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

                         ---------------
                            FORM 10-Q


(Mark One)

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

For the quarterly period ended   June 30, 1997
                               --------------------------------------------
                                OR

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

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

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


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


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


                           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 263,441,992 shares of common stock, $1.25 par value,
outstanding at July 31, 1997.


<PAGE>


                     PART I. FINANCIAL INFORMATION


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

                                           Millions of Dollars
                                    ---------------------------------
                                       Three Months       Six Months
                                          Ended             Ended
                                         June 30           June 30
                                    ---------------------------------
                                      1997     1996     1997     1996
                                    ---------------------------------
Revenues
Sales and other operating revenues  $3,709    3,937    7,653    7,532
Equity in earnings of affiliated
  companies                             35       22       65       20
Other revenues                          19       16       39       25
---------------------------------------------------------------------
    Total Revenues                   3,763    3,975    7,757    7,577
---------------------------------------------------------------------

Costs and Expenses
Purchased crude oil and products     2,228    2,536    4,683    4,742
Production and operating expenses      538      492    1,052    1,012
Exploration expenses                    75       47      115      113
Selling, general and
  administrative expenses              135      135      296      261
Depreciation, depletion and
  amortization                         189      187      372      428
Taxes other than income taxes           62       66      136      132
Interest expense                        49       59      103      118
Preferred dividend requirements
  of subsidiary and capital trusts      21       10       41       18
---------------------------------------------------------------------
    Total Costs and Expenses         3,297    3,532    6,798    6,824
---------------------------------------------------------------------
Income before income taxes and
  Kenai LNG tax settlement             466      443      959      753
Kenai LNG tax settlement                76        -       76      571
---------------------------------------------------------------------
Income before income taxes             542      443    1,035    1,324
Provision for income taxes             235      222      501      408
---------------------------------------------------------------------
Net Income                          $  307      221      534      916
=====================================================================

Net Income Per Share of Common
  Stock                             $ 1.17      .84     2.03     3.49
=====================================================================

Dividends Paid                      $ .340     .305     .660     .610

Average Common Shares Outstanding
  (in thousands)                   263,343  262,949  263,437  262,629
---------------------------------------------------------------------
See Notes to Financial Statements.


                                   1

<PAGE>



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


                                            Millions of Dollars
                                          -----------------------
                                          June 30     December 31
                                             1997            1996
                                          -----------------------
Assets
Cash and cash equivalents                 $   774             615
Accounts and notes receivable (less
  allowances: 1997--$20; 1996--$20)         1,762           1,988
Inventories                                   521             472
Deferred income taxes                         112             117
Prepaid expenses and other current assets     221             114
-----------------------------------------------------------------
    Total Current Assets                    3,390           3,306
Investments and long-term receivables         938             912
Properties, plants and equipment (net)      9,279           9,120
Deferred income taxes                          77              85
Deferred charges                              139             125
-----------------------------------------------------------------
Total                                     $13,823          13,548
=================================================================

Liabilities
Accounts payable                          $ 1,500           1,793
Notes payable and long-term debt due
  within one year                             362             574
Dividends payable                              13               -
Accrued income and other taxes                511             483
Other accruals                                205             287
-----------------------------------------------------------------
    Total Current Liabilities               2,591           3,137
Long-term debt                              2,507           2,555
Accrued dismantlement, removal and
  environmental costs                         745             783
Deferred income taxes                       1,122           1,047
Employee benefit obligations                  445             425
Other liabilities and deferred credits        827             700
-----------------------------------------------------------------
Total Liabilities                           8,237           8,647
-----------------------------------------------------------------

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

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

Common Stockholders' Equity
Common stock--500,000,000 shares
  authorized at $1.25 par value
    Issued (306,380,511 shares)
      Par value                               383             383
      Capital in excess of par              2,011           1,999
    Treasury stock (at cost:
      1997--13,989,571 shares;
      1996--13,878,480 shares)               (756)           (757)
    Compensation and Benefits Trust (CBT)
      (at cost: 29,200,000 shares)           (989)           (989)
Foreign currency translation adjustments       15              54
Unearned employee compensation--Long-
  Term Stock Savings Plan (LTSSP)            (360)           (378)
Retained earnings                           4,282           3,939
-----------------------------------------------------------------
Total Common Stockholders' Equity           4,586           4,251
-----------------------------------------------------------------
Total                                     $13,823          13,548
=================================================================
See Notes to Financial Statements.


                                 2

<PAGE>



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

                                              Millions of Dollars
                                              -------------------
                                                Six Months Ended
                                                    June 30
                                              -------------------
                                                1997         1996*
                                              -------------------
Cash Flows from Operating Activities
Net income                                    $  534          916
Adjustments to reconcile net income to net
  cash provided by operating activities
    Non-working capital adjustments
      Depreciation, depletion and
        amortization                             372          428
      Dry hole costs and leasehold
        impairment                                48           51
      Deferred taxes                             153           78
      Tax settlement receivable                 (102)        (167)
      J-Block settlement                         161            -
      Other                                       63           56
    Working capital adjustments
      Decrease in aggregate balance of
        accounts receivable sold                   -         (200)
      Decrease (increase) in other
        accounts and notes receivable            199         (101)
      Increase in inventories                    (54)         (19)
      Decrease (increase) in prepaid
        expenses and other current assets         (6)          14
      Increase (decrease) in accounts payable   (264)          15
      Decrease in taxes and other accruals       (11)        (294)
-----------------------------------------------------------------
Net Cash Provided by Operating Activities      1,093          777
-----------------------------------------------------------------

Cash Flows from Investing Activities
Capital expenditures and investments,
  including dry hole costs                      (772)        (707)
Proceeds from asset dispositions                  17           27
Long-term advances to affiliates and
  other investments                              (12)         (44)
-----------------------------------------------------------------
Net Cash Used for Investing Activities          (767)        (724)
-----------------------------------------------------------------

Cash Flows from Financing Activities
Issuance of debt                                   3           14
Repayment of debt                               (263)        (139)
Purchase of common stock                         (20)           -
Issuance of common stock                           6           18
Issuance of company-obligated mandatorily
  redeemable preferred securities                350          300
Dividends paid on common stock                  (174)        (160)
Other                                            (69)          70
-----------------------------------------------------------------
Net Cash Provided by (Used for) Financing
  Activities                                    (167)         103
-----------------------------------------------------------------

Increase in Cash and Cash Equivalents            159          156
Balance at beginning of period                   615           67
-----------------------------------------------------------------
Cash and Cash Equivalents at End of Period    $  774          223
=================================================================
See Notes to Financial Statements.
*Reclassified to conform to current presentation.


                                 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.


Note 2--Accounting Policies for Derivative Instruments

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

In accordance with company risk-management policies, any
derivative instrument held by the company must relate to an
underlying, offsetting position, probable anticipated transaction
or firm commitment.  Additionally, the hedging instrument used
must be expected to be highly effective in achieving market value
changes that offset the opposing market value changes of the
underlying transaction.  If an existing derivative position is
terminated prior to expected maturity or re-pricing, any deferred
or resultant gain or loss will continue to be deferred unless the
underlying position has ceased to exist.  Deferred gains and
losses, deferred premiums paid for forward exchange contracts,
and deferred premiums paid for commodity option contracts are
reported on the balance sheet with other current assets or other


                                 4

<PAGE>



current accruals.  Gains and losses from derivatives designated
as hedges of sales are reported on the statement of income with
sales and other operating revenues, whereas gains and losses from
derivatives designated as hedges of commodity purchases are
reported with purchased crude oil and products or with production
and operating expenses, subject to the effects of any related
inventory costing reflected on the balance sheet.  Gains and
losses from hedging feedstock-to-product margins are reported
with purchased crude oil and products.  Recognized gains and
losses are reported on the statement of cash flows in a manner
consistent with the underlying position being hedged.


