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


                            FORM 10-Q


(Mark One)

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

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

                               OR

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

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


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


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


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


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


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

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

The registrant had 381,279,893 shares of common stock, $1.25 par
value, outstanding at October 31, 2001.


<PAGE>


                      PART I. FINANCIAL INFORMATION

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

                                                     Millions of Dollars
                                               -------------------------------
                                                 Three Months     Nine Months
                                                    Ended            Ended
                                                 September 30     September 30
                                               -------------------------------
                                                 2001    2000     2001    2000
                                               -------------------------------
Revenues
Sales and other operating revenues*            $6,148   5,589   16,741  16,578
Equity in earnings of affiliated companies        (15)     78      106     185
Other revenues                                     26      38       57      67
------------------------------------------------------------------------------
    Total Revenues                              6,159   5,705   16,904  16,830
------------------------------------------------------------------------------

Costs and Expenses
Purchased crude oil and products                3,408   2,931    8,295   9,198
Production and operating expenses                 581     480    1,696   1,568
Exploration expenses                               71      68      202     192
Selling, general and administrative expenses      236     134      569     497
Depreciation, depletion and amortization          301     316      952     848
Property impairments                                -      97       23      97
Taxes other than income taxes*                    748     619    1,928   1,715
Accretion on discounted liabilities                 3       -        7       -
Interest expense                                   74      99      240     259
Foreign currency transaction losses                 2       9       10      48
Preferred dividend requirements of
  capital trusts                                   14      14       40      40
------------------------------------------------------------------------------
    Total Costs and Expenses                    5,438   4,767   13,962  14,462
------------------------------------------------------------------------------
Income before income taxes, extraordinary
  item and cumulative effect of change in
  accounting principle                            721     938    2,942   2,368
Provision for income taxes                        347     512    1,461   1,250
------------------------------------------------------------------------------
Income Before Extraordinary Item and
  Cumulative Effect of Change in
  Accounting Principle                            374     426    1,481   1,118
Extraordinary item                                (10)      -      (10)      -
Cumulative effect of change in
  accounting principle                              -       -       28       -
------------------------------------------------------------------------------
Net Income                                     $  364     426    1,499   1,118
==============================================================================

Net Income Per Share of Common Stock
Basic
  Before extraordinary item and cumulative
    effect of change in accounting principle   $ 1.35    1.67     5.63    4.40
  Extraordinary item                             (.04)      -     (.04)      -
  Cumulative effect of change in accounting
    principle                                       -       -      .11       -
------------------------------------------------------------------------------
Net Income                                     $ 1.31    1.67     5.70    4.40
==============================================================================
Diluted
  Before extraordinary item and cumulative
    effect of change in accounting principle   $ 1.34    1.66     5.59    4.37
  Extraordinary item                             (.04)      -     (.04)      -
  Cumulative effect of change in accounting
    principle                                       -       -      .11       -
------------------------------------------------------------------------------
Net Income                                     $ 1.30    1.66     5.66    4.37
==============================================================================

Dividends Paid                                 $  .36     .34     1.04    1.02
------------------------------------------------------------------------------

Average Common Shares Outstanding
   (in thousands)
     Basic                                    277,822 254,940  263,144 254,217
     Diluted                                  279,767 257,392  264,988 255,769
------------------------------------------------------------------------------
*Includes excise taxes on petroleum
 products sales                                  $614     480    1,490   1,403
See Notes to Financial Statements.


                                       1

<PAGE>


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

                                             Millions of Dollars
                                          -------------------------
                                          September 30  December 31
                                                  2001         2000
                                          -------------------------
Assets
Cash and cash equivalents                      $   199          149
Accounts and notes receivable (less
  allowances of $34 million in 2001
  and $18 million in 2000)                       1,443        1,553
Accounts and notes receivable--affiliates          125          226
Inventories                                      2,617          357
Deferred income taxes                               85          191
Prepaid expenses and other current assets          319          130
-------------------------------------------------------------------
    Total Current Assets                         4,788        2,606
Investments and long-term receivables            3,306        2,999
Properties, plants and equipment (net)          23,443       14,784
Goodwill                                         2,366            -
Intangibles                                      1,313            -
Deferred income taxes                                7            -
Deferred charges                                   127          120
-------------------------------------------------------------------
Total                                          $35,350       20,509
===================================================================

Liabilities
Accounts payable                               $ 3,319        1,822
Accounts payable--affiliates                        98           92
Notes payable and long-term debt due
  within one year                                   43          262
Accrued income and other taxes                   1,406          815
Other accruals                                     839          501
-------------------------------------------------------------------
    Total Current Liabilities                    5,705        3,492
Long-term debt                                   7,838        6,622
Accrued dismantlement, removal and
  environmental costs                            1,150          702
Deferred income taxes                            4,027        1,894
Employee benefit obligations                       614          494
Other liabilities and deferred credits             944          562
-------------------------------------------------------------------
Total Liabilities                               20,278       13,766
-------------------------------------------------------------------

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

Common Stockholders' Equity
Common stock--1,000,000,000 shares
  authorized at $1.25 par value
    Issued (2001--430,439,743 shares;
      2000--306,380,511 shares)
        Par value                                  538          383
        Capital in excess of par                 9,066        2,153
    Treasury stock (at cost:
      2001--22,076,483 shares;
      2000--23,142,005 shares)                  (1,106)      (1,156)
    Compensation and Benefits Trust (CBT)
      (at cost: 2001--27,556,573 shares;
      2000--27,849,430 shares)                    (933)        (943)
Accumulated other comprehensive loss              (107)        (100)
Unearned employee compensation--Long-
  Term Stock Savings Plan (LTSSP)                 (246)        (263)
Retained earnings                                7,210        6,019
-------------------------------------------------------------------
Total Common Stockholders' Equity               14,422        6,093
-------------------------------------------------------------------
Total                                          $35,350       20,509
===================================================================
See Notes to Financial Statements.


                                2

<PAGE>


-----------------------------------------------------------------
Consolidated Statement of              Phillips Petroleum Company
Cash Flows
                                              Millions of Dollars
                                              -------------------
                                               Nine Months Ended
                                                  September 30
                                              -------------------
                                                 2001        2000
                                              -------------------
Cash Flows from Operating Activities
Net income                                    $ 1,499       1,118
Adjustments to reconcile net income to net
  cash provided by operating activities
    Non-working capital adjustments
      Depreciation, depletion and
        amortization                              952         848
      Property impairments                         23          97
      Dry hole costs and leasehold impairment      58          74
      Accretion on discounted liabilities           7           -
      Deferred taxes                              361         263
      Extraordinary loss on early retirement
        of debt                                    10           -
      Cumulative effect of accounting change      (28)          -
      Other                                       191        (127)
    Working capital adjustments*
      Increase in aggregate balance of
        accounts receivable sold                   26         218
      Decrease (increase) in other
        accounts and notes receivable             884        (402)
      Increase in inventories                    (278)        (87)
      Decrease (increase) in prepaid expenses
        and other current assets                  (27)         79
      Increase (decrease) in accounts payable    (360)        147
      Increase in taxes and other accruals         29         489
-----------------------------------------------------------------
Net Cash Provided by Operating Activities       3,347       2,717
-----------------------------------------------------------------

Cash Flows from Investing Activities
Acquisitions, net of cash acquired                 58      (6,375)
Capital expenditures and investments,
  including dry hole costs                     (2,094)     (1,370)
Proceeds from contributing assets to joint
  ventures                                          -       2,055
Proceeds from asset dispositions                  233         102
Long-term advances to affiliates and
  other investments                               (25)       (205)
-----------------------------------------------------------------
Net Cash Used for Investing Activities         (1,828)     (5,793)
-----------------------------------------------------------------

Cash Flows from Financing Activities
Issuance of debt                                    -       3,680
Repayment of debt                              (1,178)       (341)
Issuance of company common stock                   20          27
Dividends paid on common stock                   (266)       (259)
Other                                             (45)        (81)
-----------------------------------------------------------------
Net Cash Provided by (Used for) Financing
  Activities                                   (1,469)      3,026
-----------------------------------------------------------------

Net Change in Cash and Cash Equivalents            50         (50)
Cash and cash equivalents at beginning of
  period                                          149         138
-----------------------------------------------------------------
Cash and Cash Equivalents at End of Period    $   199          88
=================================================================
*Net of acquisition and disposition of businesses.
See Notes to Financial Statements.


                                3

<PAGE>



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

Note 1--Interim Financial Information

The financial information for the interim periods presented in
the financial statements included in this report is unaudited and
includes all known accruals and adjustments which Phillips
Petroleum Company (hereinafter referred to as "Phillips" or the
"company") considers necessary for a fair presentation of the
consolidated financial position of the company and its results of
operations and cash flows for such periods.  All such adjustments
are of a normal and recurring nature.  Certain amounts in the
2000 financial statements have been reclassified to conform with
the 2001 presentation.

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


Note 2--Extraordinary Item and Accounting Change

In the third quarter of 2001, Phillips incurred an extraordinary
loss of $10 million (after reduction for income taxes of
$4 million) attributable to the call premium on the early
retirement of its $300 million 9.18% Notes due September 15,
2021, at 104.59 percent.

Effective January 1, 2001, the company changed its method of
accounting for the costs of major maintenance turnarounds from
the accrue-in-advance method to the expense-as-incurred method to
reflect the impact of the turnaround in the period that it
occurs.  The new method is preferable because it results in the
recognition of costs at the time obligations are incurred.


                                4

<PAGE>


The cumulative effect of this accounting change increased net
income for the first nine months of 2001 by $28 million (after
reduction for income taxes of $15 million).  The impact of the
accounting change was not material to income before extraordinary
item for any quarter of 2001 or the nine-month period ended
September 30, 2001.

The pro forma effects of retroactive application of the
change in accounting method are presented below:

                                    Millions of Dollars
                                  Except Per Share Amounts
                           --------------------------------------
                           Three Months Ended   Nine Months Ended
                              September 30         September 30
                           ------------------   -----------------
                            2001         2000    2001        2000
                           ------------------   -----------------
Income before
  extraordinary item       $ 374          416   1,481       1,106
Earnings per share
    Basic                   1.35         1.63    5.63        4.35
    Diluted                 1.34         1.62    5.59        4.32
-----------------------------------------------------------------

Net income                 $ 364          416   1,471       1,106
Earnings per share
    Basic                   1.31         1.63    5.59        4.35
    Diluted                 1.30         1.62    5.55        4.32
-----------------------------------------------------------------


Note 3--Tosco Corporation Acquisition

On September 14, 2001, Tosco Corporation (Tosco) was merged with
a subsidiary of Phillips, as a result of which Phillips became
the owner of 100 percent of the outstanding common stock of
Tosco.  Tosco's operations include seven U.S. refineries with a
total crude oil capacity of 1.31 million barrels per day; one
75,000-barrel-per-day refinery located in Cork, Ireland;
5,800 retail outlets in 32 states; and various transportation,
distribution and corporate assets.  Tosco's results of operations
have been included in the consolidated financial statements since
that date.

The primary reasons for Phillips' acquisition of Tosco, and the
primary factors that contributed to a purchase price that
resulted in recognition of goodwill, are:

  o  The Tosco operations would deliver earnings prospects, and
     potential strategic and other benefits;

  o  Combining the two companies' operations would provide
     significant cost savings;


                                5

<PAGE>


  o  Adding Tosco to Phillips' Refining, Marketing and
     Transportation (RM&T) operations would give the segment the
     size, scale and resources to compete more effectively;

  o  The merger would transform Phillips into a stronger, major,
     integrated oil company with the benefits of increased size
     and scale, improving the stability of the combined
     businesses' earnings in varying economic and market climates;

  o  The combined company would have a stronger balance sheet,
     improving its access to capital in the future; and

  o  The increased cash flow and access to capital resulting from
     the Tosco acquisition would allow Phillips to pursue other
     opportunities in the future.

Based on an exchange ratio of 0.8 shares of Phillips common stock
for each Tosco share, Phillips issued approximately 124.1 million
common shares and 4.7 million vested employee stock options in
the exchange, which increased common stockholders' equity by
approximately $7 billion.  The common stock was valued at
$55.50 per share, which was Phillips' average common stock price
over the two-day trading period before and after the February 4,
2001, public announcement of the transaction.  The employee stock
options were valued using the Black-Scholes option pricing model,
based on assumptions prevalent at the February announcement date.

The transaction is being accounted for using the purchase method
of accounting as required by the Financial Accounting Standards
Board (FASB) Statement No. 141, "Business Combinations," which
was issued in the second quarter of 2001.  Goodwill and
identifiable intangible assets recorded in the acquisition will
be tested periodically for impairment as required by FASB
Statement No. 142, "Goodwill and Other Intangible Assets," also
issued in the second quarter of 2001.

