ABOUT THE COVER: THE EMBROIDERED
PEGASUS TRADEMARK INTRODUCING
THIS ANNUAL REPORT REPRESENTS
MOBIL AND ITS EMPLOYEES WORLDWIDE,
MANY OF WHOM PROUDLY WEAR THE IMAGE
DAILY AS A PATCH ON THEIR CLOTHING.
[Bar Chart - Inside Front Cover]
AVERAGE ANNUAL
RETURN TO
SHAREHOLDERS
Mobil share-price appreciation
plus reinvested dividends
% as of year-end 1997
Mobil Competitors S & P 500
1 Year 22 21 33
5 Year 22 21 20
10 Year 19 17 18
TABLE OF
CONTENTS
Letter to Shareholders 1
Mobil At a Glance 4
People 6
Performance 8
Alliances improve results, prospects
Convenience at the pump builds brand loyalty
Growth 10
Hibernia beats schedule, surpasses estimates Expanding in the Caspian region
Building on our leadership in LNG Growing reserves, production in a world of
opportunities Lubricating oils: pushing to be first Staying ahead of the
curve in chemicals
Environment 16
FINANCIAL
SECTION
Management Discussion
and Analysis 19
Consolidated Financial
Statements 33
Notes to Financial Statements 40
Reports of Management and
Independent Auditors 54
Supplementary Information 55
Shareholder Information 64
Directors and Officers 65
FINANCIAL
HIGHLIGHTS
1996 1997 %Change
..........................................................................................................
Net income (millions) $ 2,964 $ 3,272 10
Per common share(1) (based on average shares outstanding) 3.69 4.10 11
Per common share-assuming dilution(1) 3.62 4.01 11
..........................................................................................................
Return on average shareholders' equity 16.0 % 17.0% --
Return on average capital employed 12.7% 13.4% --
Income per dollar of revenue(2) 3.6(cent) 5.0(cent) 39
Petroleum earnings per gallon sold 4.5(cent) 5.1(cent) 13
..........................................................................................................
Revenues(2) (millions) $ 81,503 $ 65,906 (19)
Total assets, year-end(2) (millions) 46,408 43,559 (6)
Investment spending (millions) 7,019 5,306 (24)
Shareholders' equity, year-end (millions) 19,072 19,461 2
Per common share(1) (based on shares outstanding at year-end) 23.81 24.41 3
..........................................................................................................
Common shares outstanding, year-end(1) (thousands) 787,589 783,364 (1)
Shareholders of common stock, year-end 185,600 186,200 --
Number of employees, year-end 43,000 42,700 (1)
..........................................................................................................
<FN>
(1) Shares outstanding and per-share amounts reflect the two-for-one stock split in 1997.
(2) Reflects the impact of equity accounting for alliances implemented in 1997.
</FN>
LETTER
TO SHAREHOLDERS
RAISING OUR TARGETS
I'm pleased to report that Mobil's 1997 operating profits reached $3.4 billion,
up 11% from 1996. It was the third straight year of record operating results,
and most of the increase stemmed from self-help. We raised volumes, improved
performance, benefited from expense initiatives and business alliances, and
strengthened our relationships with valued customers and partners. Our upstream
and U.S. downstream segments achieved records, and chemical earnings improved as
well.
Our total return to shareholders reached 22% in 1997 and has averaged 22%
over the past five years. While our 1997 results were middle of the pack, we
outperformed the average return of our competitors and the Standard & Poor's 500
over five years. During 1997, Mobil split the stock two-for-one and raised the
dividend. Then, early in 1998, we announced another dividend increase, of 7.5%
annualized. This is the 11th straight year of higher dividend payments.
Mobil's debt-to-capitalization ratio stood at 25% at year-end 1997. That
means we have the flexibility to invest in profitable opportunities that fit our
core businesses. If the debt-to-capitalization ratio stays much below our target
in the 30% range, we'll consider additional stock buybacks. Over the last five
years we've reduced our common shares outstanding by about 2%.
GOALS POINT THE WAY
In early 1997, it was clear that we had reached - almost two years early - the
goals we had set in 1994. While our achievement was significant, we didn't stack
up as well as we would have liked in relation to our competitors.
So our new five-year goals contain as a centerpiece the objective of
generating returns to shareholders that are in the first quartile of comparable
energy companies. In order to reach that objective, we've set new targets, using
1996 as the base year: a 10% per year increase in operating earnings, which
would bring us to $5 billion in 2001; a 14% average return on capital employed
over the period; and, assuming constant market multiples, a $100 stock price by
2001.
To support our targets, we established goals for our operating units,
including: increasing oil and gas production by an average of at least 4% a
year, replacing more than 110% of the reserves produced over the five-year
period, growing our trade sales volumes in fuels and lubricants by an average of
4% to 5% a year, and increasing by 7% a year our chemical sales volumes. We can
only achieve the business results we seek by having great people, so we're
conscientiously trying to build a more inclusive workplace culture that
leverages our diverse talent worldwide. At the same time we've set objectives to
continually improve our environmental, health and safety performance.
We did well against our operating goals in 1997. Worldwide production
increased 4%, on trend with our five-year goal; and we had a banner year in
reserve replacement, reaching 146%. Worldwide product trade sales were about
flat, although volumes outside Europe increased some 4%. In
LETTER
TO SHAREHOLDERS
Europe, despite lower volumes, our earnings benefited greatly because of our
downstream alliance with BP. Overall chemical volumes grew 14%, in part because
of a new aromatics complex in Beaumont, Texas.
Despite our good start, getting all the way to where we want to be in 2001
won't be easy. We're in a very competitive industry with modest projected
worldwide demand growth. We can't count on industry prices and margins to help
us achieve our goals, so we rely on self-help - the components necessary for
success: people, performance, growth.
PEOPLE GET US THERE
It's our people who formulate the strategies, attain the goals, and plan for
tomorrow. Our workforce is talented, diverse and committed to making Mobil a
great global company. Throughout the Mobil organization we are implementing
programs to align employee interests more closely with those of the business
unit, the company and the shareholder. We're beginning to see the results of a
wide range of global initiatives we've undertaken to ensure that we are fully
developing the talents and skills of our people and providing inclusive,
high-performance work environments in which they can thrive.
PERFORMANCE IMPROVES DRAMATICALLY
On performance, our focus centers on becoming ever more efficient and delivering
real value to our customers. Efforts by Mobil people everywhere are yielding
improvements. In U.S. Marketing & Refining, which was lagging competitively in
the early 1990s, operating performance and innovative marketing programs like
the Speedpass(TM) system and On The Run(R) convenience stores helped spur a 51%
increase in operating earnings to record levels. Upstream in the U.S., after
years of declines, we ended 1997 with fourth-quarter production about level with
the same period in 1996.
Over the five-year period ended in 1996, Mobil's worldwide initiatives
resulted in more than $3 billion in pretax expense savings. With 1996 as the
base, programs now in place are expected to yield another $900 million in
annualized pretax expense reductions and profit improvements.
We are already seeing the results of our strategic alliances, especially
those with BP in the European downstream and Shell in the California upstream.
Meanwhile, we are continuing to sell assets that are noncore to Mobil or worth
more to someone else. We've sold some of the fields that were included in our
acquisition of Ampolex. The roughly $370 million we received represented a
significant premium over our original valuation of those assets. Overall, during
the last 10 years, Mobil asset sales generated more than $11 billion, which we
redeployed into attractive growth opportunities.
An area in which we are deeply committed to substantial improvement is the
environment, health and safety. We have established challenging five-year goals
for worker safety, spills and major incidents, and will publish our progress. We
recognize that success in this area is critical for the company and all of our
stakeholders, and our ultimate goal is to eliminate accidents and environmental
incidents.
GROWTH TARGETS RAISED
We project 1998 investment spending of $5.9 billion, up from $5.3 billion in
1997. We believe that the best opportunities are in exploration and producing,
and the primary sources of upstream growth for us over the next few years are
likely to be West Africa, Eastern Canada, the Caspian region, Qatar's liquefied
natural gas projects, South America, Norway, Australia and Papua New Guinea.
Eastern Canada, where we have a dominant position, provided much good news
for us in 1997. The Hibernia oil field offshore Newfoundland came on stream a
month early and estimates for both
NEW EXPLORATION AND ACQUISITIONS COULD RAISE
OUR PRODUCTION BEYOND OUR CURRENT GOALS
reserves and peak production have been increased. The nearby Terra Nova oil
field and the Sable Gas Project off the coast of Nova Scotia received regulatory
approvals in 1997. Elsewhere, we made important discoveries in Australia,
Equatorial Guinea and Norway and progressed our growing relationships in
Azerbaijan, Kazakhstan, Nigeria, Peru, Qatar, Turkmenistan and Venezuela.
In 1994 we targeted production growth of 2% a year. We've since raised the
goal twice to at least 4%. I like the trend, especially since the target is
based on existing opportunities and recognizes reasonable decline rates in
existing fields. While we may sell some assets, new exploration successes and
acquisitions could raise our production further.
In marketing and refining, market entries into growth regions will help us
meet our goals. In lubricants, we have built two state-of-the-art blending
plants in China, reentered the South African market and are expanding our
presence throughout Latin America. In fuels, we are entering the liquefied
petroleum gas business in China and India, entering markets in Venezuela and
Mexico, and strengthening our position in Africa and Eastern Europe.
The Asia-Pacific region has long been an important source of growth for
Mobil. Recent economic turmoil there has slowed growth, but we believe it's a
good place to do business over the long term, especially for a company like
Mobil with good assets and a strong competitive position. While our initiatives
will increase efficiency and improve profitability, we're maintaining a prudent
level of investment spending geared toward maintaining the competitiveness of
our assets. And we're on the lookout for opportunities that may develop.
In the chemical business, we expect solid returns even though aromatics and
olefins are entering the down part of their business cycles. Over the next five
years we believe we can increase our earnings and generate average returns of
13% to 15% by investing in projects where we have a competitive advantage.
Construction has begun on an expansion that will more than double the capacity
of our joint- venture petrochemicals complex in Yanbu, Saudi Arabia, and we're
planning a grass-roots joint-venture petrochemicals plant in Jose, Venezuela.
EXECUTIVE CHANGES
Early in 1998 the board elected Eugene A. Renna Mobil's President and Chief
Operating Officer. A director since 1986, Gene combines a great understanding of
our competitive industry with a deep respect for Mobil's unique qualities. He
has shown the kind of leadership that creates success. Effective April 1, 1998,
Mobil's operating units will be organized into seven business groups reporting
to Gene. I am personally delighted with Gene's selection and with our leadership
team.
In September 1997 Mobil saw the close of a remarkable career as Paul J.
Hoenmans, a board member and executive vice president, retired after 43 years of
service. His legacy will be remembered, as he helped develop the generation that
will lead us to tomorrow's growth.
A FUTURE THAT'S BRIGHT
While this industry has challenges, I'm confident that we'll reach our goals. We
value our people, and we've seen what we can achieve when we have a clear vision
of where we want to be and the energy to make it happen. Now we are aiming for
the next level. The opportunities we seize today will lead to more growth,
greater value and a better future for our shareholders, partners, customers,
communities and employees in the decades to come.
/S/LUCIO A. NOTO
Lucio A. Noto
Chairman and Chief Executive Officer
MOBIL CORPORATION
[Pegasus Art - Page 4]
Mobil is a global energy company with a proud history, dating back over 130
years. With revenues of $65.9 billion and operating earnings of $3.4 billion, we
do business in about 140 countries, on every continent. Our investment spending
has averaged $4.9 billion a year over the last five years, and we have budgeted
$5.9 billion for 1998. Our overriding five-year goal is to generate returns to
shareholders that put us among the first quartile of major international oil
companies.
MOBIL
AT A GLANCE
EXPLORATION & PRODUCING
Mobil produces oil or gas in 20 countries and explores in 34. Our daily
production of 1.75 million barrels of oil or its equivalent in natural gas makes
us the third largest among international majors, while our total proved reserves
equal 7.2 billion barrels of oil equivalent. We project that our production will
increase by an average of over 4% a year and that we will more than replace that
production with new reserves.
MARKETING & REFINING
WE ARE THIRD LARGEST among major oil companies in sales of petroleum products,
marketing to customers in over 125 nations. Our primary product supply comes
from 25 refineries, which process crude oil into fuels, lubricants and
petrochemical feedstocks. Over 15,000 Mobil-branded retail outlets participate
in our fuels marketing network. With lubricant sales of more than 2 million
gallons a day, we are pursuing the goal of becoming the world's #1 lube company.
We have long been an acknowledged leader in premium lubricants, especially
synthetics like Mobil 1(R) motor oil.
CHEMICAL
MOBIL CHEMICAL IS AN INTEGRATED manufacturer and marketer of basic
petrochemicals, selected specialty chemicals, catalysts and flexible packaging
films. We operate 29 facilities in 11 countries and market in over 100. Our
petrochemicals are used to produce a wide range of derivative chemicals and
industrial and consumer products. Our specialty chemicals business produces base
stocks for world-class synthetic lubricants as well as additives for fuels and
lubricants. Our goal is to grow our businesses profitably and deliver strong
financial results even during industry downturns.
WE HAVE the size, the strength, the scope, the agility and the experience to
meet any challenge the energy business can present. We have the energy to make a
difference, and our continued success rests on three pillars, which we examine
on the pages that follow:
PEOPLE - a global workforce that's diverse, talented and committed.
PERFORMANCE- constant attention to getting the most out of our asset base.
GROWTH-a commitment to seizing and developing the best opportunities.
Our technical skills, our financial strengths, our experience managing
major projects, and our dedication to environmental leadership and good
corporate citizenship make Mobil a partner of choice for all of our
stakeholders.
MOBIL(R) The energy
to make a difference.
PEOPLE
TO BEAT THE COMPETITION in today's global marketplace, a company needs astute
strategies. But strategies alone won't distinguish one company from the pack. A
great company depends on great people to execute the strategies. That means
having the right people in the right places at the right times with the right
sets of skills - in work environments that encourage employees to contribute
their fullest.
It isn't something to leave to chance. "In 1997 Mobil initiated a more
rigorous approach to our people resource strategies," said Bob Amrhein, vice
president, Human Resources. "We want to ensure that we manage our people
resources at least as conscientiously as we do our other business assets. Our
business units worldwide are addressing human resource issues as an integral
part of their operating strategies."
In 1997 Mobil established people development councils in regions around the
world. The councils share common goals for staffing and people development.
Maury Devine, general manager of Mobil Exploration Norway, heads the People
Development Council for Europe, which aims to develop skills for all employees.
"One of our most important missions is to facilitate training and job moves
across functions and from country to country," she explained. "We also work with
the business units to develop the strategies and people initiatives that will
give us a competitive edge in Europe."
Mobil Oil Australia's general manager, P.C. Tan, leads the Asia-Pacific
development council. "You can't find a better training ground than in our
international affiliates," he said. "In this region we have a superb mix of
businesses, of mature and high-growth markets, and of a variety of cultures. For
example, we have an Australian heading up Mobil Sekiyu in Japan and a Briton
leading Mobil Oil New Zealand. I'm a Singaporean in charge of the Australian
affiliate."
BUSINESS UNITS AROUND THE
WORLD MADE PROGRESS ON
PROMOTING INCLUSION
As part of the special effort to develop people to their fullest, Mobil's
Global Leadership Development Council guides the progress of several hundred
talented employees from Mobil's worldwide operations to ensure that they receive
the right mix of business exposures.
Another step is to realize every employee's potential, and that means fully
developing the talents and skills of individuals throughout the company.
Business units around the world took further steps in 1997 toward building
inclusive, high-performance working environments. Their efforts, supported by
the Office of Global Inclusion and Diversity, aim to fully tap the rich ethnic,
cultural and geographic diversity of their locations and the worldwide Mobil
organization.
"Barriers that interfere with our getting the best from every employee are
also barriers to improving the company's performance, and we'll do our best to
remove them," said Bob Swanson, Mobil's executive vice president who oversees
the inclusion and diversity initiatives.
Mobil has also focused on aligning employees' performance with the goals of
their business units and the corporation as a whole. The company has supported
this strategy with balanced score cards and changes in pay and benefits.
Mobil has adopted variable pay in the United States, giving every salaried
employee a stake in his or her group as well as individual performance.
Affiliates around the world are adopting similar pay philosophies as appropriate
for their local cultures. In addition, Mobil employees worldwide received a 3%
bonus in 1997 to recognize their success in meeting the company's financial
goals nearly two years early.
Another essential element in meeting Mobil's business goals is the
company's technological excellence. "Technology is fundamental in improving our
earnings, and technology is people," said Mike Ramage,Mobil's chief technology
officer. "We will continue to need high-quality scientists and engineers in the
regions where we are investing." Ramage is developing a framework for technical
career development worldwide.
Mobil recognizes that meeting earnings goals means meeting people goals. It
has the commitment in place to do both.
PERFORMANCE
ALLIANCES IMPROVE
RESULTS, PROSPECTS
Mobil is reaping the rewards of recent alliances that strengthen the company and
improve returns. Exam- ples are the Mobil and British Petroleum (BP) alliance to
manufacture and market fuels and lubricants in Europe, and the California
upstream joint venture between Mobil and CalResources LLC, an affiliate of Shell
Oil Company.
"The joint venture in Europe progressed full steam ahead in 1997, its first
full year," said Hal Cramer, operating officer for Europe and Central Asia. "By
the end of 1998 we expect to be realizing nearly all the anticipated benefits,
worth more than $100 million a year to Mobil's bottom line."
THE VENTURE IS A PLATFORM
TO GROW IN KEY MARKETS IN
EASTERN EUROPE AND RUSSIA
With affiliates in 25 countries and revenues of $20 billion, "there was no
template to follow in aligning our operations. Nothing on this scale had ever
been attempted, but our people made it work," Cramer added. The joint marketing
approach makes the alliance Europe's lubes leader and puts Mobil and BP on a par
with Shell for the largest fuels market share in Europe. Just as important, the
venture is a platform for future growth in key emerging markets in Eastern
Europe and Russia.
In June 1997 Mobil completed its agreement with CalResources to combine the
companies' exploration and producing operations in California into a new
company, Aera Energy. The proximity and scope of the combined operations give
Aera the opportunity to realize a pretax benefit of about $1 per barrel of oil
produced. Mike Yeager, president and general manager of Mobil Exploration &
Producing U.S., said the venture "allows us to maintain top-quartile performance
in the California upstream business and fits our ongoing strategy of developing
advantaged regional businesses that create platforms for growth."
IN THE EUROPEAN JOINT VENTURE,
9,000 BP-BRANDED SERVICE STATIONS
PROVIDE HIGHLY VISIBLE OUTLETS
FOR MOBIL LUBRICANTS.
REFINERY MONITORING
It's like giving a refinery a stress test. Using sensors much like those for
electrocardiograms, refinery operators can monitor - in real time-
THE TECHNOLOGY EDGE:
the health of key equipment, stopping problems before they happen, extending
equipment life and making the plant a safer place to work. the low-cost system
was piloted at Mobil's refineries in Joliet, Illinois, and Beaumont, Texas.
CONVENIENCE AT THE PUMP BUILDS LOYALTY
"Our customers are looking for the fastest and easiest way to buy gasoline,"
said Brian Baker, operating officer for North American Marketing & Refining.
"The Speedpass(TM) system delivers it. We have introduced the biggest marketing
innovation of 1997, and our customers clearly appreciate it."
Unveiled nationwide in the U.S. in the spring, the state-of-the-art
technology enables motorists to use a miniature transponder to make gasoline
purchases at participating Mobil stations. This innovative device has won
acclaim from such publications as USA Today, Credit Card Marketing and Fortune.
One version of the Speedpass system goes on the customer's key ring and
gets waved at the fuel dispenser to activate the pump. The motorist then selects
the grade, pumps the gasoline and drives off.
In its first seven months, more than a million were activated, and the
Speedpass system was taken to another level - a car-tag transponder that adheres
to the vehicle's rear windshield.
Either way, the customer is pumping gasoline within seconds of arriving at
the station. "Speedpass enables motorists to fill up and drive away without ever
having to dig out their wallets and hunt up a credit card," said Baker. "It
draws drivers in - and gets them out in record time."
U.S. motorists interested in the Speedpass system can call 1-800-459-2266.
GROWTH
HIBERNIA BEATS SCHEDULE, SURPASSES ESTIMATES
An era began on November 17, 1997. On that day, a month ahead of schedule and at
rates well in excess of estimates, oil began flowing from the Hibernia
production platform on the Grand Banks off the coast of Newfoundland.
"It was a solid beginning for the field and the birth of an oil and gas
producing industry for Eastern Canada, where Mobil has been a participant in
virtually all the significant discoveries," said Harvey Smith, president of the
Hibernia Management and Development Company, in which Mobil holds 33%, the
largest interest.
The Hibernia producing platform represents an engineering milestone. "While
it's in the same family as the giant concrete structures Mobil engineered in the
North Sea, this platform is the first ever designed specifically to resist the
impact of icebergs," explained Lou Allstadt, operating officer, Mobil North
American Exploration & Producing.
Mobil holds a 22% interest in the Terra Nova field, also in the Grand
Banks; a 51% interest in the Sable Gas Project off the coast of Nova Scotia; and
a share of the Maritimes and Northeast Pipeline, which will transport the gas.
From a base of zero in 1996, Mobil's Eastern Canadian production should reach
135,000 barrels a day of oil or its equivalent in natural gas by 2002. Mobil
also holds interests in much of the exploration acreage around these projects.
EXPANDING IN THE CASPIAN REGION
Among the global energy companies, Mobil has over the last four years developed
an enviable network of ventures and growing relationships in the Caspian region.
"We are committed to building a strong, integrated business in the Caspian
region, founded on a deep understanding of the region and warm, long-term
relations with its people," according to Richard Beazley, regional vice
president, New Exploration & Producing Ventures.
In November 1997 the company's burgeoning association with Kazakhstan
progressed a significant step with the signing of a production sharing agreement
between the Kazakhstani government and eight major oil companies, clearing the
way for exploratory drilling to begin in 1998. "We're a 14% partner, and the
only U.S.-based company, in the consortium," said Carl Burnett, president, Mobil
Oil Kazakhstan Inc., in Almaty. "Our four-year seismic study has confirmed the
world-class potential of the North Caspian Sea."
Mobil is involved in three other exploration, production and transportation
projects in Kazakhstan:
o The giant Tengiz oil field (Mobil share 25%). Eventually, crude oil
production could reach 800,000 barrels a day, with significant additional gas
and natural gas liquids.
o The Caspian Pipeline Consortium, which is planning to build a 900-mile
pipeline from the Tengiz field to the Russian Black Sea.
o The Tulpar Munai onshore exploration joint venture (Mobil share 25%).
Elsewhere in the region in 1997, Mobil and the Azerbaijan state oil
company, Socar, signed an agreement for Mobil to explore the Oguz concession in
the Azeri sector of the Caspian Sea; while in Turkmenistan, Mobil and Monument
Oil and Gas p.l.c. entered into a production-sharing agreement with the
government covering the Nebit Dag license.
BASIN MODELING
Mobil has developed a proprietary software package that reduces the risk in
looking for oil and gas beneath the earth's surface. Called
THE TECHNOLOGY EDGE:
Sextant, the package incorporates complex mathematical algorithms that permit
our scientists to look at the dynamics of petroleum accumulations from millions
of years in the past to the present day. This dynamic view provides a better
understanding of the risks and rewards in exploration acreage, so we can improve
the odds as we search for petroleum resources around the globe.
GROWTH
BUILDING ON OUR LEADERSHIP IN LNG
One of the largest liquefied natural gas (LNG) operators in the world, Mobil
continues to build on its leadership position in this growing segment of the
global gas industry.
"We helped pioneer the LNG industry in the 1970s when we and our partner,
Pertamina, developed the Arun gas field and associated liquefaction plant in
Indonesia," recalled John Simpson, operating officer for LNG and Independent
Power Projects. The Arun field now supplies 11 million tons of LNG a year to
Japan and Korea.
"Much of the growth we see for us in LNG will come from two grass-roots
projects with the Qatar General Petroleum Company," Simpson said. Qatar's North
field, with at least 380 trillion cubic feet of reserves, is the foundation for
both projects: Qatargas (Mobil share 10%) and RasGas (Mobil share 25%).
The first Qatargas shipment arrived in Japan early in 1997, and eventually
the venture will supply more than six million tons of LNG a year to eight
Japanese gas and electric utilities. RasGas is at an earlier stage. During 1997
Mobil reached a 25-year agreement with Korea Gas Corporation doubling its sales
agreement to 4.8 million tons a year, with shipments scheduled to begin in 1999.
RasGas LNG sales are expected to grow to at least 10 million tons a year.
CONSTRUCTION PROCEEDS ON THE RASGAS FAMILIAR AREAS, NEW
LIQUEFACTION PLANT IN QATAR. SHIPMENTS ARE ONES OFFER POTENTIAL
EXPECTED TO BEGIN IN 1999. BEYOND YEAR 2000
GROWING RESERVES, PRODUCTION IN A WORLD OF OPPORTUNITIES
"We go where the opportunities are," according to Bill Scoggins, operating
officer, New Exploration & Producing Ventures, "and we are finding them in all
corners of the globe. We're confident that our projects in areas old and new
will enable Mobil to continue to build its reserve base and fuel production
growth beyond the turn of the century."
West Africa is a region of continuing opportunity for Mobil. Mobil's share
of Nigerian production is expected to reach 370,000 barrels a day early in the
next century. Production is growing in Equatorial Guinea as well, and Mobil is
expanding the pace of deepwater exploration in West Africa.
South America is expected to become a key source of reserves and production
growth. "In the Southern Cone, where gas demand is growing, Peru's Camisea gas
field (Mobil share 42.5%) holds exciting potential for us," stated Ann Pickard,
regional vice president, New Exploration & Producing Ventures. "We expect to
initiate project development in 1998." Also in the Southern Cone, Mobil has
built a position in two of the three key gas basins of Argentina, where the
company's share of production should reach 40,000 barrels of oil equivalent a
day by 2002.
In Venzuela Mobil holds 41.7% interest in a joint venture to develop heavy
oil from the Cerro Negro field. Mobil, highly experienced in heavy oil, operates
the field. Most of the crude will be processed at the refinery in Chalmette,
Louisiana, now co-owned by Mobil and an affiliate of the Venezuelan state oil
company. With production from the field expected to start in 1999, Mobil's share
should grow to 50,000 barrels a day by 2001.
Also in Venezuela Mobil has a 50% interest in the La Ceiba block, where a
promising discovery was made before Mobil's purchase in 1996, and a 25% interest
in the Quiamare block.
Norway - another familiar area on Mobil's map - continues to provide
growth. Mobil's strong position in the North Sea, as well as Aasgard development
and discoveries of the Kristin/Lavrans fields in the Haltenbanken area, will add
more than 60,000 barrels a day in production of oil or its equivalent by 2002.
As exploration progresses around the globe, successes in the
Australia/Papua New Guinea area are giving Mobil another platform for growth.
FLOATING LNG PLANTS
Making LNG today means transporting gas to expensive onshore liquefaction
plants, where it's processed and shipped. The high capital cost means
THE TECHNOLOGY EDGE:
that large customers, able to make long-term commitments, must be lined up well
in advance of their need. Now we've invented a way to liquefy the gas at sea
near the producing field, potentially eliminating the onshore plant. Smaller gas
fields can potentially become commercially viable. On the receiving end,
regasificiation plants using the same floating concept have the potential to
expand LNG's market to smaller customers.
GROWTH
LUBRICATING OIL:
PUSHING TO BE FIRST
Lubricants have always been a strength for Mobil. Now the company is driving to
become #1 worldwide and outpace the industry with 5%-a-year growth in lube sales
over the next five years. One element of the strategy is to expand in developing
markets in such growth areas as Asia, Latin America, Africa and Eastern Europe.
In China, Mobil is the largest importer of finished lubricating oil on the
mainland. "We've invested about $90 million in China to build two
state-of-the-art blending plants to service the growing demand for lubricants
more efficiently," said Steve Pryor, operating officer for the Asia-Pacific
region.
