Five-year cumulative total return
[BAR GRAPH APPEARS HERE]
Mobil 262
S&P 500 293
Industry Group 244
Assumes $100 invested on December 31, 1993, in Mobil common stock, S&P 500
Index, and a composite index, weighted by market capitalization each year, of
the following seven petroleum companies: Exxon Corporation, Chevron Corporation,
Royal Dutch Petroleum Company/"Shell" Transport and Trading Company p.l.c.,
Atlantic Richfield Company, British Petroleum Company p.l.c. and Texaco Inc.
Total return assumes reinvestment of dividends.
Financial highlights
1997 1998 %Change
- --------------------------------------------------------------------------------
Net income (millions) $ 3,272 $ 1,704 (48)
Per common share (based on
average shares outstanding) 4.10 2.12 (48)
Per common share assuming
dilution 4.01 2.10 (48)
(based on average shares
outstanding)
- --------------------------------------------------------------------------------
Return on average shareholders'
equity 17.0% 9.0% (47)
Return on average capital employed 13.4% 7.7% (43)
Income per dollar of revenue 5.0 cents 3.2 cents (36)
Petroleum earnings per gallon sold 5.1 cents 2.6 cents (49)
- --------------------------------------------------------------------------------
Revenues (millions) $ 65,906 $ 53,531 (19)
Total assets, year-end (millions) 43,559 42,754 (2)
Investment spending (millions) 5,306 5,500 4
Shareholders' equity, year-end
(millions) 19,461 18,370 (6)
Per common share (based on
shares outstanding at year-end) 24.41 23.31 (5)
- --------------------------------------------------------------------------------
Common shares outstanding,
year-end (thousands) 783,364 780,533 0
Shareholders of common stock,
year-end 186,200 178,700 (4)
Number of employees, year-end 42,700 41,500 (3)
- --------------------------------------------------------------------------------
Table of contents
Letter to Shareholders 1
Mobil at a Glance 4
The Year in Review 5
FINANCIAL SECTION
Highlights 13
Management Discussion
and Analysis 14
Consolidated Financial
Statements 31
Notes to Financial Statements 38
Reports of Management and
Independent Auditors 53
Supplementary Information 54
Shareholder Information 64
Directors and Officers 65
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
[PICTURES OF LUCIO A. NOTO & EUGENE A. RENNA APPEARS HERE]
Dear shareholder:
In a difficult year for the oil industry, Mobil's employees worked hard to
reduce costs, increase trade sales and improve performance. Their success at
self-help in 1998 offset about $500 million of the $1.4 billion impact of the
deterioration in industry fundamentals. With sharply lower crude oil and natural
gas prices and generally lower product margins, especially in Asia, 1998 wasn't
nearly as bad an operating year as it might have been.
After three straight years of setting records, Mobil's operating profits
for 1998 declined 31 percent to just under $2.4 billion. We fared considerably
better than most of our competitors, largely because of Mobil's strengths in
marketing and refining and because of our self-help programs.
Crude oil prices were about $6.50 per barrel lower in 1998 than in 1997,
and natural gas prices fell about $.50 per thousand cubic feet. The weak prices
stemmed from higher overall OPEC production, a mild winter in the Northern
Hemisphere and the severity of Asia's economic crisis, which limited worldwide
energy and petrochemical demand growth.
Upstream (exploration and producing) operating earnings fell 53 percent to
$1 billion, primarily because of lower oil and natural gas prices as well as
slightly lower volumes and higher exploration expenses. Chemical profits
declined 46 percent to $190 million because of lower polyethylene and paraxylene
margins.
On the other hand, our downstream (marketing and refining) operating
earnings set an all-time record of $1.4 billion, an 8 percent increase over
1997. It was the second consecutive year of record U.S. Marketing and Refining
earnings, and even in Asia's slumping markets, our downstream earnings improved
slightly.
How we helped ourselves
There were other bright spots as well:
. Upstream, we replaced 165 percent of the oil and gas reserves we used --
our best year in reserve replacement since 1984. Proved reserves increased to
7.6 billion barrels of oil equivalent, and total resources increased to 28
billion barrels. We increased production in some key growth areas, including the
Tengiz field in Kazakhstan, the Hibernia field offshore Eastern Canada and
Equatorial Guinea's Zafiro field.
. Behind our good downstream performance was an increase in trade sales of
4 percent worldwide, including an increase in U.S. gasoline sales of 5 percent;
the benefits of our joint venture with British Petroleum in Europe, leading to
record earnings there; the progress of our initiatives in Asia Pacific; and
excellent refinery performance worldwide.
. Our business units identified, and committed to, an additional $500
million of initiatives to reduce costs and increase revenue versus a 1996 base.
This is on top of the $900 million we committed to in 1997. To date, we have
delivered about half of these $1.4 billion pretax benefits.
. Our company-wide unit operating costs declined more than 4 percent in
1998 to $4.53 per barrel of oil equivalent.
. We increased our dividend for the 11th consecutive year in 1998. Our
year-end debt-to-capitalization ratio of 29 percent, while up, remained at a
level we're comfortable with.
Merger announcement
The biggest news of the year was our agreement to a merger transaction with
Exxon. If approved, the combined company, to be called Exxon Mobil Corporation,
will have its headquarters in Irving, Texas. It will be organized functionally,
with worldwide downstream headquarters in Fairfax, Virginia, and worldwide
upstream and chemical headquarters in Houston, Texas.
Mobil
1
We are limited in what we can say about the proposed merger at this time,
but we'd like to make it clear that we believe this is in the best interest of
our shareholders. It is not size that drives this combination, but the desire to
bring together two outstanding organizations with a demonstrated track record of
achievements -- organizations that share common values, that employ compatible
strategies, and that together should be able to achieve more than either could
alone.
Areas for upstream expansion
Among Mobil's strengths is the solid portfolio of growth opportunities our
people have developed in areas relatively new to us as well as those where we
have had a long history of operating successfully.
The East Coast of Canada is quickly becoming a new upstream core area for
us. The Hibernia field grew to about 100,000 barrels a day (Mobil's share, 33.1
percent) in the fourth quarter of 1998, the end of its first full year of
production. Development continued in the Sable Offshore Energy Project, while
additional sales contracts were signed for its natural gas. We expect production
to begin there in November 1999. And development began on the Terra Nova oil
field.
In the Caspian region, our relationships in Kazakhstan, Turkmenistan and
Azerbaijan are progressing. Mobil's share of oil and natural gas production from
the Tengiz field in Kazakhstan reached 52,000 barrels of oil equivalent a day,
and the Caspian Pipeline Consortium received permits to begin construction.
Along with our partners, we exported our first barrel of crude oil from
Turkmenistan.
In West Africa, OPEC quotas constrained our crude oil production in
Nigeria, but the good news is that the Oso gas liquids project began exporting
and will contribute to increased Nigerian production in 1999. At the same time,
we're expanding production in Equatorial Guinea and continuing to explore
offshore in both countries.
Our worldwide LNG business is a major strength for Mobil. In Qatar, Mobil
is beginning the third year of LNG exports from the Qatargas project and will
begin exporting from the RasGas project later in 1999. We succeeded in securing
sole negotiating rights for the sale of 7.5 million metric tons of LNG a year to
an Indian consortium, which when finalized would bring contracted sales volumes
from RasGas to 12.3 million tons a year. In Indonesia, Mobil has been an LNG
industry pioneer since the 1970s, and new fields are coming on stream to
supplement declining production from the Arun field.
Elsewhere in Indonesia, we experienced a series of exploration successes as
we celebrated the 100th anniversary of doing business there. We made other
discoveries during 1998 in Australia, Italy, Equatorial Guinea, the deepwater
Gulf of Mexico, Norway, Peru and Venezuela. In Venezuela, our Cerro Negro heavy
oil project obtained $900 million in limited recourse funding and is progressing
on schedule.
In the U.S., Mobil swapped some Gulf of Mexico shelf assets with Arco for
that company's long-lived properties in California. As a result, we were able to
increase our equity interest in the Aera joint venture with Shell from 41.4
percent to 48.2 percent while increasing reserves and cutting costs.
Progress downstream
Our downstream strengths have been providing us with some buffer against
declining oil prices. We owe our marketing success in part to innovative
programs like the Speedpass(TM) quick-payment system and On The Run(R)
convenience stores in North America.
We have already mentioned that we are pleased with the progress we have
made with our Asia Pacific initiatives. Despite the economic downturn in Asia, I
consider our
2 Mobil
solid position in the region to be a long-term plus.
Mobil's refineries around the world are in good shape. While we have
rationalized part of our refining network, a sizable portion of the lost
capacity has been offset through low-cost debottlenecking projects at some
remaining facilities.
Although the chemical industry is in a down part of the business cycle, we
are proceeding with the expansion of our Saudi joint-venture petrochemical
complex, and our joint venture to build a petrochemicals plant in Venezuela is
currently in the first phase of engineering. We are also modernizing and
expanding our Beaumont, Texas, olefins plant and have completed a similar
project in Houston.
Capital spending
With the current depressed industry conditions, we are prudently scaling back
nonessential investments. Mobil announced a projected investment program of $4.8
billion in 1999, down about 13 percent from 1998's investment spending. We are
proceeding with a capital program that strikes a balance between projects that
provide short-term earnings and cash flow, and those that underpin long-term
growth. While our investment spending has slowed on some projects, few
exploration or producing opportunities have been eliminated.
We remain flexible about our spending plans and will revise them if crude
oil prices fail to improve or if attractive investment opportunities develop.
Regarding our Environmental, Health and Safety (EHS) goals, Mobil had mixed
results in 1998. Both a pipeline rupture offshore Nigeria, which prevented us
from making progress on reducing the volume of oil spills, and our 24 worldwide
employee and contractor fatalities were simply unacceptable. While the rate of
injuries and illnesses declined 30 percent, we are not satisfied with our
overall EHS performance and have instituted programs to prevent a recurrence.
Board retirements
Mobil Executive Vice President and Director Robert O. Swanson retired on August
1, 1998, after 40 years of distinguished service with Mobil. His leadership
abilities, exceptional judgment and astute management insight will be remembered
with gratitude.
On May 1, 1999, two of our nonemployee directors -- Lewis M. Branscomb and
Allen E. Jacobson -- will step down from the board after reaching retirement
age. Dr. Branscomb served the board for 21 years and Mr. Jacobson for 11. We'd
like to thank them both for their dedication to Mobil and for their wise
counsel.
A name to carry forward
While 1998 was a challenging year, we believe that we have acted prudently
to improve efficiency and enhance shareholder value. Over the last 10 years,
Mobil has led the industry with its total return to shareholders, which was
comparable to the Standard & Poor's 500. Our five-year total return, while
trailing the S&P 500, exceeded the average of our competitors.
As we write this, we can't say exactly what lies ahead, but we know that
Mobil has a proud history. Mobil people have reached across geographic and
cultural barriers time and again to meet every sort of challenge the energy
business can present.
The talent and commitment of Mobil's diverse work force around the globe
has given our company a tradition to be proud of. The firm foundation that our
employees have built enabled us to carry forward even in these most-challenging
times .
/s/ Lucio A. Noto
Chairman and Chief Executive Officer
/s/ Eugene A. Renna
President and Chief Operating Officer
Mobil 3
- --------------------------------------------------------------------------------
Mobil at a Glance
- --------------------------------------------------------------------------------
Mobil Corporation
With a history dating back to 1866, Mobil's energy and petrochemicals businesses
reach into some 140 countries. For 1998, revenues were $53.5 billion and
operating income was almost $2.4 billion. Our investment spending reached $5.5
billion.
Upstream
We produce oil and natural gas in 20 countries and have exploration activities
in 34. During 1998 we produced 1.71 million barrels a day of oil equivalent and
replaced 165 percent of what we produced with new proved reserves. New projects
enhance our strong liquefied natural gas position.
Downstream
Our network of 23 refineries around the globe processes crude oil into fuels,
lubricants and petrochemical feedstocks. We sell 3.4 million barrels of refined
products a day in about 100 nations, in part through our more than 15,000
Mobil-branded service stations.
Chemical
Mobil Chemical manufactures and markets basic petrochemicals, additives and
synthetics, catalysts and flexible packaging films. We operate 28 facilities and
market in more than 100 countries, with sales of more than four million tons in
1998.
Technology
Through the partnership of Mobil Technology Company and the business units,
technology is embedded in every segment and every location of Mobil's
operations. Technology has reduced costs and created new products and growth
opportunities.
4 Mobil
- --------------------------------------------------------------------------------
The Year in Review
- --------------------------------------------------------------------------------
Partnerships, expansions, realignments and a turbulent business environment made
1998 a year of change for Mobil -- a year in which we advanced our competitive
strategies.
An organizational realignment created seven business units grouped
functionally. At the same time, we entered into or advanced a number of
cooperative ventures around the world and made progress on major projects. Then,
as the year's end approached, we announced a merger agreement with Exxon
Corporation. Pending approvals, the combined Exxon Mobil organization should be
able to achieve more than either company could achieve alone.
On the pages that follow, we review key events of the year, following a
month-by-month timeline.
Mobil 5
- --------------------------------------------------------------------------------
The Year in Review
- --------------------------------------------------------------------------------
Jan
Mobil increased its quarterly dividend by an annualized 7.5 percent
after announcing that its 1997 operating earnings reached a record $3.43
billion.
Mobil signed an exclusive five-year lubricant supply agreement with
Chrysler Europe. By year-end 1998, Mobil's downstream joint venture with BP in
Europe had initiatives in place to achieve its anticipated benefits.
The company and American Forests announced a partnership in support of the
Global ReLeaf 2000 campaign. With a $500,000 donation, Mobil agreed to sponsor
the planting of 500,000 trees in four Global ReLeaf Forests in the United States
in 1998.
[PICTURE OF PLANTING A TREE IN FLORIDA APPEARS HERE]
Feb
The month was one of change within the Mobil organization. Following the
election of Eugene A. Renna as president and chief operating officer of Mobil,
effective March 1, a new structure was announced. The company's operations were
organized into seven major business groups and a strengthened global shared
services department.
Off the east coast of Canada, Mobil and its partners agreed to start
development of the Terra Nova oil field, which lies two miles below the ocean
floor in 300 feet of water on the Grand Banks of Newfoundland. Mobil's share in
Terra Nova, its third project offshore Eastern Canada, is 22 percent.
Meanwhile, on the NASCAR Winston Cup auto racing circuit, the
Penske-Kranefuss Racing Ford Taurus selected Mobil 1(R) fully synthetic motor
oil as its sponsor. And, when the Formula One season ended, a car using Mobil
products and its driver won their respective world championships.
The performance advantages of Mobil 1 lubricants were recognized again the
following month when the American Chemical Society named as Heroes of Technology
a team of current and former Mobil Technology Company researchers who worked on
the development of the synthetic oil.
[PICTURE OF WEST MCLAREN MERCEDES FORMULA ONE RACE CAR APPEARS HERE]
6 Mobil
Mar
Mobil Corporation and Ford Motor Company entered into a broad-based strategic
alliance to speed the development and integration of breakthrough fuel and
vehicle technologies. Mobil Chairman and CEO Lucio A. Noto said the alliance
"offers great potential to develop new hydrocarbon-based fuels and power sources
which could be of significant benefit to both the traveling public and the
environment."
A milestone was reached when Mobil and its partners exported their first
cargo of crude oil from Turkmenistan. Another landmark was reached when Mobil
became the first foreign energy company to open service stations in Venezuela.
By the end of the year, Mobil had more than 60 strategic sites averaging more
than four million gallons of volume a year in key Venezuelan markets.
In the United States, the Environmental Protection Agency named Mobil its
Energy Star Buildings Partner of the Year for its voluntary installation of
energy-efficient lighting and other emission-reducing technologies in the
company's facilities. Among other awards Mobil won during the year, the
Department of Minerals and Energy of Western Australia honored the company with
its Golden Gecko Award for Environmental Excellence.
[PICTURE OF MOBIL RESEARCH ON FUEL TECHNOLOGY APPEARS HERE]
[PICTURE OF DOUBLE-HULL TANKER PROVIDES ADDED SAFETY APPEARS HERE]
Apr
Mobil established a series of aggressive Environmental, Health and Safety goals,
along with related data-gathering practices, for its global operations. The
goals, running through 2003, focus on eliminating fatalities and greatly
reducing injuries, fires, explosions and oil spills. The company expanded its
internal reporting requirements so that it could collect worldwide data on its
air emissions, water discharges, waste generation and energy use.
At year's end, Mobil's volume spilled increased, primarily because of a
pipeline rupture offshore Nigeria. The days-away-from-work injury and illness
rate for employees and contractors declined 30 percent, but fires and explosions
increased. And employee and contractor work-related fatalities increased to 24,
leading to a major road safety program, among other initiatives. Mobil Sekiyu in
Japan led the Mobil organization in safety.
7
- --------------------------------------------------------------------------------
The Year in Review
- --------------------------------------------------------------------------------
[PICTURE OF SINGLE POINT MOORING SYSTEMS & MODEL OF OFFSHORE REGASIFICATION
APPEARS HERE]
May
Mobil introduced a new technology for the offshore regasification and storage of
liquefied natural gas (LNG). The new Mobil Shipboard Regasification Terminal
(SRT), with a lower capital cost than onshore facilities, offers the potential
to advance LNG deliveries to emerging markets or those in environmentally
sensitive areas. SRT expands the LNG market by making it practical to sell LNG
to customers who need smaller quantities.
Plans were unveiled to build a 65-million-gallon-a-year plant to make
cyclohexane -- used in the manufacture of nylon -- at Mobil's petrochemicals
complex in Beaumont, Texas. The complex is scheduled to begin operation in the
third quarter of 1999. Meanwhile, the first phase of engineering began for the
planned petrochemical facility in Jose, Venezuela. The project is a joint
venture between Mobil and Pequiven, Venezuela's state-owned petrochemicals
company, to manufacture ethylene and convert it into polyethylenes and ethylene
glycols.
Jun
The Cerro Negro heavy oil project in Venezuela obtained $900 million in limited
recourse funding, one-third through banks and the rest in the form of bonds. The
joint venture among Mobil (41.67 percent), Petroleos de Venezuela S.A. (41.67
percent) and Veba Oel (16.66 percent) is expected to begin production in late
1999 and reach 120,000 barrels a day in 2001 after construction of a facility to
upgrade the extra-heavy crude into a synthetic oil.
In Bangladesh, the government approved a joint venture between Mobil and
Jamuna to sell lubricants and liquefied petroleum gas (LPG), while in Vietnam an
agreement was completed with Mitsui/Unique Gas for another lubricants-and-LPG
joint venture.
Mobil introduced three grades of Mobil 1(R) fully synthetic motor oils
formulated to meet manufacturers' viscosity specifications for four-stroke and
two-stroke motorcycles.
In a strategic alliance with MCI Worldcom Inc., Mobil expanded its Mobil GO
Card nationwide in the United States. The prepaid card can be used to purchase
food and fuel at Mobil stations as well as long-distance telephone service.
Offered in $25, $50 and $100 denominations, the card can be "recharged" by phone
when its value is depleted.
[PICTURE OF THE CERRO NEGRO HEAVY OIL PROJECT APPEARS HERE]
8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PICTURE OF USING A MOBIL SPEEDPASS(TM) TRANSPONDER APPEARS HERE]
Jul
Mobil experienced a series of exploration successes in Indonesia. Two
exploratory wells confirmed and expanded an oil and natural gas discovery made
in 1997 in the Greater Merah Besar area offshore East Kalimantan. A few weeks
later, the West Seno-2 well, 13 miles to the northeast, came in as another oil
and gas discovery. Both discoveries were made under a production-sharing
contract in which Mobil owns a 50 percent interest.
During 1998, Mobil celebrated 100 years of doing business in Indonesia, 30
years as a production-sharing contractor, 20 years as a producer of liquefied
natural gas (from the Arun field in North Sumatra) and 10 years as a producer of
liquefied petroleum gas. Before year's end, the company completed initial
development of the Pase-A gas field, a satellite to the Arun field.
Mobil had other exploration successes during the year in Norway, Italy and
Venezuela and expanded its acreage in the U.K. North Sea, the deepwater Gulf of
Mexico and offshore Eastern Canada.
While celebrating its first year back in South Africa, Mobil signed
lubricant marketing agreements with black-empowerment partners Exel Petroleum
and the Bafokeng nation.
In the United States, Mobil announced a major expansion of its
Speedpass(TM) system, which allows customers to buy gasoline without opening
wallets or purses for credit cards or cash. The number of service stations
equipped with Speedpass(TM) reached 3,300, in all of Mobil's major U.S.
marketing areas. By year's end, more than two million enrolled motorists had the
miniature transponders for their key chains or rear windows that enable them to
drive in, fuel up and drive off in record time.
[PICTURE OF THE CERRO NEGRO HEAVY OIL PROJECT APPEARS HERE]
9
- --------------------------------------------------------------------------------
The Year in Review
- --------------------------------------------------------------------------------
[PICTURE OF WORKERS INSTALL RISER FOR OSO DRILLING APPEAR HERE]
Aug
In West Africa, the Oso natural gas liquids project in Nigeria exported
its first cargo. Within a few weeks, production reached 25,000 barrels a day.
Meanwhile, Mobil announced that it planned to increase crude oil production in
Equatorial Guinea. Later in the year, Mobil signed an agreement to evaluate the
potential of acreage offshore the Democratic Republic of Sao Tome and Principe,
an island state further south in West Africa.
Mobil reached an agreement with Atlantic Richfield Company (Arco) to
exchange its interest in some producing and non-producing properties on the Gulf
of Mexico shelf for Arco's California long-lived assets there. When the exchange
was completed in November, the newly acquired California properties were turned
over to Aera Energy LLC, an alliance between Mobil and Shell, boosting Mobil's
equity interest in Aera from 41.4 percent to 48.2 percent.
Mobil and Texaco signed agreements with two Russian companies to
participate in exploration and producing projects on Sakhalin Island, in the
far-eastern region of Russia.
Sep
To reduce costs and improve performance, Mobil and Arco British Ltd. agreed to
combine the offshore operations of 15 gas fields in the U.K.'s southern North
Sea under a single management company. Later in the fall, production began from
the Malory gas field, which is in the covered area, and the Nevis North oil and
gas field, which is not.
