlying, offsetting
position, anticipated transaction or firm commitment, and
prohibits the use of speculative, highly complex or leveraged
derivatives.  The policy also requires review and approval by the
Chief Operating Officer and Chief Executive Officer of all risk
management programs using derivatives.  These programs are also
periodically reviewed by the Audit Committee of the company's
Board of Directors.


Commodity Price Risk

The following table indicates the potential loss in earnings that
could result from a hypothetical 10 percent change in the year-
end market prices of the respective commodity-based swaps and
futures contracts.  Because the latest expected maturity date of
all the swaps and futures contracts is less than one year from
the reporting date, the potential losses in earnings have not
been discounted to present values.  All of the derivative losses
and gains shown below effectively offset the gains and losses on
the underlying commodity exposures that are being hedged.  The


                                50

<PAGE>



fair values of the swaps are estimated based on quoted market
prices of comparable contracts, and approximate the net gains and
losses that would have been realized if the contracts had been
closed out at year end.  The fair value of the futures are based
on quoted market prices obtained from the New York Mercantile
Exchange or the International Petroleum Exchange of London
Limited.

                                         Millions of Dollars
                                    -----------------------------
                                                      Sensitivity
                                                          of Fair
                                                            Value
                                                       to Assumed
                         Notional      Fair Value at   10 Percent
                           Amount  December 31, 1997       Change
                         --------  -----------------  -----------
Natural gas swaps
  (billions of British
  thermal units)           16,082                 $2           (3)
Crude oil futures --
  timing differences
  between purchases
  and refining
  (thousands of barrels)    2,627                  2           (5)
Feedstock-to-product
  margin swaps
  (thousands of barrels)    5,119                  -           (1)
Feedstock-to-product
  margin futures
  (thousands of barrels)    2,613                  -           (1)
-----------------------------------------------------------------


Interest Rate Risk

The following table provides information about the company's
financial instruments that are sensitive to changes in interest
rates.  The table presents principal cash flows and related
weighted-average interest rates by expected maturity dates.
Weighted-average variable rates are based on implied forward
rates in the yield curve at the reporting date.  The carrying
amount of the company's floating-rate debt approximates its fair
value.  The fair value of the fixed-rate financial instruments is
estimated based on quoted market prices.


                                51

<PAGE>



                    Millions of Dollars Except as Indicated
           ----------------------------------------------------------
                                                       Mandatorily
                                                       Redeemable
                                                       Preferred
                            Debt                       Securities
           --------------------------------------  ------------------
Expected      Fixed   Average  Floating   Average     Fixed   Average
Maturity       Rate  Interest      Rate  Interest      Rate  Interest
Date       Maturity      Rate  Maturity      Rate  Maturity      Rate
---------  --------  --------  --------  --------  --------  --------

1998         $    1      6.69%     $233      5.71%     $  -         -%
1999             85      7.96         -         -         -         -
2000              1      6.03         -         -         -         -
2001            250      8.99       158      6.91         -         -
2002              1      6.03       110      6.35         -         -
Remaining
  years       1,772      8.44       398      6.86       650      8.11
---------------------------------------------------------------------
Total        $2,110         -      $899         -      $650         -
=====================================================================

Fair value   $2,302         -      $899         -      $675         -
=====================================================================


Foreign Currency Risk

At December 31, 1997, a Norwegian subsidiary, whose functional
currency is the kroner, had outstanding $158 million of floating
rate, revolving debt, denominated in U.S. dollars.  The potential
foreign currency remeasurement loss in earnings from a
hypothetical 10 percent change in the year-end exchange rate is
$16 million.  The section on interest rate risk contains
information about the fair value of this debt instrument.

At December 31, 1997, U.S. subsidiaries had outstanding
$439 million of long-term intercompany receivables from a U.K.
subsidiary denominated in pounds sterling and $164 million
outstanding from Canadian subsidiaries denominated in U.S.
dollars.  While these intercompany balances are eliminated in
consolidation, exchange rate changes do affect consolidated
earnings.  The potential foreign currency remeasurement loss in
non-cash earnings from a hypothetical 10 percent change in the
year-end exchange rate from these intercompany balances is
$60 million.


                                52

<PAGE>



Capital Spending

Capital Expenditures and Investments

                                       Millions of Dollars
                                ---------------------------------
                                Estimated
                                     1998    1997    1996    1995
                                ---------------------------------

E&P                                $1,001   1,346     981     856
GPM                                    90     116      85     274
RM&T*                                 343     235     209     150
Chemicals*                            281     275     205     148
Corporate and Other                    74      71      64      28
-----------------------------------------------------------------
                                   $1,789   2,043   1,544   1,456
=================================================================
United States                      $1,050   1,059     841     923
Foreign                               739     984     703     533
-----------------------------------------------------------------
                                   $1,789   2,043   1,544   1,456
=================================================================
*Effective January 1, 1998, Phillips' NGL operations were moved
 from the Chemicals segment to the RM&T segment.  RM&T's
 estimated 1998 budget includes $23 million for NGL.  Comparable
 amounts included in Chemicals for the years ended December 31,
 1997, 1996, and 1995, respectively, were $14 million,
 $18 million and $15 million.


The company's improved operating results, the settlement of the
J-Block gas production dispute, and additional refunds as a
result of the 1996 Kenai LNG tax case resolution have all
enhanced Phillips' financial flexibility during 1997.  As a
result, the company increased its 1997 capital budget twice
during the year, from $1.67 billion to $2.09 billion, a
cumulative increase of 25 percent.  Actual expenditures for 1997
were the highest since 1982.

Phillips' 1998 capital budget promotes the company's growth
strategy by supporting its worldwide exploration program and
development projects, expanding chemicals and plastics volumes,
upgrading refineries, and expanding pipeline systems.  The level
of payout projects -- projects defined as those that generate
income and increase shareholder value -- is targeted at
74 percent in 1998.  The remainder of the capital spending will
be directed toward maintenance or environmental-compliance
projects.  This level of payout projects supports Management's
objective of increasing volumes of Phillips' major products -- a
key to earnings growth.


E&P

Capital spending for E&P during the three-year period ended
December 31, 1997, supported several major development projects
including J-Block, Armada and Britannia in the U.K. North Sea;
the Ekofisk II redevelopment and Eldfisk waterflood projects in
Norway; the Mahogany development in the Gulf of Mexico; and the


                                53

<PAGE>



Xijiang fields, offshore China.  Exploratory drilling was focused
on the Bozhong Block in China's Bohai Bay; eastern Algeria; the
Norwegian, Danish, and U.K. sectors of the North Sea; Nigeria;
Tunisia; Papua New Guinea; Cameroon; the Timor Sea Zone of
Cooperation; and several subsalt prospects in the Gulf of Mexico.
Acquisitions of additional interests in the Bayu-Undan discovery
in the Zone of Cooperation between Indonesia and Australia, and
the Britannia development in the U.K. North Sea comprised
significant portions of capital spending in 1996 and 1995,
respectively.  When the budget was increased during 1997, the
additional E&P funds were used primarily to purchase interests in
the Zama/Virgo area in northwest Alberta, Canada, and to acquire
the rights to operate and explore existing fields in northwest
Venezuela.  These activities will also comprise a major portion
of E&P's capital spending in 1998.

In 1997, E&P's capital spending focused on several key
exploratory and development projects.  In the U.K. North Sea, the
Jade field was successfully appraised, and with production
expected in 2000, will be tied in to the J-Block infrastructure.
Also in the J-Block area, approval was obtained to develop the
Janice field, where appraisal drilling was successfully completed
in early 1996.  Initial production at Janice is expected in 1998.
Straddling the border of two license blocks in the U.K. North
Sea, the Kate discovery was drilled by Phillips in cooperation
with Shell U.K. Exploration and Production Company (Shell),
operator of the other block.  An appraisal well is planned for
1998.  In cooperation with Phillips, Shell drilled a subsequent
well in Phillips' block that also encountered a potentially
commercial hydrocarbon pay zone.  In February 1998, the U.K.'s
Department of Trade and Industry approved development of
discoveries in the Renee and Rubie fields in the U.K. North Sea.
Offshore Australia, natural gas and gas/condensate were
discovered at the Athena 1 well.  In China, successful
discoveries were announced at a Xijiang satellite field and in
the Bozhong Block of China's Bohai Bay.

E&P's capital budget for 1998 is $1 billion, 70 percent of which
is targeted for international projects that support the company's
growth strategy.  Seismic and drilling programs are planned for
the three operating contracts Phillips won in Venezuela's third
reactivation round in 1997.  The company plans to apply enhanced
recovery technology to fully exploit the fields.  In addition,
spending will be focused on the development of the Zama/Virgo
area in Canada; development projects in the U.K. North Sea,
including the Jade, Janice and Renee/Rubie fields; the Siri field
in Denmark; and the development of extra-heavy oil reserves from
the Hamaca region of the Orinoco Oil Belt of Venezuela.  Further
exploration in the United Kingdom is planned for 1998, as the
company was awarded 46 offshore license blocks in the Atlantic
Margin area, west of the United Kingdom and Ireland.  Other


                                54

<PAGE>



exploration planned for 1998 includes projects in China,
Australia, Africa, Greenland, Peru, Algeria, Venezuela, Nigeria
and Norway.

In addition to the development of the Zama/Virgo area in Canada,
key North America exploration and development projects continue
in the Gulf of Mexico and Alaska in 1998.  The company plans to
use the technology developed for subsalt applications in its
exploration of the Gulf deep-water blocks.  Phillips has acquired
a 33.33 percent interest in 121 offshore deep-water blocks, as
part of its alliance with Mobil Corporation.  The companies plan
to drill their first joint deep-water well in 1998.  The co-
venturers plan to accelerate their deep-water exploration after
taking delivery of a contracted drillship in late 1998.  In
addition, recompletions of two wells in the Mahogany field
offshore Louisiana are planned.

In the North Cook Inlet of Alaska, Phillips has completed
appraisal drilling of the Tyonek Deep prospect, in which the
company owns a 100 percent working interest.  The first appraisal
well did not encounter commercial quantities of hydrocarbons.  A
second appraisal well, started in late 1997, was successful,
testing at a combined rate of 3,100 barrels of oil per day.  Two
development wells are planned for 1998.  Drilling has taken place
from the existing Tyonek platform, which has continued to supply
gas to the company's Kenai LNG facility.

The largest development project in E&P's 1998 capital budget is
the continued construction of the Ekofisk II project in the
Norwegian North Sea, which was 93 percent complete at
December 31, 1997, on time and under budget.  It replaces the
majority of the facilities in the existing Ekofisk complex.
Some of the existing facilities that are to continue in operation
after the start-up of Ekofisk II in 1998 will be impacted by the
continuing subsidence in the Ekofisk area, and studies are in
progress to determine what future actions are necessary with
regard to these facilities.  Future costs related to subsidence
of the existing facilities are not expected to materially impact
the financial position of the company.

The Norwegian Ministry of Petroleum and Energy has approved a
waterflood project for the Eldfisk field, also in the Greater
Ekofisk Area of the Norwegian North Sea.  The project is expected
to commence in 1998 and will involve the construction of a new
unmanned platform, modifications to existing platforms, laying of
new pipelines, and an extensive drilling program.  The platform,
scheduled to start up in early 2000, would be controlled from an
existing manned Eldfisk platform.


                                55

<PAGE>



GPM

At GPM, capital spending during the three-year period ended
December 31, 1997, included acquisitions, technology and facility
upgrades, projects to streamline operations, and new well
connections.  Following a large acquisition of gathering assets
in 1995, capital spending decreased in 1996 but then increased
substantially in 1997, primarily due to the purchase of gathering
assets from Amoco Production Company in January 1997.  Remaining
1997 capital spending was directed toward expansion of GPM's
Spraberry plant in West Texas, asset maintenance, new well
connections and technology enhancements.

In 1998, GPM's capital budget is $90 million.  Most of the
budgeted funds are scheduled to be used to increase production
volumes through acquisitions and new well connections, as well as
for investments in technology and operating equipment to improve
operating efficiency and provide value-added producer services.

The company continues to explore various options for maximizing
the value of its gas gathering, processing and marketing assets.


RM&T

Capital spending for RM&T during the three-year period ended
December 31, 1997, was primarily for refinery-upgrade projects --
projects to meet new environmental standards, to improve
operating integrity of key processing units, and to install
advanced process control technology -- as well as for safety
projects.  Central control buildings at the Sweeny, Texas, and
Woods Cross, Utah, facilities were started up during 1997.  When
the modernization of these facilities is completed, all
manufacturing processes at the facilities will be managed from
the new central control centers.  During 1997, the company also
continued the retail-marketing expansion that it began in 1996,
as well as continued to expand its key transportation assets.

The company continues to expand the number of company-operated
retail outlets in the United States from 300 in 1995, to 450
within the next five to 10 years.  This expansion is being funded
through master leasing programs and capital expenditures.  During
1997, 24 new retail outlets were opened and 10 existing units
were razed and rebuilt.  Since the expansion program began, the
company has acquired 24 retail outlets, opened 31 new ones, and
razed and rebuilt 16 others.  During 1998, the company plans to
raze and rebuild 15 outlets and add 30 new ones -- either by
acquisition of top-quality outlets in key geographical areas or
through construction.  Both new outlets and those that are razed
and rebuilt utilize the new Kicks 66 convenience store design.


                                56

<PAGE>



The company plans to sell approximately 100 retail units in non-
strategic areas over the next few years.

The company is going forward with two major pipeline projects to
serve growth areas in the Midwest and the Southwest United
States.  During the year, Phillips and its co-venturer in the
Seaway Pipeline Company (Seaway) announced plans to convert a
portion of an existing crude oil pipeline to refined products
service.  In conjunction with this conversion, Phillips is
constructing a new 148-mile pipeline to connect the converted
line to the company's existing Midwest distribution system to
transport gasoline and distillates from the Gulf Coast to the
growing Midwest market.  Construction is scheduled to be
completed in the second quarter of 1998.  The company also
recently signed a letter of intent to purchase interests in
Ultramar Diamond Shamrock Corporation's El Paso terminal and
pipeline system, which will allow Phillips to transport petroleum
products to El Paso, Texas, and Tucson and Phoenix, Arizona.

As part of a continuing effort to increase profitability, RM&T's
1998 capital budget provides for a 38 percent increase over
actual 1997 expenditures, adjusted for the amount spent on NGL
operations during 1997.  This increase results largely from
unique opportunities to expand pipeline capacity as outlined
above and plans to construct a new continuous catalytic reformer
at the Sweeny Complex to convert a higher percentage of plant
yield to higher-margin petrochemicals.  This project is now
expected to commence in late 1998, with completion scheduled for
mid-2000.  Spending is also planned during 1998 for the
installation of additional process control technology upgrades at
the Borger and Sweeny, Texas, Complexes, as well as for the
previously mentioned retail marketing upgrade program.

During 1997, Phillips and an affiliate of the Venezuelan state
oil company signed a Principles of Agreement to build a
58,000 barrels-per-day coker for processing heavier crudes, and
related facilities at Phillips' Sweeny Complex.  Under terms of
the agreement, the producing unit of the Venezuelan state oil
company would supply up to 165,000 barrels per day of heavy
Venezuelan crude oil to be processed at the refinery.  Subject to
negotiation of definitive documents and to the approval of the
respective Boards of Directors, construction could begin in late
1998, with completion in 2000.  Total project cost is estimated
to be $600 million.  Phillips would hold a 50 percent interest in
the project.

Phillips continues to explore various options for maximizing the
value of its RM&T assets.


                                57

<PAGE>



Chemicals

For the three-year period ended December 31, 1997, capital
spending for Chemicals focused on production expansion projects
utilizing improved technology and debottlenecking techniques.
Projects completed during 1997 included the restart of a
400 million-pounds-per-year ethylene unit at Sweeny that had been
idle for several years; a paraxylene expansion at the company's
Puerto Rico Core facility, which increased capacity to
880 million pounds per year; a polyethylene expansion that
brought plant capacity to 860 million pounds a year at a joint-
venture Singapore facility where the company has a 50 percent
interest; and a 40 percent expansion of the Ryton plant at the
company's Borger facility, increasing capacity to 21.6 million
pounds per year.  Ongoing projects include a 400 million-pounds-
per-year debottlenecking of high-density polyethylene production
capacity at HCC, of which 200 million pounds was completed by
December 31, 1997.  This debottlenecking, which is expected to be
completed by late-1999, will increase capacity to 2.2 billion
pounds per year.  Other projects include a 100 million-pounds-
per-year methyl mercaptan plant at the company's Borger facility,
with first production expected late in 1998; and a 40 million-
pounds-per-year dicyclopentadiene hydrotreating unit at Sweeny,
which is expected to be completed in third quarter 1998.  In
China, the company is participating in a joint venture that
recently signed loan agreements to partially fund the design and
construction of a 220 million-pounds-per-year polyethylene plant
near Shanghai, which is expected to start up in third quarter
1998.  Phillips has a 40 percent interest in the joint venture,
and is guaranteeing the U.S. dollar portion of the loan
agreements, totaling approximately $34 million.

Chemicals' 1998 proposed capital spending is an increase of
8 percent over the actual amount spent in 1997, excluding the
amount spent on NGL operations.  Spending is planned for various
new and ongoing production expansion projects -- the largest of
which is slated to fund a 100 million-pounds-per-year expansion
of the company's K-Resin copolymer plant at HCC, increasing
capacity to 370 million pounds per year by 1999.  Also at HCC,
the company is moving forward with plans to build a 200 million-
pounds-per-year hexene-1 plant, based on Phillips' new,
proprietary catalyst technology.  Construction is scheduled to
begin in 1998, with completion in 1999.  At the Phillips Research
Center in Bartlesville, Oklahoma, the company is constructing a
plant to produce metallocene compounds, the key ingredients in
the company's proprietary metallocene catalysts.  Scheduled to
come onstream late in first quarter 1998, the plant will produce
metallocene compounds in sufficient quantities to meet the needs
of Phillips and licensees through the year 2000.


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<PAGE>



In 1997, Phillips entered into two separate agreements for
projects in Qatar.  The company and Qatar General Petroleum
Corporation (QGPC) signed an agreement for a new joint venture to
develop a petrochemical complex.  The complex would use Phillips'
proprietary polyethylene and hexene-1 manufacturing and catalyst
technology and would feature a 1.1 billion-pounds-per-year
ethylene plant.  It would also feature manufacturing facilities
capable of producing one billion pounds per year of polyethylene
(high-density and linear low-density), and a hexene-1 plant with
a capacity of 100 million pounds per year.  If the project goes
forward, construction of the complex would begin in 1999, with
commercial production in early 2002.  The project is subject to
negotiation of definitive agreements and to the approval of the
Boards of Directors of QGPC and Phillips.  Phillips would have a
49 percent interest in this project.  The company also signed a
memorandum of understanding with QGPC and Sasol Limited of South
Africa providing for a feasibility study of a proposed joint
venture for a gas-to-liquids project.  The feasibility study,
which is currently being conducted to fully assess the economics
and viability of the new venture, is scheduled to be completed in
first quarter 1998.  If a plant is built, it would produce a total
of approximately 20,000 barrels per day of distillates and naphtha
and be scheduled for start-up in 2002.  Phillips would hold a
15 percent equity interest in this joint venture.