A key source of supply for Mobil in the region is its refinery in
Singapore. During 1997 the company completed a $230 million plant there that
uses hydrocracking technology to produce the most competitive base stocks in the
region.
Another element of the lubricant growth strategy is to build on the
company's strong relationships with equipment manufacturers and enhance the
value of Mobil's lube brands. Top teams in CART, NASCAR, Formula 1 and GT racing
have selected Mobil 1(R) as their lubricant of choice, and it is the
recommended oil and factory fill for AMG/Mercedes-Benz, Corvette, Porsche and
Viper.
STAYING AHEAD OF THE CURVE IN CHEMICALS
Mobil has begun construction of a major expansion of its joint-venture Yanpet
petrochemical complex in Yanbu, Saudi Arabia, and is progressing plans for a
grass-roots complex at Jose, Venezuela.
"The chemicals business is competitive and cyclical, but that means
opportunities for a company with Mobil's staying power," said Ray McGowan,
operating officer for Mobil Chemical. "We have identified projects with
profitable growth potential for us, particularly in the olefins, aromatics and
oriented-polypropylene segments."
Called Yanpet II, the $2.5 billion Saudi expansion, to be completed in
2000, will more than double the capacity of the complex Mobil owns jointly with
Saudi Basic Industries Corporation and will increase by almost 50% Mobil's
worldwide capacity to make olefins derivatives. The $2.2 billion complex in
Venezuela will be built in partnership with Pequiven, the petrochemical
affiliate of Venezuela's state-owned oil company, PDVSA. Detailed engineering is
to begin in 1998, with plant start-up in 2002.
"The Saudi and Venezuelan complexes will be two of the lowest-cost olefins
facilities in the world," McGowan said. Meanwhile, Mobil is expanding and
modernizing its U.S. olefins and polyethylene plants to reduce costs, improve
competitiveness and meet demand growth. The company increased capacity and
reduced feedstock costs at its Houston, Texas, olefins plant and in 1998 will
expand ethylene and polyethylene capacity at its plants in Beaumont, Texas.
In the aromatics business, Mobil nearly doubled its global paraxylene
capacity with two new units - one in Chalmette, Louisiana, that began operating
in late 1996 and another in Beaumont that came on stream in 1997. These are the
first units using MTPX (Mobil Toluene to Paraxylene) technology. In chemical
specialties, last year Mobil doubled its capacity to make synthetic lubricant
base stocks at Beaumont.
PARAXYLENE COST ADVANTAGE
Mobil's proprietary technology MTPX (Mobil Toluene to Paraxylene) is the
lowest-cost process for making paraxylene, which goes into the build-
THE TECHNOLOGY EDGE:
ing blocks for polyester fibers and plastic films and bottles. The key is our
catalyst that can select just the right molecules to interact with. It
significantly reduces the cost of secondary processing steps in the manufacture
of paraxylene.
ENVIRONMENT
IN 1956, when Mobil established its first formal policies to control
environmental and health hazards, the company was clearly ahead of the pack. The
environment had not yet become headline news. Mobil has steadily strengthened
its commitment over the years by adopting environmental, health and safety
management systems to implement its policies and improve performance. In 1996,
Mobil adopted a new comprehensive policy, followed by public reporting in 1997
and a commitment to long-term goals in early 1998.
"Setting goals gives us a standard internally, and publicly reporting our
progress reinforces our accountability," said Bill Dalgetty, general manager,
Environmental, Health & Safety (EHS). These goals call for the elimination of
fatalities and major fires and explosions, and a substantial im-provement in
worker safety and reduction in spills.
In 1997 Mobil's businesses made significant progress toward the EHS goals
by reducing lost-time injuries by 23% and spills by 8% over 1996 levels. Our
worldwide refineries had no major fires, and many of our businesses and projects
achieved injury-free records in 1997. For example, the RasGas onshore
construction team in Qatar worked more than 10 million hours without a lost-time
injury.
Mobil is recognized around the world as an industry pacesetter in shipping
safety. "We had not a single significant spill in 1996 and 1997," said Gerhard
Kurz, president, Mobil Shipping & Transportation Company. In 1997 Mobil launched
the American Progress, the first double-hull vessel built in a U.S. shipyard to
U.S. government standards that will become mandatory in 2015.
In 1998 Mobil began monitoring its worldwide air emissions, water
discharges, waste generation and energy use as the first step in setting goals
for reducing their impact at company facilities. "Over the last three years
we've reduced carbon emissions by more than a million tons worldwide," Dalgetty
said.
Employing modern technology, Mobil cut the energy used to process a barrel
of oil at its refineries, and eliminated both gas flaring from
many offshore operations and methane emission leaks from natural gas production
and distribution systems. Mobil Producing Nigeria (MPN), for example, has made
great strides to date, and "we're committed to eliminating all flaring of
natural gas by 2001," said Paul Caldwell, MPN general manager.
Reducing flaring is one action that has an impact on global climate change.
In addition to curbing emissions, improving energy efficiency and conducting
applied research, Mobil sponsors a wide range of scientific studies at
universities and other institutions, and is increasing its research funding.
More information on Mobil's EHS initiatives and the EHS performance of
people throughout the company's businesses is available in The People Behind the
Commitment: Mobil's Environmental, Health and Safety Performance Report 1997,
which will be available in May 1998 from Mobil's Publications Department at
1-800-293-5796 or on Mobil's web site, www.mobil.com.
FINANCIAL
SECTION
1997 HIGHLIGHTS
o OPERATING EARNINGS OF $3.4 BILLION IMPROVED BY OVER $300 MILLION, DRIVEN
PRIMARILY BY SELF-HELP INITIATIVES. THIS IS THE THIRD CONSECUTIVE YEAR OF
RECORD EARNINGS.
o E&P OPERATING EARNINGS OF $2.1 BILLION TOPPED LAST YEAR'S RECORD DESPITE
LOWER CRUDE OIL PRICES. WORLDWIDE PRODUCTION WAS UP 4% AND NET RESERVE
REPLACEMENT WAS 146% OF PRODUCTION.
o M&R OPERATING EARNINGS OF $1.3 BILLION IMPROVED FROM LAST YEAR, REFLECTING
RECORD U.S. PROFITS, DRIVEN BY HIGHER MARGINS AND EXCELLENT PERFORMANCE, AND
BENEFITS FROM MOBIL'S ALLIANCE WITH BP IN EUROPE.
o CHEMICAL INCOME GREW DUE TO HIGHER VOLUMES IN ALL SECTORS OF THE BUSINESS,
HIGHER POLYETHYLENE MARGINS AND IMPROVED PLANT PERFORMANCE.
FINANCIAL
KEY FINANCIAL INDICATORS
(In millions, except per-share and ratio amounts) 1993 1994 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------
Operating Earnings(1) $ 2,224 $ 2,231(2) $ 2,846 $ 3,097 $ 3,430
Special Items (140) (472) (470) (133) (158)
- ------------------------------------------------------------------------------------------------------------------
Income, Excluding the Effect of Change in
Accounting Principle $ 2,084 $ 1,759(2) $ 2,376 $ 2,964 $ 3,272
Per common share(3) 2.54 2.14 2.93 3.69 4.10
Per common share-assuming dilution(3) 2.53 2.12 2.88 3.62 4.01
Common Stock Dividends Per Share(3) 1.63 1.70 1.81 1.96 2.12
- ------------------------------------------------------------------------------------------------------------------
Capital and Exploration Expenditures $ 3,656 $ 3,825 $ 4,268 $ 6,361 $ 4,689
Cash Investments in Equity Companies 31 102 257 658 617
Total Investment Spending $ 3,687 $ 3,927 $ 4,525 $ 7,019 $ 5,306
Debt-to-Capitalization Ratio 32% 31% 27% 29% 25%
Total Debt $ 8,027 $ 7,727 $ 6,756 $ 7,875 $ 6,664
- ------------------------------------------------------------------------------------------------------------------
Shareholders' Equity $ 17,237 $ 17,146 $ 17,951 $ 19,072 $ 19,461
Per common share(3) 21.37 21.30 22.35 23.81 24.41
- ------------------------------------------------------------------------------------------------------------------
<FN>
(1) Operating earnings exclude the effects of special items and change in accounting principle.
(2) Excludes unfavorable effect of change in Inventory lower of cost or market policy in 1994 ($680 million).
(3) Per-share amounts for all years reflect the two-for-one stock split in 1997.
</FN>
MANAGEMENT
DISCUSSION AND ANALYSIS
OUTLOOK
WHILE CONSIDERING THE COMPANY'S PLANS AND GOALS, THE READER MAY FIND IT HELPFUL
TO KEEP IN MIND MOBIL'S OUTLOOK FOR THE PETROLEUM AND CHEMICAL INDUSTRIES.
ALTHOUGH MOBIL CANNOT BE CERTAIN THIS VIEW WILL PROVE ACCURATE, DESCRIBED BELOW
ARE BOTH KNOWN AND ANTICIPATED TRENDS RELEVANT TO PLANNING THE COMPANY'S FUTURE
OPERATIONS.
Overall, the energy industry will remain highly competitive, and large
capital investments to support profitable future operations and growth will
continue to be required. These investments will, because of the availability of
opportunities, be predominantly in international areas. Due to the size of such
investments, and the time often needed to complete them, a long-term view is
required.
Oil and natural gas will continue to satisfy much of the world's energy
needs well into the 21st century. Over the long term, the company believes that
the prices of these commodities, and related profitability, will continue to be
volatile, influenced by market forces, political and economic uncertainties,
host country regulations and new production sources. During the first two months
of 1998, crude oil and natural gas prices declined significantly from average
1997 levels, in part due to recent economic difficulties in the Asia-Pacific
region which will, in the near term, continue to affect worldwide supply/demand
balances. The company believes that these prices will trend upward over time as
demand increases. Additionally, Mobil remains convinced that the Asia-Pacific
region will be a growth area for the future, and the company will continue to
focus on making the operations of its existing facilities more efficient.
Mobil believes the industry will continue to grow in the international
upstream sector where investment opportunities to find and develop resources are
abundant. Many countries, previously off-limits to the oil industry, are opening
up to companies like Mobil who are recognized for the financial and technical
strengths they provide. Mobil will look to these areas to contribute to its
program to replace its hydrocarbon reserves and to provide continuing production
and earnings growth.
The marketing and refining industry will continue to face competitive market
pressures, and margins will remain volatile. Worldwide downstream margins have
generally weakened somewhat in the first two months of 1998 compared with
average 1997 levels. Over the long term, worldwide downstream margins are
expected to improve as demand growth outpaces capacity additions. Additionally,
more downstream alliances are possible. Continuing environmental expenditures
will also be required worldwide, including expenditures in the U.S. for the
introduction of reformulated gasolines by the end of the decade. Mobil's U.S.
refining system is generally well positioned to meet these requirements with
only modest investments needed.
The worldwide petrochemical business continues to be cyclical. In the near
term, both polyethylene and paraxylene margins are expected to continue under
pressure as new capacity streams, but they are expected to strengthen longer
term in response to demand growth.
Mobil's overall investment program will continue to reflect a strategy to
assess and manage political, economic and geologic risks. This strategy is
achieved through a geographically diverse portfolio of existing assets and new
projects. It also employs the use of limited recourse financing, staged project
development, joint ventures and cash exposure management.
INVESTMENT PROGRAM
Mobil's planned 1998 investment program, including capital and exploration
expenditures and cash investments in equity companies, totals $5.9 billion.
Spending continues to be directed to international projects (International --
75%; U.S. -- 25%), where opportunities to find and develop resources are greater
and product demand growth is projected to be higher. The 1998 spending program
is also consistent with the company's strategy to grow the upstream sector as a
percentage of its overall asset base. Almost two-thirds of the program will be
allocated to the upstream business. Mobil will continue to monitor its business
environment and remain flexible to adjust its plans as attractive opportunities
arise or economic and political conditions change. Mobil's
debt-to-capitalization ratio declined from 29% to 25% in 1997, reflecting strong
earnings, the continuing sale of noncore assets and reduced working capital
requirements, partly offset by the impact of share repurchases. The strong cash
flow generation and low debt-to-capitaliza-
[Bar Chart - Page 19]
NET INCOME
(Millions of dollars)
97 3,272
96 2,964
95 2,376
94 1,759*
93 2,084
*Excludes cumulative effect of
change in accounting principle.
MOBIL'S INCOME CONTINUED
TO RISE, REFLECTING VOLUME
GROWTH, BENEFITS FROM
ALLIANCES AND IMPROVED PERFORMANCE.
Graphs, charts and associated
captions on pages 18-53 are not a
part of the Consolidated Financial
Statements and Notes thereto.
MANAGEMENT
DISCUSSION AND ANALYSIS
INVESTMENT PROGRAM (concluded)
tion ratio provides the flexibility to take advantage of attractive investment
opportunities, to increase dividends to shareholders and/or to buy back shares
of common stock.
RESTRUCTURINGS
During 1997, Mobil and The British Petroleum Company p.l.c. (BP) substantially
completed implementation of their alliance, which combines the companies'
European operations in the refining and marketing of fuels and lubricants. When
fully completed in 1998, this alliance will result in the elimination of
approximately 2,700 positions from the combined work forces of the two companies
(about 1,000 Mobil positions), the rationalization of certain fuels marketing
assets and the closure of surplus facilities. During 1996, Mobil established a
restructuring provision of $184 million ($145 million after tax), primarily for
separation costs related to work-force reductions and for facilities closure
costs. As of December 31, 1997, cumulative charges against the reserve totaled
$137 million ($112 million after tax, including cash charges of $86 million
pretax, $73 million after tax). Additionally, $81 million ($69 million after
tax) of one-time charges were incurred in 1997, primarily for reimaging of
retail outlets and for systems implementation. An additional $59 million ($41
million after tax) is expected to be spent in 1998 to complete the reimaging and
systems implementation program. Projected annualized benefits for Mobil are
expected to reach at least $170 million pretax by the end of 1998.
Additionally, in 1997, Mobil and BP announced that the alliance would
implement a major restructuring of its lubricant base oil refining businesses.
This program is aimed at reducing surplus base oil capacity and improving the
competitiveness of the alliance's asset base. The program, expected to be
completed by the end of 1999, will result in the elimination of approximately
460 positions and in write-downs and closure of certain facilities. Mobil
recorded restructuring reserves in 1997 of $86 million ($82 million after tax)
mainly for employee severance costs associated with work-force reductions and
for write-downs and closure of certain facilities. Cash outlays associated with
the restructuring will be made throughout 1998 and will be essentially complete
by mid year 1999. Projected annualized benefits are $50 million pretax, of which
Mobil's share is about $25 million.
Mobil also commenced a major restructuring program of its Japanese marketing
business during 1997 in response to the deregulated business environment in
Japan. The company has established performance improvement targets aimed at
expense reduction and revenue enhancement. This program will result in the
elimination of approximately 300 positions and the rationalization of certain
assets and should be essentially complete by year-end 1998. In 1997, Mobil
recorded restructuring reserves of $126 million ($61 million after tax),
primarily for separation costs related to work-force reductions and for disposal
of certain facilities. Cash outlays related to the restructuring will be made
throughout 1998. Projected annualized benefits from this program are expected to
be approximately $170 million pretax.
In addition, Mobil has initiated a cost reduction and asset rationalization
program in its marketing operations in Australia. This program will result in
the elimination of approximately 100 positions and the closure of
under-performing service stations during 1998. Other initiatives to reduce the
cost structure of the Australian marketing operations will be implemented during
1998 and 1999. In the fourth quarter of 1997, Mobil recorded restructuring
reserves of $46 million pretax and after tax, primarily for costs associated
with closing service stations and for separation costs related to work-force
reductions. Cash outlays will be made during 1998. Projected annualized benefits
are about $40 million pretax and are expected to be fully achieved by the end of
1999.
During 1995 and 1996, Mobil implemented five major restructuring programs
affecting worldwide staff support services, U.S. upstream and downstream
businesses, and European refining and lubricant blending operations. These and
other smaller programs resulted in the closure of certain facilities and the
elimination of about 7,000 positions, approximately half in 1995 and half in
1996. During 1995 and 1996, the company established restructuring reserves of
$922 million ($911 million in 1995 and $11 million in 1996), primarily to cover
the cost of employee separation benefits and the closure of certain facilities.
Of this amount, $682 million represented cash expenditures and the remainder was
for noncash write-downs. These programs were implemented over the past three
years and were complete as of December 31, 1997.
See Note 2 to Financial Statements on pages 41-43 for further details of
these restructurings.
[Bar Chart - Page 20]
TOTAL RETURN TO SHAREHOLDERS
(Per $100 invested on December 31, 1992)
MOBIL S $ P 500
97 275 251
96 226 188
95 200 153
94 145 112
93 131 110
MOBIL SHARE PRICE APPRECIATION
PLUS REINVESTED DIVIDENDS RETURNED
22.4% ANNUALLY, ON AVERAGE, OVER THE
LAST FIVE YEARS--2.2 PERCENTAGE POINTS ABOVE THE S&P 500.
MANAGEMENT
DISCUSSION AND ANALYSIS
FINANCIAL RESULTS
A DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL AND OPERATING PERFORMANCE
APPEARS ON THIS PAGE. MOBIL'S BUSINESS SEGMENTS ARE SEPARATELY REVIEWED ON PAGES
22-27. WHILE READING THESE DISCUSSIONS, THE READER MAY FIND IT HELPFUL TO REFER
TO PAGES 32-53 FOR THE CONSOLIDATED FINANCIAL STATEMENTS AND COMMENTARY, AND TO
PAGES 55-63 FOR SUPPLEMENTARY INFORMATION.
CONSOLIDATED RESULTS
- ----------------------------------------------------------------------------------------
Net Income (In millions, except per-share amounts) 1995 1996 1997
- ----------------------------------------------------------------------------------------
Petroleum Operations
Exploration & Producing $ 845 $2,109 $2,212
Marketing & Refining 673 913 1,025
- ----------------------------------------------------------------------------------------
Total Petroleum 1,518 3,022 3,237
Chemical 1,164 306 403
- ----------------------------------------------------------------------------------------
Segment Earnings 2,682 3,328 3,640
Corporate and Financing (306) (364) (368)
- ----------------------------------------------------------------------------------------
Net Income $2,376 $2,964 $3,272
Per common share(1) $ 2.93 $ 3.69 $ 4.10
Per common share-assuming dilution(1) $ 2.88 $ 3.62 $ 4.01
- ----------------------------------------------------------------------------------------
<FN>
(1) Per-share amounts for all years reflect the two-for-one stock split in 1997.
</FN>
MOBIL'S GOAL FOR THE PERIOD 1997-2001 IS TO ATTAIN FIRST-QUARTILE PERFORMANCE
BASED ON TOTAL RETURN TO SHAREHOLDERS VERSUS OTHER MAJOR OIL COMPANIES.
CONSOLIDATED NET INCOME of $3,272 million in 1997 was $308 million higher
than 1996. Charges for special items reduced net income in 1997 by $158 million,
as restructuring-related provisions, litigation charges and a one-time cash
award for employee performance to recognize early achievement of prior goals
were partly offset by gains on the sale of noncore assets and favorable
inventory adjustments. This year's earnings reflected strong volume growth in
the upstream business, higher volumes in Chemical and improved performance by
all business segments. Benefits from the Mobil-BP downstream alliance in Europe
also contributed significantly to the improved results. Overall for the year,
industry factors were slightly favorable as higher integrated margins in the
U.S. and Europe, higher natural gas prices and higher polyethylene margins were
largely offset by lower crude oil prices and weaker margins in parts of
Asia-Pacific. Expense reductions from initiatives were offset by inflation and
by higher expenses for business development in new venture areas.
Consolidated net income in 1996 of $2,964 million was $588 million higher
than 1995. The improvement primarily reflected favorable industry fundamentals,
a lower level of restructuring-related special charges in 1996 and the effects
of higher sales volumes, partly offset by increased refinery downtime and the
absence of income from businesses divested in 1995. A gain on the sale of
Mobil's plastics business in 1995 was largely offset by FAS 121 impairment
charges.
- --------------------------------------------------------------------------------
OPERATING EARNINGS (In millions) 1995 1996 1997
- --------------------------------------------------------------------------------
Operating Earnings $2,846 $3,097 $3,430
Memo:Special Items(1) (470) (133) (158)
- --------------------------------------------------------------------------------
(1) Special items represent the earnings effects from events or circumstances
not attributable to Mobil's current operations and are more fully described
in the business segment charts that follow.
OPERATING EARNINGS in 1997 were $3,430 million, a third consecutive annual
record. Mobil's continued earnings growth reflected higher volumes in the
upstream and chemical businesses, contributions from recently formed alliances,
improved performance and overall favorable industry fundamentals. Expense
reductions from initiatives were offset by inflation and higher expenses for
growth in new venture areas.
[Bar Chart - Page 21]
ANNUAL DIVIDENDS
(Per share of common stock, in dollars)*
97 2.12
96 1.96
95 1.81
94 1.70
93 1.63
92 1.60
91 1.56
90 1.41
89 1.28
88 1.18
87 1.10
*Per-share amounts for all year reflect
the two-for-one stock split in 1997.
DIVIDEND PAYMENTS
INCREASED FOR THE TENTH
CONSECUTIVE YEAR.
MANAGEMENT
DISCUSSION AND ANALYSIS
PETROLEUM OPERATIONS
UPSTREAM-EXPLORATION & PRODUCING
- --------------------------------------------------------------------------------
EXPLORATION & PRODUCING SEGMENT FINANCIAL INDICATORS
- --------------------------------------------------------------------------------
(In millions) 1995 1996 1997
- --------------------------------------------------------------------------------
U.S. Income (Loss) $ (107) $ 737 $ 697
International Income 952 1,372 1,515
- --------------------------------------------------------------------------------
Total Upstream Net Income $ 845 $ 2,109 $ 2,212
- --------------------------------------------------------------------------------
Revenues(1) $11,081 $12,841 $11,840
Assets $14,393 $18,279 $18,840
Capital Expenditures $ 2,247 $ 3,914 $ 2,888
Exploration Expenses 427 512 499
Cash Investments in Equity Companies 213 520 277
- --------------------------------------------------------------------------------
Total Investment Spending $ 2,887 $ 4,946 $ 3,664
- --------------------------------------------------------------------------------
(1) Includes intersegment revenues.
MOBIL'S PRIMARY UPSTREAM GOALS ARE TO GROW EARNINGS BY INCREASING PRODUCTION BY
AN AVERAGE OF AT LEAST 4% PER YEAR OVER THE LONG TERM; TO REPLACE MORE THAN 110%
OF PRODUCTION WITH NEW RESERVES; AND TO AVERAGE A 17% RETURN ON CAPITAL
EMPLOYED, WHILE ENHANCING THE CORE ASSET BASE.
Performance in 1997 demonstrated strong progress toward achieving the
company's goals of long-term growth in production, reserves and earnings.
Worldwide production increased 4%, new reserve additions replaced 146% of this
higher production, and operating earnings increased by 4%.
In 1997, Mobil produced 927,000 barrels per day of liquids and 4,556 million
cubic feet per day of natural gas. Worldwide production increased the equivalent
of 68,000 barrels per day from 1996 due to growth programs in West Africa and
Qatar and the full-year impact of the 1996 Tengiz field and Ampolex
acquisitions, offset somewhat by natural field declines and prior-year asset
sales in the United States, and lower liquids production in Indonesia (Arun
field).
In Nigeria and Equatorial Guinea, continued investment increased total
upstream production by about 73,000 barrels per day during the year. Production
from the Hibernia field, off Eastern Canada, came on stream in November 1997,
and by year-end the field was producing about 70,000 barrels per day (23,000
barrels per day, Mobil share). Additional equity interests in producing fields
and increased contract commitments contributed to strong volume performance from
the United Kingdom, South America and Kazakhstan.
Mobil replaced 146% of its production with new reserves, compared with a
133% replacement rate in 1996. The reserve base is now 7.2 billion barrels of
oil equivalent with the most significant contributions coming from the Tengiz
field in Kazakhstan and the North field in Qatar. Efforts to replace reserves
continue through exploration activities, participation in new producing ventures
and acquisitions.
In 1997, Mobil drilled 36 wildcat exploration wells, resulting in nine
discoveries including Mobil's second major find in Norway in the last three
years, success on Ampolex acreage in Australia and Papua New Guinea, and
continued success in Equatorial Guinea. New acreage acquisitions in the
Americas, Northern Europe, Africa, the Caspian area and Southeast Asia also
strengthened the company's portfolio. Exploration activities are conducted in
nine focus areas around the world.
Investment spending in 1997 was $3.7 billion, down $1.3 billion from 1996,
which included the acquisitions of Ampolex and a 25% equity interest in the
joint venture that owns the Tengiz field. Planned investment spending for 1998
is $3.9 billion and continues to be focused in international areas.
Revenues decreased primarily due to the full-year impact of equity
accounting for Mobil's gas marketing alliance with Duke Power (formerly
PanEnergy) and the absence of revenues from Mobil's heavy-oil alliance with
Shell in California which commenced operations in mid-1997. In 1996, revenues
were up 16% from 1995, primarily due to the effects of higher crude oil and
natural gas prices and higher international volumes. Revenues include sales to
other segments of the company, which are eliminated in consolidated financial
reports.
[Bar Charts - Page 22]
UPSTREAM EARNINGS
(Millions of dollars)
97 96 95
Operating Earning 2,138 2,059 1,397
Net Income 2,212 2,109 845
UPSTREAM OPERATING EARNINGS
EXCEEDED LAST YEAR'S RECORD,
DRIVEN BY VOLUME INCREASES.
NET PRODUCTION
(Thousands of barrels daily
of oil equivalent)
International & U.S. 1,753 1,685 1,636
MOBIL'S 4% VOLUME GROWTH IN
1997 WAS IN THE TOP TIER OF
ITS COMPETITOR GROUP.
MANAGEMENT
DISCUSSION AND ANALYSIS
PETROLEUM OPERATIONS (continued)
UPSTREAM net income of $2,212 million was $103 million higher than in 1996.
Operating earnings of $2,138 million (U.S.,$660 million; International, $1,478
million; refer to tables below) increased $79 million, or 4%, as the effect of
higher liquids production in international areas was partly offset by higher
expenses for new business development and lower production in the United States.
The effects of higher natural gas prices, primarily in North America, largely
offset lower worldwide crude oil prices.
In 1996, net income of $2,109 million was $1,264 million higher than in
1995. Operating earnings of $2,059 million increased $662 million due to higher
worldwide crude oil and natural gas prices, lower operating expenses and lower
capital recovery charges.
Average worldwide crude oil prices in 1997 declined about $1.50 per barrel
from 1996 (see graph at right), reflecting increased supplies, slower demand
growth in Asia and milder weather. Mobil's U.S. average natural gas prices
increased about $.20 per thousand cubic feet due to the benefits of stronger gas
prices in the mid-continent region and in the West, where Mobil has a strong
presence.
- --------------------------------------------------------------------------------
U.S. EXPLORATION & PRODUCING EARNINGS
- --------------------------------------------------------------------------------
(In millions) 1995 1996 1997
- --------------------------------------------------------------------------------
U.S. Income (Loss) $(107) $ 737 $ 697
Special Items in Income
Asset sales (22) 119 53
Litigation -- -- (12)
Employee performance award -- -- (4)
Asset impairment (366) (69) --
Restructuring provisions (51) (7) --
- --------------------------------------------------------------------------------
Operating Earnings (Excludes Special Items) $ 332 $ 694 $ 660
- --------------------------------------------------------------------------------
U.S. UPSTREAM operating earnings of $660 million in 1997 were $34 million
lower than 1996, reflecting the effects of lower production volumes and lower
crude oil prices. The lower volumes were mainly due to natural field declines
and the carry-over effect of 1996 asset sales, partly offset by the effects of
new capital programs. Earnings benefited from higher natural gas prices and
lower operating expenses.
Operating earnings of $694 million in 1996 were $362 million higher than
1995, mainly due to higher prices for crude oil and natural gas. Lower producing
expenses and decreased capital recovery charges largely offset the impacts of
lower production volumes that resulted primarily from natural field declines and
asset disposals. Opportunity losses on forward hydrocarbon sales slightly
lessened the favorable impact of the higher prices.
