1
1995
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 1-2475
SHELL OIL COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-1299890
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ONE SHELL PLAZA, HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 241-6161
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ----------------
7 1/4% DEBENTURES DUE 2002 NEW YORK STOCK EXCHANGE
GUARANTEES --
EVIDENCING GUARANTEE OF 7 1/2% GUARANTEED
SINKING FUND DEBENTURES DUE 1999 OF
SHELL PIPE LINE CORPORATION NEW YORK STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes 'X' . No .
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not applicable.
State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. None.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. Outstanding as of February
29, 1996 -- 1,000 shares of Common Stock, of a par value of $10.00 a share.
------------------------
OMISSION OF CERTAIN INFORMATION
In accordance with General Instruction J of Form 10-K, the registrant is
omitting Items 4, 10, 11, 12 and 13 (and related Exhibits) because:
(1) Royal Dutch Petroleum Company, a Netherlands company, and The "Shell"
Transport and Trading Company, public limited company, an English company, each
of which is a reporting company under the Securities Exchange Act of 1934 that
has filed all material required to be filed by it pursuant to Section 13, 14, or
15(d) thereof and is named in conjunction with the registrant's description of
its business, own directly or indirectly 60 percent and 40 percent,
respectively, of the shares of all the companies of Royal Dutch/Shell Group of
Companies, including all the equity securities of the registrant; and
(2) during the preceding thirty-six calendar months and any subsequent
period of days, there has not been any material default in the payment of
principal, interest, sinking or purchase fund installment, or any other material
default not cured within thirty days with respect to any indebtedness of the
registrant or its subsidiaries, and there has not been any material default in
the payment by the registrant or its subsidiaries of rentals under material
long-term leases.
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DOCUMENTS INCORPORATED BY REFERENCE: None
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2
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
Shell Oil Company was incorporated under the laws of the State of Delaware
on February 8, 1922. It has its principal executive offices at One Shell Plaza,
Houston, Texas 77002, and its telephone number is (713) 241-6161. Unless
otherwise required by the context, the term "Company" as used herein refers to
Shell Oil Company and the term "Shell Oil" refers to the Company and its
consolidated subsidiaries.
The Company is wholly owned by Shell Petroleum Inc., a Delaware
corporation, whose shares are directly or indirectly owned 60 percent by Royal
Dutch Petroleum Company, The Hague, The Netherlands, and 40 percent by The
"Shell" Transport and Trading Company, public limited company, London, England.
Royal Dutch Petroleum Company and The "Shell" Transport and Trading Company,
public limited company, are holding companies which together directly or
indirectly own securities of companies of the Royal Dutch/Shell Group of
Companies, the members of which are severally engaged throughout the greater
part of the world in oil, natural gas, chemicals, coal and other businesses.
Shell Oil is engaged, principally in the United States, in the exploration
for, and development, production, purchase, transportation and marketing of,
crude oil and natural gas, and the purchase, manufacture, transportation and
marketing of oil and chemical products. In addition, Shell Oil is engaged in the
exploration for, and production of, crude oil and natural gas outside the United
States, including several ventures with companies of the Royal Dutch/Shell Group
of Companies. Also, Shell Oil is engaged in the development, production and
marketing of sulfur and carbon dioxide.
The three major reporting segments of Shell Oil's businesses are Oil and
Gas Exploration and Production, Oil Products and Chemical Products. The two
products segments are integrated through certain common manufacturing
facilities, raw material supplies and technical support.
Compared with other integrated enterprises in the petroleum industry, the
Company believes that in 1995, domestically, Shell Oil ranked fourth in the net
production of crude oil and natural gas liquids, fourth in net production of
natural gas, first in refined products sold and fifth in refinery processing
intakes. Additionally, within the petroleum industry, Shell Oil is a leader in
the domestic manufacturing and marketing of chemicals.
At December 31, 1995, Shell Oil had 21,050 employees.
FINANCIAL INFORMATION BY MAJOR BUSINESS SEGMENT
Information on revenue, operating profit, net income, identifiable assets
and capital expenditures of each business segment is reported in this item. The
discussion of segment results included in Management's Discussion and Analysis
of Financial Condition and Results of Operations appearing in Item 7 of this
report is incorporated herein by reference. Income taxes are allocated to
segments on the basis of contributions to taxable income reduced by applicable
tax credits. Segment revenues, operating profit and assets outside the United
States are not of a level which requires separate geographical reporting.
2
3
The following is a summarized disaggregation of Shell Oil's consolidated
net income for each of the past three years.
1995 1994 1993
------ ------ ------
(millions of dollars)
SEGMENT NET INCOME (LOSS)
Oil and Gas Exploration and Production............ $ 621 $ 257 $ 477
Oil Products...................................... 474 373 280
Chemical Products................................. 694 161 35
Other............................................. (78) (235) (27)
------ ------ ------
TOTAL................................... 1,711 $ 556 765
NONALLOCATED COSTS..................................... 191 48 (16)
------ ------ ------
NET INCOME.............................. $1,520 $ 508 $ 781
====== ====== ======
OIL AND GAS EXPLORATION AND PRODUCTION
General
Total revenues, operating profit and segment income for Oil and Gas
Exploration and Production activities for each of the past three years, together
with capital expenditures and related identifiable assets at the end of each
year, were as set out below. For additional information, see Note 18 of the
Notes to Consolidated Financial Statements included in Item 14a.