Year 2000 Readiness

Until recently, computer programs were written to store only two
digits of date-related information in order to more efficiently
handle and store data, and are thus unable to distinguish between
the year 1900 and the year 2000.  This is frequently referred to
as the "Year 2000 Problem."  In April 1996, Phillips initiated a
company-wide Year 2000 Project to address this issue.  Utilizing
internal and external resources, the company is in the process of
defining, assessing and converting, or replacing, various
programs, hardware and instrumentation systems to make them Year
2000 compatible.  The company's Year 2000 Project is composed of
two components:


Business Applications

In 1995, Phillips began a worldwide business systems replacement
project.  Based on a recent inventory of business computer
programs within Phillips, these new systems, which are Year 2000
compliant, will replace approximately 70 percent of the company's
business computer programs.  An additional 12 percent of business
programs will be made compliant through the Year 2000 Project,
and 7 percent will be retired.  The remaining non-compliant
programs are to be brought into compliance by the vendors who


                                59

<PAGE>



supply the programs.  The company is in the process of
identifying and prioritizing critical third parties and
customers, and will follow up with them concerning their plans
and progress in addressing the Year 2000 Problem.

The company's business applications Year 2000 Project is
scheduled to be completed by mid-1999 when the final phases of
the worldwide business systems replacement project are completed.


Process Control and Instrumentation (PC&I)

The company is currently evaluating the Year 2000 readiness of
PC&I with a comprehensive inventory of monitoring and control
devices for plants, refineries, pipelines, platforms, safety
systems and other similar operating installations.  Plans
detailing the tasks and resources required to ensure PC&I Year
2000 readiness by the end of 1998 are expected to be in place by
the end of the second quarter.  Costs associated with PC&I
upgrades are included in existing operating budgets.


The total cost associated with required modifications to become
Year 2000 compliant is not expected to be material to the
company's financial position.

An unexpected failure to have corrected a Year 2000 Problem could
result in an interruption in certain normal business activities
or operations.  However, the company believes that, with the
implementation of new business systems and completion of its Year
2000 Project, significant interruptions will not be encountered.


Contingencies

Legal and Tax Matters

The company has a number of issues outstanding with the IRS
related to tax years 1987 through 1992 that are expected to be
resolved in the near term as a result of resolving the Kenai LNG
tax case.  Although it is too early to determine the final
financial effects, a favorable outcome would have a positive
effect on net income and cash flow while an unfavorable one would
not impact the company's net income or cash position.

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 the likelihood
is remote that future costs related to known contingent liability
exposures will exceed current accruals by an amount that would


                                60

<PAGE>



have a material adverse impact on the company's financial
statements.


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 1996, Phillips reported 47 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP).  Since then, six sites were
resolved through consent decrees, deposits into trust funds, or
otherwise.  Two sites were added during the year.  Of the
43 sites remaining at December 31, 1997, the company believes it
has a legal defense or its records indicate no involvement for
13 sites.  At seven other sites, present information indicates
that it is probable that the company's exposure is less than
$100,000 per site.  At seven sites, Phillips has had no
communication or activity with government agencies or other PRPs
in more than two years.  Of the 16 remaining sites, the company
has provided for any probable costs that can be reasonably
estimated.

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 clean-up 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 clean-up, those potentially


                                61

<PAGE>



responsible normally assess site conditions, apportion
responsibility and determine the appropriate remediation.  In
some instances, Phillips may have no liability or attain a
settlement of liability.  Actual clean-up costs generally occur
after the parties obtain EPA or equivalent state agency approval.

At December 31, 1997, accruals of $7 million had been made for
the company's unresolved PRP sites.  In addition, the company has
accrued $72 million for other planned remediation activities,
including resolved state, PRP, and other federal sites, as well
as sites where no claims have been asserted, and $4 million for
other environmental contingent liabilities, for total
environmental accruals of $83 million.  No one site represents
more than 10 percent of the total.  Included in the company's
planned remediation activities is a voluntary environmental
investigation of the former Okmulgee, Oklahoma, refinery that
Phillips sold in 1966, which has been closed since 1982.  The
company plans to perform a clean-up effort to turn the area into
an industrial park.

Expensed environmental costs were $162 million in 1997 and are
expected to be approximately $150 million in 1998 and 1999.  The
estimates for 1998 and 1999 do not include any amounts related to
the federal Superfund tax, which expired December 31, 1995, and
which has not been extended.  Capitalized environmental costs
were $69 million in 1997, and are expected to be approximately
$100 million and $110 million in 1998 and 1999, respectively.

After an assessment of environmental exposures for clean-up and
other costs, the company makes accruals on an undiscounted basis
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, although claims for
recovery of remediation costs have been filed with certain of the
company's insurers.  At this time, the company is progressing
with negotiations with several of its insurers.  These
negotiations may result in Phillips' receipt of significant
settlement amounts in exchange for general releases of liability
or commutations of some of the company's liability and pollution
policies.  However, the ultimate amount, if any, the terms of the
settlement, and the timing of recoveries remains uncertain.

Based on currently available information, the company believes
that the likelihood 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.


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<PAGE>



Other

Phillips has deferred tax assets for the alternative minimum tax,
certain accrued liabilities, and loss carryforwards.  Valuation
allowances have been established for certain foreign and state
net operating loss carryforwards that reduce deferred tax assets
to an amount that will more likely than not be realized.
Uncertainties that may affect the realization of these assets
include tax law changes and the future level of product prices,
costs and tax rates.  Based on the company's historical taxable
income, its expectations for the future, and available tax
planning strategies, Management expects that the net deferred tax
assets will be realized as offsets to reversing deferred tax
liabilities and as reductions in future taxable operating income.
The alternative minimum tax credit can be carried forward
indefinitely to reduce the company's regular tax liability.  The
valuation allowance increased $24 million during 1997, primarily
due to an increase in loss carryforwards for various companies.


New Accounting Standards

In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income," and Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information."  Both
Statements are effective for fiscal years beginning after
December 15, 1997, and are disclosure-oriented statements.
Therefore, neither Statement will affect the company's reported
consolidated net income or cash flows.  The company has not yet
determined the disclosure formats it will adopt in response to
these Statements, but it is anticipated that the composition and
number of its operating segments will be unchanged under
Statement No. 131.


OUTLOOK

Phillips continues its global growth strategy.  In E&P, the
company plans exploration activity in Norway, the United Kingdom,
China, Australia, Algeria, South Africa, Peru, and the Gulf of
Mexico.  Further, the company joined a study of a proposed Alaska
North Slope gas project.  This study will examine the viability
of producing natural gas from Alaska's North Slope, transporting
it across the state, converting it to liquid natural gas, and
marketing it in the Far East.  Phillips owns interests in the two
fields containing most of the North Slope gas reserves -- a small
interest in the Prudhoe Bay Unit and a 12 percent interest in the
undeveloped Point Thomson field.

Phillips and its co-venturers continue evaluating plans to
develop both blocks of the Bayu-Undan gas/condensate discovery in


                                63

<PAGE>




the Timor Sea Zone of Cooperation, as a single field, with BHP
Petroleum Pty. Ltd. as unit operator.  The field initially is
planned to be developed as a gas-reinjection project.  Initial
production is expected in 2002.  A decision is pending on the
location and type of facility to liquefy the natural gas at a
later stage in the project's development.

The company has oil mining leases for production of oil and gas
in Nigeria.  These interests are operated on behalf of the
company under a joint operating agreement (JOA) with Nigerian
Agip Oil Company for the life of the leases covered and until all
joint property has been disposed of and final settlement made.
The initial term of the leases was through June 13, 1997, and,
under the lease terms, the company is entitled to renewal of the
lease upon application, assuming it has performed its obligations
under the leases.  The company believes it has performed its
obligations and the operator of the company's interests has made
timely application for renewal on behalf of the company.  While
renewal of the leases has not yet been confirmed by Nigerian
authorities, the operator has been advised by the Nigerian
authorities that the renewal application is being processed and
that it should continue operations.  Production has continued
unabated after June 13, 1997.  Management expects that production
will continue and that renewals will be confirmed in due course.
The company's Nigerian interests represent approximately
7 percent of its currently reported total worldwide oil and gas
reserves, and the sale of the production from these reserves
contributed approximately $27 million to the company's after-tax
net income in 1997.  The company's net investment in Nigeria at
December 31, 1997, was $180 million.

Global expansion of the company's chemicals business continues
with opportunities for new locations involving foreign joint-
venture partners.  In an effort to meet growing worldwide demand
for plastics and petrochemicals, Phillips signed three letters of
intent with major petrochemical manufacturers in the People's
Republic of China.  The letters of intent are to conduct joint
feasibility studies to build an ethylene complex and a K-Resin
copolymer plant, and to expand a polyethylene plant currently
under construction.  In 1996, Phillips and Shanghai Petrochemical
Company Limited formed a joint venture to build a 220 million-
pounds-per-year plant, which is scheduled to come onstream in
1998.

In late 1997, the company created a new supply chain organization
to improve the profitability of its refining, marketing and
transportation activities.  The effort involves improved
coordination of materials handling from feedstock acquisition
through product supply and distribution to final refined product
sales.  Upon full implementation of the management system in late
1998, expected benefits are improved sales and production


                                64

<PAGE>



forecasting, inventory control, and lower costs for crude oil and
refined products acquisition and transportation.

Phillips experienced a significant drop in the number of
recordable injuries during 1997.  The recordable injury rate for
1997 was 1.18 per 200,000 man-hours, which is 22 percent lower
than the 1996 rate of 1.52.  The rate of 1.18 compares very
favorably with the most recent American Petroleum Institute
industry recordable injury rate of 2.47, and sets a new record
for the company.  1997 was the third year for the company's
Process for Safety Excellence program where business units
identify the safety management elements most critical to their
operations, evaluate their present level, set goals for each
element and develop initiatives for reaching those goals. During
1997, the process was expanded to include environmental
elements and is now called Process for Safety and Environmental
Excellence.

The impact of the recent economic downturn in Asia on the
businesses in which Phillips operates remains uncertain.  Sales
revenues generated in Asian countries currently comprise a
relatively small percent of the company's total revenues, giving
the company minimal earnings exposure.  The company continues to
monitor both short-term and long-term effects of the crisis on
supply and demand.

Phillips recognizes that the financial performances of the
businesses in the industries in which the company operates are
subject to significant fluctuations, and are affected by the
uncertainty of oil and natural gas prices over which it has no
control.  Crude oil prices in early 1998 have been considerably
lower than year-ago levels due in part to warmer-than-normal
weather that has dampened seasonal demand, the recent economic
downturn in Asia and rising production.  Phillips is pursuing a
number of significant growth projects and expects to increase
1998 hydrocarbon production by 7 percent, which should help
offset lower oil and natural gas prices.


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 in any
forward-looking statement made by, or on behalf of, the company.


                                65

<PAGE>



Where any such forward-looking statement includes a statement of
the assumptions or bases underlying such forward-looking
statement, the company cautions that, while it 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, such expectation or belief is expressed in good faith
and believed to have a reasonable basis, but there can be no
assurance that the statement of expectation or belief will
result, or be achieved or accomplished.

Taking into account the foregoing, the following are identified
as important 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 drill wells and develop offshore or onshore
     exploration and production properties are subject to the
     company's ability to obtain agreements from co-venturers or
     partners, and governments; engage drilling, construction and
     other contractors; obtain economical and timely financing;
     as well as subject to geological, land, or sea conditions;
     world prices for oil, natural gas and natural gas liquids;
     and foreign and United States laws, including tax laws.

  o  Plans for the construction, modernization or debottlenecking
     of domestic and foreign refineries and chemical plants, and
     the timing of production from such plants are subject to
     approval from the company's and/or subsidiaries' Boards of
     Directors; loan 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 and
     work force.  Production and delivery of the company's
     products are subject to worldwide prices; supply 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 operations, is
     subject to 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 chemical and other products;
     its ability to operate its refineries and chemical plants
     consistently; and the effect of foreign and domestic
     legislation of federal, state and municipal governments that


                                66

<PAGE>



     have jurisdiction in regard to taxes, the environment and
     human resources.

  o  Estimates of proved reserves, raw natural gas supplies,
     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 Securities and Exchange Commission,
     generally accepted accounting principles and other
     applicable requirements.

  o  The Year 2000 Project and the date on which the company
     believes it will be completed are based on Management's best
     estimates, which were derived utilizing numerous assumptions
     of future events, including the continued availability of
     certain resources, third-party modification plans and other
     factors.  However, there can be no assurance that there will
     not be a delay in, or increased costs associated with, the
     implementation of the Year 2000 Project.  Specific factors
     that might cause differences between the estimates and
     actual results include, but are not limited to, the
     availability and cost of personnel trained in this area, the
     ability to locate and correct all relevant computer codes,
     timely responses by third-parties and suppliers, and similar
     uncertainties.  The company's inability to implement Year
     2000 changes could have an adverse effect on future results
     of operations.

  o  The date on which the company believes it will implement the
     new SAP America, Inc. and Oracle Corporation business
     computer systems is based on Management's best estimates,
     which were derived utilizing numerous assumptions of future
     events, including the continued availability of certain
     resources, plans and other factors.  However, there can be
     no guarantee that these estimates will be achieved.
     Specific factors that might cause differences between the
     estimates and actual results include, but are not limited
     to, the availability and cost of personnel trained in these
     areas, the ability to implement interfaces between the new
     systems and the systems that are not being replaced, and
     similar uncertainties.


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<PAGE>



Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                    PHILLIPS PETROLEUM COMPANY

                  INDEX TO FINANCIAL STATEMENTS


                                                             Page
                                                             ----

Report of Management....................................       69

Report of Independent Auditors..........................       70

Consolidated Statement of Income for the years
  ended December 31, 1997, 1996 and 1995................       71

Consolidated Balance Sheet at December 31, 1997
  and 1996..............................................       72

Consolidated Statement of Cash Flows for the years
  ended December 31, 1997, 1996 and 1995................       73

Consolidated Statement of Changes in Common Stockholders'
  Equity for the years ended December 31, 1997,
  1996 and 1995.........................................       74

Notes to Financial Statements...........................       75

Supplementary Information

     Oil and Gas Operations.............................      106

     Selected Quarterly Financial Data..................      125


              INDEX TO FINANCIAL STATEMENT SCHEDULES

Schedule II -- Valuation Accounts and Reserves..........      129


All other schedules are omitted because they are either not
required, not significant, not applicable or the information is
shown in another schedule, the financial statements or in the
notes to financial statements.


                                68

<PAGE>



----------------------------------------------------------------
Report of Management


Management prepared, and is responsible for, the consolidated
financial statements and the other information appearing in this
annual report.  The consolidated financial statements present
fairly the company's financial position, results of operations
and cash flows in conformity with generally accepted accounting
principles.  In preparing its consolidated financial statements,
the company includes amounts that are based on estimates and
judgments that Management believes are reasonable under the
circumstances.

The company maintains an internal control structure designed to
provide reasonable assurance that the company's assets are
protected from unauthorized use and that all transactions are
executed in accordance with established authorizations and
recorded properly.  The internal control structure is supported
by written policies and guidelines and is complemented by a staff
of internal auditors.  Management believes that the system of
internal controls in place at December 31, 1997, provides
reasonable assurance that the books and records reflect the
transactions of the company and there has been compliance with
its policies and procedures.

The company's financial statements have been audited by Ernst &
Young LLP, independent auditors selected by the Audit Committee
of the Board of Directors and approved by the stockholders.
Management has made available to Ernst & Young LLP all the
company's financial records and related data, as well as the
minutes of stockholders' and directors' meetings.

The Audit Committee, composed solely of non-employee directors,
meets periodically with the independent auditors, financial and
accounting management, and the internal auditors to review and
discuss the company's internal control structure, results of
internal audits, the independent auditors' findings and opinion,
financial information, and related matters.  Both the independent
auditors and the company's General Auditor have unrestricted
access to the Audit Committee, without Management present, to
discuss any matter that they wish to call to the Committee's
attention.

/s/ W. W. Allen                    /s/ T. C. Morris

W. W. Allen                        T. C. Morris
Chairman of the Board and          Senior Vice President and
Chief Executive Officer            Chief Financial Officer

February 23, 1998


                                69

<PAGE>



-----------------------------------------------------------------
Report of Independent Auditors


The Board of Directors and Stockholders
Phillips Petroleum Company

We have audited the accompanying consolidated balance sheets of
Phillips Petroleum Company as of December 31, 1997 and 1996, and
the related consolidated statements of income, changes in common
stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1997.  Our audits also included
the financial statement schedule listed in the Index in Item 8.
These financial statements and schedule are the responsibility of
the company's Management.  Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with generally accepted
auditing standards.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An
audit also includes assessing the accounting principles used and
significant estimates made by Management, as well as evaluating
the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Phillips Petroleum Company at December 31,
1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted
accounting principles.  Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.



                               /s/ Ernst & Young LLP

                                   ERNST & YOUNG LLP

Tulsa, Oklahoma
February 23, 1998


                                70

<PAGE>



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

Years Ended December 31                    Millions of Dollars
                                       ---------------------------
                                          1997      1996      1995
                                       ---------------------------
Revenues
Sales and other operating revenues     $15,210    15,731    13,368
Equity in earnings of
  affiliated companies                     126         4       127
Other revenues                              88        72        26
------------------------------------------------------------------
    Total Revenues                      15,424    15,807    13,521
------------------------------------------------------------------

Costs and Expenses
Purchased crude oil and products         9,127     9,896     8,182
Production and operating expenses        2,199     2,079     2,143
Exploration expenses                       242       254       198
Selling, general and
  administrative expenses                  631       508       500
Depreciation, depletion and
  amortization                             863       941       871
Taxes other than income taxes              263       264       266
Interest expense                           198       217       265
Preferred dividend requirements of
  subsidiary and capital trusts             82        47        32
------------------------------------------------------------------
    Total Costs and Expenses            13,605    14,206    12,457
------------------------------------------------------------------
Income before income taxes and
  Kenai LNG tax settlement               1,819     1,601     1,064
Kenai LNG tax settlement                    81       571         -
------------------------------------------------------------------
Income before income taxes               1,900     2,172     1,064
Provision for income taxes                 941       869       595
------------------------------------------------------------------
Net Income                             $   959     1,303       469
==================================================================

Net Income Per Share of Common Stock
  Basic                                $  3.64      4.96      1.79
  Diluted                                 3.61      4.91      1.78
------------------------------------------------------------------

Average Common Shares Outstanding
    (in thousands)
  Basic                                263,392   262,919   261,989
  Diluted                              265,419   265,256   263,569
------------------------------------------------------------------
See Notes to Financial Statements.