Note 3--Inventories

Inventories consisted of the following:

                                            Millions of Dollars
                                          -----------------------
                                          June 30     December 31
                                             1997            1996
                                          -----------------------

Crude oil and petroleum products             $190             136
Chemical products                             245             255
Materials, supplies and other                  86              81
-----------------------------------------------------------------
                                             $521             472
=================================================================


Note 4--Properties, Plants and Equipment

Properties, plants and equipment (net) included the following:

                                            Millions of Dollars
                                          -----------------------
                                          June 30     December 31
                                             1997            1996
                                          -----------------------
Properties, plants and equipment
  (at cost)                               $20,316          20,103
Less accumulated depreciation,
  depletion and amortization               11,037          10,983
-----------------------------------------------------------------
                                          $ 9,279           9,120
=================================================================


Note 5--Debt

Phillips increased its revolving bank credit facility from
$1.1 billion to $1.5 billion, effective May 14, 1997.  Effective
July 1, 1997, the company increased its commercial paper program,
which is supported by the company's revolving credit line equal
to 100 percent of the commercial paper outstanding, from
$250 million to $1.5 billion.  At June 30, 1997, no amount was
outstanding under either program.


                                 5

<PAGE>



Effective May 30, 1997, the company amended the LTSSP
$397 million 25-year term bank loan to extend the date that any
participating bank in the syndicate of lenders may cease to
participate from November 30, 2001, to December 5, 2004.


Note 6--Kenai LNG Tax Settlement

On February 26, 1996, the U.S. Tax Court's previous decisions
relating to the company's sales of liquefied natural gas (LNG)
from its Kenai, Alaska, facility to Japan, became final.  The Tax
Court's decisions supported the company's position that more than
50 percent of the income for years 1975 through 1978 was from a
foreign source.  The favorable resolution of this issue increased
net income for the six-month period ended June 30, 1996, by
$565 million.

Final resolution of all outstanding issues for years 1983 through
1986 was recently achieved with the Internal Revenue Service
(IRS).  In June 1997, the IRS notified the company that its
refund claims for these years had been approved for payment.  The
refunds, which primarily relate to the company's sales of LNG
from its Kenai, Alaska, facility to Japan, increased second-
quarter 1997 net income by $80 million.  Cash refunds of $102 million
were received in August 1997.  The company also has a number of issues 
outstanding with the IRS related to tax years 1987 through 1992, further  
discussed in Note 9--Contingencies.


Note 7--Income Taxes

The company's effective tax rates for the second quarter and the
first six months of 1997 were 43 and 48 percent, respectively,
compared with 50 and 31 percent for each of the same periods a
year ago.  Excluding the effect of the favorable resolution of
the Kenai LNG tax litigation and of the outstanding issues with
the IRS for 1983 through 1986 as discussed in Note 6, the
effective tax rates for the second quarter and first six months
of 1997 would have been 51 and 53 percent, respectively,
compared with 50 and 53 percent for the prior year.


Note 8--J-Block Settlement

On June 2, 1997, Phillips Petroleum Company United Kingdom
Limited and its co-venturers, Agip (U.K.) Limited and BG
Exploration and Production Limited reached a settlement with
Enron Europe Limited (Enron) concerning J-Block gas production in
the U.K. sector of the North Sea.  Under the terms of the


                                 6

<PAGE>



settlement agreement, Enron made an immediate cash payment of
$440 million to the J-Block owners; the existing take-or-pay
depletion contract was amended to become a firm long-term supply
contract; and the fixed contract price for J-Block gas was
reduced to reflect current market conditions for long-term gas
sales contracts.  The total contract gas quantity, however,
remains essentially the same.  Phillips' share of the
$440 million cash payment was $161 million.  The settlement
concluded all J-Block litigation with Enron.  The income
associated with the cash payment will be recognized over the
remaining term of the supply contract.


Note 9--Contingencies

In the case of all known contingencies, the company accrues an
undiscounted liability when the loss is probable and the amount
is reasonably estimable.  These liabilities are not reduced for
potential insurance recoveries.  If applicable, undiscounted
receivables are accrued for probable insurance recoveries.  Based
on currently available information, the company believes that it
is remote that future costs related to known contingent liability
exposures will exceed current accruals by an amount that would
have a material adverse impact on the company's financial
statements.

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

Environmental--The company is subject to federal, state and local
environmental laws and regulations.  These may result in
obligations to remove or mitigate the effects on the environment
of the placement, storage, disposal or release of certain
chemical, mineral and petroleum substances at various sites.  The
company is currently participating in environmental assessments
and 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.


                                7

<PAGE>



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

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

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


Note 10--Company-Obligated Mandatorily Redeemable Preferred
Securities of Phillips Capital Trusts

On January 17, 1997, Phillips 66 Capital II (Trust II) completed
a $350 million underwritten public offering of 350,000 shares of
8% Capital Securities (Capital Securities).  The sole asset of
Trust II is $361 million of the company's 8% Junior Subordinated
Deferrable Interest Debentures due 2037 (Subordinated Debt
Securities) purchased by Trust II on January 17, 1997.  The
Subordinated Debt Securities are unsecured obligations of
Phillips, subordinate and junior in right of payment to all
present and future senior indebtedness of Phillips, but equal in
right of payment with Phillips' 8.24% Junior Subordinated
Deferrable Interest Debentures due 2036, issued in 1996.  The
Subordinated Debt Securities are due January 15, 2037, and are
redeemable in whole, or in part, at the option of Phillips, on or
after January 15, 2007.  When the company redeems the
Subordinated Debt Securities, Trust II is required to apply all
redemption proceeds to the immediate redemption of the Trust's
Capital Securities.  Phillips fully and unconditionally
guarantees Trust II's obligations under the securities.

The Capital Securities are accounted for and reported in the
company's financial disclosures in the same manner as the 
8.24% Trust Originated Preferred Securities issued by 
Phillips Capital Trust I in 1996.


                                 8

<PAGE>



Note 11--Cash Flow Information

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

                                              Millions of Dollars
                                              -------------------
                                              1997           1996*
                                              -------------------
Cash payments
Interest
  Debt                                        $106            112
  Taxes and other                               13              7
-----------------------------------------------------------------
                                              $119            119
=================================================================

Income taxes                                  $376            389
-----------------------------------------------------------------

Non-Cash Financing Activities
Treasury stock awards issued under
  incentive compensation plans                $  5              4
Issuance of promissory note to purchase
  service stations                               -              7
-----------------------------------------------------------------
*Reclassified to conform to current presentation.


                                 9

<PAGE>



Note 12--Earnings Per Share

In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement No. 128, "Earnings per Share."  The overall
objective of Statement No. 128 is to simplify the calculation of
earnings per share (EPS) and achieve comparability with
international accounting standards.  FASB Statement No. 128
requires companies to adopt its provisions for fiscal years
ending after December 15, 1997, and requires restatement of all
prior period EPS data presented.  Earlier application is not
permitted.  Statement No. 128 replaces the presentation of
primary and fully diluted EPS with a presentation of basic and
diluted EPS on the face of the income statement.  Basic EPS will
be calculated by dividing income available to common stockholders
by the weighted average common shares outstanding.  Fully diluted
EPS will not change significantly but has been renamed diluted
EPS.  Income available to common stockholders will be adjusted
for the assumed conversion of all potentially dilutive securities
(options, warrants, and convertible debt).  The pro forma EPS
data for the three- and six-month periods ended June 30, 1997 and
1996, follows:

                        1997                      1996
             -------------------------  -------------------------
                 Average                   Average
              Common Shares             Common Shares
               Outstanding   Earnings    Outstanding    Earnings
             (in thousands)  Per Share  (in thousands)  Per Share
             --------------  ---------  --------------  ---------
Three Months
Basic EPS
 (same as
   reported)        263,343      $1.17         262,949      $ .84
Diluted EPS         265,363       1.15         265,173        .83
-----------------------------------------------------------------

Six Months
Basic EPS
 (same as
   reported)        263,437       2.03         262,629       3.49
Diluted EPS         265,568       2.01         264,494       3.46
-----------------------------------------------------------------

                                10

<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 adequate resources, and are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.  The words "forecasts," "intends,"
"possible," "potential," "targeted," "believe," "expect," "plan,"
or "plans," "scheduled," "perceives," "anticipate," "estimate,"
"begin," and similar expressions identify forward-looking
statements.  The company does not undertake to update, revise or
correct any of the forward-looking information.  Readers are
cautioned that such forward-looking statements should be read in
conjunction with the company's disclosures under the heading:
"CAUTIONARY STATEMENT FOR THE PURPOSES OF THE 'SAFE HARBOR'
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995" beginning on page 36.


