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, 1998
                               ---------------------------------------------

                                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 258,384,526 shares of common stock, $1.25 par value,
outstanding at July 31, 1998.

<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
                                    ---------------------------------
                                      1998     1997     1998     1997
                                    ---------------------------------
Revenues
Sales and other operating revenues  $2,964    3,709    6,057    7,653
Equity in earnings of affiliated
  companies                             24       35       50       65
Other revenues                          12       19      147       39
---------------------------------------------------------------------
    Total Revenues                   3,000    3,763    6,254    7,757
---------------------------------------------------------------------

Costs and Expenses
Purchased crude oil and products     1,617    2,228    3,315    4,683
Production and operating expenses      517      538    1,072    1,052
Exploration expenses                    49       75       99      115
Selling, general and
  administrative expenses              139      135      283      296
Depreciation, depletion and
  amortization                         252      189      483      372
Taxes other than income taxes           60       62      125      136
Interest expense                        34       49       80      103
Preferred dividend requirements
  of subsidiary and capital trusts      13       21       26       41
---------------------------------------------------------------------
    Total Costs and Expenses         2,681    3,297    5,483    6,798
---------------------------------------------------------------------
Income before income taxes and
  Kenai LNG tax settlement             319      466      771      959
Kenai LNG tax settlement                 -       76        -       76
---------------------------------------------------------------------
Income before income taxes             319      542      771    1,035
Provision for income taxes             161      235      370      501
---------------------------------------------------------------------
Net Income                          $  158      307      401      534
=====================================================================

Net Income Per Share of Common
  Stock
    Basic                           $  .61     1.17     1.54     2.03
    Diluted                            .60     1.15     1.52     2.01
---------------------------------------------------------------------

Dividends Paid                      $  .34      .34      .68      .66
---------------------------------------------------------------------

Average Common Shares Outstanding
  (in thousands)
    Basic                          260,383  263,343  261,314  263,437
    Diluted                        262,715  265,363  263,507  265,568
---------------------------------------------------------------------
See Notes to Financial Statements.


                                   1

<PAGE>



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


                                            Millions of Dollars
                                          -----------------------
                                          June 30     December 31
                                             1998            1997*
                                          -----------------------
Assets
Cash and cash equivalents                 $   130             163
Accounts and notes receivable (less
  allowances: 1998 -- $18; 1997 -- $19)     1,427           1,717
Inventories                                   611             500
Deferred income taxes                         129             168
Prepaid expenses and other current assets     131             100
-----------------------------------------------------------------
    Total Current Assets                    2,428           2,648
Investments and long-term receivables         984             964
Properties, plants and equipment (net)     10,309          10,022
Deferred income taxes                          88              82
Deferred charges                              144             144
-----------------------------------------------------------------
Total                                     $13,953          13,860
=================================================================

Liabilities
Accounts payable                          $ 1,475           1,546
Notes payable and long-term debt due
  within one year                             106             234
Accrued income and other taxes                333             365
Other accruals                                279             300
-----------------------------------------------------------------
    Total Current Liabilities               2,193           2,445
Long-term debt                              3,024           2,775
Accrued dismantlement, removal and
  environmental costs                         720             713
Deferred income taxes                       1,351           1,257
Employee benefit obligations                  462             436
Other liabilities and deferred credits        712             770
-----------------------------------------------------------------
Total Liabilities                           8,462           8,396
-----------------------------------------------------------------

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

Common Stockholders' Equity
Common stock -- 500,000,000 shares
  authorized at $1.25 par value
    Issued (306,380,511 shares)
      Par value                               383             383
      Capital in excess of par              2,049           2,031
    Treasury stock (at cost:
      1998 -- 18,132,203 shares;
      1997 -- 14,000,882 shares)             (948)           (752)
    Compensation and Benefits Trust (CBT)
      (at cost: 1998 -- 29,125,863 shares;
      1997 -- 29,200,000 shares)             (987)           (989)
Foreign currency translation adjustments      (23)             (8)
Unearned employee compensation -- Long-
  Term Stock Savings Plan (LTSSP)            (323)           (342)
Retained earnings                           4,690           4,491
-----------------------------------------------------------------
Total Common Stockholders' Equity           4,841           4,814
-----------------------------------------------------------------
Total                                     $13,953          13,860
=================================================================
See Notes to Financial Statements.
*Reclassified to conform to current presentation.


                                 2

<PAGE>



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

                                              Millions of Dollars
                                              -------------------
                                                Six Months Ended
                                                    June 30
                                              -------------------
                                                1998         1997
                                              -------------------
Cash Flows from Operating Activities
Net income                                    $  401          534
Adjustments to reconcile net income to net
  cash provided by operating activities
    Non-working capital adjustments
      Depreciation, depletion and
        amortization                             483          372
      Dry hole costs and leasehold
        impairment                                25           48
      Deferred taxes                             108          153
      Tax settlement receivable                    -         (102)
      J-Block settlement                           -          161
      Other                                       12           63
    Working capital adjustments
      Increase in aggregate balance of
        accounts receivable sold                 200            -
      Decrease in other accounts
        and notes receivable                      85          199
      Increase in inventories                   (112)         (54)
      Increase in prepaid expenses
        and other current assets                 (20)          (6)
      Decrease in accounts payable               (76)        (264)
      Increase (decrease) in taxes
        and other accruals                         3          (11)
-----------------------------------------------------------------
Net Cash Provided by Operating Activities      1,109        1,093
-----------------------------------------------------------------

Cash Flows from Investing Activities
Capital expenditures and investments,
  including dry hole costs                      (842)        (772)
Proceeds from asset dispositions                  24           17
Long-term advances to affiliates and
  other investments                               (8)         (12)
-----------------------------------------------------------------
Net Cash Used for Investing Activities          (826)        (767)
-----------------------------------------------------------------

Cash Flows from Financing Activities
Issuance of debt                                 416            3
Repayment of debt                               (302)        (263)
Purchase of company common stock                (215)         (20)
Issuance of company common stock                  10            6
Issuance of company-obligated mandatorily
  redeemable preferred securities                  -          350
Dividends paid on common stock                  (178)        (174)
Other                                            (47)         (69)
-----------------------------------------------------------------
Net Cash Used for Financing Activities          (316)        (167)
-----------------------------------------------------------------

Increase (Decrease) in Cash and
  Cash Equivalents                               (33)         159
Balance at beginning of period                   163          615
-----------------------------------------------------------------
Cash and Cash Equivalents at End of Period    $  130          774
=================================================================
See Notes to Financial Statements.


                                 3

<PAGE>



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


Note 1 -- Interim Financial Information

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


Note 2 -- Accounting Changes

Comprehensive Income

Effective January 1, 1998, the company adopted Financial
Accounting Standards Board (FASB) Statement No. 130, "Reporting
Comprehensive Income."  Statement No. 130 establishes new rules
for the reporting and display of comprehensive income and its
components.  Comprehensive income is net income, plus certain
other items that are recorded directly to stockholders' equity.
The only such item currently applicable to Phillips is foreign
currency translation adjustments.

Total comprehensive income for the second quarter and the first
six months of 1998 was $143 million and $386 million,
respectively, compared with $294 million and $495 million for
each of the same periods a year ago.  The adoption of this
Statement had no impact on the company's net income, cash flow or
common stockholders' equity.

Segments

The company adopted FASB Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," effective
January 1, 1998.  The adoption of this Statement did not result
in a change in the composition of the company's operating
segments, or in the previously reported net income for each
segment.

Full interim disclosures are not required by Statement No. 131
until the first quarter of 1999.