Also, off the northwest coast of Australia, Mobil made another discovery of
natural gas and condensate. Mobil, the operator, has a 35 percent interest in
the well, called John Brookes-1. Elsewhere in the area, Mobil had recently made
the Woolybutt and Pitcairn oil discoveries and the Athena gas and condensate
discovery, while nearby in Papua New Guinea it made the Moran discovery.
RasGas, a joint venture of Qatar General Petroleum Corporation and Mobil,
was the successful bidder in an LNG tender sponsored by the Indian consortium
Petronet LNG Ltd. By the end of the year, Petronet, RasGas and Mobil had signed
principles of agreement covering the sale and purchase of 7.5 million tons of
LNG annually for 25 years. The three companies also intend to be partners in
developing LNG receiving terminals in the Indian cities of Dahej and Cochin.
Along with a previous agreement to supply Korea Gas Corporation, the Petronet
sales would bring the contracted volume of the RasGas LNG venture to 12.3
million tons a year.
[A PICTURE OF CONSTRUCTION OF ONSHORE RASGAS FACILITIES APPEARS HERE]
10 Mobil
[PICTURE OF MODEL OF "SUPER SPONGE" MOLECULE APPEARS HERE]
Oct
With the signing of new agreements, contracts for the sale of Mobil's
share of natural gas from the Sable Offshore Energy Project (SOEP) reached more
than 97 million cubic feet a day. That represents about 40 percent of Mobil's
share of SOEP's expected initial production. Mobil holds a 50.8 percent working
interest in SOEP, off the coast of Nova Scotia. Delivery of gas to customers in
Eastern Canada and the Northeastern U.S. is expected to begin in late 1999.
Further north, in Canada's Grand Banks, the Hibernia crude oil field averaged
about 100,000 barrels a day of production in the fourth quarter. Mobil's share
in Hibernia is 33.1 percent.
Researchers from Mobil Technology Company and the U.S. Department of Energy
developed a new material that can serve as a microscopic "super sponge" to soak
up specific toxic metals and make contaminated water fit for drinking in
seconds. The new material is so porous that the internal surface area of two
teaspoons of it equals the size of a football field. The Mobil and government
researchers began work on scaling up the formulation for commercialization.
Venezuelan author Ana Teresa Torres won the 1998 Mobil Pegasus Prize for
Literature for her novel, Dona Ines contra el olvido (Dona Ines Against
Forgetfulness). The prize carries with it $15,000, a gold medallion, translation
and publication of her book in English, and travel to promote the English
edition. Since its inception in 1977, the prize, whose winners are chosen by an
independent jury of experts, has been awarded in 13 countries where Mobil
conducts business.
In Texas, Mobil and Tetco Texas Holding Company, an existing Mobil
distributor, formed a limited partnership (Mobil share, 48.5 percent) to operate
a Mobil-branded distributorship called Tetco Stores LP.
[PICTURE OF CONSTRUCTION OF ONSHORE RASGAS FACILITIES APPEARS HERE]
Mobil 11
- --------------------------------------------------------------------------------
The Year in Review
- --------------------------------------------------------------------------------
Nov
The Caspian Pipeline Consortium, in which Mobil holds a 7.5 percent interest,
received approvals from Kazakhstan and Russia and made the decision to begin
construction in 1999. Before the end of 1998, Mobil was selected by the
government of Kazakhstan as one of the international energy companies to work
with Kazakhoil on a feasibility study for another project -- a potential
trans-Caspian oil and gas transportation system. Mobil called the new study the
next logical step to determine the commercial viability of additional
transportation systems.
Meanwhile, production from Kazakhstan's Tengiz field reached 210,000
barrels a day, more than double the 1996 level. Mobil owns 25 percent of the
joint venture that operates the field.
Expanding its role in the marketing of oriented polypropylene (OPP), the
flexible packaging film, Mobil entered into an agreement with Hungary's largest
chemical company. The agreement calls for Mobil to supply technical assistance
to Tiszai Vegyi Kombinat Rt. (TVK) for construction of a new OPP line, with
Mobil and TVK marketing the film under their own names through their existing
channels.
[PICTURE OF MOBIL OPP PLANT IN SHAWNEE, OKLAHOMA APPEARS HERE]
Dec
At year's end, nearly 10,000 workers were on site at the Yanpet petrochemical
expansion project in Yanbu, Saudi Arabia. During the year, the project completed
a number of heavy equipment lifts, including the heaviest onshore lift ever made
in the Middle East.
Mobil and Qatar General Petroleum Corporation signed principles of
agreement for development of an Enhanced Gas Utilization Project. The project
would deliver up to 1.25 billion cubic feet a day of natural gas from Qatar's
North Field for power, petrochemical and other industrial customers in the
region.
Exxon and Mobil announced that they had reached an agreement to merge.
Exxon shareholders would own about 70 percent and Mobil shareholders about 30
percent of the merged company, which would be renamed Exxon Mobil Corporation.
Its headquarters would be in Irving, Texas, with worldwide downstream
headquarters in Fairfax, Virginia, and worldwide upstream and chemical
headquarters in Houston, Texas. L. R. Raymond would be chairman, chief executive
officer and president of Exxon Mobil, and L. A. Noto would be vice chairman of
the board. The merger is subject to shareholder and regulatory approval, as well
as other customary conditions.
[PICTURE OF EXXON'S LEE RAYMOND AND MOBIL'S LOU NOTO APPEARS HERE]
12 Mobil
- --------------------------------------------------------------------------------
Financial Section
- --------------------------------------------------------------------------------
Highlights
. Operating earnings declined 31% to $2.4 billion, an indication of the
tough business conditions in the oil and gas industry.
. E&P operating earnings of $1.0 billion were adversely impacted by
significantly lower worldwide crude oil and natural gas prices. Worldwide
reserve replacement was 165% of production.
. M&R operating earnings of $1.4 billion were the highest ever, reflecting
record U.S. performance for the second straight year, benefits from Mobil's
alliance with BP in Europe and business initiatives in Asia-Pacific.
. Chemical operating earnings of $0.2 billion were depressed due to weak
margins for petrochemicals.
Key Financial Indicators
(In millions, except per-share and ratio amounts) 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------------------------
Operating Earnings(1) $ 2,231(2) $ 2,846 $ 3,097 $ 3,430 $ 2,366
Special Items (472) (470) (133) (158) (662)
- -------------------------------------------------------------------------------------------------------------------
Income, Excluding the Effect of Change in
Accounting Principle $ 1,759(2) $ 2,376 $ 2,964 $ 3,272 $ 1,704
Per common share 2.14(2) 2.93 3.69 4.10 2.12
Per common share-assuming dilution 2.12(2) 2.88 3.62 4.01 2.10
Common Stock Dividends Per Share 1.70 1.81 1.96 2.12 2.28
- -------------------------------------------------------------------------------------------------------------------
Capital and Exploration Expenditures $ 3,825 $ 4,268 $ 6,361 $ 4,689 $ 4,747
Cash Investments in Equity Companies 102 257 658 617 753
- -------------------------------------------------------------------------------------------------------------------
Total Investment Spending $ 3,927 $ 4,525 $ 7,019 $ 5,306 $ 5,500
- -------------------------------------------------------------------------------------------------------------------
Debt-to-Capitalization Ratio 31% 27% 29% 25% 29%
Total Debt $ 7,727 $ 6,756 $ 7,875 $ 6,664 $ 7,701
- -------------------------------------------------------------------------------------------------------------------
Shareholders' Equity $ 17,146 $ 17,951 $ 19,072 $ 19,461 $ 18,370
Per common share 21.30 22.35 23.81 24.41 23.31
- -------------------------------------------------------------------------------------------------------------------
(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).
Mobil 13
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Net Income
(Millions of dollars)
[BAR CHART APPEARS HERE]
1998 1,704
1997 3,272
1996 2,964
1995 2,376
1994 1,759*
*Excludes cumulative effect of change in accounting principle.
Mobil's income fell 48%, reflecting the impact of deteriorating industry
fundamentals across most of its businesses.
Graphs, charts and associated captions on pages 13-52 are not a part of the
Consolidated Financial Statements and Notes thereto.
Outlook
Although Mobil cannot be certain that its outlook for the petroleum and chemical
industries will prove accurate, described below are both known and anticipated
trends relevant to that outlook.
Overall, the energy industry will remain highly competitive, and
significant capital investments to support operations and profitable growth will
continue to be required. These investments will be predominantly in
international areas because of the availability of opportunities. 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 1998, crude oil
prices declined significantly from average 1997 levels, in part due to limited
demand growth associated with the economic difficulties in the Asia-Pacific
region and a warmer than normal winter, and in part due to increased worldwide
production. In the near term, barring additional sustained production cutbacks
by producing countries, supply is expected to continue to exceed demand,
resulting in continuing pressure on prices and further industry restructuring
and consolidation. Mobil remains convinced that the Asia-Pacific region will be
a growth area for the future.
Mobil believes that, over the long term, 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, have opened up in the last few years to companies like Mobil who are
recognized for their financial and technical strengths. Mobil will look to these
areas to contribute to its program of replacing its hydrocarbon reserves and
providing production and earnings growth.
The marketing and refining industry will continue to face competitive
market pressures, and margins will remain volatile. Downstream margins in the
Asia-Pacific region weakened considerably in 1998 compared with average 1997
levels. Over the long term, worldwide downstream margins are expected to improve
gradually as demand growth outpaces capacity additions. Due to the competitive
environment, more downstream alliances are possible. Continuing environmental
expenditures will also be required worldwide.
The worldwide petrochemical business continues to be cyclical. In the near
term, both polyethylene and paraxylene margins are expected to remain under
pressure as new capacity is placed on stream, but they are expected to gradually
strengthen over the long term in response to demand growth.
Mobil's overall investment program (see page 34) has been scaled back as a
result of depressed industry conditions. It 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
projects that will continue to require additional capital to fully develop. It
also employs the use of limited recourse financing, staged project development,
joint ventures and cash exposure management.
Exxon Mobil merger
On December 1, 1998, Mobil entered into a definitive agreement with Exxon
Corporation to merge the two companies. Under the terms of the agreement, each
share of Mobil common stock will be converted into 1.32015 shares of Exxon
common stock, and Exxon will change its name to Exxon Mobil Corporation. As a
result of the merger, existing Mobil shareholders will own about 30 percent of
the new company, while existing Exxon shareholders will own about 70 percent.
The merger is subject to shareholder and regulatory approval, as well as other
customary conditions.
14 Mobil
- --------------------------------------------------------------------------------
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
16-21. While reading these discussions, the reader may find it helpful to refer
to pages 30-52 for the Consolidated Financial Statements and commentary, and to
pages 54-63 for Supplementary Information.
Consolidated Results
Net Income (In millions, except per-share amounts) 1996 1997 1998
- ----------------------------------------------------------------------------------
Petroleum Operations
Exploration & Producing $ 2,109 $ 2,212 $ 644
Marketing & Refining 913 1,025 1,016
- ----------------------------------------------------------------------------------
Total Petroleum 3,022 3,237 1,660
Chemical 306 403 181
- ----------------------------------------------------------------------------------
Segment Earnings 3,328 3,640 1,841
Corporate and Financing (364) (368) (137)
- ----------------------------------------------------------------------------------
Net Income $ 2,964 $ 3,272 $ 1,704
Per common share $ 3.69 $ 4.10 $ 2.12
Per common share-assuming dilution $ 3.62 $ 4.01 $ 2.10
- ----------------------------------------------------------------------------------
Mobil's earnings per share growth based on operating earnings attained first
quartile performance versus other major oil companies in 1998, a year in which
industry fundamentals deteriorated.
Consolidated Earnings
(In millions) 1996 1997 1998
- --------------------------------------------------------------------------------
Net Income $ 2,964 $ 3,272 $ 1,704
Less: Special Items(1) (133) (158) (662)
- --------------------------------------------------------------------------------
Operating Earnings $ 3,097 $ 3,430 $ 2,366
- --------------------------------------------------------------------------------
(1) Special items represent the earnings effects from events or circumstances
not attributable to Mobil's ongoing operations. These special items are
identified in the business segment tables that follow.
In 1998, Net Income of $1,704 million was $1,568 million lower than in 1997
as higher net special charges and the unfavorable impact to operating earnings
of significantly lower industry prices and margins more than offset benefits
from self-help programs.
Due to the poor industry fundamentals, net special charges for 1998 totaled
$662 million, mainly for the impairment of upstream properties and the impact of
lower prices on inventories. Restructuring-related provisions and other net
unfavorable items essentially offset the benefit resulting from the settlement
of prior years' tax disputes. Net special charges in 1997 totaled $158 million,
$504 million lower than 1998. The charges in 1997 were mainly for
restructuring-related provisions, litigation charges and a one-time performance
award to employees, partly offset by gains on the sale of non-core assets and
favorable inventory adjustments.
In 1997, net income of $3,272 million was $308 million higher than in 1996,
primarily due to higher operating earnings slightly offset by higher charges for
special items. Charges for special items totaling $158 million were $25 million
higher than in 1996 and included charges for restructuring, partly offset by
gains on asset sales.
In 1998, Operating Earnings were $2,366 million, $1,064 million lower than
in 1997. Industry factors were significantly unfavorable as lower worldwide
crude oil and natural gas prices, lower downstream margins in the U.S.,
Asia-Pacific and the Middle East and lower polyethylene and paraxylene margins
more than offset higher downstream margins in Europe. Lower upstream production
volumes and higher exploration expenses also hurt operating earnings. These
unfavorable factors were mitigated by self-help benefits, including strong
volume growth in the downstream, improved performance in lubes, certain tax
benefits, reduced refinery downtime, benefits from the Mobil-BP alliance in
Europe and business initiatives in Asia-Pacific.
In 1997, operating earnings were $3,430 million, up $333 million from 1996.
The improvement primarily reflected strong volume growth in the upstream
business, higher volumes in Chemical, improved performance by all business
segments and higher industry margins in the U.S. downstream and the polyethylene
businesses.
Annual Dividends (Per share of common stock, in dollars)
[BAR CHART APPEARS HERE]
1998 2.28
1997 2.12
1996 1.96
1995 1.81
1994 1.70
1993 1.63
1992 1.60
1991 1.56
1990 1.41
1989 1.28
1988 1.18
Dividend payments increased for the eleventh consecutive year.
Mobil 15
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Upstream Earnings
(Millions of dollars)
[BAR CHART APPEARS HERE]
Operating Net
Earnings Income
1998 1,005 644
1997 2,138 2,212
1996 2,059 2,109
Lower worldwide prices, higher exploration expenses, lower production and asset
writedowns contributed to lower earnings.
Net Production
(Thousands of barrels daily of oil equivalent)
[BAR CHART APPEARS HERE]
1998 1,713
1997 1,753
1996 1,685
Natural field declines, OPEC constraints and a rationalized capital program
offset growth in Canada, Equatorial Guinea and Kazakhstan.
Petroleum Operations
Upstream-Exploration & Producing
Exploration & Producing Segment Financial Indicators
- --------------------------------------------------------------------------------
(In millions) 1996 1997 1998
- --------------------------------------------------------------------------------
U.S. Income $ 737 $ 697 $ 11
International Income 1,372 1,515 633
- --------------------------------------------------------------------------------
Total Upstream Net Income $ 2,109 $ 2,212 $ 644
- --------------------------------------------------------------------------------
Revenues(1) $12,841 $11,840 $ 8,643
- --------------------------------------------------------------------------------
Assets $17,880 $18,468 $19,671
- --------------------------------------------------------------------------------
Capital Expenditures $ 3,914 $ 2,888 $ 2,925
Exploration Expenses 512 499 643
Cash Investments in Equity Companies 520 277 384
- --------------------------------------------------------------------------------
Total Investment Spending $ 4,946 $ 3,664 $ 3,952
- --------------------------------------------------------------------------------
(1) Includes intersegment revenues.
Lower crude oil and natural gas prices adversely affected exploration and
producing income. Worldwide reserve replacement was 165% of production.
With crude oil prices at their lowest level in over 15 years, lower natural
gas prices, a drop of 2% in production, higher exploration expenses, and
significant asset impairment charges, income decreased significantly.
In 1998, Mobil produced 935,000 barrels per day of liquids and 4,296
million cubic feet per day of natural gas. Worldwide production decreased the
equivalent of 40,000 barrels of oil per day from 1997 due to natural field
declines in the United States and Europe, lower Indonesian volumes (Arun field),
limitations on production and operational problems in Nigeria and the effects of
prior year asset sales in various locations. New production from Canada, West
Africa, Kazakhstan and Turkmenistan somewhat moderated the overall production
decrease.
At year end, the Hibernia field, off Eastern Canada, which came on stream
in late 1997, was producing about 100,000 barrels per day (Mobil share, 33.1
percent). While OPEC quota restrictions curtailed the production growth planned
for Nigeria, production from Equatorial Guinea increased 35% from 1997 levels.
Mobil replaced 165% of its production with new reserve additions, compared
with a 146% replacement rate in 1997, with the most significant contribution
coming from the Cerro Negro heavy oil project in Venezuela. The proved reserve
base is now 7.6 billion barrels of oil equivalent. Mobil's focus for reserve
replacement continues to be exploration activities, participation in new
producing ventures and acquisitions.
In 1998, 46 wildcat exploration wells were drilled, resulting in 10
discoveries. There were successes in Indonesia, Norway, deepwater Gulf of
Mexico, Peru and Italy. New acreage acquisitions and opportunities in the U.S.,
Canada, Italy, and West Africa (Sao Tome and Principe) also strengthened the
company's portfolio. In the U.S., Mobil added 98 blocks to its prospect
inventory in the deepwater Gulf of Mexico. Mobil was awarded six licenses on the
Grand Banks, offshore Newfoundland, Canada. This brings Mobil's holdings in the
area to 550,000 net acres. The 1999 acquisition of Lasmo's holdings in Italy
will allow Mobil and its partners to progress development plans of the Tempa
Rossa field. Depending on the technical evaluation of the deepwater blocks in
Sao Tome and Principe, Mobil may earn an exclusive option to negotiate a
production sharing agreement for the area.
Investment spending in 1998 was $4.0 billion, up $0.3 billion from 1997. In
1997, investment spending was down $1.3 billion from 1996, which included the
acquisition of Ampolex and a 25% equity interest in the joint venture that owns
the Tengiz field. Planned investment spending for 1999 is $3.6 billion and
continues to be focused in international areas on strategic growth
opportunities. Several of the countries where Mobil has investments are subject
to political and economic uncertainties.
Revenues decreased primarily due to the significantly lower crude oil and
natural gas prices reflecting the worldwide excess of supply over demand. In
1997, revenues decreased from 1996 primarily due to the full-year impact of
equity
16 Mobil
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Petroleum Operations (continued)
accounting for Mobil's gas marketing alliance with Duke Energy and Aera
Energy, the alliance with Shell in California.
Upstream net income of $644 million was $1,568 million lower than in 1997
including $387 million for asset impairments recorded in accordance with Mobil's
policy described on page 38. Operating earnings of $1,005 million (U.S.,$196
million; International, $809 million; refer to tables that follow) decreased
$1,133 million, mainly due to the lower prices worldwide for crude oil and
natural gas, decreased production volumes and higher exploration expenses.
Average worldwide crude oil prices in 1998 declined about $6.50 per barrel
from 1997 (see graph at right), reflecting increased supplies and slower demand
growth due to warmer weather and the economic downturn in Asia. International
natural gas prices also decreased as they tend to follow the movement of crude
oil prices. Mobil's U.S. average natural gas prices decreased about $0.40 per
thousand cubic feet as a result of low prices for competing fuel oil in the
industrial and commercial markets and lower demand in the residential market due
to milder winter weather.
In 1997, net income of $2,212 million was $103 million higher than in 1996.
Operating earnings of $2,138 million increased $79 million as the effect of
increased liquids production in international areas was partly offset by higher
expenses for new business development and the effect of lower production in the
United States. The effects of higher natural gas prices, primarily in North
America, largely offset the impact of lower worldwide crude oil prices.
U.S. Exploration & Producing Earnings
(In millions) 1996 1997 1998
- --------------------------------------------------------------------------------
U.S. Income $ 737 $ 697 $ 11
Special Items in Income
Asset impairment (69) -- (156)
Federal royalty settlement -- -- (29)
Asset sales gains 119 53 --
Litigation -- (12) --
Employee performance award -- (4) --
Restructuring provisions (7) -- --
- --------------------------------------------------------------------------------
Operating Earnings
(Excludes Special Items) $ 694 $ 660 $ 196
- --------------------------------------------------------------------------------
U.S. Upstream operating earnings of $196 million in 1998 were $464 million
lower than in 1997, mainly due to lower prices for crude oil and natural gas,
the effects of lower production volumes due to natural field declines and prior
year asset sales, and higher exploration expenses.
In 1997, operating earnings of $660 million were $34 million lower than in
1996, reflecting the effects of lower production volumes and lower crude oil
prices. The impact of lower volumes, due to natural field declines and the
carry-over effect of 1996 asset sales, was partly offset by benefits from new
capital programs. Earnings benefited from higher natural gas prices and lower
operating expenses.
International Exploration & Producing Earnings
(In millions) 1996 1997 1998
- --------------------------------------------------------------------------------
International Income $ 1,372 $ 1,515 $ 633
Special Items in Income
Asset impairment -- -- (231)
Asset sales gains 12 41 55
Employee performance
award -- (4) --
Restructuring provisions (5) -- --
- --------------------------------------------------------------------------------
Operating Earnings
(Excludes Special Items) $ 1,365 $ 1,478 $ 809
- --------------------------------------------------------------------------------
International Upstream operating earnings of $809 million were $669 million
lower than in 1997, mainly due to lower crude oil and natural gas prices.
Volumes were down slightly as reductions due to OPEC production constraints
mainly in Nigeria, natural field declines in Europe and the anticipated declines
in Indonesian volumes more than offset the effect of new crude production in
Canada, Equatorial Guinea, Kazakhstan, and Turkmenistan. Although exploration
expenses were higher, favorable currency impacts, certain tax benefits and the
sale of an independent power project in the United Kingdom reduced its effect.
In 1997, operating earnings of $1,478 million were $113 million higher than
in 1996, principally due to the effects of higher production and higher natural
gas prices in Canada, partly offset by the impact of lower crude oil prices and
higher expenses in new venture areas.