RESULTS OF OPERATIONS

Unless otherwise noted, discussion of results for the three- and
six-month periods ending June 30, 1997, are based on a comparison
with the corresponding periods in 1996.


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

                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            1997          1996*  1997        1996*
                            ------------------   ----------------
Exploration and Production
  (E&P)                     $124           141    326         228
Gas Gathering, Processing
  and Marketing (GPM)         22            28     50          56
Refining, Marketing and
  Transportation (RM&T)       58            37     67          44
Chemicals                     75            78    147         148
Corporate and Other           28           (63)   (56)        440
-----------------------------------------------------------------
Net Income                  $307           221    534         916
=================================================================
*Restated to reflect the transfer of the company's wholesale
 propane business from RM&T to Chemicals.  In addition, certain
 costs previously held at Corporate are now aligned with the
 operating segments.


                                11

<PAGE>



Consolidated Results

Net income included the following special items on an after-tax
basis:

                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            1997          1996   1997        1996
                            ------------------   ----------------

Property impairments        $(11)            -    (11)        (45)
Kenai LNG tax settlement      80             -     80         565
Net gain on asset sales        7             5      7           5
Foreign currency gains
  (losses)                     6             -    (14)          -
Pending claims and
  settlements                 16            (1)    16         (29)
Other items                   (5)           (4)    (5)        (11)
-----------------------------------------------------------------
Total special items         $ 93             -     73         485
=================================================================


Excluding the special items above, net operating income was
$214 million for the three-month period ended June 30, 1997,
compared with $221 million for the same period last year.  For the
six-month period ended June 30, 1997, net operating income was
$461 million, compared with $431 million for the corresponding
six-month period a year ago.  The results for the second quarter
marked the sixth consecutive quarter in which net operating income
has exceeded $200 million.

RM&T had an especially strong performance in the second quarter,
with net operating income 55 percent higher than the second
quarter a year ago.  Chemicals' net operating income declined
slightly in the quarter, while E&P's and GPM's decreased
11 percent and 50 percent, respectively.


                                12

<PAGE>



                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
Phillips at a Glance         1997         1996    1997       1996
                            ------------------   ----------------

U.S. crude oil
  production (MBD)             69           69      68         71
Worldwide crude oil
  production (MBD)            230          216     222        220
U.S. natural gas
  production (MMCFD)        1,019        1,106   1,053      1,108
Worldwide natural gas
  production (MMCFD)        1,403        1,509   1,461      1,547
Worldwide natural gas
  liquids production (MBD)    169          165     165        160
Liquefied natural gas
  sales (MMCFD)               101          114     116        122
Refinery utilization
  rate (%)                     95           92      89         91
U.S. automotive gasoline
  sales (MBD)                 356          336     342        335
U.S. distillates
  sales (MBD)                 125          136     127        135
Worldwide petroleum
  products sales (MBD)        685          684     688        689
Natural gas liquids
  processed (MBD)             197          208     203        202
Ethylene
  production (MMlbs)*         730          618   1,450      1,313
Polyethylene
  production (MMlbs)*         477          504     983      1,017
Polypropylene
  production (MMlbs)*         116           53     226        142
Paraxylene
  production (MMlbs)          138          168     158        326
-----------------------------------------------------------------
*Includes Phillips' share of equity affiliates' production.


                                13

<PAGE>



Income Statement Analysis

Sales and other operating revenues declined 6 percent in the
second quarter of 1997 and increased 2 percent in the six-month
period.  For the quarter, the decrease was primarily attributable
to lower crude oil sales prices and volumes, along with lower
petroleum products sales prices.  In the six-month period, lower
crude oil revenues were more than offset by higher natural gas
prices, higher petroleum products prices and higher revenues from
the company's chemicals and plastics operations.

Equity in earnings of affiliated companies increased 59 percent
in the second quarter and 225 percent in the 1997 six-month
period.  Increased equity earnings from the company's interest in
the Sweeny Olefins Limited Partnership, due to higher ethylene
margins and sales volumes, substantially benefited both periods
in 1997.  In addition, a first quarter 1996 impairment on equity
companies related to the Point Arguello field affected the
comparison between the six-month periods.  Other revenues for
1997 were 19 percent higher in the second quarter and 56 percent
higher in the six-month period.  Higher gains on asset sales and
higher interest income favorably impacted both 1997 periods.

Purchase costs were 12 percent lower in the second quarter and
slightly lower for the first six months of 1997.  Lower crude oil
purchase prices and volumes primarily contributed to the lower
purchase costs in the 1997 quarter, while lower crude oil
purchases were largely offset by higher purchase costs for
natural gas, petroleum products and chemicals feedstocks in the
six-month period.

Controllable costs, composed primarily of production and
operating expenses and selling, general and administrative
expenses, both adjusted for special items, increased 6 percent and
7 percent in the second quarter and six-month period of 1997,
respectively.  In the quarter, expenses were higher primarily due
to increased production costs associated with new volume
expansions in Chemicals, higher expenses associated with the
company's worldwide growth initiatives, higher maintenance
expenses and higher well workover costs.  In addition, the year-
to-date period included higher fuel-gas costs at manufacturing
facilities.

Exploration expenses increased 60 percent in the second quarter
of 1997, leading to a small increase in the six-month period.
Higher dry hole charges, mainly related to exploratory activity
in the Gulf of Mexico and the U.K. sector of the North Sea,
resulted in the increased exploration expenses.


                                14

<PAGE>



After adjusting for special items, depreciation, depletion and
amortization (DD&A) was slightly lower in the second quarter and
six-month period.  Special items included a first quarter 1996
impairment of the company's Point Arguello E&P field, offshore
California, a reversal of a contingent liability in the second
quarter of 1997, and an impairment of two E&P fields in the U.K.
North Sea in the second quarter of 1997.

Taxes other than income taxes were 6 percent lower in the second
quarter of 1997, primarily due to lower ad valorem taxes.  For
the six-month period, they were 3 percent higher, mainly the
result of higher production taxes.

Interest expense was 17 percent lower in the second quarter of
1997 and 13 percent lower in the six-month period, primarily due
to higher capitalized interest and lower average debt levels in
1997.  Preferred dividend requirements more than doubled in both
periods due to the issuance of mandatorily redeemable preferred
securities in May 1996 and January 1997.


Segment Results

E&P
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                              1997        1996*   1997       1996*
                            ------------------   ----------------
                                     Millions of Dollars
                            -------------------------------------
Operating Income
Reported net income           $124         141     326        228
Less special items              (2)          -      (2)       (64)
-----------------------------------------------------------------
Net operating income          $126         141     328        292
=================================================================
*Restated to reflect that certain costs previously held at
 Corporate are now aligned with the operating segments.