                                 4

<PAGE>



Note 3 -- Inventories

Inventories consisted of the following:

                                            Millions of Dollars
                                          -----------------------
                                          June 30     December 31
                                             1998            1997
                                          -----------------------

Crude oil and petroleum products             $225             156
Chemical products                             288             254
Materials, supplies and other                  98              90
-----------------------------------------------------------------
                                             $611             500
=================================================================


Note 4 -- Properties, Plants and Equipment

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

                                            Millions of Dollars
                                          -----------------------
                                          June 30     December 31
                                             1998            1997
                                          -----------------------
Properties, plants and equipment
  (at cost)                               $22,074          21,426
Less accumulated depreciation,
  depletion and amortization               11,765          11,404
-----------------------------------------------------------------
                                          $10,309          10,022
=================================================================


Note 5 -- Impairments

During second quarter 1998, the company recorded impairments
totaling $20 million after-tax.  In E&P, less than anticipated
drilling and production results and downward reserve revisions on
certain properties in the Gulf of Mexico resulted in impairments
totaling $15 million after-tax.  The fair market value of these
properties was determined using the present value of expected
future cash flows, resulting in before-tax charges totaling
$23 million to depreciation, depletion and amortization expense.
In Chemicals, a facility targeted for closure or sale was written
down to salvage value, resulting in a $7 million charge to
depreciation, depletion and amortization expense ($5 million
after-tax).


Note 6 -- Debt

On July 6, 1998, the company issued $300 million of 6.65%
Debentures due July 15, 2018, in the public market.  This is in
addition to the $300 million of 7.125% Debentures due March 15,
2028, issued in first quarter 1998.


                                 5

<PAGE>



At June 30, 1998, no amounts were outstanding under the company's
revolving bank credit facility, but $37 million in commercial
paper and $270 million of the Phillips Petroleum Company Norway
$300 million revolving credit facility were outstanding.


Note 7 -- Kenai LNG Tax Settlement

Final resolution of all outstanding issues for years 1983 through
1986 was achieved in second quarter 1997 with the Internal
Revenue Service (IRS) as a result of the favorable outcome in
1996 of the Kenai LNG tax case related to the company's sales of
liquefied natural gas from Kenai, Alaska.  The refunds increased
second quarter 1997 net income by $80 million.  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 8 -- Income Taxes

The company's effective tax rates for the second quarter and the
first six months of 1998 were 50 and 48 percent, respectively,
compared with 43 and 48 percent for each of the same periods a
year ago.  Excluding the effect of the favorable resolution of
outstanding issues with the IRS for 1983 through 1986 as
discussed in Note 7, the effective rates for the second quarter
and first six months of 1997 would have been 51 and 53 percent,
respectively.  The resulting decrease in the 1998 effective tax
rates was due mainly to a greater proportion of domestic earnings
in the current periods, which are generally taxed at a lower
rate.


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 or other third-
party recoveries.  Based on currently available information, the
company believes that the likelihood is remote that future costs
related to known contingent liability exposures will exceed
current accruals by an amount that would have a material adverse
impact on the company's financial statements.

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


                                 6

<PAGE>



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
clean-up costs, the unknown time and extent of such remedial
actions that may be required, and the determination of the
company's liability in proportion to other responsible parties.
Estimated future costs related to tax and legal matters are
subject to change as events evolve and as additional information
becomes available during the administrative and litigation
process.

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

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 this year as a result of the favorable outcome in
1996 of the Kenai LNG tax case related to the company's sales of
LNG from Kenai, Alaska.  A favorable resolution of these issues
would have a positive effect on net income and cash flow of up to
$125 million while an unfavorable one would not impact the
company's net income or cash position.  All outstanding issues
with the IRS for years prior to 1987 have been resolved.

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.


                                 7

<PAGE>



Note 10 -- 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
                                              -------------------
                                              1998           1997
                                              -------------------
Cash payments
Interest
  Debt                                        $ 98            106
  Taxes and other                                5             13
-----------------------------------------------------------------
                                              $103            119
=================================================================

Income taxes                                  $267            376
-----------------------------------------------------------------

Non-Cash Financing and Investing Activities
Accrued repurchase of company common stock    $  9              -
Stock awards issued under incentive
  compensation plans                             7              5
Change in market value of investments            9              8
Deferred payment obligation to purchase
  property, plant and equipment                  8              -
-----------------------------------------------------------------


Note 11 -- Environmental Cost Recovery

During the first six months of 1998, as part of a comprehensive
environmental cost recovery project, the company entered into
settlement agreements with certain of its historical liability
and pollution insurers in exchange for releases or commutations
of their present and future liabilities to the company under its
historical liability and pollution policies.  As a result of
these settlement agreements, the company recorded a before-tax
benefit to earnings of $109 million, $71 million after-tax.  At
June 30, 1998, $105 million had been collected.


Note 12 -- Favorable Court Ruling

In May 1998, Phillips received a favorable ruling from the
Alabama Supreme Court, which reversed a 1996 jury award of
$27 million to plaintiffs in Washington County, Alabama.  The
plaintiffs, about 50 landowners, had sued Phillips in 1992,
claiming the company had drained oil and gas properties adjacent
to Phillips' Chatom, Alabama, oil and gas unit.  A before-tax
contingency accrual of $33 million, including interest, was
reversed in second quarter 1998, favorably impacting earnings.


                                 8

<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, that are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995.  The words "forecasts," "intends,"
"possible," "potential," "targeted," "believe," "expect," "may,"
"plan," or "plans," "scheduled," "would," "could," "should,"
"perceives," "anticipate," "estimate," "designed," 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, 1998, are based on a comparison
with the corresponding periods in 1997.


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

                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            1998          1997*  1998        1997*
                            ------------------   ----------------
Exploration and Production
  (E&P)                     $ 73           124    166         326
Gas Gathering, Processing
  and Marketing (GPM)         12            22     31          50
Refining, Marketing and
  Transportation (RM&T)       77            62    106          80
Chemicals                     43            71    118         134
Corporate and Other          (47)           28    (20)        (56)
-----------------------------------------------------------------
Net income                  $158           307    401         534
=================================================================
*Restated to reflect the transfer of the company's natural gas
 liquids fractionation and marketing business from Chemicals to
 RM&T.


                                 9

<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
                            ------------------   ----------------
                            1998          1997   1998        1997
                            ------------------   ----------------

Property impairments        $(20)          (11)   (20)        (11)
Kenai LNG tax settlement       -            80      -          80
Net gain on asset sales        3             7      3           7
Foreign currency gains
  (losses)                   (11)            6     (5)        (14)
Pending claims and
  settlements                 34            16    100          16
Other items                    -            (5)     -          (5)
-----------------------------------------------------------------
Total special items         $  6            93     78          73
=================================================================


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

                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            1998          1997   1998        1997
                            ------------------   ----------------

E&P                         $ 76           126    174         328
GPM                           12            13     31          41
RM&T                          74            63    103          81
Chemicals                     49            72    124         135
Corporate and Other          (59)          (60)  (109)       (124)
-----------------------------------------------------------------
Net operating income        $152           214    323         461
=================================================================


This quarter's net operating income was adversely affected by two
significant factors:  a $5.31 per barrel drop in Phillips'
average worldwide crude oil price and a 45 percent decline in the
company's ethylene margin.  However, improved refining margins,
increased production volumes across most major product lines, and
a continued emphasis on cost control helped support the company's
earnings in this difficult business environment.

The decline in net operating income for the six-month period
primarily resulted from lower crude oil and natural gas prices,
as well as lower ethylene margins.  Partially offsetting these
factors was an improved performance in RM&T, driven by higher
refinery production volumes.


