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, 1999
                                       -----------------------------

                                     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          New York and Pacific
        Expiring July 31, 2009                  Stock Exchanges
      6 3/8% Notes due 2009                    New York Stock Exchange
      6.65% Notes due March 1, 2003            New York Stock Exchange
      6.65% Debentures due July 15, 2018       New York Stock Exchange
      7% Debentures due 2029                   New York Stock Exchange
      7.125% Debentures due March 15, 2028     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 253,489,874 shares
of Common Stock, $1.25 Par Value, outstanding at February 29, 2000.  The
aggregate market value of voting stock held by non-affiliates of the
registrant was $9,695,987,681 as of February 29, 2000.  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 287,403 and 28,358,258 shares, respectively,
in determining the aggregate market value.

                     Documents incorporated by reference:
            Proxy Statement for the Annual Meeting of Stockholders
                           May 8, 2000 (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..............   2
               E&P (Exploration and Production)..............   2
               GPM (Gas Gathering, Processing and Marketing).  16
               RM&T (Refining, Marketing and Transportation).  18
               Chemicals.....................................  22
               Other.........................................  26
             Competition.....................................  28
             General.........................................  29
       3.  Legal Proceedings.................................  30
       4.  Submission of Matters to a Vote of
             Security Holders................................  30

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

           Executive Officers of the Registrant..............  31

                            PART II

       5.  Market for Registrant's Common Equity and
             Related Stockholder Matters.....................  32
       6.  Selected Financial Data...........................  33
       7.  Management's Discussion and Analysis of
             Financial Condition and Results of Operations...  34
       7a. Quantitative and Qualitative Disclosures About
             Market Risk.....................................  58
       8.  Financial Statements and Supplementary Data.......  79
       9.  Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure.......... 147

                            PART III

      10.  Directors and Executive Officers of the
             Registrant...................................... 148
      11.  Executive Compensation............................ 148
      12.  Security Ownership of Certain Beneficial
             Owners and Management........................... 148
      13.  Certain Relationships and Related Transactions.... 148

                            PART IV

      14.  Exhibits, Financial Statement Schedules,
             and Reports on Form 8-K......................... 149


<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 resources, that are made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform
Act of 1995.  The words "forecasts," "intends," "believes,"
"expects," "plans," "scheduled," "anticipates," "estimates," and
similar expressions identify forward-looking statements.  The
company does not undertake to update, revise or correct any of
the forward-looking information.  Readers are cautioned that such
forward-looking statements should be read in conjunction with the
company's disclosures under the heading: "CAUTIONARY STATEMENT
FOR THE PURPOSES OF THE `SAFE HARBOR' PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995," beginning on page 76.


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 in Bartlesville,
Oklahoma, where it was founded.  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
fractionates natural gas liquids and refines, markets and
transports crude oil and petroleum products, primarily in the
United States; and (4) Chemicals--which manufactures and markets
petrochemicals and plastics on a worldwide basis.  Support staffs
provide technical, professional and other services to the
business segments.  At December 31, 1999, Phillips employed
15,900 people, 8 percent less than the previous year-end.

Significant developments included the following:

  o  Acquisition of all of Atlantic Richfield Company's Alaskan
     businesses (see page 2).

  o  Eldfisk water injection project in the North Sea (see
     page 8).


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<PAGE>



  o  Hamaca heavy oil project in Venezuela (see page 12).

  o  Bayu-Undan development in the Timor Sea (see page 11).

  o  Bohai Bay discovery off China's northern coast (see
     page 11).

  o  GPM joint venture with Duke Energy (see page 16).

  o  Construction began on a coker unit and a continuous catalyst
     regeneration reformer at the Sweeny Complex (see page 19).

  o  Signing of a letter of intent to form a 50/50 joint venture
     with Chevron Corporation combining the companies' worldwide
     chemicals businesses (see page 22).

  o  Commencement of construction of a major petrochemical
     facility in Qatar (see page 25).

  o  Agreement in principle with a co-venturer to build a
     700-million-pound-per-year polyethylene facility in the
     United States (see page 25).


SEGMENT AND GEOGRAPHIC INFORMATION

Segment information about sales and other operating revenues,
earnings, total assets and additional information, located in
Note 19--Segment Disclosures and Related Information in the Notes
to Financial Statements, is incorporated herein by reference.


E&P
---

On March 15, 2000, the company announced that it had signed a
definitive agreement for the purchase of all of Atlantic
Richfield Company's (ARCO) Alaskan businesses, including ARCO
Alaska, Inc.  The transaction is subject to regulatory review and
approval.  Phillips expects to add reserves of approximately
1.9 billion barrels of oil equivalent in 2000 from this
transaction, which would increase the company's reserves from the
2.2 billion barrels of oil equivalent at year-end 1999 to
4.1 billion barrels of oil equivalent.  In Prudhoe Bay, Phillips
will obtain a 42.6 percent interest in the gas cap and a
21.9 percent interest in the oil rim, as well as a range of
interests in related fields.  The company will acquire a
55 percent interest in the greater Kuparuk area and a 78 percent
interest in the Alpine field.  The acquisition also includes
1.1 million of net exploration acres.  Average net production
from the acquired assets, before deductions for fuel usage, is
expected to be 348,000 barrels of oil equivalent per day in 2000


                                2

<PAGE>



and 377,000 barrels of oil equivalent per day in 2001.  Also
included in the transaction are ARCO's share of the Trans Alaska
Pipeline System and marine terminal facilities at Valdez, Alaska,
and six existing oil tankers (one of which is chartered), along
with three additional doubled-hulled tankers under construction.
Phillips expects the transaction to close in the second quarter
of 2000.

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 and lignite in the United States.  At December 31,
1999, E&P was producing in the United States (including the Gulf
of Mexico); the Norwegian, Danish and U.K. sectors of the North
Sea; Canada; Nigeria; Venezuela; the Timor Sea between East Timor
and Australia; and offshore China.

The information listed below appears in the oil and gas
operations disclosures on pages 126 through 145 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 barrel of oil equivalent.

  o  Developed and undeveloped acreage.

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

In 1999, Phillips' worldwide crude oil production averaged
231,000 barrels per day, a 4 percent increase from
222,000 barrels per day in 1998.  During the year, 50,000 barrels
per day of crude oil production was from the United States, down
from 62,000 barrels per day in 1998.  Lower U.S. production was
due to property dispositions, as well as normal field declines.
Foreign crude oil production volumes increased 13 percent in
1999, primarily as a result of new production from the Janice and
Renee/Rubie fields in the U.K. North Sea, as well as from the
Timor Sea and Denmark.

E&P's worldwide production of natural gas liquids averaged
11,000 barrels per day in 1999, compared with 13,000 barrels per
day in 1998.  U.S. production accounted for 2,000 barrels per day
in 1999, compared with 3,000 barrels per day in 1998.


                                3

<PAGE>



The company's worldwide production of natural gas averaged
1,393 million cubic feet per day in 1999, down 4 percent from
1998.  U.S. natural gas production decreased 2 percent in 1999.
The effect of property dispositions and field declines were
partly offset by higher production of coal-seam gas in the San
Juan Basin of New Mexico and new production from an asset
acquisition in north Louisiana.  Foreign natural gas production
decreased 8 percent in 1999, reflecting lower natural gas
production from the Norwegian sector of the North Sea, due to the
capacity limitations of the new Ekofisk facilities.  When the
production license for Ekofisk was extended from 2011 to 2028,
Ekofisk II was designed with a lower gas processing capacity than
that of the original Ekofisk facilities, to better match the
future predicted production curve of the field.  Production
capability of oil has significantly exceeded those predictions.
Debottlenecking efforts have been successful at increasing the
oil and natural gas liquids handling capability from the original
design rate of 254,000 barrels per day to 350,000 barrels per
day, and is currently limited by the associated gas processing
capacity.  Lower Norway natural gas production was partially
offset by a full year's production from the Britannia field, and
new production from the Janice and Renee/Rubie fields in the U.K.
North Sea.

Phillips' worldwide annual average crude oil sales price
increased 45 percent in 1999, to $17.70 per barrel.  Both U.S.
and foreign average prices were significantly higher than the
prior year's prices.  E&P's annual average worldwide natural gas
sales price was unchanged from 1998, at $2.15 per thousand cubic
feet.  Although U.S. natural gas prices increased 8 percent, this
was offset by 7 percent lower foreign prices, primarily due to
lower gas prices in Norway and the United Kingdom.

The company's finding and development costs in 1999 were
$4.81 per barrel of oil equivalent, compared with $12.78 in 1998.
The 1999 cost per barrel benefited from the acquisition of proved
properties and lower development costs.  The high cost per barrel
in 1998 was affected by significant negative reserve revisions
due to low oil and gas prices and the acquisition of a
7.14 percent interest in 10.5 exploratory blocks in the Caspian
Sea, offshore Kazakhstan.  Over the last five years, Phillips'
finding and development costs averaged $5.57 per barrel of oil
equivalent.  Finding and development cost per barrel of oil
equivalent is calculated by dividing the net reserve change for
the period (excluding production and sales) into the costs
incurred for the period, as reported in the "Costs Incurred"
disclosure required by Financial Accounting Standards Board
Statement No. 69, "Disclosures about Oil and Gas Producing
Activities."


                                4

<PAGE>



At December 31, 1999, Phillips held a combined 35.5 million net
developed and undeveloped acres, compared with 33.6 million net
acres at year-end 1998.  The 6 percent increase in net acreage is
primarily attributable to adding acreage in China and Oman,
partially offset by relinquishing acreage in Gabon and Peru.  At
year-end 1999, the company held acreage in 20 countries
(including the Timor Sea), and produced hydrocarbons in nine.


E&P--U.S. OPERATIONS

Phillips owns a 70 percent interest in a liquefied natural gas
facility in Kenai, Alaska, which has supplied liquefied natural
gas to two utility companies in Japan for more than 30 years.
Through refrigeration and compression techniques, and utilization
of Phillips' proprietary liquefied natural gas technology, the
company liquefies natural gas produced from its Alaskan North
Cook Inlet field.  Utilizing two leased tankers, the company
transports the liquefied natural gas to Japan, where it is
reconverted into dry gas at the receiving terminal.  Phillips
sold 45 billion cubic feet of liquefied natural gas to Japan in
1999.  The U.S. Department of Energy approved a five-year
extension of the liquefied natural gas export contracts in 1999,
allowing Kenai liquefied natural gas sales to continue through at
least March 31, 2009.

During 1999, the company completed an exploration and development
agreement with Contour Energy Company (Contour), formerly Kelley
Oil & Gas Corporation, relating to Contour's interests in the
West Bryceland and Sailes fields in north Louisiana.  Under the
agreement, Phillips will operate, develop, exploit and explore
the fields.  Contour retained an eight-year volumetric overriding
royalty interest totaling approximately 42 billion cubic feet of
gas.  The agreement added approximately 130 billion cubic feet of
gas equivalent to the company's reserves at closing, with
additional reserves expected to be added in future years as the
fields are developed.  In December 1999, these fields produced at
a total net rate of 24 million cubic feet of gas per day.

In November 1999, production began from the Chinook development,
located 60 miles offshore Louisiana in about 300 feet of water.
Net production rates were 2,800 barrels of oil per day and
7 million cubic feet of gas per day in December 1999.  Phillips
has a 33 percent interest in Chinook.

During the third quarter of 1999, Phillips acquired a 50 percent
interest in Yates Petroleum Corporation's (Yates) coalbed methane
acreage position in Wyoming's Powder River Basin.  The Yates
acquisition established a joint venture between the two companies
covering 340,000 gross undeveloped acres, and 90 existing coalbed


                                5

<PAGE>



methane wells, which were drilled to delineate the coal seams.
Some of these wells will be de-watered and connected to pipelines
for future production.  The companies could drill as many as
2,000 shallow wells during the next 10 to 20 years, depending
upon the extent and characteristics of the coalbed methane
deposits.  A drilling program is currently under way.  Yates will
serve as operator for the project.  Initial production is
expected in 2000 depending upon the results of the drilling
program and de-watering efforts.

Phillips is pursuing the development of four satellite fields in
Alaska near the main Prudhoe Bay and Kuparuk fields.  First
production is expected in late 2001 or 2002.  In 1999, Phillips
and co-venturers discovered the fourth satellite field, named
Aurora, in Alaska's Prudhoe Bay region.  The discovery well
tested at 1.3 million cubic feet per day of natural gas and
1,900 barrels of oil per day.  Phillips holds a 12 percent
interest in Aurora.

The company acquired interests in 32 blocks in the 1999 lease
sale in the National Petroleum Reserve of Alaska.  Drilling is
planned in the winter of 2000/2001 on two prospects acquired in
this lease sale.  Additional seismic acquisition is planned in
2000.

In 1999, Phillips participated in the drilling of its first deep-
water well in the Gulf of Mexico, located on the Voltron prospect
in the Green Canyon area.  This well did not encounter commercial
quantities of hydrocarbons.  Up to three additional wells are
planned for deep-water areas in 2000.  Deep-water is defined as
water depths greater than 1,000 feet.

Net production from Phillips' subsalt Mahogany (Ship Shoal blocks
349/359) field in the Gulf of Mexico averaged 3,400 barrels per
day in 1999, compared with 3,800 barrels per day in 1998.  The
Agate (Ship Shoal block 361) subsalt field was completed in June
1998 and tied in to the Mahogany platform.  A well failure in the
second quarter of 1999 shut down the Agate field and resulted in
a reduction of the field's book value to reflect the impairment
of the field.  Further drilling on the Agate field was completed
in January 2000, and production resumed in February.

During the first quarter of 1999, Phillips closed on the sale of
its oil and gas interests in central Oklahoma.  In the second
quarter of 1999, Phillips closed on the sale of a Gulf of Mexico
property.  In August 1999, Phillips signed a purchase and sale
agreement to sell its interests in 42 leases in 22 Gulf of Mexico
fields.  The transaction closed in September, and the sale of
various properties where preferential purchase rights were
exercised occurred in the fourth quarter.


                                6

<PAGE>



Net production from the company's three jointly owned coal and
lignite mines was 1.8 million tons in 1999, compared with
1.9 million tons in 1998.  The mines are located in Louisiana,
Texas and Wyoming.  Phillips has a 50 percent-equity interest in
each.

Construction began 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 power plant
to be built and owned by a third party in northeast Mississippi.


E&P--NORWEGIAN OPERATIONS

In 1969, Phillips discovered the giant Ekofisk field, located
almost 200 miles offshore Norway in the center of the North Sea.
Production from Ekofisk began in 1971.  Today, the Ekofisk area
is comprised of four producing fields: Ekofisk, Eldfisk, Embla
and Tor.  Net crude oil production from Norway was 99,000 barrels
per day in 1999, the same as 1998.  Net natural gas production
was 126 million cubic feet per day in 1999, compared with
190 million cubic feet in 1998.  Net natural gas liquids
production was 4,000 barrels per day in 1999, compared with
5,000 barrels per day in 1998.


Ekofisk II

The Ekofisk Complex, a major Phillips oil and gas installation,
includes drilling and production platforms, processing equipment,
compressors, storage tanks, living quarters for crews and a
communications network.  In 1994, Phillips announced plans to
essentially rebuild the Ekofisk Complex, due to subsidence
problems.  The project, called Ekofisk II, was completed in 1998,
and included the extension of the production license to the year
2028.  The project included the installation of a new wellhead
platform, which began operation in 1996, and a new transportation
and processing platform, which began operation in 1998.

The construction of new Ekofisk offshore living quarters has been
delayed.  Phillips and its co-venturers have postponed the
project as the seabed subsidence rate has dropped sharply.  If
the current subsidence rate forecasts prove accurate, the
replacement would not be required until at least 2009.  The
recent drop in the subsidence rate is a direct result of
Phillips' strategy to use water injection to repressure the
reservoir, reduce subsidence rates and increase reserves
recovery.


                                7

<PAGE>



The cessation plan for redundant Ekofisk facilities and shut-in
outlying fields was completed and submitted to the Norwegian
authorities and other stakeholders in October 1999.  The plan
outlined the long-term cessation plans for 15 structures in the
Greater Ekofisk area that are currently shut down, or that will
be shut down over the next decade.  Under this plan, the platform
topsides would be removed between 2003 and 2018.  A tank and
barrier wall, as well as trenched pipelines, are recommended to
be left in place.  The Norwegian authorities will review this
plan and associated assessment documents, and formulate its
recommendations.  A final decision, to be made by the Norwegian
Storting, is expected in the second half of 2001.  Phillips has a
35.11 percent interest in Ekofisk.


Eldfisk Improved Oil Recovery

Phillips is proceeding 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 includes water-
injection, gas-lift and gas-injection equipment.  The platform
began water injection in January 2000.  Commissioning of the gas-
injection and gas-lift systems is expected to be completed in the
second quarter of 2000.  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
recovery from the field by over 60 million barrels of oil
equivalent.


Ekofisk Area Working Interest

Through December 31, 1998, Phillips held a 36.96 percent working
interest in the Ekofisk area.  Beginning January 1, 1999,
Phillips' interest became 35.11 percent, due to the Norwegian
State's funding of 5 percent of the Ekofisk II expenditures in
exchange for a 5 percent direct interest in the production
license beginning January 1, 1999.  In addition, the production
license for the Ekofisk area fields was extended from a 2011
expiration date to an ending date in 2028 and the 10 percent
royalty charged on oil and natural gas liquids production was
eliminated.  Altogether, these changes resulted in a more
favorable economic position for the company.


                                8

<PAGE>



Other Areas

As part of its Norwegian operations in the North Sea, Phillips
has interests in five licenses offshore Denmark.  The Siri field
was discovered in December 1995.  Initial production began in
March 1999, with total 1999 production at a net rate to Phillips
of 4,000 barrels per day.  Phillips holds a 12.5 percent interest
in the Siri license.  On the other licenses, seismic acquisition
and evaluation continued in 1999, with an exploration well
planned for one of the license areas in 2001.

Phillips holds a 38.25 percent interest in a license offshore
western Greenland in the Fylla area covering 2.3 million acres.
Seismic data has been acquired and the first exploration well is
planned for 2000.  Phillips holds a 34 percent interest in a
second license for 1.2 million acres offshore western Greenland,
in the Sisimiut area.  Seismic acquisition and evaluation
continued in 1999, with additional surveys planned for 2000.


E&P--U.K. OPERATIONS

The Judy/Joanne fields comprise J-Block, the company's largest
producing field in the U.K. North Sea.  In 1999, J-Block net
production averaged 12,300 barrels per day of liquids and
82.5 million cubic feet per day of gas, compared with 17,400 and
90.7 in 1998, respectively.  The reduction was due to normal
field decline.  Phillips holds a 36.5 percent interest.

The J-Block production facilities were designed with extra
capacity to provide the infrastructure needed to cost-
effectively develop other discoveries in the area.  The Jade
discovery in 1996 will be developed from a wellhead platform and
pipeline tied to the J-Block facilities.  Development approval
was received from the U.K. Department of Trade and Energy in
January 2000.  Production is expected by year-end 2001, at a net
rate of 5,200 barrels of oil per day and 61 million cubic feet of
natural gas per day.  Phillips is the operator and holds a
32.5 percent interest in Jade.

Also tying into the J-Block infrastructure is the Janice field.
The Janice floating production facility was moved on-site in
December 1998, and production began in February 1999.  The Janice
field's net production rate in 1999 was 8,800 barrels of liquids
per day.  Phillips owns a 24.4 percent interest.

In early 1999, an exploration well on the Jill prospect in block
30/7a, 4.5 miles from the J-Block production platform, tested at
a rate of 4,000 barrels of oil per day and 42 million cubic feet
of gas per day.  Appraisal and development studies are under way


                                9

<PAGE>



to evaluate development through the J-Block facilities.  Phillips
is the operator with a 36.5 percent interest.

Phillips holds an 11.45 percent interest in the Armada field, and
a 6.78 percent interest in the Britannia field, two large fields
in the U.K. North Sea.  Armada, which began production in late
1997, averaged a net rate of 3,000 barrels of liquids per day and
47.4 million cubic feet of natural gas per day in 1999.
Britannia began commercial production in the summer of 1998;
1999 net production averaged 2,900 barrels of liquids per day and
45.0 million cubic feet of natural gas per day.

Phillips is the operator and holds a 43.77 percent interest in
the Renee field and a 27 percent interest in the Rubie field,
together referred to as R-Block.  Renee began producing in
February 1999, while Rubie's first production came on stream in
May 1999.  R-Block is a subsea development tied in to a third-
party production facility.  The second Renee development well,
drilled in 1999, was a dry hole, resulting in a reduction of the
Renee field's book value to reflect the impairment of the field.
R-Block net production averaged 7,500 barrels of liquids per day
in 1999.

Two discovery wells were drilled in 1997 on the Kate and Tornado
prospects that straddle three blocks in the U.K. North Sea.
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 blocks 22/23b and 22/28b.  Phillips drilled an appraisal
well in block 22/28a in 1998, which was suspended pending further
evaluation.  The Shell group drilled a further appraisal well in
block 22/23b in 1999.  A combined Kate/Tornado development
decision is pending evaluation of these wells.

Phillips has interests in 53 deep-water blocks offshore the
United Kingdom and Ireland in the Atlantic Margin.  The company
participated in a deep-water North Atlantic Margin well in 1999
and plans to participate in three more in 2000.


E&P--OTHER OPERATIONS

China:

In the South China Sea, Phillips' combined net production of
crude oil from its Xijiang facilities averaged 10,000 barrels per
day in 1999, compared with 13,000 barrels per day in 1998.  The
company performed a two-month scheduled maintenance shutdown in
1999 for the Xijiang production platform and floating production
storage and offloading vessel.


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<PAGE>



The company completed its appraisal drilling program in the first
quarter of 2000 on the Peng Lai 19-3 discovery in block 11/05 of
China's Bohai Bay.  The company is evaluating the findings of the
drilling program, including the ultimate oil recovery potential
from this commercial discovery.  Phillips owns a 100 percent
participating interest in the block.  The China National Offshore
Oil Corporation (CNOOC) has the right to acquire up to a
51 percent interest in any development.  Phillips has initiated
joint commercialization studies with CNOOC.  One development
scenario being considered is a multiple-phase development.  In
this plan, Phase I would utilize one wellhead platform and a
floating production storage and offloading facility, and
production could commence by the fourth quarter of 2001.
Phase II would include multiple wellhead platforms, central
processing facilities and a pipeline or floating storage and
offloading facility.  First production from Phase II would be
expected in 2004.

Several other exploration prospects have been identified in
block 11-05.  An additional four-well exploration drilling
program is expected to begin in 2000 after the appraisal drilling
is completed on the 19-3 field.


Nigeria:

In Nigeria, the company's non-operating, working interests in
23 fields yielded net average crude oil production of
20,000 barrels per day, 5 percent higher than the prior year, due
mainly to civil unrest and production quotas experienced in 1998.

The company's oil mining leases for production of oil and gas
were renewed in 1998 for 30 years, effective June 1997.  These
leases are operated on behalf of the company under a joint
operating agreement with Nigerian Agip Oil Company.


Timor Sea and Australia:

Phillips discovered the Bayu gas/gas condensate field, located in
the Timor Gap Zone of Cooperation in the Timor Sea between
Australia and East Timor, in 1995.  Drilling in an adjacent block
in 1995 confirmed that the discovery extended across two blocks:
91-13 (Bayu) and 91-12 (Undan).  The blocks were unitized, and
Phillips' interest in the unitized Bayu-Undan field was
26.9 percent at year-end 1998.  In 1999, Phillips acquired
another company's 42.42 percent interest in block 91-12, bringing
the company's total interest in the unitized field to
50.3 percent.  Phillips booked an additional 76-million-barrel-of-
oil-equivalent reserves in 1999 in the Bayu-Undan field as a


                                11

<PAGE>



result of the acquisition, and was appointed operator of the
field.

Under the terms of an operating agreement, all of the co-
venturers have approved the development of Bayu-Undan, initially
in a gas-recycle phase.  The gas-recycle project will produce and
process natural gas, separate and export condensate and natural
gas liquids, and re-inject the remaining natural gas back into
the reservoir.  Full commercial production is expected to begin
in early 2004.

Phillips has also taken the initiative to commercialize the Bayu-
Undan gas reserves.  Discussion with potential customers in the
Northern Territory of Australia are under way, and in November
1999, the company entered into an alliance with another party to
evaluate Australia's domestic gas marketing opportunities.  In
addition, Phillips is actively pursuing opportunities for
liquefied natural gas sales into Asian markets.  The ultimate
gross hydrocarbon recovery potential from the field is estimated
to be 400 million barrels of petroleum liquids and 3.4 trillion
cubic feet of natural gas.

Governance of the Timor Gap Zone of Cooperation is in transition.
Phillips is working closely with the Australian government, the
United Nations Transitional Administration in East Timor (UNTAET)
and recognized East Timorese leaders.  In February 2000, an
agreement was signed in which UNTAET became Australia's partner
in the Timor Gap Treaty and assumed all rights and obligations
previously exercised by Indonesia.  On February 28, 2000,
Phillips announced that the Timor Gap Joint Authority had
approved the development plan for the gas-recycle project.
Phillips also acquired interests in several producing fields in
the Timor Sea region in 1999, adding 5,000 barrels of oil per day
to Phillips' average 1999 production.

In early 1999, Phillips and a co-venturer were awarded a
production license for the Athena gas/gas condensate discovery in
the Carnarvon basin, offshore western Australia.  Athena is
adjacent to another field, and unitization efforts are under way.
Phillips has a 50 percent interest in the prospect.


Venezuela:

In July 1999, Phillips exchanged its 18 percent interest in the
LL-652 oil field in Lake Maracaibo, Venezuela, for two-thirds of
Atlantic Richfield Company's (ARCO) 30 percent working interest
in the Hamaca heavy oil project.  The Hamaca project involves the
development of heavy oil reserves from Venezuela's Orinoco Heavy
Oil Belt.  The exchange increased Phillips' share in the Hamaca


                                12

<PAGE>



project from 20 percent to 40 percent.  The LL-652 field
interest, which Phillips exchanged with ARCO, is a redevelopment
and secondary recovery project in Lake Maracaibo that was
acquired in the Venezuela third bid round.  Phillips and its co-
venturers, including a subsidiary of Venezuela's state oil
company, have approved proceeding with the Hamaca project.
Construction of a heavy oil upgrader, pipelines and associated
production facilities is currently planned to begin in 2000.
Production is expected by early 2001, at an anticipated rate of
12,000 net barrels per day of heavy oil.  The upgrader is
expected to begin producing commercial quantities of 26-degree
API gravity oil by mid-2004 at a net rate to Phillips of 66,000
barrels per day.  The Hamaca project is expected to result in
Phillips' adding approximately 700 million barrels of oil
equivalent to its proved hydrocarbon reserves in the future.  As
discussed in Management's Discussion and Analysis on page 63,
there is a risk that the timing of the project could change.

Two other projects were acquired in the Venezuela third bid
round, La Vela and Ambrosio.  Phillips holds a 31.5 percent
interest in, and is operator of, the La Vela block offshore
northwest Venezuela where two exploratory wells have been
drilled.  The investment in both wells was written off to dry
hole expense in the second quarter of 1999.  Additional
exploration prospects in the northern area of the block are being
evaluated.  Ambrosio, in which Phillips holds a 90 percent
interest, is a redevelopment project operated by the company in
Lake Maracaibo.  Net production from Ambrosio averaged
1,500 barrels per day in 1999 and could increase significantly in
2000 and 2001, depending upon the results of current development
well drilling.


Canada:

Phillips increased its 1998 Canadian average barrel-of-oil-
equivalent production rate by 77 percent, compared with 1997,
with an acquisition of properties in the Zama area in late 1997.
An exploitation and drilling program on Zama continued in 1999.
Although net natural gas production volumes from Zama increased
6 percent in 1999, this was lower than the company's expectations
due to third-party gas processing plant and pipeline outages, and
third-party gas processing capacity limitations.  Average net
production in Canada was 7,000 barrels of oil per day and
91 million cubic feet of gas per day in 1999.


                                13

<PAGE>



Other exploration activity:

  o  Phillips signed a second petroleum concession agreement with
     the government of the Sultanate of Oman in June 1999.  The
     exploration and production agreement is for block 38 in the
     southwestern portion of Oman.  The company's first agreement
     covers exploration and production block 36, located directly
     north of block 38.  Phillips plans to drill one well in
     block 36 in 2000.  The company is conducting an analysis of
     block 38 before establishing a drilling program there.

  o  In early 1997, Phillips signed a license agreement with
     Peru's state-owned oil company, which enabled Phillips to
     explore 2.5 million acres in southeastern Peru.  An
     exploration well in block 82 in the Madre de Dios Basin was
     plugged and abandoned in early 1999 as a dry hole.  Phillips
     currently has no further exploratory activity planned in
     Peru.

  o  Phillips completed an acquisition of seismic data for
     block 17/18 of the Indian Ocean, offshore South Africa.
     Exploratory drilling is planned for 2000.  Phillips is the
     operator of the 14.5 million acre sublease, with a
     40 percent interest.

  o  In September 1998, Phillips acquired a 7.14 percent interest
     in an exploration project in the Kazakhstan sector of the
     Caspian Sea.  The exploration area consists of 10.5 blocks,
     totaling nearly 2,000 square miles about 50 miles
     west-northwest of the giant Tengiz oil field onshore
     Kazakhstan.  The joint venturers are committed to drill six
     exploration wells and conduct additional seismic work over
     six years, with an option to extend the exploration phase
     another two years.  Drilling began in the summer of 1999 and
     was suspended, as expected, in January 2000 due to the risks
     posed by ice build-up around the drilling rig.  Drilling
     operations are expected to resume in late March or April
     2000 after the annual ice breakup.  The blocks are covered
     by a production-sharing agreement with the Kazakhstan
     government.  The initial production phase of the contract is
     for 20 years, with options to extend the agreement another
     20 years.

  o  In 1998, Phillips acquired a 40 percent interest in an
     exploration block in Angola.  Phillips has an option to
     become the operator for the development phase.  New three-
     dimensional seismic data was acquired over the block in
     1998.  Exploration drilling is planned for 2000.


                                14

<PAGE>



E&P--RESERVES

In 1999, on a barrel-of-oil-equivalent basis, Phillips replaced
114 percent of the reserves it produced during the year, compared
with 62 percent in 1998.  The 1999 total includes replacement of
206 percent of foreign production and 6 percent of U.S.
production.