Crude Oil Average Sales Prices
(Dollars per barrel)
[BAR CHART APPEARS HERE]
U.S. International
1998 10.48 12.29
1997 16.59 18.94
1996 17.40 20.81
Crude oil prices remained volatile in 1998, dropping about $6.50 per barrel.
Natural Gas Average Sales Prices
(Dollars per thousand cubic feet)
[BAR CHART APPEARS HERE]
International U.S.
1998 2.17 1.98
1997 2.72 2.38
1996 2.66 2.17
Lower worldwide natural gas prices compounded the effects of lower crude oil
prices.
Mobil 17
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Petroleum Operations (continued)
Downstream-Marketing & Refining
Downstream Earnings
(Millions of dollars)
[BAR CHART APPEARS HERE]
1998 1997 1996
Net Income 1,016 1,025 913
Operating Earnings 1,420 1,312 1,051
Operating earnings in 1998 increased primarily due to improved performance,
benefits from the Mobil-BP alliance, and initiatives in Asia-Pacific.
Refinery Runs for Mobil
(Thousands of barrels daily)
[BAR CHART APPEARS HERE]
1998 1997 1996
International
& 2,135 2,191 2,142
U.S.
Lower U.S. runs reflected divestitures. International runs were higher due to
improved efficiency.
Marketing & Refining Segment Financial Indicators
- -----------------------------------------------------------------------------
(In millions) 1996 1997 1998
- -----------------------------------------------------------------------------
U.S. Income $ 407 $ 542 $ 574
International Income 506 483 442
- -----------------------------------------------------------------------------
Total Downstream Net Income $ 913 $ 1,025 $ 1,016
- -----------------------------------------------------------------------------
Revenues(1) $70,796 $55,871 $45,233
- -----------------------------------------------------------------------------
Assets $23,520 $20,212 $18,532
- -----------------------------------------------------------------------------
Capital Expenditures $ 1,554 $ 928 $ 721
Cash Investments in Equity Companies 131 340 268
- -----------------------------------------------------------------------------
Total Investment Spending $ 1,685 $ 1,268 $ 989
- -----------------------------------------------------------------------------
(1) Includes intersegment revenues.
In 1998, major initiatives resulted in strong Downstream earnings performance,
despite difficult industry conditions in certain markets where Mobil operates.
In the U.S., record income was attained for the second straight year. In
International, operating earnings in 1998 were the second highest on record.
These earnings performances were achieved as an increase in worldwide trade
sales, benefits from initiatives and improved lube earnings more than offset
slightly lower U.S. industry margins and lower margins in Asia-Pacific and at
the Yanbu, Saudi Arabia, joint venture refinery.
In the U.S., major initiatives in 1998 included the completion of
construction of sixty On The Run(R) convenience stores and the expansion of the
successful rollout of the Speedpass(TM) program into all of Mobil's major
markets. By year's end, some 2.1 million motorists had the miniature
Speedpass(TM) transponders.
During 1998, the implementation of the Mobil-British Petroleum (BP)
alliance in Europe was completed and initiatives were fully in place to achieve
targeted annual benefits of about $500 million pretax (Mobil share, about $170
million). These initiatives included sale of the retail fuels assets in Belgium
and Hungary. In addition, as part of a separate initiative to restructure the
lubricant base oil refining business and achieve additional annual benefits of
about $50 million pretax (Mobil share, $25 million) by mid-year 1999, the
stand-alone lubes refinery at Llandarcy in South Wales was closed.
In the Asia-Pacific region several major cost reduction initiatives were
implemented, including completion of a restructuring in Japan, which included
the elimination of approximately 300 positions, and a cost reduction and asset
rationalization program in the Australian marketing operations. In 1998, Mobil
announced the realignment of its fuels and lubes operations in Australia and New
Zealand.
In Africa, Mobil continued to build on a strong competitive position by
progressing the market entry in Kenya and the 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 and entered the fuels market in Venezuela, while
Mobil's lubes business continued to grow throughout the region. In addition, an
initiative was launched late in the year to realign the fuels and lubes
operations in the region.
Investment spending totaled $1.0 billion in 1998, about 40% in the U.S.,
including spending for construction related to On The Run(R) convenience stores.
The remainder was mainly for asset base protection in international areas.
Planned spending for 1999 is $0.8 billion, down $0.2 billion from 1998, and is
about equally divided between U.S. and International.
Downstream revenues decreased 19% in 1998 versus 1997 due to lower
petroleum product prices partly offset by the effects of higher sales volumes.
Revenues decreased 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.
18 Mobil
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Petroleum Operations (continued)
Downstream net income of $1,016 million in 1998 was $9 million lower than
in 1997. Excluding special items, operating earnings of $1,420 million (U.S.
$566 million and International $854 million; refer to tables that follow)
increased $108 million, despite lower overall margins. Higher product trade
sales volumes, benefits from the Mobil-BP European alliance, strong refinery
performance and business initiatives contributed to the higher operating
earnings in 1998.
Net income of $1,025 million in 1997 was $112 million higher than in 1996.
Excluding special items, operating earnings of $1,312 million increased $261
million. Higher product trade sales volumes outside of Europe, benefits from the
Mobil-BP European alliance and strong refinery 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.
U.S. Marketing & Refining Earnings
(In millions) 1996 1997 1998
- -----------------------------------------------------------------------------
U.S. Income $ 407 $ 542 $ 574
Special Items in Income
LIFO/other inventory adjustments 35 8 8
Asset impairment -- (18) --
Employee performance award -- (10) --
- -----------------------------------------------------------------------------
Operating Earnings (Excludes Special items) $ 372 $ 562 $ 566
- -----------------------------------------------------------------------------
U.S. Downstream operating earnings were $566 million in 1998, $4 million
higher than in 1997. The unfavorable impact of lower industry margins was offset
by higher product sales volumes and excellent refinery performance. Initiatives
in marketing such as Speedpass(TM) and On The Run(R) contributed to growth in
retail automotive gasoline sales, which were up more than 5%.
In 1997, operating earnings of $562 million were $190 million higher than in
1996. Results benefited from excellent refinery performance, higher integrated
margins and higher product sales volumes, in particular in retail automotive
gasoline sales which were up almost 3%.
International Marketing & Refining Earnings
(In millions) 1996 1997 1998
- ---------------------------------------------------------------------------
International Income $ 506 $ 483 $ 442
Special Items in Income
Lower of cost or market provisions -- -- (261)
BP alliance implementation costs -- (69) (93)
Restructuring provisions (154) (189) (41)
LIFO/other inventory adjustments 8 12 (17)
Employee performance award -- (21) --
Other (27) -- --
- ---------------------------------------------------------------------------
Operating Earnings (Excludes Special items) $ 679 $ 750 $ 854
- ---------------------------------------------------------------------------
International Downstream operating earnings were $854 million in 1998, $104
million higher than in 1997. Europe reported record results, up significantly
due to benefits from the Mobil-BP alliance and stronger integrated margins.
Earnings were up somewhat in Asia-Pacific, as self-help programs across the
region fully offset the unfavorable impact of lower integrated margins. Africa
also generated record earnings as a result of growth initiatives. International
downstream earnings were also helped by higher product sales volumes in South
America, but were hurt by lower margins at Mobil's Yanbu, Saudi Arabia joint
venture refinery.
Operating earnings of $750 million in 1997 were $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 significantly lower margins in parts of Asia-Pacific.
Downstream Petroleum Products Sales Volumes* (Thousands of barrels daily)
[BAR CHART APPEARS HERE]
1998 1997 1996
International & U.S. 3,440 3,343 3,345
- -------------------
*Includes supply sales.
Worldwide sales volumes increased by 3% led by the U.S., Africa and Latin
America.
Mobil 19
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Chemical Earnings
(Millions of dollars)
[BAR GRAPH APPEARS HERE]
1998 1997 1996
Net Income 181 403 306
Operating Earnings 190 350 306
Significantly lower operating earnings in 1998 reflected weaker industry
polyethylene and aromatics margins.
Chemical
Chemical Segment Financial Indicators
- -----------------------------------------------------------------------------
(In millions) 1996 1997 1998
- -----------------------------------------------------------------------------
Petrochemicals Income $ 167 $ 214 $ 41
Chemical Specialties and OPP Films 139 189 140
- -----------------------------------------------------------------------------
Total Chemical Net Income $ 306 $ 403 $ 181
- -----------------------------------------------------------------------------
Revenues(1) $3,280 $3,533 $2,818
- -----------------------------------------------------------------------------
Assets $2,966 $3,088 $3,337
- -----------------------------------------------------------------------------
Capital Expenditures $ 339 $ 323 $ 267
Cash Investments in Equity Companies 7 -- 101
- -----------------------------------------------------------------------------
Total Investment Spending $ 346 $ 323 $ 368
- -----------------------------------------------------------------------------
(1) Includes intersegment revenues
Chemical income declined significantly reflecting lower polyethylene and
paraxylene margins. However, this unfavorable impact was mitigated somewhat by
record income in the chemical specialties business.
Chemical is comprised of: petrochemicals, chemical specialties and oriented
polypropylene (OPP) films. Petrochemicals is the largest segment with major
product lines of polyethylene resin, paraxylene, benzene, propylene and ethylene
glycol.
Chemical is progressing two major international petrochemical projects.
Mobil Yanbu Petrochemical Company and Saudi Basic Industries Corporation expect
to complete by mid-2000 a major expansion that will double the current capacity
of their Yanpet olefins complex in Yanbu, Saudi Arabia. Mobil and Pequiven, the
Venezuelan state-owned petrochemical company, are engaged in Phase 1 engineering
studies to develop construction cost bid specification packages and marketing
and distribution feasibility studies for a proposed new olefins complex in Jose,
Venezuela. The proposed site is at an existing petrochemicals facility, giving
it access to low-cost feedstocks and opportunities to achieve substantial
synergies with the current operations.
A modernization and expansion of Mobil's Beaumont olefins plant is nearing
completion with start-up slated for early 1999. This project will increase
ethylene capacity by 45%, improve operating flexibility to process the most
economically attractive feedstocks and lower energy consumption by 35%. To
utilize effectively the incremental ethylene output from this project and from
the recently expanded Houston, Texas, olefins plant, a low-cost de-bottleneck of
the Beaumont low-pressure polyethylene plant was completed in late 1998,
resulting in a 10% increase in polyethylene capacity. The plant's capacity is
now 2 billion pounds of polyethylene resin.
Chemical's investment spending in 1998 was $368 million, slightly higher
than the 1997 level of $323 million due to the ramp-up of the Yanpet expansion
project. Planned investment spending for 1999 is approximately $300 million,
mainly to support continued worldwide productivity improvements and capacity
expansions, notably the Yanpet project.
Chemical 1998 net income of $181 million included a $9 million writedown of
petrochemical inventory values to reflect their lower market value. Chemical's
1997 income included $53 million from special items consisting of 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.
Chemical Earnings
(In millions) 1996 1997 1998
- ----------------------------------------------------------------------------
Chemical Income $ 306 $ 403 $ 181
Special Items in Income
Lower of cost or market provisions -- -- (9)
Asset sales gains -- 48 --
Litigation -- 10 --
Employee performance award -- (5) --
- ----------------------------------------------------------------------------
Operating Earnings (Excludes Special Items) $ 306 $ 350 $ 190
- ----------------------------------------------------------------------------
20 Mobil
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Chemical (concluded)
Chemical operating earnings were $190 million in 1998, down 46% from the
prior year, largely due to significantly weaker global polyethylene and
paraxylene margins. Volumes improved by 4%, which was less than the 14% increase
in 1997, as no major new capacity was streamed until late in the year. While
most industry fundamentals for Chemical's petrochemical and OPP film businesses
were unfavorable in 1998, the effects of these factors were partially offset by
an especially strong result in the chemical specialties business unit.
Operating earnings of $350 million in 1997, an increase of $44 million or
14% from 1996, reflected stronger polyethylene margins, increased sales volumes,
and improved plant operating reliability.
Trade sales revenues of $2.4 billion in 1998 decreased 19% from the prior
year primarily due to a similar percentage decrease in U.S. polyethylene prices.
The 5% gain in 1997 trade revenues over 1996 was fueled by a 14% increase in
sales volumes, somewhat offset by lower aromatics prices.
Corporate and Financing
Corporate and Financing Expense
(In millions) 1996 1997 1998
- ----------------------------------------------------------------------------
Corporate and Financing Expense $(364) $(368) $(137)
Special Items included:
Settlement of prior years' tax disputes -- -- 137
Exxon Mobil merger - related costs -- -- (25)
Asset sales gains 30 39 --
Litigation -- (31) --
Employee performance award -- (6) --
Staff redesign implementation (75) -- --
- ----------------------------------------------------------------------------
Operating Expense
(Excludes Special Items) $(319) $(370) $(249)
- ----------------------------------------------------------------------------
Corporate and Financing net expense was $137 million in 1998. This category
includes corporate administrative expenses, net financing expense, and other
items. Excluding special items from both periods, Corporate and Financing
operating expense of $249 million was $121 million lower than in 1997, primarily
due to the timing of expenses and other one-time items.
Excluding special items, Corporate and Financing operating expense of $370
million in 1997 was $51 million higher than in 1996, primarily due to a number
of one-time charges that were only partially offset by lower interest expense
due to lower average net debt balances and lower interest rates. The staff
redesign implementation costs in 1996 were expensed as incurred and related
primarily to relocation expenditures, facility modifications and consultant
fees.
Restructurings
In 1998, Mobil implemented new restructuring programs in Australia and New
Zealand, and in Latin America, to integrate regional fuels and lubes operations.
These programs will result in the elimination of approximately 500 positions as
well as asset write-downs in Australia and New Zealand. Mobil recorded a
provision of $50 million ($41 million after tax) in Selling and general expenses
and Depreciation, depletion and amortization for these programs. In 1999, cash
outlays of $36 million will be made for employee separation benefits and exit
costs. The remainder represents noncash costs for the closure of facilities with
net book values of $19 million. These assets will be closed in 1999. The results
of operations of these assets are not material. Also, since the depreciable
assets were written down to zero, there is no further depreciation expense to be
recorded. Projected annualized benefits are about $40 million after tax and are
expected to be fully achieved by the end of 2000 due primarily to employee and
contractor cost savings as well as marketing effectiveness improvements. The
balance in the reserve at December 31, 1998 was $36 million.
Also during 1998, Mobil and BP completed the implementation of their
alliance, which combined the companies' European operations in the refining and
marketing of fuels and lubricants. This alliance, with targeted annualized
benefits of $170 million pretax (Mobil share) through manpower reductions,
higher volumes, supply and logistics improvements and system efficiencies,
resulted 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
workforce reductions,
Mobil 21
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Restructurings (concluded)
facilities closure costs and asset writedowns. Of this amount, $126 million
represented cash expenditures in 1996, 1997 and 1998 and the remainder was for
noncash costs. Implementation of this program began in late 1996 and was
essentially complete as of December 31, 1998. The amounts remaining in the
reserve at December 31, 1996, 1997 and 1998 were $123 million, $47 million and
$7 million, respectively, and the reductions were due to cash outlays and
noncash reclassifications.
Additionally, in 1997, Mobil and BP announced that the alliance would
implement a major restructuring of its lubricant base oil refining business.
This program will result in the elimination of approximately 460 Mobil positions
and in write-downs and closure of certain facilities and will be completed by
the end of 1999. Mobil recorded reserves in 1997 of $86 million ($82 million
after tax) mainly for employee severance costs associated with workforce
reductions and for write-downs and closure of certain facilities. Cash outlays
are expected to be $66 million of which $31 million was spent during 1998.
Non-cash costs are expected to be $20 million. Projected annualized benefits are
expected to reach $50 million pretax, of which Mobil's share is about $25
million, primarily through manpower reductions. The amounts remaining in the
reserve at December 31, 1997 and 1998 were $66 million and $35 million,
respectively. The reductions were due to cash outlays and noncash
reclassifications.
The above provisions were recorded in Income from equity affiliates and
Selling and general expenses.
In addition to restructuring charges for the Mobil-BP alliance, Mobil
incurred one-time implementation charges in 1997 and 1998 of $69 million after
tax and $93 million after tax, respectively, primarily for the reimaging of
retail outlets and for systems implementation.
During 1997, Mobil commenced two major cost savings initiatives in
Asia-Pacific--one in Japan in response to the deregulated business environment
and the other in Australia. These programs resulted in the elimination of
approximately 400 positions and the rationalization of certain assets. In 1997,
Mobil recorded reserves of $172 million ($107 million after tax) primarily for
separation costs related to workforce reductions and for closure of certain
facilities. The provisions have been recorded in Selling and general expenses,
Crude oil, products and operating supplies, and expenses, Income from asset
sales, interest and other and Depreciation, depletion and amortization. Cash
outlays are expected to be $113 million of which $8 million and $59 million were
made in 1997 and 1998, respectively. The remainder will be paid in 1999.
Non-cash costs are expected to be $59 million. Projected annualized savings from
these initiatives are expected to approximate $210 million pretax and are
expected to be fully realized by the end of 1999. These savings will come from
manpower reductions, lower transportation expenses and volume growth. The
amounts remaining in the reserves at December 31, 1997 and 1998 were $137
million and $50 million, respectively. The reductions were due to cash outlays
and noncash reclassifications.
Accounting Standards
In June 1998, Financial Accounting Standard (FAS) 133, Accounting for Derivative
Instruments and Hedging Activities, was issued. Adoption of this standard is
required in the first quarter of 2000. FAS 133 requires that all derivatives be
recognized as either assets or liabilities and measured at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge of risk exposure. Mobil is currently reviewing the expected impact of FAS
133, which will depend on the derivatives outstanding when the standard is
adopted and is not expected to be significant.
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
22 Mobil
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Risk Management (concluded)
for interest rate risk is 100% floating rate. Mobil's benchmark is to fully
hedge exposures to foreign currency rate risk resulting from debt instruments
denominated in a currency other than the functional currency of the borrower or
lender. 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/or currency of the original borrowings with the
objective of minimizing Mobil's borrowing costs. At December 31, 1998, 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, 1998,
the primary currencies under management include the Canadian dollar and
Norwegian kroner.
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,
1998, 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 $4 million for interest rate risk and $8
million for commodity price risk (including trading contracts) at December 31,
1998. The foreign currency exchange rate risk was essentially zero. The average,
high and low value at risk during 1998 was:
Year ended December 31, 1998
(In millions) Average High Low
- ---------------------------------------------------------------------------
Interest rate risk $ 5 $ 9 $ 1
Foreign currency exchange rate risk 1 4 0
Commodity price risk 10 13 6
- ---------------------------------------------------------------------------
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.
Mobil 23
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Year 2000 Project
Mobil is engaged in a company-wide effort (Project) to address the issues that
are likely to arise if computer programs and embedded computer chips are unable
to properly recognize dates in and after the year 2000. The Project is focused
on three main areas: the information technology (IT) systems in Mobil's
computers and computer software, including those that are linked to the systems
of third parties; the non-IT systems embedded in equipment that controls or
monitors Mobil's operating assets; and Mobil's business relationships with third
parties (referred to herein as external agents). The thrust of the Project is to
address those of Mobil's IT systems, non-IT systems and relationships with
external agents which Mobil judges to be materially important to Mobil. These
systems or relationships, referred to herein as materially important, are those
whose failure for year 2000 reasons would likely: put the safety of individuals
at risk; lead to damage to property or the environment; put in jeopardy the
value of Mobil's name or intellectual property; or trigger a significant adverse
consequence to Mobil's financial performance or condition.
Project work dealing with IT systems and Project work dealing with non-IT
systems has the following three phases: (1) inventory and assessment:
inventorying all of Mobil's systems (including those that are linked to third
parties), identifying those of Mobil's systems that are not year 2000 compliant,
and making judgments as to which of Mobil's systems (both compliant and
non-compliant) would likely be materially important; (2) strategy and planning:
developing strategies and plans for (a) remediating, upgrading or replacing all
non-compliant systems (except those whose failure would, in Mobil's judgment,
have an insignificant impact on Mobil's operations) and (b) testing all systems
judged to be materially important, and estimating the costs of implementing
these strategies and executing these plans; and (3) execution: implementing the
strategies and executing the plans.
Project work dealing with relationships with external agents has the
following three phases: (1) inventory and assessment: inventorying Mobil's
relationships with external agents and making judgments as to which of those
relationships would likely be materially important; (2) communication and
evaluation: sending letters and questionnaires to those external agents whose
relationships are judged to be materially important to elicit information about
the plans and actions of those external agents to achieve timely year 2000
readiness, and evaluating the information so obtained; and (3) follow up:
contacting external agents with whom Mobil has already communicated to obtain
further assurance that such external agents will achieve timely year 2000
readiness.
Additional Project work, discussed below, involves identifying scenarios
involving failures for year 2000 reasons of materially important IT and non-IT
systems or materially important relationships with external agents and
developing contingency plans for mitigating the impact of such failures.
The inventory and assessment and the strategy and planning phases of the
work dealing with IT systems are complete. The execution phase of this work
involves both application and infrastructure repair and systems upgrades and
replacements. Application and infrastructure repair involves: the remediation
and testing of non-compliant code; the remediation, replacement and testing of
computing infrastructure and telecommunications devices; and the upgrading and
testing of end user applications. The application and infrastructure repair
work, which is being performed by both Mobil personnel and third parties
specializing in resolving year 2000 issues, is expected to be completed by June
30, 1999, and Mobil estimates that approximately 91% of the projects comprising
this work had been completed as of December 31, 1998. The systems upgrade and
replacement work consists of the implementation of a major integrated enterprise
software system in North America (which would have been implemented regardless
of year 2000 considerations) and numerous other systems. All of this work is
expected to be essentially completed by June 30, 1999. Based on calculations
that reflect successful attainment of milestones, Mobil estimates that
approximately 77% of the major integrated enterprise software system
implementation project had been completed as of December 31, 1998. Mobil
estimates that approximately 63% of the projects comprising the work to upgrade
and replace other systems had been completed as of December 31, 1998.
The inventory and assessment phase of the work dealing with non-IT systems
is essentially complete. The strategy and planning phase of this work is
expected to be completed by March 31,
24 Mobil
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Year 2000 Project (continued)
1999, and Mobil estimates that it was approximately 95% complete as of December
31,1998. The execution phase of this work, much of which is being performed by
the vendors of the products involved, is expected to be completed by June 30,
1999, and Mobil estimates that approximately 26% of the projects comprising this
work had been completed as of December 31, 1998. This brought the percentage of
year 2000 compliant non-IT systems in Mobil's inventory of materially important
non-IT systems to approximately 70% as of that date.