The allocation of the purchase price to specific assets and
liabilities is based, in part, upon an outside appraisal of
Tosco's long-lived assets.  The allocation is still preliminary
at this time.  In the next few months, the company expects to
finalize the outside appraisal of the long-lived assets and the
determination of the fair value of all other Tosco assets and
liabilities.  Deferred tax liabilities will also be finalized
after the final allocation of purchase price and the final tax
basis of the assets and liabilities has been determined.
Based on the preliminary purchase price allocation, the following
table summarizes the fair values of the assets acquired and
liabilities assumed at September 14, 2001:


                                6

<PAGE>


                                                         Millions
                                                       of Dollars
                                                       ----------
Cash and cash equivalents                                 $    59
Accounts and notes receivable                                 732
Inventories                                                 1,975
Prepaid expenses and other current assets                     146
Investments and long-term receivables                         121
Properties, plants and equipment
  (including $1,718 of land)                                7,729
Identifiable intangible assets                              1,312
Goodwill                                                    2,359
Deferred charges                                                3
-----------------------------------------------------------------
  Total Assets                                            $14,436
=================================================================


Accounts payable                                          $ 1,872
Accrued income and other taxes                                598
Other accruals                                                257
Long-term debt                                              2,135
Accrued environmental costs                                   255
Deferred income taxes                                       1,794
Employee benefit obligations                                  141
Other liabilities and deferred credits                        303
Common stockholders' equity                                 7,081
-----------------------------------------------------------------
  Total Liabilities and Equity                            $14,436
=================================================================


The $1,312 million of identifiable intangible assets consist
primarily of marketing trade names ($666 million) and refinery
air emission and operating permits ($562 million).  Of the
$1,312 million, $1,251 million has been preliminarily allocated
to intangible assets not subject to amortization, while
$61 million has been preliminarily allocated to intangible assets
with a weighted-average amortization period of eight years.

The company has not yet determined the allocation of Tosco
goodwill to specific reporting units.  Currently, all goodwill is
being reported as part of the RM&T reporting segment.  A
significant portion of the goodwill was attributable to deferred
tax liabilities which are required to be recorded on an
undiscounted basis.  Therefore, a significant portion of the
goodwill will be allocated to reporting units based on the
sources of the book-tax differences that give rise to the
deferred tax liabilities.  This goodwill is not deductible for
tax purposes.

The following unaudited pro forma summary presents information as
if Tosco had been acquired at the beginning of each period
presented.  The pro forma amounts include certain adjustments,
including recognition of depreciation and amortization based on
the preliminary allocated purchase price of the properties,


                                7

<PAGE>


plants and equipment acquired; adjustment of interest for the
amortization of the fair-value adjustment to debt; cessation of
the amortization of deferred gains not recognizable in the
purchase price allocation; accretion of discount on environmental
accruals recorded at net present values; and adjustments to
conform Tosco's accounting policies to Phillips'.  The pro forma
amounts do not reflect any benefits from economies which might be
achieved from combining the operations.  The pro forma
information does not necessarily reflect the actual results that
would have occurred had the companies been combined during the
periods presented, nor is it necessarily indicative of the future
results of operations of the combined companies:

                                      Millions of Dollars
                                    Except Per Share Amounts
                             --------------------------------------
                             Three Months Ended   Nine Months Ended
                                September 30         September 30
                             ------------------   -----------------
                                2001       2000     2001       2000
                             ------------------   -----------------

Revenues                     $12,251     13,493   37,762     36,625
Income before extraordinary
  item and cumulative
  effect of change in
  accounting principle           490        584    1,961      1,482
Net income                       480        584    1,979      1,482
Income before extraordinary
  item and cumulative
  effect of change in
  accounting principle
  per share of common stock
    Basic                       1.29       1.54     5.15       3.91
    Diluted                     1.27       1.52     5.11       3.88
Net income per share of
  common stock
    Basic                       1.26       1.54     5.20       3.91
    Diluted                     1.25       1.52     5.15       3.88
-------------------------------------------------------------------


The above pro forma information includes Tosco's reported results
of operations related to the Avon refinery which was sold
August 31, 2000.  Avon contributed $723 million of revenues,
$96 million of income before taxes, and $58 million of net income
to results of operations for the nine months ended September 30,
2000.  Also, in August 2001, Tosco recognized an additional
$150 million gain on sale, $90 million after-tax, when the buyer
of the Avon refinery became liable for a contingent payment to
Tosco.  The $150 million payment was received November 9, 2001.
This gain was offset in early September 2001 when Tosco expensed
change-in-control employee benefits and investment banker fees


                                8

<PAGE>


related to its acquisition by Phillips.  These non-recurring
items were not included in Phillips' reported results of
operations.

In connection with the Tosco acquisition, Phillips issued
4.7 million vested stock options, with a weighted-average
exercise price of $23.15, to replace outstanding Tosco stock
options.  Of these, 0.6 million were exercised during the last-
half of September 2001, leaving 4.1 million outstanding at
September 30, 2001.  All of the 4.1 million stock options are
exercisable, and have exercise prices ranging from $9.04 to
$63.13, with a weighted-average exercise price of $24.10.  At
September 30, 2001, in addition to the stock options issued in
connection with the Tosco acquisition, Phillips had another
9.5 million in stock options outstanding.

The exercise of the above 0.6 million of stock options resulted
in a tax benefit to the company of $9 million in September, most
of which was recorded as a reduction of goodwill.


Note 4--Alaska Acquisition

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

During the first nine months of 2001, net cash activity with BP
related to the acquisition was not material.  However, there was
a $128 million increase in properties, plants and equipment
during the period due to the additional quantification and
recognition of certain non-cash liabilities of the acquired
businesses, primarily an additional accrual, on a discounted
basis, to cover environmental remediation activities required by
the state of Alaska at exploration and production sites formerly
owned by ARCO.  Expected expenditures for remediation activities
are: $16 million in 2001, $27 million in 2002, $18 million in
2003, $15 million in 2004, and $16 million in 2005.  Remaining
expenditures thereafter are expected to be $99 million.  The
effect of inflation, net of a 5 percent discount factor, reduced
the accrual by $22 million, resulting in a discounted
environmental liability of $169 million at September 30, 2001.


                                9

<PAGE>


Note 5--Inventories

Inventories consisted of the following:

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

Crude oil and petroleum products              $2,262          215
Merchandise                                      141           13
Materials, supplies and other                    214          129
-----------------------------------------------------------------
                                              $2,617          357
=================================================================


Inventories at September 30, 2001, were substantially higher than
at year-end 2000 due to the Tosco acquisition.


Note 6--Summarized Financial Data of Significant Equity
          Affiliates

Duke Energy Field Services, LLC

Phillips owns 30.3 percent of DEFS.  Phillips' consolidated
results of operations include 100 percent of the activity of its
gas gathering, processing and marketing business through
March 31, 2000, and its 30.3 percent share of DEFS' earnings
since that date.  Included in the GPM segment's operating results
in the third quarter and first nine months of 2001 were benefits
of $9 million and $27 million, respectively, representing the
amortization of the $824 million basis difference between the
book value of Phillips' contribution to DEFS and its 30.3 percent
equity interest in DEFS.  This difference is being amortized over
15 years, consistent with the term of Phillips' commitment to
purchase natural gas liquids from DEFS.

Summarized financial information for DEFS (100 percent) follows:

                                     Millions of Dollars
                         ------------------------------------------
                          Three Months   Nine Months     April 1
                             Ended          Ended        Through
                          September 30   September 30  September 30
                         --------------  ------------  ------------
                           2001    2000          2001          2000
                         --------------  ------------  ------------

Revenues                 $1,681   2,552         7,598         4,724
Income before income
  taxes and cumulative
  effect of change in
  accounting principle       79     110           338           210
Net income                   79     114           337           207
-------------------------------------------------------------------


                                10

<PAGE>


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


Chevron Phillips Chemical Company LLC

Phillips and Chevron each own 50 percent of the voting and
economic interests in CPChem.  Phillips' consolidated results of
operations include 100 percent of the activity of its chemicals
business through June 30, 2000, and its 50 percent share of
CPChem's earnings since that date.  Also included in the third
quarter and first nine months of 2001 operating results were
reductions of $2 million and $4 million, respectively, for the
amortization of the $126 million basis difference between the
book value of Phillips' contribution to CPChem and its 50 percent
interest in the equity of CPChem.  This basis difference is being
amortized over 20 years, the average estimated life of the assets
contributed.

Summarized financial information for CPChem (100 percent)
follows:

                                     Millions of Dollars
                         ------------------------------------------
                          Three Months   Nine Months     July 1
                             Ended          Ended        Through
                          September 30   September 30  September 30
                         --------------  ------------  ------------
                           2001    2000          2001          2000
                         --------------  ------------  ------------

Revenues                 $1,374   1,809         4,893         1,809
Income (loss) before
  income taxes             (122)     38          (207)           38
Net income (loss)          (167)     47          (255)           47
-------------------------------------------------------------------


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


                                11

<PAGE>


Note 7--Properties, Plants and Equipment

Properties, plants and equipment included the following:

                                           Millions of Dollars
                                        -------------------------
                                        September 30  December 31
                                                2001         2000
                                        -------------------------
Properties, plants and equipment
  (at cost)                                  $33,611       24,383
Less accumulated depreciation,
  depletion and amortization                  10,168        9,599
-----------------------------------------------------------------
                                             $23,443       14,784
=================================================================


Properties, plants and equipment at September 30, 2001, were
substantially higher than at year-end 2000 due to the Tosco
acquisition.


Note 8--Debt

At September 30, 2001, Phillips had three bank credit facilities
in place, totaling $3 billion, available for use either as direct
bank borrowings or as support for the issuance of commercial
paper.  The facilities included a $1.5 billion revolving facility
expiring in May 2002, a $1 billion revolving facility expiring in
October 2001, and a $500 million credit agreement expiring in
October 2005.  At September 30, 2001, the company had no debt
outstanding under these credit facilities, but had $263 million
in commercial paper outstanding, which is supported 100 percent
by the credit facilities.  This amount approximates fair value.

Debt assumed in the Tosco acquisition (see Note 3--Tosco
Corporation Acquisition for more information) had the following
balances at September 30, 2001.
                                                         Millions
                                                       of Dollars
                                                       ----------
8.25% Mortgage Bonds due May 15, 2003                      $  150
7.625% Notes due 2006                                         240
7.25% Notes due 2007                                          200
7.8% Notes due 2027                                           300
8.125% Notes due 2030                                         600
7.9% Notes due 2047                                           100
Capitalized lease obligations                                  30
Other                                                          47
Unamortized debt discount and premium                         126
-----------------------------------------------------------------
Total                                                       1,793
Notes payable and long-term debt due within one year           39
-----------------------------------------------------------------
Long-term debt                                             $1,754
=================================================================


                                12

<PAGE>


After amortization of the fair-value-adjustment premiums, the
above fixed-rate debt will have a weighted-average effective
interest rate of 6.6 percent.

At September 30, 2001, Tosco's $1 billion revolving credit
facility remained available for use.  The outstanding balance of
$191 million was repaid prior to September 30, 2001, and in
October 2001, the commitment under the credit facility was
reduced to $45 million.

On October 16, 2001, Phillips entered into two new revolving bank
credit facilities: a $1.5 billion 364-day facility and a
$1.5 billion five-year facility.  The $3 billion of new facilities
replaced the bank credit facilities that the company had in place
on September 30, 2001, which were canceled upon the
effectiveness of the new facilities.

In September 2001, the company redeemed its $300 million
9.18% Notes due September 15, 2021, at 104.59 percent.


Note 9--Condensed Consolidating Financial Information

Tosco and Bayway Refining Company (Bayway) are wholly owned
subsidiaries of Phillips.  Phillips has guaranteed all of the
outstanding publicly traded debt of Tosco.  Tosco's $150 million
8.25% Mortgage Bonds due May 15, 2003, are also guaranteed by
Bayway.  The Bayway guarantee is collateralized by the Bayway
refinery and a guarantee from Tosco.  Set forth below are
condensed consolidating financial statements of Phillips, Tosco
and Bayway, presented for the information of public debtholders.
The following condensed consolidating financial statements
present the results of operations, financial position and cash
flows of (i) Phillips, Tosco and Bayway (in each case,
reflecting investments in its consolidated subsidiaries
utilizing the equity method of accounting), (ii) all other non-
guarantor subsidiaries of Phillips and (iii) the consolidating
adjustments necessary to present Phillips' results on a
consolidated basis.  These condensed consolidating financial
statements should be read in conjunction with the company's
accompanying consolidated financial statements.