As a result of non-strategic property sales, U.S. reserves
decreased 9 percent, while foreign reserves increased 8 percent.
Total worldwide proved reserves on a barrel-of-oil-equivalent
basis were 2.23 billion barrels at year-end 1999, a slight
increase from year-end 1998.  Liquids reserves increased
1 percent, while natural gas reserves increased 2 percent.
Natural gas comprises 48 percent of Phillips' proved worldwide
hydrocarbon reserves and 70 percent of its U.S. reserves.
Seventy-six percent of Phillips' proved reserves base is located
in North America and the North Sea.  From 1995 through 1999,
Phillips' five-year-average barrel-of-oil-equivalent production
replacement equaled 110 percent.

Proved oil and gas reserves are the estimated quantities of crude
oil, natural gas and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions, i.e., prices and costs as of
the date the estimate is made.  Prices include consideration of
changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future
conditions.

The company has not filed any information with any other federal
authority or agency with respect to its estimated total proved
reserves at December 31, 1999.  No difference exists between the
company's estimated total proved reserves for year-end 1998 and
year-end 1997, which are shown in this filing, and estimates of
these reserves shown in a filing with another federal agency in
1999.


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 138 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.


                                15

<PAGE>



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
---

In December 1999, Phillips signed agreements to combine Phillips'
GPM business with Duke Energy Corporation's gas gathering and
processing business to form a new midstream company to be called
Duke Energy Field Services.  The agreements were unanimously
approved by both companies' Boards of Directors and due diligence
has been completed.  Subject to regulatory approval, the
transaction is expected to close by the end of the first quarter
of 2000.

Under the terms of the agreements, Duke Energy Field Services
will seek to arrange debt financing and, upon, or shortly after,
closing of the transaction, make one-time cash distributions of
approximately $1.2 billion to both Duke Energy and Phillips.
At closing, Phillips will initially own about 30 percent of Duke
Energy Field Services.  The existing natural gas liquids supply
arrangement between GPM and Phillips will be maintained by
Duke Energy Field Services for an initial term of 15 years.

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 in an unfractionated state primarily to the
company's RM&T operations, where they are used as feedstock or
sold to outside customers.  The residue gas remaining after the
liquids are extracted is sold to outside customers or used as
fuel in Phillips' operations.  GPM owns and operates 15 natural
gas liquids extraction plants, and has an interest in another.
The plants are located in Texas (9), Oklahoma (3), and
New Mexico (4).  In addition, GPM operates gas gathering systems
with approximately 29,000 miles of active gas gathering
pipelines, with some 19,400 meter connections to producing wells.


                                16

<PAGE>



During 1999, GPM:

  o  Acquired the Western Gas Resources Giddings gathering
     system.  The system extends through six counties in south
     central Texas and gathers natural gas from approximately
     550 wells through 660 miles of gathering pipelines.

  o  Purchased the former Acquila Mooreland gas gathering system.
     The acquisition integrated two large gathering systems with
     the Mooreland plant in Woodward County, Oklahoma.

  o  Purchased the Artesia gas processing plant and gathering
     system.  GPM had operated the assets under a construction
     and operating agreement since 1959.

  o  Purchased the capital stock of MidCon Gas Products of New
     Mexico Corp., whose assets consisted of two gathering
     systems in New Mexico.

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.  One improvement effort--
adding distributive control system technology to most GPM-owned
and operated processing plants--is scheduled to be completed by
the end of 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.

Further technological improvements in 1999 included the continued
installation of remote monitoring and control equipment at GPM's
key field compression sites.  This equipment allows for the
monitoring of remote compressors from a central location,
providing a more efficient use of resources and reducing
compression downtime.  These improvement are scheduled to be
completed in the year 2000.

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

GPM's raw gas throughput averaged 1,758 million cubic feet per
day in 1999, compared with 1,847 million cubic feet per day in
1998.  Raw gas purchased from Phillips E&P represented
approximately 8 percent of GPM's total throughput in 1999 and
1998.


                                17

<PAGE>



GPM continued to be a significant U.S. producer of natural gas
liquids.  GPM's net natural gas liquids production was
156,000 barrels per day in 1999, compared with 157,000 barrels
per day in 1998.  Residue gas sales were 988 million cubic feet
per day in 1999, the same as 1998.  GPM sells residue gas under
contracts with prices that are indexed to gas markets.  In 1999,
58 percent of the residue gas sales volumes were sold under
contracts with a term of one year or longer, compared with
63 percent in 1998.  The remaining residue gas sales volumes were
either sold on a daily or monthly basis.

At year-end 1999, gross raw natural gas supplies available for
processing through GPM-operated plants were estimated at
6.9 trillion cubic feet, the same as year-end 1998.  At year-end
1999, the company estimates that these supplies included about
655 million barrels of natural gas liquids, assuming full ethane
extraction, compared with 643 million barrels at year-end 1998.


RM&T
----

REFINING

Phillips owns and operates three crude oil refineries in the
United States having an aggregate rated crude oil refining
capacity at year-end 1999 of 355,000 barrels per day.  The
company also has 50 percent ownership of a refinery in Teesside,
England.  RM&T's total natural gas liquids fractionation capacity
at December 31, 1999, was 252,000 barrels per day, which included
Phillips' share of a fractionation facility in Conway, Kansas, of
42,000 barrels per day.  The company's refineries ran at
98 percent of capacity in 1999, compared with 94 percent in 1998.
The improvement in capacity utilization was the result of less
maintenance downtime in 1999.  Also in 1998 the Sweeny refinery
was shut down temporarily as a result of flooding from a tropical
storm.


Sweeny Complex

The Sweeny Complex is located in Old Ocean, Texas, about 65 miles
southwest of Houston.  It is the company's largest operating
facility, and includes a refinery and a natural gas liquids
fractionator.  The Sweeny Complex also includes certain
petrochemical operations that are included in the Chemicals
segment.  It has a crude oil processing capacity of
205,000 barrels per day and a natural gas liquids fractionation
capacity of 115,000 barrels per day.  The refinery primarily
receives crude oil from Phillips' and jointly owned terminals on
the Gulf Coast, including a deep-water terminal at Freeport,


                                18

<PAGE>



Texas.  The facility receives natural gas liquids feedstocks
through company-owned pipelines.

In the fourth quarter of 1998, Phillips, the Venezuelan state oil
company, Petroleos de Venezuela S.A. (PdVSA), and affiliates
signed agreements forming a limited partnership to construct a
58,000-barrel-per-day delayed coker and related facilities at the
Sweeny Complex.  Construction began in 1999.  A delayed coker
uses a thermal process to remove heavy materials from crude oil
and turn them into petroleum coke, used as a fuel in power
generation.  The remaining liquids are then sent to other units
in the refinery to be upgraded into more valuable products, such
as gasoline and distillates.  A delayed coker allows the
processing of heavy, sour, lower-cost crude oil, thereby lowering
crude oil acquisition costs.  Under the terms of the agreements,
PdVSA will supply the Sweeny refinery with up to 165,000 barrels
per day of Venezuelan Merey crude oil, once the project is
completed, which is scheduled to be in the third quarter of 2000.
Phillips is the operator and holds an indirect 50 percent
interest in the coker project.

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 intends to replace two existing catalytic
reformers at Sweeny with a new, 36,000-barrel-per-day continuous
catalyst regeneration reformer.  This would increase premium
gasoline and aromatics yields with only a small reduction in
total gasoline production.  The project would also provide more
hydrogen, which will be needed for the new coker.  Construction
began in January 1999, with start-up scheduled for the second
quarter of 2000.


Borger Complex

The Borger Complex is located in Borger, Texas, in the Texas
Panhandle near Amarillo.  It is Phillips' second-largest
operating facility, and includes a refinery and a natural gas
liquids fractionator, as well as certain petrochemical operations
that are included in the Chemicals segment.  Prior to January 1,
2000, it had a rated crude oil processing capacity of 125,000
barrels per day and a rated natural gas liquids fractionation
capacity of 95,000 barrels per day.  Effective January 1, 2000,
the rated crude oil processing capacity of the Borger Complex was
increased to 130,000 barrels per day.  The refinery receives
crude oil and natural gas liquids feedstocks from Phillips'
pipelines in West Texas and the Panhandle.  The Borger Complex
can also receive water-borne crude oil via Phillips' pipeline
systems.


                                19

<PAGE>



During 1999, Phillips and a subsidiary of Southwestern Public
Service Company completed construction of a cogeneration
facility.  The facility produces electricity for the utility and
steam for use at the Borger Complex.


Woods Cross Refinery

The Woods Cross refinery is located near Salt Lake City, Utah.
It has a crude oil processing capacity of 25,000 barrels per day.
The refinery receives crude oil via pipelines from Canada,
Colorado and southern Wyoming, and by truck from southern Utah.


Teesside, England, Refinery

Phillips owns a 50 percent-equity interest in a refinery in
Teesside, England, with a gross crude oil processing capacity of
117,000 barrels per day.  The facility processes crude oil to
produce naphtha, middle distillates and fuel oil.  The refinery
began production of low-sulfur diesel in 1996.  In 1999, the
refinery ran at 83 percent of its rated capacity, partly
reflecting a planned closure to upgrade facilities to produce
ultra-low-sulfur diesel fuel, to meet more stringent regulations
in Europe.


Supply and Output

The average purchase cost of a barrel of crude oil delivered to
the U.S. refineries in 1999 was $18.60, 42 percent higher than
$13.10 per barrel in 1998.  Thirty-nine percent of the crude oil
processed by the U.S. refineries in 1999 was supplied from the
United States (including both Phillips-produced oil and third-
party production), with the remainder provided from Saudi Arabia,
and, to a lesser extent, by purchases from West Africa, the North
Sea, and South America.  In 1998, the percent of crude oil
processed that was supplied from the United States was also
39 percent.  Crude oil purchases in 2000 are anticipated to be
supplied primarily from crude oil produced in the United States,
Venezuela, Saudi Arabia, and, to a lesser extent, West Africa,
the North Sea, and other countries in the Middle East and South
America.

Phillips' refineries produce a variety of petroleum products,
including gasoline, distillates (which includes diesel fuel,
heating oil and kerosene), aviation gasoline, jet fuel, solvents
and petrochemical feedstocks.  Gasoline and distillates are the
most significant part of RM&T's product slate, along with
fractionated natural gas liquids.


                                20

<PAGE>



Total output from refining operations averaged 590,000 barrels
per day, compared with 578,000 barrels per day in 1998.  The
increase was due to improved operating consistency in 1999.


MARKETING

In the United States, the company's wholesale and retail
operations market refined products in 28 states under the
Phillips 66 trademark.  Gasoline and other products are
distributed in the United States through approximately
6,500 retail outlets, bulk distributing plants, airport dealers
and marinas.  Of these, Phillips owns and operates 199 retail
outlets, and operates another 95 on leased property.

RM&T's total gasoline sales volumes in the United States
decreased 4 percent in 1999, primarily due to lower spot market
purchases and sales.  Sales volumes of branded gasoline were
unchanged in 1999, at 237,000 barrels per day.  Total distillates
sales volumes in RM&T decreased 4 percent in 1999, while total
natural gas liquids, aviation and other petroleum products sales
were 11 percent higher.  In total, RM&T petroleum products sales
in the United States, from both Phillips' refinery output and
purchased product, averaged 634,000 barrels per day during 1999,
compared with 632,000 barrels per day in 1998.

RM&T continued its retail-marketing rationalization and expansion
in 1999, and now plans to have about 350 company-operated retail
outlets in the United States by 2005--a 30 percent reduction from
the previous plan of 500 outlets.  During 1999, RM&T opened
15 new outlets.  In addition, 13 outlets were razed and rebuilt.
Since the expansion and rationalization program began in 1996,
the company has acquired 42 retail outlets, opened 60 new ones,
and razed and rebuilt 37 others.  Both new outlets and those that
are razed and rebuilt utilize the Kicks 66 convenience store
design.  During 1999, the company also disposed of four units,
bringing the total to 80 retail units in non-strategic areas
disposed of since the program began.

Phillips opened two Kicks 66 marketing outlets in the Phoenix
area in 1999, with 10 more planned for the Phoenix and Tucson
area in 2000.  The station openings mark Phillips' return to the
Arizona retail market after a 25-year absence.  The return to
Arizona is a part of the company's strategy to move into western
markets, like Albuquerque, New Mexico; Denver, Colorado; and
El Paso, Texas.


                                21

<PAGE>



TRANSPORTATION

Phillips' RM&T segment owns or has an interest in 6,994 miles of
common-carrier crude oil, raw natural gas liquids and products
pipeline systems, of which 6,145 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.  Various companies in which Phillips owns an equity
interest have another 10,013 miles of pipeline.  In addition to
these pipelines, the company has a 1.36 percent interest in the
800-mile Trans Alaska Pipeline System, which is included in the
E&P segment.

Construction of a new 55-mile natural gas liquids pipeline from
Wichita, Kansas, to Conway, Kansas, was completed during 1999.
The new pipeline began carrying product in May, and allows RM&T
to better serve its customers by providing better access to
propane and butane bulk storage in the Midwest.  Also, an
expansion of the El Paso terminal and pipeline system started up
in August 1999.  Phillips purchased a 25 percent interest in this
terminal and system in 1998.  With Phillips' participation in the
expansion, the company's interest increased to 33 percent.

During 1999, Phillips and its co-venturer in the Seaway
Pipeline Company (Seaway) announced plans to increase the
capacity of its 30-inch crude oil pipeline by approximately
130,000 barrels per day, bringing the system's overall
capacity to approximately 350,000 barrels per day.  The
increase is being accomplished through the addition of three
pump stations, along with the construction of two storage tanks
at the Freeport terminal on the Gulf Coast.  Completion is
expected in 2000.  Seaway also announced that it had signed new
connection agreements with Exxon Pipeline Company.  These
agreements are expected to permit the delivery of crude oil,
originating in the western Gulf of Mexico, to two Seaway crude
oil transportation systems.  Start-up of expanded operations is
expected in the second quarter of 2000.


Chemicals
---------

In February 2000, Phillips announced that it had signed a letter
of intent to form a 50/50 joint venture with Chevron Corporation
combining their worldwide chemicals businesses, other than the
Oronite additives business, which Chevron plans to retain.  The
transaction is expected to close midyear 2000, subject to
approval by the companies' Boards of Directors, the signing of
definitive agreements, and regulatory review and approval.  In
addition to all assets and operations included in Phillips'
Chemicals segment, the natural gas liquids fractionation assets
located at the Sweeny Complex and associated pipelines will


                                22

<PAGE>



become part of the joint venture as well.  The joint-venture
company is expected to be one of the top five worldwide olefins
and polyolefins producers, with annual gross capacities of
8.2 billion pounds of ethylene and 5.5 billion pounds of
polyethylene.  In addition, the joint venture would have annual
capacities of 7.4 billion pounds of styrene monomer, more than
1.2 billion pounds of styrenic polymers and more than 400 million
pounds of specialty chemicals.

Phillips' Chemicals segment is composed of:

  o  Petrochemical products--Primary products manufactured in
     these operations include ethylene, propylene, paraxylene,
     cyclohexane, and methyl mercaptan.  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.  Methyl
     mercaptan is produced at the Borger Complex in Texas.

  o  Plastics products--Key products manufactured in these
     operations include polyethylene, polypropylene, K-Resin
     styrene-butadiene copolymer (SBC), plastic pipe and Ryton
     polyphenylene sulfide.  The company's major production
     facility is the Houston Chemical Complex (HCC), near
     Houston, Texas.  The company owns equity interests in
     polyethylene plants in Singapore and China, and
     polypropylene facilities at HCC.  Ryton polyphenylene
     sulfide 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.


PETROCHEMICALS

Ethylene is one of the most significant products for the
Chemicals segment.  Phillips produces ethylene and propylene at
the Sweeny Complex, through both 100 percent-owned units and the
50 percent-owned Sweeny Olefins Limited Partnership (SOLP).
Feedstocks for these operations include natural gas liquids
purchased from Phillips' RM&T segment, as well as purchases from
third parties.  A significant portion of Phillips' ethylene is
used within Phillips as a feedstock for manufacturing
polyethylene.  Propylene produced at the Sweeny Complex is mainly
supplied to the Phillips Sumika polypropylene joint venture for
manufacturing polypropylene.  Phillips' share of the Sweeny
Complex's annual ethylene and propylene capacities, including
SOLP's, is 3.6 billion pounds and 950 million pounds,
respectively.  Net production of ethylene in 1999 totaled
3.3 billion pounds, compared with 3.1 billion pounds in 1998.
The increase was due in large part to more consistent operations
in 1999.


                                23

<PAGE>



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
used to produce polyester fibers and plastic, such as that used
in 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.  Paraxylene production was 595 million pounds in
1999, 15 percent lower than 1998 production and 32 percent lower
than capacity.  The lower production reflects operating problems
and weather-related downtime incurred in the first half of 1999.

In 1998, Phillips completed construction of a 100-million-pound-
per-year methyl mercaptan plant at its Borger Complex, with first
production late in the third quarter of 1998.  Methyl mercaptan
is a sulfur-based chemical mainly used in the production of
methionine, a feed supplement for poultry.  Methyl mercaptan is
also used to manufacture agricultural chemicals.  The new
facility uses hydrogen sulfide produced at the Borger Complex as
feedstock.  The plant operated below capacity in 1999 due to a
slowdown in the methionine market, reflecting reduced global
demand for poultry.


PLASTICS

At HCC, the debottlenecking of polyethylene facilities was
completed in late 1998, incorporating new proprietary technology
to expand the company's product line.  Annual capacity was
increased to 2.2 billion pounds for conventional Marlex resins.
Actual production levels may vary from nameplate as new resins
are added to the commercial product mix.  In 1999, HCC produced
2.1 billion pounds of polyethylene, compared with 1.9 billion
pounds in 1998.  Polyethylene, used to manufacture a wide variety
of plastic products, is a significant product for the Chemicals
segment.

Phillips' 50 percent-owned Singapore polyethylene facility, which
supplies polyethylene to markets in Asia, the Pacific Rim, Europe
and Australia, has a total annual linear polyethylene capacity of
860 million pounds.  Phillips' net share of 1999 production was
379 million pounds, a 5 percent increase over 1998.

Construction of a joint-venture polyethylene plant near Shanghai,
China, was completed in 1998.  Phillips owns a 40 percent
interest in the plant, while Shanghai Petrochemical Company
Limited (SPC) owns the remaining 60 percent.  Production began in
April 1998, and Phillips' share of 1999 production totaled
105 million pounds.  The plant has a total annual capacity of
258 million pounds, and is located at a petrochemical complex
owned by SPC, which provides ethylene feedstock to the new plant.


                                24

<PAGE>



Phillips and Qatar General Petroleum Corporation signed an
agreement in 1997 forming a joint venture, Qatar Chemical Company
Ltd., to develop a new petrochemical complex in Qatar.
Construction was approved in 1999.  The complex, in which
Phillips has a 49 percent interest, is expected to have annual
capacities of 1.1 billion pounds of ethylene, 1 billion pounds of
polyethylene and 100 million pounds of hexene-1.  The
polyethylene facilities will use Phillips' proprietary technology
to produce high-density and linear low-density polyethylene.
Site preparation began in late 1999, and commercial production is
scheduled for mid-2002. The polyethylene will be sold to markets
in Asia, Europe, Africa and the Middle East.

Phillips and Solvay Polymers, Inc. (Solvay), a wholly owned
subsidiary of the Solvay Group of Brussels, Belgium, announced in
the third quarter of 1999 that they had agreed in principle,
subject to execution of definitive agreements and board
approvals, to build and operate a 700-million-pound-per-year
polyethylene facility.  Each party will own a 50 percent interest
in the plant.  The facility, expected to be operational in 2002,
will be built at one of the companies' existing U.S.
manufacturing sites.  It is expected that Phillips will provide a
minimum of 50 percent of the ethylene feedstock needed by the new
facility and that each company will independently market its
share of production.  The companies also intend to build a
similar shared facility for start-up in the 2005 to 2007 time
period, as market conditions warrant.  The second facility would
be located on a site belonging to the company not hosting the
initial plant.  Final approvals of the necessary agreements are
anticipated in the first quarter of 2000.

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 in 1994
and was completed in 1996.  The new gas-phase polypropylene
facility's annual capacity is 270 million pounds, bringing PSPC's
total annual polypropylene production capacity to 790 million
pounds.  At year-end 1999, Phillips held a 57 percent interest
and will eventually hold a 50 percent interest in PSPC.  Net
production of polypropylene totaled 472 million pounds in 1999,
compared with 469 million pounds in 1998.

K-Resin SBC, a clear copolymer used in packaging, medical
components and many other applications, is produced at HCC.  A
new K-Resin SBC plant was completed in 1999, increasing the total
annual capacity at HCC to 370 million pounds.  The company's
K-Resin SBC facilities were damaged by a flash fire in June 1999.
Portions of the damaged plant were repaired and re-started in the


                                25

<PAGE>



third quarter of 1999.  Final repairs are expected to be
completed in the first quarter of 2000, making all plant capacity
once again available.  Force majeure is expected to be lifted
shortly after final repairs are completed.

In February 2000, Phillips formed a joint-venture company with
Korea's Daelim Industrial Co. Ltd., a K-Resin SBC licensee.
Phillips owns a 60 percent interest in the new joint venture,
KR Copolymer Company, Ltd., which purchased Daelim's existing
90-million-pound-per-year K-Resin SBC facility in Yochon, Korea.

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 leased manufacturing facility
in Hagerstown, Maryland, began production in 1997.  Also, the
Driscopipe division has a joint venture that manufactures
polyethylene pipe in Mexico, to serve the Mexican pipe market.
During 1999, Driscopipe started a new facility at Abilene, Texas,
to design and fabricate pipe fittings that complement the use of
polyethylene pipe.  Previously subcontracted to an outside
supplier, Driscopipe re-entered fittings manufacturing with its
own equipment in a leased facility operated by contract
employees.  Total polyethylene pipe capacity is 315 million
pounds per year.


Other
-----

In early 1999, Phillips reorganized its corporate technology and
engineering organizations to report directly to the company's
operating segments.  These units--one supporting upstream
operations and one supporting downstream operations--identify and
develop technologies to advance Phillips' core businesses.  The
focus of these organizations range from reservoir
characterization to plastics manufacturing processes, with the
purpose of improving Phillips' competitive position.

A promising example of this technology came in 1999 when Phillips
announced a new process, S Zorb sulfur-removal technology, that
significantly lowers sulfur content in gasoline.  When
commercialized, the process will contribute to cleaner air, while
limiting manufacturing cost increases.  Pilot-plant results
demonstrate that the technology can be used to make gasoline that
more than meets new U.S. government regulations limiting sulfur
content in gasoline to 30 parts per million.  The Phillips
technology uses a regenerative sorbent that chemically attracts
sulfur and removes it from gasoline blendstocks.  Conventional
technologies can result in a significant loss of octane and
volume in the manufacturing process.  The Phillips S Zorb sulfur-


                                26

<PAGE>



removal technology has little octane loss and very low volume
loss.  The sorbent material can be regenerated online, allowing
for long periods of operation between shutdowns.

In the fourth quarter of 1999, Phillips announced that it will
build a commercial facility at the Borger refinery to demonstrate
the benefits of the S Zorb sulfur-removal technology.
Construction of the 6,000-barrel-per-day unit began in the first
quarter of 2000, with start-up scheduled in early 2001.  The unit
is intended to demonstrate to potential licensees the operational
aspects of the S Zorb sulfur-removal technology.  It will also
help position the Borger refinery for low-sulfur gasoline
compliance.

Downstream Technology and Project Development was involved in a
companywide, 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 primarily use programs from SAP America, Inc.
and, for certain E&P operations, Oracle Corporation.  The goal
was to improve access to business information by implementing a
common, integrated computing system across the company.  Phase-in
of the new client-server technology began January 1, 1997, and
was fully implemented by July 1, 1999.

Downstream Technology and Project Development was responsible for
the companywide Year 2000 project.  The "Year 2000 Readiness
Disclosure" contained in Management's Discussion and Analysis on
page 70 is incorporated herein by reference.

At the end of 1999, Phillips held a total of 4,127 active patents
in 60 countries worldwide, including 1,280 active U.S. patents.
During 1999, the company received 79 patents in the United States,
and 366 foreign patents.  The company's products and processes
were licensed and used in 36 countries at year-end 1999, resulting
in licensing revenues of $95 million.  Polypropylene-related
licenses contributed 66 percent of the total, with polyethylene-
related licenses contributing 16 percent.  The company's basic
polypropylene license expired in March 2000, which will result in
a material decrease in the company's licensing revenues and will
adversely impact the Chemicals segment's earnings.  Licensing of
this technology has generated before-tax income for the Chemicals
segment of $56 million, $59 million, and $72 million in 1999,
1998, and 1997, respectively.  However, the overall profitability
of any business segment is not dependent on any single patent,
trademark, license, franchise or concession.


                                27

<PAGE>



COMPETITION

Phillips competes with private, public and state-owned companies
in the oil and gas and chemicals businesses.  Many of the
company's competitors are larger and have substantially greater
resources.  While Phillips generally ranks near the middle of the
group of large public integrated oil companies, each of the
segments in which Phillips operates is highly competitive.  No
single competitor, or small group of competitors, dominates any
of Phillips' business lines.

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 an efficient and cost-effective manner.
The principal methods of competing include geological,
geophysical and engineering research and technology; experience
and expertise; and economic analysis in connection with property
acquisitions.

Downstream, elements of competition include product improvement,
new product development, low cost, and manufacturing and
distribution systems.  In the marketing phase of the business,
competitive factors include product properties and
processibility, reliability of supply, customer service, price
and credit terms, advertising and sales promotion, and
development of customer loyalty to Phillips' branded products.

Because Phillips' GPM segment 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.  Under the terms of the agreements between Phillips and
Duke Energy Corporation, the existing natural gas liquids supply
arrangements between GPM and Phillips will be maintained by
the newly formed company for an initial term of 15 years.  See
page 16 for additional information.

The company's structure is well-integrated vertically--with
businesses ranging from feedstocks to plastic pipe--which helps
ensure markets for certain products.  The company's announced
strategy of pursuing joint-venture opportunities for its
midstream and downstream businesses should not affect the
benefits of vertical integration.  Phillips does not plan to exit
these business lines, and intends to secure feedstock supplies so
that current operations may be maintained in a competitive
manner.


                                28

<PAGE>



GENERAL

Phillips' safety recordable incident rate for 1999 was 1.19 per
200,000 man-hours, which is 9 percent higher than the 1998 rate
of 1.09.  However, over the past five years the rate has trended
downward.

Company-sponsored research and development activities charged
against earnings were $50 million, $62 million and $56 million in
1999, 1998 and 1997, respectively.

The environmental information contained in Management's
Discussion and Analysis on pages 70 through 72 under the caption,
"Environmental" is incorporated herein by reference.  It includes
information on expensed and capitalized environmental costs for
1999 and those expected for 2000 and 2001.

International and domestic political developments and government
regulation at all levels 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 predictable.


                                29

<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 Phillips, there would
be no material effect on the company's consolidated financial
position.  Nevertheless, such proceeding is reported pursuant to
the U.S. Securities and Exchange Commission's regulations.

In December 1999, the Houston South Area Office of the
Occupational Safety and Health Administration (OSHA) sent a
Notice of Violation to the company alleging violation of OSHA's
safety regulations as a result of a flash fire which occurred at
the company's K-Resin SBC facility in Houston on June 23, 1999.
The Notice of Violation contained three citations, seeking total
proposed penalties of $204,000.  Two of the citations have now
been settled for $51,000.  The remaining citation alleges
violations of OSHA's Process Safety Management Standard and
proposes a penalty in the amount of $140,000.  The citation is
being contested by the company.


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

None.


                                30

<PAGE>



                EXECUTIVE OFFICERS OF THE REGISTRANT

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

E. L. Batchelder     Vice President and Chief       52      1999
                       Information Officer

E. K. Grigsby        Vice President                 60      1993
                       Investor and Public
                       Relations

K. L. Hedrick        Executive Vice President       47      1994

John E. Lowe         Vice President Planning and    41      1999
                       Strategic Transactions

T. C. Morris         Senior Vice President and      59      1993
                       Chief Financial Officer

J. J. Mulva          Chairman of the Board of       53      1985
                       Directors and Chief
                       Executive Officer

M. J. Panatier       Senior Vice President          51      1994
                       Gas Processing and
                       Marketing

B. Z. Parker         Executive Vice President       52      1997

Barbara J. Price     Vice President Health,         55      1992
                       Environment and Safety

J. Bryan Whitworth   Senior Vice President          61      1981
                       General Counsel and
                       Government Relations

-------------------------
*On March 1, 2000.


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 8, 2000.  All of the executive officers named
above have been employed by the company for more than five years.


                                31

<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
                                 ---------------------  ---------
1999
First                            $48 7/16     37 11/16        .34
Second                            54 11/16    46 7/16         .34
Third                             57 1/4      45 13/16        .34
Fourth                            51 7/8      44 9/16         .34
-----------------------------------------------------------------

1998
First                            $53 1/4      42 3/4          .34
Second                            52          47 1/8          .34
Third                             49 1/2      40 3/16         .34
Fourth                            48 5/16     40 5/8          .34
-----------------------------------------------------------------

Closing Stock Price at December 31, 1999                      $47
Number of Stockholders of Record at February 29, 2000      51,132
-----------------------------------------------------------------


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


                                32

<PAGE>



Item 6.  SELECTED FINANCIAL DATA

                      Millions of Dollars Except Per Share Amounts
                      --------------------------------------------
                          1999     1998     1997     1996     1995
                      --------------------------------------------
Sales and other
  operating revenues   $13,571   11,545   15,210   15,731   13,368
Net income                 609      237      959    1,303      469
  Per common share
    Basic                 2.41      .92     3.64     4.96     1.79
    Diluted               2.39      .91     3.61     4.91     1.78
Total assets            15,201   14,216   13,860   13,548   11,978
Long-term debt           4,271    4,106    2,775    2,555    3,097
Company-obligated
  mandatorily
  redeemable preferred
  securities of
  Phillips 66 Capital
  Trusts I and II          650      650      650      300        -
Cash dividends declared
  per common share        1.36     1.36     1.34     1.25    1.195
------------------------------------------------------------------


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.