The inventory and assessment phase of the work dealing with relationships
with external agents is essentially complete. The communication and evaluation
phase of this work is expected to be completed by March 31, 1999, and Mobil
estimates that approximately 68% of the suppliers whose relationships Mobil
judges to be materially important had been contacted and had responded as of
December 31, 1998. The follow-up phase of this work will be undertaken on a
continuous, ongoing basis through the end of 1999.
Cost
The costs associated with the Project (all on a pre-tax basis) are being spent
over a three-year period. There are two categories of these costs: (1) costs
that are being incurred solely to achieve year 2000 compliance and (2) costs
that are being incurred to install new systems that improve business
functionality and in many cases concurrently provide year 2000 compliance. Mobil
estimates that the costs to be incurred solely to achieve year 2000 compliance
will total approximately $185 million, of which the costs of dealing with IT
systems are expected to be about $168 million and the costs of dealing with
non-IT systems are expected to be about $17 million (the costs of dealing with
relationships with external agents are expected to be minimal). As of December
31, 1998, about $121 million of the total costs estimated to be incurred solely
to achieve year 2000 compliance had been expended. Mobil estimates that the
costs to be incurred for new systems that improve business functionality and in
many cases concurrently provide year 2000 compliance will total approximately
$280 million, and as of December 31, 1998, about $206 million of these costs had
been expended, of which $73 million was expensed as incurred and approximately
$133 million was capitalized.
All Project costs are being funded with cash flows from operations. The
$185 million which Mobil estimates will be expended solely to achieve year 2000
compliance represents less than 15% of Mobil's estimated total IT budget for the
period covered by the Project. This entire amount is being expensed as it is
incurred. Of the $280 million which Mobil estimates will be expended on new
systems that improve business functionality and in many cases concurrently
provide year 2000 compliance, approximately $105 million is being expensed as it
is incurred and approximately $175 million is being capitalized.
As a result of the Project, certain IT projects to improve business
functionality have been reprioritized and accelerated while other such IT
projects have been deferred. As a consequence, expenditures during the period
covered by the Project on IT systems that will improve business functionality
will actually be greater than the expenditures that would have been made on such
systems had there been no Project. Accordingly, the deferral of IT work due to
the Project will not have a material adverse effect on Mobil's results of
operations or financial condition.
Risks and Contingency Plans
The failure or failures for year 2000 reasons of materially important systems or
relationships with external agents could have a material adverse effect on
Mobil's results of operations, liquidity and/or financial condition. For
example, if, for year 2000 reasons, a utility company were to be unable to
supply electricity to a Mobil refinery for an extended period, the refinery
would have to be shut down for that period, which could result in substantial
losses of production, sales and income. Mobil believes that the Project work
described above dealing with materially important IT systems and non-IT systems
will, when completed, serve to reduce very substantially the risk that such
systems will fail for year 2000 reasons. Mobil has no way of ensuring, however,
that external agents whose relationships with Mobil are judged to be materially
important (e.g., utilities, telecommunications providers and transportation
providers) will be timely year 2000 compliant.
The failure or failures of systems for year 2000 reasons could also give
rise to liability to third parties. Mobil has not yet attempted to assess the
potential for such liability, and hence
Mobil 25
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Year 2000 Project (concluded)
cannot say whether such liability presents a material risk independent of the
risk that such failure or failures could have a material adverse effect on
Mobil's results of operations, liquidity and/or financial condition.
To minimize the risks associated with the year 2000 issue referred to in
the second preceding paragraph, Mobil has begun work (1) to identify scenarios
involving possible failures for year 2000 reasons of materially important
systems and relationships with external agents and (2) to develop contingency
plans for mitigating the impact of these scenarios. Mobil operates a portfolio
of diverse businesses which have facilities and operations throughout the world
and are managed regionally. Mobil believes that the most reasonably likely worst
case scenarios, should they occur, will be encountered at facilities or
operations located in one or more of these regions. Accordingly, a risk-based
contingency planning process has been developed for execution by each business
unit in its unique operating environment, focusing on its business-specific
risks. Contingency planning project leaders were trained in the process during
the first six weeks of 1999. The business units will develop and implement
contingency plans with a target completion date of September 30, 1999. Mobil
also plans to adapt its existing crisis response model to encompass failures for
year 2000 reasons of materially important systems or relationships with external
agents.
The work described in the preceding paragraph will be focused on risks,
scenarios and contingency plans involving materially important systems and
relationships with external agents. There are, however, an almost infinite
number of additional risks which are simply not assessable and for which,
therefore, contingency plans cannot be developed. These are the risks of failure
for year 2000 reasons of one or more systems or relationships with external
agents which, individually, Mobil does not judge to be materially important but
whose failure could trigger a cascade of other failures for year 2000 reasons,
the combination of which could be materially important or could prevent Mobil
from implementing contingency plans it has developed. Such a combination of
failures could also have a material adverse effect on Mobil's results of
operations, liquidity and/or financial condition.
Forward-Looking Statements Relating to the Year 2000
The foregoing discussion about the year 2000 issue includes a number of
forward-looking statements, which are based on Mobil's best assumptions and
estimates as of the date hereof. These include, without limitation, statements
concerning: Mobil's estimated timetables for completing the not-yet-completed
phases of the Project work; Mobil's estimates of the percentages of the work
that remains to be performed to complete such phases; Mobil's estimated
timetable for identifying scenarios involving possible failures for year 2000
reasons of materially important systems and relationships with external agents
and the development and implementation of contingency plans for mitigating the
impacts of these scenarios; and Mobil's estimates of the costs of (1) completing
the not-yet-completed phases of the Project and (2) identifying possible year
2000 failure scenarios and developing and implementing contingency plans for
mitigating the impacts of these.
Actual results could differ materially from the estimates expressed in such
forward-looking statements, due to a number of factors. These factors, which are
not necessarily all the key factors that could cause such differences, include
the following: Mobil's failure to judge accurately which of Mobil's systems and
relationships with external agents are materially important; Mobil's inability
to obtain and retain the staff and third-party assistance necessary to complete
the not-yet-completed phases of the Project in accordance with Mobil's estimated
timetables; the inability of such staff and third parties (1) to locate and
correct all non-year 2000 compliant computer code in materially important
systems and test such corrected code and (2) to install and test upgrades or new
systems containing year 2000-compliant computer code, all in accordance with
Mobil's estimated timetables; unforeseen costs of completing Project work;
Mobil's inability or failure to identify significant year 2000 issues not now
contemplated; and the failure of external agents to achieve timely year 2000
readiness.
26 Mobil
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Environmental Matters
Environmental Expenditures U.S. International
- --------------------------------------------------------------------------------
(In millions) 1996 1997 1998 1996 1997 1998
- --------------------------------------------------------------------------------
Capital $149 $105 $ 88 $108 $105 $125
Protection and Compliance
Ongoing operations 212 213 208 171 128 114
Remediation 46 46 45 27 28 22
- --------------------------------------------------------------------------------
Total Environmental Expenditures $407 $364 $341 $306 $261 $261
- --------------------------------------------------------------------------------
Over the past three years Mobil has spent $1.9 billion to safeguard the
environment.
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 a
comprehensive corporate policy and management system, 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 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. Mobil sells
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 1999 are expected to remain near the
1998 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. The
decline in remediation expenditures reflects the use of improved remediation
technology, a more effective use of available resources 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, 1998,
Mobil had been successful in resolving its involvement in 180 of the 282 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 11 to Financial Statements on page 46 for
further discussion of environmental liabilities.
Mobil 27
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
The Euro
On January 1, 1999, eleven European countries established fixed conversion rates
between their existing sovereign currencies ("legacy currencies") and adopted
the euro as their common legal currency. The euro and the legacy currencies are
each legal tender for transactions now. Beginning January 1, 2002, the
participating countries will issue euro-denominated bills and coins and by July
1, 2002 each will withdraw its sovereign currency and transactions thereafter
will be conducted solely in euros.
During 1998, Mobil conducted an assessment of the euro's impact on Mobil's
pan-European fuels and lubricants alliance with BP as well as other Mobil
business conducted in Europe and/or transacted in legacy currencies. The
assessment addressed such issues as providing customer assistance, handling
customer transactions in euros and legacy currencies, and modifying systems to
support transactions in euros. As a result of the assessment, plans to address
the impact of the euro's introduction were developed, including plans for:
internal and external communications; training; and systems and process
redevelopments based on evolving business practices of customers, vendors,
employees, banks and public and government institutions. Steps are now being
taken to implement these plans.
Based upon Mobil's assessment of the impact of the euro on Mobil and the
steps Mobil is taking to deal with this impact, Mobil does not expect that the
introduction of the euro will have a significant negative impact on Mobil's
operations, results of operation, liquidity and/or financial condition. Mobil
estimates that approximately $50 million pretax ($30 million after-tax) will be
spent on euro-related conversion processes from 1998 through 2002. These costs
are being funded with cash flows from operations and substantially all of them
will be expensed as incurred.
The foregoing discussion about the euro includes several forward-looking
statements, which are based on Mobil's best assumptions and estimates as of the
date hereof. These include, without limitation, statements concerning Mobil's
expectations as to the impact of the euro on Mobil and Mobil's estimate of the
cost of converting to the euro. Actual results, however, could differ materially
from those expressed in such forward-looking statements for a number of reasons,
including without limitation, the following: changes in the form of, and/or the
timetable for or regulatory details relating to the introduction of the euro
from what Mobil has assumed; Mobil's inability to implement in a timely manner
its plans for dealing with the impact of the euro; and the inability or failure
of third parties with whom Mobil has significant euro-based relationships to
convert to the euro on a timely basis.
Forward-Looking Statements
Written materials issued and oral statements made from time to time by Mobil may
contain "forward-looking statements." Forward-looking statements can be
identified by the fact that they do not relate strictly to historical or current
facts and by their use of words such as "goals," "expects," "plans," "believes,"
"estimates," "forecasts," "projects," "intends" and other words of similar
meaning. Such statements are likely to address Mobil's earnings, return on
capital employed, capital expenditures, debt-to-capitalization ratio, dividend
increases, project implementation, production growth, reserve replacement, sales
growth and expense reductions. They are based on management's then-current
information, assumptions, plans, expectations, estimates and projections about
the petroleum and chemical industries. However, such statements are not
guarantees of future performance, and actual results and outcomes may differ
materially from what is expressed depending on a variety of factors, many of
which are outside Mobil's control.
Among the factors that could cause actual outcomes or results to differ
materially from what is expressed in these forward-looking statements are
changes in the demand for, supply of, and market prices of crude oil, refined
products, natural gas and petrochemicals; changes in refining margins and
marketing margins; success in partnering, in implementing oil, natural gas and
petrochemical projects, and in implementing internal plans; reliability of
operating facilities; effects of environmental regulations; success of
commercial negotiations; and domestic and international political and economic
conditions.
28 Mobil
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Quarterly Financial Data (unaudited)
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/(loss) 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/(Loss) $ 826 $ 850 $ 892 $ 704 $ 3,272
Per common share $ 1.03 $ 1.06 $ 1.12 $ 0.88 $ 4.10
Per common share-assuming dilution $ 1.01 $ 1.04 $ 1.09 $ 0.86 $ 4.01
- ------------------------------------------------------------------------------------------------------
Dividends Per Common Share $ 0.53 $ 0.53 $ 0.53 $ 0.53 $ 2.12
- ------------------------------------------------------------------------------------------------------
Special Items Included in Net Income
Asset impairment $ -- $ -- $ -- $ (18) $ (18)
Lower of cost or market provisions -- -- -- -- --
Settlement of prior years' tax disputes -- -- -- -- --
BP alliance implementation costs (18) (20) (11) (20) (69)
Asset sales gains -- -- 140 41 181
Restructuring provisions -- -- (61) (128) (189)
Federal royalty settlement -- -- -- -- --
Exxon Mobil merger-related costs -- -- -- -- --
LIFO/other inventory adjustments -- -- -- 20 20
Employee performance award -- -- (50) -- (50)
Litigation -- -- (33) -- (33)
- ------------------------------------------------------------------------------------------------------
Total Special Items (18) (20) (15) (105) (158)
- ------------------------------------------------------------------------------------------------------
Operating Earnings(1) $ 844 $ 870 $ 907 $ 809 $ 3,430
- ------------------------------------------------------------------------------------------------------
Sales Price per Common Share (2)
High $ 68 $ 72 1/4 $ 78 $ 77 1/2 $ 78
Low $ 60 5/8 $ 60 $ 69 5/8 $66 7/16 $ 60
- ------------------------------------------------------------------------------------------------------
1998
------------------------------------------------------------
First Second Third Fourth Full
(In millions, except per-share amounts) Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------------------------------
Revenues
Sales and services $ 13,388 $ 13,023 $ 12,878 $ 12,851 $ 52,140
Income/(loss) from equity affiliates 126 55 204 (69) 316
Income from asset sales,
interest and other 116 155 404 400 1,075
- --------------------------------------------------------------------------------------------------------
Total Revenues 13,630 13,233 13,486 13,182 53,531
- --------------------------------------------------------------------------------------------------------
Costs and Expenses
Crude oil, products and operating
supplies and expenses 8,403 8,074 8,261 8,171 32,909
Exploration expenses 74 97 185 287 643
Selling and general expenses 934 939 854 1,028 3,755
Depreciation, depletion
and amortization 599 621 633 978 2,831
Interest and debt discount expense 93 30 227 101 451
Taxes other than income taxes 2,293 2,438 2,486 2,665 9,882
Income taxes 529 392 331 104 1,356
- --------------------------------------------------------------------------------------------------------
Total Costs and Expenses 12,925 12,591 12,977 13,334 51,827
- --------------------------------------------------------------------------------------------------------
Net Income/(Loss) $ 705 $ 642 $ 509 $ (152) $ 1,704
Per common share $ 0.88 $ 0.81 $ 0.64 $ (0.21) $ 2.12
Per common share-assuming dilution $ 0.86 $ 0.79 $ 0.63 $ (0.21) $ 2.10
- --------------------------------------------------------------------------------------------------------
Dividends Per Common Share $ 0.57 $ 0.57 $ 0.57 $ 0.57 $ 2.28
- --------------------------------------------------------------------------------------------------------
Special Items Included in Net Income
Asset impairment $ -- $ -- $ -- $ (387) $ (387)
Lower of cost or market provisions -- -- -- (270) (270)
Settlement of prior years' tax disputes -- -- -- 137 137
BP alliance implementation costs (10) (13) (14) (56) (93)
Asset sales gains -- -- 55 -- 55
Restructuring provisions -- -- -- (41) (41)
Federal royalty settlement -- -- (29) -- (29)
Exxon Mobil merger-related costs -- -- -- (25) (25)
LIFO/other inventory adjustments -- -- -- (9) (9)
Employee performance award -- -- -- -- --
Litigation -- -- -- -- --
- --------------------------------------------------------------------------------------------------------
Total Special Items (10) (13) 12 (651) (662)
- --------------------------------------------------------------------------------------------------------
Operating Earnings(1) $ 715 $ 655 $ 497 $ 499 $ 2,366
- --------------------------------------------------------------------------------------------------------
Sales Price per Common Share (2)
High $ 83 13/16 $ 82 13/16 $ 80 $ 91 1/4 $ 91 1/4
Low $ 63 3/4 $ 73 7/16 $ 62 7/16 $ 71 $ 62 7/16
- --------------------------------------------------------------------------------------------------------
(1) Excludes special items.
(2) 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.
Mobil 29
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Return on Average Shareholders' Equity (In percent)
98 9.0
97 17.0
96 16.0
Return on Average Shareholders' Equity declined with lower earnings, reflecting
the impact of a deterioration in industry fundamentals.
Commentary on Consolidated Statement of Income.
Revenues from Sales and Services decreased $12,187 million in 1998 from
1997 primarily due to the effects of lower average worldwide crude oil, natural
gas and petroleum product prices. Partly offsetting these decreases were the
effects of higher petroleum sales volumes. The decrease in 1997 from 1996
resulted mainly from the effects of equity accounting for the Mobil-BP European
downstream alliance and the gas marketing activities in the U.S., lower crude
oil prices and currency translation effects, which were partly offset by higher
sales volumes and higher average worldwide natural gas prices.
Income from Equity Affiliates decreased in 1998 due to significantly lower
crude oil, natural gas and petroleum product prices. The increase in 1997 from
1996 resulted mainly from the affects of the alliances being recorded for the
first full year.
Total Costs and Expenses decreased by $10,807 million from 1997 mainly due
to the lower average petroleum prices, the effects of equity accounting for the
alliances and the benefits of initiatives. In 1997, the decrease was mainly due
to the effects of equity accounting for the Mobil-BP European downstream and
Mobil-Shell California upstream alliances as well as currency translation
effects.
Crude Oil, Products and Operating Supplies and Expenses decreased $8,288
million in 1998, primarily due to the lower average petroleum prices. The
decrease in 1997 from 1996 was 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.
Exploration Expenses were higher in 1998 due to exploratory well
write-offs, primarily in the U.S. and Latin America. Expenses in 1997 decreased
somewhat from 1996 due to a smaller planned program for that year.
Selling and General Expenses decreased $602 million primarily due to the
effects of initiatives. In 1997, the decrease was primarily due to the effects
of equity accounting for the Mobil-BP alliance and cost-savings initiatives,
partly offset by restructuring reserves and the employee performance award.
Depreciation, Depletion and Amortization Expenses were higher in 1998
mainly as a result of asset impairments of upstream properties, primarily in the
U.S., Latin America and Asia-Pacific. Expenses in 1997 decreased from 1996 as
the effects from equity accounting for the Mobil-BP and Mobil-Shell alliances
were largely offset by the effects of 1996's acquisition of Ampolex and other
capital spending.
Taxes Other than Income Taxes decreased $624 million in 1998, primarily due
to lower import duties and excise and gasoline taxes. In 1997, the decrease of
$8,517 million from 1996 reflected the effects of equity accounting for the
alliances were partly offset by the effects of higher sales volumes.
Income Taxes decreased significantly as the effects of lower pretax income
were compounded by mix changes in the sources of earnings. Deferred tax assets
related to tax loss carryforwards that were fully reserved were written off in
1998 with no impact on net income. Income Taxes decreased in 1997 versus 1996 as
the effects of higher pretax income were more than offset by mix changes in the
sources of earnings.
Commentary on Consolidated Statement of Changes in Shareholders' Equity
Total Shareholders' Equity fell $1,091 million in 1998 primarily due to an
increase in Common Stock Held in the Treasury from the purchase of 6,468,900
shares in the open market to offset the dilutive effects of stock options and
ongoing market purchases. Also, Unearned Employee Compensation and Benefit Plan
Trust increased due to the reclassification of 7,383,110 common shares held by a
supplemental benefit plan trust. Return on Average Shareholders' Equity
decreased from 17.0% in 1997 to 9.0% in 1998.
Common stock dividends paid were $1.9625 per share, $2.12 per share and
$2.28 per share in 1996, 1997 and 1998, respectively.
30 Mobil
- --------------------------------------------------------------------------------
Consolidated Financial Statements
- --------------------------------------------------------------------------------
Consolidated Statement of Income
Year ended December 31 (In millions, except per-share amounts) 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------
Revenues
Sales and services(1) $ 80,365 $ 64,327 $ 52,140
Income from equity affiliates 279 696 316
Income from asset sales, interest and other 859 883 1,075
- ------------------------------------------------------------------------------------------------------------------------------
Total Revenues 81,503 65,906 53,531
- ------------------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Crude oil, products and operating supplies and expenses 47,490 41,197 32,909
Exploration expenses 512 499 643
Selling and general expenses 5,187 4,357 3,755
Depreciation, depletion and amortization 2,725 2,554 2,831
Interest and debt discount expense 455 428 451
Taxes other than income taxes(1) 19,023 10,506 9,882
Income taxes 3,147 3,093 1,356
- ------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 78,539 62,634 51,827
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 2,964 $ 3,272 $ 1,704
Per common share $ 3.69 $ 4.10 $ 2.12
Per common share--assuming dilution $ 3.62 $ 4.01 $ 2.10
- ------------------------------------------------------------------------------------------------------------------------------
(1) Includes excise and state gasoline taxes: 1996-$9,236 million; 1997-$5,928
million; 1998-$5,853 million.
Consolidated Statement of Changes in Shareholders' Equity
Year ended December 31 (In millions) 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------
Preferred Stock
-Beginning of year $ 722 $ 686 $ 665
-End of year, after redemptions $ 686 $ 665 $ 641
- ------------------------------------------------------------------------------------------------------------------------------
Unearned Employee Compensation
and Benefit Plan Trust
-Beginning of year $ (411) $ (365) $ (329)
-End of year $ (365) $ (329) $ (668)
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock at Par
-Beginning of year $ 888 $ 891 $ 894
-End of year, after issuance of shares $ 891 $ 894 $ 898
- ------------------------------------------------------------------------------------------------------------------------------
Capital Surplus
-Beginning of year $ 1,396 $ 1,468 $ 1,549
-End of year, after issuance of common shares $ 1,468 $ 1,549 $ 1,649
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Retained in the Business
-Beginning of year $ 17,745 $ 19,108 $ 20,661
-Net income $ 2,964 2,964 $ 3,272 3,272 $ 1,704 1,704
-Common stock dividends (1,547) (1,667) (1,781)
-Preferred stock dividends (ESOP-related) (54) (52) (50)
-End of year $ 19,108 $ 20,661 $ 20,534
Accumulated Other Nonowners' Equity
-Beginning of year $ (27) $ (73) $ (821)
-Cumulative minimum pension liability(2) -- -- (126)
-Cumulative foreign currency translation(2) (46) (46) (748) (748) (111) (237)
----- ------ ------
-End of year $ (73) $ (821) $ (1,058)
- ------------------------------------------------------------------------------------------------------------------------------
Changes in Nonowners' Equity $ 2,918 $ 2,524 $ 1,467
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock Held in Treasury, at Cost
-Beginning of year $ (2,362) $ (2,643) $ (3,158)
-End of year, after purchases $ (2,643) $ (3,158) $ (3,626)
- ------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 19,072 $ 19,461 $ 18,370
- ------------------------------------------------------------------------------------------------------------------------------
(2) Amounts are net of income tax (expense)/benefit: 1996-$(2) million;
1997-$12 million; 1998-$88 million.