1995 1994* 1993*
------- ------- -------
(millions of dollars)
REVENUES
Sales and other operating revenue................ $ 1,764 $ 1,490 $ 1,418
Other revenue.................................... 90 33 96
Intersegment transfers........................... 2,659 2,257 2,492
------- ------- -------
TOTAL REVENUES......................... 4,513 3,780 4,006
COSTS AND EXPENSES
Costs and operating expenses..................... 2,293 2,163 2,098
Depreciation, depletion, amortization and
retirements.................................... 1,533 1,605 1,225
------- ------- -------
OPERATING PROFIT....................... 687 12 683
Allocated corporate expenses..................... 40 39 53
Allocated income taxes........................... 66 (210) 163
Minority interest................................ 42 20 12
Equity in net income of others................... (83) (96) (23)
------- ------- -------
INCOME FROM ONGOING OPERATIONS......... 622 259 478
Other charges**.................................. 1 2 1
------- ------- -------
SEGMENT NET INCOME..................... $ 621 $ 257 $ 477
======= ======= =======
CAPITAL EXPENDITURES.................................. $ 1,395 $ 952 $ 877
======= ======= =======
IDENTIFIABLE ASSETS AT DECEMBER 31.................... $11,976 $12,217 $12,697
======= ======= =======
- ---------------
* Certain 1994 and 1993 amounts have been reclassified to conform with 1995
presentation.
** Amounts associated with major product classifications for which there has
been no revenue stream or investment in the last five years.
Exploration and Production Operations
Domestically, Shell Oil produces crude oil (including condensate), natural
gas and natural gas liquids in 13 states, the Gulf of Mexico and offshore
California. In 1995, domestic onshore production accounted for 56 percent of
Shell Oil's crude oil production and 39 percent of its natural gas production.
The Gulf of Mexico,
3
4
California and Texas are Shell Oil's principal areas of production activity,
providing about 88 percent of its combined oil and gas production on a crude oil
equivalent basis. The majority of Shell Oil's oil and gas production interests
are acquired under leases (including many leases on federal onshore and offshore
tracts); such leases are generally obtained for an initial fixed term which is
automatically extended by the establishment of production for so long as
production continues, subject to compliance with the terms of the lease
(including, in the case of federal leases, extensive regulations imposed by
federal law). Shell Oil also has international oil and gas production and
produces sulfur from its natural gas processing plants in the United States.
During 1995, Shell Oil and Tejas Gas Corporation (Tejas) formed a limited
partnership, Coral Energy Resources, L.P. (Coral). Coral will ultimately
purchase substantially all of Shell Oil's natural gas production as well as
significant additional volumes acquired under contracts with third parties. This
new marketing company will combine the Tejas pipeline and storage capacity and
the delivery options they provide with the supplier reliability provided by
Shell Oil's natural gas reserves. Also during 1995, Shell Oil announced plans to
combine its exploration and production assets located in the Permian Basin of
West Texas/Southeast New Mexico with those of Amoco Corporation (Amoco) in a
limited partnership to be owned approximately 35 percent by Shell Oil and 65
percent by Amoco. Negotiations are continuing regarding this transaction, which
is anticipated to extend the profitable life of Permian Basin assets due to cost
reductions made possible by the partnership.
Supplemental and Enhanced Recovery
Shell Oil continues to develop and use supplemental and enhanced recovery
techniques to produce crude oil which could not be recovered by natural
reservoir forces. These recovery operations accounted for 49 percent of Shell
Oil's domestic crude oil production in 1995. Activities include steam injection
to produce heavy, more viscous crude oil, carbon dioxide (CO(2)) injection for
increased recovery of lighter oil and supplemental water injection.
Steam injection methods, primarily in California, accounted for 24 percent
of domestic crude oil production in 1995, slightly less than 1994. Also, in
1995, CO(2) injection projects in West Texas and Mississippi accounted for
16,710 net barrels per day or approximately 5 percent of domestic crude oil
production.
Domestic Offshore Oil and Gas
Shell Oil acquired interests in 103 tracts in the Gulf of Mexico during
1995 at a bonus cost of $41 million. Shell Oil now holds interests in 685 tracts
in the Gulf, 417 of which are in water depths exceeding 1,500 feet, comprising
about one-third of the industry's deepwater leaseholds.
Exploration and development of offshore acreage continued in 1995 with
Shell Oil participating in the drilling of 54 gross wells, of which 39 were
classified as successful, meaning, in the case of development wells, producing
or capable of production, and in the case of exploratory wells, proving
commercial reserves (successful wells).
Deepwater development activity accelerated in 1995. At Prospect Mars,
located approximately 130 miles southeast of New Orleans, construction continued
ahead of schedule for a tension leg platform (TLP) to be placed in approximately
2,940 feet of water. Mars, owned 71.5 percent by Shell Oil, is designed to
recover approximately 500 million barrels of crude oil equivalents in its first
phase. First production from Mars is now anticipated in mid-1996. A decision to
proceed with subsequent development of Mars will be made about two to three
years after production from the first phase commences. Development of Prospect
Ram/Powell (Shell Oil interest-38 percent) at a gross cost of $1 billion was
announced in January 1995. Production is expected to begin in late 1997 from a
TLP located in 3,220 feet of water, reaching a peak of 60,000 barrels of oil and
200 million cubic feet of natural gas per day. Gross ultimate recovery from
Ram/Powell is expected to be approximately 250 million barrels of crude oil
equivalents. Plans to develop Prospect Mensa (Shell Oil interest-100 percent) in
a world record water depth of 5,400 feet were announced in May 1995. Gross
ultimate recovery from Mensa is estimated at 720 billion cubic feet of natural
gas. Initial production from Mensa is
4
5
targeted for late 1997, with peak production of 300 million cubic feet of
natural gas per day occurring shortly thereafter. Mensa will be a subsea
development, with up to 4 wells located on the sea floor with flowlines
connecting to a conventional platform some 68 miles away in shallower water. In
September 1995, Shell Oil announced formation of a joint project team with
co-venturers to begin final design for a TLP to develop Prospect Ursa (Shell Oil
interest-45.4 percent). The Ursa TLP, which will set a new world record for TLP
water depth at approximately 3,950 feet, is expected to be installed in early
1999, with first production anticipated in mid-1999. Anticipated peak daily
production is expected to be 150,000 barrels of oil and 400 million cubic feet
of gas. Gross ultimate recovery for Ursa is estimated to be between 250 and 500
million barrels of crude oil equivalents.