                                33

<PAGE>



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

March 22, 2000

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 resources,
that are made pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995.  The words
"intends," "believes," "expects," "plans," "scheduled,"
"anticipates," "estimates," and similar expressions identify
forward-looking statements.  The company does not undertake to
update, revise or correct any of the forward-looking information.
Readers are cautioned that such forward-looking statements should
be read in conjunction with the company's disclosures under the
heading: "CAUTIONARY STATEMENT FOR THE PURPOSES OF THE 'SAFE
HARBOR' PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995," beginning on page 76.


RESULTS OF OPERATIONS

Consolidated Results

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

                                            Millions of Dollars
                                          -----------------------
Years Ended December 31                    1999     1998     1997
                                          -----------------------

Exploration and Production (E&P)          $ 570      (67)     609
Gas Gathering, Processing and
  Marketing (GPM)                           104       54      101
Refining, Marketing and
  Transportation (RM&T)                      84      167      159
Chemicals                                   164      145      275
Corporate and Other                        (313)     (62)    (185)
-----------------------------------------------------------------
Net income                                $ 609      237      959
=================================================================


Net income is affected by transactions, defined by Management and
termed "special items," which are not representative of the
company's ongoing operations.  These transactions can obscure the
underlying operating results for a period and affect
comparability of operating results between periods.  The


                                34

<PAGE>



following table summarizes the gains/(losses), on an after-tax
basis, from special items included in the company's reported net
income:

                                            Millions of Dollars
                                          -----------------------
Years Ended December 31                    1999     1998     1997
                                          -----------------------

Kenai tax settlement                       $  -      115       83
Property impairments*                       (34)    (274)     (46)
Tyonek prospect dry hole costs                -      (71)       -
Net gains on asset sales                     73       21       16
Work force reduction charges                 (3)     (60)      (3)
Pending claims and settlements               35      108       15
Other items                                 (10)      23        -
-----------------------------------------------------------------
Total special items**                      $ 61     (138)      65
=================================================================
 *See Note 6 to the financial statements for additional
  information.
**1998 and 1997 restated to exclude foreign currency transaction
  gains and losses.


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

                                            Millions of Dollars
                                          -----------------------
Years Ended December 31                    1999     1998*    1997*
                                          -----------------------

E&P                                       $ 526      256      628
GPM                                         105       47       92
RM&T                                         91      174      161
Chemicals                                   146      153      272
Corporate and Other                        (320)    (255)    (259)
-----------------------------------------------------------------
Net operating income                      $ 548      375      894
=================================================================
*Restated to include foreign currency transaction gains and
 losses.


1999 vs. 1998

Phillips' net income was $609 million in 1999, up 157 percent
from net income of $237 million in 1998.  Special items benefited
1999 net income by $61 million, while reducing net income in 1998
by $138 million.  After excluding these items, net operating
income for 1999 was $548 million, a 46 percent increase over
$375 million in 1998.  The increase in earnings in 1999 is
primarily attributable to higher upstream commodity prices.

In E&P, Phillips' average worldwide crude oil sales price
increased 45 percent in 1999, to $17.70 per barrel, a $5.50 per
barrel increase over 1998.  Higher crude oil and U.S. natural gas
prices, along with improved crude oil sales volumes, were the
primary drivers of a 105 percent increase in E&P net operating
income.  GPM's net operating results increased 123 percent,
reflecting higher natural gas liquids prices.


                                35

<PAGE>



RM&T's net operating income decreased 48 percent, while
Chemicals' was down 5 percent.  Both segments' earnings were
negatively impacted by lower margins in key products.  Corporate
costs were 25 percent more in 1999, primarily due to higher
interest expense and an unfavorable foreign currency transaction
impact.


1998 vs. 1997

Phillips' net income was $237 million in 1998, down 75 percent
from net income of $959 million in 1997.  Net income was reduced
by special items of $138 million in 1998 and benefited
$65 million from special items in 1997.  After excluding these
items, net operating income for 1998 was $375 million, a
58 percent decline from $894 million in 1997.  The substantial
decline in earnings in 1998, compared with 1997, resulted
primarily from a sharp drop in crude oil prices and ethylene
margins.

In E&P, the average worldwide crude oil sales price for 1998 was
$12.20 per barrel, a $6.37 per barrel--34 percent--decrease from
1997.  The lower oil price, coupled with lower average natural
gas and liquefied natural gas prices, was primarily responsible
for a 59 percent decline in E&P's net operating income.  GPM's
results decreased 49 percent in 1998, reflecting lower natural
gas liquids prices.

RM&T's net operating income increased 8 percent in 1998,
primarily the result of improved refinery operations and
earnings.  In Chemicals, lower ethylene and polyethylene margins
resulted in a 44 percent decline in net operating income.


Income Statement Analysis

1999 vs. 1998

Sales and other operating revenues increased 18 percent in 1999,
compared with 1998.  The increase was primarily the result of
higher petroleum products, crude oil and natural gas revenues,
mainly due to higher sales prices.  These same factors, and in
particular higher crude oil prices, also accounted for the
26 percent increase in purchase costs for the year.

Equity in earnings of affiliated companies increased 35 percent
in 1999, primarily due to improved results from olefins/
polyolefins equity companies and the company's interest in a
refining operation in the United Kingdom.  Other revenues
decreased 20 percent in 1999, primarily because the 1998 period


                                36

<PAGE>



included recoveries from certain of the company's historical
liability and pollution insurers related to claims made as part
of a comprehensive environmental cost recovery project.  The
decrease was mitigated by higher net gains on asset sales in
1999, compared with 1998.

Controllable costs are primarily production and operating
expenses; and selling, general and administrative expenses; both
adjusted to exclude special items.  Controllable costs declined
5 percent in 1999, reflecting the impact of property dispositions
and cost reduction efforts across all business lines.  Special
items excluded from controllable costs totaled $19 million in
1999 and $75 million in 1998, and consisted mainly of charges for
severance and contingency-related items.

Exploration expenses decreased 29 percent in 1999.  This was
primarily because 1998 included a dry hole charge of $109 million
related to the Tyonek prospect in the North Cook Inlet of Alaska.
Excluding the impact of the Tyonek dry hole, exploration expenses
would have increased 8 percent in 1999, as a result of higher dry
hole costs, partially offset by lower geological, geophysical and
lease rental expenses.

Depreciation, depletion and amortization (DD&A) was slightly
higher in 1999.  United States E&P DD&A decreased due to lower
production volumes and reduced DD&A rates caused by property
impairments in the second half of 1998.  This was offset by
higher DD&A from the company's United Kingdom E&P operations,
where several new fields have come on stream; Timor Sea E&P
operations, resulting from the acquisition of producing fields in
1999; and Norway E&P operations, due to the start-up of the new
transportation and processing platform in August 1998.

Property impairments decreased 83 percent in 1999, compared with
1998.  Impairments in both years primarily related to E&P
properties.  In general, most 1998 impairments were triggered by
low crude oil prices, while the 1999 impairments were more
operational in nature.  See Note 6 to the financial statements
for additional information on property impairments, as well as
Note 1 for the company's accounting policy on impairments.

Taxes other than income taxes increased 2 percent in 1999, as
higher production taxes were mostly offset by lower emission
taxes in Norway.  Production taxes were higher in 1999 because of
higher crude oil prices.  Emission taxes in Norway were lower in
1999 mainly due to lower fuel consumption resulting from the
increased efficiencies of the new Ekofisk II turbines.


                                37

<PAGE>



Interest expense increased 40 percent in 1999, mainly due to
higher average debt levels compared with 1998.  In addition, 1998
interest expense benefited from the reversal of the interest
expense component of certain contingency accruals.

Foreign currency transaction losses of $33 million were recorded
in 1999, compared with losses of $14 million in 1998.  Preferred
dividend requirements were unchanged in 1999 from the prior year.


1998 vs. 1997

Sales and other operating revenues decreased 24 percent in 1998,
compared with 1997, reflecting lower average sales prices across
most of the company's major product lines.  Equity in earnings of
affiliated companies declined 40 percent in 1998, compared with
1997, mainly because of lower olefins/polyolefins equity
earnings.  Other revenues increased 156 percent in 1998,
primarily as a result of revenues associated with an
environmental cost recovery project.

Total costs and expenses were 16 percent lower in 1998, compared
with 1997, primarily due to lower crude oil and petroleum
products purchase costs, reflecting lower crude oil and petroleum
products prices.


                                38

<PAGE>



Segment Results

E&P
                                       1999       1998       1997
                                     ----------------------------
                                          Millions of Dollars
                                     ----------------------------
Operating Income
Net income (loss)                    $  570        (67)       609
Less special items*                      44       (323)       (19)
-----------------------------------------------------------------
Net operating income*                $  526        256        628
=================================================================
*1998 and 1997 amounts restated to exclude foreign currency
 transaction gains and losses from  special items and include
 them in net operating income.

                                           Dollars Per Unit
                                     ----------------------------
Average Sales Prices
Crude oil (per barrel)
    United States                    $15.64      10.85      17.41
    Foreign                           18.26      12.67      19.02
    Worldwide                         17.70      12.20      18.57
Natural gas--lease
  (per thousand cubic feet)
    United States                      2.03       1.88       2.33
    Foreign                            2.32       2.50       2.63
    Worldwide                          2.15       2.15       2.45
-----------------------------------------------------------------

Average Production Costs Per
  Barrel of Oil Equivalent
United States                        $ 4.21       4.53       4.85
Foreign                                4.09       4.79       3.99
Worldwide                              4.14       4.66       4.42
-----------------------------------------------------------------

Depreciation, Depletion and
  Amortization Per Barrel of Oil
  Equivalent*
United States                        $ 2.24       2.81       2.30
Foreign                                3.70       3.33       2.77
Worldwide                              3.05       3.08       2.54
-----------------------------------------------------------------
*Excludes the impact of special items.

Finding and Development Costs Per
  Barrel of Oil Equivalent
United States                        $ 5.08          *       7.21
Foreign                                4.72       7.95       3.85
Worldwide                              4.81      12.78       4.42
-----------------------------------------------------------------
*Not applicable, as U.S. reserves, excluding the impact of
 production, declined during the year.


                                39

<PAGE>



                                       1999       1998       1997
                                     ----------------------------
                                          Millions of Dollars
                                     ----------------------------
Worldwide Exploration Expenses
Geological, geophysical and
  lease rentals                        $133        165        151
Leasehold impairment                     24         22         22
Dry holes                                68        130*        69
-----------------------------------------------------------------
                                       $225        317        242
=================================================================
*Includes $109 million for the write-off of costs associated with
 the Tyonek prospect in Alaska.

                                      Thousands of Barrels Daily
                                     ----------------------------
Operating Statistics
Crude oil produced
  United States                          50         62         67
  Norway                                 99         99        104
  United Kingdom                         34         22         18
  Nigeria                                20         19         23
  China                                  10         13         15
  Canada                                  7          7          5
  Timor Sea                               5          -          -
  Denmark                                 4          -          -
  Venezuela                               2          -          -
-----------------------------------------------------------------
                                        231        222        232
=================================================================

Natural gas liquids produced
  United States                           2          3          4
  Norway                                  4          5          7
  Other areas                             5          5          3
-----------------------------------------------------------------
                                         11         13         14
=================================================================

                                     Millions of Cubic Feet Daily
                                     ----------------------------
Natural gas produced*
  United States                         950        968      1,024
  Norway                                126        190        275
  United Kingdom                        220        197        122
  Canada                                 91         97         51
  Nigeria                                 6          -          -
-----------------------------------------------------------------
                                      1,393      1,452      1,472
=================================================================
*Represents quantities available for sale.  Excludes gas
 equivalent of natural gas liquids shown above.


Liquefied natural gas sales             123        126        119
-----------------------------------------------------------------


                                40

<PAGE>



1999 vs. 1998

On the strength of significantly improved crude oil prices, as
well as higher crude oil production, E&P's net operating income
increased 105 percent in 1999.  In addition to crude oil prices,
U.S. natural gas, natural gas liquids and liquefied natural gas
prices rebounded as well.  Lifting costs were lower in 1999, and
E&P experienced foreign currency transaction gains, on an after-
tax basis, of $3 million in 1999, compared with losses of
$17 million in 1998.  These items were partially offset by higher
exploration expenses, after adjustment for special items, and
U.S. production taxes.

Phillips' average worldwide crude oil price was $17.70 per barrel
in 1999, $5.50 per barrel higher than 1998.  Industry crude oil
prices, which had been declining since late 1996 on market
oversupply and a weak Asian economy, rallied significantly in
March and April 1999.  An agreement reached in late March 1999 by
the major oil-exporting countries to reduce production provided
the initiative for the price rebound.  Industry prices trended
upward through the remainder of 1999, as the reduced production
from the major oil-exporting countries and improved global demand
growth resulted in a steady decline in worldwide crude oil
inventories.

E&P's net proved reserves at year-end 1999 were 2.23 billion
barrels of oil equivalent, a slight increase from year-end 1998.
The company replaced 114 percent of its worldwide hydrocarbon
production in 1999, compared with 62 percent in 1998.


1998 vs. 1997

E&P's net operating income decreased 59 percent in 1998, compared
with 1997, the result of lower prices for all major E&P
commodities: crude oil, natural gas, natural gas liquids and
liquefied natural gas.  The negative impact of crude oil prices
was particularly severe, with Phillips' 1998 average worldwide
price declining to $12.20 per barrel, compared with $18.57 per
barrel in 1997.  The collapse in industry crude oil prices in
1998 was the result of worldwide industry production exceeding
global demand.  Global demand was weakened by the Asian and
emerging markets' economic problems.

E&P's net proved reserves at year-end 1998 were 2.21 billion
barrels of oil equivalent, a 3 percent decline from year-end
1997.  The company replaced 62 percent of its worldwide
hydrocarbon production in 1998, compared with 164 percent in
1997.


                                41

<PAGE>



U.S. E&P
--------
                                           Millions of Dollars
                                        -------------------------
                                        1999       1998      1997
                                        -------------------------
Operating Income
Net income (loss)                       $379        (32)      360
Less special items                        63       (210)      (17)
-----------------------------------------------------------------
Net operating income                    $316        178       377
=================================================================


1999 vs. 1998

Net operating income increased 78 percent in 1999, compared with
1998, in the company's U.S. E&P operations.  The increase was
primarily the result of higher crude oil and natural gas prices,
along with lower depreciation, depletion and amortization,
lifting, and exploration expenses.  These positive items were
partially offset by lower crude oil production volumes and higher
production taxes.

U.S. E&P crude oil prices increased 44 percent over 1998, while
natural gas prices were 8 percent higher.  Depreciation,
depletion and amortization was lower in 1999 than in 1998 because
of lower production volumes and property impairments recorded in
the second half of 1998.  Lower lifting costs reflect property
dispositions and cost reduction efforts.  Exploration expenses,
excluding special items, were down due to lower geological,
geophysical and lease rental expenses.

U.S. crude oil production continued to trend downward in 1999,
averaging 19 percent less than 1998.  The reduced production
reflects the impact of normal field declines and property
dispositions in late 1998 and the first half of 1999, primarily
in Texas, central Oklahoma and the Gulf of Mexico.  U.S. natural
gas production decreased 2 percent in 1999, as property
dispositions and field declines were partially offset by
increased production in the San Juan Basin of New Mexico, and
from an asset acquisition in north Louisiana.

Special items in 1999 primarily consisted of net gains of
$57 million on asset sales and a favorable pricing adjustment of
$8 million, partially offset by property impairments.  Special
items in 1998 included property impairments of $150 million,
mainly resulting from the low crude oil price environment during
1998.  Also included were $71 million of dry hole costs related
to the Tyonek prospect, offshore Alaska.  These items were
partially offset by the reversal of a previously accrued
contingency.


                                42

<PAGE>



1998 vs. 1997

Net operating income decreased 53 percent in 1998, compared with
1997, primarily as a result of a $6.56 per barrel drop in
Phillips' average crude oil sales price and a 19 percent decline
in natural gas sales prices.  In addition, lower crude oil and
natural gas production volumes, as well as lower liquefied
natural gas sales prices, negatively impacted 1998.  Partially
offsetting these factors were lower lifting costs, exploration
expenses (after adjustment for special items) and production
taxes.

U.S. crude oil production declined 7 percent in 1998, reflecting
field declines at Point Arguello, offshore California; Prudhoe
Bay, Alaska; and at various fields in the Gulf of Mexico; as well
as property dispositions.  Partially offsetting the normal field
declines were higher production from the Mahogany subsalt field
and new production from the Agate subsalt field, both in the Gulf
of Mexico.  U.S. natural gas production decreased 5 percent in
1998, primarily due to lower production of coal-seam gas in the
San Juan Basin, as well as lower production from various fields
in the Gulf of Mexico.

Special items in 1997 primarily included charges of $31 million
for property impairments, a net gain on asset sales of $7 million
and the reversal of a $7 million contingent liability.


Foreign E&P
-----------
                                           Millions of Dollars
                                        -------------------------
                                         1999      1998      1997
                                        -------------------------
Operating Income
Net income (loss)                        $191       (35)      249
Less special items*                       (19)     (113)       (2)
-----------------------------------------------------------------
Net operating income*                    $210        78       251
=================================================================
*1998 and 1997 amounts restated to exclude foreign currency
 transaction gains and losses from special items and include them
 in net operating income.


1999 vs. 1998

Net operating income from the company's foreign E&P operations
increased 169 percent in 1999, compared with 1998.  The increase
was primarily attributable to a significant increase in crude oil
prices in 1999, along with higher crude oil sales volumes,
partially offset by higher exploration expenses, DD&A charges and
lifting costs.


                                43

<PAGE>



Phillips' U.K. North Sea operations' net operating earnings
increased more than 90 percent in 1999, compared with 1998.  In
addition to being aided by higher oil prices, earnings also
benefited from a 55 percent increase in crude oil production and
a 12 percent increase in natural gas production.

The company incurred higher net operating losses associated with
its Venezuela operations in 1999, compared with 1998.  Higher oil
prices and production could not offset increased production costs
and dry hole charges in 1999.  Dry hole charges were incurred
related to exploratory activity on the La Vela prospect.
Phillips expects the Venezuelan operations to become profitable
in 2000, depending on results of development drilling.

After-tax foreign currency transaction gains of $3 million were
included in foreign E&P net operating income in 1999, compared
with losses of $17 million in 1998.

Foreign crude oil production volumes increased 13 percent in
1999.  The improvement reflects new crude oil production from
Denmark and the Timor Sea, as well as from the Janice and
Renee/Rubie fields in the U.K. North Sea.  Oil production from
China was 23 percent lower in 1999, mainly due to a scheduled two-
month maintenance shutdown in late summer at the Xijiang
production platform and floating production storage and
offloading vessel, and field declines.  Oil production from the
Norwegian sector of the North Sea was unchanged in 1999, despite
field shutdowns in April, August and October to perform
maintenance and repair work on various systems on the Ekofisk II
production platform.

Foreign natural gas production decreased 8 percent in 1999,
primarily due to lower production from Norway, partially offset
by increased U.K. North Sea production.  In addition to the
downtime discussed above, Norway's natural gas production
declined due to the reduced capacity of the new Ekofisk II
facilities.  When the production license for Ekofisk was extended
from 2011 to 2028, Ekofisk II was designed with lower gas
processing capacity than that of the original Ekofisk facilities.
This was done to better match the capacity requirements with the
extended production curve of the field, which should yield a
better overall economic performance over the life of the field.
Gas production from the U.K. North Sea increased due to new
production from the previously mentioned Janice and Renee/Rubie
fields, as well as a full year's production from the Britannia
field.


                                44

<PAGE>



Special items in 1999 primarily consisted of property impairments
of $27 million, partially offset by a net gain on asset sales of
$15 million.  Special items in 1998 primarily consisted of
property impairments of $117 million, mainly triggered by low
crude oil prices.


1998 vs. 1997

Net operating income from the company's foreign E&P operations
decreased 69 percent in 1998, compared with 1997, reflecting a
sharp drop in crude oil sales prices.  Phillips' average foreign
crude oil sales price decreased 33 percent in 1998.  Also
negatively impacting earnings in 1998 were lower natural gas
prices and higher exploration expenses, as well as losses
incurred during the production start-up phases of projects in
Venezuela and the Zama area in Canada.  Lower production in
Norway, as a result of problems encountered after the August
conversion to Ekofisk II, also reduced earnings in 1998.
Earnings benefited in 1998 from higher crude oil and natural gas
production volumes in the U.K. North Sea.  Foreign currency
transaction losses were $17 million, after-tax, in 1998, compared
with losses of $6 million, after-tax, in 1997.

Foreign crude oil production volumes decreased 3 percent in 1998,
primarily as a result of downtime incurred during the tie-in of
the new Ekofisk II facilities that impacted both Norway and U.K.
production, equipment problems encountered following the start-up
of the Ekofisk II facilities, and lower production volumes in
Nigeria and China.  These items were mostly offset by a full
year's production from the J-Block and Armada fields in the
U.K. North Sea, as well as from the late-1997 acquisition of the
Zama properties.

Foreign natural gas production increased 8 percent in 1998,
reflecting a full year's production from the J-Block and Armada
fields, new production from the Britannia field in the U.K. North
Sea, and the Zama area acquisition.  These items were partially
offset by lower natural gas production in Norway, due to the
previously mentioned Ekofisk II tie-in and post start-up
problems.

Special items in 1997 included property impairments of the Ann
and Alison fields in the U.K. North Sea totaling $11 million and
a net gain on asset sales of $9 million.


                                45

<PAGE>



GPM
                                       1999       1998       1997
                                     ----------------------------
                                          Millions of Dollars
                                     ----------------------------
Operating Income
Net income                           $  104         54        101
Less special items                       (1)         7          9
-----------------------------------------------------------------
Net operating income                 $  105         47         92
=================================================================

                                           Dollars Per Unit
                                     ----------------------------
Average Sales Prices
U.S. residue gas
  (per thousand cubic feet)          $ 2.18       2.00       2.42
U.S. natural gas liquids
  (per barrel--unfractionated)        12.56       8.97      12.60
-----------------------------------------------------------------

                                     Millions of Cubic Feet Daily
                                     ----------------------------
Operating Statistics
Natural gas purchases
    Outside Phillips                  1,294      1,301      1,371
    Phillips                            149        152        158
-----------------------------------------------------------------
                                      1,443      1,453      1,529
=================================================================

Raw gas throughput                    1,758      1,847      1,983
-----------------------------------------------------------------

Residue gas sales
    Outside Phillips                    949        934        990
    Phillips                             39         54         56
-----------------------------------------------------------------
                                        988        988      1,046
=================================================================

                                      Thousands of Barrels Daily
                                     ----------------------------
Natural gas liquids net production
    From Phillips E&P leasehold gas      15         15         15
    From gas purchased outside
      Phillips                          141        142        140
-----------------------------------------------------------------
                                        156        157        155
=================================================================


1999 vs. 1998

GPM's net operating income increased 123 percent in 1999,
compared with 1998, primarily due to a significant increase in
natural gas liquids prices.  Following the sharp increase in
crude oil prices, GPM's average natural gas liquids sales price
increased $3.59 per barrel--40 percent--in 1999.  Also
contributing to the improved earnings performance in 1999 were
lower operating expenses, reflecting a continued emphasis on cost
reduction efforts throughout 1999.  Miscellaneous revenues were
higher as well in 1999, mainly from byproduct sales.


                                46

<PAGE>



After trending downward through 1998 and into the first quarter
of 1999, GPM's raw gas throughput volumes, natural gas liquids
production and residue gas sales volumes all began trending
upward through the last three quarters of 1999.  The improvement
in 1999 reflects improved operating consistency and the favorable
impact of acquisitions.  In addition, natural gas liquids
production benefited from increased ethane extraction in 1999 due
to higher natural gas liquids prices.

Special items in 1999 consisted of work force reduction charges.
Special items in 1998 primarily consisted of a net gain on asset
sales.


1998 vs. 1997

Net operating income decreased 49 percent in 1998, compared with
1997.  Natural gas liquids prices were 29 percent lower in 1998,
leading to lower margins and operating earnings for GPM.
Positively impacting operating income in 1998 were lower
operating costs.  Natural gas liquids prices generally followed
the steep decline in crude oil prices in 1998.  The impact of
lower prices was partially offset by slightly higher natural gas
liquids sales volumes, reflecting improved operating consistency
and efficiency.

Raw gas throughput volumes declined 7 percent in 1998, primarily
due to field production declines in the Austin Chalk area of
south central Texas and the sale of a small gathering system.
Residue gas sales prices were 17 percent lower in 1998,
reflecting reduced demand in the first and fourth quarters of
1998 because of warmer-than-normal winter weather.

Special items in 1997 consisted of a settlement of a processing-
rights dispute with a producer-gatherer.


                                47

<PAGE>



RM&T
                                       1999       1998       1997
                                       --------------------------
                                           Millions of Dollars
                                       --------------------------
Operating Income
Net income                             $ 84        167        159
Less special items                       (7)        (7)        (2)
-----------------------------------------------------------------
Net operating income                   $ 91        174        161
=================================================================

                                           Dollars Per Gallon
                                       --------------------------
Average Sales Prices
Automotive gasoline
  Wholesale                            $.60        .49        .66
  Retail                                .75        .65        .82
Distillates                             .53        .43        .60
-----------------------------------------------------------------

                                       Thousands of Barrels Daily
                                       --------------------------
Operating Statistics
U.S. refinery crude oil
  Rated capacity                        355        355        345
  Crude runs                            349        335        314
  Capacity utilization (percent)         98%        94         91
Natural gas liquids
  fractionation
    Rated capacity                      252        252        250
    Processed                           211        213        213
    Capacity utilization
      (percent)                          84%        85         85
Refinery and natural gas liquids
  production                            590        578        548
-----------------------------------------------------------------

Petroleum products outside sales
  United States
    Automotive gasoline
      Branded                           237        237        246
      Unbranded                          38         41         29
      Spot                               22         31         47
    Aviation fuels                       37         32         28
    Distillates
      Wholesale and retail              106        110         90
      Spot                               26         28         40
    Natural gas liquids
      (fractionated)                    132        125        136
    Other products                       36         28         14
-----------------------------------------------------------------
                                        634        632        630
  Foreign                                37         36         43
-----------------------------------------------------------------
                                        671        668        673
=================================================================


                                48

<PAGE>



1999 vs. 1998

RM&T's net operating income decreased 48 percent in 1999,
compared with 1998.  In a year of rapidly rising crude oil
feedstock costs, petroleum products prices did not increase as
much, resulting in lower product margins.  RM&T's crude oil
feedstock costs increased 42 percent in 1999--$5.50 per barrel,
while natural gas liquids feedstock prices increased 41 percent.
However, wholesale gasoline and distillates prices increased only
22 percent and 23 percent, respectively.  This resulted in lower
refinery margins for these two key RM&T products.  Other refinery
products experienced tightened margins as well.  The impact of
lower margins was partially offset by higher refinery production
volumes.

The company's refineries ran at 98 percent of capacity in 1999,
compared with 94 percent in 1998.  The improvement is
attributable to improved operating consistency.  In the third
quarter of 1999, the company achieved a record quarterly crude
oil throughput rate of 355,000 barrels per day.  The company
increased its utilization percentage while continuing to control
costs.  Refining costs per barrel of throughput declined 10 cents
in 1999.

Results from RM&T's natural gas liquids fractionation and
marketing business benefited from reduced costs and the sharp
improvement in natural gas liquids prices, resulting in a
183 percent improvement in earnings.

Special items in 1999 consisted primarily of work force reduction
charges and contingency accruals.  Special items in 1998 included
work force reduction charges, partially offset by gains from
sales of certain non-strategic retail service stations.


1998 vs. 1997

RM&T's net operating income was $174 million in 1998--an
8 percent increase over 1997.  The improvement in 1998 was
primarily driven by the company's U.S. refineries, where
production volumes for gasoline, distillates and other refinery
products were higher than in 1997.  Although there was a sharp
decline in crude oil prices in 1998, which lowered crude oil
acquisition costs $6.57 per barrel, this benefit was negated by
lower company average wholesale gasoline and distillates sales
prices, which declined 26 percent and 28 percent, respectively.
This lowered margins for these two important RM&T products.


                                49

<PAGE>



The company's refineries ran at 94 percent of capacity in 1998,
compared with 91 percent in 1997.  The improvement in capacity
utilization was the result of less maintenance downtime in 1998
and was achieved even though the Sweeny, Texas, refinery was
temporarily shut down in the third quarter of 1998 by flooding
caused by a tropical storm.  Rated crude oil refinery capacity
was increased 3 percent in 1998, to 355,000 barrels per day.

Special items in 1997 included certain costs associated with a
power outage at the Sweeny refinery.


Chemicals
                                       1999       1998       1997
                                      ---------------------------
                                          Millions of Dollars
                                      ---------------------------
Operating Income
Net income                             $164        145        275
Less special items*                      18         (8)         3
-----------------------------------------------------------------
Net operating income*                  $146        153        272
=================================================================
*1998 amounts restated to exclude foreign currency transaction
 gains and losses from special items and include them in net
 operating income.

                                           Millions of Pounds
                                          Except as Indicated
                                      ---------------------------
Operating Statistics
Production*
  Ethylene                            3,262      3,148      3,171
  Polyethylene                        2,590      2,290      2,039
  Propylene                             524        519        486
  Polypropylene                         472        469        439
  Paraxylene                            595        700        552
  Cyclohexane (millions of gallons)     202        180        164
-----------------------------------------------------------------
*Includes Phillips' share of equity affiliates' production.


1999 vs. 1998

Chemicals' net operating income decreased 5 percent in 1999,
compared with 1998.  The primary reason for the decline was lower
polyethylene margins, reflecting increased ethylene feedstock
costs that could not be fully recovered in the polyethylene
market, although demand remained firm.  Ethylene margins, after
moving downward in 1998, trended upward through 1999, even though
natural gas liquids feedstock prices increased substantially.
This reflected continued strong demand for ethylene.  Margins on
certain other olefins and polyethylene pipe improved as well.

The company's olefins and polyolefins facilities operated well in
1999, with ethylene production 4 percent higher and polyethylene
production 13 percent higher than 1998 volumes.  Ethylene


                                50

<PAGE>



production was negatively impacted in 1998 by a maintenance
turnaround and a weather-related shutdown of the Sweeny, Texas,
facility.  Polyethylene production was higher at the company's
three production facilities: the 100-percent-owned Houston
Chemical Complex (HCC), a 50-percent-owned plant in Singapore,
and a 40-percent-owned facility in China.