                                      Dollars Per Unit
                            -------------------------------------
Average Sales Prices
Crude oil (per barrel)
    United States           $16.81       18.44   18.35      17.59
    Foreign                  18.13       19.68   19.50      19.31
    Worldwide                17.76       19.27   19.16      18.76
Natural gas--lease (per
  thousand cubic feet)
    United States             1.90        1.84    2.26       1.92
    Foreign                   2.68        2.42    2.69       2.46
    Worldwide                 2.19        2.02    2.42       2.10
-----------------------------------------------------------------


                                15

<PAGE>



                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                              1997        1996    1997       1996
                            ------------------   ----------------
                                     Millions of Dollars
                            -------------------------------------
Worldwide Exploration
  Expenses
Geological and geophysical     $32          30      63         58
Leasehold impairment             5           7      11         14
Dry holes                       35           7      37         37
Lease rentals                    3           3       4          4
-----------------------------------------------------------------
                               $75          47     115        113
=================================================================

                                  Thousands of Barrels Daily
                            -------------------------------------
Operating Statistics
Crude Oil Produced
  United States                 69          69      68         71
  Norway                       110         102     103        100
  United Kingdom                11           5       9          6
  Nigeria                       23          25      23         25
  China                         13          10      15         13
  Canada                         4           5       4          5
-----------------------------------------------------------------
                               230         216     222        220
=================================================================

Natural Gas Liquids Produced
  United States                  4           4       4          4
  Norway                         7           8       7          8
  Other areas                    3           3       2          3
-----------------------------------------------------------------
                                14          15      13         15
=================================================================

                                Millions of Cubic Feet Daily
                            -------------------------------------
Natural Gas Produced
  United States (less gas
    equivalent of liquids
    shown above)             1,019       1,106   1,053      1,108
  Norway*                      290         291     285        306
  United Kingdom*               51          60      78         80
  Canada                        43          52      45         53
-----------------------------------------------------------------
                             1,403       1,509   1,461      1,547
=================================================================
*Dry basis.

Liquefied Natural Gas
  Sales                        101         114     116        122
-----------------------------------------------------------------


E&P's net operating income decreased 11 percent in the second
quarter of 1997, primarily due to higher worldwide exploration
expenses.  In the six-month period, net operating income
increased 12 percent, mainly as a result of higher natural gas
and crude oil sales prices, partially offset by lower natural gas
production.


                                16

<PAGE>



Phillips' worldwide crude oil sales price averaged $17.76 per
barrel in the second quarter of 1997, 14 percent lower than the
first quarter of 1997, and 23 percent lower than the fourth
quarter of 1996.  Industry crude prices have softened throughout
1997, with price increases being short-lived and supported by
supply uncertainties, rather than increased demand.  After the
resolution of each supply uncertainty, industry prices generally
settled lower.


U.S. E&P
--------
                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                             1997         1996*   1997       1996*
                            ------------------   ----------------
Operating Income
Reported net income          $ 91          101     217        138
Less special items             14            -      14        (64)
-----------------------------------------------------------------
Net operating income         $ 77          101     203        202
=================================================================
*Restated to reflect that certain costs previously held at
 Corporate are now aligned with the operating segments.


Net operating income decreased 24 percent in the company's U.S.
E&P operations for the second quarter of 1997, primarily as a
result of higher exploration expenses, lower crude oil sales
prices and lower lease gas production.  Exploration expenses were
higher mainly due to dry hole charges related to exploration
activities in the Gulf of Mexico.  For the six-month period,
higher crude oil and natural gas sales prices were mostly offset
by lower crude oil and gas production, lower miscellaneous
revenues, and higher lifting costs and production taxes.

U.S. crude oil production averaged 69,000 barrels per day in the
second quarter, the same as the second quarter of 1996, but
3 percent higher than the first quarter of 1997.  This marked the
first time since the second quarter of 1994 that U.S. crude oil
production increased between quarters.  Comparing the second
quarter of 1997 with the second quarter of 1996, new production
from the Mahogany subsalt field in the Gulf of Mexico was offset
by production declines at Point Arguello, offshore California;
Prudhoe Bay, Alaska; and South Marsh Island Blocks 146/147 in the
Gulf of Mexico.

U.S. natural gas production was 8 percent lower in the second
quarter of 1997, primarily due to lower production from the
Seastar field (Garden Banks Blocks 70/71) in the Gulf of Mexico,
normal field declines and asset dispositions.  A well in the
Seastar field was shut-in during the quarter while awaiting a
well workover.


                                17

<PAGE>



Special items in the second quarter and first six months of 1997
consisted of a net after-tax gain on asset sales of $7 million
and a reversal of a contingent liability of $7 million after-tax.
Special items in the first six months of 1996 included an
after-tax charge of $45 million for the impairment of the Point
Arguello field and associated assets.  Also included in special
items in the first six months of 1996 were various contingency
accruals, the most significant of which relates to an unfavorable
court judgment regarding producing properties in Alabama.


Foreign E&P
-----------
                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            1997          1996*  1997        1996*
                            ------------------   ----------------
Operating Income
Reported net income         $ 33            40    109          90
Less special items           (16)            -    (16)          -
-----------------------------------------------------------------
Net operating income        $ 49            40    125          90
=================================================================
*Restated to reflect that certain costs, previously held at
 Corporate are now aligned with the operating segments.


Net operating income from the company's foreign E&P operations
increased 23 and 39 percent in the second quarter and six-month
period of 1997, respectively.  Both periods benefited from higher
natural gas sales prices, crude oil production volumes and lower
DD&A charges.  Higher exploration expenses, primarily dry hole
charges related to exploration activities in the U.K. North Sea,
negatively impacted second quarter 1997 results.

Foreign crude oil production increased 10 percent in the second
quarter, as a result of higher production in the Norwegian and
U.K. sectors of the North Sea, and offshore China.  Foreign
natural gas production declined 5 percent in the second quarter
as production was lower in all producing countries.

Special items in the second quarter and first six-months of 1997
consisted of a property impairment of two U.K. North Sea fields
totaling $11 million, after-tax, as well as foreign currency
losses.


                                18

<PAGE>



GPM
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                              1997        1996*   1997       1996*
                            ------------------   ----------------
                                     Millions of Dollars
                            -------------------------------------
Operating Income
Reported net income            $22          28      50         56
Less special items               9           2       9          2
-----------------------------------------------------------------
Net operating income           $13          26      41         54
=================================================================
*Restated to reflect that certain costs, previously held at
 Corporate are now aligned with the operating segments.

                                      Dollars Per Unit
                            -------------------------------------
Average Sales Prices
U.S. residue gas (per
  thousand cubic feet)      $ 1.95        2.16    2.33       2.06
U.S. natural gas liquids
  (per barrel--
  unfractionated)            11.48       12.39   12.88      12.34
-----------------------------------------------------------------

                                Millions of Cubic Feet Daily
                            -------------------------------------
Operating Statistics
Natural Gas Purchases
  Outside Phillips           1,377       1,409   1,362      1,358
  Phillips                     156         175     159        179
-----------------------------------------------------------------
                             1,533       1,584   1,521      1,537
=================================================================

Raw Gas Throughput           2,000       1,938   2,005      1,915
-----------------------------------------------------------------
Residue Gas Sales
  Outside Phillips             983         996     993        997
  Phillips                      51          84      55         83
-----------------------------------------------------------------
                             1,034       1,080   1,048      1,080
=================================================================

                                 Thousands of Barrels Daily
                            -------------------------------------
Natural Gas Liquids Net
  Production
    From Phillips E&P
      leasehold gas             15          17      15         17
    From gas purchased
      outside Phillips         140         133     137        128
-----------------------------------------------------------------
                               155         150     152        145
=================================================================


GPM's net operating income declined 50 percent in the second
quarter of 1997, and 24 percent for the six-month period.  Net
operating income declined in the quarter due to lower margins as
a result of lower natural gas liquids (NGL) and residue gas sales
prices.  For the year-to-date period, net operating income
decreased due to lower margins and increased operating and
depreciation expenses.