- --------------------------------------------------------------------------------
INTERNATIONAL EXPLORATION & PRODUCING EARNINGS
- --------------------------------------------------------------------------------
(In millions) 1995 1996 1997
- --------------------------------------------------------------------------------
International Income $ 952 $ 1,372 $1,515
Special Items in Income
Asset sales 23 12 41
Employee performance award -- -- (4)
Restructuring provisions (41) (5) --
Asset impairment (121) -- --
Tax rate changes and other items 26 -- --
- --------------------------------------------------------------------------------
Operating Earnings (Excludes Special Items) $ 1,065 $ 1,365 $1,478
- --------------------------------------------------------------------------------
International Upstream operating earnings of $1,478 million were $113
million higher than 1996, principally due to the effects of higher production
levels and higher natural gas prices in Canada, partly offset by lower crude oil
prices and higher expenses for future growth in new venture areas. Production
increased 10% in 1997, mainly from growth in Nigeria, Equatorial Guinea, the
United Kingdom, Kazakhstan, South America and Qatar.
Operating earnings of $1,365 million in 1996 were $300 million higher than
1995, mainly due to higher crude oil and natural gas prices. Increased
production volumes also contributed to higher earnings. These factors were
slightly offset by higher exploration expenses.
[Bar Charts - Page 23]
CRUDE OIL AVERAGE SPOT
MARKET PRICES
(Dollars per barrel)
97 96 95
Brent 19.09 20.67 17.02
West Texas Intermediate 20.61 22.16 18.42
CRUDE OIL PRICES REMAINED
VOLATILE IN 1997, DROPPING
AN AVERAGE OF ABOUT $1.50 PER BARREL.
NATURAL GAS AVERAGE
SALES PRICES
(Dollars per thousand cubic feet)
97 96 95
International 2.72 2.66 2.47
U.S. 2.38 2.17 1.41
HIGHER WORLDWIDE NATURAL
GAS PRICES LARGELY OFFSET
THE EFFECTS OF LOWER CRUDE OIL PRICES.
MANAGEMENT
DISCUSSION AND ANALYSIS
PETROLEUM OPERATIONS (continued)
DOWNSTREAM-MARKETING & REFINING
- --------------------------------------------------------------------------------
MARKETING & REFINING SEGMENT FINANCIAL INDICATORS
- --------------------------------------------------------------------------------
(In millions) 1995 1996 1997
- --------------------------------------------------------------------------------
U.S. Income $ 226 $ 407 $ 542
International Income 447 506 483
- --------------------------------------------------------------------------------
Total Downstream Net Income $ 673 $ 913 $ 1,025
- --------------------------------------------------------------------------------
Revenues(1) $62,362 $70,796 $55,871
- --------------------------------------------------------------------------------
Assets $22,463 $23,592 $20,284
Capital Expenditures $ 1,292 $ 1,554 $ 928
Cash Investments in Equity Companies 41 131 340
- --------------------------------------------------------------------------------
Total Investment Spending $ 1,333 $ 1,685 $ 1,268
- --------------------------------------------------------------------------------
(1) Includes intersegment revenues.
MOBIL'S PRIMARY DOWNSTREAM GOAL IS TO RAISE THE RETURN ON CAPITAL EMPLOYED TO
12% BY GROWING SALES OF FUELS AND LUBES BY 4% TO 5% PER YEAR, CONTINUING TO
IMPROVE THE PERFORMANCE OF CORE ASSETS, AND PURSUING ATTRACTIVE GROWTH
OPPORTUNITIES.
In the U.S., major initiatives in 1997 included the completion of
construction of over seventy On The Run(R) convenience stores and the
successful rollout of the Speedpass(TM) program. In addition, Mobil and a U.S.
subsidiary of Petroleos de Venezuela, S.A., formed a jointly owned limited
liability company to own and operate the Chalmette refinery. A portion of the
crude oil processed into petroleum products for the U.S. market at the Chalmette
refinery will be heavy oil from Venezuela.
During 1997, the Mobil-BP alliance in Europe was implemented with
substantially all country partnerships established by year-end, and the initial
benefits contributing to improved earnings. In addition, following a strategy
study to address lubes base stock refining overcapacity in Europe, Mobil and BP
announced the closure of BP's stand-alone lubes refinery at Llandarcy in South
Wales and a streamlining program at the other European lubes refineries.
In the Asia-Pacific region, a new 23 thousand barrels daily (TBD) fluid
catalytic cracking (FCC) complex was streamed at the Altona refinery in
Australia, increasing yields of gasoline and distillate . Additionally, Mobil
initiated a cost reduction and asset rationalization program in its Australian
marketing operations. At the Jurong refinery in Singapore, a new lubricant base
stock manufacturing unit with a capacity of 8 TBD was completed and streamed. In
Japan, a new 25 TBD vacuum residual hydrocracker was successfully brought on
stream at Tonen's Kawasaki refinery. This unit upgrades low-value residual fuels
to higher-value distillates. Also, in an effort to improve profitability in
Japan, initiatives were implemented to enhance revenue and reduce expenses,
including the elimination of approximately 300 positions by year-end 1998. In
China, a lube oil blend plant was completed in Taicang near Shanghai.
In Africa, Mobil successfully integrated Exxon's marketing business in
Kenya, acquired in late 1996, and initiated a re-entry into the South African
lubes business.
In Latin America, the company continued to grow in the fuels markets in
Colombia, Peru and Ecuador. This growth will be supplemented by the fuels market
entry in Venezuela, which is currently under way. In addition, Mobil's lubes
business continued to grow throughout the region. In Barbados, Mobil reached
agreement with the local government to close its refinery, completing the
withdrawal from the Barbados market following the sale of the company's
marketing assets in 1996.
Investment spending totaled $1.3 billion in 1997, about 30% in the U.S.,
including spending for construction related to On The Run(R) convenience
stores. The remainder was mostly for expansion projects in international areas.
Planned spending for 1998 is $1.5 billion, up 18% from 1997, with approximately
35% in the U.S. and 65% in international areas.
Downstream revenues decreased 21% in 1997 versus 1996 due to the effects of
equity accounting for the Mobil-BP European alliance, partly offset by the
effects of higher sales volumes elsewhere. Revenues increased in 1996 versus
1995 due to higher product trade sales volumes and prices.
[Bar Charts - Page 24]
DOWNSTREAM EARNINGS
(Millions of dollars)
97 96 95
Operating Earnings 1,312 1,051 1,135
Net Income 1,025 913 673
OPERATING EARNINGS IN 1997
INCREASED PRIMARILY DUE TO IMPROVED
PERFORMANCE, HIGHER MARGINS AND BENEFITS
FROM THE MOBIL-BP ALLIANCE.
REFINERY RUNS FOR MOBIL
(Thousands of barrels daily)
97 96 95
International & U.S. 2,191 2,142 2,121
REFINERY RUNS CONTINUED TO
TREND UPWARD, PRIMARILY REFLECTING
IMPROVED OPERATING PERFORMANCE IN THE UNITED STATES.
MANAGEMENT
DISCUSSION AND ANALYSIS
PETROLEUM OPERATIONS (concluded)
DOWNSTREAM net income of $1,025 million in 1997 was $112 million higher
than 1996. Excluding special items, operating earnings of $1,312 million (U.S.,
$562 million, International, $750 million; refer to tables below) increased $261
million. Higher product trade sales volumes outside of Europe, benefits from the
Mobil-BP European alliance and strong performance contributed to higher earnings
in 1997. Additionally, improved integrated margins in the U.S. and Europe more
than offset lower margins in parts of Asia-Pacific.
Net income in 1996 was $913 million, $240 million higher than in 1995.
Excluding special items, operating earnings of $1,051 million decreased $84
million from 1995. Lower margins in some of Mobil's key markets more than offset
the benefits from cost savings and growth initiatives, including higher
worldwide product sales volumes.
- --------------------------------------------------------------------------------
U.S. MARKETING & REFINING EARNINGS
- --------------------------------------------------------------------------------
(In millions) 1995 1996 1997
- --------------------------------------------------------------------------------
U.S. Income $226 $407 $542
Special Items in Income
Asset Impairment -- -- (18)
Employee performance award -- -- (10)
LIFO/other inventory adjustments -- 35 8
Restructuring provisions (104) -- --
- --------------------------------------------------------------------------------
Operating Earnings (Excludes Special Items) $330 $372 $562
- --------------------------------------------------------------------------------
U.S. Downstream operating earnings were $562 million in 1997, $190 million
higher than 1996. Results in 1997 benefited from higher product sales volumes,
excellent refinery performance and higher integrated margins. Initiatives in
marketing such as Speedpass(TM) and On The Run(R) contributed to growth in
retail automotive gasoline sales, which were up almost 3%. Wider spreads between
heavy and light crudes also helped results due to the refineries' strong
capability to process heavy crudes.
In 1996, operating earnings of $372 million were $42 million higher than
1995. Results benefited from higher margins and continued growth in retail
automotive gasoline sales. Partly offsetting these favorable factors was a
higher level of refinery downtime.
- --------------------------------------------------------------------------------
INTERNATIONAL MARKETING & REFINING EARNINGS
- --------------------------------------------------------------------------------
(In millions) 1995 1996 1997
- --------------------------------------------------------------------------------
International Income $447 $506 $483
Special Items in Income
Restructuring provisions (316) (154) (258)
Employee performance award -- -- (21)
LIFO/other inventory adjustments (13) 8 12
Other (29) (27) --
- --------------------------------------------------------------------------------
Operating Earnings (Excludes Special Items) $805 $679 $750
- --------------------------------------------------------------------------------
International Downstream operating earnings were $750 million, $71 million
higher than in 1996. In Europe, results improved significantly, primarily due to
benefits from the Mobil-BP alliance and stronger integrated margins. These gains
were partly offset by lower margins in parts of Asia-Pacific.
Operating earnings of $679 million in 1996 were $126 million lower than in
1995, primarily due to lower marketing margins in Europe and Asia-Pacific. Lower
paraxylene margins at Mobil's Singapore refinery, where earnings are shared
between Marketing & Refining and Chemical, and a higher level of scheduled
refinery downtime also reduced earnings. These factors were partly offset by
improved refining margins in Singapore and higher product sales volumes.
[Bar Charts - Page 25]
DOWNSTREAM PETROLEUM PRODUCT
SALES VOLUMES*
(Thousands of barrels daily)
97 96 95
International & U.S. 3,343 3,345 3,222
* Includes supply sales.
WORLDWIDE SALES VOLUMES WERE
ESSENTIALLY FLAT IN 1997 AS LOWER
VOLUMES IN EUROPE WERE OFFSET BY INCREASES IN OTHER AREAS.
DOWNSTREAM PETROLEUM PRODUCT
SALES REVENUES
(Millions of dollars)
97 96 95
International & U.S. 35,962 49,228 43,725
HIGHER SALES REVENUES IN ENCLAVES
OUTSIDE OF EUROPE WERE MORE THAN
OFFSET BY THE EFFECTS OF EQUITY
ACCOUNTING FOR THE MOBIL-BP EUROPEAN ALLIANCE.
MANAGEMENT
DISCUSSION AND ANALYSIS
CHEMICAL
- --------------------------------------------------------------------------------
CHEMICAL SEGMENT FINANCIAL INDICATORS
- --------------------------------------------------------------------------------
(In millions) 1995 1996 1997
- --------------------------------------------------------------------------------
Petrochemicals Income $ 544 $ 167 $ 214
Other Income 135 139 141
Asset Sales, net of Restructuring Provisions 485 -- 48
- --------------------------------------------------------------------------------
Total Chemical Net Income $1,164 $ 306 $ 403
- --------------------------------------------------------------------------------
Revenues(1) $6,390 $3,280 $3,533
Assets $3,212 $2,987 $3,111
- --------------------------------------------------------------------------------
Capital Expenditures $ 220 $ 339 $ 323
Cash Investments in Equity Companies -- 7 --
- --------------------------------------------------------------------------------
Total Investment Spending $ 220 $ 346 $ 323
- --------------------------------------------------------------------------------
(1) Includes intersegment revenues.
CHEMICAL'S GOALS ARE TO GROW VOLUMES AN AVERAGE OF 7% PER YEAR AND TO ACHIEVE AN
AVERAGE RETURN ON CAPITAL EMPLOYED IN THE 13%-15% RANGE, LONG TERM.
After a series of asset sales totaling about $1.6 billion in the past three
years, Chemical is now comprised of three strategic business units:
petrochemicals, chemical specialties and oriented polypropylene (OPP) films.
Petrochemicals is the largest segment, representing about 90% of Chemical's
sales volumes, with major product lines of polyethylene resin, paraxylene,
benzene, propylene and ethylene glycol.
Chemical is pursuing a long-term strategy of growing through competitively
advantaged projects in its leader businesses by actively progressing two major
petrochemical expansion projects in geographically diverse areas as well as by
investing in significant de-bottlenecking or cost-effective expansion projects
in its North American facilities. Mobil Yanbu Petrochemical Company and Saudi
Basic Industries Corp. have begun an expansion that will double the current
capacity of their Yanpet olefins complex in Yanbu, Saudi Arabia. The partners
recently completed a $2.3 billion commercial bank financing for this project.
Plant start-up is scheduled for mid-2000. Mobil and Pequiven, the Venezuelan
state-owned petrochemical company, have continued studying the feasibility of
developing a new olefins complex in Jose, Venezuela. The proposed site is at an
existing petrochemicals facility, with access to low-cost feedstocks and
opportunities to achieve substantial synergies with the current operations.
Mobil, in conjunction with the Singapore Economic Development Board, is also
considering a world-scale ethylene plant near Mobil's existing Jurong refining
and petrochemicals complex.
A modernization and expansion of Mobil's Beaumont olefins plant is well
under way, with completion scheduled later in 1998. This project will increase
ethylene capacity by 45%, improve operating flexibility to process the most
economically attractive feedstocks and lower energy consumption by 35%. Mobil's
Houston olefins plant expansion was completed in 1997, and doubled the plant's
ability to process low-cost refinery gas feedstocks, thereby reducing the
plant's cash cost to produce ethylene by more than a penny a pound. To
effectively utilize the incremental ethylene output from these two projects, a
low-cost de-bottleneck of the Beaumont low-pressure polyethylene plant is now
under construction.
In the aromatics business, Mobil completed two major expansions, one in late
1996 and one in 1997. The paraxylene capacity of the Chalmette refinery was
doubled to 380 million pounds, of which Mobil has a 50% interest. The new
Beaumont aromatics plant was streamed in mid year with a capacity of 670 million
pounds of paraxylene and 625 million pounds of benzene. These two projects,
which both utilize Mobil's newest and most economical toluene to paraxylene
(MTPX) technology, raise Mobil's worldwide paraxylene capacity to 1.7 billion
pounds.
Chemical's investment spending in 1997 was $323 million, slightly below the
1996 level of $346 million. Planned investment spending for 1998 is in the
$400-$450 million range, mainly to support continued worldwide productivity
improvements and capacity expansions, notably the Yanpet project.
[Bar Charts - Page 26]
CHEMICAL EARNINGS
(Millions of dollars)
97 96 95
Operating Earnings 350 306 679
Net Income 403 306 1,164
HIGHER OPERATING EARNINGS IN
1997 REFLECTED STRONGER SALES
VOLUMES AND POLYETHYLENE MARGINS,
AS WELL AS IMPROVED PLANT OPERATING RELIABILITY.
CHEMICAL NET SALES TO TRADE
(Millions of dollars)
97 96 95
Petrochemicals & Other 2,994 2,846 4,948
SALES REVENUES INCREASED IN
1997 DUE TO HIGHER VOLUMES AND
POLYETHYLENE PRICES, PARTLY
OFFSET BY LOWER PARAXYLENE PRICES.
MANAGEMENT
DISCUSSION AND ANALYSIS
CHEMICAL (concluded)
CHEMICAL income of $403 million included $53 million of income from special
items including a gain on the sale of a substantial portion of the European
stretch film business and a favorable patent litigation settlement, partially
offset by a charge for the employee performance award. There were no special
items in Chemical's 1996 income.
- --------------------------------------------------------------------------------
CHEMICAL EARNINGS
- --------------------------------------------------------------------------------
(In millions) 1995 1996 1997
- --------------------------------------------------------------------------------
Chemical Income $1,164 $ 306 $ 403
Special Items in Income
Asset sales 501 -- 48
Litigation -- -- 10
Employee performance award -- -- (5)
Restructuring provisions (16) -- --
- --------------------------------------------------------------------------------
Operating Earnings (Excludes Special Items) $ 679 $ 306 $ 350
- --------------------------------------------------------------------------------
Chemical operating earnings, excluding special items, were $350 million in
1997, up 14% from the prior year, largely as a result of an increase in sales
volumes, improved plant operating reliability and higher polyethylene margins.
These earnings improved Chemical's return on average capital employed to 15%, up
from 13% last year. While most industry fundamentals for Chemical's businesses
were favorable in 1997, aromatics margins were weaker as capacity additions
outstripped demand growth.
Operating earnings of $306 million in 1996 reflected lower worldwide
petrochemical margins and were $373 million lower than the record 1995 earnings
of $679 million, when margins for integrated polyethylene resins were strong and
Asia-Pacific paraxylene margins set record highs as demand was strong and supply
was tight.
Trade sales revenues (see graph on page 26) of $3.0 billion in 1997
increased 5% from the prior year primarily due to the 14% increase in sales
volumes. Substantially all of the decrease in trade sales in 1996 from 1995
resulted from the divestiture of businesses.
CORPORATE AND FINANCING
- --------------------------------------------------------------------------------
CORPORATE AND FINANCING EXPENSE
- --------------------------------------------------------------------------------
(In millions) 1995 1996 1997
- --------------------------------------------------------------------------------
Corporate and Financing Expense $ (306) $ (364) $ (368)
Special Items included:
Asset sales 74 30 39
Litigation 71 -- (31)
Employee performance award -- -- (6)
Staff redesign implementation -- (75) --
Restructuring provisions (62) -- --
Environmental provision (24) -- --
- --------------------------------------------------------------------------------
Operating Expense (Excludes Special Items) $ (365) $ (319) $ (370)
- --------------------------------------------------------------------------------
CORPORATE AND FINANCING expense was $368 million in 1997, essentially unchanged
from 1996. This category includes the results from Real Estate operations and
Mining and Minerals (substantially all of these businesses were sold in 1996),
corporate administrative expenses, net financing expense and other items.
Excluding special items from both periods, Corporate and Financing operating
expense of $370 million was $51 million higher than 1996, primarily due to a
number of one-time charges in 1997 that were only partly offset by lower
interest expense due to lower average net debt balances and lower interest
rates.
Excluding special items, Corporate and Financing operating expense of $319
million in 1996 was $46 million lower than in 1995, primarily reflecting the
effects of higher capitalized interest for major projects in Canada, Nigeria and
Qatar, and certain other favorable, nonrecurring items.
MANAGEMENT
DISCUSSION AND ANALYSIS
RISK MANAGEMENT
Because Mobil operates in the worldwide oil and gas markets and has significant
financing requirements, it has exposure to fluctuations in interest rates,
foreign currency exchange rates and hydrocarbon prices, which can affect the
cost of operating, investing and financing. In order to manage these exposures,
management has established defined benchmarks for hedging in order to achieve a
desired risk profile for the environment in which Mobil operates and finances
its assets. The management-defined benchmarks are periodically reviewed and are
subject to change.
DEBT-RELATED INSTRUMENTS
Mobil has fixed and floating rate U.S. and foreign currency denominated
debt. Mobil's benchmark for interest rate risk is 100% floating rate. Mobil uses
interest rate swaps, cross-currency interest rate swaps, futures, forward
exchange contracts and option contracts to manage its debt portfolio toward the
established benchmark. These instruments have the effect of changing the
interest rate and currency of the original borrowings with the objective of
minimizing Mobil's borrowing costs. At December 31, 1997, Mobil was primarily
exposed to U.S. dollar LIBOR.
NONDEBT-RELATED FOREIGN CURRENCY EXCHANGE RATE INSTRUMENTS
Mobil has foreign currency exchange rate risk because it operates in about
140 countries. Mobil's benchmark is to fully hedge identified net exposures to
foreign currency exchange rate risk resulting from transactions in currencies
that are not the functional currency of the affected affiliate. Mobil has
entered into forward exchange contracts and currency option contracts to hedge
U.S. dollar payables for purchases of hydrocarbons, firm commitments for capital
projects, cash returns from net investments in foreign affiliates to be remitted
within the coming year, and certain local currency taxes. At December 31, 1997,
the primary currencies under management include the Japanese yen, Canadian
dollar and Australian dollar.
COMMODITY INSTRUMENTS
Mobil balances its overall crude oil and petroleum product supply and
demand, and manages its current and future price risk by entering into
hydrocarbon futures, forwards, swaps and options in various markets. Mobil's
benchmark for hydrocarbons is the prevailing market price. To achieve this
benchmark, Mobil manages its hydrocarbon price exposure associated with
fixed-priced commodity purchases and sales, and inventory positions that vary
from management's defined sustainable inventory levels, primarily through the
use of strategies that qualify as hedges. However, certain strategies manage
risk at a macro level and do not qualify as hedges. Mobil may take commodity
positions based on its views or expectations of specific hydrocarbon prices or
price differentials between commodity types. Mobil does not hedge oil and gas
reserves. At December 31, 1997, Mobil was exposed to the general price levels of
broadly traded oil and gas commodities.
VALUE AT RISK
In its risk management activities, Mobil uses a number of tools to measure
and manage risk, including value-at-risk models. Mobil measures its value at
risk using statistical techniques that project expected changes in values from
market movements on financial and commodity exposures that vary from
management's defined benchmarks. These benchmarks are established by management
and represent the desired risk profile of the environment in which Mobil
operates. Value at risk is defined as the maximum potential gain or loss in fair
value from a one-day market movement using historical statistical models that
would cover 99.7% of all such movements over the last three years measured
against the benchmarks. Value at risk includes those exposures that are being
managed. The value at risk of options is determined by using the forward
equivalent of the underlying exposure. The value-at-risk amounts as measured
against the above management-defined benchmarks were $7 million for interest
rate risk, $1 million for foreign currency exchange rate risk, and $8 million
for commodity price risk (including trading contracts) at December 31, 1997. The
value-at-risk analysis of commodity price risk includes managed physical
commodities as well as hedging and trading derivatives because Mobil manages
this risk on a combined basis.
MANAGEMENT
DISCUSSION AND ANALYSIS
YEAR 2000 ISSUE
Many existing computer programs will be unable to properly recognize dates in
the year 2000 and beyond. During 1997, Mobil conducted a company-wide study of
its systems and operations, including systems being developed to improve
business functionality, to identify those of its computer hardware, software and
process control systems that do not properly recognize dates after December 31,
1999, and those that are linked to third parties' systems. Based on this study,
Mobil commenced a major project to ensure that well in advance of the year 2000,
all of Mobil's systems that are critical to the company's operations properly
recognize such dates. The project is utilizing both internal and external
resources to reprogram or replace, and test, affected computer hardware,
software and process control systems to ensure that they are year 2000
compliant. Mobil has also initiated communications with third parties whose
computer systems' functionality could impact Mobil. These communications will
facilitate coordination of year 2000 conversions and will, additionally, permit
Mobil to determine the extent to which the company may be vulnerable to failures
of third parties to address their own year 2000 issues.
The costs of Mobil's year 2000 compliance effort are being funded with cash
flows from operations. Some of these costs relate solely to the modification of
existing systems, while others are for new systems which will improve business
functionality. In total, these costs are not expected to be substantially
different from the normal, recurring costs that are incurred for systems
development and implementation, in part due to the reallocation of internal
resources and the deferral of other projects. As a result, these costs are not
expected to have a material adverse effect on Mobil's overall results of
operations or cash flows.
The assessment of the costs of Mobil's year 2000 compliance effort, and the
timetable for Mobil's planned completion of its own year 2000 modifications, are
management's best estimates. These estimates were based upon numerous
assumptions as to future events, including assumptions as to the continued
availability of certain resources, in particular personnel with expertise in
this area, and as to the ability of such personnel to locate and either
re-program or replace, and test, all affected computer hardware, software and
process control systems in accordance with Mobil's planned schedule. There can
be no guarantee that these estimates will prove accurate, and actual results
could differ from those estimated if these assumptions prove inaccurate. Based
upon progress to date, however, Mobil believes that it is unlikely that the
foregoing factors will cause actual results to differ significantly from those
estimated. As to the systems of the third parties that are linked to Mobil's,
there can be no guarantee that those of such systems that are not now year 2000
compliant will be timely converted to year 2000 compliance. Additionally, there
can be no guarantee that third parties of business importance to Mobil will
successfully and timely reprogram or replace, and test, all of their own
computer hardware, software and process control systems. While the failure of a
single third party to timely achieve year 2000 compliance should not have a
material adverse effect on Mobil's results of operations in a particular period,
the failure of several key third parties to achieve such compliance could have
such an effect. Mobil is developing contingency plans to alter business
relationships in the event certain third parties fail to become year 2000
compliant.
MANAGEMENT
DISCUSSION AND ANALYSIS
OVER THE PAST THREE YEARS
MOBIL HAS SPENT $2.2 BILLION
TO SAFEGUARD THE ENVIRONMENT.
ENVIRONMENTAL MATTERS
- --------------------------------------------------------------------------------
ENVIRONMENTAL EXPENDITURES U.S. INTERNATIONAL
- --------------------------------------------------------------------------------
(In millions) 1995 1996 1997 1995 1996 1997
- --------------------------------------------------------------------------------
Capital $172 $149 $105 $135 $108 $105
Protection and Compliance
Ongoing operations 238 212 213 184 171 128
Remediation 67 46 46 24 27 28
- --------------------------------------------------------------------------------
Total Environmental Expenditures $477 $407 $364 $343 $306 $261
- --------------------------------------------------------------------------------
MOBIL'S COMMITMENT AND PRACTICE IS TO CONDUCT ITS OPERATIONS WITH FULL CONCERN
FOR SAFEGUARDING THE ENVIRONMENT, EMPLOYEES, CUSTOMERS AND THE PUBLIC--WHEREVER
IT OPERATES. The company accomplishes this through clear, visible corporate
policies, innovative technologies, sharing best practices, extensive training
and constant attention to environmental matters in its day-to-day operations.
Environmental expenditures are a significant cost of doing business, and the
U.S. and other countries continue to impose stringent environmental
requirements. While these costs reflect a downward trend, environmental
operating performance has been improving. Although Mobil cannot predict
accurately how environmental expenditures will affect future operations and
earnings, it expects to continue to incur substantial costs. Mobil believes its
costs will not vary significantly from those of its competitors.
CAPITAL EXPENDITURES are additions or modifications to plants and facilities
to limit, monitor and control emissions and waste generation and to manufacture
newly formulated products. The majority of U.S. environmental capital
expenditures have been made to comply with federal and state clean air and water
regulations as well as waste-management requirements. As required in 1995, Mobil
began selling clean-burning reformulated gasoline in those metropolitan areas
designated by the Environmental Protection Agency (EPA) where Mobil markets
gasoline products. Additional emission reductions are mandated by the year 2000.
Internationally, capital expenditures were made in large part to help
protect ground and surface water and to reduce air emissions. Worldwide capital
expenditures for environmental matters in 1998 are expected to remain near the
1997 expenditure level.
PROTECTION AND COMPLIANCE EXPENDITURES are Mobil's recurring costs
associated with managing hazardous substances, emissions and waste generation in
ongoing operations, and the costs to remediate identified contamination. U.S.
remediation expenditures reflect corrective action taken in prior years to meet
compliance requirements, the use of improved remediation technology and resource
utilization, and a continuing government/industry trend toward utilizing a
risk-based corrective action approach to remediating subsurface contamination.