                                13

<PAGE>


<TABLE>

<CAPTION>
                                                         Millions of Dollars
                                  ------------------------------------------------------------------
                                                Three Months Ended September 30, 2001
                                  ------------------------------------------------------------------
                                                              All Other  Consolidating         Total
                                  Phillips  Tosco  Bayway  Subsidiaries    Adjustments  Consolidated
Statement of Income               --------  -----  ------  ------------  -------------  ------------
<S>                               <C>       <C>    <C>     <C>           <C>            <C>
Revenues
Sales and other operating
  revenues                          $3,243    910       -         1,995              -         6,148
Equity in earnings of
  affiliated companies                 441     17       -            39           (512)          (15)
Other revenues                         (63)     1       -            88              -            26
Intercompany revenues                  277    100       -           486           (863)            -
----------------------------------------------------------------------------------------------------
    Total Revenue                    3,898  1,028       -         2,608         (1,375)        6,159
----------------------------------------------------------------------------------------------------

Costs and Expenses
Purchased crude oil and products     2,370    804       -           954           (720)        3,408
Production and operating
  expenses                             269     45       -           315            (48)          581
Exploration expenses                    37      -       -            49            (15)           71
Selling, general and
  administrative expenses              130     17       -            93             (4)          236
Depreciation, depletion
  and amortization                      91      4       1           205              -           301
Taxes other than income taxes          511    111       -           126              -           748
Accretion on discounted
  liabilities                            -      1       -             2              -             3
Interest expense                       129      5       -            16            (76)           74
Foreign currency transaction
  losses                                (1)     -       -             3              -             2
Preferred dividend requirements
  of capital trusts                      -      -       -            14              -            14
----------------------------------------------------------------------------------------------------
    Total Costs and Expenses         3,536    987       1         1,777           (863)        5,438
----------------------------------------------------------------------------------------------------
Income (loss) before income taxes
  and extraordinary item               362     41      (1)          831           (512)          721
Provision for income taxes             (12)    10       -           349              -           347
----------------------------------------------------------------------------------------------------
Income (Loss) Before Extraordinary
  Item                                 374     31      (1)          482           (512)          374
Extraordinary item                     (10)     -       -             -              -           (10)
----------------------------------------------------------------------------------------------------
Net Income (Loss)                   $  364     31      (1)          482           (512)          364
====================================================================================================


</TABLE>

                                            14

<PAGE>

<TABLE>

<CAPTION>

                                                         Millions of Dollars
                                  ------------------------------------------------------------------
                                                 Nine Months Ended September 30, 2001
                                  ------------------------------------------------------------------
                                                              All Other  Consolidating         Total
                                  Phillips  Tosco  Bayway  Subsidiaries    Adjustments  Consolidated
Statement of Income               --------  -----  ------  ------------  -------------  ------------
<S>                               <C>       <C>    <C>     <C>           <C>            <C>
Revenues
Sales and other operating
  revenues                         $10,303    910       -         5,528              -        16,741
Equity in earnings of
  affiliated companies               1,411     17       -           201         (1,523)          106
Other revenues                         (54)     1       -           110              -            57
Intercompany revenues                  980    100       -         1,493         (2,573)            -
----------------------------------------------------------------------------------------------------
    Total Revenue                   12,640  1,028       -         7,332         (4,096)       16,904
----------------------------------------------------------------------------------------------------

Costs and Expenses
Purchased crude oil and products     7,411    804       -         2,134         (2,054)        8,295
Production and operating
  expenses                             959     45       -           911           (219)        1,696
Exploration expenses                    97      -       -           150            (45)          202
Selling, general and
  administrative expenses              396     17       -           170            (14)          569
Depreciation, depletion
  and amortization                     273      4       1           674              -           952
Property impairments                     -      -       -            23              -            23
Taxes other than income taxes        1,467    111       -           350              -         1,928
Accretion on discounted
  liabilities                            -      1       -             6              -             7
Interest expense                       434      5       -            42           (241)          240
Foreign currency transaction
  (gains) losses                        (1)     -       -            11              -            10
Preferred dividend requirements
  of capital trusts                      -      -       -            40              -            40
----------------------------------------------------------------------------------------------------
    Total Costs and Expenses        11,036    987       1         4,511         (2,573)       13,962
----------------------------------------------------------------------------------------------------
Income (loss) before income
  taxes, extraordinary item and
  cumulative effect of change
  in accounting principle            1,604     41      (1)        2,821         (1,523)        2,942
Provision for income taxes             123     10       -         1,328              -         1,461
----------------------------------------------------------------------------------------------------
Income (Loss) Before Extraordinary
  Item and Cumulative Effect of
  Change in Accounting Principle     1,481     31      (1)        1,493         (1,523)        1,481
Extraordinary item                     (10)     -       -             -              -           (10)
Cumulative effect of change in
  accounting principle                  28      -       -             -              -            28
----------------------------------------------------------------------------------------------------
Net Income (Loss)                  $ 1,499     31      (1)        1,493         (1,523)        1,499
====================================================================================================

</TABLE>


                                              15

<PAGE>

<TABLE>

<CAPTION>

                                                         Millions of Dollars
                                 -------------------------------------------------------------------
                                                        At September 30, 2001
                                 -------------------------------------------------------------------
                                                              All Other  Consolidating         Total
                                 Phillips   Tosco  Bayway  Subsidiaries    Adjustments  Consolidated
Balance Sheet                    --------   -----  ------  ------------  -------------  ------------
<S>                              <C>        <C>    <C>     <C>           <C>            <C>
Assets
Cash and cash equivalents         $    38       8       -           153              -           199
Accounts and notes receivable         324    (105)      -         1,368            (19)        1,568
Accounts and notes receivable--
  affiliates                        1,045      39       -         2,153         (3,237)            -
Inventories                           376   1,616       -           625              -         2,617
Deferred income taxes                  32       -       -            53              -            85
Prepaid expenses and other
  current assets                       65      59       -           195              -           319
----------------------------------------------------------------------------------------------------
    Total Current Assets            1,880   1,617       -         4,547         (3,256)        4,788
Investments and long-term
  receivables                      23,863   2,801       -         1,643        (25,001)        3,306
Long-term receivables--affiliates   1,670     115       -         6,658         (8,443)            -
Properties, plants and
  equipment (net)                   3,963   4,726     646        14,108              -        23,443
Goodwill                                -   2,350       -            16              -         2,366
Intangibles                             1   1,264      25            23              -         1,313
Deferred income taxes                   -       -       -             7              -             7
Deferred charges                       68       1       -            58              -           127
----------------------------------------------------------------------------------------------------
Total                             $31,445  12,874     671        27,060        (36,700)       35,350
====================================================================================================

Liabilities and Stockholders'
  Equity
Accounts payable                  $   800     964       -         1,653              -         3,417
Accounts payable--affiliates        1,945     242       -         1,051         (3,238)            -
Notes payable and long-term
  debt due within one year              3      38       -             2              -            43
Accrued income and other taxes        143     494       -           769              -         1,406
Other accruals                        260     202       -           376              1           839
----------------------------------------------------------------------------------------------------
    Total Current Liabilities       3,151   1,940       -         3,851         (3,237)        5,705
Long-term debt                      6,472   1,716       -          (350)             -         7,838
Long-term liabilities--affiliates   5,781     202       -         1,441         (7,424)            -
Accrued dismantlement, removal
  and environmental costs             268     179       -           703              -         1,150
Deferred income taxes                 600   1,798       -         1,637             (8)        4,027
Employee benefit obligations          423     136       -            55              -           614
Other liabilities and deferred
  credits                             328     198       -           491            (73)          944
----------------------------------------------------------------------------------------------------
Total Liabilities                  17,023   6,169       -         7,828        (10,742)       20,278
Trust Preferred Securities              -       -       -           650              -           650
Retained earnings                   7,210    (175)     (1)       17,219        (17,043)        7,210
Other stockholders' equity          7,212   6,880     672         1,363         (8,915)        7,212
----------------------------------------------------------------------------------------------------
Total                             $31,445  12,874     671        27,060        (36,700)       35,350
====================================================================================================

</TABLE>

                                              16

<PAGE>

<TABLE>

<CAPTION>

                                                         Millions of Dollars
                                  ------------------------------------------------------------------
                                                Nine Months Ended September 30, 2001
                                  ------------------------------------------------------------------
                                                              All Other  Consolidating         Total
                                  Phillips  Tosco  Bayway  Subsidiaries    Adjustments  Consolidated
Statement of Cash Flows           --------  -----  ------  ------------  -------------  ------------
<S>                               <C>       <C>    <C>     <C>           <C>            <C>
Cash Provided by (Used for)
  Operating Activities             $ 1,179    174       -         2,167           (173)        3,347
----------------------------------------------------------------------------------------------------

Cash Flows from Investing
  Activities
Capital expenditures and
  investments                         (516)   (16)      -        (1,541)           (21)       (2,094)
Proceeds from asset dispositions        35      -       -           234            (36)          233
Acquisitions                            (1)   (18)      -            77              -            58
Net intercompany investing            (174)     -       -             -            174             -
Long-term advances to affiliates
  and other investments                (30)     -       -             6             (1)          (25)
Loans to affiliates                   (448)     -       -        (1,037)         1,485             -
----------------------------------------------------------------------------------------------------
Net Cash Used for Investing
  Activities                        (1,134)   (34)      -        (2,261)         1,601        (1,828)
----------------------------------------------------------------------------------------------------

Cash Flows from Financing
  Activities
Loans from affiliates                1,038    200       -           248         (1,486)            -
Repayment of debt                     (837)  (341)      -             -              -        (1,178)
Issuance of company common stock        20      -       -             -              -            20
Capital contributions--affiliates        -      9       -           185           (194)            -
Dividends paid on common stock        (266)     -       -             -              -          (266)
Dividends--affiliates                    -      -       -          (154)           154             -
Distributions--affiliates                -      -       -           (98)            98             -
Other                                   (2)     -       -           (43)             -           (45)
----------------------------------------------------------------------------------------------------
Net Cash Provided by (Used for)
  Financing Activities                 (47)  (132)      -           138         (1,428)       (1,469)
----------------------------------------------------------------------------------------------------

Net Change in Cash and Cash
  Equivalents                           (2)     8       -            44              -            50
Cash and cash equivalents at
  beginning of period                   40      -       -           109              -           149
----------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at
  End of Period                    $    38      8       -           153              -           199
====================================================================================================

</TABLE>


                                               17

<PAGE>


Note 10--Comprehensive Income

Phillips' comprehensive income was as follows:

                                    Millions of Dollars
                           --------------------------------------
                           Three Months Ended   Nine Months Ended
                              September 30         September 30
                           ------------------   -----------------
                           2001          2000    2001        2000
                           ------------------   -----------------

Net income                 $364           426   1,499       1,118
After-tax changes in:
  Foreign currency
    translation
    adjustments              21           (20)     (6)        (55)
  Unrealized loss on
    securities               (2)            -      (3)          -
  Hedging activities         (4)            -      (4)          -
  Equity affiliates:
    Foreign currency
      translation             3             2       -          (4)
    Derivatives related       3             -       6           -
-----------------------------------------------------------------
Comprehensive income       $385           408   1,492       1,059
=================================================================


Accumulated other comprehensive loss included:

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

Foreign currency translation adjustments       $ (76)         (70)
Unrealized gain on securities                      3            6
Deferred net hedging loss                         (4)           -
Equity affiliates:
  Foreign currency translation                   (36)         (36)
  Derivatives related                              6            -
-----------------------------------------------------------------
Accumulated other comprehensive loss           $(107)        (100)
=================================================================


Note 11--Property Impairments

In the second quarter of 2001, the company committed to a plan to
sell its 12.5 percent interest in the Siri oil field, offshore
Denmark.  As a result, an impairment of $23 million (on both a
before- and after-tax basis) was recorded by the Exploration and
Production segment in the second quarter of 2001.  The sale is
expected to close in early 2002.  At September 30, 2001, the
carrying value of the Siri field was $9 million.


                                18

<PAGE>


Note 12--Contingencies

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

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

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

Upon Phillips' acquisition of Tosco on September 14, 2001, the
assumed environmental obligations of Tosco, some of which are
mitigated by indemnification agreements, became contingencies
reportable on a consolidated basis by Phillips.  Beginning with
the acquisition of the Bayway refinery in 1993, but excluding the


                                19

<PAGE>


Alliance refinery acquisition, Tosco negotiated, as part of its
acquisitions, environmental indemnification from the former
owners for periods prior to the respective acquisition dates.
Some of the environmental indemnifications are subject to caps
and time limits.  No accruals have been recorded for any
potential contingent liabilities related to these
indemnifications.

As part of Tosco's acquisition of Unocal's West Coast petroleum
refining, marketing, and related supply and transportation assets
in March 1997, Tosco agreed to pay the first $7 million of any
environmental liabilities at the acquired sites arising out of,
or relating to, the period prior to the transaction's closing,
plus 40 percent of any amount in excess of $7 million per year,
with Unocal paying the remaining 60 percent each year.

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 13--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
fluctuations in foreign currency exchange rates, commodity
prices, and interest rates or to exploit favorable market
conditions.  In 2000 and 1999, the net realized and unrealized
gains and losses from derivative contracts were not material to
the company's financial statements.

During the third quarter of 2001, Phillips' Board of Directors
adopted a new policy governing the use of derivative instruments.
The new policy prohibits the holding or issuing of highly complex
or leveraged derivatives, as did the previous policy, and unless
approved by the Chief Executive Officer, all derivative
instruments used by the company must not contain embedded
financing features and must be sufficiently liquid that


                                20

<PAGE>


comparable valuations are readily available.  The policy also
requires the Chief Executive Officer to establish the maximum
derivative position limits for Phillips and requires the
company's Risk Management Steering Committee, comprised of senior
management, to monitor the use and effectiveness of derivatives.
The Audit Committee of the company's Board of Directors
periodically reviews the derivatives policy and compliance with
the policy.