                                71

<PAGE>



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

At December 31                                Millions of Dollars
                                              -------------------
                                                 1997        1996
                                              -------------------
Assets
Cash and cash equivalents                     $   163         615
Accounts and notes receivable
  (less allowances: 1997 -- $19; 1996 -- $20)   1,717       1,988
Inventories                                       500         472
Deferred income taxes                             168         117
Prepaid expenses and other current assets         100         114
-----------------------------------------------------------------
    Total Current Assets                        2,648       3,306
Investments and long-term receivables             964         912
Properties, plants and equipment (net)         10,022       9,120
Deferred income taxes                              82          85
Deferred charges                                  144         125
-----------------------------------------------------------------
Total                                         $13,860      13,548
=================================================================

Liabilities
Accounts payable                              $ 1,546       1,793
Notes payable and long-term debt due
  within one year                                 234         574
Accrued income and other taxes                    365         483
Other accruals                                    300         287
-----------------------------------------------------------------
    Total Current Liabilities                   2,445       3,137
Long-term debt                                  2,775       2,555
Accrued dismantlement, removal and
  environmental costs                             713         783
Deferred income taxes                           1,257       1,047
Employee benefit obligations                      436         425
Other liabilities and deferred credits            769         700
-----------------------------------------------------------------
Total Liabilities                               8,395       8,647
-----------------------------------------------------------------

Preferred Stock of Subsidiary and Other
  Minority Interests                                1         350
-----------------------------------------------------------------

Company-Obligated Mandatorily Redeemable
  Preferred Securities of Phillips
  Capital Trusts I and II                         650         300
-----------------------------------------------------------------

Common Stockholders' Equity
Common stock -- 500,000,000 shares authorized
  at $1.25 par value
    Issued (306,380,511 shares)
        Par value                                 383         383
        Capital in excess of par                2,031       1,999
    Treasury stock (at cost: 1997 -- 14,000,882
      shares; 1996 -- 13,878,480 shares)         (752)       (757)
    Compensation and Benefits Trust (CBT)
      (at cost: 1997 and 1996 --
      29,200,000 shares)                         (989)       (989)
Foreign currency translation adjustments           (8)         54
Unearned employee compensation -- Long-Term
  Stock Savings Plan (LTSSP)                     (342)       (378)
Retained earnings                               4,491       3,939
-----------------------------------------------------------------
Total Common Stockholders' Equity               4,814       4,251
-----------------------------------------------------------------
Total                                         $13,860      13,548
=================================================================
See Notes to Financial Statements.


                                72

<PAGE>



------------------------------------------------------------------
Consolidated Statement of Cash Flows    Phillips Petroleum Company

Years Ended December 31                     Millions of Dollars
                                         -------------------------
                                            1997     1996     1995
                                         -------------------------
Cash Flows From Operating Activities
Net income                               $   959    1,303      469
Adjustments to reconcile net income
  to net cash provided by operating
  activities
    Non-working capital adjustments
      Depreciation, depletion and
        amortization                         863      941      871
      Dry hole costs and leasehold
        impairment                            91      117       66
      Deferred taxes                         283      163        9
      J-Block settlement                     161        -        -
      Other                                   12       41      (77)
    Working capital adjustments
      Increase (decrease) in aggregate
        balance of accounts receivable
        sold                                   -     (200)     200
      Decrease (increase) in other
        accounts and notes receivable        245     (265)    (245)
      Decrease (increase) in inventories     (33)      31       25
      Decrease (increase) in prepaid
        expenses and other current assets     15      (26)      12
      Increase (decrease) in accounts
        payable                             (224)     295      130
      Increase (decrease) in taxes and
        other accruals                      (127)    (315)     136
------------------------------------------------------------------
Net Cash Provided by Operating Activities  2,245    2,085    1,596
------------------------------------------------------------------

Cash Flows From Investing Activities
Capital expenditures and investments,
  including dry hole costs                (2,043)  (1,544)  (1,456)
Proceeds from asset dispositions              21      101      142
Long-term advances to affiliates and
  other investments                          (34)     (98)     (39)
------------------------------------------------------------------
Net Cash Used for Investing Activities    (2,056)  (1,541)  (1,353)
------------------------------------------------------------------

Cash Flows From Financing Activities
Issuance of debt                             468      212       97
Repayment of debt                           (569)    (226)    (106)
Purchase of common stock                     (50)       -        -
Issuance of common stock                      20       25        9
Issuance of company-obligated mandatorily
  redeemable preferred securities            350      300        -
Redemption of preferred stock of
  subsidiary                                (345)       -        -
Dividends paid on common stock              (353)    (329)    (313)
Other                                       (162)      22      (56)
------------------------------------------------------------------
Net Cash Provided by (Used for)
  Financing Activities                      (641)       4     (369)
------------------------------------------------------------------

Increase (Decrease) in Cash and Cash
  Equivalents                               (452)     548     (126)
Cash and cash equivalents at
  beginning of year                          615       67      193
------------------------------------------------------------------
Cash and Cash Equivalents at
  End of Year                            $   163      615       67
==================================================================
See Notes to Financial Statements.


                                73

<PAGE>



------------------------------------------------------------------
Consolidated Statement of Changes       Phillips Petroleum Company
in Common Stockholders' Equity


                                    Shares of Common Stock
                             -------------------------------------
                                              Held in      Held in
                                  Issued     Treasury          CBT
                             -------------------------------------

December 31, 1994            277,180,511   15,542,074            -
Net income
Cash dividends paid on
  common stock
Distributed under incentive
  compensation plans                         (494,828)
Recognition of LTSSP
  unearned compensation
Tax benefit of dividends on
  unallocated LTSSP shares
Current period translation
  adjustment
Establishment of CBT          29,200,000                29,200,000
Other
------------------------------------------------------------------
December 31, 1995            306,380,511   15,047,246   29,200,000
Net income
Cash dividends paid on
  common stock
Distributed under incentive
  compensation plans                       (1,168,766)
Recognition of LTSSP
  unearned compensation
Tax benefit of dividends on
  unallocated LTSSP shares
Current period translation
  adjustment
Other
------------------------------------------------------------------
December 31, 1996            306,380,511   13,878,480   29,200,000
Net income
Cash dividends paid on
  common stock
Distributed under incentive
  compensation plans                         (971,198)
Recognition of LTSSP
  unearned compensation
Tax benefit of dividends on
  unallocated LTSSP shares
Current period translation
  adjustment
Stock purchases                             1,093,600
------------------------------------------------------------------
December 31, 1997            306,380,511   14,000,882   29,200,000
==================================================================



------------------------------------------------------------------
Consolidated Statement of Changes       Phillips Petroleum Company
in Common Stockholders' Equity


                                     Millions of Dollars
                            --------------------------------------
                                         Common Stock
                            --------------------------------------
                              Par      Capital in   Treasury
                            Value   Excess of Par      Stock   CBT
                            --------------------------------------

December 31, 1994            $346             996       (859)    -
Net income
Cash dividends paid on
  common stock
Distributed under incentive
  compensation plans                           16         32
Recognition of LTSSP
  unearned compensation
Tax benefit of dividends on
  unallocated LTSSP shares
Current period translation
  adjustment
Establishment of CBT           37             952             (989)
Other                                           2
------------------------------------------------------------------
December 31, 1995             383           1,966       (827) (989)
Net income
Cash dividends paid on
  common stock
Distributed under incentive
  compensation plans                           26         70
Recognition of LTSSP
  unearned compensation
Tax benefit of dividends on
  unallocated LTSSP shares
Current period translation
  adjustment
Other                                           7
------------------------------------------------------------------
December 31, 1996             383           1,999       (757) (989)
Net income
Cash dividends paid on
  common stock
Distributed under incentive
  compensation plans                           32         55
Recognition of LTSSP
  unearned compensation
Tax benefit of dividends on
  unallocated LTSSP shares
Current period translation
  adjustment
Stock purchases                                          (50)
------------------------------------------------------------------
December 31, 1997            $383           2,031       (752) (989)
==================================================================



------------------------------------------------------------------
Consolidated Statement of Changes       Phillips Petroleum Company
in Common Stockholders' Equity


                                      Millions of Dollars
                             -------------------------------------
                                 Foreign       Unearned
                                Currency       Employee
                             Translation   Compensation   Retained
                             Adjustments        --LTSSP   Earnings
                             -------------------------------------

December 31, 1994                     16           (451)     2,905
Net income                                                     469
Cash dividends paid on
  common stock                                                (313)
Distributed under incentive
  compensation plans                                           (38)
Recognition of LTSSP
  unearned compensation                              37
Tax benefit of dividends on
  unallocated LTSSP shares                                       7
Current period translation
  adjustment                          23
Establishment of CBT
Other
------------------------------------------------------------------
December 31, 1995                     39           (414)     3,030
Net income                                                   1,303
Cash dividends paid on
  common stock                                                (329)
Distributed under incentive
  compensation plans                                           (72)
Recognition of LTSSP
  unearned compensation                              36
Tax benefit of dividends on
  unallocated LTSSP shares                                       7
Current period translation
  adjustment                          15
Other
------------------------------------------------------------------
December 31, 1996                     54           (378)     3,939
Net income                                                     959
Cash dividends paid on
  common stock                                                (353)
Distributed under incentive
  compensation plans                                           (61)
Recognition of LTSSP
  unearned compensation                              36
Tax benefit of dividends on
  unallocated LTSSP shares                                       7
Current period translation
  adjustment                         (62)
Stock purchases
------------------------------------------------------------------
December 31, 1997                     (8)          (342)     4,491
==================================================================
See Notes to Financial Statements.


                                74

<PAGE>



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


Note 1 -- Accounting Policies

o  Consolidation Principles and Investments -- Majority-owned,
   controlled subsidiaries are consolidated.  Investments in
   affiliates in which the company owns 20 percent to 50 percent
   of voting control are generally accounted for under the
   equity method.  Undivided interests in oil and gas joint
   ventures are consolidated on a pro rata basis.  Other
   securities and investments are generally carried at cost.

o  Reclassification -- Certain amounts in the 1996 and 1995
   financial statements have been reclassified to conform with
   the 1997 presentation.

o  Use of Estimates -- The preparation of financial statements
   in conformity with generally accepted accounting principles
   requires Management to make estimates and assumptions that
   affect the reported amounts of assets, liabilities, revenues
   and expenses, and the disclosures of contingent assets and
   liabilities.  Actual results could differ from the estimates
   and assumptions used.

o  Cash Equivalents -- Cash equivalents are highly liquid
   short-term investments that are readily convertible to known
   amounts of cash and generally have original maturities within
   three months from their date of purchase.

o  Inventories -- Crude oil and petroleum and chemical products
   are valued at cost, which is lower than market in the
   aggregate, primarily on the LIFO basis.  Materials and
   supplies are valued at, or below, average cost.

o  Derivative Instruments -- Forward foreign currency contracts
   designated and effective as hedges of firm commitments,
   commodity futures and commodity option contracts designated
   and effective as hedges are recorded at market value, either
   through monthly adjustments for unrealized gains and losses
   (forwards and options) or through daily settlements in cash
   (futures), and the resulting gains and losses are deferred.
   Forward foreign currency contracts designated and effective
   as hedges of existing assets and liabilities are recorded at
   market value through monthly adjustments, with immediate
   recognition of the resulting gains and losses.  Commodity
   swaps and forward commodity contracts designated as hedges
   are not recorded until the resulting cash flows are known.
   The gains and losses from all of these derivative instruments
   are recognized during the same period in which the gains and


                                75

<PAGE>



   losses from the underlying exposures being hedged are
   recognized, except for gains and losses from hedges of asset
   acquisitions that are reported as adjustments to the carrying
   value of the assets.

   In accordance with company risk-management policies, any
   derivative instrument held by the company must relate to an
   underlying, offsetting position, probable anticipated
   transaction or firm commitment.  Additionally, the hedging
   instrument used must be expected to be highly effective in
   achieving market value changes that offset the opposing
   market value changes of the underlying transaction.  If an
   existing derivative position is terminated prior to expected
   maturity or re-pricing, any deferred or resultant gain or
   loss will continue to be deferred unless the underlying
   position has ceased to exist.  Deferred gains and losses,
   deferred premiums paid for forward exchange contracts, and
   deferred premiums paid for commodity option contracts are
   reported on the balance sheet with other current assets or
   other current liabilities.  Gains and losses from derivatives
   designated as hedges of sales are reported on the statement
   of income with sales and other operating revenues, whereas
   gains and losses from derivatives designated as hedges of
   commodity purchases are reported with purchased crude oil and
   products or with production and operating expenses, subject
   to the effects of any related inventory costing reflected on
   the balance sheet.  Gains and losses from hedging feedstock-
   to-product margins are reported with purchased crude oil and
   products.  Recognized gains and losses are reported on the
   statement of cash flows in a manner consistent with the
   underlying position being hedged.

o  Oil and Gas Exploration and Development -- Oil and gas
   exploration and development costs are accounted for using the
   successful efforts method of accounting.

      Property Acquisition Costs -- Oil and gas leasehold
      acquisition costs are capitalized.  Leasehold impairment
      is recognized based on exploratory experience and
      Management's judgment.  Upon discovery of commercial
      reserves, leasehold costs are transferred to proved
      properties.

      Exploratory Costs -- Geological and geophysical costs and
      the costs of carrying and retaining undeveloped properties
      are expensed as incurred.  Exploratory drilling costs are
      capitalized when incurred.  If, based on Management's
      judgment, exploratory wells are determined to be
      commercially unsuccessful or dry holes, applicable costs
      are expensed.


                                76

<PAGE>



      Development Costs -- Costs incurred to drill and equip
      development wells, including unsuccessful development
      wells, are capitalized.

      Depletion and Amortization -- Leasehold costs of producing
      properties are depleted using the unit-of-production
      method based on estimated proved oil and gas reserves.
      Amortization of intangible development costs is based on
      the unit-of-production method using the estimated proved
      developed oil and gas reserves.

o  Depreciation and Amortization -- Depreciation and
   amortization of properties, plants and equipment are
   determined by the group straight-line method, the individual
   unit straight-line method or the unit-of-production method,
   applying the method considered most appropriate for each type
   of property.

o  Property Dispositions -- When complete units of depreciable
   property are retired or sold, the asset cost and related
   accumulated depreciation are eliminated with any gain or loss
   reflected in income.  When less than complete units of
   depreciable property are disposed of or retired, the
   difference between asset cost and salvage value is charged or
   credited to accumulated depreciation.

o  Dismantlement, Removal and Environmental Costs -- The
   estimated undiscounted costs, net of salvage values, of
   dismantling and removing major oil and gas production
   facilities, including necessary site restoration, are accrued
   using either the unit-of-production or the straight-line
   method.

   Environmental expenditures are expensed or capitalized as
   appropriate, depending upon their future economic benefit.
   Expenditures that relate to an existing condition caused by
   past operations, and that do not have future economic
   benefit, are expensed.  Liabilities for these expenditures
   are recorded on an undiscounted basis when environmental
   assessments or clean-ups are probable and the costs can be
   reasonably estimated.  Recoveries of environmental
   remediation costs from other parties are recorded as assets
   when their receipt is deemed probable.  For all periods
   presented, the company's accounting policies comply, in all
   material respects, with the provisions of American Institute
   of Certified Public Accountants Statement of Position 96-1,
   "Environmental Remediation Liabilities."


                                77

<PAGE>



o  Foreign Currency Translation -- Adjustments resulting from
   the process of translating foreign functional currency
   financial statements into U.S. dollars are accumulated as a
   separate component of common stockholders' equity.  Foreign
   currency transaction gains and losses are included in current
   earnings.  Most of the company's foreign operations use the
   local currency as the functional currency.

o  Income Taxes -- Deferred income taxes are computed using the
   liability method and are provided on all temporary differences
   between the financial reporting basis and the tax basis of the
   company's assets and liabilities, except for temporary
   differences related to investments in certain foreign
   subsidiaries and corporate joint ventures that are essentially
   permanent in duration.  Allowable tax credits are applied
   currently as reductions of the provision for income taxes.

o  Net Income Per Share of Common Stock -- Basic income per share
   of common stock is calculated based upon the daily weighted-
   average number of common shares outstanding during the year,
   including shares held by the LTSSP.  Diluted income per share
   of common stock includes the above, plus "in the money" stock
   options issued pursuant to company compensation plans.
   Treasury stock and shares held by the CBT are excluded from
   the daily weighted-average number of common shares outstanding
   in both calculations.


Note 2 -- Accounting Changes

The company adopted FASB Statement No. 128, "Earnings per Share,"
effective for the year ending December 31, 1997.  All prior-
period earnings per share data have been restated.  This
Statement requires dual presentation of basic and diluted
earnings per share on the face of the income statement.  "In the
money" stock options issued pursuant to company compensation
plans are the only dilutive securities in all periods presented.

Effective January 1, 1996, the company changed its method of
accounting for the depreciation of its Gas Gathering, Processing
and Marketing segment's natural gas plants and systems from the
unit-of-production method to the straight-line method, using an
estimated life of 20 years for most of these assets.  As a result
of the change, net income for 1996 was $18 million higher, or
$.07 per share.  The estimated cumulative effect of the change
was not material.  Also effective January 1, 1996, the company
made certain changes in the estimated useful lives of its major
domestic downstream facilities.  This change increased 1996 net
income by $19 million, $.07 per share.  These changes were made


                                78

<PAGE>



to better reflect how the assets are expected to be used over
time, to provide a better matching of revenues and expenses, and
to be consistent with prevalent industry practice.

Effective April 1, 1995, the company adopted FASB Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which resulted in a before-
tax addition of $95 million to depreciation, depletion and
amortization expense in 1995.  Under the Statement, the company
evaluates impairment of exploration and production assets on a
field-by-field, basis rather than using one worldwide cost center
for its proved properties.  After-tax, the additional charge was
$49 million, $.19 per share.


Note 3 -- Inventories

Inventories at December 31 were:

                                              Millions of Dollars
                                              -------------------
                                              1997           1996
                                              -------------------

Crude oil and petroleum products              $156            136
Chemical products                              254            255
Materials, supplies and other                   90             81
-----------------------------------------------------------------
                                              $500            472
=================================================================


Included in the amounts above were inventories valued on a LIFO
basis totaling $299 million and $283 million at December 31, 1997
and 1996, respectively.  The remainder of the company's
inventories are valued under various other methods, including
first-in, first-out (FIFO), weighted average and standard cost.
The inventories valued under LIFO would have been approximately
$457 million and $604 million higher at December 31, 1997 and
1996, respectively, had they been valued using the FIFO method.


Note 4 -- Investments and Long-Term Receivables

Components of investments and long-term receivables at
December 31 were:

                                              Millions of Dollars
                                              -------------------
                                              1997           1996
                                              -------------------
Investments in and advances to affiliated
  companies                                   $722            693
Long-term receivables                           97            111
Other investments                              145            108
-----------------------------------------------------------------
                                              $964            912
=================================================================


                                79

<PAGE>



Equity Investments

The company owns investments in chemicals, oil and gas
transportation, coal mining, and other industries.  In the
ordinary course of business, Phillips has related party
transactions with most of these equity companies including sales
and purchases of feedstocks and finished products, as well as
operating and marketing services.  Summarized financial
information for all entities accounted for using the equity
method follows:

                                           Millions of Dollars
                                       --------------------------
                                         1997      1996      1995
                                       --------------------------

Revenues                               $3,203     3,043     2,776
Income before income taxes                658       583       680
Net income                                470       380       470
Current assets                            856       936       758
Other assets                            3,076     3,372     3,236
Current liabilities                       777       887       889
Other liabilities                       1,300     1,493     1,031
-----------------------------------------------------------------


At December 31, 1997, retained earnings included $128 million
related to the undistributed earnings of these affiliated
companies, and distributions received from them were $96 million,
$107 million and $122 million in 1997, 1996 and 1995,
respectively.