                                10

<PAGE>



                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
Phillips at a Glance         1998         1997    1998       1997
                            ------------------   ----------------

U.S. crude oil
  production (MBD)             64           69      64         68
Worldwide crude oil
  production (MBD)            245          230     247        222
U.S. natural gas
  production (MMCFD)          967        1,019     979      1,053
Worldwide natural gas
  production (MMCFD)        1,458        1,403   1,530      1,461
Worldwide natural gas
  liquids production (MBD)    179          169     178        165
Liquefied natural gas
  sales (MMCFD)               102          101     122        116
Refinery utilization
  rate (%)                     94           95      94         89
U.S. automotive gasoline
  sales (MBD)*                325          356     312        342
U.S. distillates
  sales (MBD)                 127          125     129        126
Worldwide petroleum
  products sales (MBD)*       681          685     669        688
Natural gas liquids
  processed (MBD)             229          197     229        203
Ethylene
  production (MMlbs)**        825          730   1,658      1,450
Polyethylene
  production (MMlbs)**        578          477   1,141        983
Polypropylene
  production (MMlbs)**        119          116     232        226
Paraxylene
  production (MMlbs)          194          138     382        158
-----------------------------------------------------------------
 *Includes certain sales by the Chemicals segment.
**Includes Phillips' share of equity affiliates' production.


Income Statement Analysis

Sales and other operating revenues decreased over 20 percent in
both the second quarter and first six months of 1998, reflecting
lower sales prices for crude oil and petroleum products.  These
same factors also accounted for 27 and 29 percent declines in
purchase costs in the second quarter and six-month period of
1998, respectively.  The company is a net purchaser of crude oil
to supply its refineries, and of petroleum products to supply its
wholesale and retail distribution outlets.


                                11

<PAGE>



Equity in earnings of affiliated companies was lower in both the
second quarter and six-month period of 1998, primarily because
lower ethylene margins resulted in a decrease in the earnings of
the 50 percent-owned Sweeny Olefins Limited Partnership.  Other
revenues decreased 37 percent in the second quarter of 1998,
mainly due to a decrease in interest income resulting from the
company's lower cash balances in 1998.  For the six-month period,
other revenues increased $108 million, primarily due to
recoveries from certain of the company's historical liability and
pollution insurers related to claims made as a part of a
comprehensive environmental cost recovery project, partially
offset by lower interest income.

After adjustment for special items, controllable costs --
primarily production and operating expenses, and selling, general
and administrative expenses -- increased slightly in the second
quarter of 1998 and 3 percent for the six-month period.  These
small increases in costs accompany higher production volumes
across most major product lines, reflecting the company's 
commitment to control costs while increasing volumes and 
pursuing growth opportunities.

Exploration costs declined 35 and 14 percent in the second
quarter and first six months of 1998, respectively.  Dry hole
charges were lower in both 1998 periods, partially offset by
increased geological and geophysical exploratory costs.

Depreciation, depletion and amortization increased 33 and
30 percent in the second quarter and six-month period of 1998,
respectively.  Both periods reflect the result of full production
from J-Block in the U.K. North Sea, which came on-line in
mid-1997, and the E&P acquisition in the Zama area of Canada,
which was completed in late 1997.  In addition, property
impairments were taken on two E&P producing properties in the
Gulf of Mexico in the second quarter of 1998.

Taxes other than income taxes decreased 3 and 8 percent in the
second quarter and first six months of 1998, respectively, as
lower U.S. E&P sales prices and production resulted in a decrease
in production taxes.

Interest expense decreased 31 and 22 percent in the second
quarter and six-month period of 1998, respectively.  Both periods
benefited from reversals of the interest portion of previously
accrued contingencies in the second quarter of 1998.  Preferred
dividend requirements were lower in both 1998 periods, reflecting
the redemption of Phillips Gas Company's preferred stock in
December 1997.


                                12

<PAGE>



Segment Results

E&P
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                              1998        1997    1998       1997
                            ------------------   ----------------
                                     Millions of Dollars
                            -------------------------------------
Operating Income
Reported net income            $73         124     166        326
Less special items              (3)         (2)     (8)        (2)
-----------------------------------------------------------------
Net operating income           $76         126     174        328
=================================================================

                                      Dollars Per Unit
                            -------------------------------------
Average Sales Prices
Crude oil (per barrel)
    United States           $10.68       16.81   11.44      18.35
    Foreign                  13.07       18.13   13.54      19.50
    Worldwide                12.45       17.76   13.01      19.16
Natural gas -- lease (per
  thousand cubic feet)
    United States             1.96        1.90    1.97       2.26
    Foreign                   2.46        2.69    2.51       2.69
    Worldwide                 2.18        2.19    2.22       2.42
-----------------------------------------------------------------

                                     Millions of Dollars
                            -------------------------------------
Worldwide Exploration
  Expenses
Geological and geophysical     $33          32      69         63
Leasehold impairment             7           5      12         11
Dry holes                        6          35      13         37
Lease rentals                    3           3       5          4
-----------------------------------------------------------------
                               $49          75      99        115
=================================================================

                                  Thousands of Barrels Daily
                            -------------------------------------
Operating Statistics
Crude Oil Produced
  United States                 64          69      64         68
  Norway                       119         110     117        103
  United Kingdom                21          11      24          9
  Nigeria                       20          23      21         23
  China                         13          13      14         15
  Canada                         8           4       7          4
-----------------------------------------------------------------
                               245         230     247        222
=================================================================

Natural Gas Liquids Produced
  United States                  3           4       3          4
  Norway                         7           7       8          7
  Other areas                    5           3       5          2
-----------------------------------------------------------------
                                15          14      16         13
=================================================================


                                13

<PAGE>



                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                              1998        1997    1998       1997
                            ------------------   ----------------
                                Millions of Cubic Feet Daily
                            -------------------------------------
Natural Gas Produced
  United States (less gas
    equivalent of liquids
    shown above)               967       1,019     979      1,053
  Norway*                      249         290     258        285
  United Kingdom*              146          51     200         78
  Canada                        96          43      93         45
-----------------------------------------------------------------
                             1,458       1,403   1,530      1,461
=================================================================
*Dry basis.

Liquefied Natural Gas
  Sales                        102         101     122        116
-----------------------------------------------------------------


E&P's net operating income decreased substantially in the second
quarter and first six months of 1998, reflecting a continued
weakening of industry crude oil prices in the second quarter.
Industry production continued to outpace a declining rate of
demand growth, which has been slowed by the Asian economic
crisis.  Phillips' worldwide average crude oil price in June
declined to $11.51 per barrel, the company's lowest monthly
average since 1986.

Partially offsetting the negative impact of depressed crude oil
prices was increased crude oil and natural gas production in the
U.K. North Sea and Canada, and crude oil production in the
Norwegian North Sea.


                                14

<PAGE>



U.S. E&P
--------
                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                             1998         1997    1998       1997
                            ------------------   ----------------
Operating Income
Reported net income           $50           91     109        217
Less special items              2           14      (1)        14
-----------------------------------------------------------------
Net operating income          $48           77     110        203
=================================================================


Net operating income decreased 38 and 46 percent in the company's
U.S. E&P operations for the second quarter and first six months
of 1998, respectively.  Lower crude oil sales prices were
primarily responsible, with the company's average U.S. sales
price 36 and 38 percent lower in the second quarter and
year-to-date period, respectively.  In addition, crude oil and
natural gas production volumes were lower in both periods of
1998, as were liquefied natural gas sales prices.  These negative
factors were partially offset in both periods by lower
exploration expenses.

U.S. crude oil production in the second quarter of 1998 was
7 percent lower than the corresponding quarter in 1997,
reflecting production declines in several areas, including the
Prudhoe Bay, Alaska, and Point Arguello, offshore California,
fields.  These production declines were partially offset by
increased production from the Mahogany subsalt field in the Gulf
of Mexico.

U.S. natural gas production declined 5 percent in the second
quarter of 1998, primarily due to lower production of coal-seam
gas and lower production from various fields in the Gulf of
Mexico.