Like many other companies, Mobil periodically receives notices from the EPA,
or equivalent state agencies, that it has been designated as a potentially
responsible party (PRP) for remediation of hazardous-waste sites. The majority
of these sites are still under investigation by the EPA or the state agencies
concerned. All PRPs are jointly and severally liable under the federal Superfund
law; however, since the early 1980s, Mobil has been successful in sharing
cleanup costs with other financially sound companies. At December 31, 1997,
Mobil had been successful in resolving its involvement in 175 of the 276 sites
where it had been named a PRP. The number of PRP sites does not represent a
relevant measure of liability as each company's involvement in a site can vary
substantially.
Mobil believes it has provided adequate reserves for known environmental
obligations. However, Mobil may be subject to future environmental remediation
liabilities relating to assets previously sold, closed facilities, requirements
not yet identified or the sale or disposition of operating facilities. While the
amounts could be material to Mobil's earnings in the periods in which such
liabilities arise, the extent of such future remediation requirements and costs
is not subject to reasonable estimation. Based on Mobil's long experience in
managing environmental matters in its businesses, it does not anticipate that
the aggregate level of future remediation costs will increase above recent
levels so as to materially and adversely affect its consolidated financial
position or liquidity. See also Note 12 to Financial Statements on page 49 for
further discussion of environmental liabilities.
MANAGEMENT
DISCUSSION AND ANALYSIS
QUARTERLY FINANCIAL DATA (unaudited)
1996
---------------------------------------------------------
First Second Third Fourth Full
(In millions, except per-share amounts) Quarter Quarter Quarter Quarter Year
- -----------------------------------------------------------------------------------------------------
REVENUES
Sales and services $ 18,528 $ 19,262 $ 19,852 $ 22,723 $ 80,365
Income from equity affiliates 85 106 84 4 279
Income from asset sales,
interest and other 87 152 390 230 859
- -----------------------------------------------------------------------------------------------------
Total Revenues 18,700 19,520 20,326 22,957 81,503
- -----------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Crude oil, products and operating
supplies and expenses 10,671 11,228 11,788 13,803 47,490
Exploration expenses 76 72 143 221 512
Selling and general expenses 1,126 1,239 1,176 1,646 5,187
Depreciation, depletion
and amortization 655 603 645 822 2,725
Interest and debt discount expense 116 97 119 123 455
Taxes other than income taxes 4,534 4,693 4,850 4,946 19,023
Income taxes 786 805 836 720 3,147
- -----------------------------------------------------------------------------------------------------
Total Costs and Expenses 17,964 18,737 19,557 22,281 78,539
- -----------------------------------------------------------------------------------------------------
NET INCOME $ 736 $ 783 $ 769 $ 676 $ 2,964
Per common share(1) $ .92 $ .98 $ .96 $ .84 $ 3.69
Per common share-assuming dilution(1) $ .90 $ .95 $ .94 $ .83 $ 3.62
- -----------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE(1) $ .46 $ .50 $ .50 $ .50 $ 1.96
- -----------------------------------------------------------------------------------------------------
SPECIAL ITEMS INCLUDED IN NET INCOME
Restructuring provisions $ -- $ -- $ -- $ (166) $ (166)
Asset sales gains/(losses) -- -- 129 41 170
Employee performance award -- -- -- -- --
Litigation -- -- -- -- --
LIFO/other inventory adjustments -- -- -- 43 43
Asset impairment -- -- -- (69) (69)
Staff redesign project implementation -- (31) (28) (16) (75)
Other -- -- -- (36) (36)
- -----------------------------------------------------------------------------------------------------
Total Special Items -- (31) 101 (203) (133)
- -----------------------------------------------------------------------------------------------------
OPERATING EARNINGS(2) $ 736 $ 814 $ 668 $ 879 $ 3,097
- -----------------------------------------------------------------------------------------------------
Sales Price per Common Share(1) (3)
High $59 1/16 $60 1/16 $59 15/16 $62 15/16 $62 15/16
Low $53 3/4 $54 5/16 $53 7/8 $56 5/8 $53 3/4
- -----------------------------------------------------------------------------------------------------
<FN>
(1) Per-share amounts for all periods reflect the two-for-one stock split in 1997.
(2) Excludes special items.
(3) The principal market for trading of Mobil's common stock is the New York Stock Exchange. The
stock symbol is "MOB." The reported prices represent a composite of transactions on the New York
Stock Exchange, the Chicago, Pacific, Philadelphia, Boston and Cincinnati regional exchanges and the over-the-counter market.
</FN>
QUARTERLY FINANCIAL DATA (unaudited)(continued)
1997
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
(In millions, except per-share amounts) QUARTER QUARTER QUARTER QUARTER YEAR
- -----------------------------------------------------------------------------------------------------
REVENUES
Sales and services $ 15,935 $ 16,372 $ 15,950 $ 16,070 $ 64,327
Income from equity affiliates 102 167 143 284 696
Income from asset sales,
interest and other 149 210 304 220 883
- -----------------------------------------------------------------------------------------------------
Total Revenues 16,186 16,749 16,397 16,574 65,906
- -----------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Crude oil, products and operating
supplies and expenses 10,468 10,531 10,159 10,039 41,197
Exploration expenses 75 82 105 237 499
Selling and general expenses 806 1,136 1,057 1,358 4,357
Depreciation, depletion
and amortization 643 615 590 706 2,554
Interest and debt discount expense 98 91 142 97 428
Taxes other than income taxes 2,406 2,706 2,682 2,712 10,506
Income taxes 864 738 770 721 3,093
- -----------------------------------------------------------------------------------------------------
Total Costs and Expenses 15,360 15,899 15,505 15,870 62,634
- -----------------------------------------------------------------------------------------------------
NET INCOME $ 826 $ 850 $ 892 $ 704 $ 3,272
Per common share(1) $ 1.03 $ 1.06 $ 1.12 $ .88 $ 4.10
Per common share-assuming dilution(1) $ 1.01 $ 1.04 $ 1.09 $ .86 $ 4.01
- -----------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE(1) $ .53 $ .53 $ .53 $ .53 $ 2.12
- -----------------------------------------------------------------------------------------------------
SPECIAL ITEMS INCLUDED IN NET INCOME
Restructuring provisions $ (18) $ (20) $ (72) $ (148) $ (258)
Asset sales gains/(losses) -- -- 140 41 181
Employee performance award -- -- (50) -- (50)
Litigation -- -- (33) -- (33)
LIFO/other inventory adjustments -- -- -- 20 20
Asset impairment -- -- -- (18) (18)
Staff redesign project implementation -- -- -- -- --
Other -- -- -- -- --
- -----------------------------------------------------------------------------------------------------
Total Special Items (18) (20) (15) (105) (158)
- -----------------------------------------------------------------------------------------------------
OPERATING EARNINGS(2) $ 844 $ 870 $ 907 $ 809 $ 3,430
- -----------------------------------------------------------------------------------------------------
Sales Price per Common Share(1) (3)
High $68 $72 1/4 $78 $77 1/2 $ 78
Low $60 5/8 $60 $69 5/8 $66 7/16 $ 60
- -----------------------------------------------------------------------------------------------------
MANAGEMENT
DISCUSSION AND ANALYSIS
COMMENTARY ON CONSOLIDATED STATEMENT OF INCOME
REVENUES from Sales and Services decreased $16,038 million from 1996 primarily
due to the effects of equity accounting for the Mobil-BP European downstream
alliance, equity accounting for gas marketing activities in the United States,
lower crude oil prices and currency translation effects. Partly offsetting these
decreases were the effects of higher sales volumes and higher average worldwide
natural gas prices. The increase in 1996 from 1995 resulted mainly from higher
crude oil, natural gas and petroleum product prices, and higher product sales
volumes.
Income from Equity Affiliates increased in 1997 due to significantly higher
income from equity investments, mainly in Europe, Kazakhstan and the United
States. Income from Asset Sales, Interest and Other decreased in 1996 from 1995
primarily reflecting the gain on sale of the Plastics Division in 1995.
Total COSTS AND EXPENSES decreased by $15,905 million from 1996 mainly due
to the effects of equity accounting for the Mobil-BP European downstream and
Mobil-Shell California upstream alliances. The increase in 1996 from 1995 was
primarily due to higher costs for crude oil and products, higher volume-related
expenses and new growth programs, partially offset by benefits from initiatives.
Crude Oil, Products and Operating Supplies and Expenses decreased $6,293
million in 1997, primarily due to the effects of equity accounting for the
Mobil-BP and Mobil-Shell alliances and lower average costs for crude oil, partly
offset by higher volume-related expenses and increased spending for growth
programs in new venture areas. The increase in 1996 from 1995 was due to
increased worldwide crude oil and product-related costs and higher volumes,
partly offset by the effects of divested businesses. Included in this expense
category are research costs of $252 million in 1995, $206 million in 1996 and
$234 million in 1997.
Exploration Expenses were somewhat lower in 1997 primarily due to a smaller
planned program this year. Expenses in 1996 increased from 1995 primarily
reflecting higher dry drilling expenses and Ampolex's exploration activities.
Selling and General Expenses decreased $830 million primarily due to the
effects of equity accounting for the Mobil-BP alliance and expense reductions
associated with cost-savings initiatives, partly offset by restructuring
reserves and the employee performance award. The decrease in 1996 from 1995 was
mainly due to a lower level of restructuring charges in 1996, expense reductions
resulting from prior-year restructuring programs, and the effects of the
divestiture of various chemical businesses.
Depreciation, Depletion and Amortization Expenses were somewhat lower in
1997 as decreases resulting from equity accounting for the Mobil-BP and
Mobil-Shell alliances were largely offset by the effects of last year's
acquisition of Ampolex and other capital spending. Expenses in 1996 decreased
from 1995 largely due to the effects of adopting FAS 121 in the fourth quarter
of 1995 and the absence of 1995 restructuring-related asset write-downs.
Taxes Other than Income Taxes decreased $8,517 million in 1997 from 1996 as
the effects of equity accounting for the alliances were partly offset by the
effects of higher sales volumes. In 1996, Taxes Other than Income Taxes were
essentially unchanged from 1995 as the effects of higher product sales volumes
were offset by the absence of import duties on crude oil resulting from the
closure of the Woerth refinery in Germany.
Income Taxes decreased slightly as the effects of higher pretax income were
more than offset by mix changes in the sources of earnings. Income Taxes
increased in 1996 versus 1995, mainly due to higher pretax income and mix
changes in the sources of earnings.
COMMENTARY ON CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Total SHAREHOLDERS' EQUITY rose $389 million in 1997 due to an increase of
$1,553 million in Earnings Retained in the Business. Largely offsetting this
increase was a net charge to the Cumulative Foreign Exchange Translation
Adjustment account reflecting a strengthening U.S. dollar relative to local
currencies in certain countries in which the company has significant operations.
Also, the cost of Common Stock Held in the Treasury increased as 7,458,400
shares were purchased in the open market to offset the dilutive effects of stock
options and reduce the number of shares outstanding. Return on Average
Shareholders' Equity increased from 13.5% in 1995 to 16.0% in 1996 and to 17.0%
in 1997.
Common stock dividends paid were $1.8125 per share, $1.9625 per share and
$2.12 per share in 1995, 1996 and 1997, respectively. Per-share amounts reflect
the two-for-one stock split in 1997.
[Bar Chart - Page 32]
RETURN ON AVERAGE
SHAREHOLDERS' EQUITY
(In percent)
97 17.0
96 16.0
95 13.5
RETURN ON AVERAGE
SHAREHOLDERS' EQUITY IMPROVED
AGAIN, IN LINE WITH THIS YEAR'S
HIGHER EARNINGS.
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
Year ended December 31 (In millions, except per-share amounts)
1995 1996 1997
- --------------------------------------------------------------------------------
REVENUES
Sales and services(1) $73,413 $80,365 $64,327
Income from equity affiliates 397 279 696
Income from asset sales,
interest and other 1,560 859 883
- --------------------------------------------------------------------------------
Total Revenues 75,370 81,503 65,906
- --------------------------------------------------------------------------------
COSTS AND EXPENSES
Crude oil, products and operating supplies
and expenses 41,630 47,490 41,197
Exploration expenses 427 512 499
Selling and general expenses 5,688 5,187 4,357
Depreciation, depletion and amortization 3,748 2,725 2,554
Interest and debt discount expense 467 455 428
Taxes other than income taxes(1) 19,019 19,023 10,506
Income taxes 2,015 3,147 3,093
- --------------------------------------------------------------------------------
Total Costs and Expenses 72,994 78,539 62,634
- --------------------------------------------------------------------------------
NET INCOME $ 2,376 $ 2,964 $ 3,272
Per common share(2) $ 2.93 $ 3.69 $ 4.10
Per common share--assuming dilution(2) $ 2.88 $ 3.62 $ 4.01
- --------------------------------------------------------------------------------
(1) Includes excise and state gasoline taxes: 1995-$8,646 million; 1996-$9,236
million; 1997-$5,928 million.
(2) Per-share amounts for all years reflect the two-for-one stock split in 1997.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Year ended December 31 (In millions) 1995 1996 1997
- ----------------------------------------------------------------------------------------
PREFERRED STOCK (ESOP-related)
-Beginning of year $ 745 $ 722 $ 686
-End of year, after redemptions $ 722 $ 686 $ 665
- ----------------------------------------------------------------------------------------
UNEARNED EMPLOYEE COMPENSATION (ESOP-related)
-Beginning of year $ (472) $ (411) $ (365)
-End of year, after amortization $ (411) $ (365) $ (329)
- ----------------------------------------------------------------------------------------
COMMON STOCK AT PAR
-Beginning of year $ 885 $ 888 $ 891
-End of year, after issuance of shares $ 888 $ 891 $ 894
- ----------------------------------------------------------------------------------------
CAPITAL SURPLUS
-Beginning of year $ 1,325 $ 1,396 $ 1,468
-End of year, after issuance of common shares $ 1,396 $ 1,468 $ 1,549
- ----------------------------------------------------------------------------------------
EARNINGS RETAINED IN THE BUSINESS
-Beginning of year $ 16,859 $ 17,745 $ 19,108
-Net income 2,376 2,964 3,272
-Common stock dividends (1,434) (1,547) (1,667)
-Preferred stock dividends (ESOP-related) (56) (54) (52)
- ----------------------------------------------------------------------------------------
-End of year $ 17,745 $ 19,108 $ 20,661
- ----------------------------------------------------------------------------------------
CUMULATIVE FOREIGN EXCHANGE TRANSLATION ADJUSTMENT
-Beginning of year $ (123) $ (27) $ (73)
-End of year, after adjustments $ (27) $ (73) $ (821)
- ----------------------------------------------------------------------------------------
COMMON STOCK HELD IN TREASURY, AT COST
-Beginning of year $ (2,073) $ (2,362) $ (2,643)
-End of year, after purchases $ (2,362) $ (2,643) $ (3,158)
- ----------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 17,951 $ 19,072 $ 19,461
- ----------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements on pages 40-53.
</FN>
MANAGEMENT
DISCUSSION AND ANALYSIS
COMMENTARY ON CONSOLIDATED BALANCE SHEET
Total CURRENT ASSETS decreased $3,173 million, primarily reflecting lower
Accounts and Notes Receivable and lower Inventories.
Cash and Cash Equivalents increased $12 million from 1996. The movements
that contributed to this increase are presented in the Consolidated Statement of
Cash Flows on page 37.
Accounts and Notes Receivable decreased mainly due to the effects of equity
accounting for the Mobil-BP European downstream alliance, lower crude oil and
international natural gas prices, the sale of certain receivables associated
with the company's credit card operations and currency translation effects.
Inventories were lower in 1997 primarily due to the effects of equity
accounting for the Mobil-BP and Chalmette alliances, and currency translation.
Investments and Long-term Receivables increased $3,401 million to $8,479
million, mainly reflecting Mobil's investment in the European downstream
alliance with BP, the California upstream alliance with Shell and Mobil's
alliance at the Chalmette refinery.
Net Properties, Plants and Equipment decreased $2,923 million to $24,556
million as capital expenditures were more than offset by the effects of equity
accounting for the alliances, asset sales, depreciation and the effects of
currency translation.
Total CURRENT LIABILITIES of $12,421 million decreased $2,827 million from
year-end 1996. Short-term Debt declined $431 million due to strong earnings,
continued sale of noncore assets and reduced working capital requirements.
Accounts Payable decreased $1,517 million primarily due to the effects of equity
accounting for the Mobil-BP alliance, decreases in crude oil and international
gas prices from year-end 1996 and currency translation effects. Accrued
Liabilities decreased mainly due to the effects of the Mobil-BP alliance and a
payment related to Mobil's pipeline investment in Kazakhstan, partly offset by
reserves for restructurings in Japan. Additionally, Income, Excise, State
Gasoline and Other Taxes Payable were lower, primarily reflecting the effects of
equity accounting for the Mobil-BP alliance and currency translation.
At year-end 1997, the total DEBT of Mobil and its consolidated subsidiaries
was $6,664 million, a decrease of $1,211 million from the prior year. The
reduction from 1996 reflects lower debt levels resulting from strong earnings,
the continued sale of noncore assets, reduced working capital requirements and
currency effects, partly offset by the impact of net share repurchases. Mobil's
year-end debt-to-capitalization ratio was 25%, down from 29% at year-end 1996.
Mobil continues to have ready access to global financial markets, providing
flexibility to take advantage of growth opportunities and low borrowing costs.
At year-end 1997, Mobil had effective shelf registration statements on file with
the Securities and Exchange Commission (SEC) that would permit the offer and
sale of an aggregate of $1,815 million of debt securities pursuant to Rule 415
of the Securities Act of 1933. Also in place were a Euro-Medium-Term-Note
program to facilitate the offering and sale outside the U.S. of an additional $2
billion of debt securities in 1998 or later years and a facility allowing the
issuance in Japan of bonds having a principal amount of 30 billion Japanese yen.
Accrued Restoration, Removal and Environmental Costs declined due to the
effects of equity accounting for Mobil's California heavy-oil alliance with
Shell and the sale of certain properties in the Gulf of Mexico.
In October 1997, Mobil contributed assets with an aggregate fair value of
$622 million to Mobil Oil & Gas Associates LLC for an interest of 67%. The
remaining 33 percent was purchased by an unrelated investor. The net result of
this transaction was to increase Minority Interest in Subsidiary Companies by
$300 million.
Total SHAREHOLDERS' EQUITY rose $389 million (see Commentary on Consolidated
Statement of Changes in Shareholders' Equity on page 32).
[Bar Charts - Page 34]
TOTAL DEBT
(Millions of dollars)
97 96 95
International & U.S. 6,664 7,875 6,756
DEBT DECREASED SIGNIFICANTLY
DUE TO THIS YEAR'S STRONG
EARNINGS AND CONTINUED ASSET SALES.
RETURN ON AVERAGE
CAPITAL EMPLOYED
(In percent)
97 13.4
96 12.7
95 10.9
RETURN ON AVERAGE CAPITAL
EMPLOYED CONTINUED TO RISE,
REFLECTING MOBIL'S FOCUS
ON GROWTH AND STRENGTHENING ITS ASSET BASE.
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
At December 31 (In millions) 1996 1997
- --------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 808 $ 820
Accounts and notes receivable 8,192 5,952
Inventories 3,017 2,156
Prepaid expenses and other current assets 627 623
Deferred income taxes 251 171
- --------------------------------------------------------------------------------------------
Total Current Assets 12,895 9,722
- --------------------------------------------------------------------------------------------
Investments and Long-term Receivables 5,078 8,479
Net Properties, Plants and Equipment 27,479 24,556
Deferred Charges and Other Assets 956 802
- --------------------------------------------------------------------------------------------
TOTAL ASSETS $ 46,408 $ 43,559
- --------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 3,425 $ 2,994
Accounts payable 5,935 4,418
Accrued liabilities 2,968 2,794
Income, excise, state gasoline and other taxes payable 2,615 1,906
Deferred income taxes 305 309
- --------------------------------------------------------------------------------------------
Total Current Liabilities 15,248 12,421
- --------------------------------------------------------------------------------------------
Long-term Debt 4,450 3,670
Reserves for Employee Benefits 1,681 1,745
Accrued Restoration, Removal and Environmental Costs 1,240 1,072
Deferred Credits and Other Noncurrent Obligations 1,255 1,274
Deferred Income Taxes 3,416 3,535
Minority Interest in Subsidiary Companies 46 381
- --------------------------------------------------------------------------------------------
Total Liabilities 27,336 24,098
- --------------------------------------------------------------------------------------------
Shareholders' Equity(1)
Preferred stock (ESOP-related)--shares issued and outstanding:
1996-176,336; 1997-171,093 686 665
Unearned employee compensation (ESOP-related) (365) (329)
Common stock--shares issued:
1996-891,075,610; 1997-894,308,872 891 894
Capital surplus 1,468 1,549
Earnings retained in the business 19,108 20,661
Cumulative foreign exchange translation adjustment (73) (821)
Common stock held in treasury, at cost--shares:
1996-103,486,700; 1997-110,945,100 (2,643) (3,158)
- --------------------------------------------------------------------------------------------
Total Shareholders' Equity 19,072 19,461
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 46,408 $ 43,559
- --------------------------------------------------------------------------------------------
<FN>
(1) Share amounts reflect the two-for-one stock split in 1997.
See Notes to Financial Statements on pages 40-53.
</FN>
MANAGEMENT
DISCUSSION AND ANALYSIS
COMMENTARY ON CONSOLIDATED STATEMENT OF CASH FLOWS
The Statement of Cash Flows reports movements in cash balances from year to year
and summarizes the cash provided and used during the year for operating,
investing and financing activities. The impact of changes in foreign currency
translation rates has been removed from the amounts reported in this statement.
Therefore, except for Cash and Cash Equivalents, these amounts do not agree with
the differences that would be derived from the changes in Balance Sheet amounts.
During 1997, Net Cash from Operating Activities exceeded Net Cash Used in
Investing Activities and Cash Dividends by $863 million.
- --------------------------------------------------------------------------------
CASH REQUIREMENTS--OPERATING ACTIVITIES OVER (UNDER) INVESTING(1)
- --------------------------------------------------------------------------------
Year ended December 31 (In millions) 1995 1996 1997
- --------------------------------------------------------------------------------
Net cash from operating activities $ 4,988 $ 6,399 $ 6,977
Net cash used in investing activities (2,462) (5,200) (4,395)
Cash dividends (1,490) (1,601) (1,719)
- --------------------------------------------------------------------------------
Excess (shortfall) of cash requirements $ 1,036 $ (402) $ 863
- --------------------------------------------------------------------------------
(1) Prior year data restated to conform with current year presentation.
NET CASH FROM OPERATING ACTIVITIES increased by $578 million from 1996. Net
Cash from Operating Activities is derived by adjusting reported Net Income for
charges or credits that have no cash effect (primarily Depreciation, Depletion
and Amortization, and Deferred Income Taxes) and cash items reported elsewhere
in this Statement (primarily Exploration Expenses).
NET CASH USED IN INVESTING ACTIVITIES decreased by $805 million from 1996,
reflecting last year's higher level of expenditures for the acquisitions of
Ampolex and an interest in the Tengiz field in Kazakhstan, partly offset by a
lower level of proceeds from asset sales in 1997.
NET CASH USED IN FINANCING ACTIVITIES in 1997 was $2,548 million versus
$908 million used in financing activities in 1996. The variance reflects the
absence of financing associated with last year's two major acquisitions of
Ampolex and an interest in the Tengiz field, together with strong operating cash
flow that enabled debt repayment.
- ----------------------------------------------------------------------------------------------
INVESTMENT SPENDING
- ----------------------------------------------------------------------------------------------
Year ended December 31 (In millions) 1995 1996 1997
- ----------------------------------------------------------------------------------------------
Petroleum Operations
Exploration & Producing -- U.S. $ 758 $ 480 $ 427
-- International 1,489 3,434(1) 2,461
Marketing & Refining -- U.S. 484 403 357
-- International 808 1,151 571
Chemical -- U.S. 165 301 288
-- International 55 38 35
Corporate and Other 82 42 51
- ----------------------------------------------------------------------------------------------
Total Capital Expenditures $3,841 $5,849 $4,190
- ----------------------------------------------------------------------------------------------
Exploration Expenses -- U.S. 72 76 76
-- International 355 436 423
- ----------------------------------------------------------------------------------------------
Total Exploration Expenses 427 512 499
- ----------------------------------------------------------------------------------------------
Total Capital Expenditures and Exploration Expenses $4,268 $6,361 $4,689
- ----------------------------------------------------------------------------------------------
Cash Investments in Equity Companies 257 658 617
- ----------------------------------------------------------------------------------------------
Total Investment Spending $4,525 $7,019 $5,306
- ----------------------------------------------------------------------------------------------
<FN>
(1) Includes $1,394 million for the acquisition of Ampolex
</FN>
At year-end 1997, the unspent balance of total appropriations for capital
expenditures was $4.8 billion. Mobil has large unspent balances of total
appropriations for capital expenditures at the end of each year.The company is
not contractually committed to spend all of these appropriations but generally
expects to do so over the next several years.
[Bar Charts - Page 36]
ASSET SALES PROCEEDS
(Millions of dollars)
97 1,050
96 1,759
95 2,034
MOBIL SELLS ASSETS THAT DO NOT
FIT LONG-TERM STRATEGIES OR ARE
WORTH MORE TO OTHERS. PROCEEDS
HAVE TOTALED $4.8 BILLION OVER THE PAST THREE YEARS.
INVESTMENT SPENDING
(Millions of dollars)
Capital Expeditures, 97 96 95
Exploration Expenses & Equity Investment 5,306 7,019 4,525
INVESTMENT SPENDING WAS LOWER
IN 1997, PRIMARILY REFLECTING
THE ABSENCE OF THE 1996 ACQUISITIONS OF AMPOLEX AND TENGIZ.
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31 (In millions) 1995 1996 1997
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,376 $ 2,964 $ 3,272
Adjustments to reconcile to net cash from operating activities
Depreciation, depletion and amortization 3,748 2,725 2,554
Deferred income taxes (233) 446 404
Earnings (greater) less than distributions from
equity affiliates (51) 153 (59)
Exploration expenses (includes noncash charges:
1995-$26; 1996-$36; 1997-$30) 427 512 499
Gain on sales of properties, plants and equipment
and other assets (1,041) (423) (389)
(Increase) decrease in working capital items (detailed below) (388) (290) 475
Other, net(1) 150 312 221
- -----------------------------------------------------------------------------------------------------
Net Cash from Operating Activities 4,988 6,399 6,977
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital and exploration expenditures (4,268) (4,967) (4,689)
Acquisition of Ampolex Limited, net of $47 cash acquired -- (1,347) --
Proceeds from sales of properties, plants and equipment
and other assets 2,034 1,759 1,050
Payments attributable to investments and
long-term receivables (228) (645)(2) (756)(2)
- -----------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (2,462) (5,200) (4,395)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends (1,490) (1,601) (1,719)
Proceeds from borrowings having original terms
greater than three months 1,739 1,494 923
Repayments of borrowings having original terms
greater than three months (1,594) (1,215) (1,772)
(Decrease) increase in other borrowings (991) 667 112
Increase (decrease) in minority interest(1) 36 (47) 339
Proceeds from issuance of common stock 74 75 84
Purchase of common stock for treasury (289) (281) (515)
- -----------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (2,515) (908) (2,548)
- -----------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents(3) (44) 19 (22)
- -----------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (33) 310 12
Cash and Cash Equivalents--Beginning of Year 531 498 808
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS--END OF YEAR $ 498 $ 808 $ 820
- -----------------------------------------------------------------------------------------------------
<FN>
(1) Prior year data restated to conform with current year presentation.
(2) Includes the cash expenditure for the acquisition of a 25% interest in a
joint venture that owns the Tengiz field.
(3) Cash equivalents are liquid investments convertible to cash and have
original maturities of three months or less.
</FN>
- --------------------------------------------------------------------------------------------
CHANGES IN WORKING CAPITAL ITEMS Decrease (Increase)
- --------------------------------------------------------------------------------------------
Accounts and notes receivable $ (994) $(1,199) $ 834
Inventories (66) 91 (17)
Prepaid expenses and other current assets (22) 24 (69)
Accounts payable 477 836 (307)
Accrued liabilities 83 (19) 334
Income, excise, state gasoline and other taxes payable 134 (23) (300)
- --------------------------------------------------------------------------------------------
(Increase) Decrease in Working Capital Items $ (388) $ (290) $ 475
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
MEMO ITEMS
- --------------------------------------------------------------------------------------------
Cash income taxes paid $ 2,091 $ 2,416 $ 2,687
Cash interest paid 556 458 528
- --------------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements on pages 40-53.