At December 31, 1997, the company's 50 percent interest in SOLP,
which owns and operates a 2 billion-pounds-per-year ethylene
plant located adjacent to the company's Sweeny, Texas, refinery,
was carried at a net investment of $240 million.  During
construction of this facility, the company made advances to the
partnership under a subordinated loan agreement (SLA) to fund
certain costs related to completing the project.

In 1992, the company sold participating interests in the SLA to a
syndicate of banks for $211 million under a participation
agreement.  The sale of this receivable is subject to recourse,
in that the company has a contingent obligation to pay the
amounts due the participating banks if SOLP fails to pay.  The
balance of the subordinated loan at December 31, 1997, was
$120 million.  During 1995, SOLP entered into a second
subordinated loan agreement with the company, with essentially
the same terms as the SLA, for $120 million to fund three new
furnaces for the ethylene plant.  The balance of this
subordinated loan at December 31, 1997, was $105 million.  It is
not economically practicable to estimate the fair value of the
company's obligations to SOLP or to the participating banks.


                                80

<PAGE>



Note 5 -- Properties, Plants and Equipment

The company's investment in properties, plants and equipment
(PP&E), with accumulated depreciation, depletion and amortization
(DD&A), at December 31 was:

                              Millions of Dollars
             -----------------------------------------------------
                        1997                        1996
             -------------------------    ------------------------
               Gross               Net     Gross               Net
                PP&E     DD&A     PP&E      PP&E     DD&A     PP&E
             -------------------------    ------------------------

E&P          $11,924    6,982    4,942    11,190    6,782    4,408
GPM            2,080    1,136      944     1,974    1,071      903
RM&T           3,772    1,772    2,000     3,599    1,705    1,894
Chemicals      3,033    1,243    1,790     2,793    1,177    1,616
Corporate
  and Other      617      271      346       547      248      299
------------------------------------------------------------------
             $21,426   11,404   10,022    20,103   10,983    9,120
==================================================================


Note 6 -- Impairments

During 1997, 1996, and 1995, the company recognized the following
before-tax impairments:

                                             Millions of Dollars
                                             --------------------
                                             1997    1996    1995
                                             --------------------
Additions to depreciation, depletion and
  amortization
    Point Arguello field                      $ -     106       -
    Garden Banks Blocks 70/71 field            39       -       -
    United Kingdom oil and gas properties      15       -       -
    Canadian oil and gas properties             -      25       -
    Other E&P properties                        9       -      81
    Retail service stations                     1      58       -
    Chemical assets                             4       -       4
    Idle Corporate assets                       -       1      13
-----------------------------------------------------------------
                                               68     190      98
Reductions in equity earnings
    Point Arguello field                        -      78       -
-----------------------------------------------------------------
                                              $68     268      98
=================================================================


                                81

<PAGE>



After-tax, the above impairments by segment were:

                                             Millions of Dollars
                                             --------------------
                                             1997    1996    1995
                                             --------------------

E&P                                           $42     144      41
RM&T                                            1      38       -
Chemicals                                       3       -       3
Corporate                                       -       1       7
-----------------------------------------------------------------
                                              $46     183      51
=================================================================


The facts and circumstances leading to the E&P impairments in
1997 were unsuccessful development drilling and downward reserve
revisions for the Garden Banks Blocks 70/71 field in the Gulf of
Mexico, increased drilling costs for a well at the West Cameron
Block 146 field in the Gulf of Mexico, and downward reserve
revisions for fields located in the U.K. North Sea.

The facts and circumstances leading to the E&P impairments in
1996 were rapidly declining production rates and production
forecasts for the Point Arguello field offshore California, and
weaker natural gas price outlooks and disappointing drilling and
production results on certain Canadian properties.  The RM&T
impairment in 1996 relates to the company's retail expansion and
image improvement program, and includes stations that will be
razed and rebuilt and others that the company plans to sell.

The E&P impairments in 1995 were primarily the result of adopting
FASB Statement No. 121, which calls for evaluation of impairment
of E&P assets on a field-by-field basis, rather than using one
worldwide cost center for proved properties.

The fair values of impaired E&P assets were determined by using
the present values of expected future cash flows.  The fair
values of impaired RM&T assets were determined by using the
present values of expected future cash flows, as well as
information about sales and purchases of similar property in the
same geographic area.  The fair values of Chemicals and Corporate
assets considered to be impaired were determined based on
information about sales and purchases of similar assets.


                                82

<PAGE>



Note 7 -- Accrued Dismantlement, Removal and Environmental Costs

At December 31, 1997 and 1996, the company had accrued
$670 million and $686 million, respectively, of dismantlement and
removal costs, primarily related to worldwide offshore production
facilities and to production facilities at Prudhoe Bay in Alaska.
Estimated total future dismantlement and removal costs at
December 31, 1997, were $986 million.  These costs are accrued
primarily on the unit-of-production method.

Phillips had accrued environmental costs, primarily related to
clean-up of ponds and pits at domestic refineries and underground
storage tanks at U.S. service stations, and other various costs,
of $40 million and $49 million at December 31, 1997 and 1996,
respectively.  Phillips had also accrued $32 million and
$33 million of environmental costs associated with discontinued
or sold operations at December 31, 1997 and 1996, respectively.
Also, $7 million and $9 million were included at December 31,
1997 and 1996, respectively, for sites where the company has been
named a PRP.  At the same dates, $4 million and $6 million,
respectively, had been accrued for other environmental
litigation.  At December 31, 1997 and 1996, total environmental
accruals were $83 million and $97 million, respectively.

Of the total $753 million of accrued dismantlement, removal and
environmental costs at December 31, 1997, $40 million was
classified as short-term on the balance sheet, under the caption
"Other accruals."  At year-end 1996, the total $783 million was
classified as long-term.


Note 8 -- J-Block Settlement

On June 2, 1997, Phillips Petroleum Company United Kingdom
Limited and its co-venturers, Agip (U.K.) Limited and BG
Exploration and Production Limited reached a settlement with
Enron Europe Limited (Enron) concerning J-Block gas production in
the U.K. sector of the North Sea.  Under the terms of the
settlement agreement, Enron made an immediate cash payment of
$440 million to the J-Block owners; the existing take-or-pay
depletion contract was amended to become a firm long-term supply
contract; and the fixed contract price for J-Block gas was
reduced to reflect current market conditions for long-term gas
sales contracts.  The total contract gas quantity, however,
remains essentially the same.  Phillips' share of the
$440 million cash payment was $161 million.  The settlement
concluded all J-Block litigation with Enron.  The income
associated with the cash payment will be recognized over the
remaining term of the supply contract.


                                83

<PAGE>



Note 9 -- Debt

Long-term debt at December 31 was:

                                             Millions of Dollars
                                            ---------------------
                                              1997           1996
                                            ---------------------

9 1/2% Notes Due 1997                       $    -            300
9 3/8% Notes Due 20ll                          349            349
9.18% Notes Due September 15, 2021             300            300
9% Notes Due 2001                              250            250
8.86% Notes Due May 15, 2022                   250            250
8.49% Notes Due January 1, 2023                250            250
7.92% Notes Due April 15, 2023                 250            250
7.20% Notes Due November 1, 2023               250            250
6.65% Notes Due March 1, 2003                  100            100
5 5/8% Marine Terminal Revenue Bonds,
  Series 1977 Due 2007                          20             20
Revolving debt due to banks and others
  through 2002 at 3.7% - 9%                    474            232
Guarantees of LTSSP bank loans payable
  at 4.98% - 6.1875%                           425            451
Medium-term notes due various years
  at 7.6% - 8%                                  84            100
Other obligations                                7             27
-----------------------------------------------------------------
Total debt                                   3,009          3,129
Notes payable and long-term debt due
  within one year                             (234)          (574)
-----------------------------------------------------------------
Long-term debt                              $2,775          2,555
=================================================================


Maturities in 1998 through 2002 are:  $234 million (included in
current liabilities), $85 million, $1 million, $408 million and
$111 million, respectively.

The company's LTSSP has two term-loan agreements:  one requiring
repayment in annual installments through the year 1998, and a
second requiring annual installments beginning in 2005, and
continuing through 2015.  The outstanding balances of the loans
at December 31, 1997, were $28 million and $397 million,
respectively.

Under the LTSSP $397 million 25-year-term bank loan, any
participating bank in the syndicate of lenders may cease to
participate on December 5, 2004, by giving not less than
180 days' prior notice to the LTSSP and the company.  The company
does not anticipate a cessation of participation by the lenders,
and plans to commence scheduled repayments beginning in 2005.


                                84

<PAGE>



Each bank participating in the LTSSP loan has the optional right,
if the current company directors or their approved successors
cease to be a majority of the Board of Directors (Board), and
upon not less than 90 days' notice, to cease to participate in
the loan.  Under the above conditions, such banks' rights and
obligations under the loan agreement must be purchased by the
company if not transferred to a bank of the company's choice.
(See Note 15 for additional discussion of the LTSSP.)

During 1997, Phillips increased its revolving bank credit
facility from $1.1 billion to $1.5 billion.  The company's
commercial paper program is supported by this credit facility in
an amount equal to 100 percent of the commercial paper
outstanding.  The commercial paper program was raised from
$250 million to $1.5 billion this year.  At December 31, 1997,
nothing was outstanding under the revolving bank credit facility,
while $311 million in commercial paper was outstanding.

During 1997, the company's wholly owned subsidiary, Phillips
Petroleum Company Norway, refinanced its $300 million revolving
credit facility, maturing in 2001, to secure more favorable
interest rates.  The committed amount and term remained
unchanged.  At December 31, 1997, $158 million was outstanding
under this facility.

Depending on the credit facility, borrowings may bear interest at
a margin above rates offered by certain designated banks in the
London interbank market or at margins above certificate of
deposit or prime rates offered by certain designated banks in the
United States.  The agreements call for commitment fees on
available, but unused, amounts.  The agreements also contain
early termination rights if the company's current directors or
their approved successors cease to be a majority of the Board.


Note 10 -- Contingencies

In the case of all known contingencies, the company accrues an
undiscounted liability when the loss is probable and the amount
is reasonably estimable.  These liabilities are not reduced for
potential insurance recoveries.  If applicable, undiscounted
receivables are accrued for probable insurance or other third-
party recoveries.  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


                                85

<PAGE>



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 and
local 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 clean-up under these laws at federal Superfund and comparable
state sites.  In the future, the company may be involved in
additional environmental assessments, clean-ups and proceedings.

Tax -- The company has a number of issues outstanding with the
IRS related to tax years 1987 through 1992 that are expected to
be resolved in the near term as a result of resolving the Kenai
LNG tax case.  Although it is too early to determine the final
financial effects, a favorable outcome would have a positive
effect on net income and cash flow while an unfavorable one would
not impact the company's net income or cash position.

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 against future charges for
the shipping or processing of petroleum liquids, natural gas and
refined products.


                                86

<PAGE>



Note 11 -- Financial Instruments and Derivative Contracts

Derivative Instruments and Other Contracts Held for Purposes
Other Than Trading

The company and certain of its subsidiaries use financial and
commodity-based derivative contracts to manage exposures to
currency and commodity price fluctuations.  For every derivative
contract used, there is an offsetting physical or financial
position, firm commitment or anticipated transaction.  Neither
Phillips nor its subsidiaries hold or issue derivative financial
instruments with leveraged features.  In 1997 and 1996, the net
realized and unrealized gains and losses from derivative
contracts were not material to the company's financial
statements.

Financial Derivative Contracts -- The company uses forward
exchange contracts to manage exposures to currency exchange rate
fluctuations associated with certain assets, liabilities and firm
commitments.  All forward exchange contracts are adjusted monthly
to fair market value with recognition of the resulting gains and
losses.  At December 31, 1996, a U.K. subsidiary had purchased
forward 41 million U.S. dollars to hedge purchases of crude oil
in U.S. dollars.  This notional amount represents only the
amounts hedged, not the net market exposure of items hedged,
which is significantly less.  Any gain or loss from this position
offsets gains or losses on the underlying exposures.  There were
no outstanding contracts at December 31, 1997.

Commodity Derivative Contracts -- Phillips uses commodity-based
swaps and futures to manage exposures to commodity price
fluctuations.  The following table summarizes the company's major
commodity hedging activities.  Again, the notional volumes
represent only the amounts hedged, not the net market exposure of
the items hedged, which is significantly less.


                                87

<PAGE>



                                          Notional Volume Positions
                                          -------------------------
                                                 December 31
                                Class of  -------------------------
                              Derivative      1997             1996
                              ----------  -------------------------

Source of Commodity Price Risk
Natural gas (billions of
  British thermal units)
    Sales of domestic natural
      gas production               Swaps    16,082           61,140
-------------------------------------------------------------------
Crude oil (thousands of
  barrels)
    Timing differences
      between purchases and
      refining                   Futures     2,627            1,050
-------------------------------------------------------------------
Refined products (thousands
  of barrels)
    Feedstock-to-product
      margins on gasoline          Swaps     5,119            4,789
      and distillates            Futures     2,613              641
-------------------------------------------------------------------


In the case of anticipated transactions, expected product sales
or margins are hedged up to 12 months into the future.


Credit Risk

The company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash
equivalents, trade receivables and over-the-counter derivative
contracts.  Phillips' cash equivalents are placed in high-quality
time deposits with major international banks and financial
institutions, limiting the company's exposure to concentrations
of credit risk.  The company's trade receivables result primarily
from its petroleum and chemicals operations and reflect a broad
customer base, both nationally and internationally.  The company
also routinely assesses the financial strength of its customers.

The credit risk from the company's over-the-counter derivative
contracts, such as forwards and swaps, derives from the
counterparty to the transaction, typically a major bank or
financial institution.  Phillips does not anticipate non-
performance by any of these counterparties, none of whom does
sufficient volume with the company to create a significant
concentration of credit risk.  Futures contracts have a
negligible credit risk because they are traded on the New York
Mercantile Exchange (NYMEX) or International Petroleum Exchange
of London Limited (IPE).


                                88

<PAGE>



Fair Values of Financial Instruments

The following methods and assumptions were used by the company in
estimating the fair value of its financial instruments:

Cash and cash equivalents:  The carrying amount reported in the
balance sheet approximates fair value.

Debt and mandatorily redeemable preferred securities:  The
carrying amount of the company's floating-rate debt approximates
fair value.  The fair value of the fixed-rate debt and
mandatorily redeemable preferred securities is estimated based on
quoted market prices.

Swaps:  Fair value is estimated based on quoted market prices of
comparable contracts, and approximates the net gains and losses
that would have been realized if the contracts had been closed
out at year-end.

Forward exchange contracts:  Fair value is estimated by comparing
the contract rate to the spot rate in effect on December 31 and
approximates the net gains and losses that would have been
realized if the contracts had been closed out at year-end.

Commodity futures:  Fair value is based on quoted market prices
obtained from NYMEX and IPE.

Certain company financial instruments at December 31 were:

                                         Millions of Dollars
                                   ------------------------------
                                   Carrying Amount    Fair Value
                                   ---------------  -------------
                                     1997     1996   1997    1996
                                   ---------------  -------------
Financial assets
  Forward exchange contracts       $    -       14      -      14
  Futures                               3        -      3       -
  Swaps                                 -        -      2       *
Financial liabilities
  Total debt, including
    current maturities              3,009    3,129 3,201    3,293
  Mandatorily redeemable
    preferred securities              650      300    675     303
  Forward exchange contracts            -       19     -       19
  Futures                               -        1     -        1
  Swaps                                 -        -     1       12
-----------------------------------------------------------------
*Indicates amount was less than $1 million.


                                89

<PAGE>



Note 12 -- Preferred Stock

Company-Obligated Mandatorily Redeemable Preferred
Securities of Phillips Capital Trusts

During 1996 and 1997, the company formed two new statutory
business trusts, Phillips 66 Capital I (Trust I) and Phillips 66
Capital II (Trust II), in which the company owns all of the
common stock.  The Trusts exist for the sole purpose of issuing
trust securities and investing the proceeds thereof in an
equivalent amount of subordinated debt securities of Phillips.

On May 29, 1996, Trust I completed a $300 million underwritten
public offering of 12,000,000 shares of 8.24% Trust Originated
Preferred Securities (Preferred Securities).  The sole asset of
Trust I is $309 million of Phillips' 8.24% Junior Subordinated
Deferrable Interest Debentures due 2036 (Subordinated Debt
Securities I), purchased by Trust I on May 29, 1996.  The
Subordinated Debt Securities I are unsecured obligations of
Phillips, subordinate and junior in right of payment to all
present and future senior indebtedness of Phillips.  The
Subordinated Debt Securities I are due May 29, 2036, and are
redeemable in whole, or in part, at the option of Phillips, on or
after May 29, 2001, at a redemption price of $25 per share, plus
accrued and unpaid interest.

On January 17, 1997, Trust II completed a $350 million
underwritten public offering of 350,000 shares of 8% Capital
Securities (Capital Securities).  The sole asset of Trust II is
$361 million of the company's 8% Junior Subordinated Deferrable
Interest Debentures due 2037 (Subordinated Debt Securities II)
purchased by Trust II on January 17, 1997.  The Subordinated Debt
Securities II are unsecured obligations of Phillips, subordinate
and junior in right of payment to all present and future senior
indebtedness of Phillips, but equal in right of payment with
Subordinated Debt Securities I.  The Subordinated Debt
Securities II are due January 15, 2037, and are redeemable in
whole, or in part, at the option of Phillips, on or after January
15, 2007, at a redemption price of $1,000 per share, plus accrued
and unpaid interest.

The subordinated debt securities and related income statement
effects are eliminated in the company's consolidated financial
statements.  When the company redeems the subordinated debt
securities, Trusts I and II are required to apply all redemption
proceeds to the immediate redemption of the Trusts' Securities.
Phillips fully and unconditionally guarantees the Trusts'
obligations under the Preferred and Capital Securities.


                                90

<PAGE>



Preferred Stock of Subsidiary

In December 1997, the company's subsidiary, Phillips Gas Company,
redeemed its 13,800,000 shares of Series A 9.32% Cumulative
Preferred Stock at par.


Note 13 -- Preferred Share Purchase Rights

The company has outstanding one Preferred Share Purchase Right
(Right) for each outstanding share of the company's common stock.
The Rights enable holders to either acquire additional shares of
Phillips common stock or purchase the stock of an acquiring
company at a discount, depending on specific circumstances.  The
Rights, which expire July 31, 1999, will be exercisable only if a
person or group acquires 20 percent or more of the company's
common stock or announces a tender offer that would result in
ownership of 20 percent or more of the common stock.  The Rights
may be redeemed by the company in whole, but not in part, for one
cent per Right.