Special items in the second quarter of 1998 included a reversal
of a previously accrued contingency related to producing
properties in Alabama, which was mostly offset by impairments
taken on two producing properties in the Gulf of Mexico.  The
June year-to-date period also included a contingency accrual.
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.


                                15

<PAGE>



Foreign E&P
-----------
                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            1998          1997   1998        1997
                            ------------------   ----------------
Operating Income
Reported net income          $23            33     57         109
Less special items            (5)          (16)    (7)        (16)
-----------------------------------------------------------------
Net operating income         $28            49     64         125
=================================================================


Net operating income from the company's foreign E&P operations
decreased 43 and 49 percent in the second quarter and first six
months of 1998, respectively.  In both periods, lower crude oil
and natural gas sales prices were partially offset by production
increases in the North Sea and Canada.  In addition, exploration
expenses were higher in the 1998 year-to-date period.

Foreign crude oil production volumes increased 12 percent in the
second quarter of 1998, compared with the second quarter of 1997,
primarily due to production from J-Block in the U.K. North Sea,
which came on-line in mid-1997, as well as increased production
from the Norwegian North Sea.  Foreign natural gas production
increased 28 percent, mainly due to J-Block, as well as the
Armada field in the U.K. North Sea, which came on-line in the
fourth quarter of 1997.  Crude oil and natural gas production
volumes were higher in Canada as well, due to the Zama area
acquisition completed in late 1997.

Special items in the second quarter and first six months of 1998
included foreign currency transaction losses.  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.


                                16

<PAGE>



GPM
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                              1998        1997    1998       1997
                            ------------------   ----------------
                                     Millions of Dollars
                            -------------------------------------
Operating Income
Reported net income            $12          22      31         50
Less special items               -           9       -          9
-----------------------------------------------------------------
Net operating income           $12          13      31         41
=================================================================

                                      Dollars Per Unit
                            -------------------------------------
Average Sales Prices
U.S. residue gas (per
  thousand cubic feet)      $ 2.08        1.95    2.08       2.33
U.S. natural gas liquids
  (per barrel --
  unfractionated)             9.41       11.48    9.76      12.88
-----------------------------------------------------------------

                                Millions of Cubic Feet Daily
                            -------------------------------------
Operating Statistics
Natural Gas Purchases
  Outside Phillips           1,326       1,377   1,337      1,362
  Phillips                     152         156     154        159
-----------------------------------------------------------------
                             1,478       1,533   1,491      1,521
=================================================================

Raw Gas Throughput           1,893       2,000   1,904      2,005
-----------------------------------------------------------------

Residue Gas Sales
  Outside Phillips             943         983     962        993
  Phillips                      54          51      58         55
-----------------------------------------------------------------
                               997       1,034   1,020      1,048
=================================================================

                                 Thousands of Barrels Daily
                            -------------------------------------
Natural Gas Liquids Net
  Production
    From Phillips E&P
      leasehold gas             15          15      15         15
    From gas purchased
      outside Phillips         149         140     147        137
-----------------------------------------------------------------
                               164         155     162        152
=================================================================


GPM's net operating income decreased 8 and 24 percent in the
second quarter and six-month period of 1998, respectively.  In
both periods, lower natural gas liquids (NGL) sales prices were
partially offset by increased sales volumes of NGL.  NGL sales
prices generally followed the decline in crude oil prices in the
first six months of 1998, though the percentage decrease was not
as sharp as that experienced by crude oil.


                                17

<PAGE>



Raw gas throughput volumes declined 5 percent in the second
quarter of 1998, reflecting field production declines in the
Austin Chalk area of south central Texas.  However, NGL
production volumes increased, due to improved plant efficiencies
and operating consistency.

Residue gas prices were 7 percent higher in the second quarter of
1998, compared with the same quarter last year.  Although industry 
gas storage levels remained higher than a year ago, warmer-than-
normal summer weather helped support prices, as natural gas was
used for marginal electricity generation.  For the six-month
period, GPM's residue gas prices were 11 percent lower than the
corresponding 1997 period, primarily due to the reduced demand in
the first quarter of 1998 resulting from warmer-than-normal
winter weather.

Special items in the second quarter and six-month period of 1997
consisted of the settlement of a contingency.


                                18

<PAGE>



RM&T
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            1998          1997*  1998        1997*
                            ------------------   ----------------
                                     Millions of Dollars
                            -------------------------------------
Operating Income
Reported net income          $77            62    106          80
Less special items             3            (1)     3          (1)
-----------------------------------------------------------------
Net operating income         $74            63    103          81
=================================================================

                                     Dollars per Gallon
                            -------------------------------------
Average Sales Prices
Automotive gasoline
  Wholesale                 $.54           .66    .53         .68
  Retail                     .68           .82    .67         .83
Distillates                  .45           .59    .46         .63
-----------------------------------------------------------------

                                 Thousands of Barrels Daily
                            -------------------------------------
Operating Statistics
U.S. Refinery Crude Oil
  Capacity                   355           345    355         345
  Crude runs                 332           327    333         307
  Capacity utilization
    (percent)                 94%           95     94          89
Natural gas liquids
  fractionation
    Capacity                 252           250    252         250
    Processed                229           197    229         203
    Capacity utilization
      (percent)               91%           79     91          81
-----------------------------------------------------------------

Petroleum Products Outside
  Sales
    United States
      Automotive gasoline
        Wholesale            274           305    263         293
        Retail                38            38     38          37
      Aviation fuels          33            29     31          27
      Distillates            127           125    129         126
      Natural gas liquids
        (fractionated)        60            68     66          82
      Other products          29            12     29          13
-----------------------------------------------------------------
                             561           577    556         578
    Foreign                   45            44     39          44
-----------------------------------------------------------------
                             606           621    595         622
=================================================================
*Restated to reflect the transfer of the company's natural gas
 liquids fractionation and marketing business from Chemicals to
 RM&T.


                                19

<PAGE>



RM&T's net operating income increased 17 and 27 percent in the
second quarter and first six months of 1998, respectively.  In
both periods, the increase in earnings was due to improved
results from the company's U.S. refineries.  Although wholesale
gasoline and distillates sales prices were 18 and 24 percent
lower in the second quarter of 1998, respectively, the feedstock
cost of crude oil declined 31 percent, leading to improved
gasoline and distillates margins.  Lower feedstock costs also
benefited other refinery products margins as well.

In the six-month period of 1998, the refineries' crude oil
throughput volumes were 8 percent higher, due in part to a
scheduled maintenance turnaround at the company's Sweeny, Texas,
refinery in the first quarter of 1997, as well as a power
interruption there in the second quarter of 1997.  This improved
operating consistency in 1998 contributed to higer refining sales
volumes and operating income.  This was partially offset by lower
earnings from the wholesale marketing business, which experienced
lower distillates margins and incurred higher costs related to
marketing incentive programs.

Special items in the second quarter and first six months of 1998
consisted of gains from the sales of certain non-strategic retail
service stations.  Special items in the second quarter and first
six months of 1997 included certain costs associated with the
Sweeny power outage.


                                20

<PAGE>



Chemicals
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            1998          1997*   1998       1997*
                            ------------------   ----------------
                                     Millions of Dollars
                            -------------------------------------
Operating Income
Reported net income          $43            71     118        134
Less special items            (6)           (1)     (6)        (1)
-----------------------------------------------------------------
Net operating income         $49            72     124        135
=================================================================
*Restated to reflect the transfer of the company's natural gas
 liquids fractionation and marketing business from Chemicals to
 RM&T.