Results from specialty chemicals were down from 1998, mainly
resulting from lower margins and higher operating expenses.  The
company's K-Resin styrene-butadiene copolymer (SBC) facility,
located at HCC, was damaged by a flash fire in June 1999.
Portions of the damaged plant were repaired and re-started in
1999.  Final repairs are expected to be completed in the first
quarter of 2000, making all plant capacity once again available.

Paraxylene and cyclohexane are produced at the company's Puerto
Rico Core facility.  Paraxylene margins remained depressed in
1999, although they did improve somewhat in the fourth quarter.
Paraxylene margins have been in a cyclical downturn due to weak
demand and industry overcapacity.  Paraxylene production volumes
decreased 15 percent in 1999, mainly due to operating problems
and weather-related shutdowns in the first half of the year.

Special items in 1999 consisted of a favorable deferred tax
adjustment and contingency settlements.  Special items in 1998
primarily included an impairment taken on a plastics recycling
facility that was closed in 1998, and work force reduction
charges.


1998 vs. 1997

Chemicals' net operating income declined 44 percent in 1998,
compared with 1997, reflecting a sharp drop in ethylene margins,
as well as lower polyethylene and polypropylene margins.  In
1998, excess industry capacity and weak global demand continued
to depress margins in the commodity chemicals and plastic resins
industries.

Ethylene production volumes decreased slightly in 1998,
reflecting a maintenance turnaround in 1998, along with a
temporary shutdown of the Sweeny facility, due to flooding caused
by a tropical storm.  This was mostly offset by higher production
in 1998 following the restart in 1997 of a wholly owned ethylene
unit that had been idle since 1992.

Paraxylene margins remained depressed in 1998.  Paraxylene
production volumes were 27 percent higher in 1998, as a result of
the completion of an expansion project in 1997, which increased
the facility's total annual capacity to 880 million pounds.


                                51

<PAGE>



Polyethylene production volumes increased 12 percent in 1998,
compared with 1997, primarily due to increased production from
the company's 50-percent-owned polyethylene plant in Singapore,
which completed an expansion in 1997 that brought total annual
gross capacity to 860 million pounds.  Also contributing to the
higher polyethylene production volumes was new production from
the company's 40 percent interest in Shanghai Golden Phillips, a
joint-venture polyethylene facility in China that started in the
second quarter of 1998, as well as higher production at HCC.

Special items in 1997 primarily consisted of a gain on the
settlement of a license-related contingency.


Corporate and Other
                                            Millions of Dollars
                                          -----------------------
                                           1999     1998     1997
                                          -----------------------
Operating Results
Corporate and Other                       $(313)     (62)    (185)
Less special items*                           7      193       74
-----------------------------------------------------------------
Adjusted Corporate and Other*             $(320)    (255)    (259)
=================================================================


Adjusted Corporate and Other includes:

Corporate general and
  administrative expenses                 $ (94)     (84)     (72)
Net interest                               (195)    (147)    (113)
Preferred dividend requirements             (42)     (41)     (71)
Other*                                       11       17       (3)
-----------------------------------------------------------------
Adjusted Corporate and Other*             $(320)    (255)    (259)
=================================================================
*1998 and 1997 amounts restated to exclude foreign currency
 transaction gains and losses from special items and include them
 in "Adjusted Corporate and Other."


1999 vs. 1998

Corporate general and administrative expenses increased
12 percent in 1999, reflecting higher benefit-related costs.
This was partially offset by lower Year 2000 costs.

Net interest represents interest income and expense, net of
capitalized interest.  Net interest expense increased 33 percent
in 1999, primarily as a result of higher average debt balances.

Preferred dividend requirements include dividends on the
preferred stock of Phillips Gas Company (1997 only) and on the
preferred securities of the Phillips 66 Capital I and Capital II
trusts.  Preferred dividend requirements were unchanged in 1999
from 1998 on a before-tax basis, but increased slightly on an
after-tax basis.


                                52

<PAGE>



The category "Other" consists primarily of the company's captive
insurance subsidiary, certain foreign currency transaction gains
and losses, and income tax and other items that are not directly
associated with the operating segments on a stand-alone basis.
Results from Other were lower in 1999, relative to 1998,
primarily because of foreign currency losses of $12 million after-
tax in 1999, compared with gains of $2 million in 1998, partially
offset by lower income tax-related items in 1999.

Special items in 1999 primarily consisted of a $24 million
favorable resolution of prior years' U.S. income tax issues,
partially offset by an unfavorable deferred tax adjustment and
insurance claims.  Special items in 1998 consisted primarily of a
$115 million favorable resolution of Kenai liquefied natural gas
and certain other tax issues related to the years 1987 through
1992, and favorable insurance recoveries of $83 million related
to a comprehensive environmental cost recovery project.  These
items were partially offset by work force reduction charges.


1998 vs. 1997

Adjusted Corporate and Other net costs decreased slightly in
1998, compared with 1997.  Preferred dividend requirements
decreased $30 million, reflecting the redemption of the preferred
stock of Phillips Gas Company in late 1997.  Foreign currency
gains of $2 million, after-tax, were reported in 1998, versus
losses of $11 million, after-tax, in 1997.  These positive items
were partially offset by higher net interest expense, primarily
the result of lower interest income due to lower average cash
balances in 1998.

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.


                                53

<PAGE>



CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators

                                            Millions of Dollars
                                            Except as Indicated
                                           ----------------------
                                             1999    1998    1997
                                           ----------------------

Current ratio                                 1.1     1.1     1.1
Total debt                                 $4,302   4,273   3,009
Company-obligated mandatorily
  redeemable preferred securities          $  650     650     650
Common stockholders' equity                $4,549   4,219   4,814
Percent of total debt to capital*              45%     47      36
Percent of floating-rate debt to
  total debt                                   27%     37      30
-----------------------------------------------------------------
*Capital includes total debt, company-obligated mandatorily
 redeemable preferred securities and common stockholders' equity.


In March 1999, the company issued $300 million of 6 3/8% Notes
due 2009, and $200 million of 7% Debentures due 2029, in the
public market.  After the issuance of these securities,
$200 million of securities remained available under the company's
shelf registration previously filed with the U.S. Securities and
Exchange Commission (SEC).  During the second quarter of 1999,
the company filed a universal shelf registration statement with
the SEC for an additional $800 million of various types of debt
and equity securities, and securities convertible into either.
This registration statement became effective October 1, 1999.
Securities to be issued under this universal shelf registration
statement can be combined by prospectus with the $200 million of
securities that remained under the earlier shelf registration.
As a result, the company has available, to issue and sell, a
total of $1 billion of the various types of securities offered
under the universal shelf registration statement.

During 1999, the company had agreements with a bank-sponsored
entity for the revolving sale of credit card and trade
receivables.  In September 1999, the supporting liquidity
facility agreements were extended until March 2, 2000, the
expiration date of the receivables purchase agreements.  The
aggregate amount of receivables outstanding under these
agreements was $183 million at December 31, 1999.  In March 2000,
the company closed on a new agreement with a bank-sponsored entity
for the revolving sale of certain receivables replacing the credit
card and trade receivables facilities that expired.  The new
agreement will allow for the sale of receivables of up to
$300 million and have terms similar to those of the expired
agreements.


                                54

<PAGE>



Cash from operations in 1999 increased $311 million over 1998,
primarily the result of the $372 million increase in net income.
Special, non-recurring items in cash provided by operating
activities in 1999 included the receipt of a $120 million refund
from the Internal Revenue Service (IRS).  This refund resulted
from agreements reached with the IRS on Kenai liquefied natural
gas issues in December 1998 and certain other tax issues in 1999.
The sale of accounts receivable under the company's receivables
monetization program increased 1998 cash from operations by
$182 million.  Special items in 1998 included a $128 million
favorable cash impact of settlements pursuant to a comprehensive
environmental cost recovery project.  Additional increases in
cash from operations were driven by decreases in non-cash working
capital.

During 1999, cash balances increased $41 million.  Cash was
provided by operating activities in the amount of $1.9 billion,
and asset dispositions of $225 million.  Cash was primarily used
to fund the company's capital expenditures program and pay
dividends.

The company's short-term liquidity position at December 31, 1999,
was stronger than indicated because the current replacement cost
of the company's inventories was approximately $599 million
greater than their last-in, first-out (LIFO) carrying value.

At December 31, 1999, there was no revolving debt outstanding
under the company's $1.5 billion revolving credit facility, but
$456 million of commercial paper was outstanding, which is
supported 100 percent by the credit facility.  The company's
wholly owned subsidiary, Phillips Petroleum Company Norway, has
$600 million available under two revolving credit facilities.  At
December 31, 1999, $300 million was outstanding under the
facilities.

By entering into an additional $100 million agreement in 1999,
Phillips increased the total amount available under its master
leasing arrangements to $200 million.  Under these agreements,
the company leases and supervises construction of retail
marketing outlets.  At December 31, 1999, approximately
$116 million had been financed under these arrangements.  Also
during 1999, the company refinanced the $45 million lease
arrangement that it had utilized to lease approximately
600 new covered hopper railcars.  After all the railcars were
received, the $45 million facility was refinanced under a new
leveraged-lease facility.

In late 1998, as part of a general cost cutting program, the
company identified 1,267 positions to be eliminated, primarily in
the company's E&P segment and corporate staffs.  This resulted in
a $91 million before-tax charge ($61 million after-tax) in 1998.


                                55

<PAGE>



In addition, 93 unfilled positions were eliminated that year.
During 1999, the company identified an additional 290 positions
to be eliminated, 150 of which were primarily in the company's
GPM, RM&T and Chemicals segments.  The other 140 positions
related to the company's Norwegian operations, primarily in
office staff positions.  See Note 15--Employee Benefit Plans in
the notes to financial statements for additional information.

As previously disclosed, during the fourth quarter of 1999, the
company studied the feasibility of consolidating its Scandinavian
and European divisions to improve work efficiencies.  However,
upon completion, insufficient synergies had been found to warrant
consolidation of the divisions.

The company and its co-venturer in the Kenai liquefied natural
gas plant lease two tankers that are used to transport liquefied
natural gas from Kenai, Alaska, to Japan.  In June 1999, a
purchase option held by the company and its co-venturer was
allowed to become a binding commitment.  The purchase date for
the first tanker is June 2000, and December 2000 for the second.
In the event that the company and its co-venturer do not modify
the existing lease arrangements or enter into new lease
arrangements, the purchase option would be exercised and
Phillips' 70 percent interest in the aggregate purchase price for
both tankers would be approximately $239 million.  Phillips
anticipates entering into a new leasing arrangement for these
tankers prior to the mandatory purchase dates.

Phillips is a general partner and has a 50 percent interest in
the Sweeny Olefins Limited Partnership (SOLP), which owns and
operates a 2-billion-pound-per-year ethylene plant located
adjacent to the company's Sweeny, Texas, refinery.  The
partnership agreement contains certain conditions for the
withdrawal of the second general partner.  Once this general
partner has achieved a target-specified after-tax internal rate
of return on its investment, its 49.49 percent general
partnership interest is withdrawn with no additional cash
distribution required.  Subsequently, the other partner's
remaining .51 percent limited partnership interest would
continue, but Phillips has an option to purchase the .51 percent
interest at a formula-based fair value.  After the withdrawal of
the other general partner, Phillips will control SOLP and begin
consolidation.  The company expects the other general partner's
internal rate-of-return target to be reached as early as the
third quarter of 2000.  Although the consolidation of this entity
will result in the company assuming certain financial obligations
of the partnership, Management does not expect the withdrawal of
the general partner to have a significant adverse effect on
liquidity or capital resources.


                                56

<PAGE>



During 1999, Phillips, as part of the company's strategy to
reposition its portfolio of North American oil and gas
properties, sold 25 non-strategic oil and gas properties in
Canada.  Sales were closed on most of the properties in December.
Sales of the remaining properties where preferential rights to
purchase were exercised closed during the first quarter of 2000.
Also during 1999, Phillips sold its 50 percent interest in the
Breton Sound field, offshore Louisiana; its interests in
42 leases in 22 Gulf of Mexico fields; and its oil and gas
interests in central Oklahoma.

In the United Kingdom, consent to the cessation of production
from the Maureen platform was received from the Department of
Trade and Industry in October 1999.  The current financial
provision for decommissioning is expected to be sufficient to
cover the cost of the removal and onshore deconstruction of the
platform, scheduled to occur in 2001.  As an alternative to
deconstruction, efforts continue to find a re-use opportunity for
the platform, and commercial discussions are taking place.

The company announced on March 15, 2000, that it had signed a
definitive agreement for the purchase of all of Atlantic
Richfield Company's Alaskan businesses (ARCO Alaska).  Phillips
will pay approximately $6.5 billion in cash upon closing, and up
to an additional $500 million over the next five years, based on
a formula tied to the price of West Texas Intermediate crude oil
and to the volumes of oil produced from certain of the assets
acquired.  The company anticipates using debt financing for this
transaction.  Phillips expects the transaction to close in the
second quarter of 2000, subject to regulatory approval.  See
"Outlook" on page 73 for additional information on this
transaction.

The company has initiated two separate transactions that, when
completed, would contribute its GPM and Chemicals segments into
joint ventures.  Phillips would have an approximately 30 percent
interest in the GPM joint venture, while holding a 50 percent
interest in the Chemicals joint venture.  If the transactions are
consummated, Phillips would receive approximately $1.2 billion in
cash upon the closing of the GPM transaction, and approximately
$800 million upon the closing of the Chemicals transaction.  The
company plans to use these proceeds for the reduction of debt.
See "Outlook" on page 73 for a complete description of both of
these transactions.

To meet its liquidity requirements, including funding its capital
program and repayment of debt, the company will look primarily to
existing cash balances, cash generated from operations, cash
generated by the formation of the GPM and Chemicals joint
ventures, and financing.


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<PAGE>



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 may be 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 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
December 31, 1999 and 1998, market prices of the respective
commodity-based swaps and futures contracts.  Expected cash flows
have not been discounted, as the impact is not material.  All of
the derivative gains and losses shown below effectively offset
the gains and losses on the underlying commodity exposures that
are being hedged.  The 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.


                                58

<PAGE>



                                            Millions of Dollars
                                       ----------------------------
                         Thousands                     Sensitivity
                         of Barrels                   of Fair Value
                       --------------                   to Assumed
                          Notional     Fair Value at    10 Percent
                           Amount       December 31       Change
                       --------------  -------------  -------------
                        1999     1998  1999     1998  1999     1998
                       --------------  -------------  -------------
Crude oil futures--
  timing differences
  between purchases
  and refining         1,742      650   $ 1        *    (4)      (1)
Feedstock-to-product
  margin swaps         4,854    6,000    11       (5)   (1)      (1)
Feedstock-to-product
  margin futures          25      896     *        *    (1)      (1)
-------------------------------------------------------------------
*Indicates amount was less than $1 million.


Interest Rate Risk

The following tables provide information about the company's
financial instruments that are sensitive to changes in interest
rates.  These tables present 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.


                                59

<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
---------  --------  --------  --------  --------  --------  --------
Year-End 1999
2000         $   18      6.84%   $   13      7.21%     $  -         -%
2001            259      8.92       270      7.38         -         -
2002              1      5.98       454      7.20         -         -
2003            101      6.65         -         -         -         -
2004              1      6.09        30      7.69         -         -
Remaining
  years       2,765      7.84       390      7.88       650      8.11
---------------------------------------------------------------------
Total        $3,145              $1,157                $650
=====================================================================

Fair value   $3,067              $1,157                $591
=====================================================================

Year-End 1998
1999         $   92      7.97%   $   75      5.93%     $  -         -%
2000              1      6.03         -         -         -         -
2001            251      8.99       300      6.02         -         -
2002              1      6.03       777      5.64         -         -
2003            100      6.65         -         -         -         -
Remaining
  years       2,267      8.11       409      6.54       650      8.11
---------------------------------------------------------------------
Total        $2,712              $1,561                $650
=====================================================================

Fair value   $2,966              $1,561                $680
=====================================================================


Foreign Currency Risk

A Norwegian subsidiary, whose functional currency is the kroner,
had outstanding $313 million and $375 million of floating rate,
short- and long-term revolving debt, denominated in U.S. dollars
at December 31, 1999 and 1998, respectively.  The potential
foreign currency remeasurement gains or losses in pretax earnings
from a hypothetical 10 percent change in the year-end 1999 and
1998 exchange rates are $31 million and $38 million,
respectively.  The section on interest rate risk contains
information about the fair value of these debt instruments.

At December 31, 1999 and 1998, U.S. subsidiaries had outstanding
$336 million and $449 million, respectively, of long-term
intercompany receivables from a U.K. subsidiary, which were
denominated in pounds sterling.  The U.K. subsidiary also had


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<PAGE>



outstanding to a U.S. subsidiary, $24 million of long-term
intercompany payables which were denominated in U.S. dollars at
December 31, 1999.  A Canadian subsidiary had $124 million and
$194 million of long-term intercompany payables, denominated in
U.S. dollars, that were outstanding to U.S. subsidiaries at
December 31, 1999 and 1998, respectively.  A Norwegian subsidiary
had $2 million of intercompany long-term payables outstanding to
U.S. subsidiaries denominated in U.S. dollars at December 31,
1999.  While these intercompany balances are eliminated in
consolidation, exchange rate changes do affect consolidated
earnings.  The potential foreign currency remeasurement gains or
losses in non-cash pretax earnings from a hypothetical 10 percent
change in the year-end 1999 and 1998 exchange rates from these
intercompany balances are $49 million and $64 million,
respectively.


Capital Spending

Capital Expenditures and Investments

                                       Millions of Dollars
                                ---------------------------------
                                Estimated
                                     2000*   1999    1998    1997
                                ---------------------------------

E&P                                $1,227   1,079   1,406   1,346
GPM                                    90     124      83     116
RM&T                                  283     343     246     249
Chemicals                             161      98     228     261
Corporate and Other                    28      46      89      71
-----------------------------------------------------------------
                                   $1,789   1,690   2,052   2,043
=================================================================
United States                      $  848     923     943   1,059
Foreign                               941     767   1,109     984
-----------------------------------------------------------------
                                   $1,789   1,690   2,052   2,043
=================================================================
*Excludes the impact of the E&P ARCO Alaska asset acquisition
 announced in March 2000.


Capital spending for Phillips during the three-year period ending
December 31, 1999, totaled $5.8 billion, supporting the company's
pursuit of a worldwide growth strategy.  The company's spending
was primarily focused on its exploration and production business.

Phillips' Board of Directors has approved $1.79 billion for
capital projects in 2000.  This is 6 percent higher than 1999
spending, which included $358 million for several significant
upstream acquisitions.  Excluding acquisitions in both periods,
total spending levels are expected to be about 33 percent higher
in 2000 than in 1999.  The company is directing 74 percent of the
2000 budget toward upstream activities--oil and gas exploration
and production, and gas gathering, processing and marketing


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<PAGE>



operations; 25 percent toward downstream businesses--chemicals
and plastics manufacturing and the refining, marketing and
transportation of petroleum products; and 1 percent toward
corporate staff expenditures.

The company signed a definitive agreement on March 15, 2000, to
purchase ARCO Alaska.  Upon completion of the transaction,
Phillips' 2000 capital spending will be increased by two
components of the transaction: 1) an up to $7 billion increase to
cover the purchase price, and 2) an additional $515 million to
reflect the assumption of ARCO's previously planned capital
program for ARCO Alaska.  Together, these items would increase
Phillips' expected 2000 capital spending from $1.8 billion to
approximately $9 billion.  See "Outlook" on page 73 for
additional information on this transaction.

The company has initiated two separate transactions that, when
completed, would contribute its GPM and Chemicals segments into
joint ventures.  The $90 million budgeted for GPM capital
projects and the $161 million budgeted for Chemicals capital
projects would be substantially reduced if these transactions are
consummated in 2000.  See "Outlook" on page 73 for a complete
description of both of these transactions.


E&P

Capital spending for E&P during the three-year period ending
December 31, 1999, supported several key exploration and
development projects including the Bozhong block in China's Bohai
Bay; the Xijiang fields offshore China; the Bayu-Undan project in
the Timor Sea; the Hamaca heavy oil project in the Orinoco Heavy
Oil Belt of Venezuela; the Ambrosio oil field, also in Venezuela;
the Ekofisk II redevelopment and Eldfisk waterflood projects
offshore Norway; the J-Block, Renee/Rubie and Janice fields in
the U.K. North Sea; and the Siri development in Denmark.  During
1999, the company increased its capital budget twice, raising it
to $2 billion from the original $1.465 billion.  The E&P capital
spending program received the largest increase--from $800 million
to $1.253 billion.  The increase was applied to the acquisition
of an additional interest in the Bayu-Undan unitized gas/gas
condensate field in the Timor Sea, appraisal wells in Bozhong
block 11/05 of China's Bohai Bay, the acquisition of interests in
exploration and production assets in north Louisiana, the 1999
drilling costs of the Kashagan E-1 well in Kazakhstan, drilling
development wells in Norway, and the acquisition of a 50 percent
working interest in coalbed methane acreage in Wyoming's Powder
River Basin.


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<PAGE>



E&P's 2000 capital budget is $1.23 billion, compared with actual
1999 expenditures of $1.08 billion.  The largest portion of the
2000 capital budget is slated for international projects that
support Phillips' growth strategy.  The company plans to focus
spending on projects that are currently under way in Venezuela,
including the Hamaca heavy oil project and the redevelopment of
the Ambrosio field in Lake Maracaibo; Bozhong block 11/05 in
China's Bohai Bay; the liquids/gas-recycle phase of the Bayu-
Undan project in the Timor Sea; the Eldfisk waterflood in the
Norwegian North Sea; and the Jade field in the U.K. North Sea.

In July 1999, Phillips exchanged its 18 percent interest in the
LL-652 oil field in Lake Maracaibo, Venezuela, for two-thirds of
ARCO's 30 percent working interest in the Hamaca heavy oil
project.  The Hamaca project involves the development of heavy
oil reserves from Venezuela's Orinoco Heavy Oil Belt and is the
largest development project in E&P's 2000 capital budget.  The
exchange increased Phillips' share in the Hamaca project from
20 percent to 40 percent.  The LL-652 field interest, which
Phillips exchanged with ARCO, is a redevelopment and secondary
recovery project in Lake Maracaibo that was acquired in the
Venezuela third bid round.  Phillips and its co-venturers,
including a subsidiary of Venezuela's state oil company, have
approved proceeding with the Hamaca project.  Construction of a
heavy oil upgrader, pipelines and associated production
facilities is currently planned to begin in 2000, with commercial
production of upgraded oil expected in mid-2004.  The additional
working interest in the Hamaca project is expected to result in
Phillips' ultimately adding approximately 700 million barrels of
oil equivalent to its proved hydrocarbon reserves.  The company
had originally anticipated adding these reserves in 1999.
However, due to the potential impact of economic uncertainties in
Venezuela on the major engineering and construction bidding
process and outstanding commercial issues, the company has
decided to delay recording these reserves until 2000 or later.
For similar reasons, there is a risk that timing of the project
development could change.  Phillips and its co-venturers plan to
transfer their working interests in the Hamaca project to a newly
formed, jointly owned entity, which would place the project debt
in the financial markets, and for which Phillips would use equity
method accounting.

The company completed its appraisal drilling program in the first
quarter of 2000 on the Peng Lai 19-3 discovery in block 11/05 of
China's Bohai Bay.  The company is evaluating the findings of the
drilling program, including the ultimate oil recovery potential
from this commercial discovery.  Phillips owns a 100 percent
participating interest in the block, after acquiring ARCO's
40 percent interest during 1999.  The China National Offshore Oil
Corporation (CNOOC) has the right to acquire up to a 51 percent
interest in any development.  If CNOOC elects to participate in


                                63

<PAGE>



the development of the field, Phillips and CNOOC would share
development costs.  Phillips would receive a cost recovery factor
in the production sharing contract based on the company's total
exploratory costs.  Phillips has initiated joint
commercialization studies with CNOOC.  One development scenario
being considered is a multiple-phase development.  In this plan,
Phase I would utilize one wellhead platform and a floating
production storage and offloading facility, and production could
commence by the fourth quarter of 2001.  Phase II would include
multiple wellhead platforms, central processing facilities and a
pipeline or floating storage and offloading facility.  First
production from Phase II would be expected in 2004.

In April 1999, Phillips acquired The Broken Hill Proprietary
Company Limited's (BHP) 23.4 percent interest in the unitized
Bayu-Undan field in the Timor Sea, bringing Phillips' total
interest in the field to 50.3 percent.  At that time, Phillips
became operator of the field.  Phillips and its co-venturers plan
to proceed with development of the field, initially in a gas-
recycle phase.  This phase will produce and process natural gas,
separate and export condensate and natural gas liquids, and
reinject the remaining natural gas back into the reservoir.  Full
commercial production is expected to begin in early 2004.
Phillips has also taken the initiative to commercialize the Bayu-
Undan gas reserves.  Discussions with potential customers in the
Northern Territory of Australia are under way, and in November
1999, the company entered into an alliance with another party to
evaluate Australia's domestic gas market opportunities.  In
addition, Phillips is actively pursuing opportunities for
liquefied natural gas sales into Asian markets.

The Timor Gap Zone of Cooperation is in transition.  Phillips is
working closely with the Australian government, the United
Nations Transitional Administration in East Timor (UNTAET) and
recognized East Timorese leaders.  In February 2000, an agreement
was signed in which UNTAET became Australia's partner in the
Timor Gap Treaty and assumed all rights and obligations
previously exercised by Indonesia.  On February 28, 2000,
Phillips announced that the Timor Gap Joint Authority had
approved the development plan for the gas-recycle project.

In the Norwegian sector of the North Sea, work is nearing
completion on the Eldfisk water injection project that is
expected to increase recovery from the Eldfisk development by
more than 60 million net barrels of oil equivalent.  The new
water-injection platform, controlled from an existing manned
Eldfisk platform, began water injection in January 2000.
Commissioning of the gas injection and gas lift systems is
expected to be completed in the second quarter of 2000.


                                64

<PAGE>



The construction of new Ekofisk offshore living quarters has been
deferred.  Phillips and its co-venturers have postponed the
project as the seabed subsidence rate has dropped sharply.  If
the current subsidence rate forecasts prove accurate, the
replacement would not be required until at least 2009.  The
recent drop in the subsidence rate is a direct result of
Phillips' strategy to use water injection to repressure the
reservoir, reduce subsidence and increase reserves recovery.

The cessation plan for the redundant Ekofisk facilities and the
shut-in of outlying fields was completed and submitted to the
Norwegian authorities in October 1999.  The plan outlines the
long-term cessation plans for 15 structures in the Greater
Ekofisk area that are currently shutdown, or that will be shut
down over the next decade.  Under this plan, the platforms will
be removed between 2003 and 2018 at an estimated cost of
approximately $1 billion.  Due to the tax structure in Norway, it
is anticipated that the Norwegian state will fund more than two-
thirds of this cost, with the remainder funded by Phillips and
its co-venturers.  The Norwegian government will review this plan
and associated assessment documents, and formulate its own
recommendations.  A final decision is expected in the second half
of 2001.  Phillips has a 35.11 percent interest in Ekofisk.

In January 2000, the company announced that approval for the Jade
field development project had been received from the U.K.
Department of Trade and Industry.  Detailed design and
construction work has begun, with first production scheduled for
the fourth quarter of 2001.

E&P's 2000 capital budget also includes $225 million for
exploration activities.  Foreign projects represent 66 percent of
this total, with U.S. projects accounting for the remaining
34 percent.  The company plans to drill exploratory wells in
Canada, the United Kingdom, Norway, Greenland, China, Kazakhstan,
Oman, Nigeria, South Africa, Angola and the Timor Sea.  In the
United States, exploratory drilling is scheduled primarily on the
North Slope of Alaska and in the deep waters of the Gulf of
Mexico.

E&P's 2000 capital spending would be increased by up to
$7.5 billion with the recently announced transaction to purchase
ARCO Alaska.  See "Outlook" on page 73 for additional information
on this transaction.


                                65

<PAGE>



GPM

Capital spending at GPM during the three-year period ending
December 31, 1999, included acquisitions, technology and facility
upgrades, projects to streamline operations, and new well
connections.  GPM completed a major acquisition in 1997, and a
number of smaller acquisitions in 1998 and 1999.

Due to acquisitions, GPM's 1999 capital budget was increased from
$90 million to $124 million.  GPM acquired gathering systems in
the Austin Chalk area of south central Texas and in Oklahoma, and
purchased a plant and gathering system in New Mexico that GPM had
operated under a construction and operating agreement since 1959.
In December 1999, GPM purchased the capital stock of a company
whose assets consisted of two gathering systems in New Mexico.
These acquisitions added about 125 million cubic feet of gas per
day to GPM's total raw gas throughput, while providing
opportunities to improve operating efficiencies.

Phillips budgeted $90 million for 2000 capital spending for GPM,
78 percent of which would be used for the acquisition of
gathering and processing assets, or for connecting new wells to
GPM's distribution network.  The company has initiated a
transaction to contribute its GPM segment into a joint venture.
The $90 million budgeted for GPM capital projects may be
substantially reduced, depending upon the timing of the closing
of this joint-venture transaction.  See "Outlook" on page 73 for
a complete description of this transaction.


RM&T

Capital spending for RM&T during the three-year period ending
December 31, 1999, was primarily for refinery-upgrade projects--
to improve product yields, to meet new environmental standards,
to improve the 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 during 1997.  When
the modernization of these facilities is completed, all
manufacturing processes at the facilities can be managed from the
new central control centers.  Advanced process control technology
upgrades were essentially completed at Sweeny by year-end 1999
and are expected to be essentially complete at the company's
Borger, Texas, facility by year-end 2000.

RM&T's 2000 capital budget is $283 million, a 17 percent decrease
from actual 1999 expenditures.  The company plans to use most of
the funds to continue several ongoing projects--changes to the
Sweeny Complex to accommodate the coker and related facilities


                                66

<PAGE>



being built by Merey Sweeny, L.P.; the continuous catalytic
reformer; and the company's share of the Seaway pipeline
expansion.  Phillips and the Venezuelan state oil company,
Petroleos de Venezuela S.A., each hold a 50 percent interest in
Merey Sweeny, L.P., the limited partnership that is building a
58,000-barrel-per-day delayed coker and related facilities at
Phillips' Sweeny Complex.  The total project cost for the coker
and related facilities is estimated at $538 million.  In June
1999, the limited partnership issued $350 million of 8.85% Bonds
due 2019, the proceeds of which will be used to fund the project.
Remaining expenditures will be funded through an $80 million bank
facility and equity contributions.