Production from the TLP in Shell Oil's Auger field, located 214 miles
southwest of New Orleans, continued to exceed original expectations. Work is
underway to increase Auger's production capacity to in excess of 70,000 barrels
of oil and 300 million cubic feet of natural gas per day. First production from
Prospect Popeye occurred in early January 1996 from two subsea wells. The Popeye
field produced at an average rate of 90 million cubic feet of natural gas per
day in January. Gross ultimate recovery from the first phase of Popeye is
estimated at 200 billion cubic feet of natural gas and 7 million barrels of
condensate. A second phase of development, if undertaken after review of results
from phase one, could raise gross ultimate recovery to 320 million cubic feet of
natural gas and 10 million barrels of condensate. Shell Oil's interest in Popeye
is 37.5 percent after payout of capital costs.
Domestic Onshore Oil and Gas
During 1995, Shell Oil participated in drilling 367 gross development wells
of which 362 were successful. Most of this activity was in Shell Oil's heavy oil
fields in California.
Shell Oil participated in drilling 26 gross exploratory wells; 16 were
successful. Exploration activities were primarily along the Gulf Coast.
International Oil and Gas
In 1995, the international exploration activities of the Company's
subsidiaries were primarily offshore and were concentrated in five core areas:
Indonesia, China, Argentina/Trinidad, the Black Sea and off the coast of West
Africa. These subsidiaries participated in drilling 5 exploratory and 29
development wells, of which 28 were successful. The drilling activity was
concentrated in China, Angola, Yemen and Cameroon.
The development of two fields in offshore China is continuing. First
lifting occurred in the first quarter of 1995 on Block 24-3 (Shell Oil's
interest-12.5 percent); production from Block 30-2 (Shell Oil's-interest 24.4
percent) began in the fourth quarter of 1995. Additionally, total gross
production from a co-venture in Yemen (Shell Oil's interest-20 percent) ranged
from 185 thousand to 200 thousand barrels per day.
5
6
Results of Operations and Costs
Results of operations for oil and gas producing activities, as prescribed
by Statement of Financial Accounting Standards No. 69, "Disclosures about Oil
and Gas Producing Activities," are shown below. These results exclude related
activities, such as the purchase and resale of natural gas, and revenues and
expenses associated with certain non-hydrocarbon products, such as sulfur and
carbon dioxide, which are included in the Segment Net Income data set forth
above and in Note 18 of the Notes to Consolidated Financial Statements included
in Item 14a of this report. Also excluded are research, corporate overhead and
interest costs.
1995 1994 1993
------------------------ ------------------------ ------------------------
U.S. INT'L TOTAL U.S. INT'L TOTAL U.S. INT'L TOTAL
------ ---- ------ ------ ---- ------ ------ ---- ------
(millions of dollars)
Sales.......................... $1,236 $ 46 $1,282 $1,108 $ 41 $1,149 $1,111 $ 37 $1,148
Transfers...................... 1,976 304 2,280 1,758 226 1,984 1,901 359 2,260
------ ---- ------ ------ ---- ------ ------ ---- ------
Total Revenues............ 3,212 350 3,562 2,866 267 3,133 3,012 396 3,408
Production costs............... 1,039 85 1,124 1,066 73 1,139 1,104 131 1,235
Exploration expenses........... 194 52 246 277 66 343 224 74 298
Depreciation, depletion and
amortization................. 1,371 119 1,490 1,477 111 1,588 1,119 97 1,216
Income tax expense............. 29 28 57 (229) 14 (215) 63 54 117
------ ---- ------ ------ ---- ------ ------ ---- ------
Results of
Operations.............. $ 579 $ 66 $ 645 $ 275 $ 3 $ 278 $ 502 $ 40 $ 542
------ ---- ------ ------ ---- ------ ------ ---- ------
Shell Oil's interest in results
of operations of equity
companies.................... $ -- $ 36 $ 36 $ -- $ 39 $ 39 $ -- $ 3 $ 3
====== ==== ====== ====== ==== ====== ====== ==== ======
The weighted average price per unit of production of crude oil and
condensate, natural gas liquids and natural gas available for market, as well as
production expenses and results of operations for oil and gas producing
activities on a per barrel of equivalent net hydrocarbon production basis, for
each of the past three years were as follows:
1995 1994 1993
------------------------ ------------------------ ------------------------
U.S. INT'L TOTAL U.S. INT'L TOTAL U.S. INT'L TOTAL
------ ------ ------ ------ ------ ------ ------ ------ ------
UNIT STATISTICS
Weighted Average Price per
Barrel of Net Production:
Crude oil and condensate.... $15.02 $16.28 $15.17 $13.41 $14.38 $13.51 $14.08 $16.05 $14.38
Natural gas liquids......... 12.01 10.07 12.00 11.95 9.69 11.94 12.87 16.70 12.93
Weighted Average Price per
Thousand Cubic Feet of Net
Marketable Natural Gas
Produced.................... 1.65 1.99 1.66 1.90 1.64 1.88 2.12 2.22 2.12
Production Expenses (dollars
per barrel of equivalent net
hydrocarbon production)..... 3.76 3.75 3.76 4.20 3.65 4.16 4.47 5.17 4.53
Results of Operations (dollars
per barrel of equivalent net
hydrocarbon production)..... 2.10 2.88 2.16 1.09 0.13 1.02 2.12 1.63 2.07
6
7
Capitalized costs related to oil and gas producing activities at year end,
and costs incurred in oil and gas property acquisition, exploration and
development activities for each year are shown below. These amounts do not
include costs of carbon dioxide and other non-hydrocarbon projects which for
segment reporting are included in the Oil and Gas Exploration and Production
data presented in Notes 13 and 18 of the Notes to Consolidated Financial
Statements.