                                19

<PAGE>



NGL sales prices stabilized in the second quarter of 1997, after
declining during the first quarter of 1997 from a sharp run-up in
prices during the last four months of 1996.  NGL sales volumes
increased in the quarter as a result of an acquisition made in
early 1997 and higher NGL extractions and operating consistency
at the Linam Ranch plant in New Mexico.

After reaching a 1997 low in March, residue gas sales prices
increased during the second quarter, to approximately the same
level as a year ago.  Residue sales volumes were lower, primarily
from field declines in the Austin Chalk area of south central
Texas.

Special items in the second quarter and six-month period of 1997
consisted of the settlement of a contingency.  Special items in
the second quarter of 1996 represented a gain on the sale of an
NGL plant and gathering system.


                                20

<PAGE>



RM&T
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            1997          1996*  1997        1996*
                            ------------------   ----------------
                                     Millions of Dollars
                            -------------------------------------
Operating Income
Reported net income          $58            37     67          44
Less special items            (1)           (1)    (1)         (1)
-----------------------------------------------------------------
Net operating income         $59            38     68          45
=================================================================

                                      Dollars Per Unit
                            -------------------------------------
Average Sales Prices
  (per gallon)
Automotive gasoline--
  wholesale                 $.66           .70    .68         .65
Automotive gasoline--retail  .82           .86    .83         .81
Distillates                  .59           .63    .63         .60
-----------------------------------------------------------------

                                 Thousands of Barrels Daily
                            -------------------------------------
Operating Statistics
U.S. Refinery Crude Oil
  Capacity                   345           345    345         345
  Crude runs                 327           318    307         315
  Capacity utilization
    (percent)                 95%           92     89          91
-----------------------------------------------------------------

Petroleum Products Outside
  Sales
    United States
      Automotive gasoline--
        wholesale            305           289    293         288
      Automotive gasoline--
        retail                38            38     37          36
      Aviation fuels          29            25     27          24
      Distillates            125           136    127         135
      Other products          12            17     12          16
-----------------------------------------------------------------
                             509           505    496         499
    Foreign                   44            48     43          47
-----------------------------------------------------------------
                             553           553    539         546
=================================================================
*Restated to reflect the transfer of the company's wholesale
 propane business from RM&T to Chemicals.  In addition, certain
 costs previously held at Corporate are now aligned with the
 operating segments.


RM&T's net operating income increased substantially in the second
quarter of 1997, primarily due to improved refinery results.
Although the company's average wholesale gasoline and distillates
sales prices were 6 percent lower in the quarter, crude oil
acquisition costs were 15 percent lower, leading to improved
gasoline and distillates margins.  Margins were also higher for


                                21

<PAGE>



other refinery products.  As in the quarter, higher gasoline and
distillates margins resulted in much improved earnings in the
first six months of 1997.  For the six months, average gasoline
and distillates sales prices were higher, while crude oil
acquisition costs were slightly lower.  Higher controllable costs
at the refineries partly offset the improved margins.

The strong results by RM&T were achieved even though the Sweeny
Complex in Texas experienced an external power outage during the
quarter.  Despite the power outage, RM&T's crude oil capacity
utilization was 95 percent in the quarter, 3 percent higher than
the second quarter a year ago.

Special items in the second quarter and first six months of 1997
included certain costs associated with the Sweeny power outage.
Special items in 1996 related to property damage caused by
equipment failure at the Sweeny refinery.


                                22

<PAGE>



Chemicals
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            1997          1996*   1997       1996*
                            ------------------   ----------------
                                     Millions of Dollars
                            -------------------------------------
Operating Income
Reported net income         $ 75            78     147        148
Less special items            (1)            -      (1)        (7)
-----------------------------------------------------------------
Net operating income        $ 76            78     148        155
=================================================================

                                     Millions of Pounds
                                     Except as Indicated
                            -------------------------------------
Operating Statistics
Production**
  Ethylene                   730           618   1,450      1,313
  Polyethylene               477           504     983      1,017
  Propylene                  112           101     228        213
  Polypropylene              116            53     226        142
  Paraxylene                 138           168     158        326
  Cyclohexane (millions
    of gallons)               41            42      74         85
-----------------------------------------------------------------
**Includes Phillips' share of equity affiliates' production.

                                  Thousands of Barrels Daily
                            -------------------------------------
U.S. Petroleum Products
  Outside Sales
    Automotive gasoline       13             9      12         11
    Liquefied petroleum gas   85            94     101        103
    Other products            34            28      36         29
-----------------------------------------------------------------
                             132           131     149        143
=================================================================

Natural Gas Liquids
  Processing capacity        250           250     250        250
  Liquids processed          197           208     203        202
-----------------------------------------------------------------
*Restated to reflect the transfer of the company's wholesale
 propane business from RM&T to Chemicals.  In addition, certain
 costs previously held at Corporate are now aligned with the
 operating segments.


Chemicals' net operating income decreased slightly in both the
second quarter and first six months of 1997.  While earnings
benefited from substantially higher ethylene and polyethylene
margins, results were negatively impacted by lower paraxylene
margins, and lower sales volumes at the company's Puerto Rico Core
facilities.  Also contributing to lower net operating income were
lower margins in the plastic pipe business, lower polyethylene
sales volumes, and higher costs associated with the company's
worldwide growth activities.  The results from Chemicals were
lowered by an external power outage at the Sweeny Complex in Texas
during the quarter.


                                23

<PAGE>



The company's equity share of polypropylene production was
119 percent higher in the second quarter, reflecting the expanded
capacity attributable to the new, gas-phase polypropylene facility
at the Houston Chemical Complex.  Ethylene production was
18 percent higher in the second quarter of 1997, aided by the
completion of the project to restart a 100 percent-owned ethylene
unit that had been idle since 1992.  This unit has an annual
capacity of 400 million pounds.

Special items in the second quarter and first six months of 1997
consisted primarily of work force reduction charges.  Special
items in the first half of 1996 represented a tax item related to
the company's Puerto Rico Core operations.


Corporate and Other                  Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            1997          1996*  1997        1996*
                            ------------------   ----------------
Operating Results
Reported Corporate and
  Other                     $ 28           (63)   (56)        440
Less special items            88            (1)    68         555
-----------------------------------------------------------------
Adjusted Corporate and
  Other                     $(60)          (62)  (124)       (115)
=================================================================


Adjusted Corporate and Other includes:

Corporate general and
  administrative expenses   $(15)          (17)   (33)        (33)
Net interest                 (28)          (37)   (58)        (72)
Preferred dividend
  requirements               (18)          (10)   (35)        (18)
Other                          1             2      2           8
-----------------------------------------------------------------
Adjusted Corporate and
  Other                     $(60)          (62)  (124)       (115)
=================================================================
*Restated to reflect that certain costs previously held at
 Corporate are now aligned with the operating segments.


Corporate general and administrative expenses decreased
12 percent in the second quarter of 1997, primarily due to the
timing of the payment of charitable contributions.

Net interest represents interest income and expense, net of
capitalized interest.  Net interest was lower in both the second
quarter and first six months of 1997, due to higher capitalized
interest and lower debt levels in 1997.


                                24

<PAGE>



Preferred dividend requirements includes dividends on the
Phillips Gas Company preferred stock and on the preferred
securities of the Phillips 66 Capital I (Trust I) and Phillips 66
Capital II (Trust II) trusts.  The Trust I securities were issued
in May 1996 and the Trust II securities were issued in January
1997, leading to higher preferred dividend requirements in the
second quarter and first six months of 1997.

Other consists primarily of the company's insurance operations,
along with income tax and other items that are not directly
associated with the operating segments on a stand-alone basis.
Other was adversely impacted by lower premium revenues from
insurance operations.