Construction continues on the coker and on a 36,000-barrel-per-
day continuous catalytic reformer, which allows continuous
operation while the catalyst is being regenerated.  The
continuous catalytic reformer is expected to increase aromatics
and premium gasoline yields and provide more hydrogen for the
refinery.  The additional hydrogen will be needed for the change
in operations due to the coker, as will an additional sulfur
recovery unit being constructed to accommodate production of an
additional 130 long tons of sulfur per day.  The continuous
catalytic reformer is scheduled to start up in the second quarter
of 2000, and the coker is scheduled to start up in the third
quarter.  The integration of the coker will involve a carefully
planned and coordinated shutdown and restart of most of the
Sweeny Complex over nearly a month.

RM&T continues its retail-marketing rationalization and
expansion, and now plans to have about 350 company-operated
retail outlets in the United States by 2005--a 30 percent
reduction from the previous plan of 500 outlets.  This expansion
is being funded through master leasing programs and capital
expenditures.

A new 55-mile natural gas liquids pipeline from Wichita, Kansas,
to Conway, Kansas, was completed and began carrying product in
May 1999.  This pipeline was designed to allow RM&T to better
serve its customers by providing improved access to propane and
butane bulk storage in the Midwest.  Also, an expansion of the
El Paso terminal and pipeline system was completed and started up
during 1999.  Phillips' 25 percent interest in this terminal and
system was increased to 33 percent by the company's participation
in the expansion.

During 1999, Phillips and its co-venturer in the Seaway Pipeline
Company (Seaway) announced plans to increase the capacity of
Seaway's 30-inch crude oil pipeline by approximately
130,000 barrels per day.  Completion and start-up is expected in
the first quarter of 2000, with full capacity becoming available
in the second quarter.


                                67

<PAGE>



During 1999, Phillips announced plans to build a commercial
facility at its Borger refinery to demonstrate the benefits of
its S Zorb sulfur-removal technology that significantly lowers
sulfur content in gasoline while limiting manufacturing cost
increases.  Test results show this technology can make gasoline
that more than meets new federal regulations to reduce sulfur
content to 30 parts per million and, unlike conventional
technologies, has little octane loss and very low volume loss.
Construction of the 6,000-barrel-per-day unit began in the first
quarter of 2000, with start-up scheduled early in 2001.


Chemicals

For the three-year period ended December 31, 1999, capital
spending for Chemicals focused on production expansion projects.
Projects completed during 1998 and 1997 included a 100-million-
pound-per-year methyl mercaptan plant at Borger, Texas; a
220-million-pound-per-year joint-venture polyethylene plant near
Shanghai; and a 400-million-pound-per-year debottlenecking of
high-density polyethylene production capacity at the Houston
Chemical Complex.

During 1999, Phillips completed a 100-million-pound-per-year
expansion of its K-Resin styrene-butadiene copolymer (SBC) plant
at the company's Houston Chemical Complex, increasing capacity to
370 million pounds per year.  In June 1999, a reactor at the
existing K-Resin SBC plant experienced a flash fire, and K-Resin
SBC production was limited during the last half of 1999.  Damage
to the plant is estimated at $15 million.  Final repairs are
expected to be completed in the first quarter of 2000, making all
plant capacity once again available.  Force majeure is expected
to be lifted shortly after final repairs are completed.

In 1997, Phillips entered into an agreement with Qatar General
Petroleum Corporation for a joint venture to develop a major
petrochemical complex in Qatar at an estimated cost of
$1.16 billion.  During 1999, Qatar Chemical Company Ltd.
(Q-Chem), the joint-venture company established by the co-
venturers, signed a $750 million bank financing agreement for the
construction of the complex.  At December 31, 1999, $51 million
(excluding accrued interest) had been drawn under this financing
agreement.  After the bank financing has been fully drawn,
Phillips will be required to fund any remaining construction
costs under a subordinated loan agreement with Q-Chem.  In
connection with the bank financing, the co-venturers have agreed
that, if the complex is not successfully completed by August 31,
2003, each will make, or cause to be made, capital contributions
on a pro rata, several basis to the extent necessary to cover
bank financing service requirements.  After construction is


                                68

<PAGE>



successfully completed, the bank financing is non-recourse with
respect to the two co-venturers and the lenders can look only to
Q-Chem's cash flows for payment, although Phillips has agreed to
provide up to $75 million of credit support to the venture under
a contingent equity loan agreement.  Construction has begun, with
start-up scheduled for mid-2002.  Phillips owns 49 percent of
Q-Chem.

Chemicals' 2000 capital expenditures are budgeted at
$161 million, a 64 percent increase over 1999 actual
expenditures.  Of this, 72 percent is slated for the United
States.

Phillips and Solvay Polymers, Inc. (Solvay), a wholly owned
subsidiary of the Solvay Group of Brussels, Belgium, have agreed
in principle to build and operate a high-density polyethylene
plant.  Subject to a definitive agreement and approval by the
companies' Boards of Directors, Phillips and Solvay each would
own 50 percent of a 700-million-pound-per-year facility, and each
would independently market its share of production.  The
facility, expected to be operational in 2002, is expected to be
built on one of the two companies' existing U.S. manufacturing
sites.  A minimum of 50 percent of the ethylene for the facility
is expected to be provided by Phillips.  The companies also
intend to build a similar shared facility for start-up in the
2005 to 2007 time period, as market conditions warrant.  The
second facility would be located on a site belonging to the
company not hosting the initial plant.  Final approval of the
necessary agreements is anticipated in the second quarter of
2000.

In February 2000, Phillips formed a joint-venture company,
KR Copolymer Company, Ltd., with Daelim Industrial Co. Ltd.
Phillips owns a 60 percent equity interest in the joint venture,
which purchased Daelim's existing K-Resin SBC facility in Yochon,
Korea.  The plant's capacity is 90 million pounds per year.  The
joint venture should enhance Phillips' ability to serve growing
markets in the Pacific Rim.

The company has initiated a transaction to contribute its
Chemicals segment into a joint venture.  The $161 million
budgeted for Chemicals capital projects in 2000 may be
substantially reduced as a result of this transaction, depending
upon the timing of its closing.  See "Outlook" on page 73 for a
complete description of this transaction.


                                69

<PAGE>



Year 2000 Readiness Disclosure

Phillips' companywide Year 2000 Project, addressing the issue of
computer programs and embedded computer chips being unable to
distinguish between the year 1900 and the year 2000, is complete.
With the rollover into 2000, Phillips did not experience any
significant Year 2000 failures.  Some minor Year 2000 issues
occurred and were resolved, but none have had a material impact
on the company's results of operations, liquidity, financial
condition or safety record.  The cost of the Year 2000 Project
was $39 million, including Phillips' share of the Year 2000
repair and replacement costs incurred by partnerships and joint
ventures in which the company participates but is not the
operator.


Contingencies

Legal and Tax Matters

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


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.


                                70

<PAGE>



At year-end 1998, Phillips reported 45 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP).  Since then, 22 sites have
been resolved and four new sites were added.  Of the 27 sites
remaining, the company believes it has a legal defense or its
records indicate no involvement for two sites.  At four other
sites, current information indicates that it is probable that the
company's exposure is less than $100,000 per site.  At six sites,
Phillips has had no communication or activity with government
agencies or other PRPs in more than two years.  Of the
15 remaining sites, the company has provided for any probable
costs that can be reasonably estimated.

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 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, 1999, accruals of $5 million had been made for
the company's unresolved PRP sites.  In addition, the company has
accrued $54 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 $3 million for
other environmental contingent liabilities, for total
environmental accruals of $62 million.  No one site represents
more than 15 percent of the total.

Expensed environmental costs were $132 million in 1999 and are
expected to be approximately $150 million in 2000 and 2001.
Capitalized environmental costs were $63 million in 1999, and are
expected to be approximately $110 million and $70 million in 2000
and 2001, respectively.


                                71

<PAGE>



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.


Other

Phillips has deferred tax assets related to certain accrued
liabilities, alternative minimum tax credits, 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 and costs.  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.


NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities."  It was scheduled to be effective for
fiscal years beginning after June 15, 1999, but was postponed for
one year by FASB Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133--an amendment of FASB Statement
No. 133."  The company will be required to adopt Statement
No. 133 on January 1, 2001, and is currently in the early stages
of its implementation effort.  The Statement will require the
company to recognize all derivatives on the balance sheet at fair
value.  Derivatives that are not hedges must be adjusted to fair
value through income.  If a derivative is a hedge, depending on
the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value
of the hedged asset, liability, or firm commitment through
earnings, or recognized in other comprehensive income until the
hedged item is recognized in earnings.  The ineffective portion
of a derivative's change in fair value will be recognized
immediately in earnings.


                                72

<PAGE>



There are various important interpretive issues related to
Statement No. 133 that have not yet been resolved by the
accounting profession.  A Derivatives Implementation Group,
sponsored by the FASB, is meeting regularly in an effort to issue
needed interpretive guidance.  The FASB is also considering
making certain technical amendments to Statement No. 133.

Depending upon the outcome, the resulting interpretive guidance
could have a significant effect upon Statement No. 133's impact
on the company.  Depending on the interpretive guidance, some of
the company's present derivative programs may no longer qualify
for hedge accounting treatment or, if they do qualify, could
experience an amount of ineffectiveness that would be recognized
in earnings each month.


OUTLOOK

During 1999, Phillips' Management announced a change in the
strategic direction the company planned to pursue.  In a time of
industry rationalizations and consolidations, Management
concluded that a new strategic plan was needed in order for
Phillips to remain competitive and achieve earnings and value
growth for its shareholders.  The new strategic plan calls for
focusing more capital dollars toward E&P--to work toward
significantly increasing hydrocarbon production and reserves
through exploration, exploitation, redevelopment, new ventures
and acquisitions--with a goal of developing or acquiring legacy
assets in targeted areas.  Legacy assets are large oil and gas
developments that can provide strong returns over long periods of
time, like the Ekofisk development in the Norwegian North Sea.

At the same time, Phillips plans to retain its vertical
integration, by pursuing a different type of growth strategy for
its midstream and downstream segments.  To do this, the company
plans to pursue joint venture opportunities for these businesses,
which would create larger, more competitive, self-funding
entities.  This would allow Phillips to retain a significant
interest in these joint ventures, while exposing Phillips to a
much larger, and more competitive, asset base in each of these
businesses.

During the fourth quarter of 1999, the company took the first
step in implementing its strategy with the announcement of the
proposed combination of its midstream gas gathering, processing
and marketing assets with those of Duke Energy Corporation (Duke
Energy) in a new company, Duke Energy Field Services, that is
expected to be the largest midstream natural gas liquids business
in the United States.  Subject to regulatory approval, this
transaction is expected to close by the end of the first quarter
of 2000.


                                73

<PAGE>



Under the terms of the agreement, Duke Energy Field Services will
seek to arrange debt financing and, upon, or shortly after, the
closing of the transaction, plans to make one-time cash
distributions of approximately $1.2 billion to both Duke Energy
and Phillips.  At closing, it is expected that Duke Energy will
own about 70 percent of the new company, and Phillips will own
about 30 percent.

Following completion of the transaction and subject to market
conditions, it is expected that Duke Energy Field Services will
offer approximately 20 percent of its equity to the public in an
initial public offering (IPO).  The proceeds of the offering will
be used to reduce the debt incurred by the new company in the
transaction.  The agreements governing Duke Energy Field Services
set forth a formula which adjusts Duke Energy's and Phillips'
post-IPO equity interests based on the public market valuation of
the new company.  Assuming a value range for the new company of
between $5 billion and $6 billion, Duke Energy's post-IPO equity
ownership in the new company would range between 55 percent and
57 percent, while Phillips' post-IPO ownership would range
between 23 percent and 25 percent.  Phillips expects to account
for its investment in the new company on an equity basis.

On February 7, 2000, Phillips announced that it had signed a
letter of intent with Chevron Corporation (Chevron) to form a
joint venture that would combine their worldwide chemicals
businesses, other than the Oronite additives business being
retained by Chevron.  Each company's ownership share would be
50 percent.  After formation, the joint-venture company would
have assets of more than $6 billion, and would be one of the top
five worldwide producers of olefins and polyolefins.  Subject to
approval by the companies' Boards of Directors, signing of
definitive agreements and regulatory review and approval, the
transaction is expected to close midyear 2000.  Under terms of the
agreement, the joint-venture company would arrange $1.6 billion
of debt financing and make one-time cash distributions of
$800 million to each parent at, or shortly after, closing.
Phillips expects to account for its investment in the joint
venture on an equity basis.

On March 15, 2000, the company announced that it had signed a
definitive agreement for the purchase of ARCO Alaska.  The
transaction is expected to close in the second quarter of 2000,
subject to regulatory approval.  Phillips will pay approximately
$6.5 billion in cash upon closing of the transaction.  In
addition, formula-based contingent monthly payments are required
when New York Mercantile Exchange West Texas Intermediate crude
oil prices exceed $25 per barrel, subject to a $500 million limit
and a five-year term, effective January 1, 2000.  The company
expects to use debt financing for the transaction.


                                74

<PAGE>



Phillips expects to add reserves of approximately 1.9 billion
barrels of oil equivalent in 2000 from this transaction, which
would increase the company's reserves from the 2.2 billion
barrels of oil equivalent at year-end 1999 to 4.1 billion barrels
of oil equivalent.  Average net production from the acquired
assets, before deductions for fuel usage, is expected to be
348,000 barrels of oil equivalent per day in 2000 and
377,000 barrels of oil equivalent per day in 2001.

This transaction represents a significant step in the company's
growth strategy for its E&P business, with Phillips gaining a
substantial position in the two largest fields in North America.
Phillips expects the transaction to be accretive to both earnings
and cash flow in 2000.

Phillips also anticipates seeking a joint-venture opportunity for
RM&T at some time in the future, although an RM&T transaction
will most likely be deferred until after 2000 when major
construction projects, including the coker and the continuous
catalytic reforming units, have been completed at the Sweeny
refinery.

The expiration of Phillips' crystalline polypropylene patent in
March 2000 will have a negative impact on the company's earnings.
Licensing of this technology has generated before-tax income for
the company's Chemicals segment of $56 million, $59 million, and
$72 million, in 1999, 1998, and 1997, respectively.

Phillips operates in three countries where cutbacks in production
were announced in 1998.  The Norwegian Ministry of Petroleum and
Energy has increased the production curtailment measures for oil
production on the Norwegian continental shelf, and has extended
the curtailment to March 2000.  It will amount to a 6.3 percent
reduction, based on updated production forecasts given to the
Ministry.  The Nigerian government dictated quota reductions
totaling 19.5 percent, effective April 1, 1999, which are
expected to continue throughout 2000.  These affect leases
operated on behalf of the company under the joint operating
agreement with Nigerian Agip Oil Company.  Venezuela, an OPEC
member, has agreed to cut back oil production, but Phillips and
other third-bid-round-property operators have not been asked to
curtail production.  Based on the above, the company does not
expect the economic impact of these announced production
curtailments in any of the three countries to have a material
adverse impact on the company's results of operations or
financial position in 2000.


                                75

<PAGE>



Phillips recognizes that the financial performance of the
businesses in which the company operates are affected by
significant fluctuations in oil, natural gas and other commodity
product prices over which it has no control.  In late March 1999,
several major oil-exporting countries agreed to reduce production
volumes.  Continuing adherence to these production levels caused
year-end 1999 industry crude oil prices to increase to their
highest levels since late 1996.  Crude oil inventories in early
2000 continue to be low and prices are at their highest levels
since the Gulf War in 1991.  While the current supply/demand
environment supports the high level of crude oil prices, price
volatility may be expected for 2000 and beyond, depending on the
balance of supply and demand.  Natural gas prices are currently
at their highest levels since late 1997, and have been helped, at
least in part, by the strength of crude oil prices.  Continued
volatility created by weather, gas storage levels, and the price
of competing fuels is expected.


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

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

The following are identified as important risk factors that could
cause actual results to differ materially from those expressed in
any forward-looking statement made by, or on behalf of, the
company:


                                76

<PAGE>



o Plans to implement Management's announced strategy for its
  four business segments are subject to: finding a joint
  venturer for RM&T; the negotiation and execution of
  satisfactory agreements for the GPM and Chemicals joint
  ventures; receipt of any approvals that may be required from
  state and federal government agencies and third parties;
  required disposition of assets, if any, to meet regulatory
  requirements; approvals as required by the Boards of Directors
  of the entities involved; consummation of the ARCO Alaska
  acquisition by E&P; the successful development of the
  company's current projects and new acquisitions discussed in
  this report and subsequent reports; and the achievement of
  production estimates, and cost savings and synergies that are
  dependent on the integration of personnel, business systems
  and operations.

o Plans to drill wells and develop offshore or onshore
  exploration and production properties are subject to: the
  company's ability to obtain agreements with co-venturers,
  partners and governments; its ability to engage drilling,
  construction and other contractors; its ability to obtain
  economical and timely financing; geological, land, or sea
  conditions; world prices for oil, natural gas and natural gas
  liquids; adequate and reliable transportation systems,
  including the Trans Alaska Pipeline System and the Valdez
  Marine Harbor Terminal for the hydrocarbons; 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;
  obtaining loans and/or project financing; the issuance by
  foreign, federal, state, and municipal governments, or
  agencies thereof, of building, environmental and other
  permits; and the availability of specialized contractors and
  work force.  Production and delivery of the company's products
  are subject to: worldwide prices and demand for the products;
  availability of raw materials; and the availability of
  transportation in the form of pipelines, railcars, trucks or
  ships.

o The ability to meet liquidity requirements, including the
  funding of the company's capital program from borrowings,
  asset sales, if any, and operations, is subject to: the
  negotiation and execution of various bank, project and public
  financings and related financing documents, the market for any
  such debt, and interest rates on the debt; the identification
  of buyers and the negotiation and execution of instruments of
  sale for any assets to be sold; changes in the commodity
  prices of the company's basic products of oil, natural gas and
  natural gas


                                77

<PAGE>


  liquids, over which Phillips has no control, and to a lesser
  extent the commodity prices for its chemicals and other
  products; its ability to operate its refineries, chemical
  plants, and exploration and production operations consistently
  and safely; and the effect of foreign and domestic legislation
  of federal, state and municipal governments that have
  jurisdiction in regard to taxes, the environment and human
  resources.

o Estimates of proved reserves, 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 U.S. Securities and Exchange Commission,
  generally accepted accounting principles and other applicable
  requirements.  Estimates of cost savings, synergies and the
  like were developed by the company from current information.
  The estimates for reserves, supplies, costs, maintenance,
  remediation, savings and synergies can change positively or
  negatively as new information and data becomes available.


                                78

<PAGE>



Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                   PHILLIPS PETROLEUM COMPANY

                 INDEX TO FINANCIAL STATEMENTS


                                                             Page
                                                             ----

Report of Management....................................       80

Report of Independent Auditors..........................       81

Consolidated Statement of Income for the years
  ended December 31, 1999, 1998 and 1997................       82

Consolidated Balance Sheet at December 31, 1999
  and 1998..............................................       83

Consolidated Statement of Cash Flows for the years
  ended December 31, 1999, 1998 and 1997................       84

Consolidated Statement of Changes in Common Stockholders'
  Equity for the years ended December 31, 1999,
  1998 and 1997.........................................       85

Notes to Financial Statements...........................       86

Supplementary Information

     Oil and Gas Operations.............................      126

     Selected Quarterly Financial Data..................      146


             INDEX TO FINANCIAL STATEMENT SCHEDULES

Schedule II--Valuation Accounts and Reserves............      150


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.


                                79

<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, 1999, 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 of 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/ J. J. Mulva                    /s/ T. C. Morris

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

March 22, 2000


                                80

<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, 1999 and 1998, 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, 1999.  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 auditing standards
generally accepted in the United States.  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,
1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles
generally accepted in the United States.  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
March 22, 2000


                                81

<PAGE>



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


Years Ended December 31                    Millions of Dollars
                                        --------------------------
                                           1999     1998      1997
                                        --------------------------
Revenues
Sales and other operating revenues      $13,571   11,545    15,210
Equity in earnings of
  affiliated companies                      101       75       126
Other revenues                              180      225        88
------------------------------------------------------------------
    Total Revenues                       13,852   11,845    15,424
------------------------------------------------------------------

Costs and Expenses
Purchased crude oil and products          8,182    6,493     9,127
Production and operating expenses         2,028    2,168     2,140
Exploration expenses                        225      317       242
Selling, general and
  administrative expenses                   665      697       660
Depreciation, depletion and
  amortization                              902      899       795
Property impairments                         69      403        68
Taxes other than income taxes               231      226       263
Interest expense                            279      200       198
Foreign currency transaction losses          33       14        30
Preferred dividend requirements of
  subsidiary and capital trusts              53       53        82
------------------------------------------------------------------
    Total Costs and Expenses             12,667   11,470    13,605
------------------------------------------------------------------
Income before income taxes and
  Kenai tax settlement                    1,185      375     1,819
Kenai tax settlement                          -       46        81
------------------------------------------------------------------
Income before income taxes                1,185      421     1,900
Provision for income taxes                  576      184       941
------------------------------------------------------------------
Net Income                              $   609      237       959
==================================================================

Net Income Per Share of Common Stock
  Basic                                 $  2.41      .92      3.64
  Diluted                                  2.39      .91      3.61
------------------------------------------------------------------

Average Common Shares Outstanding
  (in thousands)
    Basic                               252,827  258,274   263,392
    Diluted                             254,433  260,152   265,419
------------------------------------------------------------------
See Notes to Financial Statements.


                                82

<PAGE>



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


At December 31                                Millions of Dollars
                                              -------------------
                                                 1999        1998
                                              -------------------
Assets
Cash and cash equivalents                     $   138          97
Accounts and notes receivable
  (less allowances: 1999--$19; 1998--$13)       1,808       1,282
Inventories                                       515         540
Deferred income taxes                             143         217
Prepaid expenses and other current assets         169         224
-----------------------------------------------------------------
    Total Current Assets                        2,773       2,360
Investments and long-term receivables           1,103       1,004
Properties, plants and equipment (net)         11,086      10,585
Deferred income taxes                              83         100
Deferred charges                                  156         167
-----------------------------------------------------------------
Total                                         $15,201      14,216
=================================================================

Liabilities
Accounts payable                              $ 1,668       1,340
Notes payable and long-term debt due
  within one year                                  31         167
Accrued income and other taxes                    409         182
Other accruals                                    412         443
-----------------------------------------------------------------
    Total Current Liabilities                   2,520       2,132
Long-term debt                                  4,271       4,106
Accrued dismantlement, removal and
  environmental costs                             684         729
Deferred income taxes                           1,480       1,317
Employee benefit obligations                      483         424
Other liabilities and deferred credits            564         639
-----------------------------------------------------------------
Total Liabilities                              10,002       9,347
-----------------------------------------------------------------

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

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                2,098       2,055
    Treasury stock (at cost: 1999--24,409,545
      shares; 1998--25,259,040 shares)         (1,217)     (1,259)
    Compensation and Benefits Trust (CBT)
      (at cost: 1999--28,358,258 shares;
      1998--29,125,863 shares)                   (961)       (987)
Accumulated other comprehensive income
    Foreign currency translation adjustments      (38)        (22)
    Unrealized gains on securities                  7           9
Unearned employee compensation--Long-Term
  Stock Savings Plan (LTSSP)                     (286)       (303)
Retained earnings                               4,563       4,343
-----------------------------------------------------------------
Total Common Stockholders' Equity               4,549       4,219
-----------------------------------------------------------------
Total                                         $15,201      14,216
=================================================================
See Notes to Financial Statements.


                                83

<PAGE>



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


Years Ended December 31                     Millions of Dollars
                                         -------------------------
                                            1999     1998     1997
                                         -------------------------
Cash Flows From Operating Activities
Net income                               $   609      237      959
Adjustments to reconcile net income
  to net cash provided by operating
  activities
    Non-working capital adjustments
      Depreciation, depletion and
        amortization                         902      899      795
      Property impairments                    69      403       68
      Dry hole costs and leasehold
        impairment                            92      152       91
      Deferred taxes                         160       84      283
      J-Block settlement                       -        -      161
      Kenai tax settlement                     -     (115)       -
      Other                                  (82)    (121)      12
    Working capital adjustments
      Increase in aggregate balance
        of accounts receivable sold            1      182        -
      Decrease (increase) in other
        accounts and notes receivable       (546)     272      245
      Decrease (increase) in inventories      16      (36)     (33)
      Decrease (increase) in prepaid
        expenses and other current assets     88       (9)      15
      Increase (decrease) in accounts
        payable                              343     (225)    (224)
      Increase (decrease) in taxes
        and other accruals                   289      (93)    (127)
------------------------------------------------------------------
Net Cash Provided by Operating Activities  1,941    1,630    2,245
------------------------------------------------------------------

Cash Flows From Investing Activities
Capital expenditures and investments,
  including dry hole costs                (1,690)  (2,052)  (2,043)
Proceeds from asset dispositions             225       86       21
Long-term advances to affiliates and
  other investments                          (17)     (18)     (34)
------------------------------------------------------------------
Net Cash Used for Investing Activities    (1,482)  (1,984)  (2,056)
------------------------------------------------------------------

Cash Flows From Financing Activities
Issuance of debt                             528    1,272      468
Repayment of debt                           (527)     (29)    (569)
Purchase of company common stock             (13)    (523)     (50)
Issuance of company common stock              24       13       20
Issuance of company-obligated mandatorily
  redeemable preferred securities              -        -      350
Redemption of preferred stock of
  subsidiary                                   -        -     (345)
Dividends paid on common stock              (344)    (353)    (353)
Other                                        (86)     (92)    (162)
------------------------------------------------------------------
Net Cash Provided by (Used for)
  Financing Activities                      (418)     288     (641)
------------------------------------------------------------------

Net Change in Cash and Cash Equivalents       41      (66)    (452)
Cash and cash equivalents at
  beginning of year                           97      163      615
------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $   138       97      163
==================================================================
See Notes to Financial Statements.


                                84

<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, 1996               306,380,511   13,878,480   29,200,000
Net income
Other comprehensive income,
  net of tax
    Foreign currency
      translation adjustments
Comprehensive 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
Stock purchases                                1,093,600
---------------------------------------------------------------------
December 31, 1997               306,380,511   14,000,882   29,200,000
Net income
Other comprehensive income,
  net of tax
    Foreign currency
      translation adjustments
    Unrealized gain on
     available-for-sale
     securities
Comprehensive income
Cash dividends paid on
  common stock
Distributed under incentive
  compensation and other
  benefit plans                                 (518,042)     (74,137)
Recognition of LTSSP unearned
  compensation
Tax benefit of dividends on
  unallocated LTSSP shares
Stock purchases                               11,776,200
---------------------------------------------------------------------
December 31, 1998               306,380,511   25,259,040   29,125,863
Net income
Other comprehensive income,
  net of tax
    Foreign currency
      translation adjustments
    Unrealized gains on
      securities, net of
      reclassification
      adjustments
Comprehensive income
Cash dividends paid on
  common stock
Distributed under incentive
  compensation and other
  benefit plans                                 (849,495)    (767,605)
Recognition of LTSSP unearned
  compensation
Tax benefit of dividends on
  unallocated LTSSP shares
---------------------------------------------------------------------
December 31, 1999               306,380,511   24,409,545   28,358,258
=====================================================================



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

December 31, 1996              $383           1,999       (757)  (989)
Net income
Other comprehensive income,
  net of tax
    Foreign currency
      translation adjustments
Comprehensive 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
Stock purchases                                            (50)
---------------------------------------------------------------------
December 31, 1997               383           2,031       (752)  (989)
Net income
Other comprehensive income,
  net of tax
    Foreign currency
      translation adjustments
  Unrealized gain on
    available-for-sale
    securities
Comprehensive income
Cash dividends paid on
  common stock
Distributed under incentive
  compensation and other
  benefit plans                                  24         28      2
Recognition of LTSSP unearned
  compensation
Tax benefit of dividends on
  unallocated LTSSP shares
Stock purchases                                           (535)
---------------------------------------------------------------------
December 31, 1998               383           2,055     (1,259)  (987)
Net income
Other comprehensive income,
  net of tax
    Foreign currency
      translation adjustments
    Unrealized gains on
      securities, net of
      reclassification
      adjustments
Comprehensive income
Cash dividends paid on
  common stock
Distributed under incentive
  compensation and other
  benefit plans                                  43         42     26
Recognition of LTSSP unearned
  compensation
Tax benefit of dividends on
  unallocated LTSSP shares
---------------------------------------------------------------------
December 31, 1999              $383           2,098     (1,217)  (961)
=====================================================================



                                    Millions of Dollars
                      -----------------------------------------------
                        Accumulated      Unearned
                              Other      Employee
                      Comprehensive  Compensation   Retained
                             Income       --LTSSP   Earnings    Total
                      -----------------------------------------------

December 31, 1996                54          (378)     3,939    4,251
                                                                -----
Net income                                               959      959
Other comprehensive
  income, net of tax
    Foreign currency
      translation
      adjustments               (62)                              (62)
                                                                -----
Comprehensive income                                              897
                                                                -----
Cash dividends paid
  on common stock                                       (353)    (353)
Distributed under
  incentive
  compensation plans                                     (61)      26
Recognition of LTSSP
  unearned
  compensation                                 36                  36
Tax benefit of
  dividends on
  unallocated LTSSP
  shares                                                   7        7
Stock purchases                                                   (50)
---------------------------------------------------------------------
December 31, 1997                (8)         (342)     4,491    4,814
                                                                -----
Net income                                               237      237
Other comprehensive
  income, net of tax
    Foreign currency
      translation
      adjustments               (14)                              (14)
  Unrealized gain on
    available-for-sale
    securities                    9                                 9
                                                                -----
Comprehensive income                                              232
                                                                -----
Cash dividends paid
  on common stock                                       (353)    (353)
Distributed under
  incentive
  compensation and
  other benefit plans                                    (38)      16
Recognition of LTSSP
  unearned
  compensation                                 39                  39
Tax benefit of
  dividends on
  unallocated LTSSP
  shares                                                   6        6
Stock purchases                                                  (535)
---------------------------------------------------------------------
December 31, 1998               (13)         (303)     4,343    4,219
                                                                -----
Net income                                               609      609
Other comprehensive
  income, net of tax
    Foreign currency
      translation
      adjustments               (16)                              (16)
    Unrealized gains
      on securities,
      net of
      reclassification
      adjustments                (2)                               (2)
                                                                -----
Comprehensive income                                              591
                                                                -----
Cash dividends paid
  on common stock                                       (344)    (344)
Distributed under
  incentive
  compensation and
  other benefit plans                                    (50)      61
Recognition of LTSSP
  unearned
  compensation                                 17                  17
Tax benefit of
  dividends on
  unallocated LTSSP
  shares                                                   5        5
---------------------------------------------------------------------
December 31, 1999               (31)         (286)     4,563    4,549
=====================================================================
See Notes to Financial Statements.