See Notes to Financial Statements on pages 38-52.
Mobil 31
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Total Debt
(Millions of dollars)
International U.S.
98 7,701
97 6,664
96 7,875
Debt increased, primarily reflecting the impact of weaker business conditions on
earnings.
Return on Average Capital Employed
(In percent)
98 7.7
97 13.4
96 12.7
Return on Average Capital Employed declined for the first time in four years due
to the 48% drop in net income.
Commentary on Consolidated Balance Sheet
Total Current Assets decreased $991 million, primarily reflecting lower Cash,
Accounts and notes receivable and Inventories.
Cash and cash equivalents decreased $106 million from 1997. The movements
that contributed to this decrease are presented in the Consolidated Statement of
Cash Flows on page 35.
Accounts and notes receivable decreased as a result of reduced revenues
caused by lower worldwide crude oil, petroleum product and natural gas prices.
Inventories were lower in 1998 also as a result of lower petroleum product
prices. Since these prices were below the book value of certain international
inventories, it was necessary to write down the inventories to amounts that
would be realizable upon future sale.
Investments and Long-term Receivables essentially did not change as the
reclassification of a benefit plan trust to shareholders' equity as a result of
a new accounting requirement was primarily offset by additional equity
contributions to several joint ventures.
Net Properties, Plants and Equipment increased $171 million to $24,727
million as capital additions were mostly offset by depreciation, the writedown
of certain properties to fair value, the contribution of assets into joint
ventures and asset sales.
Total Current Liabilities of $12,946 million increased $525 million from
year-end 1997 primarily from increases in Short-term debt partially offset by
decreases in Accounts payable. Short-term debt increased primarily due to a
shift in financing from long-term to commercial paper as well as more long-term
debt maturing in one year at year-end 1998 than year-end 1997. Accounts payable
declined mainly due to the lower crude oil and petroleum product prices in 1998
that also resulted in the lower cost of purchases.
At year-end 1998, total Debt of Mobil and its consolidated subsidiaries was
$7,701 million, an increase of $1,037 million from the prior year. The addition
from 1997 reflects higher debt levels resulting from the impact of weaker
business conditions and the need to borrow to offset the lower cash generated
from operations. Mobil's year-end debt-to-capitalization ratio was 29%, up from
25% at year-end 1997.
Mobil continues to have ready access to global financial markets, providing
flexibility to take advantage of investment opportunities and low borrowing
costs. At year-end 1998, 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 was a Euro-Medium-Term-
Note program to facilitate the offering and sale outside the U.S. of an
additional $1.7 billion of debt securities in 1999 or later years.
Total Shareholders' Equity fell $1,091 million (see commentary on
Consolidated Statement of Changes in Shareholders' Equity on page 30).
32 Mobil
- --------------------------------------------------------------------------------
Consolidated Financial Statements
- --------------------------------------------------------------------------------
Consolidated Balance Sheet
At December 31 (In millions) 1997 1998
- -----------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 820 $ 714
Accounts and notes receivable 5,952 5,518
Inventories 2,156 1,911
Prepaid expenses and other current assets 623 520
Deferred income taxes 171 68
- -----------------------------------------------------------------------------------------------------------
Total Current Assets 9,722 8,731
- -----------------------------------------------------------------------------------------------------------
Investments and Long-term Receivables 8,479 8,490
Net Properties, Plants and Equipment 24,556 24,727
Deferred Charges and Other Assets 802 806
- -----------------------------------------------------------------------------------------------------------
Total Assets $ 43,559 $ 42,754
- -----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Short-term debt $ 2,994 $ 3,982
Accounts payable 4,418 3,707
Accrued liabilities 2,794 2,943
Income, excise, state gasoline and other taxes payable 1,906 1,986
Deferred income taxes 309 328
- -----------------------------------------------------------------------------------------------------------
Total Current Liabilities 12,421 12,946
- -----------------------------------------------------------------------------------------------------------
Long-term Debt 3,670 3,719
Reserves for Employee Benefits 1,745 2,060
Accrued Restoration, Removal and Environmental Costs 1,072 1,011
Deferred Credits and Other Noncurrent Obligations 1,274 1,021
Deferred Income Taxes 3,535 3,254
Minority Interest in Subsidiary Companies 381 373
- -----------------------------------------------------------------------------------------------------------
Total Liabilities 24,098 24,384
- -----------------------------------------------------------------------------------------------------------
Shareholders' Equity
Preferred stock--shares issued and outstanding:
1997-171,093; 1998-164,986 665 641
Unearned employee compensation and benefit plan trust (329) (668)
Common stock--shares issued: 1997-894,308,872; 1998-897,947,485 894 898
Capital surplus 1,549 1,649
Earnings retained in the business 20,661 20,534
Accumulated other nonowners' equity (821) (1,058)
Common stock held in treasury, at cost--shares: 1997-110,945,100; 1998-117,414,000 (3,158) (3,626)
- -----------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 19,461 18,370
- -----------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 43,559 $ 42,754
- -----------------------------------------------------------------------------------------------------------
See Notes to Financial Statements on pages 38-52.
Mobil 33
- --------------------------------------------------------------------------------
Management Discussion and Analysis
- --------------------------------------------------------------------------------
[BAR CHART APPEARS HERE]
Asset Sales Proceeds
(Millions of dollars)
98 811
97 1,050
96 1,759
Mobil sells assets that do not fit long-term strategies or are worth more to
others. Proceeds have totaled $3.6 billion over the past three years.
Commentary on Consolidated Statement of Cash Flows
The Statement of Cash Flows summarizes the cash provided and used during the
year. 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.
Net Cash from Operating Activities decreased by $1,492 million from 1997.
Net Cash from Operating Activities is derived by adjusting reported Net Income
for charges or credits that have no cash effect and cash items reported
elsewhere in this Statement.
Net Cash Used in Investing Activities was essentially unchanged, reflecting
a slightly higher investment program partially offset by lower level of proceeds
from asset sales in 1998. Exploration expenses of $512 million, $499 million and
$643 million in 1996, 1997 and 1998, respectively, are included in investing
activities rather than operating activities.
Net Cash Used in Financing Activities in 1998 was $1,168 million versus
$2,548 million used in financing activities in 1997. The variance reflects
higher debt levels associated with a weaker operating cash flow.
Investment Program
Mobil's planned 1999 investment program, including capital and exploration
expenditures and cash investments in equity companies, totals $4.8 billion.
Spending continues to be directed primarily to international projects
(International-80%; U.S.-20%), where opportunities to find and develop
resources are greater. The 1999 spending program dedicates about three-fourths
of the funds to the upstream sector. This program has been scaled back about 13%
from the 1998 spending level as a result of the current depressed industry
conditions. Mobil will continue to monitor its business environment and remains
flexible to adjust its plans if crude oil prices fail to improve from current
depressed levels or if attractive opportunities arise. Mobil's
debt-to-capitalization ratio of 29% provides the flexibility to weather tough
years, to take advantage of attractive investment opportunities and/or to
increase dividends to shareholders.
At year-end 1998, the unspent balance of total appropriations for capital
expenditures was approximately $4.9 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.
Asset Impairments
A charge of $491 million before tax ($387 million after tax) was recorded
to write down certain oil and gas properties to fair value, mainly in the U.S.,
Latin America and Asia Pacific. These write-downs are the result of the
reduction of hydrocarbon reserves, governmental actions and low worldwide prices
caused by the near term excess supply of crude oil and petroleum products.
The book value of producing properties that are determined to be impaired
are written down to fair value based on the net present value of future cash
flows. These cash flows are based on prices used for planning purposes
escalated for estimated inflation, applied to the future production profiles of
proved reserves and discounted at the rate that reflects Mobil's minimum return
on projects that are considered for investment. The reserves considered under
these tests are all currently producing hydrocarbons.
The assumptions related to fair value of properties are reflective of
Mobil's opinion that, due to the size of the capital projects and the time often
needed to complete them, a long-term view is required. Mobil believes that over
this long term, its assets will be recoverable in an environment of continued
price volatility, which is influenced by market forces, political and economic
uncertainties, host country regulations and new production sources. In this
highly competitive market, operating assets are rationalized with a long-term
perspective through several strategies including restructurings and joint
ventures. If the low prices experienced at year-end 1998 are sustained over a
long period of time and cause a revision of the prices that Mobil uses for
planning purposes, there could be future charges to income from the further
write-down of assets. Operations have not been shut down as a result of short-
term price declines nor are significant shutdowns expected in the future since
prices would need to decline significantly from current levels to be considered
for shut down.
34 Mobil
- --------------------------------------------------------------------------------
Consolidated Financial Statements
- --------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
Year ended December 31 (In millions) 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net Income $ 2,964 $ 3,272 $ 1,704
Adjustments to reconcile to net cash from operating activities
Depreciation, depletion and amortization 2,725 2,554 2,831
Deferred income taxes 446 404 (146)
Earnings less (greater) than distributions from
equity affiliates 153 (59) 329
Exploration expenses (includes noncash charges:
1996-$36; 1997-$30; 1998-$120) 512 499 643
Gain on sales of properties, plants and equipment
and other assets (423) (389) (230)
(Increase) decrease in working capital items (detailed below) (290) 475 181
Other, net 312 221 173
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash from Operating Activities 6,399 6,977 5,485
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Capital and exploration expenditures (4,967) (4,689) (4,747)
Acquisition of Ampolex Limited, net of $47 cash acquired (1,347) -- --
Proceeds from sales of properties, plants and equipment
and other assets 1,759 1,050 811
Payments attributable to investments and
long-term receivables (645)(1) (756)(1) (456)
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (5,200) (4,395) (4,392)
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Cash dividends (1,601) (1,719) (1,831)
Proceeds from borrowings having original terms
greater than three months 1,494 923 1,714
Repayments of borrowings having original terms
greater than three months (1,215) (1,772) (1,059)
Increase in other borrowings 667 112 371
(Decrease) increase in minority interest (47) 339 1
Proceeds from issuance of common stock 75 84 104
Purchase of common stock for treasury (281) (515) (468)
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (908) (2,548) (1,168)
- -----------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents(2) 19 (22) (31)
- -----------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 310 12 (106)
Cash and Cash Equivalents--Beginning of Year 498 808 820
- -----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents--End of Year $ 808 $ 820 $ 714
- -----------------------------------------------------------------------------------------------------------------------------
(1) Includes the cash expenditure for the acquisition of a 25% interest in a
joint venture that owns the Tengiz field.
(2) Cash equivalents are liquid investments convertible to cash and have
original maturities of three months or less.
Changes in Working Capital Items (Increase) Decrease
- -----------------------------------------------------------------------------------------------------------------------------
Accounts and notes receivable $(1,199) $ 834 $ 508
Inventories 91 (17) 189
Prepaid expenses and other current assets 24 (69) 101
Accounts payable 836 (307) (818)
Accrued liabilities (19) 334 134
Income, excise, state gasoline and other taxes payable (23) (300) 67
- -----------------------------------------------------------------------------------------------------------------------------
(Increase) Decrease in Working Capital Items $ (290) $ 475 $ 181
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Memo Items
- -----------------------------------------------------------------------------------------------------------------------------
Cash income taxes paid $ 2,416 $ 2,687 $ 1,845
Cash interest paid 458 528 467
- -----------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements on pages 38-52.
Mobil 35
- --------------------------------------------------------------------------------
Consolidated Financial Statements
- --------------------------------------------------------------------------------
Segment and Geographic Information
Year ended December 31 (In millions) 1996 1997 1998
- ---------------------------------------------------------------------------------------------------
Revenues by Segment
Exploration & Producing -- Third Party $ 8,055 $ 7,381 $ 5,744
-- Intersegment 4,786 4,459 2,899
Marketing & Refining -- Third Party 69,931 55,007 44,701
-- Intersegment 865 864 532
Chemical -- Third Party 3,023 3,251 2,512
-- Intersegment 257 282 306
Corporate and Other 494 267 574
Intersegment Elimination (5,908) (5,605) (3,737)
- ---------------------------------------------------------------------------------------------------
Total Revenues $ 81,503 $ 65,906 $ 53,531
- ---------------------------------------------------------------------------------------------------
Income from Equity Investments by Segment
Exploration & Producing $ 75 $ 254 $ 89
Marketing & Refining 126 346 185
Chemical 79 96 42
Corporate and Other (1) -- --
- ---------------------------------------------------------------------------------------------------
Total Income from Equity Investments $ 279 $ 696 $ 316
- ---------------------------------------------------------------------------------------------------
Depreciation, Depletion, and Amortization by Segment
Exploration & Producing $ 1,596 $ 1,557 $ 1,886
Marketing & Refining 966 835 776
Chemical 126 141 149
Corporate and Other 37 21 20
- ---------------------------------------------------------------------------------------------------
Total Depreciation, Depletion, and Amortization $ 2,725 $ 2,554 $ 2,831
- ---------------------------------------------------------------------------------------------------
Income Tax Expense/(Benefit) by Segment
Exploration & Producing $ 2,966 $ 2,785 $ 1,007
Marketing & Refining 425 544 478
Chemical 36 90 17
Corporate and Other (280) (326) (146)
- ---------------------------------------------------------------------------------------------------
Total Income Tax Expense/(Benefit) $ 3,147 $ 3,093 $ 1,356
- ---------------------------------------------------------------------------------------------------
Net Income/(Loss) by Segment
Exploration & Producing -- U.S. $ 737 $ 697 $ 11
-- International 1,372 1,515 633
Marketing & Refining -- U.S. 407 542 574
-- International 506 483 442
Chemical 306 403 181
Corporate and Other (364) (368) (137)
- ---------------------------------------------------------------------------------------------------
Total Segment Net Income $ 2,964 $ 3,272 $ 1,704
- ---------------------------------------------------------------------------------------------------
The distribution of Mobil's operations by business segment and geographic area
is presented above and on page 37. The business segments are based on products
and services and business activities reported to management. 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 corporate administrative
expenses and other items.
Mobil's share of the net income of companies accounted for on the equity
method is included in Revenues. Financial information on these affiliates is
presented in Note 4 on pages 40-41.
Intersegment revenues are sales to other business segments within Mobil and
are at estimated market prices. These intercompany transactions are eliminated
for consolidation purposes. Income taxes are allocated to segments on the basis
of operating results.
36 Mobil
- --------------------------------------------------------------------------------
Consolidated Financial Statements
- --------------------------------------------------------------------------------
Segment and Geographic Information (concluded)
Year ended December 31 (In millions) 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------
Investment Spending
Exploration & Producing -- U.S. $ 480 $ 427 $ 369
-- International 3,434(1) 2,461 2,556
Marketing & Refining -- U.S. 403 357 372
-- International 1,151 571 349
Chemical -- U.S. 301 288 239
-- International 38 35 28
Corporate and Other 42 51 191
- ----------------------------------------------------------------------------------------------------------------------
Total Capital Expenditures $ 5,849 $ 4,190 $ 4,104
- ----------------------------------------------------------------------------------------------------------------------
Exploration Expenses -- U.S. 76 76 127
-- International 436 423 516
- ----------------------------------------------------------------------------------------------------------------------
Total Exploration Expenses 512 499 643
- ----------------------------------------------------------------------------------------------------------------------
Total Capital Expenditures and Exploration Expenses $ 6,361 $ 4,689 $ 4,747
- ----------------------------------------------------------------------------------------------------------------------
Cash Investments in Equity Companies 658 617 753
- ----------------------------------------------------------------------------------------------------------------------
Total Investment Spending(2) $ 7,019 $ 5,306 $ 5,500
- ----------------------------------------------------------------------------------------------------------------------
Investment in Equity Method Affiliates by Segment
Exploration & Producing $ 1,448 $ 2,211 $ 2,847
Marketing & Refining 1,471 4,173 3,952
Chemical 502 579 684
Corporate and Other -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total Investment in Equity Method Affiliates $ 3,421 $ 6,963 $ 7,483
- ----------------------------------------------------------------------------------------------------------------------
Total Assets by Segment
Exploration & Producing $17,880 $18,468 $19,671
Marketing & Refining 23,520 20,212 18,532
Chemical 2,966 3,088 3,337
Corporate and Other 2,042 1,791 1,214
- ----------------------------------------------------------------------------------------------------------------------
Total Assets by Segment $46,408 $43,559 $42,754
- ----------------------------------------------------------------------------------------------------------------------
Revenues by Geographic Area
United States $27,447 $28,563 $23,807
Europe 25,414 7,684 5,156
Asia-Pacific 17,690 17,075 13,454
Other Areas(3) 10,458 12,317 10,540
Corporate and Other 494 267 574
- ----------------------------------------------------------------------------------------------------------------------
Total Revenues $81,503 $65,906 $53,531
- ----------------------------------------------------------------------------------------------------------------------
Long-Lived Assets by Geographic Areas
United States $10,522 $ 9,034 $ 8,165
Europe 5,183 3,415 3,734
Asia-Pacific 6,336 5,714 5,660
Other Areas 5,088 6,065 6,711
Corporate and Other 350 328 457
- ----------------------------------------------------------------------------------------------------------------------
Total Long-Lived Assets $27,479 $24,556 $24,727
- ----------------------------------------------------------------------------------------------------------------------
(1) Includes $1,394 million for the acquisition of Ampolex.
(2) For purposes of the Consolidated Statement of Cash Flows, these exploration
expenses of $512 million, $499 million and $643 million in 1996, 1997
and 1998, respectively, are included in investing activities rather than
operating activities.
(3) Includes principally West Africa, Saudi Arabia, Canada and Kazakhstan.
[BAR CHART APPEARS HERE]
Investment Spending
(Millions of dollars)
Capital Expenditures,
Exploration Expenses
& Equity Investment
98 5,500
97 5,306
96 7,019
76% of Mobil's Investment Spending in 1998 was in the international area where
greater opportunities exist.
Mobil 37
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Major Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of companies owned
more than 50% and controlled by Mobil. 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.
Revenues
Revenues associated with sales of crude oil, natural gas, petroleum and chemical
products and other merchandise are recorded when title passes to the customer.
Revenues from the production of natural gas properties in which Mobil has
interests with other companies are recognized on the basis of sales to Mobil
customers. Differences between these sales and Mobil's share of production are
routinely adjusted. These differences are not significant.
Inventories
Substantially all crude oil and product inventory volumes 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. 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. Costs of exploratory wells are capitalized if oil and
gas reserves are found and either classified as proved within a year following
completion of drilling or if additional exploration work is underway or planned.
Annual evaluations are made to assure that these conditions are met; otherwise,
the costs of exploratory wells are charged to expense.
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.
Capitalized costs of producing properties are assessed when changes in
economic or operating conditions indicate that the carrying amount may not be
recoverable. If the book values of the producing properties exceed undiscounted
cash flows, then the book values are written down to the net present value of
future cash flows. The net present value of future cash flows are based on
prices used for planning purposes escalated for estimated inflation, applied to
future production profiles of proved reserves, and discounted at the rate that
reflects the minimum return on projects that are considered for investments. The
future production of proved undeveloped reserves and their related development
costs are also factored
38 Mobil
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Major Accounting Policies (continued)
into the cash flows.
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. In order to
qualify for hedge accounting, the derivative instrument must be designated and
effective as a hedge.
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. Under the accrual method, differentials in the
swapped amounts are recorded as adjustments of the underlying periodic cash
flows that are being hedged. 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.
The deferral method is used for futures exchange contracts, forward
contracts, commodity swaps and covered options. 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 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
Accumulated Other Nonowners' Equity, net of related taxes.
Under both the accrual and deferral method of accounting, gains and losses
on closed contracts are deferred 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 and unrealized gains and losses are recognized in income coincidental
with the transaction, and the derivative would be redesignated as trading.
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.
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.
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
Accumulated Other Nonowners' Equity 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-
Mobil 39
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Major Accounting Policies (concluded)
oriented and for exploration and producing operations in Indonesia, Nigeria,
Equatorial Guinea 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. Asset Impairments
As a result of lower worldwide crude oil and natural gas prices, a charge of
$325 million before tax ($270 million after tax) was recorded in Crude oil,
products and operating supplies and expenses to adjust certain inventories to
their market value.
Also as a result of lower worldwide prices, a charge of $491 million before
tax ($387 million after tax) was recorded to write down certain properties to
fair value, mainly in the U.S., Latin America and Asia-Pacific. Of this amount,
$352 million was recorded in Depreciation, depletion and amortization with the
remainder recorded primarily in Crude oil, products and operating supplies and
expenses and Exploration expenses. The writedown of producing properties is
determined by comparing their book values to their undiscounted future cash
flows. Where the book values are greater than these cash flows, the properties
are written down to fair value measured by calculating the net present value of
the future cash flows in accordance with the policy described on page 38. There
were no fixed price forward sales of production at December 31, 1998. In 1998,
the price assumptions used to calculate these cash flows in accordance with the
policy in Note 1 are higher than the statutorily mandated prices used on page
59, which are unescalated year-end prices.
3. Inventories
At December 31, 1998, the worldwide excess of market over book value of
inventories valued under the LIFO method was $569 million ($517 million--U.S.;
$5 million--Europe; $5 million--Asia-Pacific; and $42 million--Other Areas). At
December 31, 1997, the worldwide excess of market over book value of inventories
valued under the LIFO method was $1,048 million.
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, are recorded as permanent adjustments to the
cost of inventories.
Inventories (In millions)
At December 31 1997 1998
- --------------------------------------------------------------------------------
Crude oil and petroleum products $1,535 $1,298
Chemical products 253 247
Other, mainly materials and supplies 368 366
- --------------------------------------------------------------------------------
Total $2,156 $1,911
- --------------------------------------------------------------------------------
4. Summary Financial Information of Unconsolidated Equity Affiliates
Summary financial information for affiliated companies accounted for on the
equity method is shown in the table on page 41. 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, 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 $814 million at December 31, 1998. Distributions
received from these companies were $432 million in 1996, $637 million in 1997
and $645 million in 1998.