FASB Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (Statement No. 133), requires companies
to recognize all derivative instruments as either assets or
liabilities in the balance sheet at fair value.  The accounting
for changes in fair value (i.e., gains or losses) of a
derivative instrument depends on whether it meets the
qualifications for, and has been designated as, a hedge, and the
type of hedge.  Phillips elected not to use hedge accounting for
derivative contracts used in the company's risk management
programs during the first nine months of 2001, except for the two
programs noted below.  All gains and losses, realized or
unrealized, from derivative contracts not designated as hedges
have been recognized in the statement of income.  Assets and
liabilities resulting from derivative contracts open at
September 30, 2001, appear as receivables or payables on the
balance sheet.  The amount related to hedging activity in other
comprehensive income is the net loss from the cash-flow hedges of
the company's hedge of the Brazilian real, discussed below.
Phillips had no cumulative effect of accounting change as a
result of adopting Statement No. 133.

Financial Derivative Contracts--During the third quarter of 2001,
the company used hedge accounting to record the results of using
a forward exchange contract to hedge exposure to fluctuations
in the exchange rate between the U.S. dollar and Brazilian real,
resulting from a firm commitment to pay reals to acquire an
exploratory lease.  The hedge was closed in August 2001,
concurrent with the payment of the lease bonus.  Results from the
hedge appear in Accumulated Other Comprehensive Loss on the
balance sheet.

The Company on occasion uses forward exchange contracts or
collars to manage exposures to currency exchange rate
fluctuations associated with certain assets, liabilities and firm
commitments for which hedge accounting was not used.  During the
first nine months of 2001, Phillips used derivative contracts to
manage exposure to: 1) exchange rate fluctuations between
U.S. and Australian dollars to fund an Australian acquisition;
and 2) exchange rate fluctuations between revenues received in
U.S. dollars and various European currencies and the company's
Norwegian subsidiary's expenditures payable in kroner.  Results


                                21

<PAGE>


from this activity appear in foreign currency transaction gains
and losses on the statement of income.

Commodity Derivative Contracts-- During the last half of
September 2001, the company used hedge accounting for West Texas
Intermediate crude oil (WTI) futures designated as a fair-value
hedge of a firm commitment to sell WTI at Cushing, Oklahoma.  The
changes in the fair values of the futures and the firm commitment
have been recognized in income.

Phillips also used various derivative instruments to manage
exposures to commodity price fluctuations for which hedge
accounting was not used.  Futures, swaps, options, and fixed-
price contracts were used to lock in future sales prices for
crude oil, motor fuel, distillates, propane, butane and other
light ends, blending components, and residual fuels, and also to
lock in margins (e.g., the spread between the cost of feedstock
purchased and refined products sold).  These instruments were
also used to manage the exposure to changes in the value of
physical inventory.  The company also uses futures contracts to
exploit favorable market conditions.

All of the open commodity-based derivative positions issued or
held by the company on September 30, 2001, were obtained in the
acquisition of Tosco, which used derivatives much more
extensively than Phillips as a tool to manage or exploit
exposures to price fluctuations.  At September 30, 2001, the net
notional quantity of derivative commodity contracts was
approximately 5,800 barrels.  For the nine months ended
September 30, 2001, the net recognized gains and losses from
commodity-based derivative activity were not material to
Phillips' statement of income.


Note 14--Non-Mineral Operating Leases

The acquisition of Tosco materially increased Phillips' future
minimum rental payments due under non-cancelable operating
leases.  Including Tosco, Phillips' pro forma future minimum
rental payments at December 31, 2000, would have been
approximately $2.9 billion, net of future minimum sublease income
of approximately $500 million.  This amount excludes guaranteed
residual values of approximately $1.4 billion, which would be
reduced by the fair market value of the leased assets returned.

During the second quarter of 2001, Phillips sold and leased back
the Polar Endeavour crude oil tanker.  This transaction increased
future minimum rental payments by $146 million and has a
guaranteed residual value of $147 million.


                                22

<PAGE>


Note 15--Income Taxes

The company's effective tax rates for the third quarter and first
nine months of 2001 were 48 and 50 percent, respectively, compared
with 55 and 53 percent for the same periods a year ago.  The
effective tax rates for the third quarter and first nine months of
2001 reflect a lower proportion of income in higher-tax-rate
jurisdictions, compared with the same periods a year ago.  In
addition, certain deferred tax adjustments reduced the effective
tax rate for the third quarter and first nine months of 2001,
while deferred tax adjustments increased the effective tax rate
for the same periods a year ago.


Note 16--Foreign Currency

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

                                     Millions of Dollars
                           --------------------------------------
                           Three Months Ended   Nine Months Ended
                              September 30         September 30
                           ------------------   -----------------
                           2001          2000   2001         2000
                           ------------------   -----------------
After-Tax
E&P                        $ (7)           (1)    (3)          (5)
RM&T                          -             -      3           (1)
Chemicals                     -             -      -           (1)
Corporate and Other          10            (9)    (4)         (29)
-----------------------------------------------------------------
Total                      $  3           (10)    (4)         (36)
=================================================================

Before-Tax
E&P                        $(11)           (1)    (8)         (17)
RM&T                         (1)            -      2           (1)
Chemicals                     -             -      -           (1)
Corporate and Other          10            (8)    (4)         (29)
-----------------------------------------------------------------
Total                      $ (2)           (9)   (10)         (48)
=================================================================


                                23

<PAGE>


Note 17--Supplemental Cash Flow Information

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

                                              Millions of Dollars
                                              -------------------
                                                2001         2000
                                              -------------------
Non-Cash Investing and Financing Activities
Investment in equity affiliate through
  exchange of non-cash assets and
  liabilities*                                $   10        4,023
Acquisition of Tosco by issuance of stock      7,049            -
Investment in properties, plants and
  equipment of Alaska businesses
  through the assumption of net non-cash
  liabilities of these businesses                124          460
Investment in equity affiliate through
  direct guarantee of debt                        13           13
Note payable to purchase properties,
  plants and equipment                            15            -
Company stock issued under compensation
  and benefit plans                               13           27
Short-term deferred payment to purchase
  properties, plants and equipment                96            -
Change in fair value of securities               (23)          10
-----------------------------------------------------------------
Cash payments
Interest
  Debt                                        $  153          154
  Taxes and other                                 26           22
-----------------------------------------------------------------
                                              $  179          176
=================================================================
Income taxes                                  $  927          468
-----------------------------------------------------------------
*On March 31, 2000, Phillips combined its gas gathering,
 processing and marketing assets with the gas processing and
 gathering business of Duke Energy into DEFS and on July 1, 2000,
 Phillips and Chevron combined the two companies' worldwide
 chemicals businesses, excluding Chevron's Oronite business, into
 CPChem.  See Note 6--Summarized Financial Data of Significant
 Equity Affiliates.


Note 18--Receivables Monetization

On September 14, 2001, when Phillips acquired Tosco, Tosco had
two agreements with bank-sponsored entities for the revolving
sale of undivided interests in a pool of up to $700 million of
its credit card and trade receivables.  Including these two
agreements, at September 30, 2001, the company had four
agreements with bank-sponsored entities for the sale of undivided
interests in a pool of up to $1.2 billion of revolving credit
card and trade receivables.  Interests retained in the pool of
receivables were measured and recorded at face value, which is
also fair value.  The company also incurred a limited recourse


                                24

<PAGE>


obligation for bad debt experience on the credit card and trade
receivables, which is recorded at a fair value that is equal to
estimated bad debt experience rates.

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

                                                         Millions
                                                       of Dollars
                                                       ----------
Receivables sold at December 31, 2000
  Under a revolving agreement                             $   400
  Under a non-revolving agreement                             100
Tosco receivables sold at September 14, 2001                  613
New receivables sold                                        5,472
Cash collections remitted                                  (5,445)
-----------------------------------------------------------------
Receivables sold at September 30, 2001                    $ 1,140
=================================================================
Discounts and other fees paid on revolving balances       $    17
-----------------------------------------------------------------


Note 19--Related Party Transactions

Significant transactions with affiliated parties were:

                                    Millions of Dollars
                          ---------------------------------------
                          Three Months Ended    Nine Months Ended
                             September 30          September 30
                          ---------------------------------------
                          2001          2000    2001         2000
                          ---------------------------------------

Operating revenues (a)    $195           416     762        1,155
Purchases (b)              219           331     828          943
Operating expenses (c)      43            14     203           37
Selling, general and
  administrative
  expenses (d)              22             8      54           55
Interest income (e)          -             -       -            5
Interest expense (f)         2             -       6            -
-----------------------------------------------------------------


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

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


                                25

<PAGE>


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

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

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

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


Note 20--Segment Disclosures

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

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

(2)  Gas Gathering, Processing and Marketing (GPM)--This segment
     gathers and processes natural gas produced by Phillips and
     others.  Since March 31, 2000, Phillips' GPM segment has
     consisted primarily of its 30.3 percent equity investment in
     DEFS.

(3)  Refining, Marketing and Transportation (RM&T)--This segment
     refines, markets and transports crude oil and petroleum
     products in the United States and Ireland.  On September 14,
     2001, Phillips acquired Tosco Corporation.  This acquisition
     significantly increased the RM&T segment's assets and
     operations.

(4)  Chemicals--This segment manufactures and markets
     petrochemicals and plastics on a worldwide basis.  Since
     July 1, 2000, Phillips' Chemicals segment has consisted
     primarily of its 50 percent equity investment in CPChem.


                                26

<PAGE>


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

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

<TABLE>

<CAPTION>

Analysis of Results by Operating Segment

                                                            Millions of Dollars
                                        ----------------------------------------------------------
                                               Operating Segments
                                        --------------------------------   Corporate
                                            E&P   GPM    RM&T  Chemicals   and Other  Consolidated
                                        ----------------------------------------------------------
<S>                                     <C>       <C>  <C>     <C>         <C>        <C>
Three Months Ended September 30, 2001
Sales and Other Operating Revenues
  External customers                    $ 1,728     -   4,420          -           -         6,148
  Intersegment (eliminations)               113     -       1          -        (114)            -
--------------------------------------------------------------------------------------------------
    Segment sales                       $ 1,841     -   4,421          -        (114)        6,148
==================================================================================================

Net income (loss)                       $   371    23      99        (36)        (93)*         364
==================================================================================================

Three Months Ended September 30, 2000
Sales and Other Operating Revenues
  External customers                    $ 2,228     -   3,360          -           1         5,589
  Intersegment (eliminations)               139     -       2          -        (141)            -
--------------------------------------------------------------------------------------------------
    Segment sales                       $ 2,367     -   3,362          -        (140)        5,589
==================================================================================================

Net income (loss)                       $   474    28      45         10        (131)          426
==================================================================================================


Nine Months Ended September 30, 2001
Sales and Other Operating Revenues
  External customers                    $ 6,198     -  10,542          -           1        16,741
  Intersegment (eliminations)               353     -       4          -        (357)            -
--------------------------------------------------------------------------------------------------
    Segment sales                       $ 6,551     -  10,546          -        (356)       16,741
==================================================================================================

Net income (loss)                       $ 1,455    87     368**      (75)       (336)*       1,499
==================================================================================================

Nine Months Ended September 30, 2000
Sales and Other Operating Revenues
  External customers                    $ 5,054   255   9,620      1,647           2        16,578
  Intersegment (eliminations)               484   287     361        151      (1,283)            -
--------------------------------------------------------------------------------------------------
    Segment sales                       $ 5,538   542   9,981      1,798      (1,281)       16,578
==================================================================================================

Net income (loss)                       $ 1,106   108     154         91        (341)        1,118
==================================================================================================

Total Assets
  At September 30, 2001                 $14,558   150  17,662      2,008         972        35,350
--------------------------------------------------------------------------------------------------
  At December 31, 2000                  $13,834    77   3,420      2,170       1,008        20,509
--------------------------------------------------------------------------------------------------
 *Includes a $10 million extraordinary loss on the early retirement of debt.
**Includes a favorable $28 million cumulative effect of accounting change.

</TABLE>


                                27

<PAGE>


Note 21--New Accounting Standards

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

In August 2001, the FASB issued Statement No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets."  This new
standard supersedes Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," and the accounting and reporting provisions for the
disposal of a segment of a business from Accounting Principles
Board Opinion No. 30, "Reporting the Results of Operations--
Reporting the Effect of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions."  Statement No. 144 retains the requirements of
Statement No. 121 to recognize an impairment loss as the
difference between the carrying value and the fair value for
assets to be held and used only if the carrying amount is greater
than the undiscounted cash flows it produces; however, for all
assets classified as held for sale, Statement No. 144 requires
the assets to be measured at the lower of carrying value or fair
value, less cost to sell.  Phillips is currently assessing the new
standard, but has not yet determined the impact, if any, on the
company's consolidated results of operations, cash flows or
financial position.  Phillips will adopt Statement No. 144 on
January 1, 2002.