                                85

<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, pipelines and natural gas plants are consolidated
   on a pro rata basis.  Other securities and investments are
   generally carried at cost.

o  Revenue Recognition--Revenues associated with sales of crude
   oil, natural gas, natural gas liquids, petroleum and chemical
   products, and all other items are recorded when title passes
   to the customer.  Revenues from the production of natural gas
   properties in which the company has an interest with other
   producers are recognized based on the actual volumes sold by
   the company during the period.  Any differences between
   volumes sold and entitlement volumes, based on the company's
   net working interest, which are deemed non-recoverable
   through remaining production, are recognized as accounts
   receivable or accounts payable, as appropriate.  Cumulative
   differences between volumes sold and entitlement volumes are
   not significant.

o  Reclassification--Certain amounts in the 1998 and 1997
   financial statements have been reclassified to conform with
   the 1999 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 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 last-in, first-out (LIFO) basis.
   Materials and supplies are valued at, or below, average cost.


                                86

<PAGE>



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
   losses from the underlying exposures being hedged are
   recognized, except for gains and losses from hedges of asset
   acquisitions that are recorded 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.


                                87

<PAGE>



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 well costs are
      capitalized pending further evaluation of whether
      economically recoverable reserves have been found.  If
      economically recoverable reserves are not found,
      exploratory well costs are expensed as dry holes.  All
      exploratory wells are evaluated for economic viability
      within one year of well completion.  Exploratory wells
      that discover potentially economic reserves that are in
      areas where a major capital expenditure would be required
      before production could begin, and where the economic
      viability of that major capital expenditure depends upon
      the successful completion of further exploratory work in
      the area, remain capitalized as long as the additional
      exploratory work is under way or firmly planned.

      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 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.


                                88

<PAGE>



o  Impairment of Assets--Long-lived assets used in operations
   are assessed for impairment whenever changes in facts and
   circumstances indicate a possible significant deterioration
   in the future cash flows expected to be generated by an asset
   group.  If, upon review, the sum of the undiscounted pretax
   cash flows are less than the carrying value of the asset
   group, the carrying value is written down to estimated fair
   value.  Individual assets are grouped for impairment purposes
   at the lowest level for which there are identifiable cash
   flows that are largely independent of the cash flows of other
   groups of assets--generally on a field-by-field basis for
   exploration and production assets or at an entire complex
   level for downstream assets.  The fair value of impaired
   assets is determined based on quoted market prices in active
   markets, if available, or upon the present values of expected
   future cash flows using discount rates commensurate with the
   risks involved in the asset group.  Long-lived assets
   committed by Management for disposal are accounted for at the
   lower of amortized cost or fair value, less cost to sell.

   The expected future cash flows used for impairment reviews
   and related fair value calculations are based on production
   volumes, prices and costs used for planning purposes by the
   company.  These may differ from levels prevalent at the
   impairment review date due to anticipated changes in outlook
   for production levels, supply and demand influences in the
   marketplace, and general inflation.  If the future production
   price risk has been hedged, the hedged price is used in the
   calculations for the period and quantities hedged.  The
   impairment review includes cash flows from proved developed
   and undeveloped reserves, including any development
   expenditures necessary to achieve that production.  The price
   and cost outlook assumptions used in impairment reviews
   differ from the assumptions used in the Standardized Measure
   of Discounted Future Net Cash Flows Relating to Proved Oil
   and Gas Reserve Quantities.  In that disclosure, Financial
   Accounting Standards Board (FASB) Statement No. 69,
   "Disclosures about Oil and Gas Producing Activities,"
   requires the use of prices and costs at the balance sheet
   date, with no projection of future changes in those
   assumptions.

o  Maintenance and Repairs--Maintenance and repair costs
   incurred, which are not significant improvements, are
   expensed.  The estimated turnaround costs of major producing
   units are accrued in other liabilities over the estimated
   interval between turnarounds.


                                89

<PAGE>



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.

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.


                                90

<PAGE>



Note 2--Inventories

Inventories at December 31 were:

                                              Millions of Dollars
                                              -------------------
                                              1999           1998
                                              -------------------

Crude oil and petroleum products              $145            177
Chemical products                              285            274
Materials, supplies and other                   85             89
-----------------------------------------------------------------
                                              $515            540
=================================================================


Included were inventories valued on a LIFO basis totaling
$229 million and $330 million at December 31, 1999 and 1998,
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 excess of
current replacement cost over LIFO cost of inventories amounted
to $599 million and $258 million at December 31, 1999 and 1998,
respectively.


Note 3--Investments and Long-Term Receivables

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

                                              Millions of Dollars
                                              -------------------
                                                1999         1998
                                              -------------------
Investments in and advances to affiliated
  companies                                   $  770          751
Long-term receivables                            115           74
Other investments                                218          179
-----------------------------------------------------------------
                                              $1,103        1,004
=================================================================


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:


                                91

<PAGE>



                                           Millions of Dollars
                                       --------------------------
                                         1999      1998      1997
                                       --------------------------

Revenues                               $3,000     2,792     3,203
Income before income taxes                652       534       658
Net income                                442       356       470
Current assets                          1,060       790       856
Other assets                            3,692     3,460     3,076
Current liabilities                       805       738       777
Other liabilities                       1,855     1,280     1,300
-----------------------------------------------------------------


At December 31, 1999, retained earnings included $105 million
related to the undistributed earnings of these affiliated
companies, and distributions received from them were
$111 million, $78 million and $96 million in 1999, 1998 and 1997,
respectively.


Sweeny Olefins Limited Partnership (SOLP)

Phillips is a general partner and has a 50 percent interest in
SOLP, which owns and operates a 2-billion-pound-per-year ethylene
plant located adjacent to the company's Sweeny, Texas, refinery.
At December 31, 1999, Phillips' share of SOLP was carried at a
net investment of $270 million.  During construction of this
facility, the company made advances to the partnership under a
subordinated loan agreement to fund certain costs related to
completing the project.  In 1992, the company sold participating
interests in the subordinated loan agreement 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 to the
participating banks if SOLP fails to pay.  The fair value of the
recourse guarantee to the participating banks is not significant.
The balance of the subordinated loan at December 31, 1999, was
$110 million.  During 1995, SOLP entered into a second
subordinated loan agreement with Phillips, with essentially the
same terms as the first, for $120 million to fund three new
furnaces for the ethylene plant.  In November 1999, the second
subordinated loan was increased by $20 million to fund
expenditures for improvements in plant operating efficiency.  The
balance of the second subordinated loan at December 31, 1999, was
$105 million.

The partnership agreement contains certain conditions for the
withdrawal of the second general partner.  Once this general
partner has achieved a target-specified after-tax internal rate
of return on its investment, its 49.49 percent general
partnership interest is withdrawn with no additional cash


                                92

<PAGE>



distribution required.  Subsequently, the other partner's
remaining .51 percent limited partnership interest would
continue, but Phillips has an option to purchase the .51 percent
interest at a formula-based fair value.  After the withdrawal of
the other general partner, Phillips will control SOLP and begin
consolidation.


Merey Sweeny, L.P. (MSLP)

In August 1998, MSLP was formed to build and own a 58,000-barrel-
per-day delayed coker, vacuum unit and related facilities to be
located at Phillips' Sweeny Complex.  MSLP is a development stage
enterprise that is currently engaged in the construction of the
facilities.  Phillips and the Venezuelan state oil company,
Petroleos de Venezuela S.A., each hold a 50 percent interest in
the project, for which the total cost is estimated at
$538 million.  During 1998, the limited partnership issued
$25 million of tax-exempt bonds due 2018.  Phillips' December 31,
1998, balance sheet included $13 million of long-term debt
related to the company's direct guarantee of its 50 percent of
this financing.  During 1999, MSLP issued $350 million of
8.85% Bonds due 2019 and entered into a 15-year, $80 million bank
facility.  At December 31, 1999, nothing had been drawn under the
credit facility.  The proceeds of the bond issues will be used to
fund the project.  Any additional expenditures will be funded
through the bank facility or equity contributions.  In connection
with any financing, the partners have agreed that each will make,
or cause to be made, capital contributions to the partnership on
a pro rata joint-and-several basis to the extent necessary to
successfully complete construction.  Once start-up certification
is achieved, the bonds are non-recourse with respect to the two
owners and owners of the bonds can look only to MSLP's cash flows
for payment.


Qatar Chemical Company Ltd. (Q-Chem)

In 1997, Phillips entered into an agreement with Qatar General
Petroleum Corporation to form a joint venture to develop a major
petrochemical complex in Qatar, at an estimated cost of
$1.16 billion.  During 1999, Q-Chem, the joint-venture company
established by the co-venturers, signed a $750 million bank
financing agreement for the construction of the complex.  At
December 31, 1999, $51 million (excluding accrued interest) had
been drawn under this financing agreement.  After the bank
financing has been fully drawn, Phillips will be required to fund
any remaining construction costs under a subordinated loan
agreement with Q-Chem.  In connection with the bank financing,
the co-venturers have agreed that, if the complex is not


                                93

<PAGE>



successfully completed by August 31, 2003 (which may be extended
for up to one year due to force majeure), each will make, or
cause to be made, capital contributions on a pro rata, several
basis to the extent necessary to cover bank financing service
requirements including, if demanded, repayment of principal.
After construction is successfully completed, the bank financing
is non-recourse with respect to the two co-venturers and the
lenders can look only to Q-Chem's cash flows for payment, except
Phillips has agreed to provide up to $75 million of credit
support to the venture under a contingent equity loan agreement.
Construction has begun, with start-up scheduled for mid-2002.
The complex is expected to have annual capacities of 1.1 billion
pounds of ethylene, 1 billion pounds of polyethylene, and 100
million pounds of hexene-1.  Phillips owns 49 percent of Q-Chem.


Note 4--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
             -----------------------------------------------------
                        1999                        1998
             -------------------------    ------------------------
               Gross               Net     Gross               Net
                PP&E     DD&A     PP&E      PP&E     DD&A     PP&E
             -------------------------    ------------------------

E&P          $12,326    6,744    5,582    12,849    7,600    5,249
GPM            2,316    1,275    1,041     2,145    1,201      944
RM&T           4,611    2,131    2,480     4,289    2,032    2,257
Chemicals      2,963    1,210    1,753     2,872    1,145    1,727
Corporate
  and Other      512      282      230       713      305      408
------------------------------------------------------------------
             $22,728   11,642   11,086    22,868   12,283   10,585
==================================================================


                                94

<PAGE>



Note 5--Comprehensive Income

Effective January 1, 1998, the company adopted FASB Statement
No. 130, "Reporting Comprehensive Income."  Phillips has elected
to display comprehensive income and its components in its
Statement of Changes in Common Stockholders' Equity.

                                         Millions of Dollars
                                   ------------------------------
                                                   Tax
                                   Before-Tax  Expense  After-Tax
                                   ------------------------------
1999
Unrealized gains on securities
    Unrealized gains arising
      during the period                  $  3        1          2
    Less: reclassification
      adjustment for gains
      realized in net income                6        2          4
-----------------------------------------------------------------
        Net unrealized gains               (3)      (1)        (2)
Foreign currency translation
  adjustments                             (16)       -        (16)
-----------------------------------------------------------------
Other comprehensive income               $(19)      (1)       (18)
=================================================================

1998
Unrealized gains on securities           $ 14        5          9
Foreign currency translation
  adjustments                             (14)       -        (14)
-----------------------------------------------------------------
Other comprehensive income               $  -        5         (5)
=================================================================

1997
Foreign currency translation
  adjustments                            $(62)       -        (62)
-----------------------------------------------------------------
Other comprehensive income               $(62)       -        (62)
=================================================================


Deferred taxes have not been provided on temporary differences
related to foreign currency translation adjustments for
investments in certain foreign subsidiaries and corporate joint
ventures that are essentially permanent in duration.

Unrealized gains on securities relate to available-for-sale
securities held by the irrevocable grantor trusts that fund the
company's domestic, non-qualified supplemental key employee
pension plans (see Note 15--Employee Benefit Plans).  The company
has no trading securities.


                                95

<PAGE>



Note 6--Impairments

During 1999, 1998 and 1997, the company recognized the following
before-tax impairment charges:

                                             Millions of Dollars
                                             --------------------
                                             1999    1998    1997
                                             --------------------
U.S. E&P properties, primarily Gulf
  of Mexico and Gulf Coast area               $11     231      48
United Kingdom E&P offshore properties         30     147      15
Other foreign E&P                              28      15       -
Retail service stations                         -       -       1
Chemical assets                                 -       7       4
Corporate assets                                -       3       -
-----------------------------------------------------------------
                                              $69     403      68
=================================================================


After-tax, the above impairment charges by segment were:

                                             Millions of Dollars
                                             --------------------
                                             1999    1998    1997
                                             --------------------

E&P                                           $34     267      42
RM&T                                            -       -       1
Chemicals                                       -       5       3
Corporate                                       -       2       -
-----------------------------------------------------------------
                                              $34     274      46
=================================================================


The U.S. E&P impairment charges in 1999 were primarily related to
the Agate subsalt field in the Gulf of Mexico, where a downhole
well failure resulted in the shutdown of the field.  The U.K. E&P
impairment charges in 1999 were primarily related to the Renee
and Maureen fields.  The Renee impairment was triggered by an
unsuccessful development well, while the Maureen impairment
resulted from upward revisions of platform dismantlement costs.
Other foreign E&P impairments in 1999 were caused by upward
revisions of decommissioning costs related to outlying fields in
the Ekofisk area.

The E&P impairments in 1998 were primarily the result of the
prolonged and significant decrease in crude oil prices
experienced in 1998.  This had the effect of lowering projected
future cash flows and probable reserve estimates.  In addition, a
less significant amount of the impairment was triggered by upward
revision of estimated platform dismantlement costs related to a
U.K. North Sea field, as well as increased cost estimates on well
workovers in certain other U.K. North Sea fields.


                                96

<PAGE>



The facts leading to the impairment of E&P properties 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.


Note 7--Accrued Dismantlement, Removal and Environmental Costs

At December 31, 1999 and 1998, the company had accrued
$688 million and $725 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, 1999, were $1,037 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 $25 million and $30 million at December 31, 1999 and 1998,
respectively.  Phillips had also accrued $29 million and
$32 million of environmental costs associated with discontinued
or sold operations at December 31, 1999 and 1998, respectively.
Also, $5 million was included at December 31, 1999 and 1998, for
sites where the company has been named a Potentially Responsible
Party.  At December 31, 1999 and 1998, $3 million and $4 million,
respectively, had been accrued for other environmental
litigation.  Total environmental accruals at December 31, 1999
and 1998, were $62 million and $71 million, respectively.

Of the total $750 million of accrued dismantlement, removal and
environmental costs at December 31, 1999, $66 million was
classified as a current liability on the balance sheet, under the
caption "Other accruals."  At year-end 1998, $67 million was
classified as current.

During 1998, as part of a comprehensive environmental cost
recovery project, the company entered into settlement agreements
with certain of its historical liability and pollution insurers
in exchange for releases or commutations of their present and
future liabilities to the company under its historical liability
and pollution policies.  As a result of these settlement
agreements, the company recorded a before-tax benefit to earnings
of $128 million, all of which had been collected at December 31,
1998.


                                97

<PAGE>



Note 8--J-Block Settlement

On June 2, 1997, Phillips Petroleum Company United Kingdom
Limited and its co-venturers 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 a cash payment of $440 million to the
J-Block owners in 1997; 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 is being recognized
over the term of the gas supply contract.  Income of $20 million,
$16 million, and $7 million was recognized in 1999, 1998 and
1997, respectively, and was reported as part of sales and other
operating revenues.  At December 31, 1999, $118 million was still
deferred and will be recognized over the remaining term of the
gas supply contract, estimated to terminate June 2010, as the gas
delivery commitment is satisfied.


                                98

<PAGE>



Note 9--Debt

Long-term debt at December 31 was:

                                             Millions of Dollars
                                            ---------------------
                                              1999           1998
                                            ---------------------

9 3/8% Notes due 2011                       $  350            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
7.125% Debentures due March 15, 2028           295            295
7% Debentures due 2029                         198              -
6.65% Notes due March 1, 2003                  100            100
6.65% Debentures due July 15, 2018             299            299
6 3/8% Notes due 2009                          300              -
5 5/8% Marine Terminal Revenue Bonds,
  Series 1977 due 2007                          19             19
Revolving debt due to banks and others
  through 2004 at 5.5% - 8.9%                  767          1,152
Guarantee of LTSSP bank loan payable
  at 5.5% - 6.375%                             378            397
Medium-term notes due 1999 at 7.95% - 8%         -             84
Other obligations                               46             28
-----------------------------------------------------------------
Total debt                                   4,302          4,273
Notes payable and long-term debt due
  within one year                              (31)          (167)
-----------------------------------------------------------------
Long-term debt                              $4,271          4,106
=================================================================


Maturities in 2000 through 2004 are: $31 million (included in
current liabilities), $529 million, $455 million, $101 million
and $31 million, respectively.

During 1999, the company issued $300 million of 6 3/8% Notes due
2009 and $200 million of 7% Debentures due 2029 in the public
market.

During 1998, the company's LTSSP retired the first of its two
term loans.  The second loan will require annual installments
beginning in 2005, continuing through 2015.  At December 31,
1999, $378 million was outstanding.  Under this 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


                                99

<PAGE>



does not anticipate a cessation of participation by the lenders,
and plans to commence scheduled repayments beginning in 2005.

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--Employee Benefit Plans for additional discussion of
the LTSSP.)

At December 31, 1999, there was no revolving debt outstanding
under the company's $1.5 billion revolving credit facility, but
$456 million of commercial paper was outstanding, which is
supported 100 percent by the credit facility.  The company's
wholly owned subsidiary, Phillips Petroleum Company Norway, has
$600 million available under two revolving credit facilities.  At
December 31, 1999, $300 million was outstanding under these
facilities.

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
particularly sensitive to future change include contingent
liabilities recorded for environmental remediation, tax and legal


                                100

<PAGE>



matters.  Estimated future environmental remediation costs are
subject to change due to such factors as the unknown magnitude of
clean-up 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.

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

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


Note 11--Financial Instruments and Derivative Contracts

Derivative Instruments and Other Contracts Held for Purposes
Other Than Trading

The company and certain of its subsidiaries may 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 1999 and 1998, the net
realized and unrealized gains and losses from derivative
contracts were not material to the company's financial
statements.


                                101

<PAGE>



Financial Derivative Contracts--The company on occasion 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 which offset gains and losses on the
underlying exposures.  There were no outstanding financial
contracts at December 31, 1999 or 1998.

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.  The notional volumes represent
only the amounts hedged, not the net market exposure of the items
hedged, which is significantly less.

                                          Notional Volume Positions
                                          -------------------------
                                                 December 31
                                Class of  -------------------------
                              Derivative      1999             1998
                              ----------  -------------------------
Source of Commodity Price Risk
Crude oil (thousands of
  barrels)
    Timing differences
      between purchases and
      refining                   Futures     1,742              650
-------------------------------------------------------------------
Refined products (thousands
  of barrels)
    Feedstock-to-product
      margins                      Swaps     4,854            6,000
                                 Futures        25              896
-------------------------------------------------------------------


In the case of anticipated transactions, expected product sales
or margins are hedged up to 16 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.


                                102

<PAGE>



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 or the International Petroleum Exchange of
London Limited.


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 the New York Mercantile Exchange and International
Petroleum Exchange of London Limited.


                                103

<PAGE>



Certain company financial instruments at December 31 were:

                                         Millions of Dollars
                                   ------------------------------
                                   Carrying Amount    Fair Value
                                   ---------------  -------------
                                     1999     1998   1999    1998
                                   ---------------  -------------
Financial assets
  Futures                          $    1        -      1       -
  Swaps                                 -        -     12       -
Financial liabilities
  Total debt, including
    current maturities              4,302    4,273  4,224   4,527
  Mandatorily redeemable
    preferred securities              650      650    591     680
  Futures                               -        *      -       *
  Swaps                                 -        -      *       6
-----------------------------------------------------------------
*Indicates amount was less than $1 million.


New Accounting Standard

In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities."  It was scheduled to be effective for
fiscal years beginning after June 15, 1999, but was postponed for
one year by FASB Statement No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133--an amendment of FASB
Statement No. 133."  The company will be required to adopt
Statement No. 133 on January 1, 2001, and is currently in the
early stages of its implementation effort.  For additional
information, see "New Accounting Standards" in Management's
Discussion and Analysis, which is incorporated herein by
reference.


Note 12--Preferred Stock

Company-Obligated Mandatorily Redeemable Preferred
Securities of Phillips 66 Capital Trusts

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


                                104

<PAGE>



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.  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 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.  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.

Subordinated Debt Securities I and II are unsecured obligations
of Phillips, equal in right of payment but subordinate and junior
in right of payment to all present and future senior indebtedness
of Phillips.

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.


Preferred Stock

Phillips has 300 million shares of preferred stock authorized,
none of which was issued or outstanding at December 31, 1999, or
1998.


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.


                                105

<PAGE>



Note 13--Preferred Share Purchase Rights

Phillips' Board of Directors authorized and declared a dividend
of one preferred share purchase right for each common share
outstanding on August 1, 1999, and authorized and directed the
issuance of one right per common share for any shares issued
after that date.  These rights replace the rights issued under
the company's shareholder rights plan that expired July 31, 1999.
The new rights, which expire July 31, 2009, will be exercisable
only if a person or group acquires 15 percent or more of the
company's common stock or announces a tender offer that would
result in ownership of 15 percent or more of the common stock.
Each right will entitle stockholders to buy one one-hundredth of
a share of preferred stock at an exercise price of $180.  In
addition, 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 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,
1999, future minimum payments due under non-cancelable operating
leases were:

                                                         Millions
                                                       of Dollars
                                                       ----------

2000                                                         $ 79
2001                                                           61
2002                                                           55
2003                                                           46
2004                                                           41
Remaining years                                               277
-----------------------------------------------------------------
                                                             $559
=================================================================


The amounts above do not include guaranteed residual values of
$99 million related to retail service station leases, and binding
purchase options totaling $239 million on two liquefied natural
gas tankers.  The company and its co-venturer in the Kenai
liquefied natural gas plant lease two tankers that are used to
transport liquefied natural gas from Kenai, Alaska, to Japan.  In
June 1999, a purchase option on these tankers held by the company
and its co-venturer was allowed to become a binding commitment.


                                106

<PAGE>



In the event that the company and its co-venturer do not modify
the existing lease arrangements or enter into new lease
arrangements, the purchase date for the first tanker would be
June 2000, and December 2000 for the second.

Operating lease rental expense for years ended December 31 was:

                                           Millions of Dollars
                                         ------------------------
                                         1999      1998      1997
                                         ------------------------

Total rentals                            $143       137       131
Less sublease rentals                       2         2         2
-----------------------------------------------------------------
                                         $141       135       129
=================================================================


                                107

<PAGE>



Note 15--Employee Benefit Plans

Pension and Postretirement Plans

Effective January 1, 1998, the company adopted FASB Statement
No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits."  An analysis of the projected benefit
obligations for the company's pension plans and accumulated
benefit obligations for its postretirement health and life
insurance plans follows:

                                       Millions of Dollars
                                ---------------------------------
                                Pension Benefits   Other Benefits
                                ----------------   --------------
                                  1999      1998   1999      1998
                                ----------------   --------------
Change in Benefit Obligation
Benefit obligation at January 1 $1,430     1,252    142       135
Service cost                        58        56      3         3
Interest cost                       96        91      9         8
Plan participants'
  contributions                      2         1      9         9
Plan amendments                     11         3      -         -
Actuarial loss/(gain)             (123)       87     (9)        1
Benefits paid                     (127)      (53)   (22)      (21)
Curtailment                         (7)      (11)     -         5
Settlement                          (7)       (4)     -         -
Recognition of termination
  benefits                           1        12      -         2
Foreign currency exchange
  rate change                      (20)       (4)     -         -
-----------------------------------------------------------------
Benefit obligation at
  December 31                   $1,314     1,430    132       142
=================================================================
Accumulated benefit
  obligation portion of
  above at December 31          $  981     1,066
================================================

Change in Fair Value of
  Plan Assets
Fair value of plan assets at
  January 1                     $1,162       999     26        29
Actual return on plan assets       150       137      1         2
Company contributions               69        86      9         7
Plan participant contributions       2         1      9         9
Benefits paid                     (127)      (53)   (22)      (21)
Settlement                          (7)       (4)     -         -
Foreign currency exchange
  rate change                      (19)       (4)     -         -
-----------------------------------------------------------------
Fair value of plan assets at
  December 31                   $1,230     1,162     23        26
=================================================================


                                108

<PAGE>



                                       Millions of Dollars
                                ---------------------------------
                                Pension Benefits   Other Benefits
                                ----------------   --------------
                                 1999       1998   1999      1998
                                ----------------   --------------
Funded Status
Excess obligation               $ (84)      (268)  (109)     (116)
Unrecognized net actuarial
  loss/(gain)                     (75)       125      8        19
Unrecognized prior service cost    56         50    (10)      (18)
Unrecognized net transition
  asset                            (7)       (13)     -         -
-----------------------------------------------------------------
Total recognized amount in the
  consolidated balance sheet    $(110)      (106)  (111)     (115)
=================================================================

Components of above amount:
    Prepaid benefit cost        $  35         48      -         -
    Accrued benefit liability    (145)      (154)  (111)     (115)
-----------------------------------------------------------------
Total recognized                $(110)      (106)  (111)     (115)
=================================================================

Weighted Average Assumptions
  as of December 31
Discount rate                    7.30%      6.60   7.50      6.50
Expected return on plan assets   9.20       9.40   6.40      6.50
Rate of compensation increase    4.00       4.00   4.00      4.00
-----------------------------------------------------------------


As of December 31, 1999, the health care cost trend rate is
assumed to decrease gradually from 6.5 percent in 2000 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.

                                       Millions of Dollars
                              -----------------------------------
                               Pension Benefits   Other Benefits
                              -----------------  ----------------
                               1999  1998  1997  1999  1998  1997
                              -----------------  ----------------
Components of Net Periodic
  Benefit Cost
Service cost                  $  58    56    50     3     3     3
Interest cost                    96    91    81     9     8     9
Expected return on plan assets (107)  (91)  (75)   (2)   (2)   (2)
Amortization of prior service
  cost                            5     4     4    (7)   (7)   (4)
Recognized net actuarial loss    18    15    13     2     2     1
Amortization of net asset        (7)   (7)   (7)    -     -     -
-----------------------------------------------------------------
Net periodic benefit cost     $  63    68    66     5     4     7
=================================================================


The company recorded settlement losses of $8 million in 1999 and
$2 million in 1998.


                                109

<PAGE>



In determining net pension and other postretirement benefit
costs, Phillips has elected to amortize net gains and losses on a
straight-line basis over 10 years.

All of the company's tax-qualified pension plans have plan assets
in excess of their accumulated benefit obligations.  Certain of
the company's tax-qualified pension plans have plan assets in
excess of their projected benefit obligations.  The value of plan
assets and the projected benefit obligations for these plans were
$447 million and $407 million, respectively, as of December 31,
1999, and $251 million and $234 million, respectively, as of
December 31, 1998.

The company's domestic non-qualified supplemental key employee
plans are funded by means of irrevocable grantor trusts, not out
of the assets reflected in the above table.  The grantor trusts
are funded based on actuarial calculations performed by an
independent actuary.  The projected and accumulated benefit
obligations for the non-qualified plans were $83 million and
$60 million, respectively, as of December 31, 1999, and
$92 million and $68 million, respectively, as of December 31,
1998.

The company has non-pension postretirement benefit plans for
health and life insurance.  The health care plan is contributory,
with participant and company contributions adjusted annually; the
life insurance plan is non-contributory.  Early retirees in the
health care plan not yet eligible for Medicare pay approximately
50 percent of the cost of coverage, while retirees born prior to
March 1921 have fixed premiums that do not change.  Other
retirees in the health plan essentially pay their own way.  The
present cost sharing for early retirees is expected to remain in
effect through 2004.  Beginning in 2005, company contributions
for early retirees will be capped at 2004 levels.

The assumed health care cost trend rate has a significant effect
on the amounts reported.  A one-percentage-point change in the
assumed health care cost trend rate would have the following
effects on the 1999 amounts:

                                             Millions of Dollars
                                             --------------------
                                             One-Percentage-Point
                                             --------------------
                                             Increase    Decrease
                                             --------    --------
Effect on total of service and interest
  cost components                                  $-           -
Effect on the postretirement benefit
  obligation                                        3          (2)
-----------------------------------------------------------------


                                110

<PAGE>



Termination Benefits

In late 1998, as part of general cost reduction programs,
Phillips identified 1,267 staffed positions to be eliminated,
primarily in the company's E&P segment and corporate staffs.  The
positions identified and the benefits payable were subject to a
pre-existing layoff plan.  This resulted in a $91 million before-
tax charge ($61 million after-tax) in 1998.

During 1999, the company identified an additional 290 positions
to be eliminated, also subject to benefits payable under a pre-
existing layoff plan.  Of these positions, 150 were primarily
aligned with the company's GPM, RM&T and Chemicals segments,
while 140 were related to the company's Norwegian operations,
primarily in office staff positions.

The following tables provide information on the company's layoff
expenses and accruals associated with these cost reduction
programs, as well as the number of employees impacted.  The
accrual amounts include amounts that are expected to be
reimbursed by co-venturers under applicable agreements.

                                                         Millions
                                                       of Dollars
                                                       ----------

Severance liability at December 31, 1998                     $141
Additional severance accruals                                  35
Adjustments to severance accruals                             (15)
Foreign currency translation adjustments                       (4)
Benefit payments                                              (84)
-----------------------------------------------------------------
Severance liability at December 31, 1999                     $ 73*
=================================================================
*Included $38 million in severance costs classified as a long-
 term liability.  These benefits will be paid out over a
 10-year period.