1995 1994 1993
-------------------------- -------------------------- --------------------------
U.S. INT'L TOTAL U.S. INT'L TOTAL U.S. INT'L TOTAL
------- ------ ------- ------- ------ ------- ------- ------ -------
(millions of dollars)
CAPITALIZED COSTS
Proved properties........ $20,893 $1,423 $22,316 $20,130 $1,392 $21,522 $19,628 $1,335 $20,963
Unproved properties...... 866 22 888 999 25 1,024 1,178 47 1,225
Support equipment and
facilities............ 416 9 425 385 17 402 459 16 475
------- ------ ------- ------- ------ ------- ------- ------ -------
Total Capitalized
Costs............ 22,175 1,454 23,629 21,514 1,434 22,948 21,265 1,398 22,663
Accumulated depreciation,
depletion and
amortization.......... 12,671 775 13,446 11,866 669 12,535 11,011 565 11,576
------- ------ ------- ------- ------ ------- ------- ------ -------
NET CAPITALIZED
COSTS............ $ 9,504 $ 679 $10,183 $ 9,648 $ 765 $10,413 $10,254 $ 833 $11,087
======= ====== ======= ======= ====== ======= ======= ====== =======
Shell Oil's interest in
net capitalized costs
of equity companies... $ -- $ 148 $ 148 $ -- $ 256 $ 256 $ -- $ 226 $ 226
======= ====== ======= ======= ====== ======= ======= ====== =======
COSTS INCURRED IN PROPERTY
ACQUISITION, EXPLORATION
AND DEVELOPMENT
ACTIVITIES*
Acquisition of
properties
Proved.............. $ 15 $ -- $ 15 $ 79 $ -- $ 79 $ 20 $ -- $ 20
Other............... 64 (1) 63 22 5 27 17 6 23
Exploration costs..... 423 58 481 381 44 425 253 86 339
Development costs..... 1,015 29 1,044 693 57 750 554 209 763
------- ------ ------- ------- ------ ------- ------- ------ -------
Shell Oil's share of
costs incurred by
equity companies.... $ -- $ 146 $ 146 $ -- $ 68 $ 68 $ -- $ 19 $ 19
======= ====== ======= ======= ====== ======= ======= ====== =======
- ------------
* Costs have been categorized on the basis of Financial Accounting Standards
Board definitions which include costs of oil and gas producing activities
whether capitalized or charged to expense as incurred.
7
8
Shell Oil's oil and gas exploration and development net wells drilled and
the wells which were successful were as follows:
1995 1994 1993
--------------------- --------------------- ---------------------
U.S. INT'L TOTAL U.S. INT'L TOTAL U.S. INT'L TOTAL
------ ----- ------ ------ ----- ------ ------ ----- ------
NET WELLS DRILLED
Exploratory
Oil and Gas Wells......... 27 -- 27 13 -- 13 27 1 28
Dry Holes................. 17 2 19 20 2 22 17 3 20
Development
Oil and Gas Wells......... 242 6 248 204 2 206 178 13 191
Dry Holes................. 3 -- 3 3 -- 3 4 1 5
OIL AND GAS WELLS PRODUCING OR
CAPABLE OF PRODUCING
Gross Wells
Oil....................... 22,406 411 22,817 23,879 341 24,220 23,908 411 24,319
Gas....................... 1,675 27 1,702 1,519 28 1,547 1,578 25 1,603
Net Wells
Oil....................... 13,548 111 13,659 14,495 95 14,590 14,733 113 14,846
Gas....................... 1,114 8 1,122 1,037 8 1,045 1,011 8 1,019
Number of net oil and gas
wells above completed in
more than one producing
formation................. 384 1 385 320 3 323 289 3 292
As of December 31, 1995, Shell Oil's interest in wells which were in the
process of being drilled was as follows:
EXPLORATORY DEVELOPMENT TOTAL
------------- ------------- -------------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
WELLS IN PROCESS OF BEING DRILLED
United States........................ 10 5.7 1 0.5 11.0 6.2
International........................ -- -- 1 0.2 1.0 0.2
---- --- -- --- ---- ---
Total........................... 10 5.7 2 0.7 12.0 6.4
==== === == === ==== ===
Acreage in which Shell Oil had an interest at the end of each of the
periods indicated was as follows:
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(thousands of acres)
UNDEVELOPED ACREAGE
Gross
United States
Onshore........................... 1,563 1,542 1,354 1,983 2,535
Offshore.......................... 4,668 2,797 4,086 4,966 6,390
International........................ 48,241 37,685 37,823 40,860 49,725
------ ------ ------ ------ ------
TOTAL........................ 54,472 42,024 43,263 47,809 58,650
====== ====== ====== ====== ======
Net
United States
Onshore........................... 1,135 955 960 1,472 1,948
Offshore.......................... 4,543 2,717 3,717 4,544 5,550
International........................ 14,116 23,125 13,780 16,308 20,670
------ ------ ------ ------ ------
TOTAL........................ 19,794 26,797 18,457 22,324 28,168
====== ====== ====== ====== ======
PRODUCING OIL AND GAS ACREAGE
Gross
United States........................ 2,339 1,281 1,329 1,513 1,599
International........................ 100 90 69 109 110
------ ------ ------ ------ ------
TOTAL........................ 2,439 1,371 1,398 1,622 1,709
====== ====== ====== ====== ======
Net
United States........................ 1,973 1,003 1,072 1,115 1,167
International........................ 25 23 20 30 32
------ ------ ------ ------ ------
TOTAL........................ 1,998 1,026 1,092 1,145 1,199
====== ====== ====== ====== ======
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9
Shell Oil's net production (after deducting interests of others, including
royalty) was as follows for the periods indicated:
LIQUIDS (THOUSANDS OF BARRELS DAILY)
NATURAL GAS (MILLIONS OF CUBIC FEET DAILY) 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
NET CRUDE OIL AND CONDENSATE PRODUCED
United States
Gulf of Mexico.................... 154 133 113 122 105
California........................ 128 133 140 160 181
Louisiana......................... 10 9 8 10 10
Michigan.......................... 7 7 8 10 11
Texas............................. 47 48 50 56 58
Other............................. 25 25 30 30 35
------ ------ ------ ------ ------
Total United States............... 371 355 349 388 400
International.......................... 51 43 61 63 81
------ ------ ------ ------ ------
Total consolidated companies...... 422 398 410 451 481
Shell Oil's interest in production of
equity companies..................... 34 31 29 -- --
NATURAL GAS LIQUIDS PRODUCED
Predominantly domestic................. 70 61 54 59 56
------ ------ ------ ------ ------
TOTAL LIQUIDS PRODUCED............ 526 490 493 510 537
====== ====== ====== ====== ======
NET NATURAL GAS PRODUCED*
United States
Gulf of Mexico.................... 1,012 785 741 711 709
Louisiana......................... 87 120 129 140 50
Michigan.......................... 103 107 120 134 132
Texas............................. 382 345 370 343 331
Other............................. 180 205 115 126 151
International.......................... 61 67 39 28 26
------ ------ ------ ------ ------
TOTAL GAS PRODUCED................ 1,825 1,629 1,514 1,482 1,399
====== ====== ====== ====== ======
Net natural gas available for market,
excluding consumed in operations..... 1,699 1,473 1,361 1,158 1,187
- ------------
* Natural gas is reported on the basis of actual or calculated volumes which
remain after removal of liquefiable hydrocarbons by lease or field separation
facilities and of non-hydrocarbons where they occur in sufficient quantities
to render the gas unmarketable.