</FN>
CONSOLIDATED
FINANCIAL STATEMENTS
SEGMENT AND GEOGRAPHIC INFORMATION
Year ended December 31 (In millions) 1995 1996 1997
- --------------------------------------------------------------------------------
REVENUES BY SEGMENT
Petroleum Operations
Exploration & Producing - Third Party $ 7,028 $ 8,055 $ 7,381
- Intersegment 4,053 4,786 4,459
Marketing & Refining - Third Party 61,376 69,931 55,007
- Intersegment 986 865 864
Chemical - Third Party 6,155 3,023 3,251
- Intersegment 235 257 282
Corporate and Other 811 494 267
Intersegment Elimination (5,274) (5,908) (5,605)
- --------------------------------------------------------------------------------
Total Revenues $ 75,370 $ 81,503 $ 65,906
- --------------------------------------------------------------------------------
REVENUES BY GEOGRAPHIC AREA
United States - Third Party $ 25,598 $ 27,447 $ 28,563
- Intersegment 537 461 533
Europe - Third Party 23,676 25,414 7,684
- Intersegment 899 1,478 1,423
Asia-Pacific - Third Party 17,160 17,690 17,075
- Intersegment 796 675 654
Other Areas(1) - Third Party 8,125 10,458 12,317
- Intersegment 5,574 5,657 4,002
Corporate and Other 811 494 267
Intergeographic Elimination (7,806) (8,271) (6,612)
- --------------------------------------------------------------------------------
Total Revenues $ 75,370 $ 81,503 $ 65,906
- --------------------------------------------------------------------------------
At December 31 (In millions)
- --------------------------------------------------------------------------------
IDENTIFIABLE ASSETS BY SEGMENT
Petroleum Operations
Exploration & Producing $ 14,393 $ 18,279 $ 18,840
Marketing & Refining 22,463 23,592 20,284
Chemical 3,212 2,987 3,111
Corporate and Other 2,510 2,042 1,791
Adjustments (440) (492) (467)
- --------------------------------------------------------------------------------
Total Assets $ 42,138 $ 46,408 $ 43,559
- --------------------------------------------------------------------------------
IDENTIFIABLE ASSETS BY GEOGRAPHIC AREA
United States $ 14,268 $ 13,726 $ 13,161
Europe 9,920 10,049 8,033
Asia-Pacific 8,778 11,316 10,020
Other Areas(1) 7,312 9,965 11,106
Corporate and Other 2,510 2,042 1,791
Adjustments (650) (690) (552)
- --------------------------------------------------------------------------------
Total Assets $ 42,138 $ 46,408 $ 43,559
- --------------------------------------------------------------------------------
(1) Includes principally West Africa, Saudi Arabia, Canada and Kazakhstan.
The distribution of Mobil's operations by business segment and geographic area
is presented above. Petroleum Operations consist of exploration, producing,
marketing and refining. Exploration & Producing explores for, develops and
produces crude oil and natural gas, and extracts natural gas liquids, sulfur and
carbon dioxide. Marketing & Refining is responsible for petroleum refining
operations and the marketing of all refined petroleum products. Chemical
manufactures and sells various petroleum-based chemical products. Corporate and
Other includes the operations of Real Estate and Mining and Minerals
(substantially all of these businesses were sold in 1996), corporate
administrative expenses and other items.
CONSOLIDATED
FINANCIAL STATEMENTS
SEGMENT AND GEOGRAPHIC INFORMATION (concluded)
Year ended December 31 (In millions) 1995 1996 1997
- --------------------------------------------------------------------------------------
EARNINGS BY SEGMENT
Pretax Operating Profits
Petroleum Operations
Exploration & Producing $ 2,410 $ 5,075 $ 4,997
Marketing & Refining 894 1,338 1,569
Chemical 1,551 342 493
- --------------------------------------------------------------------------------------
Total Pretax Operating Profits 4,855 6,755 7,059
Income Taxes (2,173) (3,427) (3,419)
- --------------------------------------------------------------------------------------
Segment Earnings 2,682 3,328 3,640
Corporate and Financing (Net of income taxes) (306) (364) (368)
- --------------------------------------------------------------------------------------
Net Income $ 2,376 $ 2,964 $ 3,272
- --------------------------------------------------------------------------------------
EARNINGS BY GEOGRAPHIC AREA (Net of income taxes)
United States $ 827 $ 1,293 $ 1,471
Europe 323 357 633
Asia-Pacific 1,193 1,096 923
Other Areas(1) 339 582 613
- --------------------------------------------------------------------------------------
Geographic Earnings 2,682 3,328 3,640
Corporate and Financing (306) (364) (368)
- --------------------------------------------------------------------------------------
Net Income $ 2,376 $ 2,964 $ 3,272
- --------------------------------------------------------------------------------------
CAPITAL EXPENDITURES BY SEGMENT
Petroleum Operations
Exploration & Producing $ 2,247 $ 3,914 $ 2,888
Marketing & Refining 1,292 1,554 928
Chemical 220 339 323
- --------------------------------------------------------------------------------------
Segment Capital Expenditures 3,759 5,807 4,139
Corporate and Other 82 42 51
- --------------------------------------------------------------------------------------
Total Capital Expenditures $ 3,841 $ 5,849 $ 4,190
- --------------------------------------------------------------------------------------
DEPRECIATION, DEPLETION AND AMORTIZATION BY SEGMENT
Petroleum Operations
Exploration & Producing $ 2,230 $ 1,596 $ 1,557
Marketing & Refining 1,168 966 835
Chemical 290 126 141
- --------------------------------------------------------------------------------------
Segment Depreciation, Depletion and Amortization 3,688 2,688 2,533
Corporate and Other 60 37 21
- --------------------------------------------------------------------------------------
Total Depreciation, Depletion and Amortization $ 3,748 $ 2,725 $ 2,554
- --------------------------------------------------------------------------------------
<FN>
(1) Includes principally West Africa, Saudi Arabia, Canada and Kazakhstan.
</FN>
Mobil's share of the net income of companies accounted for on the equity
method are included in Revenues. Financial information on these affiliates is
presented in Note 5 on page 44.
Intersegment and intergeographic revenues are sales to other business or
geographic segments within Mobil and are at estimated market prices. These
intercompany transactions are eliminated for consolidation purposes. Income
taxes are allocated to segments and geographic areas on the basis of operating
results.
BENEFITS FROM THE
MOBIL-BP ALLIANCE
CONTRIBUTED TO HIGHER
EARNINGS IN EUROPE.
NOTES
TO FINANCIAL STATEMENTS
1. MAJOR ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all companies
owned more than 50% and controlled. Significant investments in affiliated
companies owned 50% or less, or where Mobil does not have control, are accounted
for on the equity basis. Investments in other companies in which Mobil owns less
than a majority interest are stated at cost less applicable reserves.
Investments that represent direct interests in the assets, liabilities and
operations of ventures are reported as Mobil's share of each account in the
venture. Intercompany transactions are eliminated.
USE OF ESTIMATES
The financial statements, which are prepared in conformity with generally
accepted accounting principles, include amounts that are based, in part, on
management's best estimates and judgments.
INVENTORIES
Substantially all crude oil and product inventories are valued at cost under the
last-in, first-out (LIFO) method. Other inventories, primarily materials and
supplies, are valued generally at average cost.
OIL AND GAS ACCOUNTING
Mobil follows the successful efforts method of accounting for oil and gas
exploration and producing activities. Under this method, direct acquisition
costs of unproved mineral rights are capitalized and then amortized as described
below. Payments made in lieu of drilling on nonproducing leaseholds are charged
to expense currently. Geological and geophysical costs are charged to expense as
incurred. Costs of all development wells and of exploratory wells that result in
additions to proved reserves are capitalized.
DEPRECIATION, DEPLETION AND AMORTIZATION
Annual charges to income for depreciation are computed on a straight-line basis
over the useful lives of the assets. Costs of producing properties are generally
accumulated by field. Depletion of these costs and amortization of capitalized,
intangible drilling costs are calculated on a unit-of-production basis.
Capitalized acquisition costs of significant unproved mineral rights are
assessed periodically on a property-by-property basis to determine whether their
values have been impaired; where impairment is indicated, a loss is recognized.
Capitalized acquisition costs of other unproved mineral rights are amortized
over the expected holding period. When a mineral right is surrendered, any
unamortized cost is charged to expense. When a property is determined to contain
proved reserves, the mineral right then becomes subject to depletion on a
unit-of-production basis. When assets that are part of a composite group are
retired, sold, abandoned or otherwise disposed of, the cost is charged against
accumulated depreciation, depletion and amortization. Where depreciation is
accumulated for specific assets, gains or losses on disposal are included in
income currently.
RESTORATION, REMOVAL AND ENVIRONMENTAL LIABILITIES
The estimated costs of restoration and removal of major producing facilities are
accrued on a unit-of-production basis over the life of the property. The
estimated future costs for known environmental remediation requirements are
accrued when it is probable that a liability has been incurred and the amount of
remediation costs can be reasonably estimated. These amounts are the
undiscounted, future estimated costs under existing regulatory requirements and
using existing technology.
DERIVATIVE FINANCIAL INSTRUMENTS
Mobil uses derivative instruments primarily for purposes of hedging its exposure
to fluctuations in interest rates, foreign currency exchange rates and
hydrocarbon prices. Gains and losses on hedging contracts are recognized
concurrent with the recognition of the economic impact of the underlying
exposures using either the accrual or deferral method of accounting. To a lesser
extent, Mobil uses derivative commodity instruments, including swaps, futures,
forwards and options, for trading purposes. Gains and losses on these trading
contracts are recognized immediately in earnings.
The accrual method is used for interest rate swaps, cross-currency interest
rate swaps and commodity swaps. In order to qualify for the accrual method, the
derivative must be designated and effective as a hedge. Under the accrual
method, differentials in the swapped amounts are recorded as adjustments of the
underlying periodic cash flows that are being hedged. Gains and losses on closed
contracts are accrued and amortized over the original life of the terminated
contract. In the event the hedged item matures, is sold, or is terminated or the
anticipated transaction is no longer expected to occur, the realized
NOTES
TO FINANCIAL STATEMENTS
1. MAJOR ACCOUNTING POLICIES (concluded)
DERIVATIVE FINANCIAL INSTRUMENTS (concluded)
and unrealized gains and losses are recognized in income coincidental with the
transaction, and the derivative would be redesignated as trading. Interest
differentials paid or received on interest rate swaps and cross-currency
interest rate swaps are reported as accrued interest receivable or payable, and
interest expense is recognized over the life of the contracts using the adjusted
effective yield of the underlying debt. Price differentials paid or received on
commodity swaps are accrued and are recognized when the price exposure on the
physical movement ends and is recorded in Sales and Services or in Crude Oil,
Products and Operating Supplies and Expenses. Cash flow from derivative
instruments that qualify for hedge accounting is included in the same category
for cash flow purposes as the item being hedged.
The deferral method is used for futures exchange contracts, forward
contracts, commodity swaps and covered options. In order to qualify for deferral
accounting, derivatives must be designated and effective as a hedge. Premiums or
discounts are amortized over the life of the contract for interest rate and
foreign exchange contracts and are recognized when realized for commodity
instruments. Gains and losses resulting from changes in value of derivative
instruments are deferred and recognized in the same period as the gains and
losses of the items being hedged. Gains and losses on closed contracts are
deferred and recognized when the underlying transaction occurs or the hedged
item is recognized in earnings. In the event the hedged item matures, is sold,
or is terminated or the anticipated transaction is no longer expected to occur,
the realized and unrealized gains and losses are recognized in income
coincidental with the transaction, and the derivative would be redesignated as
trading. Gains and losses on contracts related to debt principal and current
interest are recorded in interest expense; gains and losses related to future
period interest, firm commitments and forecasted transactions are deferred and
are recognized in the measurement of the future period interest, firm
commitments or forecasted transactions; and gains or losses on contracts that
hedge the foreign currency exchange rate risk of net investments are recorded in
the Cumulative Foreing Exchange Translation Adjustment account in Shareholders'
Equity, net of related taxes. Cash flows from derivative instruments that
qualify for hedge accounting are included in the same category for cash flow
purposes as the item being hedged.
For options, the portion of the premium related to time value is amortized
over the life of the option, and intrinsic value is recognized in income
concurrent with the underlying item being hedged. In all portfolios, the options
are carried at fair value with gains and losses recognized in earnings.
FOREIGN CURRENCY TRANSLATION
The functional currency for most foreign operations is the local currency. The
cumulative effects of translating the balance sheet accounts from the functional
currency into the U.S. dollar at current exchange rates are included in the
Cumulative Foreign Exchange Translation Adjustment account in Shareholders'
Equity. The U.S. dollar is used as the functional currency for operations in
highly inflationary foreign economies, in Singapore which is predominantly
export-oriented and for exploration and producing operations in Indonesia,
Nigeria and Australia. For all operations, gains or losses from remeasuring
foreign currency transactions into the functional currency are included in
income.
NET INCOME PER SHARE
Net Income per common share is net income less preferred stock dividends divided
by the weighted average number of common shares outstanding. Net Income per
common share assuming dilution includes the dilutive effects of stock options
and convertible preferred stock.
2. ALLIANCES AND RESTRUCTURINGS
ALLIANCE WITH SHELL
In 1997, Mobil Exploration and Producing U.S. Inc., a subsidiary of Mobil
Corporation, and CalResources LLC, an affiliate of Shell Oil Company, formed a
joint venture to combine the California upstream operations of both companies.
The combined enterprise began operating under the name Aera Energy LLC on June
1, 1997. Aera Energy commenced operations with proved reserves of more than one
billion barrels of oil equivalent and production of approximately 250 thousand
barrels of oil equivalent per day. Shell has a 58.6% equity interest in the
venture, with Mobil owning the remaining 41.4% interest. The venture is
accounted for on the equity method.
NOTES
TO FINANCIAL STATEMENTS
2. ALLIANCES AND RESTRUCTURINGS (continued)
ALLIANCE WITH BP
During 1997 Mobil substantially completed its alliance with The British
Petroleum Company p.l.c. (BP), combining the two companies' European refining
and marketing operations for fuels and lubricants. The alliance was implemented
through separate operating businesses for fuels and for lubricants in each of
the countries where Mobil and BP affiliates were already active or where they
might develop future business. The 43 countries covered by the alliance include
the 15 European Union nations, together with Switzerland, Turkey, Cyprus, all of
the countries of Eastern Europe and Russia west of the Urals.
In each country, Mobil has a 30% interest in the fuels business and a 51%
interest in the lubricants business. Employees and management teams of the two
companies were realigned so that BP manages and operates the fuels businesses
and Mobil manages and operates the lubricants businesses. Commercial and
financial strategy for the alliance is coordinated by a committee with an equal
number of representatives from each company. Accounting for the businesses is on
the equity method.
The implementation of the alliance will result in work-force reductions of
about 1,000 Mobil employees, the rationalization of certain marketing assets and
the closure of surplus facilities when completed in 1998. In 1996, Mobil
recorded restructuring charges of $184 million primarily for employee separation
costs and facilities closure costs. As of December 31, 1997, cumulative charges
against the reserve totaled $137 million (including $86 million cash).
Additionally $81million of one-time charges were incurred in 1997, primarily for
reimaging of retail outlets and for systems implementation. An additional $59
million is expected to be spent in 1998 for reimaging and systems implementation
costs.
Additionally, in 1997, the alliance commenced a major restructuring of its
lubricant base oil refining business. The program is expected to result in the
elimination of approximately 460 positions and write-downs and closure of
certain facilities and is expected to be completed by the end of 1999.
Provisions for this program totaled $86 million and were charged to income in
1997. Cash outlays are expected to total $66 million, primarily for employee
separation benefits. Noncash costs for facility write-downs and closures are
expected to total $20 million.
ALLIANCE WITH DUKE POWER (formerly PanEnergy)
Mobil owns a 40% interest in Duke Energy Trading and Marketing (formerly
PanEnergy), a natural gas marketing venture whereby Mobil processes its U.S. and
Canadian equity natural gas with Duke for an initial period through 2006. The
venture is accounted for on the equity method.
VENEZUELA ALLIANCE
In 1997, Mobil entered into a joint agreement with a subsidiary of Petroleos de
Venezuela, SA (PDVSA) and an affiliate of Veba AG to produce, transport, upgrade
and sell extra-heavy crude oil from the Orinoco Belt in Venezuela (upgraded
crude oil venture). Under the terms of the agreement Mobil has a 41.7% interest
in the venture.
CHALMETTE ALLIANCE
Mobil and a U.S. subsidiary of PDVSA signed an agreement in 1997 to form a
jointly owned company, Chalmette Refining, L.L.C. Mobil contributed its
Chalmette refinery for its interest in the company. That company will obtain a
portion of the crude oil it requires for processing in its refinery from the
Venezuela Alliance described directly above. Mobil uses the equity method of
accounting for Chalmette Refining, L.L.C.
OTHER RESTRUCTURINGS
In 1997, Mobil initiated restructuring programs in Japan and Australia that will
result in the elimination of approximately 300 and 100 positions, respectively,
as well as the rationalization of certain assets. Provisions for these programs
totaled $172 million and were charged to income in 1997 as the programs were
announced. Cash outlays are expected to total $81 million, primarily for
employee separation benefits. Noncash costs for facility closures or disposals
are expected to total $91 million.
During 1995 and 1996, Mobil implemented five major restructuring programs
affecting worldwide staff support services, U.S. upstream and downstream
businesses, and European refining and lubricant blending operations, resulting
in the elimination of about 7,000 positions and the closure of certain
facilities. Provisions for these and other smaller programs were charged to
income as they were announced
NOTES
TO FINANCIAL STATEMENTS
2. ALLIANCES AND RESTRUCTURINGS (concluded)
($911 million in 1995 and $11 million in 1996). Of these amounts, $682 million
was cash for employee separation benefits and $240 million was noncash for
facilities write-downs. These programs were implemented over the past three
years and were complete as of December 31, 1997.
3. ACQUISITIONS AND DISPOSITIONS
In 1997, Mobil sold a substantial portion of its European Stretch Films
business, Desert Mountain (the one remaining project from Mobil's land
development business) and various other noncore assets, mainly upstream
properties in the U.S. and Australia. Total proceeds from asset sales in 1997
were $1,050 million.
In 1996, Mobil Exploration and Producing Australia Pty Ltd, an Australian
subsidiary of Mobil, acquired Ampolex Limited (Ampolex), an Australian oil and
natural gas company, for $1,394 million. This acquisition was recorded using the
purchase accounting method for business combinations, with the purchase price
being allocated to the assets acquired and liabilities assumed on the basis of
estimated fair value.
In 1996, Mobil acquired a 25% equity interest in a joint venture that owns
the Tengiz oil field in the Republic of Kazakhstan. To date, Mobil has paid $746
million and has recorded its obligation for the remaining $355 million that is
payable in installments, through the year 2000, upon reaching certain project
milestones. Accounting for the venture is on the equity method.
In 1995 and 1996 proceeds from asset sales totaled $2,034 million and
$1,759 million, respectively. In 1995, Mobil Chemical sold its Plastics Division
for $1.27 billion, generating a gain on sale of assets in excess of $500 million
after tax. In 1996, asset sales included the land development business, certain
chemical businesses, Exploration and Producing properties in North America and
other noncore assets.
Net pretax gains from asset sales are included on the line "Income from
asset sales, interest and other" on the Consolidated Statement of Income (see
page 33). These sales are part of Mobil's long-term strategy of redirecting its
investments to its core petroleum and petrochemicals businesses.
4. INVENTORIES
Inventories valued at cost under the LIFO method represented 58% and 55% of
Mobil's worldwide consolidated inventories, at December 31, 1996 and 1997,
respectively.
- --------------------------------------------------------------------------------
INVENTORIES (In millions)
- --------------------------------------------------------------------------------
At December 31 1996 1997
- --------------------------------------------------------------------------------
Crude oil and petroleum products $2,314 $1,535
Chemical products 260 253
Other, mainly materials and supplies 443 368
- --------------------------------------------------------------------------------
Total $3,017 $2,156
- --------------------------------------------------------------------------------
At December 31, 1996, the worldwide excess of market over book value of
inventories valued under the LIFO method was $1,621 million. At December 31,
1997, the worldwide excess of market over book value of inventories valued under
the LIFO method was $1,048 million ($936 million--U.S.; $28 million--Europe; $47
million--Asia-Pacific; and $37 million--Other Areas).
The lower of cost or market test is measured, and the results are
recognized separately, on a country-by-country basis, and any resulting
write-downs to market, if required, would be recorded as permanent adjustments
to the LIFO cost of inventories.
NOTES
TO FINANCIAL STATEMENTS
5. SUMMARY FINANCIAL INFORMATION OF UNCONSOLIDATED EQUITY AFFILIATES
Summary financial information for affiliated companies accounted for on the
equity method is shown in the table below. Mobil's investment in these companies
is included in Investments and Long-term Receivables. The equity affiliates are
primarily engaged in producing, refining and marketing in Europe, the Middle
East, Kazakhstan, Japan and elsewhere in the Asia-Pacific region, North American
gas marketing, heavy crude oil production and refining in the U.S. and
petrochemical and lubes manufacturing in the Middle East. Also included are
interests in several pipeline ventures.
Undistributed earnings of the equity affiliates included in Earnings
Retained in the Business were $783 million at December 31, 1997. Distributions
received from these companies were $346 million in 1995, $432 million in 1996
and $637 million in 1997.
Accounts and Notes Receivable in the Consolidated Balance Sheet include
$359 million and $271 million at December 31, 1996 and 1997, respectively, of
amounts due from equity affiliates. Accounts Payable include $609 million and
$468 million at December 31, 1996 and 1997, respectively, of amounts due to
equity affiliates.
- ------------------------------------------------------------------------------------------------
EQUITY METHOD AFFILIATES (In millions) 1995 1996 1997(1)
- ------------------------------------------------------------------------------------------------
Total Mobil Share Total Mobil Share Total Mobil Share
- ------------------------------------------------------------------------------------------------
Current assets $ 8,345 $ 2,678 $ 9,784 $ 3,237 $ 16,281 $ 5,626
Noncurrent assets 12,220 3,735 16,224 5,260 25,526 9,132
Current liabilities (8,027) (2,643) (9,817) (3,354) (15,580) (5,353)
Long-term debt (2,520) (758) (4,455) (1,117) (6,193) (1,588)
Other liabilities (2,122) (595) (2,064) (605) (3,028) (854)
- ------------------------------------------------------------------------------------------------
Net assets $ 7,896 $ 2,417 $ 9,672 $ 3,421 $ 17,006 $ 6,963
- ------------------------------------------------------------------------------------------------
Gross revenues $ 31,324 $ 9,835 $ 32,296 $ 10,337 $ 72,725 $ 22,706
Income before taxes $ 1,360 $ 466 $ 1,307 $ 429 $ 2,319 $ 834
Net income 1,088 397 969 279 1,782 696
- ------------------------------------------------------------------------------------------------
Capital expenditures $ 1,650 $ 337 $ 2,044 $ 435 $ 3,842 $ 988
- ------------------------------------------------------------------------------------------------
<FN>
(1) The increases in 1997 from 1996 reflect the impact of newly formed alliances.
</FN>
6. PROPERTIES, PLANTS AND EQUIPMENT
Properties, plants and equipment are stated at cost, less accumulated
depreciation, depletion and amortization of $27,648 million at December 31,
1996, and $25,074 million at December 31, 1997.
- -----------------------------------------------------------------------------------------
Properties, plants and equipment (In millions) 1996 1997
- -----------------------------------------------------------------------------------------
At December 31 Net Gross Net Gross
- -----------------------------------------------------------------------------------------
Petroleum Operations
Exploration & Producing $14,000 $30,472 $13,810 $29,672
Marketing 5,213 8,030 4,155 6,225
Refining 5,251 10,545 3,624 7,764
Other Marketing & Refining Activities 1,003 2,583 899 2,358
Chemical 1,662 2,919 1,740 3,077
Corporate and Other 350 578 328 534
- -----------------------------------------------------------------------------------------
Total $27,479 $55,127 $24,556 $49,630
- -----------------------------------------------------------------------------------------
In the fourth quarter of 1995, Mobil adopted FAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
resulting in a before-tax, $774 million noncash charge to "Depreciation,
depletion and amortization" on the Consolidated Statement of Income ($487
million after tax). The charge relates to impairment of upstream producing
properties, primarily in the U.S. and Canada. The adoption of FAS 121 required
that the company change to a policy of: (1) assessing all producing fields,
without regard to the carrying value of a field, on a field-by-field basis; (2)
using breakeven, based on undiscounted cash flows, for the recognition test, and
(3) measuring impairment based on fair values rather than undiscounted breakeven
values.
NOTES
TO FINANCIAL STATEMENTS
7. LEASES
Mobil leases real estate, service stations, pipelines, tankers and other
equipment through noncancelable capital and operating leases.
- --------------------------------------------------------------------------------
RENTAL EXPENSE (In millions)
- --------------------------------------------------------------------------------
Year ended December 31 1995 1996 1997
- --------------------------------------------------------------------------------
Minimum rentals $1,195 $1,260 $1,093
Contingent rentals 97 55 81
- --------------------------------------------------------------------------------
Total 1,292 1,315 1,174
Less: sublease rental income 187 188 137
- --------------------------------------------------------------------------------
Net rental expense $1,105 $1,127 $1,037
- --------------------------------------------------------------------------------
Contingent lease rentals for operating and capital leases are determined
generally by volumetric measurement or sales revenue. Some rental agreements
contain escalation provisions that may require higher, future rent payments.
Mobil does not expect that such rent increases, if any, will have a material
effect on future earnings.
- --------------------------------------------------------------------------------
FUTURE MINIMUM LEASE PAYMENTS UNDER NONCANCELABLE LEASES (In millions)
- --------------------------------------------------------------------------------
At December 31, 1997 Operating Leases Capital Lease Obligations
- --------------------------------------------------------------------------------
1998 $ 264 $ 81
1999 200 82
2000 156 21
2001 132 21
2002 122 21
Later years 1,365 290
- --------------------------------------------------------------------------------
Future minimum lease payments $2,239 $516
Less: executory costs 1
interest 180
- --------------------------------------------------------------------------------
Total capital lease obligations 335
Less: short-term portion of capital lease obligations 48
- --------------------------------------------------------------------------------
Long-term portion of capital lease obligations $287
- --------------------------------------------------------------------------------
Future minimum lease payments have not been reduced by future minimum
sublease rentals of $63 million under operating leases. Capital leases included
in Net Properties, Plants and Equipment were $243 million at December 31, 1996,
and $301 million at December 31, 1997.
8. SHORT-TERM DEBT
At December 31, 1997, Mobil had $645 million of unused short-term lines of
credit supporting commercial paper borrowing arrangements. A total of $369
million of these unused lines is subject to annual commitment fees. Interest on
borrowings under these lines is based on the London Interbank Offered Rate, the
Domestic Certificate of Deposit Rate or a specified prime rate, as selected from
time to time by Mobil.
- -----------------------------------------------------------------------------------------------
SHORT-TERM DEBT (In millions) 1996 1997
- -----------------------------------------------------------------------------------------------
At December 31 Amount Interest Rate(1) AMOUNT INTEREST RATE(1)
- -----------------------------------------------------------------------------------------------
Notes and loans payable
Commercial paper $1,634 5 7/8% $1,097 5 7/8%
Banks and Other 894 6 5/8% 1,168 7 1/8%
- -----------------------------------------------------------------------------------------------
Total notes and loans payable 2,528 2,265
Long-term debt maturing within one year 897 729
Total short-term debt $3,425 $2,994
- -----------------------------------------------------------------------------------------------
<FN>
(1) Percentages shown in the table are weighted average interest rates at the end of the year.