                                                           Number
                                                     of Employees
                                                     ------------
Staffed positions identified for termination at
  December 31, 1998                                         1,267
Additional positions identified in 1999                       290
Positions terminated in 1999 (notifications given)         (1,536)
-----------------------------------------------------------------
Staffed positions remaining to be terminated at
  December 31, 1999                                            21
=================================================================


                                111

<PAGE>



The company recorded the following before-tax charges in
connection with work force reductions:

                                            Millions of Dollars
                                           ----------------------
                                           1999     1998     1997
                                           ----------------------

Severance costs                             $ 9       73        5
Termination benefits                          1       14        1
Curtailment losses                            -        6        1
-----------------------------------------------------------------
                                            $10       93        7
=================================================================


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 1999, 1998 and 1997.
The company's LTSSP is a leveraged employee stock ownership plan.
Most employees may elect to participate in the LTSSP by
contributing 1 percent of their salaries 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.  The 1988 loan was fully repaid during 1998.  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 1999 through 2005, when no debt principal payments
are scheduled to occur, the company has committed to make direct
contributions of stock to the LTSSP, or make prepayments on LTSSP
borrowings, 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 fair market value of the stock
contributed or on the cost of the unallocated shares released,
using the shares-allocated method.  The company recognized total
LTSSP expense of $35 million, $26 million and $27 million in
1999, 1998 and 1997, respectively, all of which was compensation
expense.  The company made cash contributions to the LTSSP in
1998 and 1997 of $15 million and $20 million, respectively.  In


                                112

<PAGE>



1999 the company contributed 767,605 shares of Phillips common
stock from the Compensation and Benefits Trust.  The shares had a
fair market value of $36 million.  Dividends used to service debt
were $41 million, $38 million and $32 million in 1999, 1998 and
1997, respectively.  These dividends reduced the amount of
expense recognized each period.  Interest incurred on the LTSSP
debt in 1999, 1998 and 1997 was $22 million, $25 million and
$26 million, respectively.

The total LTSSP shares as of December 31 were:

                                               1999          1998
                                         ------------------------
Unallocated shares                       10,111,006    10,726,645
Allocated shares                         17,495,096    18,618,668
-----------------------------------------------------------------
Total LTSSP shares                       27,606,102    29,345,313
=================================================================


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 $82 million, $53 million and $64 million were charged against
earnings in 1999, 1998 and 1997, 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.


                                113

<PAGE>



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.  If the provisions of FASB Statement No. 123
had been applied, net income would have been reduced $10 million,
$8 million and $6 million in 1999, 1998 and 1997, respectively.
Basic and diluted earnings per share would have been reduced
$.04 in 1999, and $.03 in 1998 and $.02 in 1997.  The average
grant-date fair values of options awarded during 1999, 1998, and
1997 were $9.92, $8.65, and $9.87, respectively.  The fair value
of each option was estimated using the Black-Scholes option-
pricing model with the following assumptions: expected dividend
yield of 3 percent in all years; expected life of 5 years in all
years; expected volatility of 21 percent in 1999 and 21.2 percent
in 1998 and 1997; and risk-free interest rate of 6.0 percent in
1999, 4.8 percent in 1998 and 6.4 percent in 1997.

A summary of Phillips' stock option activity follows:

                                                 Weighted-Average
                                       Options     Exercise Price
                                    ----------   ----------------

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
Granted                              2,871,695              45.40
Exercised                             (740,019)             25.79
Forfeited                              (38,699)             43.01
----------------------------------------------   ----------------
Outstanding at December 31, 1998     9,009,228             $36.79
Granted                              2,010,980              47.09
Exercised                           (1,086,987)             27.45
Forfeited                              (88,708)             46.15
----------------------------------------------   ----------------
Outstanding at December 31, 1999     9,844,513             $39.84
==============================================   ----------------


Outstanding at December 31, 1999
                                        Weighted-Average
                               ----------------------------------
Exercise Prices      Options   Remaining Lives     Exercise Price
----------------   ---------   ---------------     --------------

$22.57 to $31.44   2,661,456        3.65 years             $28.69
$32.25 to $44.91   2,328,928        6.81 years              38.53
$45.75 to $53.13   4,854,129        8.84 years              46.57
-----------------------------------------------------------------


                                114

<PAGE>



Exercisable at December 31
                                                 Weighted-Average
                   Exercise Prices      Options    Exercise Price
                  ----------------    ---------  ----------------

1999              $22.57 to $31.44    2,661,456            $28.69
                  $32.25 to $44.91    1,277,554             36.85
                  $45.75 to $50.72      962,881             46.18
-----------------------------------------------------------------
1998              $12.82 to $31.44    3,360,416            $27.83
                  $32.25 to $50.72    1,012,356             38.04
-----------------------------------------------------------------
1997              $12.63 to $31.44    3,436,254            $26.74
                  $32.25 to $50.72      412,916             35.34
-----------------------------------------------------------------


Compensation and Benefits Trust (CBT)

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.

The company sold 29.2 million shares of previously unissued
Phillips common stock, $1.25 par value, to the CBT in 1995 for
$37 million of cash, previously contributed to the CBT by
Phillips, 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.  In 1998,
74,137 shares were transferred out of the CBT.  In 1999,
767,605 shares were transferred out, leaving 28.4 million shares
at December 31, 1999.  All shares are required to be transferred
out of the CBT by January 1, 2021.


                                115

<PAGE>



Note 16--Taxes

Taxes charged to income were:

                                            Millions of Dollars
                                           ----------------------
                                           1999     1998     1997
                                           ----------------------
Taxes Other Than Income Taxes
Property                                   $ 82       81       82
Production                                   58       41       69
Payroll                                      60       57       55
Environmental                                16       33       37
Other                                        15       14       20
-----------------------------------------------------------------
                                            231      226      263
-----------------------------------------------------------------
Income Taxes
Federal
  Current                                    42        4      145
  Deferred                                   91      (50)     142
Foreign
  Current                                   302      170      547
  Deferred                                  127       44       72
State and local
  Current                                     7        8       16
  Deferred                                    7        8       19
-----------------------------------------------------------------
                                            576      184      941
-----------------------------------------------------------------
Total taxes charged to income              $807      410    1,204
=================================================================


                                116

<PAGE>



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:

                                              Millions of Dollars
                                              -------------------
                                                1999         1998
                                              -------------------
Deferred Tax Liabilities
Depreciation, depletion and amortization      $2,429        2,220
Other                                             39           41
-----------------------------------------------------------------
Total deferred tax liabilities                 2,468        2,261
-----------------------------------------------------------------
Deferred Tax Assets
Contingency accruals                              49           44
Benefit plan accruals                            241          247
Accrued dismantlement, removal and
  environmental costs                            260          272
Other financial accruals and deferrals            87          124
Alternative minimum tax and other
  credit carryforwards                           430          440
Loss carryforwards                               429          422
Other                                             45           39
-----------------------------------------------------------------
Total deferred tax assets                      1,541        1,588
Less valuation allowance                         328          327
-----------------------------------------------------------------
Net deferred tax assets                        1,213        1,261
-----------------------------------------------------------------
Net deferred tax liabilities                  $1,255        1,000
=================================================================


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 and costs.  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.

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, 1999 and 1998, these temporary
differences were $212 million and $190 million, respectively.
Determination of the amount of unrecognized deferred taxes on
these temporary differences is not practicable due to foreign tax
credits and exclusions.


                                117

<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
                            -------------------  --------------------
                              1999  1998   1997   1999    1998   1997
                            -------------------  --------------------
Income before income taxes
  United States             $  398   140    995   33.6%   33.3   52.4
  Foreign                      787   281    905   66.4    66.7   47.6
---------------------------------------------------------------------
                            $1,185   421  1,900  100.0%  100.0  100.0
=====================================================================

Federal statutory
  income tax                $  415   147    665   35.0%   35.0   35.0
Foreign taxes in excess of
  federal statutory rate       225   153    320   19.0    36.3   16.8
Credit for producing fuel
  from a non-conventional
  source                       (43)  (29)   (29)  (3.6)   (6.9)  (1.5)
Tax settlements                (19)  (85)   (31)  (1.6)  (20.2)  (1.6)
Other                           (2)   (2)    16    (.2)    (.5)    .8
---------------------------------------------------------------------
                            $  576   184    941   48.6%   43.7   49.5
=====================================================================


Excise taxes accrued on the sale of petroleum products were
$1,514 million, $1,410 million and $1,331 million for the years
ended December 31, 1999, 1998 and 1997, respectively.  These
taxes are excluded from reported revenues and expenses.

Kenai Tax Settlement--On February 26, 1996, the U.S. Tax Court's
decisions relating to the company's sales of liquefied natural
gas 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 from liquefied natural gas sales
was from a foreign source.  The favorable resolution of this
issue for the years 1975 through 1982 increased net income in
1996 by $565 million.  In June 1997, final resolution of this and
all other outstanding issues was achieved with the IRS for years
1983 through 1986, resulting in an increase to 1997 net income of
$83 million.

In December 1998, agreement was achieved with the IRS on the
Kenai liquefied natural gas and certain other tax issues for
years 1987 through 1992, the last of the years in which the Kenai
liquefied natural gas income issue was in dispute with the
government.  As a result, net income was increased in 1998 by
$115 million.


                                118

<PAGE>



Note 17--Cash Flow Information

                                           Millions of Dollars
                                         ------------------------
                                         1999      1998      1997
                                         ------------------------
Non-Cash Investing and Financing
  Activities
Issuance of seller-financed promissory
  notes to purchase property, plant and
  equipment                              $ 27         8         -
Company stock issued (canceled) under
  compensation and benefit plans           20        (2)       (1)
Change in fair value of securities         15        28        13
Fair market value of property, plant
  and equipment exchanged in monetary
  transactions                              3         8        49
Investment in joint ventures in
  exchange for non-cash assets              8        14         -
Net book value of property, plant and
  equipment involved in oil and gas
  property non-monetary exchanges         120         4         -
Investment in equity affiliate
  through direct guarantee of debt          -        13         -
Accrued repurchase of company common
  stock                                     -        13         -
Investment sold in exchange for a
  receivable                                -         9         -
-----------------------------------------------------------------
Cash Payments
Interest
    Debt                                 $256       170       166
    Taxes and other                        19         7        22
-----------------------------------------------------------------
                                         $275       177       188
=================================================================
Income taxes                             $184       436       770
-----------------------------------------------------------------


                                119

<PAGE>



Note 18--Other Financial Information

                                           Millions of Dollars
                                         Except Per Share Amounts
                                         ------------------------
                                          1999     1998      1997
                                         ------------------------
Interest
Incurred
    Debt                                 $ 310      238       212
    Other                                   18       10        32
-----------------------------------------------------------------
                                           328      248       244
Capitalized                                (49)     (48)      (46)
-----------------------------------------------------------------
Expensed                                 $ 279      200       198
=================================================================

Research and Development
  Expenditures--expensed                 $  50       62        56
-----------------------------------------------------------------

Cash Dividends paid per
  common share                           $1.36     1.36      1.34
-----------------------------------------------------------------

Foreign Currency Transaction
  Gains/(Losses)--after-tax
E&P                                      $   3      (17)       (6)
GPM                                          -        -         -
RM&T                                         -        -         -
Chemicals                                   (1)       1         -
Corporate and Other                        (12)       2       (11)
-----------------------------------------------------------------
                                         $ (10)     (14)      (17)
=================================================================


Note 19--Segment Disclosures and Related Information

Effective January 1, 1998, the company adopted FASB Statement
No. 131, "Disclosures about Segments of an Enterprise and Related
Disclosures."  The company has organized its reporting structure
based on the grouping of similar products and services, resulting
in four operating segments:

(1)  Exploration and Production (E&P)--This segment explores for
     and produces crude oil, natural gas and natural gas liquids
     on a worldwide basis.  At December 31, 1999, E&P was
     producing in the United States, including the Gulf of
     Mexico; the Norwegian, Danish and U.K. sectors of the North
     Sea; Canada; Nigeria; Venezuela; the Timor Sea; and offshore
     China; and pursuing a worldwide exploration program.  This
     segment includes the company's joint-venture coal and
     lignite operations.


                                120

<PAGE>



(2)  Gas Gathering, Processing and Marketing (GPM)--This segment
     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.  GPM's revenues
     are primarily derived from the sale of processed natural gas
     (referred to as residue gas) and unfractionated natural gas
     liquids.  In December 1999, Phillips signed agreements to
     combine Phillips' GPM business with Duke Energy
     Corporation's gas gathering and processing business to form
     a new midstream company to be called Duke Energy Field
     Services.  The agreements were approved by both companies'
     Boards of Directors and due diligence has been completed.
     Subject to regulatory approval, the transaction is expected
     to close by the end of the first quarter of 2000.  Under the
     terms of the agreements, Phillips will initially own about
     30 percent of Duke Energy Field Services.

(3)  Refining, Marketing and Transportation (RM&T)--This segment
     refines, markets and transports crude oil and petroleum
     products, primarily in the United States.  This segment also
     fractionates and markets natural gas liquids.  The company
     has three U.S. refineries--two in Texas and one in Utah--and
     a partial interest in a refinery in the United Kingdom.

(4)  Chemicals--This segment manufactures and markets
     petrochemicals and plastics on a worldwide basis.  The
     company has manufacturing facilities in the United States,
     Puerto Rico, Singapore, China and Belgium.  Key products
     include ethylene, propylene, polyethylene, polypropylene,
     K-Resin styrene-butadiene copolymer, paraxylene,
     cyclohexane, Ryton polyphenylene sulfide and sulfur
     chemicals.

Corporate and Other includes general corporate overhead; all
interest revenue and expense, including preferred dividend
requirements of capital trusts (see Note 12--Preferred Stock);
certain eliminations; and various other corporate activities,
such as the company's captive insurance subsidiary and tax items
not directly attributable to the operating segments.  Corporate
identifiable assets include all cash and cash equivalents; the
company's owned office buildings, and research and development
facilities in Bartlesville, Oklahoma; and, prior to year-end
1999, the capitalized costs associated with the company's
business systems replacement project.  With the completion of
this project in 1999, these assets were transferred to the
operating segments in December.  Reporting reclassifications
represent adjustments to assets to include debit balances in
liability accounts and exclude credit balances in asset accounts,
which is done for consolidated reporting but not at the operating
segment level.


                                121

<PAGE>



The company evaluates performance and allocates resources based
on, among other items, net income.  The segment accounting
policies are the same as those in Note 1--Accounting Policies.
Intersegment sales are at prices that approximate market.


                                122

<PAGE>



Analysis of Results by Operating Segment

                                           Millions of Dollars
                                    ---------------------------------
                                           Operating Segments
                                    ---------------------------------
                                       E&P     GPM    RM&T  Chemicals
1999                                ---------------------------------
Sales and Other Operating Revenues
  External customers                $2,998     861   7,292      2,418
  Intersegment (eliminations)          490     725     482        148
---------------------------------------------------------------------
    Segment sales                   $3,488   1,586   7,774      2,566
=====================================================================

Operating Results                   $1,704     247     220        293
  Depreciation, depletion and
    amortization*                     (559)    (80)   (132)       (95)
  Property impairments                 (69)      -       -          -
  Equity in earnings of affiliates      38       1      31         31
  Preferred dividend requirements
    of capital trusts and other
    minority interests                  (1)      -       -          -
  Interest revenue                       -       -       -          -
  Interest expense                       -       -       -          -
  Corporate overhead and other
    items                                -       -       -          -
  Income taxes                        (543)    (64)    (35)       (65)
---------------------------------------------------------------------
    Net income (loss)               $  570     104      84        164
=====================================================================

Assets
  Identifiable assets*              $6,462   1,194   3,315      2,470
  Investments in and advances to
    affiliates                         131       3     138        485
  Reporting reclassifications            -       -       -          -
---------------------------------------------------------------------
    Total assets                    $6,593   1,197   3,453      2,955
=====================================================================

Capital Expenditures and
  Investments                       $1,079     124     343         98
---------------------------------------------------------------------

Other Significant Non-Cash Items
  Dry hole costs and leasehold
    impairment                      $   92       -       -          -
  Foreign currency losses               19       -       -          1
---------------------------------------------------------------------

1998
Sales and Other Operating Revenues
  External customers                $2,660     756   5,848      2,279
  Intersegment (eliminations)          398     538     341        133
---------------------------------------------------------------------
    Segment sales                   $3,058   1,294   6,189      2,412
=====================================================================

Operating Results                   $  984     163     361        297
  Depreciation, depletion and
    amortization                      (569)    (77)   (130)       (91)
  Property impairments                (393)      -       -         (7)
  Equity in earnings of affiliates      35       1      23         16
  Preferred dividend requirements
    of capital trusts and other
    minority interests                   -       -       -          -
  Interest revenue                       -       -       -          -
  Interest expense                       -       -       -          -
  Corporate overhead and other
    items                                -       -       -          -
  Kenai tax settlement                   -       -       -          -
  Income taxes                        (124)    (33)    (87)       (70)
---------------------------------------------------------------------
    Net income (loss)               $  (67)     54     167        145
=====================================================================

Assets
  Identifiable assets               $6,032   1,077   2,790      2,315
  Investments in and advances to
    affiliates                         141       3     120        475
  Reporting reclassifications            -       -       -          -
---------------------------------------------------------------------
    Total assets                    $6,173   1,080   2,910      2,790
=====================================================================

Capital Expenditures and
  Investments                       $1,406      83     246        228
---------------------------------------------------------------------

Other Significant Non-Cash Items
  Kenai tax settlement              $    -       -       -          -
  Work force reduction accrual          39      (2)     14          7
  Dry hole costs and leasehold
    impairment                         152       -       -          -
  Foreign currency (gains)/losses       18       -       -         (2)
---------------------------------------------------------------------



                                               Millions of Dollars
                                            -------------------------
                                            Corporate
                                            and Other    Consolidated
1999                                        -------------------------
Sales and Other Operating Revenues
  External customers                         $      2          13,571
  Intersegment (eliminations)                  (1,845)              -
---------------------------------------------------------------------
    Segment sales                            $ (1,843)         13,571
=====================================================================

Operating Results                            $      -           2,464
  Depreciation, depletion and
    amortization*                                 (36)           (902)
  Property impairments                              -             (69)
  Equity in earnings of affiliates                  -             101
  Preferred dividend requirements of
    capital trusts and other minority
    interests                                     (53)            (54)
  Interest revenue                                 29              29
  Interest expense                               (279)           (279)
  Corporate overhead and other items             (105)           (105)
  Income taxes                                    131            (576)
---------------------------------------------------------------------
    Net income (loss)                        $   (313)            609
=====================================================================

Assets
  Identifiable assets*                       $    797          14,238
  Investments in and advances to
    affiliates                                     13             770
  Reporting reclassifications                     193             193
---------------------------------------------------------------------
    Total assets                             $  1,003          15,201
=====================================================================

Capital Expenditures and Investments         $     46           1,690
---------------------------------------------------------------------

Other Significant Non-Cash Items
  Dry hole costs and leasehold
    impairment                               $      -              92
  Foreign currency losses                          13              33
---------------------------------------------------------------------

1998
Sales and Other Operating Revenues
  External customers                         $      2          11,545
  Intersegment (eliminations)                  (1,410)              -
---------------------------------------------------------------------
    Segment sales                            $ (1,408)         11,545
=====================================================================

Operating Results                            $      -           1,805
  Depreciation, depletion and
    amortization                                  (32)           (899)
  Property impairments                             (3)           (403)
  Equity in earnings of affiliates                  -              75
  Preferred dividend requirements of
    capital trusts and other minority
    interests                                     (53)            (53)
  Interest revenue                                 19              19
  Interest expense                               (200)           (200)
  Corporate overhead and other items               31              31
  Kenai tax settlement                             46              46
  Income taxes                                    130            (184)
---------------------------------------------------------------------
    Net income (loss)                        $    (62)            237
=====================================================================

Assets
  Identifiable assets                        $  1,009          13,223
  Investments in and advances to
    affiliates                                     12             751
  Reporting reclassifications                     242             242
---------------------------------------------------------------------
    Total assets                             $  1,263          14,216
=====================================================================

Capital Expenditures and Investments         $     89           2,052
---------------------------------------------------------------------

Other Significant Non-Cash Items
  Kenai tax settlement                       $   (115)           (115)
  Work force reduction accrual                     35              93
  Dry hole costs and leasehold
    impairment                                      -             152
  Foreign currency (gains)/losses                  (2)             14
---------------------------------------------------------------------


                                123

<PAGE>



                                           Millions of Dollars
                                    ---------------------------------
                                           Operating Segments
                                    ---------------------------------
                                       E&P     GPM    RM&T  Chemicals
1997                                ---------------------------------
Sales and Other Operating Revenues
  External customers                $3,379     952   8,141      2,734
  Intersegment (eliminations)          567     759     444        160
---------------------------------------------------------------------
    Segment sales                   $3,946   1,711   8,585      2,894
=====================================================================

Operating Results                   $1,866     238     345        430
  Depreciation, depletion and
    amortization                      (485)    (77)   (128)       (81)
  Property impairments                 (63)      -      (1)        (4)
  Equity in earnings of affiliates      39       1      22         64
  Preferred dividend requirements
    of subsidiary and capital
    trusts, and other minority
    interests                           (1)      -       -          -
  Interest revenue                       -       -       -          -
  Interest expense                       -       -       -          -
  Corporate overhead and other
    items                                -       -       -          -
  Kenai tax settlement                   -       -       -          -
  Income taxes                        (747)    (61)    (79)      (134)
---------------------------------------------------------------------
    Net income (loss)               $  609     101     159        275
=====================================================================

Assets
  Identifiable assets               $5,806   1,087   2,869      2,351
  Investments in and advances to
    affiliates                         140       4     139        439
  Reporting reclassifications            -       -       -          -
---------------------------------------------------------------------
    Total assets                    $5,946   1,091   3,008      2,790
=====================================================================

Capital Expenditures and
  Investments                       $1,346     116     249        261
---------------------------------------------------------------------

Other Significant Non-Cash Items
  Dry hole costs and leasehold
    impairment                      $   91       -       -          -
  Foreign currency losses               17       -       -          1
---------------------------------------------------------------------


                                              Millions of Dollars
                                           -------------------------
                                           Corporate
                                           and Other    Consolidated
                                           -------------------------
1997
Sales and Other Operating Revenues
  External customers                         $     4          15,210
  Intersegment (eliminations)                 (1,930)              -
--------------------------------------------------------------------
    Segment sales                            $(1,926)         15,210
====================================================================

Operating Results                            $     -           2,879
  Depreciation, depletion and
    amortization                                 (24)           (795)
  Property impairments                             -             (68)
  Equity in earnings of affiliates                 -             126
  Preferred dividend requirements of
    subsidiary and capital trusts,
    and other minority interests                 (82)            (83)
  Interest revenue                                51              51
  Interest expense                              (198)           (198)
  Corporate overhead and other items             (93)            (93)
  Kenai tax settlement                            81              81
  Income taxes                                    80            (941)
--------------------------------------------------------------------
    Net income (loss)                        $  (185)            959
====================================================================

Assets
  Identifiable assets                        $   819          12,932
  Investments in and advances to
    affiliates                                     -             722
  Reporting reclassifications                    206             206
--------------------------------------------------------------------
    Total assets                             $ 1,025          13,860
====================================================================

Capital Expenditures and Investments         $    71           2,043
--------------------------------------------------------------------

Other Significant Non-Cash Items
  Dry hole costs and leasehold
    impairment                               $     -              91
  Foreign currency losses                         12              30
--------------------------------------------------------------------
*The company allocated the net assets associated with its business
 systems replacement project to the operating segments in
 December 1999, upon completion of the project.  The amounts
 allocated to the operating segments were:  E&P $52 million,
 GPM $45 million, RM&T $50 million, and Chemicals $41 million.  The
 associated depreciation, depletion and amortization for 1999 was
 included in Corporate and Other.



Geographic Information

                                        Millions of Dollars
                              ----------------------------------------
                               United               United
                               States    Norway*   Kingdom*    Nigeria
                              ----------------------------------------
1999
Outside Operating Revenues**  $11,194       219      1,374         164
----------------------------------------------------------------------

Long-Lived Assets             $ 6,839     1,532        844         197
----------------------------------------------------------------------


1998
Outside Operating Revenues**  $ 9,535       323        993         149
----------------------------------------------------------------------

Long-Lived Assets             $ 6,635     1,544        948         190
----------------------------------------------------------------------


1997
Outside Operating Revenues**  $12,633       448      1,268         209
----------------------------------------------------------------------

Long-Lived Assets             $ 6,708     1,404        961         180
----------------------------------------------------------------------


                                                 Millions of Dollars
                                               -----------------------
                                                   Other
                                                 Foreign     Worldwide
                                               Countries  Consolidated
                                               -----------------------
1999
Outside Operating Revenues**                      $  620        13,571
----------------------------------------------------------------------

Long-Lived Assets                                 $1,674        11,086
----------------------------------------------------------------------


1998
Outside Operating Revenues**                      $  545        11,545
----------------------------------------------------------------------

Long-Lived Assets                                 $1,268        10,585
----------------------------------------------------------------------


1997
Outside Operating Revenues**                      $  652        15,210
----------------------------------------------------------------------

Long-Lived Assets                                 $  769        10,022
----------------------------------------------------------------------
 *Norway crude oil production is sold internally to the United Kingdom
  operations, which then sells it externally to third parties.
**Revenues are attributable to countries based on the location of the
  operations generating the revenues.


Export sales totaled $356 million, $411 million and $494 million in
1999, 1998 and 1997, respectively.


                                124

<PAGE>



Note 20--Subsequent Events

E&P Acquisition
On March 15, 2000, the company announced that it had signed a
definitive agreement for the purchase of all of Atlantic Richfield
Company's Alaskan businesses.  The transaction is expected to close
in the second quarter of 2000, subject to regulatory approval.
Phillips will pay approximately $6.5 billion in cash upon closing
of the transaction.  In addition, formula-based monthly payments
are required when West Texas Intermediate crude oil prices exceed
$25 per barrel, subject to a $500 million limit and a five-year
term, effective January 1, 2000.  The company expects to use debt
financing for the transaction.

Chemicals Joint Venture
On February 7, 2000, Phillips announced that it had signed a letter
of intent to form a 50/50 joint venture with Chevron Corporation
combining the two companies' worldwide chemicals businesses.  The
transaction is expected to close midyear 2000, subject to approval
by the companies' Boards of Directors, the signing of definitive
agreements, and regulatory review and approval.  In addition to all
the assets and operations included in Phillips' Chemicals segment,
the natural gas liquids fractionation assets located at the Sweeny
Complex and associated pipelines will become part of the joint
venture also.


                                125

<PAGE>



-----------------------------------------------------------------
Oil and Gas Operations (Unaudited)
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 supplemental
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 is necessarily imprecise and represents 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.

Phillips' disclosures by geographic areas include the United States
(U.S.), Norway, the United Kingdom (U.K.), Africa (mainly Nigeria)
and Other Areas.  Other Areas includes activities in Canada, China,
Denmark, Venezuela, the Timor Sea, and other countries.

Contents--Oil and Gas Operations                             Page
-----------------------------------------------------------------
Proved Reserves Worldwide                                     127

Results of Operations                                         133

Statistics                                                    136

Costs Incurred                                                140

Capitalized Costs                                             141

Standardized Measure of Discounted Future Net
  Cash Flows Relating to Proved Oil and Gas
  Reserve Quantities                                          142


                                126

<PAGE>



o Proved Reserves Worldwide

                                       Crude Oil
Years Ended          --------------------------------------------
December 31                       Millions of Barrels
                     --------------------------------------------
                                                    Other
                     U.S.  Norway    U.K.  Africa   Areas   Total
                     --------------------------------------------
Developed and
  Undeveloped
End of 1996           252     453      53      92      45     895
Revisions              (1)     42       3       7       3      54
Improved recovery       6      73       -       -       -      79
Purchases               -       -       -       -       8       8
Extensions and
  discoveries          10       -      30       2      24      66
Production            (23)    (39)     (7)     (9)     (7)    (85)
Sales                   -       -       -       -     (23)    (23)
-----------------------------------------------------------------
End of 1997           244     529      79      92      50     994
Revisions             (45)      3      (7)      2      (5)    (52)
Improved recovery       1      12       -       -       -      13
Purchases               -       -       -       -       2       2
Extensions and
  discoveries           6       -       1       3      75      85
Production            (22)    (36)     (9)     (7)     (8)    (82)
Sales                  (2)      -       -       -       -      (2)
-----------------------------------------------------------------
End of 1998           182     508      64      90     114     958
Revisions               2      33      (3)     11      (5)     38
Improved recovery       2      16       -       -       -      18
Purchases               1       -       -       -      47      48
Extensions and
  discoveries           3       -       9       8       8      28
Production            (18)    (36)    (13)     (7)    (10)    (84)
Sales                 (30)      -       -       -     (12)    (42)
-----------------------------------------------------------------
End of 1999           142     521      57     102     142     964
=================================================================

Developed
End of 1996           183     399      28      90      43     743
End of 1997           189     409      30      89      27     744
End of 1998           149     380      27      84      39     679
End of 1999           118     433      37      89      35     712
-----------------------------------------------------------------


                                127

<PAGE>



o  Proved oil and gas reserves are the estimated quantities of
   crude oil, natural gas and natural gas liquids which geological
   and engineering data demonstrate with reasonable certainty to
   be recoverable in future years from known reservoirs under
   existing economic and operating conditions, i.e., prices and
   costs as of the date the estimate is made.  Prices include
   consideration of changes in existing prices provided only by
   contractual arrangements, but not on escalations based upon
   future conditions.

o  Proved developed oil and gas reserves are reserves that can be
   expected to be recovered through existing wells with existing
   equipment and operating methods.  Additional oil and gas
   expected to be obtained through the application of fluid
   injection or other improved recovery techniques for
   supplementing the natural forces and mechanisms of primary
   recovery should be included as proved developed reserves only
   after testing by a pilot project or after the operation of an
   installed program has confirmed through production response
   that increased recovery will be achieved.

o  Revisions, and extensions and discoveries in Africa in 1999
   were in Nigeria.

o  Revisions in Other Areas in 1999 were mainly for negative
   revisions in Venezuela, partly offset by positive revisions in
   China.

o  Purchases in Other Areas in 1999 were in the Timor Sea.

o  Extensions and discoveries in Other Areas in 1999 were mainly
   in Venezuela.

o  Sales for Other Areas in 1999 were mainly in Venezuela.

o  At the end of 1999, 1998 and 1997, Other Areas included
   14 million, 29 million and 11 million barrels, respectively, of
   reserves in Venezuela in which the company has an economic
   interest through risk-service contracts.  Net production to the
   company was approximately 600,000 barrels in 1999 and
   550,000 barrels in 1998.  Phillips had no production from
   Venezuela in 1997.