                                28

<PAGE>


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


Management's Discussion and Analysis contains forward-looking
statements including, without limitation, statements relating to
the company's plans, strategies, objectives, expectations,
intentions, and resources, that are made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform
Act of 1995.  The words "intends," "believes," "expects,"
"plans," "scheduled," "anticipates," "estimates," and similar
expressions identify forward-looking statements.  The company
does not undertake to update, revise or correct any of the
forward-looking information.  Readers are cautioned that such
forward-looking statements should be read in conjunction with the
company's disclosures under the heading: "CAUTIONARY STATEMENT
FOR THE PURPOSES OF THE `SAFE HARBOR' PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995" beginning on page 58.


RESULTS OF OPERATIONS

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


Consolidated Results

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

                                     Millions of Dollars
                           --------------------------------------
                           Three Months Ended   Nine Months Ended
                              September 30         September 30
                           ------------------   -----------------
                            2001         2000    2001        2000
                           ------------------   -----------------
Exploration and Production
  (E&P)                    $371           474   1,455       1,106
Gas Gathering, Processing
  and Marketing (GPM)        23            28      87         108
Refining, Marketing and
  Transportation (RM&T)      99            45     368         154
Chemicals                   (36)           10     (75)         91
Corporate and Other         (93)         (131)   (336)       (341)
-----------------------------------------------------------------
Net income                 $364           426   1,499       1,118
=================================================================


                                29

<PAGE>


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

                                     Millions of Dollars
                           --------------------------------------
                           Three Months Ended   Nine Months Ended
                              September 30         September 30
                           ------------------   -----------------
                           2001          2000   2001         2000
                           ------------------   -----------------

Property impairments       $  -           (93)   (23)         (93)
Net gains on asset sales     13            19     16           21
Pending claims and
  settlements                 5            (2)     2          (26)
Equity companies' special
  items                     (34)           (2)    (7)          (2)
Extraordinary item          (10)            -    (10)           -
Cumulative effect of
  accounting change           -             -     28            -
Other items                  12            (1)    11            3
-----------------------------------------------------------------
Total special items        $(14)          (79)    17          (97)
=================================================================


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

                                    Millions of Dollars
                           --------------------------------------
                           Three Months Ended   Nine Months Ended
                              September 30         September 30
                           ------------------   -----------------
                           2001          2000    2001        2000
                           ------------------   -----------------

E&P                        $360           551   1,449       1,170
GPM                          23            28      87         110
RM&T                        110            43     353         156
Chemicals                   (27)           15     (89)         94
Corporate and Other         (88)         (132)   (318)       (315)
-----------------------------------------------------------------
Net operating income       $378           505   1,482       1,215
=================================================================


Phillips' net income in the third quarter of 2001 was
$364 million, compared with net income of $426 million in the
third quarter of 2000.  Special items decreased net income by
$14 million and $79 million in the third quarters of 2001 and
2000, respectively.  After excluding special items, net operating
income in the third quarter of 2001 was $378 million, compared
with $505 million in the third quarter of 2000.


                                30

<PAGE>


The decrease in net operating income in the third quarter of 2001
was primarily the result of lower earnings from E&P, which
experienced decreased crude oil and natural gas sales prices, and
losses from Chemicals, which continued to experience difficult
margins in the petrochemicals and plastics industry.  These
factors were partly offset by improved results from RM&T, which
benefited from higher margins and the Tosco Corporation (Tosco)
acquisition, and lower Corporate costs, due to decreased interest
expense and general and administrative costs, and foreign
currency transaction gains versus losses in the third quarter
last year.  The addition of Tosco for the last half of September
2001 contributed $36 million to RM&T's net operating income.

Phillips' net income for the first nine months of 2001 was
$1,499 million, a 34 percent increase from the corresponding
period in 2000.  Special items increased nine-month net income by
$17 million in 2001, while decreasing it $97 million in 2000.
After excluding special items, net operating income was
22 percent higher in the 2001 nine-month period.


Income Statement Analysis

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

On September 14, 2001, Phillips closed on the acquisition of
Tosco.  Accordingly, Phillips' consolidated income statements for
the three- and nine-month periods ended September 30, 2001,
include 16 days of activity related to Tosco.

Sales and other operating revenues increased 10 percent in the
third quarter of 2001, primarily due to the impact of the Tosco
acquisition.  This was partially offset by lower crude oil,
natural gas and petroleum products sales prices, as well as a


                                31

<PAGE>


reduction in revenues attributable to certain non-core assets
sold at year-end 2000.  Sales and other operating revenues
increased slightly in the first nine months of 2001.  The Tosco
acquisition, as well as increased crude oil production and higher
natural gas sales prices, increased revenues.  Sales were reduced
by the use of equity-method accounting for the DEFS and CPChem
joint ventures, as well as the previously mentioned asset sales.
The company now includes excise taxes on the sales of petroleum
products in operating revenues, with the corresponding expense
included in taxes other than income taxes.  All prior periods
presented have been restated to reflect this change in
presentation.

Equity in earnings of affiliated companies was a net loss of
$15 million in the third quarter of 2001, compared with earnings
of $78 million in the third quarter of the prior year.  Equity in
earnings of affiliated companies decreased 43 percent in the nine-
month period of 2001.  In both 2001 periods, Phillips incurred
equity losses from its investment in CPChem, which continued to
face a difficult operating environment in 2001.  Both periods
benefited from increased equity earnings from Merey Sweeny, L.P.,
a 50-percent-owned equity company that owns and operates the
coker unit at the Sweeny, Texas, refinery.

Other revenues decreased 32 percent in the third quarter of 2001
and 15 percent in the first nine months.  The reductions in both
the quarter and nine-month period reflect lower net gains on
asset sales in 2001.

Purchased crude oil and products increased 16 percent in the
third quarter of 2001, primarily as a result of the impact of the
Tosco acquisition.  This was partially offset by lower crude oil
acquisition costs for the company's other refineries,
particularly the Sweeny refinery.  The operation of the new coker
unit at the Sweeny refinery allows for the processing of heavier,
lower-cost crude oil, thus lowering the average purchase cost per
barrel of crude oil.  In the first nine months of 2001, purchases
decreased 10 percent, as the impact of the Tosco acquisition was
more than offset by the use of equity-method accounting for the
DEFS and CPChem joint ventures, and lower crude oil acquisition
costs for the company's other refineries.

Management defines controllable costs as production and operating
expenses; selling, general and administrative expenses; and the
general administrative, geological, geophysical and lease rentals
component (G&G) of exploration expenses.  Controllable costs,
adjusted to exclude G&G, increased 33 percent in the third
quarter of 2001 and 10 percent in the nine-month period.  The
increase in the third quarter was primarily due to the impact of
the Tosco acquisition, along with higher costs in the company's


                                32

<PAGE>


Alaska E&P and legacy RM&T operations, partially offset by lower
corporate general and administrative costs.  In the nine-month
period, these same items were present, but controllable costs
were reduced by the use of equity-method accounting for the DEFS
and CPChem joint ventures.

Exploration expenses were approximately 5 percent higher in the
2001 periods as increased G&G and leasehold impairments were
mostly offset by lower foreign dry hole costs.

Depreciation, depletion and amortization (DD&A) decreased
5 percent in the third quarter of 2001, as the impact of the
Tosco acquisition was more than offset by lower U.S. and Canadian
E&P DD&A, due primarily to asset dispositions.  In the first nine
months of 2001, DD&A increased 12 percent, reflecting a full nine
months of DD&A in 2001 associated with the Alaska acquisition,
compared with only five months activity in the 2000 nine-month
period.  This was partially offset by the use of equity-method
accounting for the DEFS and CPChem joint ventures, as well as the
previously mentioned asset dispositions.  The company recorded a
$23 million property impairment in the second quarter of 2001
associated with the Siri field, offshore Denmark.  See Note 11--
Property Impairments in the Notes to Financial Statements for
additional information on the Siri impairment.

Taxes other than income taxes increased 21 percent in the third
quarter of 2001 and 12 percent in the nine-month period.  The
increases in both periods reflect higher excise taxes on
petroleum products sales, mainly due to the Tosco acquisition.
The third quarter of 2001 experienced decreased production taxes
as a result of lower crude oil prices, while production taxes
were higher in the nine-month period of 2001, primarily the
result of increased production in Alaska.

The company added a new line item to its income statement in the
second quarter of 2001 to disclose the accretion of discounted
liabilities.  The amounts in the third quarter and nine-month
period relate to environmental obligations acquired in the Alaska
and Tosco acquisitions.

Interest expense decreased 25 percent in the third quarter of
2001 and 7 percent in the nine-month period.  The third quarter
of 2001 benefited from lower average debt levels compared with a
year ago, while the nine-month period benefited from higher
interest amounts being capitalized--mainly related to projects in
Alaska, the Timor Sea and Venezuela.  Both periods benefited from
lower short-term interest rates.


                                33

<PAGE>


Foreign currency transaction losses of $2 million and $10 million
were incurred in the third quarter and first nine months of 2001,
respectively, compared with losses of $9 million and $48 million
in the corresponding periods of the prior year.  Preferred
dividend requirements were unchanged from the previous year in
both the third quarter and nine-month period of 2001.


Segment Results

E&P
                           Three Months Ended   Nine Months Ended
                              September 30        September 30
                           ------------------   -----------------
                             2001        2000    2001        2000
                           ------------------   -----------------
                                    Millions of Dollars
                           --------------------------------------
Operating Income
Net income                 $  371         474   1,455       1,106
Less special items             11         (77)      6         (64)
-----------------------------------------------------------------
Net operating income       $  360         551   1,449       1,170
=================================================================

                                      Dollars Per Unit
                           --------------------------------------
Average Sales Prices
Crude oil (per barrel)
    United States
      Alaska               $24.38       29.08   25.20       28.02
      Lower 48              24.69       30.08   25.29       28.23
      Total                 24.41       29.19   25.21       28.06
    Foreign                 25.15       29.89   25.97       28.08
    Worldwide               24.64       29.44   25.46       28.07
Natural gas--lease (per
  thousand cubic feet)
    United States
      Alaska                 1.66        1.39    1.67        1.41
      Lower 48               2.53        3.83    4.24        3.08
      Total                  2.48        3.73    4.08        3.04
    Foreign                  2.48        2.57    2.60        2.45
    Worldwide                2.48        3.31    3.57        2.82
-----------------------------------------------------------------

                                    Millions of Dollars
                           --------------------------------------
Worldwide Exploration
  Expenses
General administrative;
  geological and
  geophysical; and lease
  rentals                  $   53          40     143         118
Leasehold impairment            8           6      34          16
Dry holes                      10          22      25          58
-----------------------------------------------------------------
                           $   71          68     202         192
=================================================================


                                34

<PAGE>



                           Three Months Ended   Nine Months Ended
                               September 30        September 30
                           ------------------   -----------------
                             2001        2000    2001        2000
                           ------------------   -----------------
                                 Thousands of Barrels Daily
                           --------------------------------------
Operating Statistics
Crude oil produced
  United States
    Alaska                    325         294     337         167
    Lower 48                   34          33      34          34
-----------------------------------------------------------------
                              359         327     371         201
  Norway                       98         110     114         112
  United Kingdom               20          22      19          26
  Nigeria                      29          27      30          23
  China                        10          11      11          12
  Timor Sea                     5           7       7           7
  Canada                        1           7       1           7
  Denmark                       4           4       4           5
  Venezuela                     -           5       2           4
-----------------------------------------------------------------
                              526         520     559         397
=================================================================

Natural gas liquids produced
  United States
    Alaska*                    23          24      25          15
    Lower 48                    1           1       1           1
-----------------------------------------------------------------
                               24          25      26          16
  Norway                        3           4       5           5
  Other areas                   5           6       4           5
-----------------------------------------------------------------
                               32          35      35          26
=================================================================
*Includes 13,000 and 15,000 barrels per day in the third quarter
 and nine-month period of 2001, respectively, that were sold from
 the Prudhoe Bay lease to the Kuparuk lease for reinjection to
 enhance crude oil production.  In the corresponding periods of
 2000, includes 16,000 and 10,000 barrels per day, respectively.

                                Millions of Cubic Feet Daily
                           --------------------------------------
Natural gas produced*
  United States
    Alaska                    187         171     175         142
    Lower 48                  759         774     736         769
-----------------------------------------------------------------
                              946         945     911         911
  Norway                      105         127     128         135
  United Kingdom              165         189     177         215
  Canada                       18          90      18          85
  Nigeria                      39          40      41          31
  Australia                    61           -      54           -
-----------------------------------------------------------------
                            1,334       1,391   1,329       1,377
=================================================================
*Represents quantities available for sale.  Excludes gas
 equivalent of natural gas liquids shown above.