Note 14 -- Non-Mineral Operating Leases

The company leases ocean transport vessels, tank and hopper
railcars, corporate aircraft, service stations, computers, office
buildings and other facilities and equipment.  At December 31,
1997, future minimum payments due under non-cancelable operating
leases were:
                                                         Millions
                                                       of Dollars
                                                       ----------

1998                                                         $ 88
1999                                                           75
2000                                                           51
2001                                                           38
2002                                                           35
Remaining years                                               245
-----------------------------------------------------------------
                                                             $532
=================================================================


The amounts above do not include guaranteed residual values of
$263 million, related to two liquefied natural gas tankers under
lease through the year 2000, retail service stations and
corporate aircraft.


                                91

<PAGE>



Operating lease rental expense for years ended December 31
was:
                                           Millions of Dollars
                                         ------------------------
                                         1997      1996      1995
                                         ------------------------

Total rentals                            $119       108       112
Less sublease rentals                       2         2         3
-----------------------------------------------------------------
                                         $117       106       109
=================================================================


Note 15 -- Employee Benefit Plans

Defined Benefit Plans

The company has defined benefit retirement plans covering
substantially all employees.  The plans are generally non-
contributory, with benefit formulas based on employee earnings
and credited service.

Net pension cost was:
                                    Millions of Dollars
                          ---------------------------------------
                              U.S. Plans          Foreign Plans
                          -------------------  ------------------
                           1997   1996   1995  1997   1996   1995
                          -------------------  ------------------

Service cost              $  35     36     26    15     14     14
Interest cost                60     57     48    21     20     18
Return on assets
  Actual                   (117)   (36)   (86)  (52)   (32)   (36)
  Deferred gains (losses)    68     (7)    57    26      6     14
Amortization of
  Net asset                  (7)    (7)    (7)    -      -      -
  Net losses (gains)         14     19      8    (1)    (2)    (1)
  Prior service cost          3      3      3     1      1      1
-----------------------------------------------------------------
Net pension cost          $  56     65     49    10      7     10
=================================================================


In determining net pension cost, Phillips has elected to amortize
net gains and losses on a straight-line basis over 10 years.  A
table showing the funded status of the plans and a reconciliation
with accrued pension cost and deferred gain on reversion at
December 31 follows:


                                92

<PAGE>



                                         Millions of Dollars
                                   ------------------------------
                                     U.S. Plans     Foreign Plans
                                   --------------   -------------
                                    1997     1996   1997     1996
                                   --------------   -------------

Plan assets at fair value          $ 626      480    373      339
-----------------------------------------------------------------
Actuarial present value of
  benefit obligations
    Vested benefits                  581      478    256      231
    Non-vested benefits               37       31      -        -
-----------------------------------------------------------------
Accumulated benefit obligation       618      509    256      231
Effect of projected future
  salary increases                   291      268     87       84
-----------------------------------------------------------------
Projected benefit obligation         909      777    343      315
-----------------------------------------------------------------
Excess asset (obligation)           (283)    (297)    30       24
Unrecognized net asset               (20)     (27)    (1)      (1)
Unrecognized net (gains) losses      125      138    (13)     (14)
Unrecognized prior service cost       45       44      9       10
-----------------------------------------------------------------
Prepaid (accrued) pension cost
  and deferred gain on reversion   $(133)    (142)    25       19
=================================================================

Assumptions -- Weighted Average
  at December 31
Rate of compensation increase       4.25%    4.25   3.70     4.00
Discount rate                       7.00     7.50   7.00     7.40
Long-term rate of return on
  assets                           10.25    10.50   7.80     8.20
-----------------------------------------------------------------


The plan assets reflected in the above table include a
participating annuity contract, commingled funds, real estate,
stocks, bonds and insurance contracts.  A foreign plan also holds
employee home mortgage loans.

For 1997, domestic plan assets exceeded the accumulated benefit
obligation reflected above, which includes liabilities of
$57 million for supplemental retirement plans that are not
qualified under the Employee Retirement Income Security Act of
1974 (ERISA).  For 1996, domestic plan assets exceeded the
accumulated benefit obligation after eliminating liabilities of
$47 million related to non-qualified plans.  These non-qualified
plans are funded by irrevocable grantor trusts, not out of the
plan assets reflected in the above schedule.

For U.S. plans that are qualified under ERISA, which includes the
company's primary retirement plan for employees, the company's
funding policy is to contribute at least the minimum required by
ERISA.  The contribution requirements are determined by an
independent actuary using actuarial assumptions and asset
valuation techniques allowed by ERISA and generally accepted in
the actuarial profession as appropriate for funding purposes.


                                93

<PAGE>



These ERISA funding calculations differ in some important
respects from the assumptions and techniques required by
financial accounting rules used to prepare the information in the
above table.  However, the company's qualified U.S. retirement
plans have assets that exceed the value of the liabilities
accumulated to date, when valued under either set of
requirements.  For the foreign plans, the value of plan assets is
also generally larger than the accumulated benefit obligation.
Contributions to foreign plans are dependent upon local laws and
tax regulations and, in most cases, are shared by co-venturers.


Other Postretirement Plans

Company plans provide certain health care and life insurance
benefits for substantially all retired U.S. employees.  The
health care plan is contributory, while the life insurance plan
is non-contributory.  Retirees covered by the health care plan
essentially pay their own way, except those persons who retired
prior to March 1986 and early retirees not yet eligible for
Medicare.  The company's policy is to fund the health care plan
in amounts sufficient to cover current claims.  The life
insurance plan is funded based on actuarial determinations.

Net postretirement benefit cost was:

                                       Millions of Dollars
                               ----------------------------------
                                    Health             Life
                               ----------------  ----------------
                               1997  1996  1995  1997  1996  1995
                               ----------------  ----------------

Service cost                    $ 2     2     2     1     1     1
Interest cost                     5     6     6     4     4     4
Return on assets
  Actual                          -     -     -    (2)   (2)   (2)
  Deferred losses                 -     -     -     -     -     -
Amortization of
  Net losses                      -     1     1     1     2     1
  Prior service cost             (4)   (4)   (4)    -    (1)   (1)
-----------------------------------------------------------------
Net postretirement benefit cost $ 3     5     5     4     4     3
=================================================================


In determining net postretirement benefit cost, the company has
elected to amortize net gains and losses on a straight-line basis
over 10 years.


                                94

<PAGE>



The following table shows the funded status of the plans and a
reconciliation with accrued postretirement benefit cost at
December 31.
                                         Millions of Dollars
                                     ----------------------------
                                        Health          Life
                                     -------------  -------------
                                     1997     1996  1997     1996
                                     -------------  -------------
Plan assets at fair value, held
  under a reserve deposit contract   $  -        -    29       31
-----------------------------------------------------------------
Accumulated postretirement
  benefit obligation (APBO)
    Retirees                           53       62    53       53
    Fully eligible active
      participants                     11       10     5        4
    Other active participants          10       10     3        3
-----------------------------------------------------------------
                                       74       82    61       60
-----------------------------------------------------------------
APBO in excess of plan assets         (74)     (82)  (32)     (29)
Unrecognized net losses                 7        2    12       14
Unrecognized prior service cost       (23)     (13)   (3)      (3)
-----------------------------------------------------------------
Accrued postretirement benefit
  cost                               $(90)     (93)  (23)     (18)
=================================================================

Financial Assumptions
Discount rate                        6.75%    7.25  6.75     7.25
Long-term rate of return on assets
  (non-taxable)                         -        -  6.60     7.00
Rate of compensation increase           -        -  4.25     4.25
-----------------------------------------------------------------


At December 31, 1997, the health care cost trend rate is assumed
to decrease gradually from 7 percent in 1998 to 5 percent in 2003
and 2004.  No increases in medical costs are assumed for years
beginning in 2005 because of a provision in the health plan that
freezes the company's contribution at 2004 levels.  The same
health care cost trend rate was used at December 31, 1996.
Increasing the assumed health care cost trend rate by one
percentage point in each year would increase the APBO by
$4 million and $3 million at December 31, 1997 and 1996,
respectively, and the aggregate of the service and interest cost
components by $1 million for both 1997 and 1996.

For both defined benefit plans and other postretirement plans,
certain financial assumptions are utilized in determining the
company's projected benefit obligation.  These assumptions are
examined periodically by the company, and any required changes
are incorporated in the subsequent determination of projected
benefit obligations.


                                95

<PAGE>



Termination Benefits

The company recorded charges of $5 million, $4 million and
$69 million for severance benefits in connection with work force
reductions in 1997, 1996 and 1995, respectively.


Defined Contribution Plans

Most employees may elect to participate in the company-sponsored
Thrift Plan by contributing a portion of their earnings to any of
several investment funds.  A percentage of the employee
contribution is matched by the company.  Company contributions
charged to expense were $6 million each in 1997, 1996 and 1995.

The company LTSSP is a leveraged employee stock ownership plan.
Most employees may elect to participate in the LTSSP by
contributing 1 percent of their salary and receiving an
allocation of shares of common stock proportionate to their
contributions.  In 1990 and 1988, the LTSSP borrowed funds that
were used to purchase previously unissued shares of company
common stock.  Since the company guarantees the LTSSP's
borrowings, the unpaid balance is reported as a liability of the
company and unearned compensation is shown as a reduction of
common stockholders' equity.  Dividends on all shares are charged
against retained earnings.  The debt is serviced by the LTSSP
from company contributions and dividends received on certain
shares of common stock held by the plan.  The shares held by the
LTSSP are released for allocation to participant accounts based
on debt service payments on LTSSP borrowings.  In addition,
during the period from 1998 through 2005, when no debt principal
payments are scheduled to occur, the company has committed to
make direct contributions to the LTSSP to ensure a certain
minimum level of stock allocation to participant accounts.

The company recognizes interest expense as incurred and
compensation expense based on the cost of shares released, using
the shares-allocated method.  The company recognized total LTSSP
expense of $27 million, $30 million and $33 million in 1997, 1996
and 1995, respectively.  This included compensation expense of
$27 million, $30 million and $29 million in 1997, 1996 and 1995,
respectively.  Company contributions to the LTSSP in 1997, 1996
and 1995 were $20 million, $14 million and $21 million,
respectively.  Dividends used to service debt were $32 million,
$39 million and $36 million in 1997, 1996 and 1995, respectively.
These dividends reduced the amount of expense recognized each
period.  Interest incurred on the LTSSP debt in 1997, 1996 and
1995 was $26 million, $27 million and $31 million, respectively.


                                96

<PAGE>



The total LTSSP shares as of December 31, 1997, were:

Unallocated shares                                     12,732,919
Allocated shares                                       17,446,774
-----------------------------------------------------------------
Total LTSSP shares                                     30,179,693
=================================================================


Incentive Compensation Plans

The company has a Performance Incentive Program and an Annual
Incentive Compensation Plan to provide awards to most employees
with additional compensation if key safety, operating and
financial objectives are met.  In anticipation of awards under
both of these plans and the Omnibus Securities Plan, provisions
of $64 million, $75 million and $52 million were charged against
earnings in 1997, 1996 and 1995, respectively.

Under the Omnibus Securities Plan (the Plan) approved by
shareholders, stock options and stock awards for certain
employees are authorized for up to eight-tenths of 1 percent
(.8 percent) of the total issued and outstanding shares as of
December 31 of the year preceding the awards.  Any shares not
issued in the current year are available for future grant.  The
Plan could result in an 8 percent dilution of stockholders'
interest if all available shares are awarded over the 10-year
life of the Plan.  The Plan also provides for non-stock-based
awards.

Stock options granted under provisions of the Plan and earlier
plans permit purchase of the company's common stock at exercise
prices equivalent to the average market price of the stock on the
date the options were granted.  The options have terms of 10
years and normally become exercisable in increments of up to
25 percent on each anniversary date following the date of grant.
Stock Appreciation Rights (SARs) may from time to time be affixed
to the options.  Options exercised in the form of SARs permit the
holder to receive stock, or a combination of cash and stock,
subject to a declining cap on the exercise price.

The company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB No. 25), and related Interpretations in accounting for its
employee stock options, and not the fair-value accounting
provided for under FASB Statement No. 123, "Accounting for Stock-
Based Compensation."  Because the exercise price of Phillips'
employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized
under APB No. 25.  The effect of applying the fair-value method
of Statement No. 123 to the company's stock-based awards would
result in net income and earnings per share that are not
materially different from amounts reported in the financial


                                97

<PAGE>



statements.  A summary of Phillips' stock option activity
follows:

                                                 Weighted-Average
                                       Options     Exercise Price
                                    ----------   ----------------
Outstanding at December 31, 1994     6,325,036             $24.93
Granted                              1,331,972              31.73
Exercised                             (529,094)             22.12
Forfeited                              (45,193)             30.41
----------------------------------------------   ----------------
Outstanding at December 31, 1995     7,082,721             $26.38
Granted                              1,292,707              35.26
Exercised                           (1,384,966)             22.58
Forfeited                              (27,059)             33.74
----------------------------------------------   ----------------
Outstanding at December 31, 1996     6,963,403             $28.76
Granted                              1,181,103              44.93
Exercised                           (1,177,307)             25.01
Forfeited                              (50,948)             40.25
----------------------------------------------   ----------------
Outstanding at December 31, 1997     6,916,251             $32.07
==============================================   ----------------

Outstanding at December 31, 1997
                                        Weighted-Average
                               ----------------------------------
Exercise Prices      Options   Remaining Lives     Exercise Price
----------------   ---------   ---------------     --------------
$12.63 to $31.44   4,331,966        4.97 years             $27.63
$32.25 to $50.72   2,584,285        8.45 years              39.52
-----------------------------------------------------------------

Exercisable at December 31
                                                 Weighted-Average
                   Exercise Prices      Options    Exercise Price
                  ----------------    ---------  ----------------
1997              $12.63 to $31.44    3,436,254            $26.74
                  $32.25 to $50.72      412,916             35.34
-----------------------------------------------------------------
1996                             -    3,626,834            $25.72
-----------------------------------------------------------------
1995                             -    3,915,145            $23.75
-----------------------------------------------------------------


Compensation and Benefits Trust

In 1995, the company established the CBT, an irrevocable grantor
trust, administered by an independent trustee and designed to
acquire, hold and distribute shares of the company's common stock
to fund certain future compensation and benefit obligations of
the company.  The CBT does not increase or alter the amount of
benefits or compensation that will be paid under existing plans,
but offers the company enhanced financial flexibility in
providing the funding requirements of those plans.  Phillips also
has flexibility in determining the timing of distributions of
shares from the CBT to fund compensation and benefits, subject to
a minimum distribution schedule.  The trustee votes shares held
by the CBT in accordance with voting directions from eligible
employees, as specified in a trust agreement with the trustee.


                                98

<PAGE>



The company sold 29.2 million shares of previously unissued
Phillips common stock, $1.25 par value, to the CBT in exchange
for cash previously contributed to the CBT by Phillips in the
amount of $37 million and a promissory note from the CBT to
Phillips of $952 million.  The CBT is consolidated by Phillips,
therefore the cash contribution and promissory note are
eliminated in consolidation.  Shares held by the CBT are valued
at cost and do not affect earnings per share or total common
stockholders' equity until after they are transferred out of the
CBT.  All shares are required to be transferred out of the CBT by
January 1, 2021.


Note 16 -- Taxes

Taxes charged to income were:

                                            Millions of Dollars
                                         ------------------------
                                           1997     1996     1995
                                         ------------------------
Taxes Other Than Income Taxes
Property                                 $   82       80       83
Production                                   69       65       54
Payroll                                      55       56       59
Environmental                                37       40       58
Other                                        20       23       12
-----------------------------------------------------------------
                                            263      264      266
-----------------------------------------------------------------
Income Taxes
Federal
  Current                                   145       (6)      95
  Deferred                                  142      189       18
Foreign
  Current                                   547      624      520
  Deferred                                   72       43      (43)
State and local
  Current                                    16       (2)       7
  Deferred                                   19       21       (2)
-----------------------------------------------------------------
                                            941      869      595
-----------------------------------------------------------------
Total taxes charged to income            $1,204    1,133      861
=================================================================


Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for tax purposes.  Major components of deferred tax liabilities
and assets at December 31 were:


                                99

<PAGE>



                                              Millions of Dollars
                                              -------------------
                                                1997         1996
                                              -------------------
Deferred Tax Liabilities
Depreciation, depletion and amortization      $2,129        2,001
Other                                             39           41
-----------------------------------------------------------------
Total deferred tax liabilities                 2,168        2,042
-----------------------------------------------------------------
Deferred Tax Assets
Contingency accruals                              53           47
Benefit plan accruals                            214          212
Accrued dismantlement, removal and
  environmental costs                            264          279
Other financial accruals and deferrals           116          130
Alternative minimum tax and other
  credit carryforwards                           344          343
Loss carryforwards                               383          359
Depreciation, depletion and amortization           -           13
Other                                             19           21
-----------------------------------------------------------------
Total deferred tax assets                      1,393        1,404
Less valuation allowance                         232          208
-----------------------------------------------------------------
Net deferred tax assets                        1,161        1,196
-----------------------------------------------------------------
Net deferred tax liabilities                  $1,007          846
=================================================================


Valuation allowances have been established for certain foreign
and state net operating loss carryforwards that reduce deferred
tax assets to an amount that will more likely than not be
realized.  Uncertainties that may affect the realization of these
assets include tax law changes and the future level of product
prices, costs and tax rates.  Based on the company's historical
taxable income, its expectations for the future, and available
tax planning strategies, Management expects that the net deferred
tax assets will be realized as offsets to reversing deferred tax
liabilities and as reductions in future taxable operating income.
The alternative minimum tax credit can be carried forward
indefinitely to reduce the company's regular tax liability.  The
valuation allowance increased $24 million during 1997, primarily
due to an increase in loss carryforwards for various companies.

Deferred taxes have not been provided on temporary differences
related to investments in certain foreign subsidiaries and
corporate joint ventures that are essentially permanent in
duration.  At December 31, 1997 and 1996, these temporary
differences were $239 million and $248 million, respectively.
Determination of the amount of unrecognized deferred taxes on
these temporary differences is not practicable due to foreign tax
credits and exclusions.


                                100

<PAGE>



The amounts of U.S. and foreign income before income taxes, with
a reconciliation of tax at the federal statutory rate with the
provision for income taxes, were:
                                                      Percent of
                           Millions of Dollars       Pretax Income
                           --------------------  --------------------
                             1997   1996   1995   1997    1996   1995
                           --------------------  --------------------
Income before income taxes
  United States            $  909  1,179    332   47.8%   54.3   31.2
  Foreign                     991    993    732   52.2    45.7   68.8
---------------------------------------------------------------------
                           $1,900  2,172  1,064  100.0%  100.0  100.0
=====================================================================

Federal statutory
  income tax               $  665    760    372   35.0%   35.0   35.0
Foreign taxes in excess of
  federal statutory rate      320    337    267   16.8    15.5   25.0
Credit for producing fuel
  from a non-conventional
  source                      (29)   (27)   (31)  (1.5)   (1.2)  (2.9)
Kenai LNG tax settlement      (31)  (194)     -   (1.6)   (9.0)     -
Other                          16     (7)   (13)    .8     (.3)  (1.2)
---------------------------------------------------------------------
                           $  941    869    595   49.5%   40.0   55.9
=====================================================================


Excise taxes accrued on the sale of petroleum products were
$1,331 million, $1,257 million and $1,150 million for the years
ended December 31, 1997, 1996 and 1995, respectively.  These
taxes are excluded from reported revenues and expenses.