Special items in the second quarter of 1997 consisted primarily
of an $80 million favorable resolution of U.S. income tax issues
covering the years 1983 through 1986, related primarily to income
from the company's Kenai liquefied natural gas facility.  In
addition, the second quarter and year-to-date period included
non-cash foreign currency transaction gains and losses,
respectively, due to the revaluing of an intercompany,
sterling-denominated receivable.  Special items in 1996 included
an after-tax gain of $565 million related to the favorable
settlement of the company's Kenai LNG tax case.


                                25

<PAGE>



CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators

                                         Millions of Dollars
                                    -----------------------------
                                         At           At       At
                                    June 30  December 31  June 30
                                       1997         1996     1996
                                    -----------------------------
Current ratio                           1.3          1.1      1.2
Total debt                           $2,869        3,129    2,983
Preferred stock of subsidiary        $  345          345      345
Company-obligated mandatorily
  redeemable preferred securities    $  650          300      300
Common stockholders' equity          $4,586        4,251    3,982
Percent of total debt to capital*        34%          39       39
Percent of floating-rate debt
  to total debt                          15%          22       19
-----------------------------------------------------------------
*Capital includes total debt, preferred stock of subsidiary,
 company-obligated mandatorily redeemable preferred securities
 and common stockholders' equity.


Cash from operations increased $316 million for the six-month
period ended June 30, 1997, compared with the same period in
1996.  However, excluding the cash impact of the favorable
resolution of the Kenai LNG tax proceeding in the first six
months of 1996 (refund of $209 million), cash from operations
increased $525 million.  Contributing to this increase were a
$30 million increase in net operating income, a $161 million
settlement related to J-Block gas production in the U.K. sector
of the North Sea, and a $200 million decrease in the aggregate
balance of accounts receivable sold in 1996.  This resulted from
payments made on a receivable monetization program during the
first six months of 1996, while the program was inactive in the
first six months of 1997.

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

During the first six months of 1997, cash increased $159 million,
primarily due to the previously mentioned $350 million offering
of company-obligated mandatorily redeemable preferred securities,
and the $161 million J-Block settlement.  These increases
in cash were primarily offset by the repayment of $223 million of
revolving debt.  The increase in cash, combined with decreases in
accounts and notes payable, and long-term debt due within one


                                26

<PAGE>



year, resulted in an improved current ratio of 1.3 at March 31,
1997, compared with 1.1 and 1.2 at year-end 1996 and the end of
the second quarter 1996, respectively.

On April 14, 1997, Phillips' Board of Directors approved the
company's third dividend rate increase in three years, raising
the quarterly per share dividend to $.34, a 6 percent increase,
effective June 2, 1997.  In April, the Board authorized the
expenditure of up to $150 million to repurchase shares of the
company's common stock.  Purchasing began in late April.

Phillips increased its revolving bank credit facility from
$1.1 billion to $1.5 billion, effective May 14, 1997.  Effective
July 1, 1997, the company increased its commercial paper program,
which is supported by the company's revolving credit line equal
to 100 percent of the commercial paper outstanding, from
$250 million to $1.5 billion.  At June 30, 1997, no amount was
outstanding under either program.

Effective May 30, 1997, the company amended the LTSSP
$397 million 25-year term bank loan, to extend the date that any
participating bank in the syndicate of lenders may cease to
participate from November 30, 2001, to December 5, 2004.

During third quarter 1997, the company expects to expand its
master leasing arrangement, under which it leases and supervises
the construction of retail outlets, from $50 million to 
$100 million.  The company has also entered into a master leasing
arrangement for $75 million to upgrade its fleet of four
corporate planes.

In late 1995, Phillips and Shanghai Petrochemical Company Limited
(SPC) formed a joint venture to build and operate a linear
polyethylene plant near Shanghai, China, with an annual capacity
of 220 million pounds.  In May 1997, the joint venture signed
loan agreements to partially fund the design and construction of
the plant.  Remaining funding was provided by registered capital
previously contributed by Phillips and SPC.  Phillips is
guaranteeing the U.S. dollar portion of the loan agreements,
totaling $33.7 million.  SPC is guaranteeing the foreign currency
portion of the loans.  Phillips has a 40-percent interest in the
joint venture.


                                27

<PAGE>



Capital Expenditures and Investments

                              Millions of Dollars
              ----------------------------------------------------
                              Three Months Ended  Six Months Ended
                                   June 30             June 30
                              ------------------  ----------------
              Estimated 1997  1997          1996  1997        1996
              --------------  ------------------  ----------------

E&P               $1,001       251           275   466         476
GPM                  135        16            16    59          29
RM&T                 245        54            39   100          91
Chemicals            310        54            44   114          88
Corporate
  and Other           76        19            17    33          23
------------------------------------------------------------------
                  $1,767       394           391   772         707
==================================================================

United States     $1,028       237           170   466         344
Foreign              739       157           221   306         363
------------------------------------------------------------------
                  $1,767       394           391   772         707
==================================================================


The company's improved operating results, the settlement of the
J-Block gas production dispute, and the Kenai LNG tax settlement
have enhanced Phillips' financial flexibility.  As a result, in
July the company announced a 6 percent increase in its 1997
capital budget, from $1.67 billion to $1.77 billion.  The boost
in spending plans is 14 percent above actual 1996 expenditures,
and the capital budget is at its highest level since the mid-1980s.

The E&P capital spending program received the largest increase--
from $905 million to $1 billion.  The increase is expected to be
applied to the rights to operate and explore existing fields in
northwest Venezuela, and for development and enhanced oil
recovery projects in Norway and the United Kingdom.

During second quarter 1997, Phillips and its co-venturers
successfully bid on risk service contracts for three production
fields in Venezuela with gross estimated reserves, after
application of enhanced recovery efforts, of 650 million to 
900 million barrels of oil.  The Ambrosio field, where Phillips has 
a 100-percent interest, currently produces 3,300 barrels of oil per
day.  The LL-652 field, where Phillips has a 20-percent interest,
currently produces 11,700 barrels per day.  The company holds a
50-percent interest in La Vela Costa Afuera, with estimated gross
production of 20,000 to 30,000 barrels of oil per day and up to
75 million cubic feet of gas per day.  Production is expected to
commence in 2001.


                                28

<PAGE>



Phillips has also entered into an agreement with Arco, Texaco and
Corpoven, S.A., a subsidiary of Venezuela's state oil company,
to study the development of extra-heavy oil reserves from the
Hamaca region of the Orinoco Oil Belt in eastern Venezuela.  If
development occurs, Corpoven has estimated 2.4 billion barrels of
oil could be recovered, with gross production averaging nearly
200,000 barrels per day by 2006.  Phillips' interest in the joint
venture is 20 percent.

In the Norwegian North Sea, construction continues on the new
processing and transportation platform at Ekofisk.  This project
(Ekofisk II), which is 86 percent complete, on time and under
budget, replaces the majority of the facilities in the existing
Ekofisk complex.  Some of the existing facilities that are to
continue in operation after the start up of Ekofisk II in 1998
will be impacted by the continuing subsidence in the Ekofisk
area, and studies are in progress to determine what future
actions are necessary with regard to these facilities.  Future
costs related to subsidence of the existing facilities are not
expected to materially impact the financial results of the
company.  Also in the Norwegian North Sea, a waterflood project
at Eldfisk is being planned.  Subject to approval by Phillips'
Board of Directors, water injection would begin in January 2000.

Oil and gas production from the Mahogany field offshore Louisiana
was less than originally forecasted for the first half of 1997,
due to delays encountered with well completions, equipment
problems, and higher than expected water production.  Gross
production averaged 6,400 barrels of oil per day while gas
volumes averaged 5.9 million cubic feet per day.  A fifth
production well is currently being drilled, and Phillips and its
co-venturers continue to evaluate possible causes for the water
production and alternatives to manage it.  Phillips is the field
operator with a 37.5 percent interest.