Accounts and Notes Receivable in the Consolidated Balance Sheet include
$271 million and $258 million at December 31, 1997 and 1998, respectively, of
amounts due from equity affiliates. Accounts Payable include $468 million and
$388 million at December 31, 1997 and 1998, respectively, of amounts due to
equity affiliates.
40 Mobil
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
4. Summary Financial Information of Unconsolidated Equity Affiliates (concluded)
Equity method affiliates (In millions)
1996 1997 1998
- -------------------------------------------------------------------------------------------------
Total Mobil Share Total Mobil Share Total Mobil Share
- -------------------------------------------------------------------------------------------------
Current assets $ 9,784 $ 3,237 $ 16,281 $ 5,626 $ 18,470 $ 6,049
Noncurrent assets 16,224 5,260 28,271 9,132 30,175 9,693
Current liabilities (9,817) (3,354) (15,580) (5,353) (16,909) (5,531)
Long-term debt (4,455) (1,117) (6,193) (1,588) (7,763) (1,854)
Other liabilities (2,064) (605) (3,028) (854) (2,234) (874)
- -------------------------------------------------------------------------------------------------
Net assets $ 9,672 $ 3,421 $ 19,751 $ 6,963 $ 21,739 $ 7,483
- -------------------------------------------------------------------------------------------------
Gross revenues $ 32,296 $ 10,337 $ 72,725 $ 22,706 $ 65,549 $ 20,225
- -------------------------------------------------------------------------------------------------
Income before taxes $ 1,307 $ 429 $ 2,319 $ 834 $ 931 $ 386
Net income 969 279 1,782 696 693 316
- -------------------------------------------------------------------------------------------------
Capital expenditures $ 2,044 $ 435 $ 3,842 $ 988 $ 2,755 $ 776
- -------------------------------------------------------------------------------------------------
5. Properties, Plants and Equipment
Properties, plants and equipment are stated at cost, less accumulated
depreciation, depletion and amortization of $25,074 million at December 31,
1997, and $23,954 million at December 31, 1998.
Properties, plants and equipment (In millions)
1997 1998
- --------------------------------------------------------------------------------
At December 31 Net Gross Net Gross
- --------------------------------------------------------------------------------
Petroleum Operations
Exploration & Producing $13,810 $29,672 $14,307 $29,282
Marketing 4,155 6,225 4,147 6,425
Refining 3,624 7,764 3,153 6,888
Other Marketing &
Refining Activities 899 2,358 793 2,125
Chemical 1,740 3,077 1,870 3,349
Corporate and Other 328 534 457 612
- --------------------------------------------------------------------------------
Total $24,556 $49,630 $24,727 $48,681
- --------------------------------------------------------------------------------
6. Leases
Mobil leases real estate, service stations, pipelines, tankers and other
equipment through noncancelable capital and operating leases.
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.
Rental expense (In millions)
Year ended December 31 1996 1997 1998
- --------------------------------------------------------------------------------
Minimum rentals $1,260 $1,093 $ 993
Contingent rentals 55 81 90
- --------------------------------------------------------------------------------
Total 1,315 1,174 1,083
Less: sublease rental income 188 137 132
- --------------------------------------------------------------------------------
Net rental expense $1,127 $1,037 $ 951
- --------------------------------------------------------------------------------
Mobil 41
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
6. Leases (concluded)
Future minimum lease payments have not been reduced by future minimum sublease
rentals of $41 million under operating leases. Capital leases included in Net
Properties, Plants and Equipment were $301 million at December 31, 1997, and
$248 million at December 31, 1998.
Future minimum lease payments under noncancelable leases (In millions)
At December 31, 1998 Operating Leases Capital Lease Obligations
- --------------------------------------------------------------------------------
1999 $ 252 $ 85
2000 216 27
2001 173 21
2002 154 22
2003 124 30
Later years 1,330 257
- --------------------------------------------------------------------------------
Future minimum lease payments $2,249 $ 442
- --------------------------------------------------------------------------------
Less: executory costs 1
interest 152
- --------------------------------------------------------------------------------
Total capital lease
obligations 289
Less: short-term portion of
capital lease obligations 56
- --------------------------------------------------------------------------------
Long-term portion of
capital lease obligations $ 233
- --------------------------------------------------------------------------------
7. Short-term Debt
At December 31, 1998, Mobil had $622 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) 1997 1998
- --------------------------------------------------------------------------------------
At December 31 Amount Interest Rate(1) Amount Interest Rate(1)
- --------------------------------------------------------------------------------------
Notes and loans payable
Commercial paper $1,097 5 7/8% $2,011 5%
Banks and Other 1,168 7 1/8% 951 7 1/8%
- --------------------------------------------------------------------------------------
Total notes and loans payable 2,265 2,962
- --------------------------------------------------------------------------------------
Long-term debt maturing
within one year 729 1,020
- --------------------------------------------------------------------------------------
Total short-term debt $2,994 $ 3,982
- --------------------------------------------------------------------------------------
(1) Percentages shown in the table are weighted average interest rates at the
end of the year.
42 Mobil
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
8. 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 1998, 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, 1998, the ESOP Trust had a shelf registration on
file with the SEC permitting the offer and sale of $25 million of debt
securities, guaranteed by Mobil. A new shelf registration permitting the offer
and sale of an additional $475 million of debt securities by the ESOP Trust,
guaranteed by Mobil, is expected to be declared effective by the SEC during the
first quarter of 1999. The proceeds of any additional debt securities issued by
the ESOP Trust would be used to refund its existing indebtedness. Also at
year-end 1998, a shelf registration allowing the issuance of U.S. $1.7 billion
of Euro-Medium-Term Notes was in place.
Long-term debt that becomes due during the next five years is: 1999-$1,020
million; 2000-$365 million; 2001-$386 million; 2002-$136 million, and 2003-$721
million.
Long-term debt (In millions)
At December 31 1997 1998
- -------------------------------------------------------------------------
6 3/8% notes due 1998 $ 200 $ --
7 1/4% notes due 1999(1) 148 148(2)
8 5/8% notes due 2006 250 250
7 5/8% debentures due 2033(1) 216 216(2)
8% debentures due 2032(1) 164 164(2)
8 1/8% Canadian dollar Eurobonds due 1998 111 --
(swapped into 6.8% U.S. $ debt)
3% Swiss franc debentures due 2003 -- 133
(swapped into floating rate U.S. $ debt)
3% Swiss franc debentures due 2003 -- 197
(swapped into floating rate U.S. $ debt)
5% U.S. dollar Eurobonds due 2004 -- 300
(swapped into floating rate)
8 3/8% notes due 2001(1) 180 180(2)
8 5/8% debentures due 2021(1) 250 250
9 5/8% U.K. sterling Eurobonds due 1999 182 182
7.33% debentures due 2009(1) -- 100
7.90% debentures due 2020(1) -- 175
U.S. dollar Euro Medium-Term Notes due 1999 -- 150
(swapped into floating rate Japanese yen)
Japanese yen loans due 2003-2005 (2.2%)(1) (3) 347 252
ESOP Trust debentures/notes due 1999-2004
(7.6%)(1)(3) 497 472
Variable rate project financing due 1998
(6.6%)(3) 52 --
Industrial revenue bonds due 2003-2033
(5.6%)(1) (3) 484 477
Other foreign currencies due 1998-2030
(5.8%)(1) (3) 764 565
Other due 1998-2054 (7.1%)(3) 219 239
Capital lease obligations 335 289
- -------------------------------------------------------------------------
Total 4,399 4,739
Less: long-term debt maturing within one year 729 1,020
- -------------------------------------------------------------------------
Total long-term debt $3,670 $3,719
- -------------------------------------------------------------------------
(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, 1998.
Mobil 43
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
9. 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 pages 22 and
23.
The notional principal amounts of derivative financial instruments at
December 31, are as follows:
At December 31 (In millions) 1997 1998
- -----------------------------------------------------------------------
Debt-related instruments $4,444 $4,812
Nondebt-related foreign currency
exchange rate instruments 9,706 6,760
Commodity financial instruments
requiring cash settlement 2,438 3,869
- -----------------------------------------------------------------------
The fair value of Mobil's debt portfolio was $6,464 million ($6,524 million
debt less $60 million derivatives) at December 31, 1997 and $7,622 million
($7,751 million debt less $129 million derivatives) at December 31, 1998. These
fair values were greater than the carrying values by $166 million and $210
million at December 31, 1997 and 1998, 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.
10. Taxes
Total taxes (In millions) 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31 U.S. Foreign Total U.S. Foreign Total U.S. Foreign Total
- -----------------------------------------------------------------------------------------------------------------------------------
Excise and state gasoline $4,207 $ 5,029 $ 9,236 $4,458 $1,470 $ 5,928 $ 4,712 $ 1,141 $ 5,853
Import duties -- 9,130 9,130 -- 4,027 4,027 -- 3,541 3,541
Property, production, payroll
and other 385 272 657 347 204 551 329 159 488
- -----------------------------------------------------------------------------------------------------------------------------------
Total other than income taxes 4,592 14,431 19,023 4,805 5,701(1) 10,506 5,041 4,841 9,882
- -----------------------------------------------------------------------------------------------------------------------------------
Income taxes
U.S. state and local 63 -- 63 45 -- 45 26 -- 26
U.S. federal and foreign
-current 217 2,421 2,638 208 2,436 2,644 368 1,108 1,476
-deferred 163 283 446 250 154 404 (124) (22) (146)
- -----------------------------------------------------------------------------------------------------------------------------------
Total income taxes 443 2,704 3,147 503 2,590 3,093 270 1,086 1,356
- -----------------------------------------------------------------------------------------------------------------------------------
Total taxes $5,035 $17,135 $22,170 $5,308 $8,291 $13,599 $ 5,311 $ 5,927 $ 11,238
- -----------------------------------------------------------------------------------------------------------------------------------
(1) The change from 1996 primarily reflects the impact of equity accounting for
Mobil's European downstream alliance with BP.
44 Mobil
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
10. Taxes (concluded)
Income from U.S. operations before income taxes was $1,939 million in 1996,
$2,187 million in 1997 and $940 in 1998. Income from foreign operations before
income taxes for the same three years was $4,816 million, $4,872 million and
$2,403 million, respectively. The loss from Corporate and Financing before
income taxes for the same three years was $644 million, $694 million and $283
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 $3.8 billion at December 31, 1998. If such dividends were to be
remitted, foreign tax credits available under present law would reduce the
amount of U.S. taxes payable. Deferred tax assets in the amount of $43 million
related to tax loss carryforwards that were fully reserved and cannot be
utilized were written off in 1998.
Deferred taxes (In millions)
At December 31 1997(1) 1998
- ----------------------------------------------------------------------------
Deferred tax liabilities
Depreciation, depletion
and amortization $4,877 $4,715
Other 406 549
- ----------------------------------------------------------------------------
Total deferred tax liabilities 5,283 5,264
- ----------------------------------------------------------------------------
Deferred tax assets
Book reserves 1,544 1,636
Tax credits available for carry-forward
(primarily without expiration) 693 722
- ----------------------------------------------------------------------------
Total deferred tax assets 2,237 2,358
- ----------------------------------------------------------------------------
Valuation allowance (627) (608)
- ----------------------------------------------------------------------------
Net deferred tax liabilities $3,673 $3,514
- ----------------------------------------------------------------------------
(1) Prior year data reclassified to conform with current year presentation.
Reconciliation of U.S. statutory
rate to actual tax rate (In millions) 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------
Year ended December 31 Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------------------
Income before taxes $6,111 100.0 $6,365 100.0 $3,060 100.0
- ------------------------------------------------------------------------------------------------------------
Theoretical tax at U.S. rate 2,139 35.0 2,228 35.0 1,071 35.0
Foreign taxes in excess of
U.S. statutory rate 1,108 18.1 1,151 18.1 475 15.5
Other items, net (100) (1.6) (286) (4.5) (190) (6.2)
- ------------------------------------------------------------------------------------------------------------
Total income taxes $3,147 51.5 $3,093 48.6 $1,356 44.3
- ------------------------------------------------------------------------------------------------------------
Mobil 45
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
11. 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, 1997 and 1998, $780 million and $760 million,
respectively, had been accrued for restoration and removal costs, mainly related
to offshore producing facilities.
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, 1997 and 1998, the accumulated reserve for environmental remediation costs
was $372 million and $328 million, respectively. Of these amounts, $80 million
and $77 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.
12. Research Expense
Research expenses were $206 million in 1996, $234 million in 1997 and $204
million in 1998.
13. Accumulated Other Nonowners' Equity
Accumulated Other Nonowners' Equity consists of cumulative minimum pension
liability adjustment and cumulative foreign exchange translation adjustment.
There were no balances for cumulative minimum pension liability adjustment in
1996 and 1997. The amount in 1998 was an unrecognized loss of $126 million, net
of tax. The cumulative foreign exchange translation adjustment is composed of
the following:
Cumulative foreign exchange
translation adjustment (In millions)
At December 31 1996 1997 1998
- ------------------------------------------------------------------------------
Properties, plants
and equipment, net $ (27) $(940) $(1,076)
Deferred income taxes (256) (103) (83)
Working capital, debt
and other items, net 210 222 227
- ------------------------------------------------------------------------------
Total $ (73) $(821)(1) $ (932)
- ------------------------------------------------------------------------------
(1) The change in 1998 from 1997 reflects the strengthening U.S. dollar
relative to local currencies in certain countries in which the company has
significant operations.
Foreign exchange transaction losses of $21 million in 1996, $52 million in
1997 and $53 million in 1998 have been included in income.
14. Restructurings
In 1998, Mobil implemented new restructuring programs in Australia and New
Zealand, and in Latin America, to integrate regional fuels and lubes operations.
These programs will result in the elimination of approximately 500 positions as
well as asset write-downs in Australia and New Zealand. Mobil recorded a
provision of $50 million ($41 million after tax) in Selling and general expenses
and Depreciation, depletion and amortization for these programs. In 1999, cash
outlays of $36 million will be made for employee separation benefits and exit
costs. The remainder represents noncash costs for the closure of facilities
with net book values of $19 million. These assets will be closed in 1999. The
results of operations of these assets are not material. Also, since the
depreciable assets were written down to zero, there is no further depreciation
expense to be recorded. The balance in the reserve at December 31, 1998 was $36
million.
Also during 1998, Mobil and BP completed the implementation of their
alliance, which combined the companies' European operations in the refining and
marketing of fuels and lubricants. This alliance resulted 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 workforce reductions, facilities closure costs and
asset write-downs. Of this amount, $126 million represented cash expenditures
in 1996, 1997 and 1998 and the remainder was for noncash costs. Implementation
of this program began in late 1996 and was essentially complete as of December
31, 1998. The amounts remaining in the reserve at December 31, 1996, 1997 and
1998 were $123 million, $47 million and $7 million, respectively, and the
reductions were due to cash outlays and noncash reclassifications.
Additionally, in 1997, Mobil and BP announced that the alliance would
implement a major restructuring of its lubricant base oil refining business.
This program will result in the elimina-
46 Mobil
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
14. Restructurings (concluded)
tion of approximately 460 Mobil positions and in write-downs and closure of
certain facilities and will be completed by the end of 1999. Mobil recorded
reserves in 1997 of $86 million ($82 million after tax) mainly for employee
severance costs associated with workforce reductions and for write-downs and
closure of certain facilities. Cash outlays are expected to be $66 million of
which $31 million was spent during 1998. Noncash costs are expected to be $20
million. The amounts remaining in the reserve at December 31, 1997 and 1998
were $66 million and $35 million, respectively. The reductions were due to cash
outlays and noncash reclassifications.
The above provisions were recorded in Income from equity affiliates and
Selling and general expenses.
In addition to restructuring charges for the Mobil-BP alliance, Mobil
incurred one-time implementation charges in 1997 and 1998 of $69 million after
tax and $93 million after tax, respectively, primarily for the reimaging of
retail outlets and for systems implementation.
During 1997, Mobil commenced two major cost savings initiatives in Asia-
Pacific--one in Japan in response to the deregulated business environment and
the other in Australia. These programs resulted in the elimination of
approximately 400 positions and the rationalization of certain assets. In 1997,
Mobil recorded reserves of $172 million ($107 million after tax) primarily for
separation costs related to workforce reductions and for closure of certain
facilities. The provisions have been recorded in Selling and general expenses,
Crude oil, products and operating supplies, and expenses, Income from asset
sales, interest and other and Depreciation, depletion and amortization. Cash
outlays are expected to be $113 million of which $8 million and $59 million were
made in 1997 and 1998, respectively. The remainder will be paid in 1999. Non-
cash costs are expected to be $59 million. The amounts remaining in the
reserves at December 31, 1997 and 1998 were $137 million and $50 million,
respectively. The reductions were due to cash outlays and noncash
reclassifications.
The Mobil employee positions eliminated under the 1996 and 1997 programs
approximated the workforce reductions included in the original estimates.
15. 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 1996, 1997 and 1998, this excess was $47
million, $21 million and $15 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 1996, 1997 and 1998, total ESOP-related expenses were $49 million, $24
million and $29 million, respectively. Interest incurred on ESOP debt in 1996,
1997 and 1998 was $48 million, $43 million and $38 million, respectively.
16. 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
Mobil 47
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
16. Employee Benefits (continued)
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 $64 million in 1996, $63 million in 1997 and $63 million in
1998.
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.
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 $242 million
in 1996, $189 million in 1997 and $140 million in 1998.
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 on page 49.
Postretirement benefit expense, excluding pensions (In millions) Health Care Life Insurance
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31 1996 1997 1998 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Service cost $ 10 $ 8 $ 7 $ 2 $ 1 $ 1
Interest cost 27 31 31 26 24 25
Amortization of unrecognized amounts:
Prior service cost (1) (1) (1) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 36 $ 38 $ 37 $ 28 $ 25 $ 26
- ------------------------------------------------------------------------------------------------------------------------------------
Status of postretirement benefit plans (In millions) Health Care Life Insurance
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31 1997 1998 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Change in benefit obligations
Benefit obligations at beginning of year $ 448 $ 463 $ 354 $ 371
Service and interest cost 39 38 25 26
Benefits paid (31) (33) (21) (26)
Plan amendments 7 (4) -- (2)
Actuarial losses and other items -- 18 13 24
- ------------------------------------------------------------------------------------------------------------------------------------
Benefit obligations at end of year $ 463 $ 482 $ 371 $ 393
- ------------------------------------------------------------------------------------------------------------------------------------
Book reserves $ 464 $ 468 $ 363 $ 360
- ------------------------------------------------------------------------------------------------------------------------------------
Book reserves greater (less) than
accumulated postretirement benefit obligations $ 1 $ (14) $ (8) $ (33)
- ------------------------------------------------------------------------------------------------------------------------------------
Consisting of:
Unrecognized prior service cost $ 2 $ 5 $ -- $ 2
Unrecognized net (loss) (1) (19) (8) (35)
- ------------------------------------------------------------------------------------------------------------------------------------
The discount rate used in determining the postretirement benefit obligation was
7.0% in 1997 and 6.5% in 1998.
For measurement purposes, a 7.5% annual rate in the per capita cost of
covered health care benefits was assumed for 1999. The rate was assumed to
decrease gradually to 5.0% for 2005 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
(in millions) 1% Increase 1% Decrease
- --------------------------------------------------------------------------------
Effect on total service and interest cost components $ 5 $ (4)
Effect on postretirement benefit obligations 44 (43)
- --------------------------------------------------------------------------------
48 Mobil
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
16. Employee Benefits (concluded)
Pension expense (In millions) U.S. Plans International Plans
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31 1996 1997 1998 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Service cost $ 92 $ 72 $ 81 $ 84 $ 85 $ 83
Interest cost on projected benefit obligations 185 181 188 128 119 120
Expected return on plan assets (240) (238) (264) (77) (78) (79)
Amortization of previously unrecognized amounts:
Transitional (asset) obligation (30) (30) (30) 8 6 5
Prior service cost 19 21 24 39 11 13
Actuarial (gains) losses (5) (5) (7) 5 6 6
Curtailment and settlement losses -- -- -- 34 39 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost (income) after
curtailments and settlements $ 21 $ 1 $ (8) $ 221 $ 188 $ 148
- ------------------------------------------------------------------------------------------------------------------------------------
Status of pension plans (In millions) U.S. Plans International Plans
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31 1997 1998 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Change in projected benefit obligations
Projected benefit obligations at beginning of year $ 2,570 $ 2,751 $ 2,246 $ 2,117
Service and interest cost 253 269 204 203
Benefits paid (225) (304) (207) (164)
Plan amendments 26 62 8 28
Curtailments, settlements and special termination benefits -- -- 10 --
Effects of foreign currency exchange rates -- -- (203) 47
Actuarial losses and other items 127 319 59 353
- ------------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations at end of year $ 2,751 $ 3,097 $ 2,117 $ 2,584
- ------------------------------------------------------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $ 2,750 $ 3,007 $ 1,145 $ 1,158
Actual return on plan assets 451 233 147 105
Employer contributions -- -- 60 50
Employee contributions -- -- 10 8
Benefits paid (194) (270) (108) (84)
Reclassification of supplemental benefit plan trust -- (580) -- --
Effects of foreign currency exchange rates -- -- (96) (6)
- ------------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 3,007 $ 2,390 $ 1,158 $ 1,231
Book reserves 146 440 996 1,170
- ------------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets and book reserves $ 3,153 $ 2,830 $ 2,154 $ 2,401
- ------------------------------------------------------------------------------------------------------------------------------------
Plan assets and book reserves greater (less)
than projected benefit obligations $ 402 $ (267) $ 37 $ (183)
- ------------------------------------------------------------------------------------------------------------------------------------
Consisting of:
Unrecognized transition asset (obligation) $ 120 $ 90 $ (18) $ (14)
Unrecognized prior service cost (183) (221) (21) (32)
Unrecognized net gain (loss) 282 (266) (137) (458)
Pre-funded expenses and intangible assets 183 89 213 142
Accumulated other nonowners' equity -- 41 -- 179
- ------------------------------------------------------------------------------------------------------------------------------------
Plan assets and book reserves greater (less)
than projected benefit obligations $ 402 $ (267) $ 37 $ (183)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average rates used in determining
the actuarial present value of the
projected benefit obligations (percent)
Discount rate 7.0 6.5 6.5 5.1
Rate of increase in future compensation levels 4.0 4.0 5.1 4.2
Expected long-term rate of return on plan assets
used in determining current year expense (percent) 9.0 9.5 8.2 8.0
- ------------------------------------------------------------------------------------------------------------------------------------
Memo: assets and book reserves greater than
accumulated benefit obligations $ 842 $ 209 $ 392 $ 157
- ------------------------------------------------------------------------------------------------------------------------------------
Pension Plan Assets and Book Reserves exceeded Accumulated Benefit Obligations
by $366 million at the end of 1998.