</FN>
NOTES
TO FINANCIAL STATEMENTS
OUR DEBT-TO-CAPITALIZATION
RATIO OF 25% PROVIDES
FINANCIAL FLEXIBILITY TO
INCREASE INVESTMENT SPENDING,
TO INCREASE DIVIDENDS AND/OR TO REPURCHASE STOCK.
9. LONG-TERM DEBT
The table below summarizes Mobil's consolidated Long-term Debt. A significant
portion of this debt is issued by subsidiaries and is guaranteed by Mobil.
At year-end 1997, Mobil had shelf registrations on file with the SEC that
would permit the offer and sale of $1,815 million of debt securities.
Additionally, at December 31, 1997, the ESOP Trust had a shelf registration on
file with the SEC permitting the offer and sale of $115 million of debt
securities, guaranteed by Mobil. Subsequent to year-end, the ESOP Trust issued
$45 million principal amount of fixed-rate notes, with the proceeds used to fund
a portion of the scheduled principal and interest payments on its existing
indebtedness. The proceeds of any additional debt securities issued by the ESOP
Trust would similarly be used to refund its existing indebtedness. Also at
year-end 1997, shelf registrations allowing the issuance of U.S. $2 billion of
Euro-Medium-Term Notes and bonds having a principal amount of 30 billion
Japanese yen were in place.
Long-term debt that becomes due during the next five years is: 1998-$729
million; 1999-$859 million; 2000-$400 million; 2001-$385 million; and 2002-$98
million.
- --------------------------------------------------------------------------------
LONG-TERM DEBT (In millions)
- --------------------------------------------------------------------------------
At December 31 1996 1997
- --------------------------------------------------------------------------------
6 1/2% notes due 1997 $ 148 $ --
6 3/8 notes due 1998 200 200
7 1/4% notes due 1999(1) 162 148(2)
8 5/8% notes due 2006 250 250
7 5/8% debentures due 2033(1) 240 216(2)
8% debentures due 2032(1) 250 164(2)
8 1/8% Canadian dollar Eurobonds due 1998 111 111
(swapped into 6.8% U.S. $ debt)
8 3/8% notes due 2001(1) 200 180(2)
8 5/8% debentures due 2021(1) 250 250
9% Canadian dollar Eurobonds due 1997 110 --
(swapped into 7.0% U.S. $ debt)
9% European Currency Unit Eurobonds due 1997 148 --
(swapped into 7.0% U.S. $ debt)
9 5/8% U.K. sterling Eurobonds due 1999 187 182
Variable rate notes due 1999 (6.8%)(3) 110 --
Japanese yen loans due 2003-2005 (2.6%)(1) (3) 388 347
ESOP Trust debentures/notes due 2000-2004 (8.3%)(1)(3) 525 497
Variable rate project financing due 1998 (6.6%)(3) 105 52
Industrial revenue bonds due 1998-2030 (5.5%)(1)(3) 491 484
Other foreign currencies due 1997-2030 (5.8%)(1)(3) 1,090 764
Other due 1997-2008 (7.0%)(3) 135 219
Capital lease obligations 247 335
- --------------------------------------------------------------------------------
Total 5,347 4,399
Less: long-term debt maturing within one year 897 729
- --------------------------------------------------------------------------------
Total long-term debt $4,450 $3,670
- --------------------------------------------------------------------------------
(1) Swapped principally into floating rate debt.
(2) Net of repurchases.
(3) The percentages shown in parentheses in the table are weighted average
interest rates at December 31, 1997.
NOTES
TO FINANCIAL STATEMENTS
10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Mobil uses derivative financial instruments to manage risks resulting from
fluctuations in underlying interest rates, foreign currency exchange rates and
hydrocarbon prices. Because Mobil operates in the international oil and gas
markets and has significant financing requirements, it has exposure to these
risks, which can affect the cost of operating, investing and financing.
Derivative instruments creating essentially equal and offsetting market
exposures are used to help manage these risks. Derivative financial instruments
held by Mobil are not leveraged and are principally held for purposes other than
trading. For additional information regarding Mobil's risk management
activities, please refer to Management's Discussion and Analysis on page 28.
The notional principal amounts of derivative financial instruments at
December 31, are as follows:
At December 31 (In millions) 1996 1997
- --------------------------------------------------------------------------------
Debt-related instruments $ 4,053 $4,444
Nondebt-related foreign currency exchange rate instruments 10,075 9,706
Commodity financial instruments requiring cash settlement 1,404 2,438
- --------------------------------------------------------------------------------
The fair value of Mobil's debt portfolio was $7,825 million ($7,784 million
debt plus $41 million derivatives) at December 31, 1996 and $6,464 million
($6,524 million debt less $60 million derivatives) at December 31, 1997. These
fair values were greater than the carrying values by $106 million and $166
million at December 31, 1996 and 1997, respectively. This change was due to a
small decrease in long-term interest rates. The fair value of all other
financial instruments approximated their carrying value.
In addition to creating market risks that offset the risks associated with
the underlying business exposures, derivative instruments also give rise to
credit risk due to possible nonperformance by counter-parties. However, through
its ongoing control procedures, Mobil monitors the creditworthiness of its
counter-parties and its existing exposures to them under the derivative
instruments. Any potential loss due to credit risk is not expected to be
material.
NOTES
TO FINANCIAL STATEMENTS
11. TAXES
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL TAXES (In millions) 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31 U.S. Foreign Total U.S. Foreign Total U.S. FOREIGN TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
Excise and state gasoline $ 3,972 $ 4,674 $ 8,646 $ 4,207 $ 5,029 $ 9,236 $ 4,458 $ 1,470 $ 5,928
Import duties -- 9,657 9,657 -- 9,130 9,130 -- 4,027 4,027
Property, production, payroll
and other 427 289 716 385 272 657 347 204 551
- ------------------------------------------------------------------------------------------------------------------------------------
Total other than income taxes 4,399 14,620 19,019 4,592 14,431 19,023 4,805 5,701(1) 10,506
Income taxes
U.S. state and local 113 -- 113 63 -- 63 45 -- 45
U.S. federal and foreign
-current 336 1,799 2,135 217 2,421 2,638 208 2,436 2,644
-deferred (140) (93) (233) 163 283 446 250 154 404
- ------------------------------------------------------------------------------------------------------------------------------------
Total income taxes 309 1,706 2,015 443 2,704 3,147 503 2,590 3,093
Total taxes $ 4,708 $ 16,326 $ 21,034 $ 5,035 $ 17,135 $ 22,170 $ 5,308 $ 8,291 $ 13,599
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The change in 1997 from 1996 primarily reflects the impact of equity accounting for Mobil's European downstream
alliance with BP.
</FN>
Income from U.S. operations before income taxes was $1,261 million in 1995,
$1,939 million in 1996 and $2,187 million in 1997. Income from foreign
operations before income taxes for the same three years was $3,594 million,
$4,816 million and $4,872 million, respectively. The loss from Corporate and
Financing before income taxes for the same three years was $464 million, $644
million and $694 million, respectively.
Deferred income taxes are provided for the temporary differences between the
financial statement and tax bases of Mobil's assets and liabilities, and relate
primarily to depreciation, intangible drilling costs, and provisions for
restoration, removal and environmental costs, and employee benefits. Mobil does
not provide deferred taxes for amounts that could result from the remittance of
undistributed earnings of foreign affiliates since it is generally Mobil's
intention to continue reinvesting these earnings indefinitely. Mobil's share of
the undistributed earnings of consolidated subsidiaries and equity method
affiliates, which could be subject to additional income taxes if remitted, was
approximately $3.6 billion at December 31, 1997. If such dividends were to be
remitted, foreign tax credits available under present law would reduce the
amount of U.S. taxes payable.
- --------------------------------------------------------------------------------
DEFERRED TAXES (In millions)
- --------------------------------------------------------------------------------
At December 31 1996 1997
- --------------------------------------------------------------------------------
Deferred tax liabilities
Depreciation, depletion and amortization $4,034 $3,946
Other 1,287 1,337
- --------------------------------------------------------------------------------
Total deferred tax liabilities 5,321 5,283
- --------------------------------------------------------------------------------
Deferred tax assets
Book reserves 1,442 1,544
Tax credits available for carry-forward
(primarily without expiration) 827 693
- --------------------------------------------------------------------------------
Total deferred tax assets 2,269 2,237
Valuation allowance (418) (627)
Net deferred tax liabilities $3,470 $3,673
- --------------------------------------------------------------------------------
NOTES
TO FINANCIAL STATEMENTS
11. TAXES (concluded)
- --------------------------------------------------------------------------------------------
RECONCILIATION OF U.S. STATUTORY
RATE TO ACTUAL TAX RATE (In millions) 1995 1996 1997
- --------------------------------------------------------------------------------------------
Year ended December 31 Amount % Amount % Amount %
- --------------------------------------------------------------------------------------------
Income before taxes $ 4,391 100.0 $ 6,111 100.0 $ 6,365 100.0
Theoretical tax at U.S. rate 1,537 35.0 2,139 35.0 2,228 35.0
Foreign taxes in excess of
U.S. statutory rate 611 13.9 1,108 18.1 1,151 18.1
Other items, net (133) (3.0) (100) (1.6) (286) (4.5)
- --------------------------------------------------------------------------------------------
Total income taxes $ 2,015 45.9 $ 3,147 51.5 $ 3,093 48.6
- --------------------------------------------------------------------------------------------
12. RESTORATION, REMOVAL AND ENVIRONMENTAL LIABILITIES
Exploration and producing properties must generally be restored to their
original condition when the oil or gas reserves are depleted and/or operations
cease. At December 31, 1996 and 1997, $864 million and $780 million,
respectively, had been accrued for restoration and removal costs, mainly related
to offshore producing facilities. The decrease in 1997 from 1996 reflects the
impact of equity accounting for the heavy-oil alliance with Shell in the United
States.
Mobil accrues for its best estimate of the future costs associated with
known environmental remediation requirements at its service stations, marketing
terminals, refineries and plants, and at certain Superfund sites. At December
31, 1996 and 1997, the accumulated reserve for environmental remediation costs
was $460 million and $372 million, respectively. Of these amounts, $84 million
and $80 million were included in current accrued liabilities in the Consolidated
Balance Sheet. Amounts accrued with respect to Superfund waste disposal sites
are based on the company's best estimate of its portion of the costs of
remediating such sites. These amounts are not material.
13. FOREIGN CURRENCY
Foreign exchange transaction gains of $7 million in 1995, and losses of $21
million in 1996 and $52 million in 1997, have been included in income.
The effect of foreign currency translation on Mobil's balance sheet
accounts is shown below.
- --------------------------------------------------------------------------------
CUMULATIVE FOREIGN EXCHANGE TRANSLATION ADJUSTMENT (In millions)
- --------------------------------------------------------------------------------
At December 31 1995 1996 1997
- --------------------------------------------------------------------------------
Properties, plants and equipment, net $(124) $ (27) $ (940)
Deferred income taxes (252) (256) (103)
Working capital, debt and other items, net 349 210 222
- --------------------------------------------------------------------------------
Total $ (27) $ (73) $ (821)(1)
- --------------------------------------------------------------------------------
(1) The change in 1997 from 1996 reflects the strengthening U.S. dollar
relative to local currencies in certain countries, including several in the
Asia-Pacific region, in which the company has significant operations.
14. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
Mobil Oil's Employees Savings Plan includes an ESOP covering most U.S.
employees. In 1989 the ESOP Trust borrowed $800 million and used the proceeds to
buy shares of Series B ESOP Convertible Preferred Stock. Each preferred share
has a liquidation value of $3,887.50, is convertible into 100 shares of common
stock and is entitled to 100 votes. Dividends on the preferred stock are
cumulative and payable at an annual rate of $300 per share. The ESOP Trust uses
the preferred dividends not allocated to employees to make principal and
interest payments on the notes. As debt service exceeds the dividends, Mobil is
required to fund the excess. In 1995, 1996 and 1997, this excess was $50
million, $47 million and $21 million, respectively. The guaranteed ESOP
borrowing is included in Mobil's debt. The future compensation to be earned by
employees is classified in Shareholders' Equity. These amounts are reduced and
expense is recognized as the debt is repaid and shares are earned by employees.
In 1995, 1996 and 1997, total ESOP-related expenses were $54 million, $49
million and $24 million, respectively. Interest incurred on ESOP debt in 1995,
1996 and 1997 was $54 million, $48 million and $43 million, respectively. Share
and per-share amounts reflect the two-for-one stock split in 1997.
NOTES
TO FINANCIAL STATEMENTS
15. EMPLOYEE BENEFITS
Employee benefits that Mobil provides in the U.S. are contributory and
noncontributory medical and dental plans, pension plans, group life insurance,
savings plans, an employee stock ownership plan, disability plans for sickness
and accidents, and termination plans. Mobil's international affiliates also
provide various pension and other employee benefit plans. Mobil makes
contributions to funded plans and provides book reserves for unfunded plans.
Mobil also provides certain postretirement health care and life insurance
benefits for most U.S. retirees, if they are working for the company when they
become eligible for retirement. Premium costs are shared on a plan-by-plan basis
between Mobil and the participants. Postretirement health care benefits are
provided both before and after eligibility for Medicare. The life insurance
plans provide for a single lump-sum payment to a designated beneficiary. The
amount of the lump-sum payment varies depending on employment date, age and
years since retirement. There is no material obligation for Mobil to provide
postretirement benefits for international retirees because they are covered
primarily by local government programs.
The charge to Mobil's income for U.S. postretirement health care and life
insurance plans was $60 million in 1995, $64 million in 1996 and $63 million in
1997.
The components of Mobil's net postretirement benefit expense for U.S. plans
and the status of Mobil's U.S. postretirement benefit plans and the amounts
recognized in the Consolidated Balance Sheet are detailed below:
- ---------------------------------------------------------------------------------------------------------------
POSTRETIREMENT BENEFIT EXPENSE, EXCLUDING PENSIONS (In millions) Health Care Life Insurance
- ---------------------------------------------------------------------------------------------------------------
Year ended December 31 1995 1996 1997 1995 1996 1997
- ---------------------------------------------------------------------------------------------------------------
Benefits earned by employees during the year $ 8 $ 10 $ 8 $ 1 $ 2 $ 1
Interest cost on accumulated postretirement benefit obligations 28 27 31 28 26 24
Amortization of unrecognized amounts (5) (1) (1) -- -- --
- ---------------------------------------------------------------------------------------------------------------
Net postretirement benefit expense $ 31 $ 36 $ 38 $ 29 $ 28 $ 25
- ---------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
STATUS OF POSTRETIREMENT BENEFIT PLANS (In millions) Health Care Life Insurance
- ------------------------------------------------------------------------------------------
At December 31 1996 1997 1996 1997
- ------------------------------------------------------------------------------------------
Actuarial present value of accumulated
postretirement benefit obligations
Retirees $315 $328 $302 $317
Other fully eligible plan participants 37 46 34 38
Other active plan participants 96 89 18 16
- ------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligations $448 $463 $354 $371
- ------------------------------------------------------------------------------------------
Book reserves $457 $464 $359 $363
Book reserves greater (less) than
accumulated postretirement benefit obligations $ 9 $ 1 $ 5 $ (8)
- ------------------------------------------------------------------------------------------
Consisting of:
Unrecognized prior service costs $ 10 $ 2 $ -- $ --
Unrecognized net (loss) gain (1) (1) 5 (8)
- ------------------------------------------------------------------------------------------
At December 31, 1997, the health care cost trend used to calculate the
accumulated postretirement benefit obligations is 8.0% for 1998 and is assumed
to decrease gradually over 7 years to 5.0%. At December 31, 1996, the health
care cost trend rate was assumed to be 9.1% for 1997, declining gradually to
5.5% after 8 years. A 1% increase in the assumed health care cost trend rate for
each year would increase the 1997 net postretirement benefit expense and the
accumulated postretirement benefit obligation as of December 31, 1997, by
approximately $5 million and $47 million, respectively.
The discount rate used in determining the postretirement benefit obligation
was 7.25% in 1996 and 7.0% in 1997.
NOTES
TO FINANCIAL STATEMENTS
15. EMPLOYEE BENEFITS (concluded)
The majority of full-time U.S. employees are covered by funded
noncontributory pension plans. These plans are primarily final average pay
plans. Mobil's funding for these plans is based on the projected unit credit
actuarial cost method.
Mobil's international employees are covered by pension and similar plans.
Coverage and benefits vary from country to country. Mobil's funding policy also
varies, in line with local commercial, actuarial and taxation practices.
The worldwide charge to Mobil's income for pension plans was $192 million in
1995, $208 million in 1996 and $150 million in 1997.
The components of net pension expense for Mobil's plans and the status of
Mobil's pension plans and the amounts recognized in the Consolidated Balance
Sheet are detailed below:
- -----------------------------------------------------------------------------------------------------
PENSION EXPENSE (In millions) U.S. Plans International Plans
- -----------------------------------------------------------------------------------------------------
Year ended December 31 1995 1996 1997 1995 1996 1997
- -----------------------------------------------------------------------------------------------------
Benefits earned by employees during the year $ 76 $ 92 $ 72 $ 85 $ 84 $ 85
Interest cost on projected benefit obligations 190 185 181 125 128 119
Actual earnings on assets (638) (334) (451) (143) (101) (147)
Deferral of actual earnings on assets
greater than expected returns 418 94 213 68 24 69
Amortization of unrecognized amounts (10) (16) (14) 21 52 23
- -----------------------------------------------------------------------------------------------------
Net pension expense $ 36 $ 21 $ 1 $ 156 $ 187 $ 149
- -----------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
STATUS OF PENSION PLANS (In millions) U.S. Plans International Plans
- ------------------------------------------------------------------------------------------------------------------------------
At December 31 1996 1997 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS
Vested $ 2,026 $ 2,192 $ 1,679 $ 1,658
Non-vested 146 119 129 104
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations 2,172 2,311 1,808 1,762
Additional amounts related to projected pay increases 398 440 438 355
- ------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations $ 2,570 $ 2,751 $ 2,246 $ 2,117
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS AND BOOK RESERVES
Plan assets at fair value, primarily in equity
and fixed income securities $ 2,750 $ 3,007 $ 1,145 $ 1,158
Book reserves 136 146 1,060 996
- ------------------------------------------------------------------------------------------------------------------------------
Total assets and book reserves $ 2,886 $ 3,153 $ 2,205 $ 2,154
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS AND BOOK RESERVES GREATER (LESS)
THAN PROJECTED BENEFIT OBLIGATIONS $ 316 $ 402 $ (41) $ 37
- ------------------------------------------------------------------------------------------------------------------------------
Consisting of:
Unrecognized net asset (liability) at date of
initial application of FAS 87 $ 150 $ 120 $ (26) $ (18)
Unrecognized prior service cost (178) (183) (27) (21)
Unrecognized net gain (loss) 192 282 (213) (137)
Minimum liability and pre-funded expenses 152 183 225 213
- ------------------------------------------------------------------------------------------------------------------------------
Assets and book reserves greater (less) than
projected benefit obligations $ 316 $ 402 $ (41) $ 37
- ------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE RATES USED IN DETERMINING THE ACTUARIAL PRESENT VALUE OF THE
PROJECTED BENEFIT OBLIGATIONS (percent)
Discount rate 7.25 7.00 6.9 6.5
Rate of increase in future compensation levels 4.00 4.00 5.3 5.1
EXPECTED LONG-TERM RATE OF RETURN ON PLAN ASSETS
USED IN DETERMINING CURRENT YEAR EXPENSE (percent) 9.00 9.00 8.4 8.2
- ------------------------------------------------------------------------------------------------------------------------------
Memo: assets and book reserves greater than
accumulated benefit obligations $ 714 $ 842 $ 397 $ 392
- ------------------------------------------------------------------------------------------------------------------------------
PENSION PLAN ASSETS
AND BOOK RESERVES EXCEEDED
ACCUMULATED BENEFIT OBLIGATIONS
BY $1,234 MILLION AT THE END OF 1997.
NOTES
TO FINANCIAL STATEMENTS
16. STOCK-BASED COMPENSATION PLANS (1)
Under the 1995 Mobil Incentive Compensation and Stock Ownership Plan (the Plan)
approved by shareholders, options may be granted to key employees to purchase
annually a maximum of 0.9% of the total common shares outstanding at the end of
the year preceding each year of its five-year life (less the number of shares of
restricted stock granted and the number of equivalent share units allotted as
long-term incentive awards under the Plan), cumulative from the effective date
of the Plan. No additional options may be granted under earlier plans. Stock
options have a maximum term of 10 years, are granted at 100% of the fair market
value of Mobil common stock at the time of the award, and may be exercised to
purchase stock after vesting requirements have been met. Stock appreciation
rights (SARs), where applicable, permit the holder to receive stock, cash or a
combination thereof equal to the amount by which the fair market value at the
time of relinquishment of the option exceeds the option price.
Based on the December 31, 1997, number of shares outstanding, there were
13,739,652 shares or share units available for option grants and other awards
referred to above in 1998. Based on the December 31, 1996, number of shares
outstanding, there were 11,228,348 shares or share units available for option
grants and other awards referred to above in 1997.
- -----------------------------------------------------------------------------------------------------------------------------
STOCK OPTION TRANSACTIONS 1986 Plan 1991 Plan 1995 Plan
- -----------------------------------------------------------------------------------------------------------------------------
Shares Weighted Shares Weighted Shares Weighted
Average Average Average
Price Price Price
- -----------------------------------------------------------------------------------------------------------------------------
January 1, 1995-shares under option 8,953,932 $ 26.44 17,720,712 $ 35.05
- -----------------------------------------------------------------------------------------------------------------------------
Changes during 1995
Options granted 5,368,700 43.67
Options expired or canceled (52,462) 42.84 (25,800) 43.66
Options exercised (2,001,782) 24.52 (1,068,540) 32.63 (2,440) 43.66
SARs exercised (243,498) 28.48 (218,888) 31.44
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1995-shares under option 6,708,652 $ 26.94 16,380,822 $ 35.23 5,340,460 $ 43.68
Changes during 1996
Options granted 4,475,700 57.50
Options expired or canceled (1,000) 14.39 (44,700) 43.03 (103,500) 51.79
Options exercised (1,793,004) 24.68 (1,431,478) 34.10 (117,820) 43.66
SARs exercised (82,888) 31.32 (56,892) 31.03
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1996-shares under option 4,831,760 $ 27.71 14,847,752 $ 35.34 9,594,840 $ 50.04
Changes during 1997
Options granted 4,679,600 61.83
Options expired or canceled (34,500) 43.03 (270,200) 58.33
Options exercised (1,555,129) 26.51 (1,579,144) 34.21 (180,148) 46.27
SARs exercised (16,752) 30.78 (97,836) 30.88
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1997-shares under option 3,259,879 $ 28.26 13,136,272 $ 35.48 13,824,092 $ 53.91
Weighted average contractual life (years) 1.62 5.05 7.97
Range of exercise price $22.09-32.13 $30.72-43.03 $43.66-73.16
- -----------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1995 6,708,652 $ 26.94 13,034,700 $ 33.48 368,560 $ 43.66
- -----------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1996 4,831,760 $ 27.71 12,884,752 $ 34.16 1,219,540 $ 44.37
- -----------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1997 3,259,879 $ 28.26 13,136,272 $ 35.48 2,034,292 $ 47.63
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Share amounts for all years have been restated to reflect the two-for-one stock split in 1997.
</FN>
If compensation expense had been recorded using the fair value of the
options at the date of grant, net income would have been reduced by $9 million,
$19 million and $29 million in 1995, 1996 and 1997, respectively.
NOTES
TO FINANCIAL STATEMENTS
17. CAPITAL STOCK
At December 31, 1997, 1,200,000,000 shares of $1.00 par value common stock
were authorized and 894,308,872 shares were issued, including 110,945,100 shares
held in the treasury.
At December 31, 1997, 30,000,000 shares of $1.00 par value preferred stock
were authorized, of which 6,000,000 shares of Series A Junior Participating
Preferred Stock were authorized for issuance upon exercise of certain preferred
stock purchase rights (no shares issued or outstanding) and 191,062 shares of
Series B ESOP Convertible Preferred Stock were authorized for issuance. At
December 31, 1996 and 1997, respectively, 176,336 and 171,093 shares of Series B
ESOP Convertible Preferred Stock were outstanding. During 1996 and 1997, 9,392
and 5,243 of such shares, respectively, were redeemed.
- -------------------------------------------------------------------------------------------------------
CHANGES IN SHARES OF COMMON STOCK OUTSTANDING
- -------------------------------------------------------------------------------------------------------
Year ended December 31 1995 1996 1997
- -------------------------------------------------------------------------------------------------------
Common shares outstanding- beginning of year 791,974,034 789,119,762 787,588,910
Purchase of common stock for treasury (5,992,700) (4,795,400) (7,458,400)
Exercise of stock options and stock appreciation rights 3,109,890 3,199,632 3,177,748
Incentive compensation awards and restricted stock 28,538 64,916 55,514
- -------------------------------------------------------------------------------------------------------
Common shares outstanding- end of year 789,119,762 787,588,910 783,363,772
- -------------------------------------------------------------------------------------------------------
At the company's annual meeting on May 8, 1997, shareholders approved an
increase in the authorized shares of common stock from 600,000,000 to
1,200,000,000 and approved a two-for-one stock split of the Company's issued
common stock, with a record date of May 20, 1997. In addition, a special
distribution of Series B ESOP Convertible Preferred Stock was made, doubling the
number of shares of that stock outstanding, and the liquidation value,
conversion price and dividend rate of each share were halved. All share and
per-share amounts for common stock and Series B ESOP Convertible Preferred Stock
have been restated to reflect the stock split.
18. COMMITMENTS AND CONTINGENT LIABILITIES
Substantial commitments are made in the normal course of business for the
purchase of crude oil and petroleum products, and the acquisition or
construction of properties, plants and equipment (including tankers for time
charter to Mobil).
Mobil has guaranteed $150 million of the obligations of others, excluding
$432 million of certain cross-guarantees, primarily foreign customs duties, made
with other responsible companies in the ordinary course of business. Mobil has
also indirectly guaranteed repayment of approximately $500 million of debt
issued by companies in which Mobil has an interest in the event projects
financed with that debt are not completed as specified in the project completion
guarantee agreements. In addition, Mobil has guaranteed specified revenues from
crude oil, product and carbon dioxide shipments under agreements with pipeline
companies in which it holds stock interests. If these companies are unable to
meet certain obligations, Mobil may be required to advance funds against future
transportation charges. No material loss is anticipated under these guarantees.
Mobil and its subsidiaries are engaged in various litigations and have a
number of unresolved claims pending. The amounts claimed are substantial, and
the ultimate liability in respect of such litigations and claims cannot be
determined at this time. Mobil has provided in its accounts for these items
based on management's best judgment. Mobil is of the opinion that such
liability, to the extent not provided for through insurance or otherwise, is not
likely to be of material importance in relation to its accounts.
REPORTS
REPORT OF MANAGEMENT
The management of Mobil Corporation has the responsibility for preparing the
accompanying financial statements and for their integrity and objectivity. The
statements, which include amounts that are based, in part, on management's best
estimates and judgments, were prepared in conformity with generally accepted
accounting principles.
Mobil maintains a system of internal accounting controls and a program of
internal auditing that we believe provide us with reasonable assurance that
Mobil's assets are protected and that published financial statements are
reliable and free of material misstatement.
The Audit Committee of the Board of Directors, composed solely of directors
who are not officers or employees, meets regularly with Mobil's financial
management and counsel, with Mobil's General Auditor, and with the independent
auditors. These meetings include discussion of internal accounting controls and
the quality of financial reporting. The independent auditors and the General
Auditor have free and independent access to the Audit Committee to discuss the
results of their audits or any other matters relating to Mobil's financial
affairs.
The accompanying consolidated financial statements have been audited by
Ernst & Young LLP, independent auditors, whose appointment was approved by the
shareholders. Ernst & Young's audit report follows.
/S/LUCIO A. NOTO /S/THOMAS C. DELOACH, JR.
LUCIO A. NOTO THOMAS C. DELOACH, JR.