Phillips has assigned its interest in the Lion subsalt
exploration well, which is also offshore Louisiana, to the
operator and other co-venturer, who plan to continue drilling
below the initial target zone.  The assignment was effective in
July 1997 and resulted in a $7 million after-tax dry hole charge
in the second quarter.

During second quarter 1997, the company and its co-venturers
announced the development of a satellite oil field in Block 15/11
of the South China Sea.  The Xijiang 24-3-A14 well currently is
producing 7,000 gross barrels of oil per day and is expected to
flow more than 10,000 barrels per day at full production.  With
completion of the well, Phillips set a world record for extended-
reach drilling and a record for China's longest measured-depth
well.  Phillips is the operator of the Xijiang 24-3 field with a
24.5 percent interest.


                                29

<PAGE>



The company has oil mining leases for production of oil and gas
in Nigeria, which interests are operated on behalf of the company
by Nigerian Agip Oil Company.  The initial term of the leases was
through June 13, 1997, and, under the lease terms, the company is
entitled to renewal of the lease upon application, assuming it
has performed its obligations under the leases.  The company
believes it has performed its obligations and the operator of the
company's interests has made timely application for renewal on
behalf of the company.  While renewal of the leases has not yet
been confirmed by Nigerian authorities, the operator has been
advised by the Nigerian authorities that the renewal application
is being processed and that it should continue operations, and
production has continued unabated after June 13, 1997.
Management expects that production will continue and that
renewals will be confirmed in due course.  The company's Nigerian
interests represent approximately 7 percent of its currently
reported total worldwide oil and gas reserves, and production and
sale of these reserves contributed approximately $35 million to
the company's after-tax net income in 1996.  The company's net
investment in Nigeria at December 31, 1996, was $178 million.

GPM's capital expenditures and investments for the six months
ended June 30, 1997, increased substantially over the same period
in 1996, primarily due to a purchase of gathering assets from
Amoco Production Company in January 1997.  GPM received a
$35 million increase in its 1997 capital budget, primarily for
plant expansions and for projects that will add new raw gas
volumes.

The company continues its planned retail-marketing expansion that
began in 1996.  Eighteen new retail outlets were opened in the
first six months of 1997.  In addition, eight existing units were
razed and rebuilt.  Since the expansion program began, utilizing
both capital funds and a master leasing program, the company has
acquired 24 retail outlets, opened 25 new ones, and razed and
rebuilt 14 others.  The new outlets and the existing outlets that
were razed and rebuilt utilize the new Kicks 66 convenience store
design.

The company recently announced plans to complete two major
pipeline projects--one to serve markets in the Midwest and the
other to carry petroleum products to markets not previously served
by the company in the Southwest.  In February, Phillips 
and its co-venturer announced plans to convert a portion of the
Seaway Pipeline system to refined products service.  In
conjunction with this conversion, Phillips plans to construct a
new 150-mile, 18-inch pipeline to connect the Seaway line to the
company's existing Midwest distribution system near Wichita,
Kansas, to transport gasoline and distillates from the Gulf Coast
to the growing Midwest market.  Construction is scheduled to be
completed in the first quarter of 1998.  Construction is expected


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to begin in the fourth quarter of 1997 on another major pipeline
system that would transport petroleum products to markets in El
Paso, Texas, and Tucson and Phoenix, Arizona.  This project,
scheduled for completion in early 1999, involves reversing and
converting an existing eight-inch natural gas liquids pipeline
that extends from Borger, Texas, to Gaines County, Texas.  In
addition, a new 220-mile, 10-inch pipeline would be constructed
from Gaines County to El Paso, and a new terminal would be built
at El Paso.

During the first quarter, the company completed a paraxylene
capacity increase at its Puerto Rico Core facility, raising
capacity from 675 million to 880 million pounds per year.

Construction of a debottlenecking project at Sweeny Olefins
Limited Partnership's (SOLP) ethylene plant has been completed,
and in April 1997 the lawsuit filed by First Olefins Limited
Partnership (FOLP), one of the general partners in SOLP, against
the company was dismissed.  In the lawsuit, filed late in 1995,
FOLP had sought an injunction to halt construction of the
debottlenecking project.  Phillips owns a 50-percent interest in
SOLP.


New Accounting Standards

In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income," and
Statement No. 131, "Disclosures about Segments of an Enterprise
and Related Information."  Both Statements are effective for
fiscal years beginning after December 15, 1997, and are
disclosure-oriented statements.  Therefore, neither Statement
will affect the company's reported consolidated net income.  The
company has not yet determined whether it will early adopt either
Statement, or the disclosure formats it will adopt in response to
these Statements.


J-Block Update

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


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<PAGE>



The settlement concluded all J-Block litigation with Enron.
Phillips' share of the $440 million cash payment was
$161 million.  The income associated with the cash payment will
be recognized over the remaining term of the supply contract.

It is anticipated that for the remainder of 1997 J-Block gross
production will average approximately 270 million cubic feet of
gas per day and 80,000 barrels per day of liquids.  Initial gas
sales commenced in June.  The settlement provides the J-Block
owners more flexibility to produce gas and liquids from fields in
the surrounding area, using the J-Block facilities' capacity to
handle up to 100,000 barrels of liquids and 450 million cubic
feet of gas per day.

J-Block (blocks 30/7a and 30/12a) is operated by Phillips, which
owns a 36.5 percent interest.  Other interests are held by Agip
(U.K.) Limited, 33 percent; and BG Exploration and Production
Limited, 30.5 percent.  Phillips also owns 32.5 percent and
35 percent interests in the adjacent Blocks 30/2c and 30/13,
respectively.


Contingencies

Legal and Tax Matters

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

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


Environmental

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


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<PAGE>



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

At year-end 1996, Phillips reported 47 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP).  Since then, two sites were
resolved through consent decrees, deposits into trust funds, or
otherwise.  One site was added during the six-month period.  Of
the 46 sites remaining at June 30, 1997, the company believes it
has a legal defense or its records indicate no involvement for
16 sites.  At seven other sites, present information indicates
that it is probable that the company's exposure is less than
$100,000 per site.  At seven sites, Phillips has had no
communication or activity with government agencies or other PRPs
in more than two years.  Of the 16 remaining sites, the company
has provided for any probable costs that can be reasonably
estimated.

Phillips does not consider the number of sites at which it has
been designated potentially responsible by state or federal
agencies as a relevant measure of liability.  Some companies may
be involved in few sites but have much larger liabilities than
companies involved in many more sites.  Although liability of
those potentially responsible is generally joint and several for
federal sites and frequently so for state sites, the company is
usually but one of many companies cited at a particular site.  It
has, to date, been successful in sharing 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 June 30, 1997, accruals of $7 million had been made for the
company's unresolved PRP sites.  In addition, the company has
accrued $75 million for other planned remediation activities,
including resolved state, PRP, and other federal sites, as well
as sites where no claims have been asserted, and $6 million for
other environmental contingent liabilities, for total


                                33

<PAGE>



environmental accruals of $88 million.  No one site represents
more than 10 percent of the total.

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


OUTLOOK

Phillips and its co-venturers are studying a plan to develop both
blocks of the Bayu-Undan gas condensate discovery in the Timor
Sea Zone of Cooperation, located between Indonesia and Australia,
as a single field, with BHP Petroleum Pty. Ltd. as unit operator.
The field initially is planned to be developed as a gas-
reinjection project, with liquids production processed on a
floating processing, storage, and offloading facility built from
a modified tanker.  The co-venturers plan to start production in
January 2002.  A decision is pending on the location and type of
facility to liquefy the natural gas at a later stage in the
project's development.