Kenai LNG Tax Settlement -- On February 26, 1996, the U.S. Tax
Court's previous decisions relating to the company's sales of LNG
from its Kenai, Alaska, facility to Japan became final.  The Tax
Court's decisions supported the company's position that more than
50 percent of the income for years 1975 through 1978 was from a
foreign source.  The favorable resolution of this issue increased
net income in 1996 by $565 million.

Final resolution of all outstanding issues with the IRS was
achieved for years 1983 through 1986.  Refunds, including
interest, of $107 million, primarily relating to the company's
sales of LNG from its Kenai, Alaska, facility, increased net
income in 1997 by $83 million.  The company also has a number of
issues outstanding with the IRS related to tax years 1987 through
1992, further discussed in Note 10 -- Contingencies.


                                101

<PAGE>



Note 17 -- Cash Flow Information

                                           Millions of Dollars
                                         ------------------------
                                         1997      1996      1995
                                         ------------------------
Non-Cash Investing and Financing
  Activities
Issuance of promissory notes to purchase
  property, plant and equipment          $  -        26         -
Contribution of non-cash net assets to
  equity-method affiliates                  -         -        55
Fair market value of property, plant
  and equipment exchanged as part of a
  broader monetary transaction             49         -         -
Common stock issued to establish CBT        -         -       989
-----------------------------------------------------------------
Cash Payments
Interest
  Debt                                   $212       220       224
  Taxes and other                          22        31        19
-----------------------------------------------------------------
                                         $234       251       243
=================================================================
Income taxes                             $770       765       576
-----------------------------------------------------------------


Note 18 -- Other Financial Information

                                           Millions of Dollars
                                         Except Per Share Amounts
                                         ------------------------
                                          1997     1996      1995
                                         ------------------------
Interest
Incurred
  Debt                                   $ 212      222       228
  Other                                     32       26        67
-----------------------------------------------------------------
                                           244      248       295
Capitalized                                (46)     (31)      (30)
-----------------------------------------------------------------
Expensed                                 $ 198      217       265
=================================================================
Maintenance and Repairs -- expensed      $ 493      416       413
-----------------------------------------------------------------
Research and Development
  Expenditures -- expensed               $  56       59        51
-----------------------------------------------------------------
Foreign Currency Transaction
  Gains (Losses) -- after-tax            $ (17)      41        (3)
-----------------------------------------------------------------
Cash Dividends paid per
  common share                           $1.34     1.25     1.195
-----------------------------------------------------------------


                                102

<PAGE>



Note 19 -- Segment and Geographic Information

The company is involved in four business segments:
(1) Exploration and Production (E&P) -- explores for and produces
crude oil, natural gas and natural gas liquids on a worldwide
basis; (2) Gas Gathering, Processing and Marketing (GPM) --
gathers and processes both natural gas produced by others and
natural gas produced from the company's own reserves, primarily
in Oklahoma, Texas and New Mexico; (3) Refining, Marketing and
Transportation (RM&T) -- refines, markets and transports crude
oil and petroleum products, primarily in the United States;
(4) Chemicals -- fractionates natural gas liquids and
manufactures and markets a broad range of petroleum-based
chemical products on a worldwide basis.  Corporate and Other
includes general corporate overhead, net interest expense and
various other operations.

Sales within Phillips by business segment and by geographic area
are at market value.  Operating profit excludes general corporate
revenue and expense, interest, minority interest, equity in
earnings of affiliates, and income taxes.  Income taxes are
allocated based upon each segment's taxable income reduced by
applicable tax credits.  Corporate assets include all cash and
cash equivalents.


                                103

<PAGE>



Analysis of Results by Business Segment

                                           Millions of Dollars
                                   -----------------------------------
                                         E&P        GPM           RM&T
                                   -----------------------------------
1997
Sales and Other Operating Revenues
    Outside customers                 $3,379**      952          7,347**
    Sales within Phillips                567        759            350
----------------------------------------------------------------------
      Segment sales                   $3,946      1,711          7,697
======================================================================
Operating Profit                      $1,316        161            190
    Equity in earnings of affiliates      39          1             15
    Preferred dividend requirements
      of subsidiary and capital
      trusts, and other minority
      interests                            1          -              -
    Corporate/non-operating items
        Interest expense                   -          -              -
        Kenai LNG tax settlement           -          -              -
        Other                              -          -              -
    Income taxes                        (747)       (61)           (68)
----------------------------------------------------------------------
      Net income (loss)               $  609        101            137
======================================================================
Assets
    Identifiable assets               $5,894      1,102          2,636
    Investments in and advances
      to affiliated companies            140          4            110
----------------------------------------------------------------------
      Total assets                    $6,034      1,106          2,746
======================================================================
Depreciation, Depletion and
  Amortization                        $  548         77            119
----------------------------------------------------------------------
Capital Expenditures and Investments  $1,346        116            235
----------------------------------------------------------------------

1996
Sales and Other Operating Revenues
    Outside customers                 $2,574        913          8,857
    Sales within Phillips              1,288        804            522
----------------------------------------------------------------------
      Segment sales                   $3,862      1,717          9,379
======================================================================
Operating Profit                      $1,289        232             56
    Equity in earnings of affiliates     (56)         -             18
    Preferred dividend requirements
      of subsidiary and capital
      trust, and other minority
      interests                           (1)         -              -
    Corporate/non-operating items
        Interest expense                   -          -              -
        Kenai LNG tax settlement           -          -              -
        Other                              -          -              -
    Income taxes                        (739)       (88)           (20)
----------------------------------------------------------------------
      Net income                      $  493        144             54
======================================================================
Assets
    Identifiable assets               $5,376      1,112          2,738
    Investments in and advances
      to affiliated companies            140          4            111
----------------------------------------------------------------------
      Total assets                    $5,516      1,116          2,849
======================================================================
Depreciation, Depletion and
  Amortization                        $  576         73            172
----------------------------------------------------------------------
Capital Expenditures and Investments  $  981         85            209
----------------------------------------------------------------------

1995
Sales and Other Operating Revenues
    Outside customers                 $2,224        481          7,674
    Sales within Phillips              1,096        641            366
----------------------------------------------------------------------
      Segment sales                   $3,320      1,122          8,040
======================================================================
Operating Profit                      $  876         13              7
    Equity in earnings of affiliates      39          -             17
    Preferred dividend requirements
      of subsidiary and other
      minority interests                  (1)         -              -
    Corporate/non-operating items
        Interest expense                   -          -              -
        Other                              -          -              -
    Income taxes                        (541)        (3)            (4)
----------------------------------------------------------------------
      Net income (loss)               $  373         10             20
======================================================================
Assets
    Identifiable assets               $4,828      1,048          2,543
    Investments in and advances
      to affiliated companies            225          5             87
----------------------------------------------------------------------
      Total assets                    $5,053      1,053          2,630
======================================================================
Depreciation, Depletion and
  Amortization                        $  520         73            133
----------------------------------------------------------------------
Capital Expenditures and Investments  $  856        274            150
----------------------------------------------------------------------



Analysis of Results by Business Segment

                                           Millions of Dollars
                                   -----------------------------------
                                              Corporate
                                   Chemicals  and Other*  Consolidated
                                   -----------------------------------
1997
Sales and Other Operating Revenues
    Outside customers                 $3,528          4         15,210
    Sales within Phillips                538         28              -
----------------------------------------------------------------------
      Segment sales                   $4,066         32         15,210
======================================================================
Operating Profit                      $  371         16          2,054
    Equity in earnings of affiliates      71          -            126
    Preferred dividend requirements
      of subsidiary and capital
      trusts, and other minority
      interests                            -         82             83
    Corporate/non-operating items
        Interest expense                   -       (198)          (198)
        Kenai LNG tax settlement           -         81             81
        Other                              -       (246)          (246)
    Income taxes                        (145)        80           (941)
----------------------------------------------------------------------
      Net income (loss)               $  297       (185)           959
======================================================================
Assets
    Identifiable assets               $2,638        868         13,138
    Investments in and advances
      to affiliated companies            468          -            722
----------------------------------------------------------------------
      Total assets                    $3,106        868         13,860
======================================================================
Depreciation, Depletion and
  Amortization                        $   95         24            863
----------------------------------------------------------------------
Capital Expenditures and Investments  $  275         71          2,043
----------------------------------------------------------------------

1996
Sales and Other Operating Revenues
    Outside customers                 $3,382          5         15,731
    Sales within Phillips                698         36              -
----------------------------------------------------------------------
      Segment sales                   $4,080         41         15,731
======================================================================
Operating Profit                      $  312          7          1,896
    Equity in earnings of affiliates      42          -              4
    Preferred dividend requirements
      of subsidiary and capital
      trust, and other minority
      interests                            -        (47)           (48)
    Corporate/non-operating items
        Interest expense                   -       (217)          (217)
        Kenai LNG tax settlement           -        571            571
        Other                              -        (34)           (34)
    Income taxes                        (109)        87           (869)
----------------------------------------------------------------------
      Net income                      $  245        367          1,303
======================================================================
Assets
    Identifiable assets               $2,406      1,223         12,855
    Investments in and advances
      to affiliated companies            438          -            693
----------------------------------------------------------------------
      Total assets                    $2,844      1,223         13,548
======================================================================
Depreciation, Depletion and
  Amortization                        $   91         29            941
----------------------------------------------------------------------
Capital Expenditures and Investments  $  205         64          1,544
----------------------------------------------------------------------

1995
Sales and Other Operating Revenues
    Outside customers                 $2,984          5         13,368
    Sales within Phillips                541         48              -
----------------------------------------------------------------------
      Segment sales                   $3,525         53         13,368
======================================================================
Operating Profit                      $  452         16          1,364
    Equity in earnings of affiliates      71          -            127
    Preferred dividend requirements
      of subsidiary and other
      minority interests                   -        (32)           (33)
    Corporate/non-operating items
        Interest expense                   -       (265)          (265)
        Other                              -       (129)          (129)
    Income taxes                        (156)       109           (595)
----------------------------------------------------------------------
      Net income (loss)               $  367       (301)           469
======================================================================
Assets
    Identifiable assets               $2,222        676         11,317
    Investments in and advances
      to affiliated companies            344          -            661
----------------------------------------------------------------------
      Total assets                    $2,566        676         11,978
======================================================================
Depreciation, Depletion and
  Amortization                        $  108         37            871
----------------------------------------------------------------------
Capital Expenditures and Investments  $  148         28          1,456
----------------------------------------------------------------------
 *Includes certain intersegment eliminations.
**Certain foreign crude oil marketing activities were transferred from
  RM&T to E&P in 1997.  This had the effect of increasing E&P outside
  sales by $652 million in 1997.  The effect on E&P's net income was
  not material.


                                104

<PAGE>



Analysis of Results by Geographic Area


                                           Millions of Dollars
                                   -----------------------------------
                                    United             United
                                    States   Norway   Kingdom   Africa
                                   -----------------------------------
1997
Sales and Other Operating Revenues
  Outside customers                $12,633      448     1,268      209
  Sales within Phillips                177      743         2        1
----------------------------------------------------------------------
    Segment sales                  $12,810    1,191     1,270      210
======================================================================
Operating Profit                   $ 1,183      673        64      111
----------------------------------------------------------------------
Equity in Earnings of Affiliates   $   111       13         3        -
----------------------------------------------------------------------
Assets
  Identifiable assets              $ 8,169    1,714     1,247      231
  Investments in and advances to
    affiliated companies               517       84        29        -
----------------------------------------------------------------------
    Total assets                   $ 8,686    1,798     1,276      231
======================================================================

1996
Sales and Other Operating Revenues
  Outside customers                $13,211      433     1,251      249
  Sales within Phillips                162      762         -        -
----------------------------------------------------------------------
    Segment sales                  $13,373    1,195     1,251      249
======================================================================
Operating Profit                   $ 1,013      725        30      114
----------------------------------------------------------------------
Equity in Earnings of Affiliates   $   (16)      10         3        -
----------------------------------------------------------------------
Assets
  Identifiable assets              $ 8,041    1,767     1,199      237
  Investments in and advances to
    affiliated companies               478       83        29        -
----------------------------------------------------------------------
    Total assets                   $ 8,519    1,850     1,228      237
======================================================================

1995
Sales and Other Operating Revenues
  Outside customers                $11,107      470     1,037      168
  Sales within Phillips                203      651         3       28
----------------------------------------------------------------------
    Segment sales                  $11,310    1,121     1,040      196
======================================================================
Operating Profit (Loss)            $   708      497        (8)      99
----------------------------------------------------------------------
Equity in Earnings of Affiliates   $   104       15         4        -
----------------------------------------------------------------------
Assets
  Identifiable assets              $ 7,604    1,552       950      227
  Investments in and advances to
    affiliated companies               454       92        24        -
----------------------------------------------------------------------
    Total assets                   $ 8,058    1,644       974      227
======================================================================



Analysis of Results by Geographic Area


                                           Millions of Dollars
                                   -----------------------------------
                                     Other                   Worldwide
                                     Areas    Corporate   Consolidated*
                                   -----------------------------------
1997
Sales and Other Operating Revenues
  Outside customers                $   652            -         15,210
  Sales within Phillips                 57            -              -
----------------------------------------------------------------------
    Segment sales                  $   709            -         15,210
======================================================================
Operating Profit                   $    23            -          2,054
----------------------------------------------------------------------
Equity in Earnings of Affiliates   $    (1)           -            126
----------------------------------------------------------------------
Assets
  Identifiable assets              $   971          806         13,138
  Investments in and advances to
    affiliated companies                92            -            722
----------------------------------------------------------------------
    Total assets                   $ 1,063          806         13,860
======================================================================

1996
Sales and Other Operating Revenues
  Outside customers                $   587            -         15,731
  Sales within Phillips                 62            -              -
----------------------------------------------------------------------
    Segment sales                  $   649            -         15,731
======================================================================
Operating Profit                   $    14            -          1,896
----------------------------------------------------------------------
Equity in Earnings of Affiliates   $     7            -              4
----------------------------------------------------------------------
Assets
  Identifiable assets              $   543        1,068         12,855
  Investments in and advances to
    affiliated companies               103            -            693
----------------------------------------------------------------------
    Total assets                   $   646        1,068         13,548
======================================================================

1995
Sales and Other Operating Revenues
  Outside customers                $   586            -         13,368
  Sales within Phillips                 64            -              -
----------------------------------------------------------------------
    Segment sales                  $   650            -         13,368
======================================================================
Operating Profit (Loss)            $    68            -          1,364
----------------------------------------------------------------------
Equity in Earnings of Affiliates   $     4            -            127
----------------------------------------------------------------------
Assets
  Identifiable assets              $   460          524         11,317
  Investments in and advances to
    affiliated companies                91            -            661
----------------------------------------------------------------------
    Total assets                   $   551          524         11,978
======================================================================
*After elimination of intergeographic transactions.


Export sales totaled $494 million, $522 million and $507 million for
1997, 1996 and 1995, respectively.


                                105

<PAGE>



-----------------------------------------------------------------
Oil and Gas Operations
Exploration and Production

In accordance with FASB Statement No. 69, "Disclosures about Oil
and Gas Producing Activities," and regulations of the U.S.
Securities and Exchange Commission, the company is making certain
disclosures about its oil and gas exploration and production
operations.  While this information was developed with reasonable
care and disclosed in good faith, it is emphasized that some of
the data are necessarily imprecise and represent only approximate
amounts because of the subjective judgments involved in
developing such information.  Accordingly, this information may
not necessarily represent the present financial condition of the
company or its expected future results.


Contents -- Oil and Gas Operations                           Page
-----------------------------------------------------------------

Proved Reserves Worldwide                                     107

Results of Operations                                         113

Statistics                                                    116

Costs Incurred                                                120

Capitalized Costs                                             121

Standardized Measure of Discounted Future Net
  Cash Flows Relating to Proved Oil and Gas
  Reserve Quantities                                          122


                                106

<PAGE>



o Proved Reserves Worldwide

                                       Crude Oil
Years Ended          ---------------------------------------------
December 31                       Millions of Barrels
                     ---------------------------------------------
                            United           United          Other
                     Total  States  Norway  Kingdom  Africa  Areas
                     ---------------------------------------------
Developed and
  Undeveloped
End of 1994            877     274     416       42      92     53
Revisions of
  previous estimates     -      (7)     (1)       1       8     (1)
Improved recovery       77      11      64        -       -      2
Purchases of
  reserves in place      3       1       -        2       -      -
Extensions and
  discoveries           29      20       -        6       3      -
Production             (82)    (29)    (37)      (1)     (9)    (6)
Sales of reserves
  in place              (9)     (9)      -        -       -      -
------------------------------------------------------------------
End of 1995            895     261     442       50      94     48
Revisions of
  previous estimates    20      (4)     12        4       5      3
Improved recovery       49      13      36        -       -      -
Purchases of
  reserves in place      2       2       -        -       -      -
Extensions and
  discoveries           10       6       -        1       2      1
Production             (80)    (25)    (37)      (2)     (9)    (7)
Sales of reserves
  in place              (1)     (1)      -        -       -      -
------------------------------------------------------------------
End of 1996            895     252     453       53      92     45
Revisions of
  previous estimates    54      (1)     42        3       7      3
Improved recovery       79       6      73        -       -      -
Purchases of
  reserves in place      8       -       -        -       -      8
Extensions and
  discoveries           66      10       -       30       2     24
Production             (85)    (23)    (39)      (7)     (9)    (7)
Sales of reserves
  in place             (23)      -       -        -       -    (23)
------------------------------------------------------------------
End of 1997            994     244     529       79      92     50
==================================================================

Developed
End of 1994            703     226     350        4      89     34
End of 1995            699     200     333       33      91     42
End of 1996            743     183     399       28      90     43
End of 1997            744     189     409       30      89     27
------------------------------------------------------------------


                                107
<PAGE>



o  Proved reserves are those quantities of crude oil, natural
   gas and natural gas liquids (NGL) that, upon analysis of
   geological and engineering data, appear with reasonable
   certainty to be recoverable in the future from known oil and
   gas reservoirs under existing economic and operating
   conditions.  As additional information becomes available or
   conditions change, estimates must be revised.

o  Developed reserves are those portions of proved reserves that
   are recoverable through existing well bores, and production
   equipment and facilities.

o  Purchases of reserves in place in Other Areas for 1997 result
   from the acquisition of proved properties in the Zama/Virgo
   area in Canada.

o  Extensions and discoveries in Other Areas for 1997 include
   11 million barrels in Venezuela in which the company has an
   economic interest through risk service contracts.  At year-
   end 1997, the company's total worldwide crude oil reserves
   include 11 million barrels related to such contracts.

o  Sales of reserves in place in Other Areas for 1997 include
   22 million barrels related to an exchange of a proved
   property in Canada.