Mobil 49
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
17. Stock-Based Compensation Plans
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, 1998, number of shares outstanding, there were
16,267,543 shares or share units available for option grants and other awards
referred to above in 1998. 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 1997.
Stock option transactions 1986 Plan 1991 Plan 1995 Plan
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Weighted Shares Weighted Shares Weighted
Average Average Average
Price Price Price
- ------------------------------------------------------------------------------------------------------------------------------------
January 1, 1996-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
- ------------------------------------------------------------------------------------------------------------------------------------
Changes during 1998
Options granted 4,440,200 71.22
Options expired or canceled (1,000) 22.09 (900) 43.03 (126,300) 66.11
Options exercised (1,381,745) 26.48 (1,633,652) 36.23 (635,035) 44.85
SARs exercised (48,582) 31.47
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1998-shares under option 1,877,134 $29.57 11,453,138 $35.39 17,502,957 $58.55
Weighted average contractual life (years) 0.91 3.91 7.50
Range of exercise price $22.09-32.13 $30.72-43.03 $43.66-71.22
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1998 1,877,134 $29.57 11,453,138 $35.39 5,480,157 $46.70
- ------------------------------------------------------------------------------------------------------------------------------------
50 Mobil
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
17. Stock-Based Compensation Plans (concluded)
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 $19 million, $29
million and $33 million in 1996, 1997 and 1998, respectively. Fair value is
determined using a modified Black-Scholes model. The assumptions used in the
model were a dividend yield of 3.2%, a five year zero-coupon risk free interest
rate of 5.66%, estimated volatility of 18% and a five year expected option term.
18. Capital Stock
At December 31, 1998, 1,200,000,000 shares of $1.00 par value common stock were
authorized and 897,947,485 shares were issued, including 117,414,000 shares held
in the treasury.
At December 31, 1998, 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, 1997 and 1998, respectively, 171,093 and 164,986 shares of Series B
ESOP Convertible Preferred Stock were outstanding. During 1997 and 1998, 5,243
and 6,107 of such shares, respectively, were redeemed.
Effective May 20, 1997, Mobil increased the authorized shares of common
stock from 600,000,000 to 1,200,000,000 and recorded a two-for-one stock split
of the Company's issued common stock. 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.
Changes in shares of common stock outstanding
- -----------------------------------------------------------------------------------------------------
Year ended December 31 1996 1997 1998
- -----------------------------------------------------------------------------------------------------
Common shares outstanding-beginning of year 789,119,762 787,588,910 783,363,772
Purchase of common stock for treasury (4,795,400) (7,458,400) (6,468,900)
Exercise of stock options and stock appreciation rights 3,199,632 3,177,748 3,603,113
Incentive compensation awards and restricted stock 64,916 55,514 35,500
- -----------------------------------------------------------------------------------------------------
Common shares outstanding - end of year 787,588,910 783,363,772 780,533,485
- -----------------------------------------------------------------------------------------------------
Mobil 51
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
19. Net Income per Share
The following table sets forth the computation of basic and diluted earnings per
share:
Net income per share
- ------------------------------------------------------------------------------------------------------------------------
Millions of dollars except per share amounts; number of shares in thousands 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 2,964 $ 3,272 $ 1,704
Less: dividends on preferred stock 54 52 50
- ------------------------------------------------------------------------------------------------------------------------
Adjusted net income applicable to common shares $ 2,910 $ 3,220 $ 1,654
- ------------------------------------------------------------------------------------------------------------------------
Weighted average number of basic common shares outstanding 788,292 786,294 779,231(1)
- ------------------------------------------------------------------------------------------------------------------------
Net income per common share $ 3.69 $ 4.10 $ 2.12
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 2,964 $ 3,272 $ 1,704
Less: additional contribution to ESOP 10 8 6
Less: Stock Appreciation Rights compensation income/(expense) 4 (4) 1
- ------------------------------------------------------------------------------------------------------------------------
Adjusted net income applicable to common shares $ 2,950 $ 3,268 $ 1,697
- ------------------------------------------------------------------------------------------------------------------------
Weighted average number of basic common shares outstanding 788,292 786,294 779,231
Issuable on assumed exercise of stock options 9,418 11,445 11,253
Assumed conversion of preferred stock 18,038 17,318 16,790
- ------------------------------------------------------------------------------------------------------------------------
Total 815,748 815,057 807,274(1)
- ------------------------------------------------------------------------------------------------------------------------
Net income per common share--assuming dilution $ 3.62 $ 4.01 $ 2.10
- ------------------------------------------------------------------------------------------------------------------------
(1) Excludes, on a weighted average basis, shares held by the benefit plan trust
that are accounted for in a manner similar to treasury stock.
20. 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 $198 million of the obligations of others, excluding
$223 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.
52 Mobil
- --------------------------------------------------------------------------------
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
Lucio A. Noto
Chairman and Chief Executive Officer
/s/ Harold R. Cramer
Harold R. Cramer
Executive 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, 1997 and 1998, 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, 1998, appearing on pages 31,
33, and 35 through 52. 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, 1997 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Fairfax, Virginia
February 26, 1999
Mobil 53
- --------------------------------------------------------------------------------
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, 1996, 1997 and 1998, 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 Worldwide
----------------------------------------------- ----------------------------------- ---------
Asia- Other Asia- Other
U.S. Europe Pacific Areas(1) Total U.S. Europe Pacific Areas(1)
Reserves at January 1, 1996 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
Revisions (38) (1) 7 226 194 134(4) -- -- (2) 326
Improved recovery 2 12 -- 6 20 85 -- -- -- 105
Purchases -- -- -- -- -- -- -- -- -- --
Sales (2) -- -- (5) (7) (1) (2) -- -- (10)
Extensions, discoveries
and other additions 13 2 -- 516(5) 531 1 -- -- 21 553
Production (50) (51) (31) (138) (270) (38) -- -- (33) (341)
- ------------------------------------------------------------------------------------------------------------------------------------
Reserves at December 31, 1998 464 330 84 2,257 3,135 577 -- -- 1,026 4,738
- ------------------------------------------------------------------------------------------------------------------------------------
Developed Reserves
At January 1, 1996 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
At December 31, 1998 437 160 64 1,200 1,861 416 -- -- 616 2,893
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes principally West Africa, Canada and Venezuela (Consolidated
companies) and Kazakhstan and Abu Dhabi (Equity companies).
(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 joint
venture with Shell, under the name of Aera Energy LLC, which resulted in an
increase in proved reserves and a reduction in nonproved reserves.
(4) Revisions include additions attributable to Mobil's increased equity share
in Aera Energy LLC.
(5) Extensions, discoveries and other additions include 474 million barrels in
the Cerro Negro field in Venezuela.
Mobil's estimated net proved reserves and changes thereto for the years 1996,
1997 and 1998 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.
54 Mobil
- --------------------------------------------------------------------------------
Supplementary Information
- --------------------------------------------------------------------------------
Oil and Gas Producing Activities (unaudited)(continued)
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. Prices
include consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based on future conditions. Proved
developed oil and gas reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods. Additional
oil and gas expected to be obtained through the application of fluid injection
or other improved recovery techniques for supplementing the natural forces and
mechanisms of primary recovery should be included as "proved developed reserves"
only after testing by a pilot project or after the operation of an installed
program has confirmed through production response that increased recovery will
be achieved." 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.
Mobil 55
- --------------------------------------------------------------------------------
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 Worldwide
------------------------------------------------- ------------------------------- ---------
Asia- Other Asia- Other
U.S. Europe Pacific Areas(1) Total U.S. Europe Pacific Areas(1)
Reserves at January 1, 1996 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
Revisions (279) 295 (141) (55) (180) 4 3 -- 1 (172)
Improved recovery 2 14 -- 44 60 34 -- -- -- 94
Purchases -- -- -- 8 8 -- -- -- -- 8
Sales (29) -- (4) (24) (57) -- (34) -- -- (91)
Extensions, discoveries
and other additions 35 78 -- 342 455 2 -- -- 28 485
Production (381) (438) (496) (202) (1,517) (12) (3) -- (36) (1,568)
- ------------------------------------------------------------------------------------------------------------------------------------
Reserves at December 31, 1998 3,140 4,214 2,447 2,248 12,049 167 -- -- 3,496 15,712
- ------------------------------------------------------------------------------------------------------------------------------------
Developed Reserves
At January 1, 1996 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
At December 31, 1998 2,878 2,905 1,447 1,339 8,569 115 -- -- 1,112 9,796
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes principally Canada (Consolidated companies) and Qatar and
Kazakhstan (Equity companies).
(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 joint
venture with Shell, under the name of Aera Energy LLC, which resulted in an
increase in proved reserves and a reduction in nonproved reserves.
Table 3: Capitalized Costs Related to Oil and Gas Producing Activities
(In millions)
United States Europe Asia-Pacific
At December 31 1996 1997 1998 1996 1997 1998 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------
Capitalized costs:
Unproved properties(1) $ 197 $ 233 $ 279 $ 58 $ 11 $ 27 $ 955 $ 984 $ 854
Proved properties, wells,
plants and other equipment(1) 12,535 10,642 7,999 7,639 7,596 8,367 3,172 3,196 3,685
- -----------------------------------------------------------------------------------------------------------------
Total capitalized costs 12,732 10,875 8,278 7,697 7,607 8,394 4,127 4,180 4,539
Accumulated depreciation,
depletion and amortization 8,623 7,640 5,682 4,593 4,536 4,947 1,742 2,021 2,329
- -----------------------------------------------------------------------------------------------------------------
Net capitalized costs 4,109 3,235 2,596 3,104 3,071 3,447 2,385 2,159 2,210
- -----------------------------------------------------------------------------------------------------------------
Net capitalized costs of
equity companies -- 656 1,022 34 29 -- 1 -- --
- -----------------------------------------------------------------------------------------------------------------
Total $ 4,109 $ 3,891 $ 3,618 $ 3,138 $ 3,100 $ 3,447 $ 2,386 $ 2,159 $ 2,210
- -----------------------------------------------------------------------------------------------------------------
Other Areas Total
At December 31 1996 1997 1998 1996 1997 1998
- --------------------------------------------------------------------------------------
Capitalized costs:
Unproved properties(1) $ 324 $ 328 $ 277 $ 1,534 $ 1,556 $ 1,437
Proved properties, wells,
plants and other equipment(1) 5,592 6,682 7,794 28,938 28,116 27,845
- --------------------------------------------------------------------------------------
Total capitalized costs 5,916 7,010 8,071 30,472 29,672 29,282
Accumulated depreciation,
depletion and amortization 1,514 1,665 2,017 16,472 15,862 14,975
- --------------------------------------------------------------------------------------
Net capitalized costs 4,402 5,345 6,054 14,000 13,810 14,307
- --------------------------------------------------------------------------------------
Net capitalized costs of
equity companies 1,558 2,136 2,543 1,593 2,821 3,565
- --------------------------------------------------------------------------------------
Total $ 5,960 $ 7,481 $ 8,597 $15,593 $16,631 $17,872
- --------------------------------------------------------------------------------------
(1) Prior year data reclassified to conform with current year presentation.
56 Mobil
- --------------------------------------------------------------------------------
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, 1996, 1997 and 1998. 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 Worldwide
---------------------------------------------------------- --------- ---------
U.S. Europe Asia-Pacific Other Areas Total
Year ended December 31, 1996
Property acquisition costs:(1)
Unproved properties(2) $ 8 $ 46 $ 926 $ 122 $1,102 $ 611 $1,713
Proved properties(2) 57 -- 789 388 1,234 490 1,724
- ------------------------------------------------------------------------------------------------------------------------------------
Total acquisition 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 acquisition 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
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998
Property acquisition costs:
Unproved properties $ 71 $ 10 $ 3 $ 23 $ 107 $ -- $ 107
Proved properties 20 -- -- -- 20 -- 20
- ------------------------------------------------------------------------------------------------------------------------------------
Total acquisition costs 91 10 3 23 127 -- 127
Exploration costs 161 137 123 310 731 2 733
Development costs 240 760 347 1,016 2,363 464 2,827
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenditures $ 492 $ 907 $ 473 $1,349 $3,221 $ 466 $3,687
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Primarily as a result of recording deferred taxes of $506 million, the total
costs allocated to property for the Ampolex acquisition exceed the net
purchase price by $690 million ($607 million-Asia-Pacific; and $83
million-Other Areas).
(2) Prior year data reclassified to conform with current year presentation.
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.
Mobil 57
- --------------------------------------------------------------------------------
Supplementary Information
- --------------------------------------------------------------------------------
Oil and Gas Producing Activities (unaudited) (continued)
Table 5: Results of Operations for Oil and Gas Producing Activities
(In millions)
Equity
Consolidated Companies Companies Worldwide
--------------------------------------------------------- --------- ---------
U.S. Europe Asia-Pacific Other Areas Total
Year ended December 31, 1996
Revenues:
Trade sales $ 1,027 $ 1,535 $ 1,811 $ 464 $ 4,837 $ 145 $ 4,982
Sales to affiliates 1,458 841 369 1,727 4,395 201 4,596
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues(1) 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(2) (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
Sales to affiliates 1,049 647 470 2,022 4,188 529 4,717
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues(1) 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(2) (299) (620) (822) (826) (2,567) (212) (2,779)
- ----------------------------------------------------------------------------------------------------------------------------------
Results of operations for producing activities $ 578 $ 539 $ 609 $ 275 $ 2,001 $ 211 $ 2,212
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998
Revenues:
Trade sales $ 781 $ 1,207 $ 970 $ 416 $ 3,374 $ 325 $ 3,699
Sales to affiliates 494 499 311 1,497 2,801 508 3,309
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues(1) 1,275 1,706 1,281 1,913 6,175 833 7,008
Production (lifting) costs (658) (645) (235) (854) (2,392) (309) (2,701)
Exploration expenses (127) (122) (92) (302) (643) -- (643)
Depreciation, depletion and amortization (605) (451) (332) (498) (1,886) (180) (2,066)
Other operating revenues and (expenses) 32 303 (31) (95) 209 (155) 54
Income tax expense(2) 25 (289) (374) (256) (894) (114) (1,008)
- ----------------------------------------------------------------------------------------------------------------------------------
Results of operations for producing activities $ (58) $ 502 $ 217 $ (92) $ 569 $ 75 $ 644
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Revenues in this table will not agree with Exploration & Producing Segment
Revenues (pages 16 and 36) 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.
(2) Includes, for equity companies, Mobil's income taxes on its share of
results of operations.
Mobil's results of operations for producing activities for the years ended
December 31, 1996, 1997 and 1998, 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.
58 Mobil
- --------------------------------------------------------------------------------
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 1997 to 1998
contributed to the lower discounted future net cash flow amount for 1998.
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 Asia-Pacific
At December 31 1996 1997 1998 1996 1997 1998 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Future cash inflows $ 33,036 $ 16,598 $ 10,516 $ 19,869 $ 17,963 $ 12,824 $ 14,416 $ 9,728 $ 4,027
Future production
costs (8,125) (6,261) (5,216) (4,374) (4,859) (3,969) (2,196) (1,895) (1,634)
Future development
costs (1,200) (527) (384) (1,202) (1,285) (1,029) (1,030) (700) (255)
Future income
tax expenses (7,968) (3,121) (1,436) (7,830) (6,025) (3,704) (4,599) (2,766) (637)
- ----------------------------------------------------------------------------------------------------------------------------------
Future net cash flows 15,743 6,689 3,480 6,463 5,794 4,122 6,591 4,367 1,501
10% annual discount
for estimated timing
of cash flows (6,919) (2,897) (1,516) (2,091) (2,078) (1,459) (2,578) (1,498) (387)
- ----------------------------------------------------------------------------------------------------------------------------------
Standardized measure
of discounted future
net cash flows 8,824 3,792 1,964 4,372 3,716 2,663 4,013 2,869 1,114
- ----------------------------------------------------------------------------------------------------------------------------------
Standardized measure
of discounted future
net cash flows of
equity companies -- 1,055 170 35 28 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 8,824 $ 4,847 $ 2,134 $ 4,407 $ 3,744 $ 2,663 $ 4,013 $ 2,869 $ 1,114
==================================================================================================================================
Other Areas Total
1996 1997 1998 1996 1997 1998
- ----------------------------------------------------------------------------------------------------
Future cash inflows $ 39,107 $ 29,776 $ 22,814 $ 106,428 $ 74,065 $ 50,181
Future production
costs (9,952) (8,715) (9,049) (24,647) (21,730) (19,868)
Future development
costs (5,006) (3,639) (4,236) (8,438) (6,151) (5,904)
Future income
tax expenses (15,536) (9,701) (2,773) (35,933) (21,613) (8,550)
- ----------------------------------------------------------------------------------------------------
Future net cash flows 8,613 7,721 6,756 37,410 24,571 15,859
10% annual discount
for estimated timing
of cash flows (3,834) (2,944) (3,329) (15,422) (9,417) (6,691)
- ----------------------------------------------------------------------------------------------------
Standardized measure
of discounted future
net cash flows 4,779 4,777 3,427 21,988 15,154 9,168
- ----------------------------------------------------------------------------------------------------
Standardized measure
of discounted future
net cash flows of
equity companies 1,845 1,585 717 1,880 2,668 887
- ----------------------------------------------------------------------------------------------------
Total $ 6,624 $ 6,362 $ 4,144 $ 23,868 $ 17,822 $ 10,055
====================================================================================================
Table 7: Changes in Standardized Measure of Discounted Future Net Cash Flows
(In millions)
Year ended December 31 1996 1997(1) 1998
- ----------------------------------------------------------------------------------------------------------------------------
Beginning of year $14,082 $23,868 $17,822
Changes resulting from:
Sales and transfers of production, net of production costs (6,571) (6,404) (3,783)
Net changes in prices and in development and production costs 15,191 (17,358) (16,564)
Extensions, discoveries, additions and purchases, less related costs 2,577 1,533 457
Development costs incurred during the period 2,069 2,351 2,363
Revisions of previous quantity estimates 633 672 539
Accretion of discount 2,625 4,277 2,784
Net change in income taxes (8,135) 8,095 8,218
Equity companies 1,397 788 (1,781)
- ----------------------------------------------------------------------------------------------------------------------------
End of year $ 23,868 $ 17,822 $ 10,055
============================================================================================================================
(1) Prior year data reclassified to conform with current year presentation.
Mobil 59
- --------------------------------------------------------------------------------
Supplementary Information
- --------------------------------------------------------------------------------
Five-Year Operating Highlights (unaudited)
1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------
Net Production of Liquids (thousands of barrels daily) (1)
Consolidated companies
United States 300 282 262 186 136
International
Australia 23 20 29 39 38
Canada 57 53 50 49 71
Equatorial Guinea -- -- 8 37 50
Indonesia 77 77 66 46 37
Nigeria 175 157 209 253 248
Norway 95 91 83 79 73
Papua New Guinea -- -- 11 12 11
United Kingdom 70 75 65 75 63
Other countries 10 10 9 13 12
- ----------------------------------------------------------------------------------------------------------------------------
Total International 507 483 530 603 603
- ----------------------------------------------------------------------------------------------------------------------------
Total Consolidated Companies 807 765 792 789 739
- ----------------------------------------------------------------------------------------------------------------------------
Mobil's Share of Production of Equity Companies (2)
U.S. (Aera) -- -- -- 58 104
Abu Dhabi 43 41 42 42 44
Kazakhstan -- -- 18 36 45
Other 4 4 2 2 3
- ----------------------------------------------------------------------------------------------------------------------------
Total equity companies 47 45 62 138 196
- ----------------------------------------------------------------------------------------------------------------------------
Worldwide Liquids Production 854 810 854 927 935
- ----------------------------------------------------------------------------------------------------------------------------
Net Production of Natural Gas (millions of cubic feet daily)
Consolidated companies
United States 1,568 1,439 1,333 1,141 1,043
International
Argentina -- -- 30 77 114
Australia 10 12 25 25 5
Canada 461 432 416 397 440
Germany 368 404 463 455 455
Indonesia 1,654 1,542 1,556 1,571 1,354
Netherlands 61 66 53 60 104
Norway 49 51 53 50 44
United Kingdom 470 577 618 668 596
- ----------------------------------------------------------------------------------------------------------------------------
Total International 3,073 3,084 3,214 3,303 3,112
- ----------------------------------------------------------------------------------------------------------------------------
Total Consolidated Companies 4,641 4,523 4,547 4,444 4,155
- ----------------------------------------------------------------------------------------------------------------------------
Mobil's Share of Production of Equity Companies (2)
U.S. (Aera) -- -- -- 20 34
Austria 12 13 12 13 9
Indonesia 17 18 -- -- --
Kazakhstan -- -- 24 35 31
Qatar -- -- 4 44 66
Other -- -- -- -- 1
- ----------------------------------------------------------------------------------------------------------------------------
Total equity companies 29 31 40 112 141
- ----------------------------------------------------------------------------------------------------------------------------
Worldwide Natural Gas Production 4,670 4,554 4,587 4,556 4,296
- ----------------------------------------------------------------------------------------------------------------------------
Barrels of oil equivalent (thousands of barrels daily)(3) 847 826 831 826 778
- ----------------------------------------------------------------------------------------------------------------------------
Total Production (thousands of barrels daily of oil equivalent)(3) 1,701 1,636 1,685 1,753 1,713
- ----------------------------------------------------------------------------------------------------------------------------
See footnotes on page 61.