Proved Reserve Estimates
Oil and gas proved reserves cannot be measured exactly. Reserve estimates
are based on many factors related to reservoir performance which require
evaluation by the engineers interpreting the available data, as well as price
and other economic factors. The reliability of these estimates at any point in
time depends on both the quality and quantity of the technical and economic
data, the production performance of the reservoirs as well as extensive
engineering judgment. Consequently, reserve estimates are subject to revision as
additional data become available during the producing life of a reservoir. When
a commercial reservoir is discovered, proved reserves are initially determined
based on limited data from the first well or wells. Subsequent data may better
define the extent of the reservoir and additional production performance, well
tests and engineering studies will likely improve the reliability of the reserve
estimate. The evolution of technology may also result in the application of
improved recovery techniques such as supplemental or enhanced recovery projects,
or both, which have the potential to increase reserves beyond those envisioned
during the early years of a reservoir's producing life.
Shell Oil reports its reserve position annually. Revisions to reserves are
based on engineering analyses of individual reservoirs at the field level. Prior
to finalizing the annual reserve report, a team of senior technical employees of
Shell Oil reviews the reserve estimates, procedures and explanation of revisions
for proven reservoirs.
9
10
Proved reserves are those quantities which, upon analysis of geological and
engineering data, appear with reasonable certainty to be recoverable in the
future from known oil and gas reservoirs under current prices and costs as of
the date the estimate is made. For major revisions, extensions and discoveries,
proved reserves must also be recoverable under future prices and costs
forecasted by Shell Oil. Proved developed reserves are those reserves which can
be expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are those reserves which are
expected to be recovered from new wells on undrilled acreage or from existing
wells where a relatively major expenditure is required.
Net proved reserves represent the estimated recoverable volumes after
deducting from gross proved reserves the portion due land owners or others as
royalty or operating interests.
Estimated quantities of net proved oil, natural gas liquids and natural gas
reserves and of changes in net quantities of proved developed and undeveloped
reserves for each of the periods indicated were as follows:
1995 1994 1993
LIQUIDS (MILLIONS OF BARRELS) ------------------------ ------------------------ ------------------------
NATURAL GAS (BILLIONS OF CUBIC FEET) U.S. INT'L TOTAL U.S. INT'L TOTAL U.S. INT'L TOTAL
----- ----- ------ ----- ----- ------ ----- ----- ------
OIL RESERVES
Proved Developed and Undeveloped
Beginning of year...................... 1,810 118 1,928 1,956 127 2,083 1,984 255 2,239
Revisions of previous estimates........ (41) 7 (34) (97) 4 (93) (72) (18) (90)
Improved recovery...................... 16 -- 16 7 -- 7 6 1 7
Purchases of reserves*................. 2 -- 2 5 -- 5 1 (101)(1) (100)
Extensions and discoveries............. 145 10 155 68 3 71 219 13 232
Sales of reserves...................... (17) -- (17) -- -- -- (55) -- (55)
Production............................. (135) (19) (154) (129) (16) (145) (127) (23) (150)
----- ---- ----- ----- ---- ----- ----- ---- -----
End of year............................ 1,780 116 1,896 1,810 118 1,928 1,956 127 2,083
===== ==== ===== ===== ==== ===== ===== ==== =====
Net changes for year................... (30) (2) (32) (146) (9) (155) (28) (128) (156)
Shell Oil's interest in proved reserves
of equity companies at end of year... -- 73 73 -- 68 68 -- 69 69
Proved Developed
Beginning of year...................... 1,156 74 1,230 1,252 79 1,331 1,372 131 1,503
End of year............................ 1,124 80 1,204 1,156 74 1,230 1,252 79 1,331
NATURAL GAS LIQUIDS RESERVES
Proved Developed and Undeveloped
Beginning of year...................... 230 1 231 247 1 248 227 4 231
Revisions of previous estimates........ 7 -- 7 (15) -- (15) 17 (1) 16
Purchases of reserves*................. -- -- -- 1 -- 1 -- (2)(1) (2)
Extensions and discoveries............. 28 -- 28 19 -- 19 32 -- 32
Sales of reserves...................... (1) -- (1) -- -- -- (9) -- (9)
Production............................. (26) -- (26) (22) -- (22) (20) -- (20)
----- ---- ----- ----- ---- ----- ----- ---- -----
End of year............................ 238 1 239 230 1 231 247 1 248
===== ==== ===== ===== ==== ===== ===== ==== =====
Net changes for year................... 8 -- 8 (17) -- (17) 20 (3) 17
Proved Developed
Beginning of year...................... 166 1 167 170 1 171 173 3 176
End of year............................ 163 1 164 166 1 167 170 1 171
NATURAL GAS RESERVES**
Proved Developed and Undeveloped
Beginning of year...................... 5,546 265 5,811 4,911 288 5,199 5,235 435 5,670
Revisions of previous estimates........ (76) 24 (52) (69) 2 (67) (119) (21) (140)
Improved recovery...................... -- -- -- 1 -- 1 4 -- 4
Purchases of reserves*................. 7 -- 7 73 -- 73 16 (112)(1) (96)
Extensions and discoveries............. 731 -- 731 1,200 -- 1,200 457 -- 457
Sales of reserves...................... (182) -- (182) -- -- -- (143) -- (143)
Production............................. (644) (22) (666) (570) (25) (595) (539) (14) (553)
----- ---- ----- ----- ---- ----- ----- ---- -----
End of year............................ 5,382 267 5,649 5,546 265 5,811 4,911 288 5,199
===== ==== ===== ===== ==== ===== ===== ==== =====
Net changes for year................... (164) 2 (162) 635 (23) 612 (324) (147) (471)
Shell Oil's interest in proved reserves
of equity companies at end of year... -- 414 414 -- 306 306 -- 374 374
Proved Developed
Beginning of year...................... 3,646 265 3,911 3,712 288 4,000 4,215 332 4,547
End of year............................ 3,464 267 3,731 3,646 265 3,911 3,712 288 4,000
(Footnotes on following page)
10
11
- ------------
* Includes the net effect of exchanges of reserves with other companies.