                                     Millions of Pounds
                                     Except as Indicated
                            -------------------------------------
Operating Statistics
Production**
  Ethylene                   825           730   1,658      1,450
  Polyethylene               578           477   1,141        983
  Propylene                  139           112     272        228
  Polypropylene              119           116     232        226
  Paraxylene                 194           138     382        158
  Cyclohexane (millions
    of gallons)               50            41      98         74
-----------------------------------------------------------------
**Includes Phillips' share of equity affiliates' production.


The Chemicals segment's net operating income decreased 32 and
8 percent in the second quarter and first six months of 1998,
respectively.  Lower ethylene margins were the primary cause for
the reduced earnings in both periods, lowering results from both
the company's 100 percent-owned units and the company's
50 percent interest in Sweeny Olefins Limited Partnership.
Excess industry capacity and weak global demand, due in part to
the Asian economic crisis, have depressed product margins in the
commodity chemicals industry.  Lower polyethylene margins also
negatively impacted both periods, while higher sales volumes of
ethylene and polyethylene served to partially mitigate the effect
of the lower margins.

Shanghai Golden Phillips, a joint venture between Phillips and
Shanghai Petrochemical Company, completed construction of a
polyethylene plant in China.  Nominal production from the
220 million-pounds-per-year facility began in the second quarter.
Phillips owns a 40 percent interest.

Special items in the second quarter and first six months of 1998
included foreign currency losses and an impairment taken on a
facility that will be closed.  Special items in the second
quarter and first six months of 1997 consisted primarily of work
force reduction charges.


                                21

<PAGE>



Corporate and Other
                                     Millions of Dollars
                            -------------------------------------
                            Three Months Ended   Six Months Ended
                                 June 30              June 30
                            ------------------   ----------------
                            1998          1997   1998        1997
                            ------------------   ----------------
Operating Results
Reported Corporate and
  Other                     $(47)           28    (20)        (56)
Less special items            12            88     89          68
-----------------------------------------------------------------
Adjusted Corporate and
  Other                     $(59)          (60)  (109)       (124)
=================================================================


Adjusted Corporate and Other includes:

Corporate general and
  administrative expenses   $(12)          (15)   (37)        (33)
Net interest                 (32)          (28)   (62)        (58)
Preferred dividend
  requirements               (11)          (18)   (21)        (35)
Other                         (4)            1     11           2
-----------------------------------------------------------------
Adjusted Corporate and
  Other                     $(59)          (60)  (109)       (124)
=================================================================


Corporate general and administrative expenses were 20 percent
lower in the second quarter of 1998, primarily due to lower
benefit-related costs.  In the six-month period of 1998,
corporate general and administrative expenses were up 12 percent,
reflecting higher salaries, benefits and incentive compensation
costs.

Net interest represents interest income and expense, net of
capitalized interest.  In both the second quarter and year-
to-date period of 1998, net interest was higher primarily because
of lower interest income -- the result of the company carrying a
smaller cash balance in 1998, compared with 1997.

Preferred dividend requirements includes dividends on the
Phillips Gas Company preferred stock and on the preferred
securities of the Phillips 66 Capital Trusts I and II.  Preferred
dividend requirements were lower in the second quarter and
six-month period of 1998 due to the redemption of the Phillips
Gas Company preferred stock in late 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.
In the second quarter of 1998, results for Other were lower due
mainly to tax-related items.  In the six-month period, the


                                22

<PAGE>



results from Other increased, as a result of the receipt of
dividends from certain industry insurance companies in which
Phillips has an ownership interest, partially offset by higher
tax-related items.

Special items in the second quarter of 1998 included favorable
contingency-related settlements or accrual reversals, partially
offset by foreign currency losses.  The six-month period also
included insurance recoveries related to a comprehensive
environmental cost recovery project.  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 intercompany receivables.


                                23

<PAGE>



CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators
                                         Millions of Dollars
                                    -----------------------------
                                         At           At       At
                                    June 30  December 31  June 30
                                       1998         1997     1997
                                    -----------------------------
Current ratio                           1.1          1.1      1.3
Total debt                           $3,130        3,009    2,869
Preferred stock of subsidiary        $    -            -      345
Company-obligated mandatorily
  redeemable preferred securities    $  650          650      650
Common stockholders' equity          $4,841        4,814    4,586
Percent of total debt to capital*        36%          36       34
Percent of floating-rate debt
  to total debt                          23%          30       15
-----------------------------------------------------------------
*Capital includes total debt, preferred stock of subsidiary,
 company-obligated mandatorily redeemable preferred securities
 and common stockholders' equity.


Cash from operations for the six-month period ending June 30,
1998, was approximately the same as that for the same period in
1997.  However, excluding the $161 million cash impact of the
favorable resolution with Enron Europe Limited in the first half
of 1997 concerning J-Block gas production, cash from operations
increased $177 million.  Net operating income decreased
$138 million, or 30 percent, in the first six months of 1998,
compared with the first six months of 1997.  However, this
decrease was more than offset by the receipt of $105 million
resulting from settlements pursuant to the comprehensive
environmental cost recovery project, and the sale of $200 million
of receivables under the company's receivables monetization
program.

In March 1998, the company issued $300 million of 7.125%
Debentures due March 15, 2028, in the public market, leaving
$200 million available under the company's 1994 shelf
registration of debt securities.  Also, $100 million remained
under the company's 1996 shelf registration for trust preferred
securities and subordinated debt securities.  In May 1998,
Phillips filed a universal shelf registration statement with the
U.S. Securities and Exchange Commission for $700 million of
various types of debt and equity securities, and securities
convertible into either.  This registration statement became
effective June 5, 1998.  Securities to be issued under the
universal shelf registration statement can be combined by
prospectus with the previously mentioned $300 million of
securities remaining under earlier shelf registrations.  As a
result, the company could issue and sell a total of $1 billion of
the various types of securities available under the universal
shelf registration statement.  On July 6, 1998, the company issued


                                24

<PAGE>



$300 million of 6.65% Debentures due July 15, 2018, in the public
market, leaving $700 million of securities available.

The company is pursuing its previously announced stock repurchase
program to buy back up to an additional $500 million of its
common stock by year-end 1998.  Through August 7, 1998,
approximately $267 million worth of shares had been repurchased.
The company also has a $150 million stock repurchase program
expiring December 31, 1999.  Under the two programs, the company
has repurchased approximately $347 million worth of shares.

During the first six months of 1998, cash decreased $33 million.
Cash provided by operating activities, combined with the issuance
of $112 million of revolving debt and the previously
mentioned $300 million of 7.125% debentures, was used to retire
$274 million of revolving debt, pay $28 million to retire the
first of two LTSSP bank loans, fund the company's capital
expenditure program, and purchase $215 million of the company's
common stock under the previously mentioned stock repurchase
programs.

In July 1998, the company entered into a $36 million operating
lease covering four corporate planes.  This lease supersedes the
$75 million master leasing arrangement entered into during 1997.

At June 30, 1998, no amounts were outstanding under the company's
revolving bank credit facility of $1.5 billion, but $37 million
in commercial paper and $270 million of the Phillips Petroleum
Company Norway $300 million revolving credit facility were
outstanding.


Capital Expenditures and Investments

                              Millions of Dollars
              ----------------------------------------------------
                              Three Months Ended  Six Months Ended
                                   June 30             June 30
                              ------------------  ----------------
              Estimated 1998  1998          1997  1998        1997
              --------------  ------------------  ----------------

E&P               $1,101       273           251   541         466
GPM                   82        16            16    29          59
RM&T                 297        42            56   105         105
Chemicals            261        66            52   122         109
Corporate
  and Other          101        29            19    45          33
------------------------------------------------------------------
                  $1,842       426           394   842         772
==================================================================

United States     $1,056       227           237   459         466
Foreign              786       199           157   383         306
------------------------------------------------------------------
                  $1,842       426           394   842         772
==================================================================


                                 25

<PAGE>



E&P's capital expenditures and investments for the six months
ended June 30, 1998, increased $75 million, 16 percent, over the
same period in 1997.  This increase is primarily attributable to
the development of the Zama area in Canada and the Renee, Rubie
and Janice fields in the U.K. North Sea; and development programs
in Venezuela.