Phillips and its co-venturers have signed an agreement with the
Republic of South Africa and the South Africa National Oil Co. to
explore 14.5 million acres in the Indian Ocean.  The prospecting
sub-lease agreement gives Phillips and its co-venturers the
exclusive rights to explore for oil and gas in Block 17/18 along
the east coast of South Africa.  Under the initial four-year
agreement, Phillips plans to gather seismic data and drill at
least one exploratory well.  Phillips is the operator of the sub-
lease with a 40-percent interest.

Phillips has drilled the majority of its subsalt portfolio on the
continental shelf in the Gulf of Mexico.  Although commercial
success has been limited, the technology has been proven and the
information gained will be extrapolated to the company's next
major exploration program in North America--the drilling of 
deep-water blocks in the Gulf of Mexico--and elsewhere.  Phillips
has acquired a 33.33 percent interest in 118 offshore deep-water
blocks in the Gulf.


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<PAGE>



Phillips and Mobil Corporation jointly hold the leases on the 118
deep-water tracts, and plan to drill their first joint deep-water
well in 1998.  The co-venturers plan to accelerate deep-water
exploration after taking delivery of a contracted drillship in
late 1998.

Phillips has begun drilling a delineation well on the Tyonek Deep
prospect in Alaska's Cook Inlet, with completion expected by
year-end 1997.

Over the next three years, Phillips is committed to participating
in 10 wells in the Athena prospect off the western coast of
Australia.  This includes two wells previously drilled.  The
company's interest in the prospect is 50 percent.

In January 1997, the company was awarded a license for oil and
gas exploration and development in deep water offshore western
Greenland.  Seismic surveys of the Greenland acreage indicate the
possibility of significant hydrocarbon-bearing formations, and
the company is planning to conduct drilling activities together
with a co-venturer.  The first well is planned for 1998.
Phillips has a 38.25 percent interest.

In May 1997, Phillips and Qatar General Petroleum Corporation
(QGPC) signed a Heads of Agreement for a new joint-venture
petrochemical complex to be built in Qatar.  The complex would
use Phillips' proprietary polyethylene and hexene-1 manufacturing
and catalyst technology and would feature a 1.1 billion pounds-
per-year ethylene plant.  It would also feature manufacturing
facilities capable of producing one billion pounds per year of
polyethylene (high-density and linear low-density), and a
hexene-1 plant with a capacity of 100 million pounds per year.
Construction of the complex is scheduled to begin in 1998, with
initial production in late 2000.  The project is subject to
negotiation of definitive agreements and to the approval of the
Boards of Directors of QGPC and Phillips.  Phillips would have a
49-percent interest.

At Sweeny, the company is evaluating a joint venture with
Corpoven, a subsidiary of the state oil company of Venezuela, to
install a coker for processing heavier crudes.  In addition, the
company plans to install a continuous catalytic reformer to
convert a higher percentage of plant yield to higher-valued
petrochemical feedstock products.  This project is now expected
to commence in early 1998, with completion scheduled for 2000.

During the second quarter, crude oil prices continued the
general softening that began earlier in the year and reached
their lowest level since early 1996.  Industry natural gas prices
have also weakened from their seasonal highs and are modestly
below year-ago levels.  OPEC froze their quotas at current levels


                                35

<PAGE>



for the remainder of the year.  However, production is nearly two
million barrels per day above quotas and the market remains
modestly oversupplied.  Complicating the supply/demand balance is
the timing of the start-up of the delayed second tranche of Iraqi
humanitarian oil exports, which follows the completion of the
first tranche in early June.  Global inventories are above
year-ago levels and are expected to remain at this level for the
remainder of the year.  Natural gas prices are expected to stay
near current levels throughout the summer, while there is
potential for supply shortfalls due to short-term weather events.
Industry underground storage levels have risen sharply and are
above year-ago levels, but still below 1995 levels.  They are
expected to remain above 1996 levels for the remainder of the
year.


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

Phillips is including the following cautionary statement to take
advantage of the "safe harbor" provisions of the PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 for any forward-looking
statement made by, or on behalf of, the company.  The factors
identified in this cautionary statement are important factors
(but not necessarily all important factors) that could cause
actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the company.

Where any such forward-looking statement includes a statement of
the assumptions or bases underlying such forward-looking
statement, the company cautions that, while it believes such
assumptions or bases to be reasonable and makes them in good
faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and
actual results can be material, depending on the circumstances.
Where, in any forward-looking statement, the company, or its
Management, expresses an expectation or belief as to future
results, such expectation or belief is expressed in good faith
and believed to have a reasonable basis, but there can be no
assurance that the statement of expectation or belief will
result, or be achieved or accomplished.

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

 o   Plans to drill wells and develop offshore or onshore
     exploration and production properties are subject to the
     company's ability to obtain agreements from co-venturers or


                                36

<PAGE>



     partners, and governments; engage drilling, construction and
     other contractors; obtain economical and timely financing;
     geology, land or sea, or ocean conditions; world prices for
     oil, natural gas and natural gas liquids; and foreign and
     United States laws, including tax laws.

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

  o  The ability to meet liquidity requirements, including the
     funding of the company's capital program from operations, is
     subject to changes in the commodity prices of the company's
     basic products of oil, natural gas and natural gas liquids,
     over which Phillips has no control, and to a lesser extent
     the commodity prices for its chemical and other products;
     its ability to operate its refineries and chemical plants
     consistently; and the effect of foreign and domestic
     legislation of federal, state and municipal governments that
     have jurisdiction in regard to taxes, the environment and
     human resources.

  o  Estimates of proved reserves, raw natural gas supplies, cost
     estimates of the Ekofisk II project, and planned spending
     for maintenance and environmental remediation were developed
     by company personnel using the latest available information
     and data, and recognized techniques of estimating, including
     those prescribed by the Securities and Exchange Commission,
     generally accepted accounting principles and other
     applicable requirements; however, new or revised information
     or changes in scope or economics could cause results to
     vary, perhaps materially.


                                37

<PAGE>



                  PART II.  OTHER INFORMATION

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

The company held its annual stockholders' meeting on May 12,
1997.  A brief description of each proposal and the voting
results follow:

  A company proposal to elect thirteen directors.

                                      For      Against & Withheld
                              -----------------------------------
  W. W. Allen                 256,886,152               5,714,571
  Norman R. Augustine         257,191,428               5,409,295
  George B. Beitzel           256,561,335               6,039,388
  David L. Boren              256,763,421               5,837,302
  C. L. Bowerman              257,006,141               5,594,582
  Robert E. Chappell, Jr.     257,281,203               5,319,520
  Lawrence S. Eagleburger     254,670,353               7,930,370
  James B. Edwards            257,035,321               5,565,402
  Larry D. Horner             257,164,909               5,435,814
  J. J. Mulva                 256,305,507               6,295,216
  Randall L. Tobias           257,143,750               5,456,973
  Victoria J. Tschinkel       256,838,738               5,761,985
  Kathryn C. Turner           256,735,178               5,865,545

  A company proposal to approve the designation of Ernst &
  Young LLP as independent auditors for 1996.

                  For         256,696,568
              Against           4,806,502
          Abstentions           1,097,653
            Not Voted          31,032,767

All thirteen directors were elected, and the independent public
accountants proposed by the company were approved.


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

Exhibits
--------

3(ii)  Bylaws of Phillips Petroleum Company, as amended effective
       July 14, 1997.

12     Computation of Ratio of Earnings to Fixed Charges.

27     Financial Data Schedule.

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

During the three months ended June 30, 1997, the company did not
file any reports on Form 8-K.


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<PAGE>



                           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/ Jacqueline K. Wagner
                                   -----------------------------
                                        Jacqueline K. Wagner
                                   Vice President and Controller
                                    (Chief Accounting and Duly
                                        Authorized Officer)

August 8, 1997


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