Chairman and Chief Executive Officer Senior Vice President and
Chief Financial Officer
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
MOBIL CORPORATION
We have audited the accompanying consolidated balance sheets of Mobil
Corporation as of December 31, 1996 and 1997, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997, appearing on pages 33,
35, and 37 through 53. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Mobil
Corporation at December 31, 1996 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
As discussed in Note 6 to the financial statements, in 1995, Mobil
Corporation changed its method of accounting for the impairment of long-lived
assets.
/S/ERNST & YOUNG L.L.P.
Fairfax, Virginia
February 27, 1998
SUPPLEMENTARY
INFORMATION
OIL AND GAS PRODUCING ACTIVITIES (unaudited)
THE ACCOMPANYING TABLES SET FORTH INFORMATION CONCERNING MOBIL'S OIL AND GAS
PRODUCING ACTIVITIES AT DECEMBER 31, 1995, 1996 AND 1997, AND FOR THE YEARS THEN
ENDED, AS REQUIRED BY FINANCIAL ACCOUNTING STANDARD (FAS) 69, DISCLOSURES ABOUT
OIL AND GAS PRODUCING ACTIVITIES.
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 1: ESTIMATED QUANTITIES OF NET PROVED OIL AND NATURAL GAS LIQUIDS RESERVES (Millions of barrels)
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Companies Equity Companies(1) Worldwide
--------------------------------------------- --------------------------------- ------------
Asia- Other Asia- Other
U.S. Europe Pacific Areas Total U.S. Europe Pacific Areas
- ------------------------------------------------------------------------------------------------------------------------------------
RESERVES AT JANUARY 1, 1995 1,052 401 175 1,291 2,919 -- 2 7 516 3,444
Revisions (9) (13) (37) 105 46 -- -- 1 (4) 43
Improved recovery 32 20 -- 21 73 -- -- -- -- 73
Purchases 11 24 -- 2 37 -- -- -- -- 37
Sales (6) -- -- (4) (10) -- -- (7) -- (17)
Extensions, discoveries
and other additions 9 5 -- 89 103 -- -- -- 32 135
Production (103) (64) (35) (78) (280) -- -- (1) (15) (296)
- ------------------------------------------------------------------------------------------------------------------------------------
RESERVES AT DECEMBER 31, 1995 986 373 103 1,426 2,888 -- 2 -- 529 3,419
Revisions (8) 7 5 69 73 -- -- -- 9 82
Improved recovery 40 9 -- 49 98 -- -- -- -- 98
Purchases 4 -- 54 10 68 -- -- -- 336(2) 404
Sales (36) (6) -- (31) (73) -- -- -- -- (73)
Extensions, discoveries
and other additions 12 40 -- 113 165 -- -- -- -- 165
Production (96) (57) (39) (98) (290) -- -- -- (23) (313)
- ------------------------------------------------------------------------------------------------------------------------------------
RESERVES AT DECEMBER 31, 1996 902 366 123 1,538 2,929 -- 2 -- 851 3,782
Aera joint venture (3) (314) -- -- -- (314) 417 -- -- -- 103
Revisions (56) 19 30 4 (3) -- -- -- 190 187
Improved recovery 92 10 -- 4 106 -- -- -- -- 106
Purchases 1 16 -- 1 18 -- -- -- -- 18
Sales (20) (5) (9) (3) (37) -- -- -- (5) (42)
Extensions, discoveries
and other additions 2 19 -- 235 256 -- -- -- 34 290
Production (68) (57) (36) (127) (288) (21) -- -- (30) (339)
- ------------------------------------------------------------------------------------------------------------------------------------
RESERVES AT DECEMBER 31, 1997 539 368 108 1,652 2,667 396 2 -- 1,040 4,105
- ------------------------------------------------------------------------------------------------------------------------------------
Developed Reserves
At January 1, 1995 826 215 165 809 2,015 -- 2 6 493 2,516
At December 31, 1995 816 184 93 910 2,003 -- 2 -- 474 2,479
At December 31, 1996 759 204 91 967 2,021 -- 1 -- 666 2,688
At December 31, 1997 509 180 80 1,035 1,804 268 1 -- 633 2,706
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Amounts shown for equity companies represent Mobil's share of investees accounted for on the equity method.
(2) Acquisition of a 25% interest in a joint venture that owns the Tengiz field in the Republic of Kazakhstan.
(3) In June 1997, Mobil commenced operations of its California heavy-oil alliance with Shell, which resulted in an increase
in proved reserves and a reduction in nonproved reserves.
</FN>
Mobil's estimated net proved reserves and changes thereto for the years 1995,
1996 and 1997 are presented in Tables 1 and 2. The estimates represent only
those volumes considered to be proved reserves and include fields where
additional investment may be required to recover these reserves.
Definitions used in developing these data are in accordance with the SEC
guidelines, which state: "Proved oil and gas reserves are the estimated
quantities of crude oil, natural gas and natural gas liquids which geological
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions, i.e., prices and costs as of the date the estimate is made." Proved
developed reserves are recoverable from existing wells with existing equipment
and operating methods. These reserve estimates are subject to revisions over
time as more information becomes available. In the past, some revisions have
been significant. The company's net proved reserves exclude royalties and
interests owned by others, and natural gas liquids volumes received under
natural gas processing contracts.
SUPPLEMENTARY
INFORMATION
OIL AND GAS PRODUCING ACTIVITIES (unaudited) (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 2: ESTIMATED QUANTITIES OF NET PROVED NATURAL GAS RESERVES (Billions of cubic feet)
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Companies Equity Companies(1) Worldwide
--------------------------------------------- --------------------------------- ------------
Asia- Other Asia- Other
U.S. Europe Pacific Areas Total U.S. Europe Pacific Areas
- ------------------------------------------------------------------------------------------------------------------------------------
RESERVES AT JANUARY 1, 1995 5,055 4,251 5,607 1,744 16,657 -- 33 94 891 17,675
Revisions 317 110 (198) 50 279 -- 4 -- -- 283
Improved recovery 51 18 -- 61 130 -- -- -- -- 130
Purchases 42 15 -- 1 58 -- -- -- -- 58
Sales (52) (42) -- (19) (113) -- -- (88) -- (201)
Extensions, discoveries
and other additions 173 237 54 105 569 -- 2 -- 1,114 1,685
Production (525) (401) (567) (158) (1,651) -- (5) (6) -- (1,662)
- ------------------------------------------------------------------------------------------------------------------------------------
RESERVES AT DECEMBER 31, 1995 5,061 4,188 4,896 1,784 15,929 -- 34 -- 2,005 17,968
Revisions (43) (15) (338) (42) (438) -- 3 -- (36) (471)
Improved recovery 20 10 -- 19 49 -- -- -- -- 49
Purchases 6 -- 92 368 466 -- -- -- 467(2) 933
Sales (173) -- -- (182) (355) -- -- -- -- (355)
Extensions, discoveries
and other additions 16 452 -- 190 658 -- 2 -- -- 660
Production (488) (434) (579) (163) (1,664) -- (5) -- (10) (1,679)
- ------------------------------------------------------------------------------------------------------------------------------------
RESERVES AT DECEMBER 31, 1996 4,399 4,201 4,071 1,974 14,645 -- 34 -- 2,426 17,105
Aera joint venture (3) (34) -- -- -- (34) 146 -- -- -- 112
Revisions (114) 276 (281) 58 (61) -- 3 -- 278 220
Improved recovery 25 13 -- 51 89 -- -- -- -- 89
Purchases 1 67 -- -- 68 -- -- -- -- 68
Sales (95) (1) (119) (25) (240) -- -- -- (126) (366)
Extensions, discoveries
and other additions 26 159 -- 250 435 -- 2 -- 954 1,391
Production (416) (450) (583) (173) (1,622) (7) (5) -- (29) (1,663)
- ------------------------------------------------------------------------------------------------------------------------------------
RESERVES AT DECEMBER 31, 1997 3,792 4,265 3,088 2,135 13,280 139 34 -- 3,503 16,956
- ------------------------------------------------------------------------------------------------------------------------------------
Developed Reserves
At January 1, 1995 3,902 3,081 3,810 1,223 12,016 -- 31 92 -- 12,139
At December 31, 1995 3,923 3,094 3,018 1,212 11,247 -- 32 -- -- 11,279
At December 31, 1996 3,826 2,907 2,175 1,138 10,046 -- 32 -- 856 10,934
At December 31, 1997 3,368 2,699 1,838 1,273 9,178 77 33 -- 834 10,122
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Amounts shown for equity companies represent Mobil's share of investees accounted for on the equity method.
(2) Acquisition of a 25% interest in a joint venture that owns the Tengiz field in the Republic of Kazakhstan.
(3) In June 1997, Mobil commenced operations of its California heavy-oil alliance with Shell, which resulted in an increase
in proved reserves and a reduction in nonproved reserves.
</FN>
- ------------------------------------------------------------------------------------------------------------------------------
TABLE 3: CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES (In millions)
- ------------------------------------------------------------------------------------------------------------------------------
United States Europe Asia-Pacific
At December 31 1995 1996 1997 1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------
Capitalized costs:
Unproved properties $ 212 $ 197 $ 233 $ 11 $ 58 $ 11 $ 13 $ 273 $ 307
Proved properties, wells,
plants and other equipment 13,638 12,535 10,642 7,119 7,639 7,596 2,149 3,854 3,873
- ------------------------------------------------------------------------------------------------------------------------------
Total capitalized costs 13,850 12,732 10,875 7,130 7,697 7,607 2,162 4,127 4,180
Accumulated depreciation,
depletion and amortization 9,181 8,623 7,640 4,123 4,593 4,536 1,457 1,742 2,021
- ------------------------------------------------------------------------------------------------------------------------------
Net capitalized costs 4,669 4,109 3,235 3,007 3,104 3,071 705 2,385 2,159
Net capitalized costs of
equity companies(1) -- -- 656(2) 37 34 29 1 1 --
- ------------------------------------------------------------------------------------------------------------------------------
Total $ 4,669 $ 4,109 $ 3,891 $ 3,044 $ 3,138 $ 3,100 $ 706 $ 2,386 $ 2,159
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents Mobil's share of net capitalized costs of investees accounted for on the equity method.
(2) Reflects the impact of the California heavy-oil alliance with Shell.
</FN>
- -----------------------------------------------------------------------------------------------------
TABLE 3: CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES (In millions) (continued)
- -----------------------------------------------------------------------------------------------------
Other Areas Total
At December 31 1995 1996 1997 1995 1996 1997
- -----------------------------------------------------------------------------------------------------
Capitalized costs:
Unproved properties $ 137 $ 324 $ 328 $ 373 $ 852 $ 879
Proved properties, wells,
plants and other equipment 4,533 5,592 6,682 27,439 29,620 28,793
- -----------------------------------------------------------------------------------------------------
Total capitalized costs 4,670 5,916 7,010 27,812 30,472 29,672
Accumulated depreciation,
depletion and amortization 1,599 1,514 1,665 16,360 16,472 15,862
- -----------------------------------------------------------------------------------------------------
Net capitalized costs 3,071 4,402 5,345 11,452 14,000 13,810
Net capitalized costs of
equity companies(1) 269 1,558 2,136 307 1,593 2,821
- -----------------------------------------------------------------------------------------------------
Total $ 3,340 $ 5,960 $ 7,481 $11,759 $15,593 $16,631
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTARY
INFORMATION
OIL AND GAS PRODUCING ACTIVITIES (unaudited) (continued)
Table 3 (page 56) summarizes the aggregate amount of capitalized costs related
to oil and gas producing activities and related accumulated depreciation,
depletion and amortization at December 31, 1995, 1996 and 1997. Capitalized
costs include: (1) mineral interests in properties; (2) wells, plants and
related equipment and facilities; and (3) support equipment and facilities used
in oil and gas producing activities.
- ----------------------------------------------------------------------------------------------------------------------------------
TABLE 4: COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES (In millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Equity
Consolidated Companies Companies(1) Worldwide
-------------------------------------------------- ------------ ---------------
Asia- Other
U.S. Europe Pacific Areas Total
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Property Acquisition Costs:
Unproved properties $ 28 $ -- $ -- $ 34 $ 62 $ -- $ 62
Proved properties 9 4 -- 16 29 -- 29
- ----------------------------------------------------------------------------------------------------------------------------------
Total capitalized costs 37 4 -- 50 91 -- 91
Exploration costs 183 177 72 193 625 11 636
Development costs 593 421 78 833 1,925 116 2,041
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenditures $ 813 $ 602 $ 150 $1,076 $2,641 $ 127 $2,768
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
Property acquisition costs:(2)
Unproved properties $ 8 $ 46 $ 260 $ 122 $ 436 $ 611 $1,047
Proved properties 57 -- 1,455 388 1,900 490 2,390
- ----------------------------------------------------------------------------------------------------------------------------------
Total capitalized costs 65 46 1,715 510 2,336 1,101 3,437
Exploration costs 122 192 79 215 608 6 614
Development costs 417 398 273 981 2,069 209 2,278
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenditures $ 604 $ 636 $2,067 $1,706 $5,013 $1,316 $6,329
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
Property acquisition costs:
Unproved properties $ 50 $ -- $ 6 $ 71 $ 127 $ 5 $ 132
Proved properties 5 55 7 52 119 2 121
- ----------------------------------------------------------------------------------------------------------------------------------
Total capitalized costs 55 55 13 123 246 7 253
Exploration costs 111 180 94 251 636 1 637
Development costs 335 547 374 1,095 2,351 478 2,829
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenditures $ 501 $ 782 $ 481 $1,469 $3,233 $ 486 $3,719
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents Mobil's share of costs incurred for companies accounted for on the equity method. Prior year data restated
to conform with current year presentation.
(2) Primarily as a result of recording deferred taxes of $506 million, the total costs allocated to property for the Ampolex
acquisition exceeded the net purchase price by $690 million ($607 million-Asia-Pacific; and $83 million-Other Areas).
</FN>
The table above sets forth certain costs incurred, both capitalized and
expensed, in oil and gas producing activities. Property acquisition costs
represent costs incurred to purchase or lease oil and gas properties.
Exploration costs include costs of geological and geophysical activities and
drilling of exploratory wells. Expenditures to drill and equip development wells
and construct production facilities to extract, treat and store oil and gas are
included in development costs. Exploration and development costs also include
depreciation of support equipment and facilities used in these activities rather
than the acquisition costs for support equipment.
SUPPLEMENTARY
INFORMATION
OIL AND GAS PRODUCING ACTIVITIES (unaudited) (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 5: RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES (In millions)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Equity
Consolidated Companies Companies(2) Worldwide
--------------------------------------------------- ------------ ---------
Asia- Other
U.S. Europe Pacific Areas Total
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
Revenues:
Trade sales $ 678 $ 1,357 $ 1,429 $ 411 $ 3,875 $ 41 $ 3,916
Intercompany sales 1,330 815 339 1,022 3,506 168 3,674
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues(3) 2,008 2,172 1,768 1,433 7,381 209 7,590
Production (lifting) costs (982) (719) (239) (619) (2,559) (30) (2,589)
Exploration expenses (72) (128) (77) (150) (427) (9) (436)
Depreciation, depletion and amortization (1,161) (466) (205) (398) (2,230) (10) (2,240)
Other operating revenues and (expenses) 32 123 (8) (76) 71 17 88
Income tax expense(4) 68 (551) (717) (212) (1,412) (156) (1,568)
- ------------------------------------------------------------------------------------------------------------------------------------
Results of operations for producing activities $ (107) $ 431 $ 522 $ (22) $ 824 $ 21 $ 845
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
Revenues:
Trade sales $ 1,027 $ 1,535 $ 1,811 $ 464 $ 4,837 $ 145 $ 4,982
Intercompany sales 1,458 841 369 1,727 4,395 201 4,596
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues(3) 2,485 2,376 2,180 2,191 9,232 346 9,578
Production (lifting) costs (937) (734) (288) (702) (2,661) (49) (2,710)
Exploration expenses (76) (158) (156) (122) (512) (6) (518)
Depreciation, depletion and amortization (638) (471) (305) (182) (1,596) (16) (1,612)
Other operating revenues and (expenses) 263 96 6 4 369 (21) 348
Income tax expense(4) (367) (638) (878) (897) (2,780) (197) (2,977)
- ------------------------------------------------------------------------------------------------------------------------------------
Results of operations for producing activities $ 730 $ 471 $ 559 $ 292 $ 2,052 $ 57 $ 2,109
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
Revenues:
Trade sales $ 977 $ 1,628 $ 1,641 $ 500 $ 4,746 $ 332 $ 5,078
Intercompany sales 1,049 647 470 2,022 4,188 529 4,717
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues(3) 2,026 2,275 2,111 2,522 8,934 861 9,795
Production (lifting) costs (736) (669) (288) (837) (2,530) (223) (2,753)
Exploration expenses (76) (135) (85) (203) (499) (2) (501)
Depreciation, depletion and amortization (441) (444) (333) (339) (1,557) (97) (1,654)
Other operating revenues and (expenses) 104 132 26 (42) 220 (116) 104
Income tax expense(4) (299) (620) (822) (826) (2,567) (212) (2,779)
- ------------------------------------------------------------------------------------------------------------------------------------
Results of operations for producing activities $ 578 $ 539 $ 609 $ 275 $ 2,001 $ 211 $ 2,212
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Prior year data reclassified to conform with current year presentation.
(2) Represents Mobil's share of results of operations for producing activities of investees accounted for on the equity method.
(3) Revenues in this table will not agree with Exploration & Producing Segment Revenues (pages 22 and 38) because revenues
from operations that are ancillary to oil and gas producing activities have been classified as Other Operating Revenues
and Expenses for this presentation.
(4) Includes for equity companies, Mobil's income taxes on its share of results of operations.
</FN>
Mobil's results of operations for producing activities for the years ended
December 31, 1995, 1996 and 1997, are shown above. Revenues include sales to
unaffiliated parties and sales or transfers (essentially at third-party sales
prices) to Mobil's other operations. All revenues reported in this table are net
of royalty interests of others. Production (lifting) costs and exploration
expenses are determined as defined by accounting standards.
SUPPLEMENTARY
INFORMATION
OIL AND GAS PRODUCING ACTIVITIES (unaudited) (concluded)
FAS 69 requires disclosure with respect to future net cash flows from future
production of net proved, developed and undeveloped reserves. Future cash
inflows are computed by applying year-end prices to estimated future production
of net proved reserves. Future price changes are considered only to the extent
they are covered by contractual agreements in existence at year-end. Development
and production costs are based on year-end estimated future expenditures
incurred in developing and producing net proved reserves, assuming continuation
of existing economic conditions. Future income taxes are calculated using
year-end statutory tax rates. Discounted future net cash flows are computed
using a discount factor of 10%.
The standardized measure data are not intended to replace the historical
cost-based financial data included in the audited financial statements. As such,
many of the data disclosed in this section represent estimates, assumptions and
computations that are subject to continual change as the future unfolds. For
example, a significant decrease in year-end crude oil prices from 1996 to 1997
contributed to the lower discounted future net cash flow amount for 1997.
Accordingly, Mobil cautions investors and analysts that the data are of
questionable utility for decision making.
Tables 6 and 7 below set forth the standardized measure of discounted future
net cash flows relating to proved oil and gas reserves, and quantify the causes
of the changes in the standardized measure of the cash flows relating to those
reserves. Since the estimates reflect proved reserves only, they exclude
revenues that could result from unproved reserves that could become productive
in later years.
- ---------------------------------------------------------------------------------------------------------------------------
TABLE 6: STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES (In millions)
- ---------------------------------------------------------------------------------------------------------------------------
United States Europe
At December 31 1995 1996 1997 1995 1996 1997
- ---------------------------------------------------------------------------------------------------------------------------
Future cash inflows $ 23,763 $ 33,036 $ 16,598 $ 16,064 $ 19,869 $ 17,963
Future production
costs (9,312) (8,125) (6,261) (4,822) (4,374) (4,859)
Future development
costs (1,644) (1,200) (527) (1,203) (1,202) (1,285)
Future income
tax expenses (3,928) (7,968) (3,121) (5,156) (7,830) (6,025)
- ---------------------------------------------------------------------------------------------------------------------------
Future net cash flows 8,879 15,743 6,689 4,883 6,463 5,794
10% annual discount
for estimated timing
of cash flows (3,928) (6,919) (2,897) (1,534) (2,091) (2,078)
- ---------------------------------------------------------------------------------------------------------------------------
Standardized measure
of discounted future
net cash flows 4,951 8,824 3,792 3,349 4,372 3,716
- ---------------------------------------------------------------------------------------------------------------------------
Standardized measure
of discounted future
net cash flows of
equity companies(1) -- -- 1,055(2) 23 35 28
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 4,951 $ 8,824 $ 4,847 $ 3,372 $ 4,407 $ 3,744
- ---------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TABLE 6: STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES (In millions) (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Asia-Pacific Other Areas Total
At December 31 1995 1996 1997 1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Future cash inflows $ 11,565 $ 14,416 $ 9,728 $ 24,543 $ 39,107 $ 29,776 $ 75,935 $ 106,428 $ 74,065
Future production
costs (2,026) (2,196) (1,895) (8,589) (9,952) (8,715) (24,749) (24,647) (21,730)
Future development
costs (764) (1,030) (700) (1,866) (5,006) (3,639) (5,477) (8,438) (6,151)
Future income
tax expenses (3,951) (4,599) (2,766) (9,344) (15,536) (9,701) (22,379) (35,933) (21,613)
- ------------------------------------------------------------------------------------------------------------------------------------
Future net cash flows 4,824 6,591 4,367 4,744 8,613 7,721 23,330 37,410 24,571
10% annual discount
for estimated timing
of cash flows (2,017) (2,578) (1,498) (2,252) (3,834) (2,944) (9,731) (15,422) (9,417)
- ------------------------------------------------------------------------------------------------------------------------------------
Standardized measure
of discounted future
net cash flows 2,807 4,013 2,869 2,492 4,779 4,777 13,599 21,988 15,154
- ------------------------------------------------------------------------------------------------------------------------------------
Standardized measure
of discounted future
net cash flows of
equity companies(1) -- -- -- 460 1,845 1,585 483 1,880 2,668
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 2,807 $ 4,013 $ 2,869 $ 2,952 $ 6,624 $ 6,362 $ 14,082 $ 23,868 $ 17,822
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents Mobil's share of standardized measure of discounted future net cash flows of investees accounted for on the equity
method.
(2) Reflects the impact of the California heavy-oil alliance with Shell.
</FN>
- --------------------------------------------------------------------------------------------------------------------
TABLE 7: CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (In millions)
- --------------------------------------------------------------------------------------------------------------------
Year ended December 31 1995 1996 1997
- --------------------------------------------------------------------------------------------------------------------
Beginning of year $ 13,371 $ 14,082 $ 23,868
Changes resulting from:
Sales and transfers of production, net of production costs (4,822) (6,571) (6,404)
Net changes in prices and in development and production costs 862 15,191 (16,579)
Extensions, discoveries, additions and purchases, less related costs 1,078 2,577 1,533
Development costs incurred during the period 1,925 2,069 2,351
Revisions of previous quantity estimates 731 633 672
Accretion of discount 2,406 2,625 4,277
Net change in income taxes (1,477) (8,135) 8,095
Other 8 1,397 9
- --------------------------------------------------------------------------------------------------------------------
End of year $ 14,082 $ 23,868 $ 17,822
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTARY
INFORMATION
FIVE-YEAR OPERATING HIGHLIGHTS (unaudited)
1993 1994 1995 1996 1997
- -------------------------------------------------------------------------------------------------------------
NET PRODUCTION OF LIQUIDS (thousands of barrels daily) (1)
Consolidated companies
United States 305 300 282 262 186
International
Australia -- 23 20 29 39
Canada 58 57 53 50 49
Equatorial Guinea -- -- -- 8 37
Indonesia 90 77 77 66 46
Nigeria 169 175 157 209 253
Norway 95 95 91 83 79
Papua New Guinea -- -- -- 11 12
United Kingdom 58 70 75 65 75
Other countries 9 10 10 9 13
- -------------------------------------------------------------------------------------------------------------
Total International 479 507 483 530 603
- -------------------------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED COMPANIES 784 807 765 792 789
- -------------------------------------------------------------------------------------------------------------
Mobil's Share of Production of Equity Companies (2)
U.S. (Aera) -- -- -- -- 58
Abu Dhabi 44 43 41 42 42
Kazakhstan -- -- -- 18 36
Other 10 4 4 2 2
- -------------------------------------------------------------------------------------------------------------
Total equity companies 54 47 45 62 138
- -------------------------------------------------------------------------------------------------------------
WORLDWIDE LIQUIDS PRODUCTION 838 854 810 854 927
- -------------------------------------------------------------------------------------------------------------
NET PRODUCTION OF NATURAL GAS (millions of cubic feet daily)
Consolidated companies
United States 1,529 1,568 1,439 1,333 1,141
International
Argentina -- -- -- 30 77
Australia -- 10 12 25 25
Canada 492 461 432 416 397
Germany 362 368 404 463 455
Indonesia 1,658 1,654 1,542 1,556 1,571
Netherlands 84 61 66 53 60
Norway 51 49 51 53 50
United Kingdom 390 470 577 618 668
- -------------------------------------------------------------------------------------------------------------
Total International 3,037 3,073 3,084 3,214 3,303
- -------------------------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED COMPANIES 4,566 4,641 4,523 4,547 4,444
- -------------------------------------------------------------------------------------------------------------
Mobil's Share of Production of Equity Companies (2)
U.S. (Aera) -- -- -- -- 20
Austria 13 12 13 12 13
Indonesia 31 17 18 -- --
Kazakhstan -- -- -- 24 35
Qatar -- -- -- 4 44
- -------------------------------------------------------------------------------------------------------------
Total Equity Companies 44 29 31 40 112
- -------------------------------------------------------------------------------------------------------------
WORLDWIDE NATURAL GAS PRODUCTION 4,610 4,670 4,554 4,587 4,556
- -------------------------------------------------------------------------------------------------------------
Barrels of oil equivalent ( thousands of barrels daily)(3) 837 847 826 831 826
- -------------------------------------------------------------------------------------------------------------
Total Production ( thousands of barrels daily of oil equivalent)(3) 1,675 1,701 1,636 1,685 1,753
- -------------------------------------------------------------------------------------------------------------
<FN>
See footnotes on page 61.
</FN>
[Bar Chart - Page 60]
NET PRODUCTION
(Thousands of barrels daily of oil
equivalent)
Equity Companies, International & U.S.
97 1,753
96 1,685
95 1,636
94 1,701
93 1,675
E&P'S WORLDWIDE PRODUCTION
INCREASED 4% IN 1997,
ON TRACK WITH ITS LONG-TERM GOAL.