The Ekofisk II project to replace the majority of the facilities
in the existing Ekofisk complex was 98.5 percent complete at
June 30, 1998, on time and under budget.  The offshore hotel
platform, one of the existing facilities that are to continue in
operation after the start-up of Ekofisk II in 1998, will be
impacted by continuing subsidence in the Ekofisk area.  Studies
are in progress to determine what future actions are necessary
with regard to this facility; the cost of which is not expected
to materially impact the financial position of the company.
Also, in the Greater Ekofisk Area of the Norwegian North Sea,
offshore construction activity related to the waterflood project
for the Eldfisk field has commenced.  Development drilling is
expected to begin in mid-1999.  The platform, scheduled to start
up in early 2000, would be controlled from an existing manned
Eldfisk platform.

In the North Cook Inlet of Alaska, the drilling of a second
development well is under way on the Tyonek project.  The results
of this well and additional reservoir analysis will help
determine the commercial potential of the project.  Depending
upon the results of the commercial evaluation, some financial
impairment of this asset could be required.  The current book
investment is approximately $100 million.  Engineering design
continues for a planned crude oil pipeline and production
facilities to be constructed on the existing Tyonek platform,
from which Phillips currently produces gas used as feedstock at
the Kenai liquefied natural gas (LNG) facility.  Initial crude
oil production is scheduled for late-1999.

An exploratory appraisal well recently drilled at the Mahogany
field, offshore Louisiana, was successful and has begun
production.  An additional development well and recompletions of
existing producing wells are also planned to enhance production
from the field.  Phillips is operator and holds a 37.5 percent
working interest in Mahogany.  In addition, a sub-sea well
completion and tie-in of the Agate field to the Mahogany
production platform has been completed and is in production.
Initial gross production has been 3,000 barrels of oil per day
and 20 million cubic feet of gas per day.  Phillips is operator
and holds a 50 percent working interest in Agate.

GPM's capital expenditures and investments for the six months of
1998 were substantially lower than those of the same period in
1997, primarily because the 1997 period included a major
gathering asset acquisition.


                                26

<PAGE>



RM&T continued its retail marketing expansion during the first
six months of 1998, with the purchase of 12 retail outlets in the
Dallas, Texas, area, and the opening of six new outlets.  Since
the expansion program began, the company has acquired 36 retail
outlets, opened 37 new ones, and razed and rebuilt 17 others.
Both new outlets and those that are razed and rebuilt utilize the
new Kicks 66 convenience store design.  Also during the first six
months of 1998, the company sold 33 retail units in non-strategic
areas.

In first quarter 1998, the company purchased interests in an
El Paso, Texas, terminal and pipeline system, which allows Phillips
to transport petroleum products to El Paso, and Tucson and
Phoenix, Arizona.

Construction of a 148-mile pipeline to connect the Seaway
Pipeline system to the company's existing Midwest distribution
system near Wichita, Kansas, was completed in first quarter 1998.
Commercial operation began in May 1998 and allows the company to
transport gasoline and distillates from the Gulf Coast to the
growing Midwest market.

In April, the company's Board of Directors approved the
construction of a 36,000 barrels-per-day continuous catalyst
regeneration reformer at the Sweeny, Texas, refinery and
petrochemical complex.  The new catalytic reformer is designed to
convert a higher percentage of plant yield to higher-margin
petrochemicals.  This project is now scheduled to commence in
early 1999, with completion scheduled for mid-2000.

On August 7, 1998, Phillips announced that commercial production
of metallocene compounds had begun at a new facility at the
Phillips Research Center in Bartlesville, Oklahoma.  Metallocene
compounds are used to produce catalysts for the production of
high-, medium- and linear low-density polyethylenes.  The plant's
current annual capacity is expected to meet Phillips' and its
licensees' projected yearly demand through at least the year
2000.


New Accounting Standards

In June 1998, the FASB issued Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which
is required to be adopted in years beginning after 
June 15, 1999.  The Statement permits early adoption as
of the beginning of any fiscal quarter after its issuance.  
The company expects to adopt the new Statement effective
January 1, 2000.  The Statement will require the company
to recognize all derivatives on the balance sheet at fair
value.  Derivatives that are not hedges must be adjusted to fair


                                27

<PAGE>



value through income.  If a derivative is a hedge, depending on
the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value
of the hedged asset, liability, or firm commitment through
earnings, or recognized in other comprehensive income until the
hedged item is recognized in earnings.  The ineffective portion
of a derivative's change in fair value will be immediately
recognized in earnings.  The company does not anticipate that the
adoption of this Statement will have a significant effect on its
results of operations or financial position.


Year 2000 Update

General
-------

Phillips' company-wide Year 2000 Project (Project) is proceeding
on schedule.  The Project is addressing the issue of computer
programs and embedded computer chips being unable to distinguish
between the year 1900 and the year 2000.  In 1995, in order to
improve access to business information through common, integrated
computing systems across the company, Phillips began a worldwide
business systems replacement project with systems that use
programs primarily from SAP America, Inc. (SAP) and, for certain
E&P operations, Oracle Corporation (Oracle).  The new systems,
which are expected to make approximately 70 percent of the
company's business computer systems Year 2000 compliant, are
scheduled for completion by mid-1999.  Implementation of the SAP
programs is on schedule and approximately 48 percent complete.
Implementation of the Oracle programs is approximately 55 percent
complete, but behind schedule.  The company has developed a
contingency plan to make the programs that are scheduled to be
replaced by the Oracle programs Year 2000 compliant.  A decision
to implement the contingency plan is expected to be made by the
end of third quarter 1998.  Remaining business software programs
are expected to be made Year 2000 compliant through the Year 2000
Project, including those supplied by vendors, or they will be
retired.  None of the company's other information technology (IT)
projects have been delayed due to the implementation of the Year
2000 Project.

Project
-------

Phillips' Project is divided into four major sections --
Infrastructure, Applications Software (Infrastructure and
Applications Software are sometimes collectively referred to as
"IT Systems"), third-party suppliers and customers (External
Agents), and process control and instrumentation (PC&I).  The
company has engaged Ernst & Young LLP (EY) to assist in the
program management of the Project and in the conversion and
testing of certain non-compliant application software code.  The


                                28

<PAGE>



general phases common to all sections are:  (1) inventorying Year
2000 items; (2) assigning priorities to identified items; 
(3) assessing the Year 2000 compliance of items determined to be
material to the company; (4) repairing or replacing material
items that are determined not to be Year 2000 compliant; 
(5) testing material items; and (6) designing and implementing
contingency and business continuation plans for each organization
and company location.

At June 30, 1998, the inventory and priority assessment phases of
each section of the Project had been completed.  Material items
are those believed by the company to have a risk involving the
safety of individuals, or that may cause damage to property or
the environment, or affect revenues.  The testing phases of the
Project are being performed by the company.

The Infrastructure section consists of hardware and systems
software other than Applications Software.  This section is on
schedule, and the company estimates that approximately 50 percent
of the activities related to the section had been completed at
June 30, 1998.  The testing phase is ongoing as hardware or
system software is remediated, upgraded or replaced.  Contingency
planning for the section is scheduled to commence in third
quarter 1998.  All Infrastructure activities are expected to be
completed by January 31, 1999.