                                128

<PAGE>



                                      Natural Gas
Years Ended         ---------------------------------------------
December 31                     Billions of Cubic Feet
                    ---------------------------------------------
                                                    Other
                     U.S.  Norway    U.K.  Africa   Areas   Total
                    ---------------------------------------------
Developed and
  Undeveloped
End of 1996         3,917   1,304     724     242     180   6,367
Revisions             (57)   (103)    (37)      -       3    (194)
Improved recovery       1      72       -       -       -      73
Purchases               7       -       -       -     525     532
Extensions and
  discoveries         280       -      22       -      14     316
Production           (357)   (111)    (48)     (1)    (24)   (541)
Sales                  (1)      -       -       -     (31)    (32)
-----------------------------------------------------------------
End of 1997         3,790   1,162     661     241     667   6,521
Revisions             (61)     (5)     23      90     (81)    (34)
Improved recovery       1      71       -       -       -      72
Purchases               6       -       -       -      51      57
Extensions and
  discoveries         165       -       8       -      35     208
Production           (346)    (76)    (75)     (2)    (38)   (537)
Sales                 (18)      -       -       -       -     (18)
-----------------------------------------------------------------
End of 1998         3,537   1,152     617     329     634   6,269
Revisions             (47)      1      23      23     (46)    (46)
Improved recovery       -      74       -       -       -      74
Purchases             128       -       -       -      29     157
Extensions and
  discoveries         253       -     125     226      27     631
Production           (339)    (51)    (84)     (3)    (39)   (516)
Sales                (180)      -       -       -     (25)   (205)
-----------------------------------------------------------------
End of 1999         3,352   1,176     681     575     580   6,364
=================================================================

Developed
End of 1996         3,625   1,109     303      28     131   5,196
End of 1997         3,371     884     346      27     184   4,812
End of 1998         3,191     927     445      26     144   4,733
End of 1999         2,947     856     413     349     131   4,696
-----------------------------------------------------------------


                                129

<PAGE>



o  Natural gas production may differ from gas production
   (delivered for sale) on page 136, primarily because the
   quantities above omit the gas equivalent of the liquids, where
   applicable, but include gas consumed at the lease.

o  Revisions in Africa in 1999 related to Nigeria.  The amount in
   Other Areas was primarily for Canada.

o  Purchases in Other Areas in 1999 were in the Timor Sea.

o  Extensions and discoveries in Africa and in Other Areas in 1999
   were in Nigeria and Canada, respectively.

o  Sales in Other Areas in 1999 were in Canada.

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


                                130

<PAGE>



                                  Natural Gas Liquids
Years Ended          --------------------------------------------
December 31                       Millions of Barrels
                     --------------------------------------------
                                                    Other
                     U.S.  Norway    U.K.  Africa   Areas   Total
                     --------------------------------------------
Developed and
  Undeveloped
End of 1996           129      42       7      19       1     198
Revisions               -       1       -       -       -       1
Improved recovery       -       2       -       -       -       2
Purchases               -       -       -       -       5       5
Extensions and
  discoveries           5       -       -       -       -       5
Production            (11)     (3)     (1)      -       -     (15)
Sales                  (1)      -       -       -       -      (1)
-----------------------------------------------------------------
End of 1997           122      42       6      19       6     195
Revisions             (12)      -       -       -      (1)    (13)
Improved recovery       -       2       -       -       -       2
Purchases               -       -       -       -       1       1
Extensions and
  discoveries           1       -       -       -      32      33
Production            (10)     (2)     (1)     (1)      -     (14)
Sales                  (1)      -       -       -       -      (1)
-----------------------------------------------------------------
End of 1998           100      42       5      18      38     203
Revisions               5     (13)     (1)      -      (1)    (10)
Improved recovery       -       2       -       -       -       2
Purchases               -       -       -       -      28      28
Extensions and
  discoveries           2       -       -       -       -       2
Production             (9)     (2)      -      (1)      -     (12)
Sales                  (6)      -       -       -       -      (6)
-----------------------------------------------------------------
End of 1999            92      29       4      17      65     207
=================================================================

Developed
End of 1996           124      36       3      19       1     183
End of 1997           116      31       4      19       2     172
End of 1998            97      33       3      18       1     152
End of 1999            90      22       3      17       1     133
-----------------------------------------------------------------


                                131

<PAGE>



o  Natural gas liquids reserves include estimates of natural gas
   liquids to be extracted from Phillips' leasehold gas at gas
   processing plants and facilities.  Estimates are based at the
   wellhead and assume full extraction.  Natural gas liquids
   extraction is attributable to Phillips' E&P operations and GPM
   operations.  Production above differs from natural gas liquids
   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 in Other Areas in 1999 were in the Timor Sea.


                                132

<PAGE>



o Results of Operations


                                       Millions of Dollars
                       ----------------------------------------------------
                                                              Other
                          U.S.   Norway    U.K.    Africa     Areas   Total
                       ----------------------------------------------------
1999
Sales                   $  434      103     455       133       259   1,384
Transfers                  531      650       -         -         -   1,181
Other revenues             136       28      30         -        16     210
---------------------------------------------------------------------------
    Total revenues       1,101      781     485       133       275   2,775
Production costs           323      163      89        32       110     717
Exploration expenses        53       36      28        24        89     230
Depreciation, depletion
  and amortization*        172      105     165        11        80     533
Property impairments        11       28      30         -         -      69
Other related expenses      90       31       3         2        32     158
---------------------------------------------------------------------------
                           452      418     170        64       (36)  1,068
Provision for income
  taxes                    108      304      53        60         5     530
---------------------------------------------------------------------------
Results of operations for
  producing activities     344      114     117         4       (41)    538
Other earnings              35        -       -         -        (3)     32
---------------------------------------------------------------------------
E&P net income (loss)   $  379      114     117         4       (44)    570
===========================================================================

1998
Sales                   $  542      181     318       101       151   1,293
Transfers                  362      485       -         -         -     847
Other revenues              58       29      28         1        10     126
---------------------------------------------------------------------------
    Total revenues         962      695     346       102       161   2,266
Production costs           374      221      90        43        84     812
Exploration expenses**     177       21      28        23        71     320
Depreciation, depletion
  and amortization         232      101     129        11        64     537
Property impairments       231        -     147         -         -     378
Other related expenses      76       11       8         8        62     165
---------------------------------------------------------------------------
                          (128)     341     (56)       17      (120)     54
Provision for income
  taxes                    (75)     226     (13)       17       (31)    124
---------------------------------------------------------------------------
Results of operations for
  producing activities     (53)     115     (43)        -       (89)    (70)
Other earnings              21        -       3         -       (21)      3
---------------------------------------------------------------------------
E&P net income (loss)   $  (32)     115     (40)        -      (110)    (67)
===========================================================================

1997
Sales                   $  687      279     261       162       173   1,562
Transfers                  596      743       -         -         -   1,339
Other revenues              58       44      12         1        15     130
---------------------------------------------------------------------------
    Total revenues       1,341    1,066     273       163       188   3,031
Production costs           428      217      68        39        40     792
Exploration expenses       103       29      30        14        69     245
Depreciation, depletion
  and amortization         203      107      98        11        36     455
Property impairments        48        -      15         -         -      63
Other related expenses      92       20      (2)      (13)       34     131
---------------------------------------------------------------------------
                           467      693      64       112         9   1,345
Provision for income
  taxes                    132      499      20        96         -     747
---------------------------------------------------------------------------
Results of operations for
  producing activities     335      194      44        16         9     598
Other earnings              25        -       -         -       (14)     11
---------------------------------------------------------------------------
E&P net income (loss)   $  360      194      44        16        (5)    609
===========================================================================
 *Includes a $5 million decommissioning accrual adjustment in Norway.
**Includes $109 million before-tax for the write-off of costs associated
  with the Tyonek prospect in the United States.


                                133

<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
   natural gas liquids 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, certain amounts 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 Note 19--Segment Disclosures and Related
   Information, 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.


                                134

<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.


                                135

<PAGE>



o Statistics

Net Production                         1999       1998       1997
                                      ---------------------------
                                       Thousands of Barrels Daily
                                      ---------------------------
Crude Oil
United States                            50         62         67
Norway                                   99         99        104
United Kingdom                           34         22         18
Nigeria                                  20         19         23
China                                    10         13         15
Canada                                    7          7          5
Timor Sea                                 5          -          -
Denmark                                   4          -          -
Venezuela                                 2          *          -
-----------------------------------------------------------------
                                        231        222        232
=================================================================
*Production began in 1998, but the average production for the
 year was less than 1,000 barrels per day.

Natural Gas Liquids
United States*                            2          3          4
Norway                                    4          5          7
United Kingdom                            2          2          1
Nigeria                                   2          2          1
Canada                                    1          1          1
-----------------------------------------------------------------
                                         11         13         14
=================================================================
*Represents amounts extracted attributable to E&P operations.
 Additional quantities are extracted at GPM gas processing
 plants (see natural gas liquids reserves page 132 for further
 discussion).

                                     Millions of Cubic Feet Daily
Natural Gas*                         ----------------------------
United States                           950        968      1,024
Norway                                  126        190        275
United Kingdom                          220        197        122
Canada                                   91         97         51
Nigeria                                   6          -          -
-----------------------------------------------------------------
                                      1,393      1,452      1,472
=================================================================
*Represents quantities available for sale.  Excludes gas
 equivalent of natural gas liquids shown above.


                                136

<PAGE>



                                       1999       1998       1997
                                     ----------------------------
Average Sales Prices

Crude Oil Per Barrel
United States                        $15.64      10.85      17.41
Norway                                18.26      12.74      19.09
United Kingdom                        18.40      12.72      18.77
Nigeria                               17.84      12.57      19.25
China                                 17.49      12.57      19.39
Canada                                17.45      12.32      15.43
Timor Sea                             20.47          -          -
Denmark                               20.64          -          -
Venezuela                             17.80      10.81          -
Total foreign                         18.26      12.67      19.02
Worldwide                             17.70      12.20      18.57
-----------------------------------------------------------------

Natural Gas Liquids Per Barrel
United States                        $12.73      10.21      15.14
Norway                                 7.51       8.93      10.16
United Kingdom                        13.32      12.19      14.56
Nigeria                                7.46       7.23       8.32
Canada                                14.22      10.17      16.39
Total foreign                          9.69       9.20      10.75
Worldwide                             10.24       9.45      12.09
-----------------------------------------------------------------

Natural Gas (Lease) Per Thousand
  Cubic Feet
United States                        $ 2.03       1.88       2.33
Norway                                 2.04       2.42       2.57
United Kingdom                         2.76       3.09       3.22
Canada                                 2.14       1.58       1.64
Nigeria                                 .36          -          -
Total foreign                          2.32       2.50       2.63
Worldwide                              2.15       2.15       2.45
-----------------------------------------------------------------

Average Production Costs
  Per Barrel of Oil Equivalent
United States                        $ 4.21       4.53       4.85
Norway                                 3.60       4.46       3.79
United Kingdom                         3.36       4.34       4.74
Africa                                 3.81       5.61       4.45
Other areas                            6.82       6.19       3.71
Total foreign                          4.09       4.79       3.99
Worldwide                              4.14       4.66       4.42
-----------------------------------------------------------------


                                137

<PAGE>



                                        1999      1998       1997
                                       --------------------------
Depreciation, Depletion and
  Amortization Per Barrel
  of Oil Equivalent*
United States                          $2.24      2.81       2.30
Norway                                  2.21      2.04       1.87
United Kingdom                          6.22      6.22       6.82
Africa                                  1.31      1.43       1.26
Other areas                             4.96      4.72       3.34
Total foreign                           3.70      3.33       2.77
Worldwide                               3.05      3.08       2.54
-----------------------------------------------------------------
*Excludes the impact of special items.

                                  Productive            Dry
                               ----------------  ----------------
Net Wells Completed*           1999  1998  1997  1999  1998  1997
                               ----------------  ----------------
Exploratory
United States                     1     5     6     1     5     6
Norway                            -     -     -    **    **     1
United Kingdom                    1     -    **     -    **    **
Africa                           **    **     -     -     2     -
Other areas                       9     1     -     5     1     1
-----------------------------------------------------------------
                                 11     6     6     6     8     8
=================================================================

Development
United States                   116   117   121     6     9     7
Norway                            2     3     4     -     -     -
United Kingdom                    2     1    **     1     -     -
Africa                           **     -    **     -     -     -
Other areas                      19    26     5     3     4    **
-----------------------------------------------------------------
                                139   147   130    10    13     7
=================================================================
 *Excludes farmout arrangements.
**Phillips' total proportionate interest was less than one.


Wells at Year-End 1999
                                               Productive**
                                      ---------------------------
                       In Progress*        Oil           Gas
                       ------------   -------------  ------------
                       Gross    Net    Gross    Net  Gross    Net
                       ------------   -------------  ------------

United States            101     51    8,254  1,832  5,731  2,936
Norway                     2      1      160     56     26      6
United Kingdom             6      1       26      8    110     20
Africa                     -      -      214     42     12      3
Other areas               14      8    1,118    634    527    367
-----------------------------------------------------------------
                         123     61    9,772  2,572  6,406  3,332
=================================================================
 *Includes wells that have been temporarily suspended.
**Includes 1,252 gross and 491 net multiple completion wells.


                                139

<PAGE>



Acreage at December 31, 1999                   Thousands of Acres
                                               ------------------
                                                 Gross        Net
                                               ------------------
Developed
United States                                    1,664      1,260
Norway                                              45         16
United Kingdom                                     480        156
Africa                                              81         16
Other areas                                        571        371
-----------------------------------------------------------------
                                                 2,841      1,819
=================================================================

Undeveloped
United States                                    2,960      1,449
Norway                                           2,006        515
United Kingdom                                   1,484        517
Africa*                                         41,263     16,053
Canada                                           1,262        338
Other areas                                     26,426     14,855
-----------------------------------------------------------------
                                                75,401     33,727
=================================================================
*Includes two Somalia concessions where operations have been
 suspended by declarations of force majeure totaling 21,865 gross
 and 8,135 net acres.


                                139

<PAGE>



o Costs Incurred

                                  Millions of Dollars
                     --------------------------------------------
                                                    Other
                     U.S.  Norway    U.K.  Africa   Areas   Total
                     --------------------------------------------
1999
Acquisition          $156       -       -       -     360     516
Exploration            36      33      28      21     152     270
Development           167     165      80      23     173     608
-----------------------------------------------------------------
                     $359     198     108      44     685   1,394
=================================================================

1998
Acquisition          $ 16       1       -       -     344     361
Exploration           107      24      43      30      83     287
Development           221     264     204      17     199     905
-----------------------------------------------------------------
                     $344     289     247      47     626   1,553
=================================================================

1997
Acquisition          $ 29       -       -       -     399     428
Exploration           128      29      54      18      78     307
Development           265     292     140      11      66     774
-----------------------------------------------------------------
                     $422     321     194      29     543   1,509
=================================================================


o  Costs incurred include capitalized and expensed items.

o  Acquisition costs include the costs of acquiring undeveloped oil
   and gas leaseholds.  It included proved properties of
   $89 million, $3 million and $6 million in the United States for
   1999, 1998 and 1997, respectively.  In addition, the 1999 amount
   in Other Areas included $191 million for proved properties in
   the Timor Sea and $117 million for an unproved leasehold
   investment related to an exchange in Venezuela.  The amount in
   Other Areas for 1998 included $19 million for proved properties
   in Canada.  The remaining amount in Other Areas was primarily
   related to undeveloped properties associated with the
   acquisition of a 7.14 percent interest in 10.5 blocks in the
   Caspian Sea, offshore Kazakhstan.  The amount in Other Areas for
   1997 included $317 million for proved properties acquired in
   Canada, of which $49 million represented 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.


                                140

<PAGE>



o Capitalized Costs

At December 31                  Millions of Dollars
                   ----------------------------------------------
                                                    Other
                     U.S.  Norway    U.K.  Africa   Areas   Total
                   ----------------------------------------------
1999
Proved properties  $4,549   3,105   1,914     463   1,336  11,367
Unproved
  properties          180       1      76       9     595     861
-----------------------------------------------------------------
                    4,729   3,106   1,990     472   1,931  12,228
Accumulated
  depreciation,
  depletion and
  amortization      3,406   1,496   1,146     271     326   6,645
-----------------------------------------------------------------
                   $1,323   1,610     844     201   1,605   5,583
=================================================================

1998
Proved properties  $5,631   3,079   1,878     439   1,100  12,127
Unproved
  properties          149       3      82      10     367     611
-----------------------------------------------------------------
                    5,780   3,082   1,960     449   1,467  12,738
Accumulated
  depreciation,
  depletion and
  amortization      4,472   1,488   1,012     255     284   7,511
-----------------------------------------------------------------
                   $1,308   1,594     948     194   1,183   5,227
=================================================================


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
   liquefied natural gas operation, minerals operations, and crude
   oil and natural 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 (including where petroleum liquids
   and natural gas were found but determination of the economic
   viability of the required infrastructure is dependent upon
   further exploratory work under way or firmly planned) and for
   uncompleted exploratory well costs, including exploratory wells
   under evaluation.


                                141

<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.


                                142

<PAGE>



Discounted Future Net Cash Flows

                                        Millions of Dollars
                       -----------------------------------------------------
                                                              Other
                          U.S.    Norway    U.K.    Africa    Areas    Total
                       -----------------------------------------------------
1999
Future cash inflows    $ 9,415    15,387   3,207     2,869    5,967   36,845
Less:
  Future production
    costs                2,814     2,606     488       530    1,212    7,650
  Future development
    costs                  655       772     491        91      990    2,999
  Future income tax
    provisions           1,719     8,949     572     1,701    1,165   14,106
----------------------------------------------------------------------------
Future net cash flows    4,227     3,060   1,656       547    2,600   12,090
10 percent annual
  discount               1,979     1,288     556       266    1,425    5,514
----------------------------------------------------------------------------
Discounted future
  net cash flows       $ 2,248     1,772   1,100       281    1,175    6,576
============================================================================

1998
Future cash inflows    $ 7,492     8,573   2,254     1,290    2,762   22,371
Less:
  Future production
    costs                3,385     3,338     620       553    1,087    8,983
  Future development
    costs                  727       609     480        88      730    2,634
  Future income tax
    provisions             780     3,120     191       440      181    4,712
----------------------------------------------------------------------------
Future net cash flows    2,600     1,506     963       209      764    6,042
10 percent annual
  discount               1,134       554     334        98      526    2,646
----------------------------------------------------------------------------
Discounted future
  net cash flows       $ 1,466       952     629       111      238    3,396
============================================================================

1997
Future cash inflows    $11,346    11,866   3,245     1,731    1,779   29,967
Less:
  Future production
    costs                4,309     3,439     660       450      801    9,659
  Future development
    costs                  908       703     392        80      326    2,409
  Future income tax
    provisions           1,732     5,565     518       925       56    8,796
----------------------------------------------------------------------------
Future net cash flows    4,397     2,159   1,675       276      596    9,103
10 percent annual
  discount               2,068       842     554       130      222    3,816
----------------------------------------------------------------------------
Discounted future
  net cash flows       $ 2,329     1,317   1,121       146      374    5,287
============================================================================



                                143

<PAGE>



Sources of Change in Discounted Future Net Cash Flows

                                          Millions of Dollars
                                      ---------------------------
                                         1999      1998      1997
                                      ---------------------------
Discounted future net cash flows
  at the beginning of the year        $ 3,396     5,287     8,899
-----------------------------------------------------------------
Changes during the year
  Revenues less production costs
    for the year                       (1,848)   (1,328)   (2,109)
  Net change in prices and
    production costs                    8,481    (3,942)   (7,768)
  Extensions, discoveries and
    improved recovery, less
    estimated future costs                784        62     1,001
  Development costs for the year          608       905       774
  Changes in estimated future
    development costs                    (376)     (610)     (527)
  Purchases of reserves in place,
    less estimated future costs           639        21       151
  Sales of reserves in place,
    less estimated future costs          (530)      (14)     (101)
  Revisions of previous quantity
    estimates*                           (362)     (106)       72
  Accretion of discount                   537       910     1,540
  Net change in income taxes           (4,754)    2,208     3,354
  Other                                     1         3         1
-----------------------------------------------------------------
Total changes                           3,180    (1,891)   (3,612)
-----------------------------------------------------------------
Discounted future net cash flows
  at year-end                         $ 6,576     3,396     5,287
=================================================================
*Includes amounts resulting from the changes in the timing of
 production.


                                144

<PAGE>



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.


                                145

<PAGE>



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


                Millions of Dollars
          -------------------------------
                          Income                  Net         Net
                          (Loss)               Income      Income
                          Before               (Loss)      (Loss)
              Sales       Income            Per Share   Per Share
          and Other    Taxes and      Net   of Common   of Common
          Operating    Kenai Tax   Income     Stock--     Stock--
           Revenues   Settlement    (Loss)      Basic     Diluted
          -------------------------------   ---------   ---------
1999
First        $2,421           99       70         .28         .28
Second        3,172          184       68         .27         .27
Third         3,739          414      221         .87         .87
Fourth        4,239          488      250         .99         .98
-----------------------------------------------------------------

1998
First        $3,093          452      243         .93         .92
Second        2,964          319      158         .61         .60
Third         2,890          108       46         .18         .18
Fourth        2,598         (504)    (210)       (.83)       (.83)
-----------------------------------------------------------------


In the above table, amounts for net income include certain special
items, as shown in the following table:

                                 Special Items by Quarter
                      ----------------------------------------------
                                    Millions of Dollars
                      ----------------------------------------------
                         First      Second       Third      Fourth
                      ----------  ----------  ----------  ----------
                      1999  1998  1999  1998  1999  1998  1999  1998
                      ----------  ----------  ----------  ----------

Kenai tax settlement   $ -     -     -     -     -     -     -   115
Property impairments     -     -   (20)  (20)  (10)  (26)   (4) (228)
Tyonek prospect dry
  hole costs             -     -     -     -     -     -     -   (71)
Net gains on asset
  sales                 33     -    16     3     4     -    20    18
Work force reduction
  charges               (5)    -    (2)    -     -     1     4   (61)
Pending claims and
  settlements           38    66   (10)   34    (2)   (2)    9    10
Other items              -     -   (24)    -     8     4     6    19
--------------------------------------------------------------------
Total special items    $66    66   (40)   17     -   (23)   35  (198)
====================================================================


                                146

<PAGE>



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


None.


                                147

<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 8, 2000, is incorporated
herein by reference.*  Information regarding the executive officers
appears in Part I of this report on page 31.


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 8, 2000, 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 8, 2000, 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 8, 2000, 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.


                                148

<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 79 are filed as part
         of this annual report.

     2.  Exhibits
         --------
         The exhibits listed in the Index to Exhibits, which
         appears on pages 151 through 155, are filed as a part of
         this annual report.

(b)  Reports on Form 8-K
     -------------------
     During the three months ended December 31, 1999, the company
     filed one report on Form 8-K on December 22, 1999, to report,
     in Item 5, that on December 16, 1999, Phillips, Duke Energy
     Corporation (Duke Energy), and Duke Energy Field Services
     L.L.C. had entered into a Contribution Agreement, pursuant to
     which Phillips and Duke Energy will combine certain of their
     continental U.S. and Canadian midstream natural gas gathering,
     processing and marketing operations.  Phillips and Duke Energy,
     directly or through indirect wholly owned subsidiaries, will
     initially own approximately 30 percent and 70 percent,
     respectively, of the voting and economic interests of Duke
     Energy Field Services L.L.C.


                                149

<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)         (c)
1999
Deducted from
  asset
  accounts:
    Allowance
      for
      doubtful
      accounts
      and notes
      receivable          $ 13          12        -           6           19
    Deferred tax
      asset
      valuation
      allowance            327          (4)       5           -          328
Included in other
  liabilities:
    Reserve for
      maintenance
      turnarounds           87          52        -          51           88
----------------------------------------------------------------------------

1998
Deducted from
  asset
  accounts:
    Allowance
      for
      doubtful
      accounts
      and notes
      receivable          $ 19           1        -           7           13
    Deferred tax
      asset
      valuation
      allowance            232         101       (6)          -          327
Included in other
  liabilities:
    Reserve for
      maintenance
      turnarounds           79          54        -          46           87
----------------------------------------------------------------------------

1997
Deducted from
  asset
  accounts:
    Allowance
      for
      doubtful
      accounts
      and notes
      receivable          $ 20           7        -           8           19
    Deferred tax
      asset
      valuation
      allowance            208          27       (3)          -          232
Included in other
  liabilities:
    Reserve for
      maintenance
      turnarounds           60          79        -          60           79
----------------------------------------------------------------------------

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

(b) Represents effect of translating foreign financial statements.

(c) Amounts charged off less recoveries of amounts previously charged off.


                                150

<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 September 13, 1999 (incorporated by reference
            to Exhibit 3(ii) to Quarterly Report on Form 10-Q for
            the quarterly period ended September 30, 1999).

  4(a)    Indenture dated as of September 15, 1990, between
            Phillips Petroleum Company and U.S. Bank Trust National
            Association, formerly 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 U.S.
            Bank Trust National Association, formerly 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; the 6.65% Notes due March 1,
            2003; the 7.125% Debentures due March 15, 2028; the
            6.65% Debentures due July 15, 2018; the 7% Debentures
            due 2029; and the 6 3/8% Notes due 2009 (incorporated by
            reference to Exhibit 4(b) to Annual Report on Form 10-K
            for the year ended December 31, 1997).

   (c)    Preferred Share Purchase Rights as described in the
            Rights Agreement dated as of August 1, 1999, between
            Phillips Petroleum Company and ChaseMellon Shareholder
            Services, L.L.C. (incorporated by reference to Exhibit
            4.1 to Current Report on Form 8-K filed July 12, 1999).


                                151

<PAGE>



                   PHILLIPS PETROLEUM COMPANY

                       INDEX TO EXHIBITS
                          (Continued)

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

          The company incurred during 1999 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 U.S. 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)    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).

   (b)    Contribution Agreement, dated as of December 16, 1999,
            by and among Phillips Petroleum Company, Duke Energy
            Corporation and Duke Energy Field Services, L.L.C.
            (incorporated by reference to Exhibit 99.1 to Current
            Report on Form 8-K, filed December 23, 1999).

   (c)    Governance Agreement, dated as of December 16, 1999, by
            and among Phillips Petroleum Company, Duke Energy
            Corporation and Duke Energy Field Services, L.L.C.
            (incorporated by reference to Exhibit 99.2 to Current
            Report on Form 8-K, filed December 23, 1999).

Management Contracts and Compensatory Plans or Arrangements

 10(d)    1986 Stock Plan of Phillips Petroleum Company
            (incorporated by reference to Exhibit 10(d) to Annual
            Report on Form 10-K for the year ended December 31,
            1997).


                                152

<PAGE>



                   PHILLIPS PETROLEUM COMPANY

                       INDEX TO EXHIBITS
                          (Continued)

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

 10(e)    1990 Stock Plan of Phillips Petroleum Company
            (incorporated by reference to Exhibit 10(e) to Annual
            Report on Form 10-K for the year ended December 31,
            1997).

   (f)    Annual Incentive Compensation Plan of Phillips
            Petroleum Company (incorporated by reference to Exhibit
            10(f) to Annual Report on Form 10-K for the year ended
            December 31, 1997).

   (g)    Incentive Compensation Plan of Phillips Petroleum
            Company.

   (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(c) to Quarterly Report on Form 10-Q for the
            quarterly period ended June 30, 1999).

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

   (k)    Non-Employee Director Retirement Plan of Phillips
            Petroleum Company (incorporated by reference to Exhibit
            10(k) to Annual Report on Form 10-K for the year ended
            December 31, 1997).

   (l)    Omnibus Securities Plan of Phillips Petroleum Company
            (incorporated by reference to Exhibit 10(l) to Annual
            Report on Form 10-K for the year ended December 31,
            1997).

   (m)    Deferred Compensation Plan for Non-Employee Directors
            of Phillips Petroleum Company (incorporated by reference
            to Exhibit 10(m) to Annual Report on Form 10-K for the
            year ended December 31, 1998).


                                153

<PAGE>



                     PHILLIPS PETROLEUM COMPANY

                       INDEX TO EXHIBITS
                          (Continued)

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

 10(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, 1998).

   (o)    Phillips Petroleum Company Stock Plan for Non-Employee
            Directors (incorporated by reference to Exhibit 10(o) to
            Annual Report on Form 10-K for the year ended December
            31, 1998).

   (p)    Key Employee Supplemental Retirement Plan of Phillips
            Petroleum Company (incorporated by reference to
            Exhibit 10(b) to Quarterly Report on Form 10-Q for the
            quarterly period ended June 30, 1999).

   (q)    Defined Contribution Makeup Plan of Phillips Petroleum
            Company.

   (r)    Phillips Petroleum Company Executive Severance Plan
            (incorporated by reference to Exhibit 10(a) to Quarterly
            Report on Form 10-Q for the quarterly period ended June
            30, 1999).

 12       Computation of Ratio of Earnings to Fixed Charges.

 21       List of Subsidiaries of Phillips Petroleum Company.

 23       Consent of Independent Auditors.

 27       Financial Data Schedule.

 99(a)    Form 11-K, Annual Report, of the Thrift Plan of
            Phillips Petroleum Company for the fiscal year ended
            December 31, 1999 (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, 1999 (to be filed by amendment
            pursuant to Rule 15d-21).


                                154

<PAGE>



                   PHILLIPS PETROLEUM COMPANY

                       INDEX TO EXHIBITS
                          (Continued)

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

 99(c)    Form 11-K, Annual Report, of the Retirement Savings
            Plan of Phillips Petroleum Company for the fiscal year
            ended December 31, 1999 (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


                                155

<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/ J. J. Mulva
March 22, 2000               ----------------------------------
                                        J. J. Mulva
                             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 March 22,
2000.


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


    /s/ J. J. Mulva
---------------------------    Chairman of the Board of Directors
        J. J. Mulva               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)


                                156

<PAGE>



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


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

/s/ Robert E. Chappell, Jr.
---------------------------                 Director
    Robert E. Chappell, Jr.

 /s/ Robert M. Devlin
---------------------------                 Director
     Robert M. Devlin

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

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


                                157

<PAGE>