** Natural gas is reported on the basis of actual or calculated volumes which
remain after removal of liquefiable hydrocarbons by lease or field
separation facilities and of non-hydrocarbons where they occur in sufficient
quantities to render the gas unmarketable. Natural gas reserve volumes
include liquefiable hydrocarbons approximating five percent of total gas
reserves which are recoverable at natural gas processing plants downstream
from the lease or field separation facilities. Such recoverable liquids also
have been included in natural gas liquids reserve volumes.
(1) Represents the transfer of reserves associated with Syrian operations which
were exchanged for an equity interest in a company affiliated with the Royal
Dutch/Shell Group of companies.
Standardized Measure
The following disclosures concerning the standardized measure of future
cash flows from proved oil and gas reserves are presented in accordance with
Statement of Financial Accounting Standards No. 69. As prescribed by this
Statement, the amounts shown are based on prices and costs at the end of each
period, currently enacted tax rates and a 10 percent annual discount factor.
Since prices and costs do not remain static, and no price or cost changes have
been considered, the results are not necessarily indicative of the fair market
value of estimated proved reserves, but they do provide a common benchmark which
may enhance the users' ability to project future cash flows.
For this purpose, individual estimates of production quantities, revenues
and costs were developed for major fields and combinations of smaller, closely
related fields. These fields contained approximately 80 percent of Shell Oil's
total estimated proved reserves. Estimates for the remaining fields were
developed in the aggregate by major geographic regions. Extensive judgments are
involved in estimating the timing of production and the costs that will be
incurred throughout the remaining lives of these fields. Therefore, the results
may not be comparable to estimates disclosed by other oil and gas producers.
The standardized measure of discounted future net cash flows related to
proved oil and gas reserves at the end of each year was as follows:
1995 1994 1993
---------------------------- ---------------------------- ----------------------------
U.S. INT'L TOTAL U.S. INT'L TOTAL U.S. INT'L TOTAL
------- ------ ------- ------- ------ ------- ------- ------ -------
(millions of dollars)
STANDARDIZED MEASURE OF
DISCOUNTED FUTURE NET CASH
FLOWS
Future cash inflows..... $41,076 $2,640 $43,716 $37,250 $2,482 $39,732 $33,240 $2,101 $35,341
Future production and
development costs..... 16,447 869 17,316 17,609 890 18,499 19,953 927 20,880
Future income tax
expenses.............. 7,051 467 7,518 5,385 411 5,796 2,988 220 3,208
------- ------ ------- ------- ------ ------- ------- ------ -------
Future net cash
flows*................ 17,578 1,304 18,882 14,256 1,181 15,437 10,299 954 11,253
10 percent annual
discount for estimated
timing of cash
flows................. 7,125 399 7,524 6,253 387 6,640 4,531 397 4,928
------- ------ ------- ------- ------ ------- ------- ------ -------
TOTAL.............. $10,453 $ 905 $11,358 $ 8,003 $ 794 $ 8,797 $ 5,768 $ 557 $ 6,325
======== ====== ======== ======== ====== ======== ======== ====== ========
Shell Oil's share of
standardized measure
of discounted future
net cash flows of
equity companies...... $ -- $ 652 $ 652 $ -- $ 615 $ 615 $ -- $ 353 $ 353
======== ====== ======== ======== ====== ======== ======== ====== ========
- ------------
* Future net cash flows were estimated using year-end prices and costs, and
currently enacted tax rates. Shell Oil's domestic and international weighted
average crude oil prices at year-end 1995 were $15.14 and $18.25 per barrel,
respectively, compared to year-end 1994 prices of $13.72 and $17.10 per
barrel, respectively, and year-end 1993 prices of $9.89 and $13.23 per barrel,
respectively.
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The aggregate change in the standardized measure of discounted future net
cash flows was an increase of $2,561 million in 1995, an increase of $2,472
million in 1994 and a decrease of $2,524 million in 1993. The principal sources
of change were as follows:
1995 1994 1993
------- ------- -------
(millions of dollars)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS
Sales and transfers of oil and gas produced, net of
production costs....................................... $(2,438) $(1,994) $(2,191)
Net changes in prices and costs.......................... 2,530 3,863 (3,264)
Extensions, discoveries, additions and improved recovery,
less related costs..................................... 1,840 1,458 1,291
Net purchases and sales of reserves...................... (238) 89 (896)
Development costs incurred during the period............. 1,044 750 763
Revisions of previous reserve estimates.................. (50) (518) (252)
Accretion of discount.................................... 1,205 810 1,274
Net change in income taxes............................... (1,209) (1,480) 2,119
OIL PRODUCTS
General
The Oil Products business is engaged in the refining, transporting and
marketing of oil products, principally in the United States. This segment is
oriented toward light fuel products; accordingly, refineries are designed to
produce large quantities of motor gasoline and other light fuels. The Company is
a leading U.S. marketer of gasoline and an important supplier of aviation fuels,
lubricants, distillates and asphalts.