The Applications Software section includes both the conversion of
applications software that is not Year 2000 compliant and, where
available from the supplier, the replacement of such software.
The company estimates that the software conversion phase was more
than 60 percent complete at June 30, 1998, and the remaining
conversions are on schedule to be completed by mid-1999.  The
testing phase of this section, scheduled for completion by mid-
1999, is ongoing.  The vendor software replacements and upgrades
are somewhat behind schedule; however, the company estimates that
replacements and upgrades will be completed on schedule by mid-
1999.  The testing phase is conducted as the software is replaced
and is also scheduled to be completed by mid-1999.  Contingency
planning for this section is scheduled to begin in third quarter
1998 and be completed by mid-1999.

The External Agents section includes the process of identifying
and prioritizing critical suppliers and customers at the direct
interface level, and communicating with them about their plans
and progress in addressing the Year 2000 problem.  Detailed
evaluations of the most critical third parties have been
initiated.  These evaluations will be followed by the development
of contingency plans, which are scheduled in the fourth quarter
of 1998, with completion by mid-1999.  The company estimates that
this section was on schedule at June 30, 1998.  The process of
evaluating these external agents will commence in third quarter


                                29

<PAGE>



1998 and is scheduled for completion by mid-1999, with follow-up
reviews scheduled through the remainder of 1999.

Plans detailing the tasks and resources required for the PC&I
section are in place.  This section includes the hardware,
software and associated embedded computer chips that are used in
the operation of all facilities operated by the company.  The
company estimates that 75 percent of the PC&I equipment will be
ready by year-end 1998, with some work to be completed in 1999
because of turnaround schedules.  This section is on schedule and
the company believes that the repair and testing of PC&I
equipment is approximately 30 percent complete, with all repair
and testing scheduled to be completed by year-end 1999.
Contingency planning for this section is scheduled to begin in
third quarter 1998 and be completed by year-end 1999.

Costs
-----

The total cost associated with required modifications to become
Year 2000 compliant is not expected to be material to the
company's financial position.  The estimated total cost of the
Year 2000 Project is approximately $58 million.  This estimate
does not include Phillips' potential share of Year 2000 costs
that may be incurred by partnerships and joint ventures in which
the company participates but is not the operator.  The total
amount expended on the Project through June 30, 1998, was
$20 million, of which approximately $15 million related to the
cost to repair or replace software and related hardware problems,
approximately $4 million related to the cost of replacing non-
compliant PC&I equipment, and approximately $1 million related to
the cost of identifying and communicating with External Agents.
The estimated future cost of completing the Year 2000 Project is
estimated to be approximately $38 million -- $14 million to
repair or replace software and related hardware, $21 million to
repair or replace non-compliant PC&I equipment, and $3 million to
identify and communicate with External Agents.  Funds for the
Project are provided from a separate budget of $29 million for
all items other than PC&I and External Agent costs, which are
included in existing operating budgets.  The costs of
implementing the SAP and Oracle business replacement systems are
not included in these cost estimates.

Risks
-----

The failure to correct a material Year 2000 problem could result
in an interruption in, or a failure of, certain normal business
activities or operations.  Such failures could materially and
adversely affect the company's results of operations, liquidity
and financial condition.  Due to the general uncertainty inherent
in the Year 2000 problem, resulting in part from the uncertainty
of the Year 2000 readiness of third-party suppliers and


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<PAGE>

customers, the company is unable to determine at this time
whether the consequences of Year 2000 failures will have a
material impact on the company's results of operations, liquidity
or financial condition.  The Year 2000 Project is expected to
significantly reduce the company's level of uncertainty about the
Year 2000 problem and, in particular, about the Year 2000
compliance and readiness of its material External Agents.  The
company believes that, with the implementation of new business
systems and completion of the Project as scheduled, the
possibility of significant interruptions of normal operations
should be reduced.

Readers are cautioned that forward-looking statements contained
in the Year 2000 Update 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.


Contingencies

Legal and Tax Matters

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


Environmental

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

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


                                31

<PAGE>



At year-end 1997, Phillips reported 43 sites where it had
information indicating that it might have been identified as a
Potentially Responsible Party (PRP).  Two sites were added in 
second quarter 1998.  Of these 45 sites remaining at June 30,
1998, the company believes it has a legal defense or its records
indicate no involvement for 13 sites.  At eight sites, present
information indicates that it is probable that the company's
exposure is less than $100,000 per site.  At seven other sites,
Phillips has had no communication or activity with government
agencies or other PRPs in more than two years.  Of the 17
remaining sites, the company has provided for any probable costs
that can be reasonably estimated.

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

At June 30, 1998, accruals of $6 million had been made for the
company's unresolved PRP sites.  In addition, the company has
accrued $65 million for other planned remediation activities,
including resolved state, PRP, and other federal sites, as well
as sites where no claims have been asserted, and $4 million for
other environmental contingent liabilities, for total
environmental accruals of $75 million.  No one site represents
more than 10 percent of the total.

After an assessment of environmental exposures for clean-up and
other costs, the company makes accruals on an undiscounted basis
for planned investigation and remediation activities for sites
where it is probable that future costs will be incurred and these
costs can be reasonably estimated.  These accruals have not been
reduced for possible insurance recoveries, although claims for
recovery of remediation costs have been filed with certain of the
company's insurers.


                                32

<PAGE>



During the first six months of 1998, as part of a comprehensive
environmental cost recovery project, the company entered into
settlement agreements with certain of its historical liability
and pollution insurers in exchange for releases or commutations
of their present and future liabilities to the company under its
historical liability and pollution policies.  As a result of
these settlement agreements, the company recorded a before-tax
benefit to earnings of $109 million.  At June 30, 1998,
$105 million had been collected.  At this time, the company is in
negotiations with several other historical insurers.  The
ultimate amount, if any; the terms of the settlements; and the
timing of recoveries from these other insurers remain uncertain.


OUTLOOK

Phillips is participating in several appraisal wells at the
Schrader Bluff and Northwest Eileen fields on the north slope of
Alaska.  These are satellite fields to the main Prudhoe Bay and
Kuparuk fields.  The results to date at Northwest Eileen have
been successful, and the co-venturers plan to pursue an
aggressive program for additional appraisal and development well
drilling during 1999 and 2000.  Phillips has an approximately
25 percent working interest in the Schrader Bluff and a
10 percent working interest in Northwest Eileen, both subject to
redetermination based upon well results.

In Nigeria, the company's oil mining leases for production of oil
and gas have been renewed for 30 years from June 14, 1997.  These
interests are operated on behalf of the company under a joint
operating agreement with Nigerian Agip Oil Company (Agip) for the
life of the leases covered and until all joint property has been
disposed of and final settlement made.  The initial term of the
leases was through June 13, 1997, but production continued
unabated to renewal.

In July 1998, a Phillips subsidiary was awarded a 34 percent
interest in and operatorship of the Sisimiut exploration license
off the western coast of Greenland.  The company plans to
continue reprocessing existing seismic data in order to better
analyze the potential structures.  This will be followed by the
acquisition of new seismic data, planned for 1999.

In the United Kingdom, a development well drilled from the
Maureen platform to extend production from the field was a dry
hole.  It is now expected that production from Maureen will cease
in 1999 or 2000.  Phillips continues its effort to find another
user for the Maureen platform and is also reviewing other refloat
and disposal options.  The financial provision for
decommissioning is expected to be sufficient by year-end 1998 for
any option currently being considered.


                                33

<PAGE>



The Jade field in the U.K. North Sea, discovered in 1996, was
successfully appraised in 1997.  Development options are being
evaluated, with production now expected in 2001 with a tie-in to
the J-Block infrastructure.  Phillips is the operator with a
32.5 percent interest.

Production of LNG at the Bayu-Undan gas field in the Timor Sea
has been delayed at least two years from 2003 to 2005.  The delay
is due to the weak Asian market and disagreements with Phillips'
major co-venturer concerning the potential location of the
proposed LNG plant.  Initial production of the field's liquid
reserves is expected in late 2002, and the gas will be
reinjected.