SUPPLEMENTARY
INFORMATION
FIVE-YEAR OPERATING HIGHLIGHTS (unaudited)
1993 1994 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------
NET RESERVES OF LIQUIDS (millions of barrels) (1)
Consolidated companies
United States 1,116 1,052 986 902 539
Europe 357 401 373 366 368
Asia-Pacific 204 175 103 123 108
Other Areas 1,132 1,291 1,426 1,538 1,652
- ------------------------------------------------------------------------------------------------------------
Total Consolidated Companies 2,809 2,919 2,888 2,929 2,667
- ------------------------------------------------------------------------------------------------------------
Mobil's share of reserves of equity companies (2) 534 525 531 853 1,438
- ------------------------------------------------------------------------------------------------------------
WORLDWIDE RESERVES OF LIQUIDS 3,343 3,444 3,419 3,782 4,105
- ------------------------------------------------------------------------------------------------------------
NET RESERVES OF NATURAL GAS (billions of cubic feet)
Consolidated companies
United States 5,372 5,055 5,061 4,399 3,792
Europe 4,021 4,251 4,188 4,201 4,265
Asia-Pacific 6,058 5,607 4,896 4,071 3,088
Other Areas 1,508 1,744 1,784 1,974 2,135
- ------------------------------------------------------------------------------------------------------------
Total Consolidated Companies 16,959 16,657 15,929 14,645 13,280
- ------------------------------------------------------------------------------------------------------------
Mobil's share of reserves of equity companies (2) 724 1,018 2,039 2,460 3,676
- ------------------------------------------------------------------------------------------------------------
WORLDWIDE RESERVES OF NATURAL GAS 17,683 17,675 17,968 17,105 16,956
- ------------------------------------------------------------------------------------------------------------
Barrels of oil equivalent (millions of barrels)(3) 3,212 3,204 3,261 3,099 3,072
- ------------------------------------------------------------------------------------------------------------
TOTAL RESERVES (millions of barrels of oil equivalent)(3) 6,555 6,648 6,680 6,881 7,177
- ------------------------------------------------------------------------------------------------------------
RESERVES REPLACEMENT PERCENTAGE(3) (4) 91% 115% 105% 133% 146%
- ------------------------------------------------------------------------------------------------------------
AVERAGE U.S. SALES PRICE/TRANSFER VALUE(5)
Crude Oil (per barrel) $13.54 $12.91 $14.52 $17.40 $17.27(6)
NGL (per barrel) 11.25 10.37 9.94 13.16 11.96
Natural Gas (per thousand cubic feet) 2.01 1.72 1.41 2.17 2.38
- ------------------------------------------------------------------------------------------------------------
AVERAGE INTERNATIONAL SALES PRICE/
TRANSFER VALUE(5)
Crude Oil (per barrel) $16.99 $15.66 $16.94 $20.81 $18.94
Natural Gas (per thousand cubic feet) 2.62 2.44 2.47 2.66 2.72
- ------------------------------------------------------------------------------------------------------------
<FN>
(1) Crude oil and natural gas liquids (NGL).
(2) Represents Mobil's share of investees accounted for on the equity method.
(3) Natural gas volumes have been converted to oil equivalent barrels on a BTU
basis with 5,506, 5,516, 5,510, 5,519, and 5,519 cubic feet of gas per
barrel in 1993, 1994, 1995, 1996 and 1997, respectively.
(4) Reserves replacement percentage is calculated by dividing the net
adjustments to reserves for the year plus the annual production by the
annual production.
(5) Transfer values are essentially equal to third-party sales.
(6) Excludes the impact of heavy crudes from June 1997 forward due to the
implementation of the California heavy-oil alliance with Shell. Excluding
heavy crudes, prices in 1993, 1994, 1995, 1996 and 1997 would have been
$14.84, $13.86, $15.27, $18.54 and $17.61 per barrel, respectively.
Alternatively, the inclusion of California heavy crudes for the full-year
1997 would have realized a price of $16.59 per barrel.
</FN>
[Bar Chart - Page 61]
TOTAL PRODUCTION VS.
RESERVE ADDITIONS
(Millions of barrels of oil equivalent)
Total Reserve
Production Additions
97 640 936
96 617 818
95 597 629
94 621 714
93 611 558
IN 1997, MOBIL'S WORLDWIDE
PRODUCTION WAS UP 4% AND NET
RESERVES REPLACEMENT WAS 146% OF PRODUCTION.
SUPPLEMENTARY
INFORMATION
FIVE-YEAR OPERATING HIGHLIGHTS (unaudited) (concluded)
1993 1994 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
PETROLEUM PRODUCT SALES(1) (thousands of barrels daily)
United States 1,080 1,172 1,286 1,362 1,435
Europe(2) 810 810 807 804 679
Asia-Pacific(3) 730 777 799 800 815
Other Areas 314 316 330 379 414
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide 2,934 3,075 3,222 3,345 3,343
- ------------------------------------------------------------------------------------------------------------------------------------
PETROLEUM PRODUCT SALES(1) (millions of dollars)
United States $10,181 $10,492 $11,904 $14,254 $14,848
Europe 14,555 14,395 15,421 17,008 2,900
Asia-Pacific(3) 10,619 11,466 12,426 13,258 12,802
Other Areas 3,382 3,707 3,974 4,708 5,412
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide $38,737 $40,060 $43,725 $49,228 $35,962
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE UNITED STATES PRODUCT PRICE (per gallon)(4) 61.5(cent) 58.4(cent) 60.4(cent) 68.1(cent) 67.5(cent)
- ------------------------------------------------------------------------------------------------------------------------------------
REFINERY RUNS (thousands of barrels daily)
United States 836 857 895 921 956
Europe(2) 466 440 420 333 371
Asia-Pacific(5) 607 622 657 705 678
Other Areas 163 163 149 183 186
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Runs for Mobil 2,072 2,082 2,121 2,142 2,191
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICAL SALES BY PRODUCT CATEGORY (millions of dollars)
Petrochemicals $ 1,608 $ 2,088 $ 2,914 $ 1,876 $ 2,151
Films Products 580 653 764 766 707
Chemical Products 81 101 115 126 136
Plastics/Other 1,139 1,193 1,155 78 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales to trade $ 3,408 $ 4,035 $ 4,948 $ 2,846 $ 2,994
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF EMPLOYEES (year-end)
Petroleum Operations-United States 21,600 20,300 18,400 13,200 13,200
-International 25,200 25,200 24,300 20,000 19,500
Chemical -United States 9,700 8,100 3,500 2,500 2,600
-International 2,100 1,800 1,600 1,600 1,300
Other -United States 2,800 2,700 2,200 4,400(6) 4,700
-International 500 400 400 1,300(6) 1,400
- ------------------------------------------------------------------------------------------------------------------------------------
Total 61,900 58,500 50,400 43,000 42,700
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes supply/other product sales
(2) Includes Mobil's share of the downstream alliance with BP that commenced in late 1996.
Full-year 1996 sales volumes have been restated.
(3) Includes primarily Australia, China, Hong Kong, Japan, Malaysia, New Zealand and Singapore.
(4) Represents the average amount Mobil charges dealers, service stations, etc. for petroleum products, including gasoline.
Excise taxes and other items included in the "pump" price consumers pay for gasoline are not reflected in this amount.
(5) Includes Australia, Japan, New Zealand and Singapore.
(6) In 1996, Mobil reorganized its staff support groups, now shown in Other.
</FN>
Mobil markets autogasoline through over 15,000 Mobil-branded retail outlets in
over 50 countries. Mobil's primary product supply comes from 25 refineries.
Petroleum product sales (including supply and other sales) have increased 14%
based on daily volume since 1993.
Mobil operates 29 chemical facilities in 11 countries, and chemical sales
extend to more than 100 countries. Mobil is a 50% partner in a complex in Saudi
Arabia that produces polyethylene and ethylene glycol.
[Bar Charts - Page 62]
REFINERY RUNS VS.
PETROLEUM PRODUCT SALES
(Thousands of barrels daily)
Petroleum Refinery
Product Sales Runs by Mobil
97 3,343 2,191
96 3,345 2,142
95 3,222 2,121
94 3,075 2,082
93 2,934 2,072
REFINERY RUNS INCREASED IN 1997,
REFLECTING IMPROVED OPERATING PERFORMANCE,
WHILE PRODUCT SALES WERE ABOUT EQUAL TO 1996.
NUMBER OF EMPLOYEES
(At year-end)
Petroleum Operations
Chemical & Other
97 42,700
96 43,000
95 50,400
94 58,500
93 61,900
REDUCTIONS IN THE NUMBER OF
EMPLOYEES DUE TO ALLIANCES AND
OTHER INITIATIVES WERE PARTLY OFFSET
BY INCREASES RELATED TO NEW BUSINESS DEVELOPMENT.
SUPPLEMENTARY
INFORMATION
FIVE-YEAR FINANCIAL SUMMARY
(In millions, except for per-share amounts) 1993 1994 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUES $ 63,975 $ 67,383 $ 75,370 $ 81,503 $ 65,906
- ------------------------------------------------------------------------------------------------------------------------------------
SEGMENT EARNINGS:
Petroleum Operations
Exploration & Producing -United States $ 363 $ 125 $ (107) $ 737 697
-International 1,289 951 952 1,372 1,515
- ------------------------------------------------------------------------------------------------------------------------------------
Total Exploration & Producing 1,652 1,076 845 2,109 2,212
- ------------------------------------------------------------------------------------------------------------------------------------
Marketing & Refining -United States 151 241 226 407 542
-International 554 647 447 506 483
- ------------------------------------------------------------------------------------------------------------------------------------
Total Marketing & Refining 705 888 673 913 1,025
- ------------------------------------------------------------------------------------------------------------------------------------
Total Petroleum Operations 2,357 1,964 1,518 3,022 3,237
Chemical 44 102 1,164 306 403
- ------------------------------------------------------------------------------------------------------------------------------------
Segment Earnings 2,401 2,066 2,682 3,328 3,640
Corporate and Financing (317) (307) (306) (364) (368)
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Change in Accounting Principle 2,084 1,759 2,376 2,964 3,272
Cumulative Effect of Change in Accounting Principle -- (680)(1) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,084 $ 1,079 $ 2,376 $ 2,964 $ 3,272
- ------------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE(2)
Income Before Change in Accounting Principle $ 2.54 $ 2.14 $ 2.93 $ 3.69 $ 4.10
Net Income $ 2.54 $ 1.28 $ 2.93 $ 3.69 $ 4.10
PER COMMON SHARE-ASSUMING DILUTION(2)
Income Before Change in Accounting Principle $ 2.53 $ 2.12 $ 2.88 $ 3.62 $ 4.01
Net income $ 2.53 $ 1.29 $ 2.88 $ 3.62 $ 4.01
NET INCOME AS PERCENT OF
Average shareholders' equity 12.3% 10.4%(3) 13.5% 16.0% 17.0%
Average capital employed(4) 9.7% 8.4%(3) 10.9% 12.7% 13.4%
Revenues 3.3% 2.6%(3) 3.2% 3.6% 5.0%
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT SPENDING $ 3,687 $ 3,927 $ 4,525 $ 7,019 $ 5,306
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET POSITION AT YEAR-END
Current assets $ 11,217 $ 11,181 $ 12,056 $ 12,895 $ 9,722
Net properties, plants and equipment 25,037 25,503 24,850 27,479 24,556
Total assets 40,733 41,542 42,138 46,408 43,559
Current liabilities 12,351 13,418 13,054 15,248 12,421
Long-term debt 5,027 4,714 4,629 4,450 3,670
Shareholders' equity 17,237 17,146 17,951 19,072 19,461
Per common share(2)(5) $ 21.37 $ 21.30 $ 22.35 $ 23.81 $ 24.41
- ------------------------------------------------------------------------------------------------------------------------------------
DEBT-TO-CAPITALIZATION RATIO(6) 32% 31% 27% 29% 25%
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING (thousands of shares)(2) 798,308 795,910 790,888 788,292 786,294
AVERAGE COMMON SHARES OUTSTANDING--
ASSUMING DILUTION (thousands of shares)(2) 822,922 820,902 817,705 815,748 815,057
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON SHARES OUTSTANDING (thousands of shares, year-end)(2) 796,336 791,974 789,120 787,589 783,364
SHAREHOLDERS OF COMMON STOCK (year-end) 200,100 193,900 188,800 185,600 186,200
COMMON STOCK DIVIDENDS $ 1,298 $ 1,353 $ 1,434 $ 1,547 $ 1,667
As percent of net income less preferred dividends 64% 80%(3) 62% 53% 52%
Per share(2) $ 1.63 $ 1.70 $ 1.81 $ 1.96 $ 2.12
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR-END MARKET PRICE PER COMMON SHARE(2) $39 9/16 $42 1/8 $55 7/8 $61 1/8 $72 3/16
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Accounting change: LCM in 1994.
(2) Shares Outstanding and per-share amounts for all years reflect the two-for-one stock split in 1997.
(3) Excludes cumulative effect of change in LCM policy in 1994 ($680 million).
(4) Net income plus income applicable to minority interests plus interest expense, net of tax, divided by the sum of average
shareholders' equity, minority interests and debt.
(5) Shareholders' equity less the effect of the ESOP-related accounts (preferred stock and unearned employee compensation),
divided by the number of common shares outstanding at year-end.
(6) Total debt divided by the sum of total debt, shareholders' equity and minority interests.
</FN>
[Bar Charts - Page 63]
YEAR-END MARKET PRICE PER COMMON SHARE*
(Dollars)
97 72.19
95 55.88
93 39.56
91 33.94
89 31.31
87 19.56
*Share prices reflect the two-for-one stock split in 1997.
OVER THE PAST 10 YEARS,
MOBIL'S STOCK PRICE HAS
INCREASED AT AN ANNUALIZED RATE OF 14%.
DEBT-TO-CAPITALIZATION RATIO
(In percent)
97 25
95 27
93 32
91 32
89 30
87 37
MOBIL'S DEBT-TO-CAPITALIZATION
RATIO DECLINED TO 25% IN 1997,
PROVIDING FLEXIBILITY TO INVEST
IN GROWTH OPPORTUNITIES, TO
INCREASE DIVIDENDS AND/OR TO REPURCHASE STOCK.
SHAREHOLDER
INFORMATION
THE TICKER SYMBOL FOR MOBIL on the New York Stock Exchange is MOB.
THE 1998 ANNUAL MEETING for shareholders will be held Thursday, May 14, at
10 a.m. in the Grand Ballroom, Hyatt Regency Reston, Reston, Virginia.
DIVIDEND PAYMENTS on common stock are paid quarterly following declaration
by the Board of Directors. The next four tentative payment dates are: June 10,
1998; September 10, 1998; December 10, 1998, and March 10, 1999.
DIRECT REGISTRATION SYSTEM offers new investors and participating
shareholders another way to register their shares without having a physical
certificate issued. For information call ChaseMellon Shareholder Services at
1-800-648-9291.
MOBIL'S STOCK PURCHASE AND DIVIDEND REINVESTMENT PLAN allows new investors
to buy Mobil common stock for as little as $250 and existing shareholders to
automatically reinvest dividends-both without paying commissions or service
fees. Once enrolled, you can make purchases through monthly cash deposits
ranging from $10 to $7,500. Optional cash deposits are invested weekly. For more
information, request a prospectus on Mobil's Stock Purchase and Dividend
Reinvestment Plan from: ChaseMellon Shareholder Services, L.L.C., Dividend
Reinvestment Services, P.O. Box 3336, South Hackensack, New Jersey 07606-1936.
Telephone 1-800-648-9291, or visit Mobil's Internet site.
QUESTIONS ABOUT DIVIDEND CHECKS, electronic payment of dividends, stock
certificates, address changes, account consolidation, transfer procedures and
year-end tax information? Write: ChaseMellon Shareholder Services, L.L.C.,
Shareholder Relations, P.O. Box 3315, South Hackensack, New Jersey 07606-1915.
Telephone 1-800-648-9291 (Telecommunications Device for the Deaf
1-800-231-5469).
SHAREHOLDERS OR OTHERS WANTING GENERAL INFORMATION should write:
Secretary's Department, Room 7D2135, Mobil Corporation, 3225 Gallows Road,
Fairfax, Virginia 22037-0001. Telephone 1-703-846-3898.
PUBLICATIONS AVAILABLE TO SHAREHOLDERS:
o Mobil's Annual Report on Form 10-K, filed with the Securities and
Exchange Commission.
o 1997 Mobil Fact Book, a supplement to the annual report with additional
financial and operating data.
o Quarterly Earnings Press Releases.
o The People Behind the Commitment: Mobil's EHS Performance Report, an
account of Mobil's environmental, health and safety performance.
For copies, visit Mobil's Internet site, call Mobil Publications at
1-800-293-5796, or write: Secretary's Department, Room 7D2135, Mobil
Corporation, 3225 Gallows Road, Fairfax, Virginia 22037-0001.
ANALYSTS AND INSTITUTIONAL INVESTORS wanting information about Mobil should
write: Investor Relations, 6th floor, Mobil Corporation, 3225 Gallows Road,
Fairfax, Virginia 22037-0001. Telephone 1-703-846-3955.
INTERNATIONAL SHAREHOLDERS should call 201-329-8660 (Telecommunications
Device for the Deaf 201-329-8354).
AUDITORS: Ernst & Young LLP, Fairfax Square
Tower II, 8075 Leesburg Pike, Vienna, Virginia 22182-2709.
TRANSFER AGENT AND REGISTRAR IN THE U.S.: ChaseMellon Shareholder Services,
L.L.C., Overpeck Centre, 85 Challenger Road, Ridgefield Park, New Jersey 07660.
Telephone 1-800-648-9291 (Telecommunications Device for the Deaf
1-800-231-5469).
TRANSFER AGENT AND REGISTRAR IN CANADA: Montreal Trust Company of Canada,
151 Front Street West, 8th Floor, Toronto, Ontario M5J 2N1, Canada. Telephone
1-416-981-9500. Montreal Trust Company of Canada, Western Gas Tower, 530 8th
Avenue, S.W., Calgary, Alberta T2P 3S8, Canada. Telephone 1-403-267-6800.
BENEFITS AND CONTRIBUTIONS: Information on employee benefits plans is
contained in plan descriptions, annual reports and other materials regularly
furnished to employees under the Employee Retirement Income Security Act of
1974. A statement of charitable contributions by Mobil Foundation Inc. is
prepared annually.
An important part of the operations covered by this report is carried on by
operating divisions, subsidiaries and affiliates under the direction and
control of their own managements. Except as otherwise indicated by the context,
this report uses such terms as "Mobil," "corporation," "company," "we" and
"our," sometimes for the parent corporation and all such divisions,
subsidiaries and affiliates collectively, and sometimes for one or more of
them. Duplicate mailings of this annual report may be eliminated by sending a
written request to: ChaseMellon Shareholder Services, L.L.C., Shareholder
Relations, P.O. Box 3315, South Hackensack, New Jersey 07606-1915. Eliminating
duplicate mailings will not affect your dividend, proxy statement or proxy card
mailings.
Mobil's Internet address: http://www.mobil.com
BOARD
OF DIRECTORS
[Photograph of Board of Directors]
Lewis M. Branscomb
Elected 1978, Aetna Professor, Public Policy and Corporate Management, Emeritus,
John F. Kennedy School of Government, Harvard University. Committees: Audit
(Chmn.), Public Issues
Donald V. Fites
Elected 1990, Chairman and Chief Executive Officer, Caterpillar Inc. Committees:
Management Compensation and Organization, Directors and Board Affairs, Finance
Charles A. Heimbold Jr.
Elected 1995, Chairman and Chief Executive Officer, Bristol-Myers Squibb.
Committees: Audit, Directors and Board Affairs, Finance
Allen F. Jacobson
Elected 1988, Former Chairman of the Board and Chief Executive Officer, 3M.
Committees: Directors and Board Affairs (Chmn.), Management Compensation and
Organization
Samuel C. Johnson
Elected 1981, Chairman of the Board, S. C. Johnson & Son, Inc. Committees:
Management Compensation and Organization, Public Issues (Chmn.)
Helene L. Kaplan
Elected 1989, Of Counsel, Skadden, Arps, Slate, Meagher & Flom. Committees:
Audit, Directors and Board Affairs, Finance
J. Richard Munro
Elected 1989, Chairman of the Board, Genentech, Inc. Committees: Management
Compensation and Organization, Public Issues
Lucio A. Noto
Elected 1988, Chairman of the Board and Chief Executive Officer. Joined Mobil
1962. Committee: Executive (Chmn.)
Aulana L. Peters
Elected 1992, Partner, Gibson, Dunn & Crutcher. Committees: Audit, Finance,
Public Issues
Eugene A. Renna
Elected 1986, President and Chief Operating Officer. Joined Mobil 1968.
Committee: Executive
Charles S. Sanford Jr.
Elected 1990, Former Chairman and Chief Executive Officer, Bankers Trust
Company. Committees: Directors and Board Affairs, Finance (Chmn.)
Robert G. Schwartz
Elected 1987, Former Chairman of the Board, President and Chief Executive
Officer, Metropolitan Life Insurance Co. Committees: Management Compensation and
Organization (Chmn.), Public Issues
Robert O. Swanson
Elected 1991, Executive Vice President. Joined Mobil 1958. Committee: Executive
Iain D.T. Vallance
Elected 1996, Chairman, British Telecommunications plc. Committees: Audit,
Finance, Public Issues
MOBIL CORPORATION OFFICERS
Lucio A. Noto
Chairman of the Board and Chief Executive Officer
Eugene A. Renna
President and Chief Operating Officer
Robert O. Swanson
Executive Vice President
Thomas C.DeLoach,Jr.
Senior Vice President and
Chief Financial Officer
Robert F. Amrhein
Vice President
Aldis V. Liventals
Vice President
Samuel H. Gillespie III
Vice President and General Counsel
Walter R. Arnheim
Treasurer
Carole J. Yaley
Secretary
Steven L. Davis
Controller
APPENDIX TO FORM 10-K FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters, italic typeface is
displayed in normal type.
(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The registered mark symbol has been replaced by (R).
(6) The trade mark symbol has been replaced by (TM).
GRAPHIC APPENDIX LIST - 1997
Front Cover - Photogragh of head and upper portion of embroidered Mobil Pegasus
logo, in red, fills most of the page. In the upper portion of the
page, centered above the Pegasus' head, are the words, "Mobil" and
"The energy to make a difference". At the bottom of the page,
centered below the Pegasus' head, are the words "1997 Annual
Report".
Inside front cover - Upper Left Side are the words, "About the cover: The
embroidered Pegasus introducing this annual report
represents Mobil and its employees worldwide, many of whom
wear the image daily as a patch on their clothing."
One Graph - middle left side.
Words "Average annual return to shareholders" above
graph. Graph--Average annual returns to shareholders,
Mobil share-price appreciation plus reinvested dividends
vs. Competitors, and S&P 500-1 year, 5 years, 10 years.
Upper right side.
Words "Table of contents". Table of contents appears on
the upper right side under words.
Center of page are words "Financial highlights" appearing
above a table of "Financial Highlights".
Page 1 - Top. Enlarged letters, "Letter to Shareholders".
Photo.
Center of page: Lucio A. Noto, Chairman and Chief Executive
Officer.
Page 3 - Upper left side. Enlarged letters, "New exploration and
acquisitions could raise our production beyond our current goals."
Page 4 - Center left side are enlarged letters, "Mobil at a glance".
Upper middle are enlarged letters, "Mobil Corporation" and "Red
Pegasus" logo in white circle background.
Right middle-page are enlarged letters, "Exploration & Producing".
Photo.
Lower middle-page: Modern, floating production platform.
Page 5 - Upper left-page are enlarged letters, "Marketing & Refining".
Photo.
Upper left: Porsche with Mobil 1 logos.
Middle left-page are enlarged letters, "Chemical".
Photo.
Lower left: chemical molecule.
Page 6 - Enlarged letters, "People" in middle left of page.
Photo.
Upper middle-page: researchers at Mobil Technology Company's
laboratories in Paulsboro, New Jersey.
Page 7 - Middle left-page: enlarged letters, "Business units around the world
made progress on promoting inclusion".
Photo.
Upper right-page: Mobil employees in Melbourne, Australia.
Photo.
Lower center-page: Mobil employees in Stavanger, Norway.
Page 8 - Middle left-page are enlarged letters, "Performance"
Photo.
Upper right-page: Customers servicing car at BP-branded service
station.
Lower left-page are enlarged letters, "The venture is a platform to
grow in key markets in Eastern Europe, Russia"
Page 9 - Middle right-page are enlarged letters, "The Technology Edge:"
Page 10 - Middle left-page are enlarged letters, "Growth"
Photo.
Upper center-page: Mobil employee at work on Hibernia platform.
Page 11 - Photo.
Upper left-page: Worker at Tengiz oil field in Kazakhstan.
Lower right-page are enlarged letters, "The Technology Edge:"
Page 12 - Photo.
Upper center-page: Construction site at RasGas liquefaction plant in
Qatar.
Page 13 - Upper right-page are enlarged letters, "Familiar areas, new ones offer
potential beyond year 2000"
Middle right-page are enlarged letters, "The Technology Edge:"
Page 14 - Photo.
Center right-page: Employee at Mobil's lubricant blending plant in
China, near Shanghai.
Page 15 - Photo.
Upper center-page: Construction site at petrochemicals expansion in
Yanbu, Saudi Arabia.
Lower right-page are enlarged letters, "The Technology Edge:"
Page 16 - Middle left-page are englarged letters, "Environment"
Photo.
Lower left-page: The American Progress, a double-hulled vessel.
Page 17 - Photo.
Upper center-page: Mobil employe converts the sludge from storage
tanks into fertilizer.
Page 18 - Enlarged letters, "Financial" in center of page.
Page 19 - One Bar Graph:
Net Income of Mobil (millions of dollars) for years 1993 through 1997
(excludes the LCM accounting policy change in 1994).
Page 20 - One Bar Graph:
Total return to shareholders (per $100 invested on 12/31/92), S&P
500 and Mobil -- share price appreciation plus reinvested
dividends --for years 1993 through 1997.
Page 21 - One Bar Graph:
Annual dividends per share of common stock (dollars) for years 1987
through 1997.
Page 22 - Two Bar Graphs:
Top
Mobil's Upstream Net Income and Operating Earnings (millions of
dollars), for years 1995 through 1997.
Bottom
Mobil's U.S. and International net production of oil and gas
(thousands of barrels daily of oil equivalent) for the years 1995
through 1997.
Page 23 - Two Bar Graphs:
Top
Crude oil average spot market prices (dollars per barrel) for Brent
and West Texas Intermediate for years 1995 through 1997.
Bottom
Mobil's U.S. and interantional average natural gas sales prices
(dollars per thousand cubic feet), for years 1995 through 1997.
Page 24 - Two Bar Graphs:
Top
Mobil's Downstream Net Income and Operating Earnings (millions of
dollars), for years 1995 through 1997.
Bottom
Mobil's U.S. and interantional refinery runs (thousands of barrels
daily), for years 1995 through 1997.
Page 25 - Two Bar Graphs:
Top
Mobil's U.S. and international Downstream petroleum product sales
volumes (thousands of barrels daily) for years 1995 through 1997.
Bottom
Mobil's U.S. and international Downstream petroleum product sales
revenues (millions of dollars) for years 1995 through 1997.
Page 26 - Two Bar Graphs:
Top
Mobil's Chemical segment Net Income and Operating Earnings (in
millions of dollars) are presented for years 1995 through 1997.
Bottom
Mobil's Chemical segment net sales to trade (Petrochemicals and Other
in millions of dollars) are presented for years 1995 through 1997.
Page 32 - One Bar Graph:
Mobil's return on average shareholders' equity (in percent) for years
1995 through 1997.
Page 34 - Two Bar Graphs:
Top
Total Debt of Mobil, U.S. and international (millions of dollars) for
years 1995 through 1997.
Bottom
Mobil's return on average capital employed (in percent) for years 1995
through 1997.
Page 36 - Two Bar Graphs:
Top
Proceeds from sales of assets (in millions of dollars) for years 1995
through 1997.
Bottom
Mobil's capital expenditures, exploration expenses and equity
investments (in millions of dollars) for years 1995 through 1997.
Page 60 - One Bar Graph:
Mobil's net production (in thousands of barrels of oil equivalent)
for equity companies, U.S. and international for years 1993
through 1997.
Page 61 - One Bar Graph:
Mobil's total production vs. reserve additions (millions of barrels of
oil equivalent) for years 1993 through 1997.
Page 62 - Two Bar Graphs:
Top
Refinery runs vs. petroleum product sales (thousands of barrels
daily) for years 1993 through 1997.
Bottom
Number of employees (at year-end) for Mobil for years 1993 through
1997, split between Petroleum Operations segment, Chemical segment
and Other.
Page 63 - Two Bar Graphs:
Top
Mobil's year-end market price per common share (in dollars) for
years 1987, 1989, 1991, 1993, 1995 and 1997.
Bottom
Mobil's debt-to-capitalization ratio (in percent) for years 1987,
1989, 1991, 1993, 1995 and 1997.
Page 64 - Enlarged letters appear in upper left-page, "Shareholder information".
Page 65 - Enlarged letters appear in upper right-page, "Board of Directors".
Photo.
(Inside Back Cover: Fourteen-member group photo of Mobil's Board
of Directors.
Back cover - Photograph of the wings of Mobil Pegasus in red fills most of the
page. Centered above the Pegasus' wings are the words, "Mobil
Corporation," the address, the telephone number, and Mobil's
internet address.