Total revenues, operating profit and segment income for Oil Products'
activities for each of the past three years, together with capital expenditures
and related identifiable assets at the end of each year, were as set out below.
For additional information, see Note 18 of the Notes to Consolidated Financial
Statements included in Item 14a.
1995 1994 1993
------- ------- -------
(millions of dollars)
REVENUES
Sales and other operating revenue.............. $17,375 $15,733 $15,462
Other revenue.................................. 11 14 8
Intersegment transfers......................... 969 851 949
------- ------- -------
TOTAL REVENUES....................... 18,355 16,598 16,419
COSTS AND EXPENSES
Costs and operating expenses................... 17,212 15,559 15,708
Depreciation, depletion, amortization and
retirements.................................. 365 341 253
------- ------- -------
OPERATING PROFIT..................... 778 698 458
Allocated corporate expenses................... 34 29 25
Allocated income taxes......................... 232 218 163
Equity in net (income) loss of others.......... 55 24 (15)
------- ------- -------
INCOME FROM ONGOING OPERATIONS....... 457 427 285
Other charges*................................. (17) 54 5
------- ------- -------
SEGMENT NET INCOME................... $ 474 $ 373 $ 280
======= ======= =======
CAPITAL EXPENDITURES................................ $ 1,065 $ 1,087 $ 704
======= ======= =======
IDENTIFIABLE ASSETS AT DECEMBER 31.................. $ 8,763 $ 7,892 $ 7,232
======= ======= =======
- ------------
* Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
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Supplies
Shell Oil supplements its own crude oil production to meet its refinery
requirements by the purchase of crude oil from both domestic and international
sources. During 1995, 35 percent of the Company's net crude supply came from
sources outside the United States; approximately 24 percent was purchased from
government oil companies in eight foreign countries and 11 percent was purchased
from other international sources, including companies affiliated with the Royal
Dutch/Shell Group of Companies.
Net sources of crude oil, and oil products supply and distribution were as
follows for the periods indicated:
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
(thousands of barrels daily)
NET SOURCES OF CRUDE OIL
United States.............................. 547 561 527 591 670
International.............................. 294 329 339 334 317
----- ----- ----- ----- -----
TOTAL................................. 841 890 866 925 987
===== ===== ===== ===== =====
OIL PRODUCTS SUPPLY
Net crude oil produced..................... 422 398 410 451 481
Natural gas liquids produced............... 70 61 54 59 56
Crude oil purchased........................ 1,272 1,288 1,182 1,164 1,173
Crude oil sold............................. (853) (796) (726) (690) (667)
Crude oil inventory change................. 27 -- 5 -- (1)
Oil products purchased..................... 582 496 424 276 270
----- ----- ----- ----- -----
TOTAL SUPPLY.......................... 1,520 1,447 1,349 1,260 1,312
===== ===== ===== ===== =====
OIL PRODUCTS DISTRIBUTION
Refined products sold...................... 1,348 1,272 1,200 1,120 1,195
Used in chemical manufactures.............. 136 125 121 128 119
Product inventory change................... 25 16 6 (1) (7)
Own consumption, etc....................... 11 34 22 13 5
----- ----- ----- ----- -----
TOTAL DISTRIBUTION.................... 1,520 1,447 1,349 1,260 1,312
===== ===== ===== ===== =====
Manufacturing
During 1995, the Company owned and operated refining facilities located at
Martinez, California; Wood River, Illinois; Norco, Louisiana; Odessa, Texas; and
Anacortes, Washington. Additionally, the Company and a subsidiary of Mexico's
national oil company Petroleos Mexicanos (Pemex) are in a 50/50 joint venture at
the Deer Park, Texas refinery; the Company operates the refinery on behalf of
the venture. During 1995, a refinery upgrading program was completed at the
jointly owned Deer Park refinery. Additionally, the $1 billion clean fuels
upgrading project at the Martinez, California refinery is expected to be
completed in late 1996. This upgrade is designed to expand the refinery's
capacity to manufacture reformulated gasolines, diesel fuel and jet fuel while
reducing its production of heavy fuel oil. The investment will also reduce
emissions to the environment.
During 1996, the Company plans to restructure its refining operations.
Refineries at Martinez, Wood River, Norco, Odessa and Anacortes will each become
a separate subsidiary. This change is intended to give each refinery greater
autonomy, flexibility and accountability.
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Refinery processing intakes of crude oil, natural gas liquids and other raw
materials for the manufacture of petroleum products at the Company's refineries
and certain other refinery statistics were as follows for the periods indicated:
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
(thousands of barrels daily)
REFINERY PROCESSING INTAKES
Anacortes, Washington..................... 105 107 107 103 82
Deer Park, Texas*......................... 101 112 142 225 202
Martinez, California...................... 165 161 168 165 140
Norco, Louisiana.......................... 236 239 232 202 199
Odessa, Texas............................. 24 24 26 25 25
Wilmington, California**.................. -- -- -- -- 120
Wood River, Illinois...................... 256 262 243 252 234
----- ----- ----- ----- -----
TOTAL................................ 887 905 918 972 1,002
===== ===== ===== ===== =====
OTHER REFINERY STATISTICS*
Operable capacity of crude oil
distillation units at beginning of
year.................................... 856 847 892*** 967 1,083
Refinery intakes to crude oil distillation
units .................................. 821 850 854 900 949
Refinery crude oil distillation unit
intakes as a percent of operable
capacity at beginning of year........... 95.9% 100.4% 95.7% 93.1% 87.6%
Own net produced crude oil and natural gas
liquids as a percent of intakes to crude
oil distillation units.................. 59.9% 54.0% 54.3% 56.7% 56.6%
- ---------------
* Reflects the Company's 50% equity interest in the Deer Park Refinery,
effective April 1, 1993.