                                108

<PAGE>



                                     Natural Gas
Years Ended         ----------------------------------------------
December 31                     Billions of Cubic Feet
                    ----------------------------------------------
                            United           United          Other
                     Total  States  Norway  Kingdom  Africa  Areas
                    ----------------------------------------------
Developed and
  Undeveloped
End of 1994          6,376   4,052   1,229      742      32    321
Revisions of
  previous estimates   420     254     (32)      19     213    (34)
Improved recovery       62       4      58        -       -      -
Purchases of
  reserves in place     92      34       -       48       -     10
Extensions and
  discoveries          317     271       -       45       -      1
Production            (543)   (381)   (121)     (18)     (1)   (22)
Sales of reserves
  in place             (16)    (16)      -        -       -      -
------------------------------------------------------------------
End of 1995          6,708   4,218   1,134      836     244    276
Revisions of
  previous estimates    47       -     227      (90)      -    (90)
Improved recovery       58       1      57        -       -      -
Purchases of
  reserves in place     21      21       -        -       -      -
Extensions and
  discoveries          165     141       -        8       -     16
Production            (562)   (394)   (114)     (30)     (2)   (22)
Sales of reserves
  in place             (70)    (70)      -        -       -      -
------------------------------------------------------------------
End of 1996          6,367   3,917   1,304      724     242    180
Revisions of
  previous estimates  (194)    (57)   (103)     (37)      -      3
Improved recovery       73       1      72        -       -      -
Purchases of
  reserves in place    532       7       -        -       -    525
Extensions and
  discoveries          316     280       -       22       -     14
Production            (541)   (357)   (111)     (48)     (1)   (24)
Sales of reserves
  in place             (32)     (1)      -        -       -    (31)
------------------------------------------------------------------
End of 1997          6,521   3,790   1,162      661     241    667
==================================================================

Developed
End of 1994          5,030   3,694     989      129      32    186
End of 1995          5,362   3,875     806      465      30    186
End of 1996          5,196   3,625   1,109      303      28    131
End of 1997          4,812   3,371     884      346      27    184
------------------------------------------------------------------


                                109

<PAGE>



o  Natural gas production may differ from gas production
   (delivered for sale) on page 116, primarily because the
   quantities above omit the gas equivalent of the liquids,
   where applicable, but include gas consumed at the lease.

o  Purchases of reserves in place in Other Areas for 1997 result
   from the acquisition of proved properties in the Zama/Virgo
   area in Canada.

o  Sales of reserves in place in Other Areas for 1997 are for a
   Canadian property.

o  Natural gas reserves are computed at 14.65 pounds per square
   inch absolute and 60 degrees Fahrenheit.


                                110

<PAGE>



                                  Natural Gas Liquids
Years Ended           ---------------------------------------------
December 31                       Millions of Barrels
                     ---------------------------------------------
                            United           United          Other
                     Total  States  Norway  Kingdom  Africa  Areas
                     ---------------------------------------------
Developed and
  Undeveloped
End of 1994            196     131      37        6      21      1
Revisions of
  previous estimates     8       8       1        -      (1)     -
Improved recovery        4       1       3        -       -      -
Extensions and
  discoveries            4       3       -        1       -      -
Production             (15)    (12)     (3)       -       -      -
Sales of reserves
  in place              (1)     (1)      -        -       -      -
------------------------------------------------------------------
End of 1995            196     130      38        7      20      1
Revisions of
  previous estimates    11       7       4        -       -      -
Improved recovery        2       -       2        -       -      -
Purchases of
  reserves in place      1       1       -        -       -      -
Extensions and
  discoveries            3       3       -        -       -      -
Production             (15)    (12)     (2)       -      (1)     -
------------------------------------------------------------------
End of 1996            198     129      42        7      19      1
Revisions of
  previous estimates     1       -       1        -       -      -
Improved recovery        2       -       2        -       -      -
Purchases of
  reserves in place      5       -       -        -       -      5
Extensions and
  discoveries            5       5       -        -       -      -
Production             (15)    (11)     (3)      (1)      -      -
Sales of reserves
  in place              (1)     (1)      -        -       -      -
------------------------------------------------------------------
End of 1997            195     122      42        6      19      6
==================================================================

Developed
End of 1994            178     125      31        -      21      1
End of 1995            178     125      29        3      20      1
End of 1996            183     124      36        3      19      1
End of 1997            172     116      31        4      19      2
------------------------------------------------------------------


                                111

<PAGE>



o  NGL reserves include estimates of NGL to be extracted from
   Phillips' leasehold gas at gas processing plants and
   facilities.  Estimates are based at the wellhead and assume
   full extraction.  NGL extraction is attributable to Phillips'
   E&P operations and GPM operations.  NGL production above
   differs from NGL production per day delivered for sale by E&P
   and GPM due to gas consumed at the lease and the difference
   between assumed full extraction and the actual amount of
   liquids extracted and sold.

o  Purchases of reserves in place in Other Areas for 1997 result
   from the acquisition of proved properties in the Zama/Virgo
   area in Canada.


                                112

<PAGE>



o Results of Operations

                                          Millions of Dollars
                          ---------------------------------------------------
                                   United            United             Other
                           Total   States   Norway  Kingdom   Africa    Areas
                          ---------------------------------------------------
1997
Sales                     $1,562      687      279      261      162      173
Transfers                  1,339      596      743        -        -        -
Other revenues               130       58       44       12        1       15
-----------------------------------------------------------------------------
    Total revenues         3,031    1,341    1,066      273      163      188
Production costs             792      428      217       68       39       40
Exploration expenses         245      103       29       30       14       69
Depreciation, depletion
  and amortization*          518      251      107      113       11       36
Other related expenses       131       92       20       (2)     (13)      34
-----------------------------------------------------------------------------
                           1,345      467      693       64      112        9
Provision for income taxes   747      132      499       20       96        -
-----------------------------------------------------------------------------
Results of operations for
  producing activities       598      335      194       44       16        9
Other earnings                11       25        -        -        -      (14)
-----------------------------------------------------------------------------
E&P net income            $  609      360      194       44       16       (5)
=============================================================================

1996**
Sales                     $1,510      723      308      144      197      138
Transfers                  1,347      590      757        -        -        -
Other revenues               105       84       15        1        2        3
-----------------------------------------------------------------------------
    Total revenues         2,962    1,397    1,080      145      199      141
Production costs             762      404      225       48       50       35
Exploration expenses         259      113       22       36       24       64
Depreciation, depletion
  and amortization***        646      415      104       41       13       73
Other related expenses       114      112      (12)       2        -       12
-----------------------------------------------------------------------------
                           1,181      353      741       18      112      (43)
Provision for income taxes   745       97      541        8      100       (1)
-----------------------------------------------------------------------------
Results of operations for
  producing activities       436      256      200       10       12      (42)
Other earnings                57       64        -       (2)       -       (5)
-----------------------------------------------------------------------------
E&P net income            $  493      320      200        8       12      (47)
=============================================================================

1995**
Sales                     $1,190      547      306       70      120      147
Transfers                  1,125      447      650        -       28        -
Other revenues               128       99       22        1        2        4
-----------------------------------------------------------------------------
    Total revenues         2,443    1,093      978       71      150      151
Production costs             753      403      247       32       31       40
Exploration expenses         205       94       26       22       18       45
Depreciation, depletion
  and amortization****       499      270      147       24       11       47
Other related expenses       129       65       46        8      (11)      21
-----------------------------------------------------------------------------
                             857      261      512      (15)     101       (2)
Provision for income taxes   521       61      375       (4)      87        2
-----------------------------------------------------------------------------
Results of operations for
  producing activities       336      200      137      (11)      14       (4)
Other earnings                37       39        -        -        -       (2)
-----------------------------------------------------------------------------
E&P net income            $  373      239      137      (11)      14       (6)
=============================================================================
   *Includes before-tax property impairments in the United States and the
    United Kingdom of $48 million and $15 million, respectively.
  **Restated to reflect that certain costs previously held at Corporate are
    now aligned with the operating segments.
 ***Includes before-tax property impairments in the United States of
    $106 million for the Point Arguello field and $78 million for associated
    equity facilities, and in Other Areas, $25 million for certain properties
    in Canada.
****Includes before-tax property impairments in the United States and Norway
    of $51 million and $27 million, respectively, due to the adoption of
    FASB Statement No. 121.


                                113

<PAGE>



o  Results of operations for producing activities consist of all
   the activities within the E&P organization, except for a
   liquefied natural gas operation, minerals operations, and
   crude oil and gas marketing activities, which are included in
   other earnings.  Also excluded are non-E&P activities,
   including NGL extraction facilities in Phillips' GPM
   organization, as well as downstream petroleum and chemical
   activities.  In addition, there is no deduction for general
   corporate administrative expenses or interest.

o  Transfers are valued at prices that approximate market.

o  Other revenues include gains and losses from asset sales,
   equity in earnings from certain transportation and processing
   operations that directly support the company's producing
   operations, some revenue resulting from the purchase and sale
   of hydrocarbons and other miscellaneous income.

o  Production costs consist of costs incurred to operate and
   maintain wells and related equipment and facilities used in
   the production of petroleum liquids and natural gas.  These
   costs also include taxes other than income taxes,
   depreciation of support equipment and administrative expenses
   related to the production activity.  Excluded are
   depreciation, depletion and amortization of capitalized
   acquisition, exploration and development costs.

o  Exploration expenses include dry hole, leasehold impairment,
   geological and geophysical expenses and the cost of retaining
   undeveloped leaseholds.  Also included are taxes other than
   income taxes, depreciation of support equipment and
   administrative expenses related to the exploration activity.

o  Depreciation, depletion and amortization (DD&A) in Results of
   Operations differs from that shown for total Exploration and
   Production in Analysis of Results by Business Segment on
   page 104, mainly due to depreciation of support equipment
   being reclassified to production or exploration expenses, as
   applicable, in Results of Operations.  In addition, other
   earnings includes certain E&P activities, including their
   related DD&A charges.

o  Other related expenses are primarily third-party
   transportation expense, foreign currency gains and losses and
   other miscellaneous expenses.


                                114

<PAGE>



o  The provision for income taxes is computed by adjusting each
   country's income before income taxes for permanent
   differences related to the oil and gas producing activities
   that are reflected in the company's consolidated income tax
   expense for the period, multiplying the result by the
   country's statutory tax rate and adjusting for applicable tax
   credits.


                                115

<PAGE>



o Statistics

Net Production                         1997       1996       1995
                                      ---------------------------
                                       Thousands of Barrels Daily
                                      ---------------------------
Crude Oil
United States                            67         69         79
Norway                                  104         99        100
United Kingdom                           18          6          3
Africa                                   23         25         24
Other areas                              20         20         16
-----------------------------------------------------------------
                                        232        219        222
=================================================================

Natural Gas Liquids
United States*                            4          4          5
Norway                                    7          8          8
Other areas                               3          3          2
-----------------------------------------------------------------
                                         14         15         15
=================================================================
*Represents amounts extracted attributable to E&P operations.
 Additional quantities of NGL are extracted at GPM gas processing
 plants (see NGL reserves page 112 for further discussion).

                                     Millions of Cubic Feet Daily
Natural Gas                          ----------------------------
United States (less gas equivalent
  of liquids shown above)*            1,024      1,102      1,078
Norway (dry basis)                      275        291        299
United Kingdom (dry basis)              122         81         46
Other areas                              51         53         58
-----------------------------------------------------------------
                                      1,472      1,527      1,481
=================================================================
*Represents quantities available for sale.  Natural gas sold from
 the lease to third parties and to the company's GPM organization
 is on a wet basis.  Quantities of gas from which NGL have been
 extracted, attributable to E&P operations, are included on a dry
 basis.


                                           Dollars Per Unit
Average Sales Prices                 ----------------------------
Crude Oil -- Per Barrel
United States                        $17.41      18.96      14.98
Norway                                19.09      20.92      17.08
United Kingdom                        18.77      21.09      17.17
Africa                                19.25      21.45      17.60
Other areas                           18.50      19.46      16.92
Total foreign                         19.02      20.89      17.16
Worldwide                             18.57      20.28      16.43
-----------------------------------------------------------------

Natural Gas Liquids -- Per Barrel
United States                        $15.14      15.81      11.01
Norway                                10.16       9.59       9.73
-----------------------------------------------------------------

Natural Gas (Lease) -- Per Thousand
  Cubic Feet
United States                        $ 2.33       2.10       1.37
Norway                                 2.57       2.61       2.66
United Kingdom                         3.22       2.92       2.78
Other areas                            1.64       1.27       1.12
Total foreign                          2.63       2.52       2.50
Worldwide                              2.45       2.25       1.77
-----------------------------------------------------------------


                                116

<PAGE>



                                         1997      1996      1995
                                        -------------------------
Average Production Costs* --
  Per Barrel-of-Oil-Equivalent
United States                           $4.85      4.30      4.19
Norway                                   3.79      3.95      4.30
United Kingdom                           4.74      6.56      7.62
Africa                                   4.45      5.06      3.40
Other areas                              3.71      3.28      4.19
Total foreign                            3.99      4.22      4.36
Worldwide                                4.42      4.26      4.26
-----------------------------------------------------------------
*Production costs consist of costs incurred to operate and
 maintain wells and related equipment and facilities used in the
 production of petroleum liquids and natural gas.  These costs
 also include taxes other than income taxes, depreciation of
 support equipment and administrative expenses associated with
 the production activity.  Excluded are depreciation, depletion
 and amortization of capitalized acquisition, exploration and
 development costs.


                                117

<PAGE>



Acreage at December 31, 1997                   Thousands of Acres
                                               ------------------
                                                 Gross        Net
                                               ------------------
Developed
United States                                    1,563      1,150
Norway                                              45         17
United Kingdom                                     197         69
Africa                                              81         16
Other areas                                        607        268
-----------------------------------------------------------------
                                                 2,493      1,520
=================================================================

Undeveloped
United States                                    2,950      1,771
Norway                                           2,061        505
United Kingdom                                   1,868        612
Africa*                                         43,995     17,635
Canada                                           1,276        324
Other areas                                     21,500     11,505
-----------------------------------------------------------------
                                                73,650     32,352
=================================================================
*Includes two Somalia concessions where operations have been
 suspended by declarations of force majeure totaling 21,865 gross
 and 8,135 net acres.


                                118

<PAGE>



Net Wells Completed*              Productive             Dry
                               ----------------   ----------------
                               1997  1996  1995   1997  1996  1995
                               ----------------   ----------------
Exploratory
United States                     6     5     4      6    10     8
Norway                            -     -     -      1    **     1
United Kingdom                   **    **     -     **     2    **
Africa                            -     -    **      -     1     1
Other areas                       -     1     4      1     7     3
------------------------------------------------------------------
                                  6     6     8      8    20    13
==================================================================

Development
United States                   121    90    87      7     7     6
Norway                            4     2     2      -     -     -
United Kingdom                   **     3     3      -     -     -
Africa                           **    **    **      -     -     -
Other areas                       5     5    14     **     1     1
------------------------------------------------------------------
                                130   100   106      7     8     7
==================================================================
 *Excludes farmout arrangements.
**Phillips' total proportionate interest was less than one.


Wells at Year-End 1997
                                              Productive**
                                      ----------------------------
                        In Progress*       Oil            Gas
                        ------------  -------------   ------------
                        Gross    Net   Gross    Net   Gross    Net
                        ------------  -------------   ------------

United States              48     24  12,978  2,876   5,577  2,919
Norway                      5      2     151     54      33      9
United Kingdom             32      4      17      5      85     19
Africa                      3      1     185     37      11      2
Other areas                11      5     792    250     397    206
------------------------------------------------------------------
                           99     36  14,123  3,222   6,103  3,155
==================================================================
 *Includes wells that have been temporarily suspended.
**Includes 1,373 gross and 551 net multiple completion wells.


                                119

<PAGE>



o Costs Incurred

                               Millions of Dollars
               ---------------------------------------------------
                        United             United            Other
                Total   States   Norway   Kingdom   Africa   Areas
               ---------------------------------------------------
1997
Acquisition    $  428       29        -         -        -     399
Exploration       307      128       29        54       18      78
Development       774      265      292       140       11      66
------------------------------------------------------------------
               $1,509      422      321       194       29     543
==================================================================

1996
Acquisition    $  139       57        -         -        -      82
Exploration       272      103       25        49       21      74
Development       695      184      345       125       13      28
------------------------------------------------------------------
               $1,106      344      370       174       34     184
==================================================================

1995
Acquisition    $   78       45        -        28        1       4
Exploration       223       87       33        27       22      54
Development       668      233      192       204        6      33
------------------------------------------------------------------
               $  969      365      225       259       29      91
==================================================================


o  Costs incurred include capitalized and expensed items.

o  Acquisition costs include the costs of acquiring undeveloped
   oil and gas leaseholds.  It includes proved properties of
   $6 million, $32 million and $27 million in the United States
   for 1997, 1996 and 1995, respectively, and $28 million in the
   United Kingdom for 1995.  In addition, the 1997 amount in
   Other Areas includes $317 million for proved properties
   acquired in Canada, of which $49 million represents the fair
   value of a property in Canada exchanged for interests in
   other Canadian properties.

o  Exploration costs include geological and geophysical
   expenses, the cost of retaining undeveloped leaseholds, and
   exploratory drilling costs.

o  Development costs include the cost of drilling and equipping
   development wells and building related production facilities
   for extracting, treating, gathering and storing petroleum
   liquids and natural gas.


                                120

<PAGE>



o Capitalized Costs

At December 31                    Millions of Dollars
                   -----------------------------------------------
                            United           United          Other
                     Total  States  Norway  Kingdom  Africa  Areas
                   -----------------------------------------------
1997
Proved properties  $11,346   5,613   2,909    1,661     419    744
Unproved properties    469     230       -       67       4    168
------------------------------------------------------------------
                    11,815   5,843   2,909    1,728     423    912
Accumulated
  depreciation,
  depletion and
  amortization      (6,898) (4,230) (1,440)    (768)   (240)  (220)
------------------------------------------------------------------
                   $ 4,917   1,613   1,469      960     183    692
==================================================================

1996
Proved properties  $10,730   5,375   2,997    1,545     404    409
Unproved properties    397     202       -       58       3    134
------------------------------------------------------------------
                    11,127   5,577   2,997    1,603     407    543
Accumulated
  depreciation,
  depletion and
  amortization       6,701   4,034   1,538      678     226    225
------------------------------------------------------------------
                   $ 4,426   1,543   1,459      925     181    318
==================================================================


o  Capitalized costs include the cost of equipment and
   facilities for oil and gas producing activities.  These costs
   include the activities of Phillips' E&P organization,
   excluding the Kenai LNG operation, minerals operations, and
   crude oil and gas marketing activities.

o  Proved properties include capitalized costs for oil and gas
   leaseholds holding proved reserves, development wells and
   related equipment and facilities (including uncompleted
   development well costs) and support equipment.

o  Unproved properties include capitalized costs for oil and gas
   leaseholds under exploration (even where petroleum liquids
   and natural gas were found but not in sufficient quantities
   to be considered proved reserves) and uncompleted exploratory
   well costs, including exploratory wells under evaluation.