Liquefied natural gas sales   130         128     120         120
-----------------------------------------------------------------


                                35

<PAGE>


Net operating income from Phillips' E&P segment decreased
35 percent in the third quarter of 2001, primarily the result of
lower crude oil and natural gas sales prices.  In the first nine
months of 2001, the E&P segment's net operating income increased
24 percent, mainly due to higher natural gas prices earlier in
the year, as well as higher crude oil production, partially
offset by lower crude oil prices.

Phillips' average worldwide crude oil sales price was
$24.64 per barrel in the third quarter, a 16 percent decline from
$29.44 in the corresponding quarter of 2000.  It was also
approximately 5 percent lower than the first- and second-quarter
2001 prices of $25.81 and $25.83, respectively.  U.S. natural gas
prices peaked in January 2001, and have trended downward every
month since.  The company's U.S. Lower 48 states' average natural
gas price for the month of September was $2.17 per thousand cubic
feet.


U.S. E&P
--------
                                    Millions of Dollars
                           --------------------------------------
                           Three Months Ended   Nine Months Ended
                              September 30         September 30
                           ------------------   -----------------
                           2001          2000    2001        2000
                           ------------------   -----------------
Operating Income
Net income                 $305           425   1,162         813
Less special items           (2)           12       5          14
-----------------------------------------------------------------
Net operating income       $307           413   1,157         799
=================================================================

Alaska                     $228           270     713         462
Lower 48                     79           143     444         337
-----------------------------------------------------------------
                           $307           413   1,157         799
=================================================================


Net operating income from the company's U.S. E&P operations
declined 26 percent in the third quarter of 2001, primarily as a
result of lower crude oil and natural gas sales prices, partially
offset by increased crude oil production in Alaska.  In the nine-
month period of 2001, U.S. E&P net operating income increased
45 percent on higher crude oil production and natural gas prices,
partially offset by lower crude oil prices.

U.S. crude oil production increased 10 percent in the third
quarter of 2001, compared with the third quarter of 2000,
primarily due to the startup of the Alpine field in Alaska in
late 2000.  U.S. crude oil production declined 4 percent compared
with the second quarter of 2001, reflecting normal seasonal
declines in Alaska North Slope production, as well as maintenance
activity at the Alpine field.  U.S. natural gas production in the


                                36

<PAGE>


third quarter of 2001 was at about the same level as the third
quarter of 2000.

Special items in the third quarter of 2001 consisted of work
force reduction charges.  In addition, the nine-month period also
included a net favorable result from claims and settlements.
Special items in the third quarter of 2000 included a $19 million
net gain on the disposition of an interest in a coal operation,
partially offset by a property impairment.  The nine-month period
of 2000 included an additional net gain on asset dispositions.


Foreign E&P
-----------
                                     Millions of Dollars
                           --------------------------------------
                           Three Months Ended   Nine Months Ended
                              September 30         September 30
                           ------------------   -----------------
                           2001          2000   2001         2000
                           ------------------   -----------------
Operating Income
Net income                 $ 66            49    293          293
Less special items           13           (89)     1          (78)
-----------------------------------------------------------------
Net operating income       $ 53           138    292          371
=================================================================


Net operating income from the company's foreign E&P operations
declined 62 percent in the third quarter of 2001 and 21 percent
in the nine-month period.  The lower results in both periods were
attributable to lower crude oil and natural gas sales volumes, as
well as lower crude oil prices.  After-tax foreign currency
transaction losses of $7 million and $3 million were included in
foreign E&P's net operating income in the third quarter and first
nine months of 2001, respectively, compared with after-tax losses
of $1 million and $5 million in the corresponding periods of
2000.

Crude oil production from Norway declined in the third quarter of
2001, compared with the third quarter of the previous year, as a
result of downtime related to scheduled maintenance activity at
the Ekofisk complex.  Canadian and Venezuelan crude oil
production declined relative to a year ago due to asset
dispositions.  Foreign natural gas production declined 13 percent
in the third quarter of 2001, primarily due to the maintenance
downtime in Norway and the Canadian asset sales mentioned above,
as well as lower production in the U.K. North Sea due to field
declines.  These items were partially offset by new natural gas
production from offshore Australia.

Special items in the third quarter of 2001 consisted of a net
gain on asset dispositions.  Phillips sold its interest in the
Ann, Alison and Audrey fields located in the U.K. North Sea.


                                37

<PAGE>


Also in the U.K. North Sea, the company traded its interest in
the Kate and Tornado prospects for an additional interest in the
Britannia field and an interest in another property.  In the nine-
month period of 2001, gains on asset dispositions were mostly
offset by a $23 million after-tax impairment of the Siri field,
offshore Denmark.  See Note 11--Property Impairments in the Notes
to Financial Statements for additional information on the Siri
field impairment.  Special items in the third quarter of 2000
included an $86 million impairment of the Ambrosio field in
Venezuela.  In addition, the nine-month period of 2000 included a
deferred tax adjustment resulting from a tax law change in
Australia and a net gain on property dispositions.


GPM
                           Three Months Ended   Nine Months Ended
                              September 30         September 30
                           ------------------   -----------------
                             2001        2000    2001        2000
                           ------------------   -----------------
                                     Millions of Dollars
                           --------------------------------------
Operating Income
Net income                 $   23          28      87         108
Less special items              -           -       -          (2)
-----------------------------------------------------------------
Net operating income       $   23          28      87         110
=================================================================

                                     Dollars Per Barrel
                           --------------------------------------
Average Sales Prices
U.S. natural gas liquids*  $16.37       22.89   20.66       20.66
-----------------------------------------------------------------

                                Millions of Cubic Feet Daily
                           --------------------------------------
Operating Statistics**
Raw gas throughput          2,363       2,202   2,242       2,058
-----------------------------------------------------------------

                                 Thousands of Barrels Daily
                           --------------------------------------
Natural gas liquids
  production                  125         126     120         137
-----------------------------------------------------------------
 *Prices are based on index prices from the Mont Belvieu and
  Conway market hubs that are weighted by DEFS' natural gas
  liquids component and location mix.  The price for the
  September year-to-date period of 2000 is an estimate based on a
  weighted-average of Phillips' realized price in the first
  quarter of 2000 and DEFS' index prices in the second and third
  quarters of 2000.
**Volumes represent Phillips' 30.3 percent of DEFS' throughput
  and production.  The volumes in the September year-to-date
  period of 2000 are estimates based on a weighted-average of
  Phillips' throughput and production in the first quarter of
  2000 and Phillips' share of DEFS' throughput and production in
  the second and third quarters of 2000.


Net operating income from the GPM segment decreased 18 percent in
the third quarter of 2001 and 21 percent in the nine-month
period.  Since Phillips combined its gas gathering, processing
and marketing business with Duke Energy's to form DEFS on


                                38

<PAGE>


March 31, 2000, Phillips has used the equity method of accounting
for its investment in DEFS, so the results for the third quarters
of 2001 and 2000 are comparable.  However, results for the nine-
month periods are not directly comparable.

Phillips' equity earnings from DEFS in the third quarter of 2001
declined primarily because of lower margins realized as a result
of decreased natural gas liquids and natural gas prices.  The
variation in earnings between the nine-month periods of 2001 and
2000 was impacted by the lack of interest expense charges in the
first quarter of 2000 prior to the formation of DEFS.

There were no special items in the third quarter or first nine
months of 2001.  The nine-month period of 2000 included work
force reduction charges and special current and deferred state
tax items related to the closing of the DEFS transaction.


                                39

<PAGE>


RM&T
                           Three Months Ended   Nine Months Ended
                              September 30         September 30
                           ------------------   -----------------
                            2001         2000   2001         2000
                           ------------------   -----------------
                                     Millions of Dollars
                           --------------------------------------
Operating Income
Net income                 $  99           45    368          154
Less special items           (11)           2     15           (2)
-----------------------------------------------------------------
Net operating income       $ 110           43    353          156
=================================================================

                                     Dollars Per Gallon
                           --------------------------------------
Average Sales Prices
Automotive gasoline
  Wholesale                $ .89          .95    .94          .93
  Retail                    1.06         1.10   1.09         1.07
Distillates                  .83          .92    .85          .85
-----------------------------------------------------------------

                                 Thousands of Barrels Daily
                           --------------------------------------
U.S. Operating Statistics
Refinery crude oil
    Capacity                 596*         360    445*         360
    Crude runs               540          269    417          320
    Capacity utilization
      (percent)               91%          75     94           89
Natural gas liquids
  fractionation
    Capacity                 137          137    137          213
    Processed                107          103    105          177
    Capacity utilization
      (percent)               78%          75     77           83
Refinery and natural gas
  liquids production         703          423    580          536
-----------------------------------------------------------------
*Average U.S. crude oil capacity for the period.  Actual U.S.
 capacity at September 30, 2001, was 1,681 thousand barrels per
 day.

Petroleum products outside
  sales
    Automotive gasoline
      Branded                330          254    278          244
      Unbranded/spot         154           64     92           62
    Aviation fuels            43           35     44           37
    Distillates
      Wholesale and retail   117          115    111          113
      Spot                    94           15     46           22
    Natural gas liquids
      (fractionated)          93          102     93          116
    Other products           111           60     75           43
-----------------------------------------------------------------
                             942          645    739          637
=================================================================


                                40

<PAGE>


Net operating income from the RM&T segment increased 156 percent
in the third quarter of 2001 and 126 percent in the nine-month
period.  On September 14, 2001, Phillips closed on the
acquisition of Tosco.  The addition of Tosco for the last half of
September contributed $36 million to RM&T's third-quarter and
nine-month 2001 net operating income.  Also contributing to the
increased earnings in both periods were higher gasoline and
distillates margins, partially offset by higher operating
expenses, mainly due to increased utility costs at the
refineries, as well as crude oil processing fees associated with
the new coker unit at the Sweeny, Texas, refinery.  The coker
unit allows for the processing of heavier, lower-cost crude oil,
which reduces crude oil purchase costs and contributed to the
improved gasoline and distillates margins experienced during the
2001 third quarter and September year-to-date period.

Phillips' U.S. refineries (including Tosco's refineries since the
acquisition date) processed an average of 540,000 barrels per day
of crude oil in the third quarter of 2001, yielding a 91 percent
capacity utilization rate.  This compares with 269,000 barrels
per day processed in the third quarter of the prior year.  The
Tosco acquisition accounted for 216,000 barrels per day in the
quarter.  A maintenance turnaround was performed at the Sweeny
refinery during the third quarter of 2001.  The Sweeny refinery
was shut-in during most of the third quarter of the previous year
to tie in the new coker unit.

Special items in the third quarter of 2001 consisted of work
force reduction charges.  In addition, the nine-month period
included a cumulative effect of a change in accounting method
that increased RM&T net income by $28 million.  Effective
January 1, 2001, Phillips changed its method of accounting for
the costs of major maintenance turnarounds from the accrue-in-
advance method to the expense-as-incurred method.  Special items
in the third quarter and nine-month period of 2000 consisted of
claims and settlements activity.


                                41

<PAGE>


Chemicals
                           Three Months Ended   Nine Months Ended
                              September 30         September 30
                           ------------------   -----------------
                            2001         2000    2001        2000
                           ------------------   -----------------
                                    Millions of Dollars
                           --------------------------------------
Operating Income
Net income (loss)           $(36)          10     (75)         91
Less special items            (9)          (5)     14          (3)
-----------------------------------------------------------------
Net operating income (loss) $(27)          15     (89)         94
=================================================================

                                     Millions of Pounds
                           --------------------------------------
Operating Statistics
Production
  Ethylene                   769          931   2,425       2,699
  Polyethylene               459          534   1,436       1,761
  Styrene                     83          204     276         204
  Normal alpha olefins       155          135     410         135
-----------------------------------------------------------------


The company's Chemicals segment posted net operating losses of
$27 million and $89 million in the third quarter and first nine
months of 2001, respectively, compared with net operating income
of $15 million and $94 million in the corresponding periods of
2000.  On July 1, 2000, Phillips and Chevron combined their
worldwide chemicals businesses, excluding Chevron's Oronite
additives business, into CPChem.  Phillips is using the equity
method of accounting for its 50 percent interest in CPChem.

Results declined in the third quarter of 2001 due to lower
ethylene and aromatics margins and lower ethylene and
polyethylene sales volumes, partially offset by improved
polyethylene margins.  Global industry operating conditions
remained difficult in the third quarter of 2001, as poor economic
conditions resulted in decreased demand and low margins across
many product lines.

In addition to lower margins and volumes, the nine-month period
of 2001, compared with the corresponding period in 2000,
contained interest charges incurred by CPChem that were not
present in the first six months of 2000 prior to the formation of
CPChem.

Special items in the third quarter of 2001 consisted of property
and deferred tax asset impairments related to CPChem's aromatics
manufacturing facility in Puerto Rico.  These items were
partially offset by a favorable deferred tax adjustment recorded
by Phillips that resulted from the CPChem impairments.  Special
items in the third quarter and nine-month period of 2000
primarily consisted of work force reduction charges.