Phillips anticipates that the joint-venture project to develop
extra-heavy oil reserves from the Hamaca region of the Orinoco
Oil Belt in eastern Venezuela, in which it has a 20 percent
interest, will be approved by year-end 1998.  Initial production
is expected in 2000; however, full production may be delayed
until 2003 or 2004, but all parties are working to mitigate any
delay and expedite development.

Phillips' alliance with Mobil Corporation to jointly explore
deep-water blocks in the Gulf of Mexico is progressing with
continued acquisition, processing and interpretation of 3-D
seismic.  The deep-water drilling program is scheduled to
commence in late-1998 or early-1999.  The delivery of the
contracted deepwater drillship has been delayed until the fall of
1999, but slippage in the drilling schedule will be mitigated by
use of other deep-water drilling vessels.

In early April 1998, the company filed suit in the District Court
of Harris County, Texas, against Union Pacific Corporation, Union
Pacific Railroad Company, and Southern Pacific Transportation
Company, alleging that Union Pacific's merger with Southern
Pacific Transportation Company has resulted in Union Pacific's
being unable to provide timely, reasonable or reliable rail
transportation service to Phillips' Houston Chemical Complex and
Sweeny refinery.  The defendants removed this case to the United
States District Court for the Southern District of Texas, Houston
Division.

In January 1999, several European countries will begin operating
with a single currency, the Euro, starting the process of
completely replacing their national currencies during the next
three and one-half years.  This European Monetary Union will
affect many of the business and financial functions for companies
operating in these countries.  The previously mentioned worldwide
business systems replacement project is expected to position the
company for the introduction of the Euro and no significant
adverse economic impact is anticipated.


                                34

<PAGE>



Ekofisk and outlying fields in the Norwegian North Sea, along
with J-Block in the U.K. North Sea, were shut-in in early August
to accommodate the company's Ekofisk II conversion.  Production
from the Ekofisk II Complex and from J-Block are scheduled to
resume by August 21, 1998.  The downtime should result in lower
oil, natural gas, and natural gas liquids production in the third
quarter, but no material impact to third quarter net income is
expected.

Phillips operates in three countries where cutbacks in production
have been announced.  In conjunction with the OPEC announced
reduction in output, Norway has voluntarily implemented measures
to cut back crude oil production on the Norwegian continental
shelf by 3 percent for the remainder of 1998.  The Phillips-
operated Ekofisk area fields in License PL018 will be affected,
but oil production will only be curtailed 3 percent during the
last four months of 1998.  The Nigerian government has dictated
quota reductions of 6 percent, effective April 1, 1998, and an
additional 9 percent, effective July 1, 1998, that affect leases
operated on behalf of the company under a joint operating
agreement with Nigerian Agip Oil Company.  However, anticipated
1998 annual production from these leases falls within the limits
allowed under the revised production arrangements.  Venezuela, an
OPEC member, has also agreed to cut back oil production, but
foreign companies operating there have not been asked to curtail
production.  Based on the above information, the company does not
expect the economic impact of these announced production
curtailments in any of the three countries to have a material
adverse impact on the company's results of operations or
financial position.

The current climate of low crude oil prices could have the impact
of shortening the economic limits on field lives, potentially
reducing proved reserve estimates sufficiently to trigger
impairment losses.  Phillips constantly monitors its assets for
signs of potential impairment and recognizes impairment losses
whenever the carrying amount of a field exceeds its fair value.
Industry opinions currently are mixed as to whether, or how much,
oil prices will recover in the near-term.

The company has a number of issues outstanding with the IRS
related to tax years 1987 through 1992 that are expected to
be resolved this year as a result of the favorable outcome
in 1996 of the Kenai LNG tax case related to the company's
sales of LNG from Kenai, Alaska.  A favorable resolution of
these issues would have a positive effect on net income and
cash flow of up to $125 million while an unfavorable one would
not impact the company's net income or cash position.  All
outstanding issues with the IRS for years prior to 1987 have
been resolved.


                                35

<PAGE>



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:  (1) the
     company's ability to obtain agreements from co-venturers or
     partners, and governments; engage drilling, construction and
     other contractors; and obtain economical and timely financing;
     (2) geology, land or sea, or ocean conditions; (3) world prices 
     for oil, natural gas and natural gas liquids; and (4) foreign 
     and United States laws, including tax laws.

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


                                36

<PAGE>



     availability of transportation in the form of pipelines,
     railcars, trucks or ships.

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

  o  Estimates of proved reserves, raw natural gas supplies,
     project cost estimates, and planned spending for maintenance
     and environmental remediation were developed by company
     personnel using the latest available information and data,
     and recognized techniques of estimating, including those
     prescribed by the U.S. Securities and Exchange Commission,
     generally accepted accounting principles and other
     applicable requirements.

  o  The dates on which the company believes the Year 2000
     Project will be completed and the SAP and Oracle business
     computer systems will be implemented are based on
     Management's best estimates, which were derived utilizing
     numerous assumptions of future events, including the
     continued availability of certain resources, third-party
     modification plans and other factors.  However, there can be
     no guarantee that these estimates will be achieved, or that
     there will not be a delay in, or increased costs associated
     with, the implementation of the Year 2000 Project.  A delay
     in the implementation of SAP could also impact the company's
     readiness for the introduction of the Euro.  Specific
     factors that might cause differences between the estimates
     and actual results include, but are not limited to, the
     availability and cost of personnel trained in these areas,
     the ability to locate and correct all relevant computer
     code, timely responses to and corrections by third-parties
     and suppliers, the ability to implement interfaces between
     the new systems and the systems not being replaced, and
     similar uncertainties.  Due to the general uncertainty
     inherent in the Year 2000 problem, resulting in part from
     the uncertainty of the Year 2000 readiness of third-parties
     and the interconnection of global businesses, the company
     cannot ensure its ability to timely and cost-effectively
     resolve problems associated with the Year 2000 issue that
     may affect its operations and business, or expose it to
     third-party liability.


                                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 11,
1998.  A brief description of each proposal and the voting
results follow:

  A company proposal to elect twelve directors.

                                      For      Against & Withheld
                              -----------------------------------
  W. W. Allen                 259,381,726               5,116,364
  Norman R. Augustine         259,565,122               4,932,968
  George B. Beitzel           258,833,162               5,664,928
  David L. Boren              259,268,175               5,229,915
  C. L. Bowerman              259,628,271               4,869,819
  Robert E. Chappell, Jr.     259,802,906               4,695,184
  Lawrence S. Eagleburger     259,187,165               5,310,925
  Larry D. Horner             259,609,462               4,888,628
  J. J. Mulva                 259,244,652               5,253,438
  Randall L. Tobias           259,652,236               4,845,854
  Victoria J. Tschinkel       259,484,049               5,014,041
  Kathryn C. Turner           259,251,605               5,246,485

  A company proposal to approve the designation of Ernst &
  Young LLP as independent auditors for 1998.

                  For         258,946,931
              Against           4,506,906
          Abstentions           1,044,253
            Not Voted          26,465,795

All twelve nominated directors were elected, and the independent
public accountants designated by the company were approved.

Item 5.  OTHER INFORMATION

At the July 1998 meeting of the company's Board of Directors, the
date of the company's 1999 annual meeting of stockholders was
changed from May 10, 1999, to May 3, 1999.  This change will not
impact the date, November 30, 1998, by which stockholder
proposals must be submitted.


                                38

<PAGE>



Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

Exhibits
--------

3(ii)  Bylaws of Phillips Petroleum Company, as amended effective
       July 17, 1998.

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, 1998, the company did not
file any reports on Form 8-K.


                                39

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

August 10, 1998


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