60 Mobil
- --------------------------------------------------------------------------------
Supplementary Information
- --------------------------------------------------------------------------------
Five-Year Operating Highlights (unaudited) (continued)
1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------
Net Reserves of Liquids (millions of barrels) (1)
Consolidated companies
United States 1,052 986 902 539 464
Europe 401 373 366 368 330
Asia-Pacific 175 103 123 108 84
Other Areas (2) 1,291 1,426 1,538 1,652 2,257
- ------------------------------------------------------------------------------------------------------------------------------
Total Consolidated Companies 2,919 2,888 2,929 2,667 3,135
- ------------------------------------------------------------------------------------------------------------------------------
Mobil's share of reserves of equity companies(2)(3) 525 531 853 1,438 1,603
- ------------------------------------------------------------------------------------------------------------------------------
Worldwide Reserves of Liquids 3,444 3,419 3,782 4,105 4,738
- ------------------------------------------------------------------------------------------------------------------------------
Net Reserves of Natural Gas (billions of cubic feet)
Consolidated companies
United States 5,055 5,061 4,399 3,792 3,140
Europe 4,251 4,188 4,201 4,265 4,214
Asia-Pacific 5,607 4,896 4,071 3,088 2,447
Other Areas 1,744 1,784 1,974 2,135 2,248
- ------------------------------------------------------------------------------------------------------------------------------
Total Consolidated Companies 16,657 15,929 14,645 13,280 12,049
- ------------------------------------------------------------------------------------------------------------------------------
Mobil's share of reserves of equity companies (2) 1,018 2,039 2,460 3,676 3,663
- ------------------------------------------------------------------------------------------------------------------------------
Worldwide Reserves of Natural Gas 17,675 17,968 17,105 16,956 15,712
- ------------------------------------------------------------------------------------------------------------------------------
Barrels of oil equivalent (millions of barrels)(4) 3,204 3,261 3,099 3,072 2,847
- ------------------------------------------------------------------------------------------------------------------------------
Total Reserves (millions of barrels of oil equivalent)(4) 6,648 6,680 6,881 7,177 7,585
- ------------------------------------------------------------------------------------------------------------------------------
Reserves Replacement Percentage(4) (5) 115% 105% 133% 146% 165%
- ------------------------------------------------------------------------------------------------------------------------------
Average U.S. Sales Price/Transfer Value(6)
Crude Oil (per barrel) $12.91 $ 14.52 $ 17.40 $16.59(7)(8) $10.48(7)
NGL (per barrel) 10.37 9.94 13.16 11.96 8.26
Natural Gas (per thousand cubic feet) 1.72 1.41 2.17 2.38 1.98
- ------------------------------------------------------------------------------------------------------------------------------
Average International Sales Price/
Transfer Value(6)
Crude Oil (per barrel) $15.66 $16.94 $20.81 $18.94 $12.29
Natural Gas (per thousand cubic feet) 2.44 2.47 2.66 2.72 2.17
- ------------------------------------------------------------------------------------------------------------------------------
(1) Crude oil and natural gas liquids (NGL).
(2) Represents Mobil's share of investees accounted for on the equity method.
(3) Includes principally West Africa, Canada and Venezuela (Consolidated
companies) and Kazakhstan and Abu Dhabi (Equity companies).
(4) Natural gas volumes have been converted to oil equivalent barrels on a BTU
basis with 5,516, 5,510, 5,519, 5,519 and 5,519 cubic feet of gas per
barrel in 1994, 1995, 1996, 1997 and 1998, respectively.
(5) Reserves replacement percentage is calculated by dividing the net
adjustments to reserves for the year plus the annual production by the
annual production.
(6) Transfer values are essentially equal to third-party sales.
(7) Includes Mobil stand-alone through May 1997 and Mobil plus its equity
interest in the California alliance with Shell (Aera) thereafter.
(8) Prior year presentation reclassified to conform with current year
presentation.
Total Production vs. Reserve Additions (Millions of barrels of oil equivalent)
[BAR CHART APPEARS HERE]
Total Production vs.
Reserve Additions
(Million of barrels of oil equivalent)
Total Production Reserve Additions
98 625 1,033
97 640 936
96 617 818
95 597 629
94 621 714
For the fifth consecutive year, Mobil added more to its hydrocarbon reserves
than it produced.
Mobil 61
- --------------------------------------------------------------------------------
Supplementary Information
- --------------------------------------------------------------------------------
Refinery Runs vs.
Petroleum Product Sales
(Thousands of barrels daily)
[BAR CHART APPEARS HERE]
Refinery Runs for Mobil Petroleum Product Sales
1998 2,135 3,440
1997 2,191 3,343
1996 2,142 3,345
1995 2,121 3,222
1994 2,082 3,075
Refinery runs decreased in 1998, reflecting U.S. divestitures, while product
sales were up 3%.
Number of Employees
(At year-end)
[BAR CHART APPEARS HERE]
Petroleum Operations,
Chemical & Other
1998 41,500
1997 42,700
1996 43,000
1995 50,400
1994 58,500
Reductions in the number of employees due to alliances and other initiatives
were partly offset by increases related to new business development.
Five-Year Operating Highlights (unaudited) (concluded)
1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------
Petroleum Product Sales(1) (thousands of barrels daily)
United States 1,172 1,286 1,362 1,435 1,465
Europe(2) 810 807 804 679 677
Asia-Pacific(3) 777 799 800 815 824
Other Areas 316 330 379 414 474
- ------------------------------------------------------------------------------------------------------------------------------
Worldwide 3,075 3,222 3,345 3,343 3,440
- ------------------------------------------------------------------------------------------------------------------------------
Petroleum Product Sales(1) (millions of dollars)
United States $10,492 $11,904 $14,254 $14,848 $11,564
Europe 14,395 15,421 17,008 2,900 1,300
Asia-Pacific(3) 11,466 12,426 13,258 12,802 10,595
Other Areas 3,707 3,974 4,708 5,412 5,100
- ------------------------------------------------------------------------------------------------------------------------------
Worldwide $40,060 $43,725 $49,228 $35,962 $28,559
- ------------------------------------------------------------------------------------------------------------------------------
Average United States Product Price (per gallon)(4) 58.4(cent) 60.4(cent) 68.1(cent) 67.5(cent) 51.5(cent)
- ------------------------------------------------------------------------------------------------------------------------------
Refinery Runs (thousands of barrels daily)
United States 857 895 921 956 872
Europe(2) 440 420 333 371 367
Asia-Pacific(5) 622 657 705 678 725
Other Areas 163 149 183 186 171
- ------------------------------------------------------------------------------------------------------------------------------
Worldwide Runs for Mobil 2,082 2,121 2,142 2,191 2,135
- ------------------------------------------------------------------------------------------------------------------------------
Chemical Sales by Product Category(millions of dollars)
Petrochemicals $ 2,088 $ 2,914 $ 1,876 $ 2,151 $ 1,618
Films Products 653 764 766 707 655
Chemical Specialties 101 115 126 136 156
Plastics/Other 1,193 1,155 78 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net sales to trade $ 4,035 $ 4,948 $ 2,846 $ 2,994 $ 2,429
- ------------------------------------------------------------------------------------------------------------------------------
Number of Employees (year-end)
Petroleum Operations-United States 20,300 18,400 13,200 13,200 12,400
-International 25,200 24,300 20,000 19,500 19,300
Chemical -United States 8,100 3,500 2,500 2,600 2,600
-International 1,800 1,600 1,600 1,300 1,400
Other -United States 2,700 2,200 4,400(6) 4,700 4,400
-International 400 400 1,300(6) 1,400 1,400
- ------------------------------------------------------------------------------------------------------------------------------
Total 58,500 50,400 43,000 42,700 41,500
==============================================================================================================================
(1) Includes supply/other product sales.
(2) Includes Mobil's share of the downstream alliance with BP that commenced in
late 1996.
(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.
Mobil markets auto gasoline through over 15,000 Mobil-branded retail outlets in
over 50 countries. Mobil's primary product supply comes from 23 refineries.
Petroleum product sales (including supply and other sales) have increased 12%
based on daily volume since 1994.
Mobil operates 28 chemical facilities in 10 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.
62 Mobil
- --------------------------------------------------------------------------------
Supplementary Information
- --------------------------------------------------------------------------------
Five-Year Financial Summary
(In millions, except for per-share amounts) 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------------------------------------
Revenues $ 67,383 $ 75,370 $ 81,503 $ 65,906 $ 53,531
- -------------------------------------------------------------------------------------------------------------------------------
Segment Earnings:
Petroleum Operations
Exploration & Producing -United States $ 125 $ (107) $ 737 $ 697 $ 11
-International 951 952 1,372 1,515 633
- -------------------------------------------------------------------------------------------------------------------------------
Total Exploration & Producing 1,076 845 2,109 2,212 644
- -------------------------------------------------------------------------------------------------------------------------------
Marketing & Refining -United States 241 226 407 542 574
-International 647 447 506 483 442
- -------------------------------------------------------------------------------------------------------------------------------
Total Marketing & Refining 888 673 913 1,025 1,016
- -------------------------------------------------------------------------------------------------------------------------------
Total Petroleum Operations 1,964 1,518 3,022 3,237 1,660
Chemical 102 1,164 306 403 181
- -------------------------------------------------------------------------------------------------------------------------------
Segment Earnings 2,066 2,682 3,328 3,640 1,841
Corporate and Financing (307) (306) (364) (368) (137)
- -------------------------------------------------------------------------------------------------------------------------------
Income Before Change in Accounting Principle 1,759 2,376 2,964 3,272 1,704
Cumulative Effect of Change in Accounting Principle (680)(1) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,079 $ 2,376 $ 2,964 $ 3,272 $ 1,704
- -------------------------------------------------------------------------------------------------------------------------------
Per Common Share
Income Before Change in Accounting Principle $ 2.14 $ 2.93 $ 3.69 $ 4.10 $ 2.12
Net Income $ 1.28 $ 2.93 $ 3.69 $ 4.10 $ 2.12
Per Common Share-Assuming Dilution
Income Before Change in Accounting Principle $ 2.12 $ 2.88 $ 3.62 $ 4.01 $ 2.10
Net income $ 1.29 $ 2.88 $ 3.62 $ 4.01 $ 2.10
Net Income as Percent of
Average shareholders' equity 10.4%(2) 13.5% 16.0% 17.0% 9.0%
Average capital employed(3) 8.4%(2) 10.9% 12.7% 13.4% 7.7%
Revenues 2.6%(2) 3.2% 3.6% 5.0% 3.2%
- -------------------------------------------------------------------------------------------------------------------------------
Investment Spending $ 3,927 $ 4,525 $ 7,019 $ 5,306 $ 5,500
- -------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Position at Year-End
Current assets $ 11,181 $ 12,056 $ 12,895 $ 9,722 $ 8,731
Net properties, plants and equipment 25,503 24,850 27,479 24,556 24,727
Total assets 41,542 42,138 46,408 43,559 42,754
Current liabilities 13,418 13,054 15,248 12,421 12,946
Long-term debt 4,714 4,629 4,450 3,670 3,719
Shareholders' equity 17,146 17,951 19,072 19,461 18,370
Per common share(4) $ 21.30 $ 22.35 $ 23.81 $ 24.41 $ 23.31
- -------------------------------------------------------------------------------------------------------------------------------
Debt-to-capitalization Ratio(5) 31% 27% 29% 25% 29%
- -------------------------------------------------------------------------------------------------------------------------------
Average Common Shares Outstanding (thousands of shares) 795,910 790,888 788,292 786,294 779,231(6)
- -------------------------------------------------------------------------------------------------------------------------------
Average Common Shares Outstanding--
Assuming Dilution (thousands of shares) 820,902 817,705 815,748 815,057 807,274(6)
- -------------------------------------------------------------------------------------------------------------------------------
Common Shares Outstanding (thousands of shares, year-end) 791,974 789,120 787,589 783,364 780,533
- -------------------------------------------------------------------------------------------------------------------------------
Shareholders of Common Stock (year-end) 193,900 188,800 185,600 186,200 178,700
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock Dividends $ 1,353 $ 1,434 $ 1,547 $ 1,667 $ 1,781
As percent of net income less preferred dividends 80%(2) 62% 53% 52% 108%
Per share $ 1.70 $ 1.81 $ 1.96 $ 2.12 $ 2.28
- -------------------------------------------------------------------------------------------------------------------------------
Year-end Market Price per Common Share $42 1/8 $55 7/8 $61 1/8 $ 72 3/16 $ 87 1/8
- -------------------------------------------------------------------------------------------------------------------------------
(1) Accounting change: LCM in 1994.
(2) Excludes cumulative effect of change in LCM policy in 1994 ($680 million).
(3) 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.
(4) 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.
(5) Total debt divided by the sum of total debt, shareholders' equity and
minority interests.
(6) Average Common Shares Outstanding are used for calculating earnings per
share and excludes, on a weighted average basis, shares held by the benefit
plan trust that are accounted for in a manner similar to treasury stock.
Year-end Market Price per
Common Share
(Dollars)
[BAR CHART APPEARS HERE]
1998 87.13
1996 61.13
1994 42.13
1992 31.56
1990 29.00
1988 22.75
Over the past 10 years, Mobil's stock price has increased at an annualized rate
of 14%.
Debt-to-Capitalization Ratio
(In percent)
[BAR CHART APPEARS HERE]
1998 29
1996 29
1994 31
1992 34
1990 30
1988 32
Mobil's Debt-to-Capitalization Ratio increased to 29% in 1998, providing
flexibility to invest in growth opportunities and/or increase dividends.
Mobil 63
- --------------------------------------------------------------------------------
Shareholder Information
- --------------------------------------------------------------------------------
The ticker symbol for Mobil on the New York Stock Exchange is MOB.
The 1999 annual meeting for shareholders will be held Thursday, May 27, at
10 a.m. in the Fairmont Hotel in Dallas, Texas.
Dividend payments on common stock are paid quarterly following declaration
by the Board of Directors. The next four tentative payment dates are: June 10,
1999; September 10, 1999; December 10, 1999, and March 10, 2000.
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.
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.
Publications available to shareholders:
. Mobil's Annual Report on Form 10-K, filed with the Securities and
Exchange Commission.
. 1998 Mobil Fact Book, a supplement to the annual report with additional
financial and operating data.
. Quarterly Earnings Press Releases.
. 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, Room 6D1906, 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.
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
64 Mobil
- --------------------------------------------------------------------------------
Board of Directors
- --------------------------------------------------------------------------------
[PHOTO OF BOARD OF DIRECTORS APPEARS HERE]
Fites Branscomb Schwartz Heimbold
Vallance Renna Johnson Sanford Jacobson
Munro Peters Noto Kaplan
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, Former 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-Meyers 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
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
Harold R. Cramer
Executive Vice President
and Chief Financial Officer
Robert F. Amrhein
Vice President
Aldis V. Liventals
Vice President
Samuel H. Gillespie III
Senior Vice President and
General Counsel
Walter R. Arnheim
Treasurer
Carole J. Yaley
Secretary
Steven L. Davis
Controller
Mobil 65
GRAPHIC APPENDIX LIST - 1998
Front Cover - Photograph of head and upper portion of neon Mobil Pegasus logo,
in red, fills most of the page. In the upper portion of the page,
slightly to the right of Pegasus' head, are the words, "Mobil
Annual Report 1998".
Inside front cover - One Graph - centered upper portion of page. Words "Five-
year cumulative total return" above graph. Graph--Assume
$100 invested on December 31, 1993, in Mobil common stock,
S&P 500 index, and a composite index, weighted by market
capitalization each year, of the following seven petroleum
companies: Exxon Corporation, Chevron Corporation, Royal
Dutch Petroleum Company "Shell" Transport and Trading
Company p.l.c., Atlantic Richfield Company, British
Petroleum Company p.l.c. And Texaco Inc.
Center of page are words "Financial highlights" appearing
above a table of "Financial highlights".
Lower center of page are words "Table of contents". Table
of contents appears in lower center portion of page.
Page 1 - Photo.
Top center of page: Lucio A. Noto, Chairman and Chief Executive
Officer and Eugene A. Renna, Chief Operating Officer.
Upper left side. Enlarged letters, "Dear shareholder:".
Lower left side. Enlarged letters, "How we helped ourselves".
Lower right side. Enlarged letters, "Merger announcement".
Page 2 - Upper left side. Enlarged letters, "Areas for upstream expansion".
Middle of page. Enlarged letters, "Among Mobil's strengths is a
solid portfolio of growth opportunities."
Lower right side. Enlarged letters, "Progress downstream".
Page 3 - Middle left-page are enlarged letters, "Capital spending".
Lower left-page are enlarged letters, "Board retirements".
Upper right-page are enlarged letters, "A name to carry forward".
Page 4 - Upper left-page to lower left page are following enlarged letters
going down left-hand side of page, "Mobil Corporation", "Upstream",
"Downstream", "Chemical", and "Technology".
Page 5 - Upper center/right-page to lower center/right-page are enlarged
letters, "Partnerships, expansions, realignments and a turbulent
business environment made 1998 a year of change for Mobil--a year
in which we advanced our competitive strategies.
An organizational realignment created seven business units
grouped functionally. At the same time, we entered into or advanced
a number of cooperative ventures around the world and made progress
on major projects. Then, as the year's end approached, we announced
a merger agreement with Exxon Corporation. Pending approvals, the
combined Exxon Mobil organization should be able to achieve more
than either company could achieve alone.
On the pages that follow, we review key events of the year,
following a month-by-month timeline."
Page 6 - Upper left-page are enlarged letters, "Jan".
Photo.
Upper right: Planting a tree in Florida.
Center of page are enlarged letters, "Feb".
Photo.
Lower left: West McLaren Mercedes Formula One race car.
Page 7 - Upper right-page are enlarged letters, "Mar".
Photo.
Upper right: researchers at Mobil Technology Company's laboratories
in Paulsboro, New Jersey.
Center of page are enlarged letters, "Apr".
Photo.
Lower left: double-hull tanker.
Page 8 - Upper center-page are enlarged letters, "May".
Drawing.
Tanker containing LNG regasification plant and single point
mooring systems.
Lower left page are enlarged letters, "Jun".
Photo.
Lower right page: oil rig at Cerro Negro heavy oil project.
Page 9 - Photo.
Upper left-page: Portion of Mobil gasoline pump showing how to use
a Mobil Speedpass/TM/ transponder.
Center page are enlarged letters, "Jul".
Photo (concluded).
Lower left page: oil rig at Cerro Negro heavy oil project.
Page 10 - Upper left-page are enlarged letters, "Aug".
Photo.
Upper left page: workers installing riser at Oso project.
Middle right-page are enlarged letters, "Sep".
Photo.
Lower right page: construction workers at onshore RasGas
facilities.
Page 11 - Drawing.
Upper left page: chemical molecule.
Upper center-page are enlarged letters, "Oct".
Photo (concluded).
Lower left page: construction workers at onshore RasGas
facilities.
Page 12 - Upper left page are enlarged letters, "Nov".
Photo.
Upper right page: Worker at Mobil OPP plant in
Shawnee, Oklahoma.
Lower left/center page are enlarged letters, "Dec".
Photo.
Lower left side: Exxon's CEO Lee Raymond and Mobil's CEO Lou
Noto signing documents.
Page 13 - Enlarged letters, "Highlights" in center of page.
Lower right page are enlarged letters, "Key Financial Indicators"
appearing above a table of "Key Financial Indicators".
Page 14 - One Bar Graph:
Mobil's net income (millions of dollars) for years 1994 through
1998 (excludes the LCM accounting policy change in 1994).
Sidebar in lower right-page:
"Graphs, charts and associated captions on pages 13-52 are not a
part of the Consolidated Financial Statements and Notes thereto."
Page 15 - One Bar Graph:
Annual dividends per share of common stock (dollars) for years 1988
through 1998.
Page 16 - Two Bar Graphs:
Top
Mobil's Upstream Net Income and Operating Earnings (millions of
dollars), for years 1996 through 1998.
Bottom
Mobil's U.S. and International net production of oil and gas
(thousands of barrels daily of oil equivalent) for the years 1996
through 1998.
Page 17 - Two Bar Graphs:
Top
Mobil's U.S. and international crude oil average sales market
prices (dollars per barrel) for years 1996 through 1998.
Bottom
Mobil's U.S. and international average natural gas sales prices
(dollars per thousand cubic feet), for years 1996 through 1998.
Page 18 - Two Bar Graphs:
Top
Mobil's Downstream Net Income and Operating Earnings (millions of
dollars), for years 1996 through 1998.
Bottom
Mobil's U.S. and international refinery runs (thousands of
barrels daily), for years 1996 through 1998.
Page 19 - One Bar Graph:
Mobil's U.S. and international Downstream petroleum product sales
volumes (thousands of barrels daily) for years 1996 through 1998.
Page 20 - One Bar Graph:
Mobil's Chemical segment Net Income and Operating Earnings (in
millions of dollars) are presented for years 1996 through 1998.
Page 27 - One Sidebar:
"Over the past three years Mobil has spent $1.9 billion to
safeguard the environment."
Page 30 - One Bar Graph:
Mobil's return on average shareholders' equity (in percent) for
years 1996 through 1998.
Page 32 - Two Bar Graphs:
Top
Total Debt of Mobil, U.S. and international (millions of dollars)
for years 1996 through 1998.
Bottom
Mobil's return on average capital employed (in percent) for years
1996 through 1998.
Page 34 - One Bar Graph:
Proceeds from sales of assets (in millions of dollars) for years
1996 through 1998.
Page 37 - One Bar Graph:
Mobil's capital expenditures, exploration expenses and equity
investments (in millions of dollars) for year 1996 through 1998.
Page 49 - One Sidebar:
"Pension Plan Assets and Book Reserves exceeded Accumulated
Benefit Obligations by $366 million at the end of 1998."
Page 61 - One Bar Graph:
Mobil's total production vs. reserve additions (millions of
barrels of oil equivalent) for years 1994 through 1998.
Page 62 - Two Bar Graphs:
Top
Refinery runs vs. petroleum product sales (thousands of barrels
daily) for years 1994 through 1998.
Bottom
Number of employees (at year-end) for Mobil for years 1994
through
1998, 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 1988, 1990, 1992, 1994, 1996 and 1998.
Bottom
Mobil's debt-to-capitalization ratio (in percent) for years 1988,
1990, 1992, 1994, 1996 and 1998.
Page 64 - Enlarged letters appear in upper center-page, "Shareholder
Information".
Page 65 - Enlarged letters appear in upper center-page, "Board of
Directors".
Photo.
(Inside Back Cover: Thirteen-member group photo of Mobil's Board
of Directors.
Back cover - Photograph of the wings of neon Mobil Pegasus in red fills most of
the page. Upper left-page above the Pegasus' wings are the words,
"Mobil Corporation," the address, the telephone number, and Mobil's
internet address.