                                42

<PAGE>


Corporate and Other

                                     Millions of Dollars
                           --------------------------------------
                           Three Months Ended   Nine Months Ended
                              September 30         September 30
                           ------------------   -----------------
                            2001         2000    2001        2000
                           ------------------   -----------------
Operating Results
Corporate and Other        $ (93)        (131)   (336)       (341)
Less special items            (5)           1     (18)        (26)
-----------------------------------------------------------------
Adjusted Corporate and
  Other                    $ (88)        (132)   (318)       (315)
=================================================================


Adjusted Corporate and Other includes:

Net interest               $ (58)         (79)   (188)       (192)
Corporate general and
  administrative expenses    (22)         (30)    (77)        (66)
Preferred dividend
  requirements                (9)          (9)    (29)        (30)
Other                          1          (14)    (24)        (27)
-----------------------------------------------------------------
Adjusted Corporate and
  Other                    $ (88)        (132)   (318)       (315)
=================================================================


Net interest represents interest income and expense, net of
capitalized interest.  Net interest costs decreased 27 percent in
the third quarter of 2001 and 2 percent in the nine-month period.
The decrease in net interest expense in the third quarter of 2001
was mainly the result of lower interest on debt due to lower
average debt levels.  The decrease in the first nine months of
2001 was primarily the result of higher interest amounts being
capitalized--mainly related to projects in Alaska, the Timor Sea
and Venezuela.  Both periods benefited from lower short-term
interest rates.

Corporate general and administrative expenses declined 27 percent
in the third quarter of 2001, primarily as a result of lower
benefit-related costs.  Corporate general and administrative
expenses increased 17 percent in the first nine months of 2001,
reflecting increased amounts of staff costs and higher
contributions, corporate advertising and corporate transportation
costs.

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


                                43

<PAGE>


The category "Other" consists primarily of the company's captive
insurance subsidiaries, certain foreign currency transaction
gains and losses, and income tax and other items that are not
directly associated with the operating segments on a stand-alone
basis.  Results from Other were improved in the third quarter of
2001, mainly due to a foreign currency transaction gain of
$10 million in 2001, compared with a loss of $9 million in the
third quarter of 2000.  Results from Other were improved in the
nine-month period of 2001, as lower foreign currency transaction
losses were partially offset by higher income tax expenses not
associated with the operating segments.

Special items in the third quarter of 2001 primarily consisted of
an extraordinary loss on the early retirement of debt, partially
offset by favorable insurance recoveries.  In addition, the nine-
month period also included unfavorable claims and settlements, as
well as a loss on property dispositions.  Special items in the
first nine months of 2000 primarily consisted of costs related to
the late-March 2000 K-Resin facility incident that was partially
insured by the company's captive insurance subsidiary.


                                44

<PAGE>


CAPITAL RESOURCES AND LIQUIDITY

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

Current ratio                       .8           .7            .7
Total debt                     $ 7,881        6,884         7,919
Company-obligated
  mandatorily redeemable
  preferred securities         $   650          650           650
Common stockholders'
   equity                      $14,422        6,093         5,436
Percent of total debt to
  capital*                          34%          51            57
Percent of floating-rate
  debt to total debt                12%          17            29
-----------------------------------------------------------------
*Capital includes total debt, company-obligated mandatorily
 redeemable preferred securities and common stockholders' equity.


During the first nine months of 2001, funds of $3,347 million
were provided by operating activities, an increase of
$630 million over the same period of 2000, primarily driven by a
$381 million increase in net income and a net decrease in non-
cash working capital accounts.  The company used the cash
provided by operations to fund $2,094 million of its 2001 capital
program, retire debt of $1,178 million, and pay dividends.  Cash
and cash equivalents increased $50 million since December 31,
2000.

Following completion of the Tosco acquisition (see Note 3--Tosco
Corporation Acquisition in the Notes to Financial Statements for
more information), Moody's Investors Service and Standard and
Poors upgraded Phillips' senior long-term debt ratings from Baa2
to A3, and from BBB to BBB+, respectively, reflecting the
company's larger size, asset diversity, and the financial
flexibility provided by the acquisition.  At September 30,
2001, Phillips' debt-to-equity ratio had improved from 51 percent
at December 31, 2000, to 34 percent.

At September 30, 2001, Phillips had three bank credit facilities
in place, totaling $3 billion, available for its use either as
direct bank borrowings or as support for the issuance of
commercial paper.  The facilities included a $1.5 billion
revolving facility expiring in May 2002, a $1 billion revolving
facility expiring in October 2001, and a $500 million credit


                                45

<PAGE>


agreement expiring in October 2005.  At September 30, 2001, the
company had no debt outstanding under these credit facilities,
but had $263 million in commercial paper outstanding, which is
supported 100 percent by the credit facilities.  This amount
approximates fair value.

At September 30, 2001, Tosco's $1 billion revolving credit
facility remained available for use.  The outstanding balance of
$191 million was repaid prior to September 30, 2001, and in
October 2001, the commitment under the credit facility was
reduced to $45 million.

On October 16, 2001, Phillips entered into two new revolving bank
credit facilities: a $1.5 billion 364-day facility and a
$1.5 billion five-year facility.  The $3 billion of new
facilities replaced the bank credit facilities that were
available on September 30, 2001, which were canceled upon
effectiveness of the new facilities.

At September 30, 2001, the company had agreements with bank-
sponsored entities for the revolving sale of undivided interests
in a pool of up to $500 million of credit card and trade
receivables, all of which were sold at September 30, 2001.  When
Phillips acquired Tosco on September 14, 2001, Tosco had two
agreements with bank-sponsored entities for the revolving sale of
undivided interests in a pool of up to $100 million of credit
card receivables and up to $600 million of trade receivables, of
which $90 million and $550 million, respectively, were sold at
September 30, 2001.  (See Note 18--Receivables Monetization in
the Notes to Financial Statements).

Phillips has $200 million of master leasing arrangements, under
which it leases and supervises the construction of retail
marketing outlets.  At September 30, 2001, approximately
$155 million had been utilized under these arrangements.  On
September 14, 2001, Tosco had in place previously arranged
leasing arrangements for various Tosco retail stations and two
office buildings in Tempe, Arizona.  At September 30, 2001,
approximately $1.4 billion had been utilized under those
arrangements.  Phillips also has in place a $90 million leasing
arrangement for its corporate aircraft.  At September 30, 2001,
$77 million had been utilized under this arrangement.

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


                                46

<PAGE>


In September 2001, the company redeemed its $300 million
9.18% Notes due September 15, 2021, at 104.59 percent.  The
redemption was funded by issuing commercial paper.

In the second quarter of 2001, Phillips and its co-venturers in
the Hamaca project secured approximately $1.1 billion in debt
financing for their extra-heavy crude oil project located in
Venezuela.  The Export-Import Bank of the United States provided
a guarantee supporting a 17-year-term $628 million bank facility.
Additionally, an unguaranteed $470 million 14-year-term
commercial bank facility was arranged for the project.  Total
debt of $245 million was outstanding under the credit facilities
at September 30, 2001.  Phillips holds a 40 percent interest in
the Hamaca project, which is operated on behalf of the co-
venturers by Petrolera Ameriven.

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

During the second quarter of 2001, Phillips reached an out-of-
court settlement with Remington Oil and Gas Corporation
(Remington) for two lawsuits Phillips brought against Remington
related to the company's net profits interest in South Pass 89,
offshore Louisiana.  Under the terms of the settlement, Remington
paid Phillips $42.5 million in cash and Remington stock.  In
return, Phillips assigned its 33 percent net profits interest in
South Pass 89 to Remington.  As of September 30, 2001, Phillips
had liquidated its Remington shares for proceeds that assured
payment in full.

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


Financial Instrument Market Risk

Phillips and certain of its subsidiaries hold and issue
derivative contracts and financial instruments that expose cash
flows or earnings to changes in commodity prices, foreign
exchange rates, or interest rates.  The company may use financial
and commodity-based derivative contracts to manage the risks
produced by changes in the prices of crude oil, natural gas and


                                47

<PAGE>


related products and fluctuations in foreign currency exchange
rates, or to exploit favorable market conditions.  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 that prohibits the holding or
issuing of highly complex or leveraged derivatives.  Except as
approved by the Chief Executive Officer, the derivative
instruments used by the company must not contain embedded
financing features and must be sufficiently liquid that
comparable valuations are readily available.  The policy also
requires the Chief Executive Officer to establish the maximum
derivative position limits for Phillips and requires the
company's Risk Management Steering Committee, comprised of senior
management, to monitor the use and effectiveness of derivatives.
The Audit Committee of the company's Board of Directors
periodically reviews derivatives policy and compliance.

The following disclosures about commodity and interest rate risk
pertain only to the incremental exposures Phillips assumed from
the acquisition of Tosco and should be read in conjunction with
the Financial Instrument Market Risk section contained in Item 7a
of Phillips' Form 10-K for the year ended December 31, 2000, as
amended.


Commodity Price Risk
In 2001 prior to the Tosco acquisition, Phillips only used
commodity-based derivative contracts to minimize exposures to
price fluctuations occurring between the purchasing of feedstock
and the selling of refined products, while Tosco used derivatives
more extensively as a tool to manage or exploit exposures to
price fluctuations.  Currently the company has assumed Tosco's
approach to risk management for its RM&T business.  All open
commodity-based derivative positions issued or held by the
company on September 30, 2001, were obtained in the acquisition
of Tosco.  The company used a value-at-risk (VAR) model to
estimate the loss that could potentially result on a single day
from the effect of adverse changes in market conditions on these
contracts.  Using a 95 percent confidence level, the VAR analysis
indicated the hypothetical loss would not be material to
Phillips' consolidated financial position, net income, or cash
flows.  Nor was it material for the positions held at
December 31, 2000.

For additional information about the company's use of derivative
instruments, see Note 13--Financial Instruments and Derivative
Contracts in the Notes to Financial Statements.


                                48

<PAGE>


Interest Rate Risk

The following table provides information about the financial
instruments acquired in the Tosco acquisition that are sensitive
to changes in interest rates.  These tables present principal
cash flows and related weighted-average interest rates by
expected maturity dates.  The fair value of the fixed-rate
financial instruments as of September 30, 2001, is estimated
based on quoted market prices.

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

2002         $   40      9.53%   $    -         -%     $  -         -%
2003            151      8.23         -         -         -         -
2004              1      5.62         -         -         -         -
2005              -         -         -         -         -         -
2006            240      7.63         -         -         -         -
Remaining
  years       1,205      7.88         -         -         -         -
---------------------------------------------------------------------
Total        $1,637              $    -                $  -
=====================================================================

Fair value   $1,780              $    -                $  -
=====================================================================


                                49

<PAGE>


Capital Expenditures and Investments

                                        Millions of Dollars
                                  -------------------------------
                                                Nine Months Ended
                                    Revised        September 30
                                       2001     -----------------
                                     Budget      2001        2000
                                  ---------     -----------------
E&P
  Alaska                             $  942       688         315
  Lower 48                              351       295         323
  Foreign                             1,320       840         471
-----------------------------------------------------------------
                                      2,613     1,823       1,109
GPM                                       -         -          14
RM&T                                    608       219         167
Chemicals                                 6         6          63
Corporate and Other                      73        46          17
-----------------------------------------------------------------
                                     $3,300     2,094       1,370
=================================================================
United States                        $1,977     1,255         872
Foreign                               1,323       839         498
-----------------------------------------------------------------
                                     $3,300     2,094       1,370
=================================================================


On December 11, 2000, Phillips' Board of Directors (Board)
approved a 2001 capital budget of $2,539 million.  In October
2001, the Board authorized an increase in capital spending to
$3.3 billion.  The additional funds were approved for investments
in Angola and Brazil deepwater leases, the acquisition of Petroz
initiated in late 2000, the anticipated purchase of additional
Kashagan ownership in Kazakhstan, and the fourth-quarter capital
requirements related to Phillips' Tosco acquisition.

On September 14, 2001, after receiving regulatory clearance from
the Federal Trade Commission, Tosco was merged with a subsidiary
of Phillips, as a result of which Phillips became the owner of
100 percent of the outstanding common stock of Tosco.  There were
no requirements for the divestiture of assets.  For more
information, see Note 3--Tosco Corporation Acquisition in the
Notes to the Financial Statements, which is incorporated herein
by reference.

Effective with the merger, Tom O'Malley, former chairman
and chief executive officer of Tosco, became a member of
Phillips' Board of Directors (Board) and, through the end of
2001, will serve as vice chairman of the Board and chief
executive officer of the company's RM&T operations, after which
he will continue as a member of the Phillips Board.


                                50

<PAGE>


Phillips has had several discoveries in its Alaska exploration
program in 2001.  A discovery three miles west of the Kuparuk
field is estimated to contain an additional 35 million gross
barrels of oil, and production is anticipated to begin in 2003.
Phillips holds a 55.29 percent interest.  Near the Alpine field,
the Nanuq discovery was successfully appraised in 2001.  The
Nanuq field is estimated to contain 40 million gross barrels of
oil, with Phillips interest at 78 percent.  In the National
Petroleum Reserve-Alaska (NPR-A), six wells and one sidetrack
well were drilled over the last two winters, and five of the
wells and the sidetrack well encountered hydrocarbons.  Further
evaluation is planned.  Phillips operates the NPR-A leases and
holds a 78 percent interest.