                                121

<PAGE>



o Standardized Measure of Discounted Future Net Cash Flows
  Relating to Proved Oil and Gas Reserve Quantities

Amounts are computed using year-end prices and costs (adjusted
only for existing contractual changes), appropriate statutory tax
rates and a prescribed 10 percent discount factor.  Continuation
of year-end economic conditions also is assumed.  The calculation
is based on estimates of proved reserves, which are revised over
time as new data becomes available.  Probable or possible
reserves, which may become proved in the future, are not
considered.  The calculation also requires assumptions as to the
timing of future production of proved reserves, and the timing
and amount of future development and production costs.

While due care was taken in its preparation, the company does not
represent that this data is the fair value of the company's oil
and gas properties, or a fair estimate of the present value of
cash flows to be obtained from their development and production.


                                122

<PAGE>



Discounted Future Net Cash Flows

                                           Millions of Dollars
                          ----------------------------------------------------
                                    United             United            Other
                            Total   States   Norway   Kingdom   Africa   Areas
                          ----------------------------------------------------
1997
Future cash inflows       $29,967   11,346   11,866     3,245    1,731   1,779
Less:
  Future production costs   9,659    4,309    3,439       660      450     801
  Future development costs  2,409      908      703       392       80     326
  Future income tax
    provisions              8,796    1,732    5,565       518      925      56
------------------------------------------------------------------------------
Future net cash flows       9,103    4,397    2,159     1,675      276     596
10 percent annual discount  3,789    2,070      844       525      130     220
------------------------------------------------------------------------------
Discounted future
  net cash flows          $ 5,314    2,327    1,315     1,150      146     376
==============================================================================

1996
Future cash inflows       $42,271   19,847   14,755     3,728    2,580   1,361
Less:
  Future production costs   8,536    3,824    3,194       704      510     304
  Future development costs  2,186      873      820       337       92      64
  Future income tax
    provisions             15,268    4,896    7,957       611    1,577     227
------------------------------------------------------------------------------
Future net cash flows      16,281   10,254    2,784     2,076      401     766
10 percent annual discount  7,392    4,924    1,137       822      190     319
------------------------------------------------------------------------------
Discounted future
  net cash flows          $ 8,889    5,330    1,647     1,254      211     447
==============================================================================

1995
Future cash inflows       $31,155   13,368   11,269     3,376    2,049   1,093
Less:
  Future production costs   8,508    3,988    3,061       689      355     415
  Future development costs  2,437      811    1,133       349       78      66
  Future income tax
    provisions              9,631    2,400    5,284       607    1,272      68
------------------------------------------------------------------------------
Future net cash flows      10,579    6,169    1,791     1,731      344     544
10 percent annual discount  4,619    2,693      695       821      164     246
------------------------------------------------------------------------------
Discounted future
  net cash flows          $ 5,960    3,476    1,096       910      180     298
==============================================================================


                                123

<PAGE>



Sources of Change in Discounted Future Net Cash Flows

                                           Millions of Dollars
                                       ---------------------------
                                          1997      1996      1995
                                       ---------------------------
Discounted future net cash flows
  at the beginning of the year         $ 8,889     5,960     3,813
------------------------------------------------------------------
Changes during the year
  Revenues less production costs
    for the year                        (2,109)   (2,113)   (1,569)
  Net change in prices and
    production costs                    (7,764)    5,866     2,917
  Extensions, discoveries and
    improved recovery, less
    estimated future costs               1,001     1,061     1,215
  Development costs for the year           774       695       668
  Changes in estimated future
    development costs                     (526)     (311)     (214)
  Purchases of reserves in place,
    less estimated future costs            151        54       108
  Sales of reserves in place,
    less estimated future costs           (101)      (66)      (77)
  Revisions of previous quantity
    estimates                               74      (224)     (113)
  Accretion of discount                  1,541     1,003       668
  Net change in income taxes             3,384    (3,038)   (1,454)
  Other                                      -         2        (2)
------------------------------------------------------------------
Total changes                           (3,575)    2,929     2,147
------------------------------------------------------------------
Discounted future net cash flows
  at year-end                          $ 5,314     8,889     5,960
==================================================================


o  The net change in prices and production costs is the
   beginning-of-the-year reserve-production forecast multiplied
   by the net annual change in the per-unit sales price and
   production cost, discounted at 10 percent.

o  Purchases and sales of reserves in place, along with
   extensions, discoveries and improved recovery, are calculated
   using production forecasts of the applicable reserve
   quantities for the year multiplied by the end-of-the-year
   sales prices, less future estimated costs, discounted at
   10 percent.

o  The accretion of discount is 10 percent of the prior year's
   discounted future cash inflows, less future production and
   development costs.

o  The net change in income taxes is the annual change in the
   discounted future income tax provisions.


                                124

<PAGE>



---------------------------------------------------------------------
Selected Quarterly Financial Data


                 Millions of Dollars
       ----------------------------------------
                      Income
                      Before                           Net        Net
                      Income                        Income     Income
           Sales       Taxes                     Per Share  Per Share
       and Other   and Kenai                Net  of Common  of Common
       Operating     LNG Tax     Net  Operating   Stock --   Stock --
        Revenues  Settlement  Income     Income      Basic    Diluted
       ----------------------------------------  ---------  ---------
1997
First     $3,944         493     227        247        .86        .86
Second     3,709         466     307        214       1.17       1.15
Third      3,844         461     216        247        .82        .81
Fourth     3,713         399     209        203        .79        .79
---------------------------------------------------------------------

1996
First     $3,595         310     695        210       2.65       2.63
Second     3,937         443     221        221        .84        .83
Third      3,852         435     187        208        .71        .70
Fourth     4,347         413     200        252        .76        .75
---------------------------------------------------------------------


In the above table, amounts for net income include certain
special items.  The impact of such items has been excluded in
arriving at net operating income.  These special items are shown
in the following table.

                                 Special Items by Quarter
                      ----------------------------------------------
                                    Millions of Dollars
                      ----------------------------------------------
                         First      Second       Third      Fourth
                      ----------  ----------  ----------  ----------
                      1997  1996  1997  1996  1997  1996  1997  1996
                      ----------  ----------  ----------  ----------
Kenai LNG tax
  settlement          $  -   565    80     -     3     -    -      -
Property impairments     -   (45)  (11)    -   (25)  (25) (10)  (113)
Net gains on asset
  sales                  -     -     7     5     -     9    9      -
Foreign currency
  gains (losses)       (20)    -     6     -   (12)    2    9     39
Pending claims and
  settlements            -   (28)   16    (1)    2   (13)  (3)    24
Other items              -    (7)   (5)   (4)    1     6    1     (2)
--------------------------------------------------------------------
Total special items   $(20)  485    93     -   (31)  (21)   6    (52)
====================================================================


                                125

<PAGE>



Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

None.


                                126

<PAGE>



                               PART III


Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information presented under the headings "Nominees for Election as
Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the company's definitive proxy statement for the
Annual Meeting of Stockholders on May 11, 1998, is incorporated
herein by reference.*  Information regarding the executive officers
appears in Part I of this report on pages 26 and 27.


Item 11.  EXECUTIVE COMPENSATION

Information presented under the following headings in the company's
definitive proxy statement for the Annual Meeting of Stockholders on
May 11, 1998, is incorporated herein by reference:

  Compensation Committee Interlocks and Insider Participation
  Executive Compensation
  Options/SAR Grants in Last Fiscal Year
  Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
    Year-End Option/SAR Value
  Long-Term Incentive Plan Awards in Last Fiscal Year
  Termination of Employment and Change-in-Control Arrangements
  Pension Plan Table
  Compensation of Directors and Nominees


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

Information presented under the headings "Voting Securities and
Principal Holders," "Nominees for Election as Directors," "Security
Ownership of Certain Beneficial Owners," and "Security Ownership of
Management" in the company's definitive proxy statement for the
Annual Meeting of Stockholders on May 11, 1998, is incorporated
herein by reference.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.



---------------------
*Except for information or data specifically incorporated herein by
 reference under Items 10 through 13, other information and data
 appearing in the company's definitive proxy statement for the Annual
 Meeting of Stockholders on May 11, 1998, are not deemed to be a part
 of this Annual Report on Form 10-K or deemed to be filed with the
 Commission as a part of this report.


                                127

<PAGE>



                               PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
          ON FORM 8-K

(a)  1.  Financial Statements and Financial Statement Schedules
         ------------------------------------------------------
         The financial statements and schedule listed in the
         Index to Financial Statements and Financial Statement
         Schedules, which appears on page 68, are filed as part
         of this annual report.

     2.  Exhibits
         --------
         The exhibits listed in the Index to Exhibits, which
         appears on pages 130 through 133, are filed as a part of
         this annual report.

(b)  Reports on Form 8-K
     -------------------
     During the three months ended December 31, 1997, the
     registrant did not file any reports on Form 8-K.


                                128

<PAGE>



                    PHILLIPS PETROLEUM COMPANY

                           (Consolidated)

           SCHEDULE II -- VALUATION ACCOUNTS AND RESERVES


                                          Millions of Dollars
                        -----------------------------------------------------
                                       Additions
                          Balance  -----------------                  Balance
                               at  Charged to                              at
Description             January 1     Expense  Other  Deductions  December 31
-----------------------------------------------------------------------------
                                          (a)    (b)
1997
Deducted from asset accounts:
  Allowance for doubtful
    accounts and
    notes receivable        $  20           7      -       8 (c)           19
  Deferred tax asset
    valuation allowance       208          27     (3)      -              232

-----------------------------------------------------------------------------

1996
Deducted from asset accounts:
  Allowance for doubtful
    accounts and
    notes receivable        $  15          12      -       7 (c)           20
  Deferred tax asset
    valuation allowance       155          56     (1)      2              208

-----------------------------------------------------------------------------

1995
Deducted from asset accounts:
  Allowance for doubtful
    accounts and
    notes receivable        $  20           2      -       7 (c)           15
  Deferred tax asset
    valuation allowance       142          10      3       -              155

-----------------------------------------------------------------------------


(a) Accounts charged to income less reversal of amounts previously charged
    to income.

(b) Represents effect of translating foreign financial statements.

(c) Accounts charged off less recoveries of accounts previously charged
    off.

                                129

<PAGE>



                    PHILLIPS PETROLEUM COMPANY

                        INDEX TO EXHIBITS

Exhibit
Number                         Description
-------                        -----------

  3(i)       Restated Certificate of Incorporation, as filed with
               the State of Delaware July 17, 1989 (incorporated by
               reference to Exhibit 3(i) to Annual Report on
               Form 10-K for the year ended December 31, 1995).

  (ii)       Bylaws of Phillips Petroleum Company, as amended
               effective July 14, 1997 (incorporated by reference to
               Exhibit 3(ii) to Quarterly Report on Form 10-Q for
               the quarterly period ended June 30, 1997).

  4(a)       Indenture dated as of September 15, 1990, between
               Phillips Petroleum Company and First Trust National
               Association (formerly Continental Bank, National
               Association), relating to the 9 1/2% Notes due 1997
               and the 9 3/8% Notes due 2011 (incorporated by
               reference to Exhibit 4(a) to Annual Report on
               Form 10-K for the year ended December 31, 1996).

   (b)       Indenture dated as of September 15, 1990, as
               supplemented by Supplemental Indenture No. 1 dated
               May 23, 1991, between Phillips Petroleum Company and
               First Trust National Association (formerly
               Continental Bank, National Association), relating to
               the 9.18% Notes due September 15, 2021; the 9% Notes
               due 2001; the 8.86% Notes due May 15, 2022; the 8.49%
               Notes due January 1, 2023; the 7.92% Notes due
               April 15, 2023; the 7.20% Notes due November 1, 2023;
               and the 6.65% Notes due March 1, 2003.

   (c)       Preferred Share Purchase Rights as described in the
               Rights Agreement dated as of July 10, 1989, between
               Phillips Petroleum Company and Chemical Bank
               (formerly Manufacturers Hanover Trust Company)
               (incorporated by reference to Exhibit 4(c) to Annual
               Report on Form 10-K for the year ended December 31,
               1995).

   (d)       Amendment dated May 16, 1990, to the Rights Agreement
               dated July 10, 1989, between Phillips Petroleum
               Company and Chemical Bank (formerly Manufacturers
               Hanover Trust Company) (incorporated by reference to
               Exhibit 4(d) to Annual Report on Form 10-K for the
               year ended December 31, 1996).


                                130

<PAGE>



                    PHILLIPS PETROLEUM COMPANY

                        INDEX TO EXHIBITS
                           (Continued)

Exhibit
Number                         Description
-------                        -----------

         The company incurred during 1997 certain long-term
           debt not registered pursuant to the Securities
           Exchange Act of 1934.  No instrument with respect to
           such debt is being filed since the total amount of
           the securities authorized under any such instrument
           did not exceed 10 percent of the total assets of the
           company on a consolidated basis.  The company hereby
           agrees to furnish to the Securities and Exchange
           Commission upon its request a copy of such instrument
           defining the rights of the holders of such debt.


Material Contracts

 10(a)   Agreement dated December 23, 1984, among Mesa Partners
           and related entities and Phillips Petroleum Company
           and the schedules, annexes and exhibit thereto
           (incorporated by reference to Exhibit 10(a) to Annual
           Report on Form 10-K for the year ended December 31,
           1995).

   (b)   Letter Agreement dated December 23, 1984, among Mesa
           Partners and related entities and Phillips Petroleum
           Company (incorporated by reference to Exhibit 10(b)
           to Annual Report on Form 10-K for the year ended
           December 31, 1995).

   (c)   Trust Agreement dated December 12, 1995, between
           Phillips Petroleum Company and Vanguard Fiduciary
           Trust Company, as Trustee of the Phillips Petroleum
           Company Compensation and Benefits Arrangements Stock
           Trust (incorporated by reference to Exhibit 10(c) to
           Annual Report on Form 10-K for the year ended
           December 31, 1995).


Management Contracts and Compensatory Plans or Arrangements

   (d)   1986 Stock Plan of Phillips Petroleum Company.

   (e)   1990 Stock Plan of Phillips Petroleum Company.


                                131

<PAGE>



                    PHILLIPS PETROLEUM COMPANY

                        INDEX TO EXHIBITS
                           (Continued)

Exhibit
Number                        Description
-------                       -----------

 10(f)   Annual Incentive Compensation Plan of Phillips
           Petroleum Company.

   (g)   Incentive Compensation Plan of Phillips Petroleum
           Company (incorporated by reference to Exhibit 10(g)
           to Annual Report on Form 10-K for the year ended
           December 31, 1994).

   (h)   Principal Corporate Officers Supplemental Retirement
           Plan of Phillips Petroleum Company (incorporated by
           reference to Exhibit 10(h) to Annual Report on
           Form 10-K for the year ended December 31, 1995).

   (i)   Phillips Petroleum Company Supplemental Executive
           Retirement Plan (incorporated by reference to Exhibit
           10(i) to Annual Report on Form 10-K for the year
           ended December 31, 1996).

   (j)   Key Employee Deferred Compensation Plan of Phillips
           Petroleum Company.

   (k)   Non-Employee Director Retirement Plan of Phillips
           Petroleum Company.

   (l)   Omnibus Securities Plan of Phillips Petroleum Company.

   (m)   Deferred Compensation Plan for Non-Employee Directors
           of Phillips Petroleum Company.

   (n)   Key Employee Missed Credited Service Retirement Plan of
           Phillips Petroleum Company (incorporated by reference
           to Exhibit 10(n) to Annual Report on Form 10-K for
           the year ended December 31, 1996).

   (o)   Phillips Petroleum Company Stock Plan for Non-Employee
           Directors.

 12      Computation of Ratio of Earnings to Fixed Charges.

 21      List of Subsidiaries of Phillips Petroleum Company.

 23      Consent of Independent Auditors.


                                132

<PAGE>



                    PHILLIPS PETROLEUM COMPANY

                        INDEX TO EXHIBITS
                           (Continued)

Exhibit
Number                        Description
-------                       -----------

 27(a)   Financial Data Schedule.

   (b)   Restated Financial Data Schedules (restated to reflect
           the adoption of Financial Accounting Standards Board
           (FASB) Statement No. 128, "Earnings per Share," for
           the 1997 interim periods).

   (c)   Restated Financial Data Schedules (restated to reflect
           the adoption of FASB Statement No. 128, for the years
           1995 and 1996, and the interim periods of 1996).

 99(a)   Form 11-K, Annual Report, of the Thrift Plan of
           Phillips Petroleum Company for the fiscal year ended
           December 31, 1997 (to be filed by amendment pursuant
           to Rule 15d-21).

   (b)   Form 11-K, Annual Report, of the Long-Term Stock
           Savings Plan of Phillips Petroleum Company for the
           fiscal year ended December 31, 1997 (to be filed by
           amendment pursuant to Rule 15d-21).

   (c)   Form 11-K, Annual Report, of the Retirement Savings
           Plan of Phillips Petroleum Company for the fiscal
           year ended December 31, 1997 (to be filed by
           amendment pursuant to Rule 15d-21).


Copies of the exhibits listed in this Index to Exhibits are
available upon request for a fee of $3.00 per document.  Such
request should be addressed to:

                     Secretary
                     Phillips Petroleum Company
                     1234 Adams Building
                     Bartlesville, OK  74004


                                133

<PAGE>



                            SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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/ W. W. Allen
February 23, 1998            ----------------------------------
                                        W. W. Allen
                             Chairman of the Board of Directors
                                and Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed on behalf of the registrant by
the following officers in the capacity indicated and by a
majority of directors in response to Instruction D to Form 10-K
on February 23, 1998.


        Signature                            Title
        ---------                            -----


    /s/ W. W. Allen
---------------------------    Chairman of the Board of Directors
        W. W. Allen               and Chief Executive Officer
                                 (Principal executive officer)

    /s/ T. C. Morris
---------------------------           Senior Vice President
        T. C. Morris               and Chief Financial Officer
                                  (Principal financial officer)

   /s/ Rand C. Berney
---------------------------       Vice President and Controller
       Rand C. Berney             (Principal accounting officer)

    /s/ J. J. Mulva
---------------------------      President and Chief Operating
        J. J. Mulva                   Officer and Director

  /s/ C. L. Bowerman
---------------------------         Executive Vice President
      C. L. Bowerman                      and Director


                                134

<PAGE>




       Signature                            Title
       ---------                            -----


  /s/ David L. Boren
---------------------------                 Director
      David L. Boren


 /s/ James B. Edwards
---------------------------                 Director
     James B. Edwards


 /s/ Larry D. Horner
---------------------------                 Director
     Larry D. Horner


/s/ Randall L. Tobias
---------------------------                 Director
    Randall L. Tobias


/s/ Victoria J. Tschinkel
---------------------------                 Director
    Victoria J. Tschinkel


                                135

<PAGE>