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

In October 2001, Phillips received approval from the Regulatory
Commission of Alaska and completed the acquisition of an
additional 3.08 percent interest in the Trans-Alaska Pipeline
System from BP, giving the company a 26.78 percent interest.

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

In October 2001, extra-heavy crude oil production began from the
Hamaca project located in Venezuela's Orinoco Oil Belt.  Current
production is 4,000 net barrels of 8.5-degree API crude per day,
expected to reach 12,000 net barrels per day by the end of the
year.  When fully operational in early 2004, the Hamaca project
is expected to produce 66,000 net barrels per day of extra-heavy
crude.  Phillips owns a 40 percent equity interest in the Hamaca
project.


                                51

<PAGE>


On May 3, 2001, Phillips and its co-venturers announced the
successful completion and testing of the Kashagan West 1 well on
the Kazakhstan shelf in the north Caspian Sea.  It was the second
exploration well drilled by the co-venturers in the Kashagan
structure and was located over 25 miles from the Kashagan East 1
discovery well.  Following completion of the Kashagan West 1
well, the Kashagan East 2 appraisal well, located approximately
six miles northwest of Kashagan East 1, was successfully drilled
and tested in the third quarter of 2001.

Two of the co-venturers in the north Caspian Sea venture have
entered into agreements to sell their interests.  Phillips, along
with the other remaining co-venturers, exercised its preemption
rights which will increase the company's ownership from
7.14 percent to 8.33 percent when completed.

In China's Bohai Bay, development activities continued in the
third quarter of 2001 in line with the overall development plan
for Bohai Bay Phase I.  First production is scheduled for the
third quarter of 2002.

In the United Kingdom sector of the North Sea, Phillips'
production platform, Jade, was completed in May 2001.
Commissioning work was completed in the third quarter of 2001,
and drilling began on the first Jade production well.  First
production is expected before the end of the year.

In October 2001, Phillips announced its plans to invest
$85 million for a 20 percent share of a new independent power
project to be built near Kwale, Nigeria.  The plant is expected
to start up in 2004.  As a result of the power-project-investment
approval, Phillips expects to book proved reserves of
approximately 20 million barrels of oil equivalent in 2001.
Phillips also agreed with its co-venturers to evaluate the
development of a liquefied natural gas facility to be located
offshore Nigeria.  If approved, the facility, which would be
20 percent owned by Phillips, is expected to come onstream by
2007 and would utilize about 850 million cubic feet of Phillips'
and co-venturers' Nigerian natural gas per day.

In the third quarter of 2001, Phillips continued pursuing the
goal of increasing its presence in high-potential deepwater areas
by securing interests in three prospective blocks--a twenty
percent interest in a high-potential block in Angola and
one-hundred percent interest in two deepwater exploration blocks
in Brazil.  Phillips will be the operator for the Brazilian
blocks.


                                52

<PAGE>


Also in the third quarter of 2001, the company successfully
participated in its first appraisal well, the Goliath-2, on a
2000 oil discovery off the coast of Norway in the Barents Sea.
Phillips owns a 25 percent interest in this license.

Phillips announced on April 19, 2001, that it had successfully
completed and started up a new 6,000-barrel-per-day unit at its
Borger, Texas, refinery using the company's proprietary S Zorb
sulfur removal technology (SRT) to significantly reduce sulfur
content in gasoline.  Refiners who license the technology can use
it to meet the more stringent Environmental Protection Agency
standards which go into effect in 2004.  In September 2001,
Phillips announced its third licensing agreement for use of its
S Zorb SRT for gasoline.  Also in September 2001, the company
announced that its S Zorb SRT for diesel was available for
licensing.  Phillips expects to complete a large continuous pilot
plant demonstrating S Zorb SRT for diesel by the end of 2001.  A
commercial-scale unit within Phillips' refining system is in the
planning stages.


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.

On June 23, 1999, a flash fire occurred in a reactor vessel at
the K-Resin styrene-butadiene copolymer (SBC) plant at the
Houston Chemical Complex.  Two individuals employed by a
subcontractor, Zachry Construction Corporation (Zachry), were
killed and other workers were injured.  Ten lawsuits were filed
in Texas in connection with the incident, including two actions
for wrongful death.  Both wrongful death lawsuits and many of the
personal injury claims have been resolved.  Three lawsuits remain
pending on behalf of 13 workers.  Those lawsuits are scheduled
for trial during the spring of 2002.

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


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Agreement, under which CPChem was formed, providing for
indemnification of Phillips by CPChem for damages stemming from
this incident.

On March 27, 2000, an explosion and fire occurred at Phillips'
K-Resin SBC plant at the Houston Chemical Complex due to the
overpressurization of an out-of-service butadiene storage tank.
The 370-million-pound-per-year K-Resin SBC facility, which was
contributed to CPChem on July 1, 2000, has been idle since that
time.  One employee was killed and several individuals, including
employees of both Phillips and its contractors, were injured.
The wrongful death claim and the claims of the most seriously
injured workers have been resolved.  Currently, there are
fourteen lawsuits pending on behalf of 67 primary plaintiffs.
The first trial is scheduled for April 2002.  Under the
indemnification provisions of subcontracting agreements with
Zachry and Brock Maintenance, Inc., Phillips has sought
indemnification from these subcontractors with respect to claims
made by their employees.  The Contribution Agreement, pursuant to
which CPChem was formed, does not require CPChem to indemnify
Phillips for liability arising out of this litigation.


Environmental

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

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

At year-end 2000, Phillips reported 30 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP).  Since then, none of these
sites have been resolved and two new sites have been added.  Of
the 32 sites remaining at September 30, 2001, the company believes
it has a legal defense or its records indicate no involvement for
five sites.  At six other sites, present information indicates


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that it is probable that the company's exposure is less than
$100,000 per site.  At five sites, Phillips has had no
communication or activity with government agencies or other PRPs
in more than two years.  Of the 16 remaining sites, the company
has provided for any probable costs that can be reasonably
estimated.  No one site represents more than 10 percent of the
total.

Phillips does not consider the number of sites at which it has
been designated potentially responsible by state or federal
agencies as a relevant measure of liability.  Some companies may
be involved in few sites but have much larger liabilities than
companies involved in many more sites.  Although liability of
those potentially responsible is generally joint and several for
federal sites and frequently so for state sites, the company is
usually but one of many companies cited at a particular site.  It
has, to date, been successful in sharing cleanup costs with other
financially sound companies.  Many of the sites at which the
company is potentially responsible are still under investigation
by the Environmental Protection Agency (EPA) or the state
agencies concerned.  Prior to actual cleanup, those potentially
responsible normally assess site conditions, apportion
responsibility and determine the appropriate remediation.  In
some instances, Phillips may have no liability or attain a
settlement of liability.  Actual cleanup costs generally occur
after the parties obtain EPA or equivalent state agency approval.

At September 30, 2001, contingent liability accruals of
$11 million and $6 million had been made for the company's PRP
sites and other environmental contingent liabilities,
respectively.  In addition, the company had accrued $523 million
for other planned remediation activities, including resolved
state, PRP, and other federal sites, as well as sites where no
claims have been asserted, for total environmental accruals of
$540 million, compared with $127 million at December 31, 2000.
The increase in accrued environmental costs is primarily the
result of Phillips' recent acquisition of Tosco on September 14,
2001.  Accruals totaling approximately $303 million were added
as a result of that transaction.  Earlier in the year, the
accrual was increased for remediation activities required by the
state of Alaska at exploration and production sites formerly
owned by ARCO.  Because these accruals relate to environmental
conditions that existed when Phillips acquired Tosco and the
Alaska businesses, the charges impacted the allocation of the
purchase price of each acquisition, not the company's net
income.  No one site exceeds ten percent of the total.


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


NEW ACCOUNTING STANDARDS

At the end of June 2001, the FASB approved the issuance of FASB
Statement No. 143, "Accounting for Asset Retirement Obligations."
In August 2001, the FASB approved the issuance of FASB Statement
No. 144, "Accounting for the impairment or Disposal of Long-Lived
Assets."  For additional information, see Note 21--New Accounting
Standards in the Notes to Financial Statements, which is
incorporated herein by reference.


OUTLOOK

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

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

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


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Phillips continues to study the potential for a natural gas
pipeline from the North Slope to the Lower 48 states.  While, in
the current economic environment, the company does not believe
the project provides the desired return on investment and may be
too expensive to undertake, Phillips is hopeful that the
stakeholders will work out a solution that will allow this
resource to be produced.  The company is carrying a net book
value of approximately $350 million related to these North Slope
gas resources.

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

In the second quarter of 2001, Phillips was selected to
participate in Saudi Arabia's largest natural gas initiative,
Core Venture 1, with a participating interest of 15 percent.  The
integrated gas project includes gas exploration, gas processing,
natural gas liquids transportation and fractionation,
petrochemical facilities, and combined power and desalination
facilities.  The next steps are to define the project components
in more detail and to negotiate the Implementation Agreement,
which sets out all major financial, operational and legal terms
as well as a timeline for the project execution.

Phillips expects fourth-quarter production to be 825,000 barrels
of oil equivalent per day--an increase of 9,000 barrels per day
over the first nine months average daily production.  Average
production for the year is expected to be approximately
820,000 barrels of oil equivalent per day, 17 percent higher
than the company's year 2000 average daily production level of
698,000 barrels per day.  The expected fourth-quarter increase is
due to normal fourth-quarter seasonal increases, the return to
regular operations after scheduled shutdowns in the third quarter
in Norway and Alaska, and the startup of heavy-oil production
from the Hamaca project in Venezuela.

Now that the Tosco acquisition is complete, the company plans to
focus its efforts on integrating its RM&T assets and capturing
$250 million of before-tax recurring synergies.

The third quarter began amid concerns over crude oil supply and
ended in concerns over demand.  OPEC achieved its production
targets and supported its basket price at an average of
$25 per barrel through the first half of 2001.  After OPEC
decided not to cut quotas at their meeting on July 3, Iraq
resumed exports when a


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proposed tightening of U.N. sanctions was dropped, so the cartel
decided on July 25 to cut quotas effective September 1.
Following the September 11 terrorist attacks, OPEC voted to
maintain quotas, although tighter compliance was emphasized in
the face of anticipated weaker demand.  The OPEC basket price not
only dropped below the $22 per barrel lower level of the target
band, it actually dipped briefly below $20 and has continued
below $22 per barrel since September 19.  The drop in jet fuel
demand, plus the weaker economy, has lowered demand and price
expectations through at least the first half of 2002.

Natural gas prices dropped below $2 per thousand cubic feet
during the third quarter of 2001, for the first time since 1999.
Mild weather, plus conservation as consumers faced higher
electrical power rates, reduced gas demand.  New combined-cycle
gas-powered generating units replaced some older, less efficient
units which also cut consumption in some areas.  The lower prices
induced users that had switched to other fuels to return to
natural gas.  Industry production increases in the Lower 48 have
been disappointing; however, storage levels were at over
90 percent of capacity at the end of the third quarter of 2001,
compared with very low storage levels going into last winter.
The weak economic outlook weighs on short-term gas demand and
prices, although, long-term, gas is poised to resume strong
demand growth.


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.


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

o  Plans to implement Management's announced strategy for its
   four business segments are subject to: the integration of
   supplies, plants and personnel of Tosco Corporation and the
   capture of annual before-tax synergies of $250 million; the
   successful development and operation of the company's current
   projects and the achievement of production estimates; and the
   successful operation and financing of the DEFS and CPChem
   joint ventures.

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

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


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

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


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                  PART II.  OTHER INFORMATION


Item 1.  LEGAL PROCEEDINGS

In its third-quarter Form 10-Q for the period ended September 30,
2000, which was filed with the U.S. Securities and Exchange
Commission on November 14, 2000, Tosco Corporation, which became
a wholly owned subsidiary of Phillips Petroleum Company on
September 14, 2001, reported that it had received a Notice of
Violation from the Environmental Protection Agency alleging that
certain batches of gasoline did not meet the standards for
reformulated gasoline or were not produced in accordance with
specific methods.  A fine of $180,000 was proposed.  A settlement
was reached with the Environmental Protection Agency in September
2001 which will result in a payment of $105,000.


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

Exhibits
--------

12     Computation of Ratio of Earnings to Fixed Charges.

18     Preferability letter from independent auditors on change
       in method of accounting for major maintenance
       turnarounds.


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

During the three months ended September 30, 2001, the company
filed two reports on Form 8-K.

The first report was filed September 18, 2001, to report in
Item 5 that the company had completed its acquisition of Tosco
and included the company's press release as Exhibit 99.1.

The second report was filed September 28, 2001, to report the
acquisition of Tosco in Item 2 and the expected filing date of
the Tosco financial statements and the pro forma financial
information related to the acquisition in Item 7.


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                            SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.


                                    PHILLIPS PETROLEUM COMPANY


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

November 13, 2001


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