** The Wilmington, California refinery was sold in December 1991.
*** Weighted average capacity. Adjusted to reflect the Company's 50% equity
interest in the Deer Park Refinery, effective April 1, 1993.
Transportation
At December 31, 1995, Shell Oil's wholly owned pipeline system consisted of
approximately 5,923 miles of pipelines of various sizes, of which 2,822 miles
were crude oil gathering and trunk lines, 2,771 miles were products lines, 130
miles were natural gas lines and 200 miles were carbon dioxide lines. In
addition, Shell Oil had varying stock, partnership or undivided interests in
pipelines consisting of approximately 2,928 miles of crude lines, 7,421 miles of
products lines and 829 miles of carbon dioxide lines. Shell Oil also engages
tankers and barges by a variety of methods, including spot charters, short-term
and long-term charters, contracts of affreightment and other contractual
arrangements for transportation of crude oil and products. Oil products are also
delivered to customers by truck and rail.
In the Gulf of Mexico, two new pipeline systems, designed to transport
crude oil from current and future production, are nearing completion.
Additionally, a separate 20 mile line which will expand available capacity from
the area of Shell Oil's Auger field is expected to be completed in early 1996.
Marketing
Shell Oil distributes oil products principally under the "Shell" symbol or
other trademarks in which the word "Shell" appears. Oil marketing operations are
carried out through transportation systems, terminals, bulk distributing plants
and, at the end of 1995, approximately 8,600 service stations displaying Shell
trademarks. These stations are located in 40 states and the District of
Columbia.
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15
The number of bulk distributing plants and service stations was as follows
at the end of the periods indicated:
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
BULK DISTRIBUTING PLANTS
Leased or owned.............................. 55 55 57 61 65
====== ====== ====== ====== ======
SERVICE STATIONS*
Leased or owned.............................. 3,900 4,000 3,900 3,900 3,900
Jobber and other............................. 4,700 4,600 4,800 4,800 5,000
------ ------ ------ ------ ------
TOTAL................................... 8,600 8,600 8,700 8,700 8,900
====== ====== ====== ====== ======
- ------------
* Rounded to nearest hundred.
Shell Oil's refined product revenues and sales volumes were as follows for
the periods indicated:
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(millions of dollars)
REFINED PRODUCT REVENUES
Automotive gasoline.................... $ 7,642 $ 6,818 $ 6,687 $ 6,713 $ 7,172
Jet fuel............................... 1,119 1,160 1,242 1,173 1,387
Kerosene, heating and diesel oils...... 601 462 449 368 480
Heavy fuel oils........................ 454 404 423 469 495
Propane and other LPG.................. 451 398 419 408 390
Asphalt................................ 284 240 230 168 185
Lubricants, grease, process oils and
wax................................. 614 596 551 575 584
Coke................................... 29 20 22 16 42
All other products..................... 922 962 763 753 885
------- ------- ------- ------- -------
TOTAL............................. $12,116 $11,060 $10,786 $10,643 $11,620
======= ======= ======= ======= =======
(thousands of barrels daily)
REFINED PRODUCT SALES VOLUMES
Automotive gasoline.................... 750 685 638 596 636
Jet fuel............................... 139 145 143 128 141
Kerosene, heating and diesel oils...... 73 59 54 42 52
Heavy fuel oils........................ 82 87 103 108 113
Propane and other LPG.................. 98 88 89 87 74
Asphalt................................ 42 40 37 35 32
Lubricants, grease, process oils and
wax................................. 19 19 17 18 17
Coke................................... 14 6 6 6 15
All other products..................... 131 143 113 100 115
------- ------- ------- ------- -------
TOTAL............................. 1,348 1,272 1,200 1,120 1,195
======= ======= ======= ======= =======
CHEMICAL PRODUCTS
The Company is a major producer in the United States of olefins, aromatics,
detergent alcohols, ethylene oxide and derivatives, thermoplastic elastomers,
epoxy resins, oxygenated and hydrocarbon solvents and polyester resins. These
basic chemical products are used in many consumer and industrial products and
processes. They are sold primarily to industrial markets in the United States
through Shell Oil's own sales force; some products are also sold through
distributors. Approximately 20 percent of chemical volumes are sold outside the
United States. Chemical products are delivered to customers principally by rail,
truck, ship and pipeline. In addition, petrochemicals are manufactured by a
joint venture with Saudi Basic Industries Corporation and sold in worldwide
markets. Ethylene oxide and other catalysts are manufactured and sold
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through joint ventures with affiliated and other parties. To further improve
long-term profitability, Shell Oil continues to pursue new business ventures and
growth opportunities in areas that complement its strengths in technology and
feedstocks. In early 1995, the Company placed its polypropylene-related assets
into a separate company and in early 1996 sold those assets (see Item 3. Legal
Proceedings, page 20).
Total revenues, operating profit and segment net income for Chemical
Products' activities for each of the past three years, together with capital
expenditures and related identifiable assets at the end of each year, were as
set out below. For additional information, see Note 18 of the Notes to
Consolidated Financial Statements included in Item 14a.
1995 1994 1993
------ ------ ------
(millions of dollars)
REVENUES
Sales and other operating revenue.................. $4,841 $4,075 $3,687
Other revenue...................................... 15 12 16
Intersegment transfers............................. 152 158 172
------ ------ ------
TOTAL REVENUES........................... 5,008 4,245 3,875
COSTS AND EXPENSES
Costs and operating expenses....................... 3,778 3,654 3,315
Depreciation, depletion, amortization and
retirements...................................... 273 288 232
------ ------ ------
OPERATING PROFIT......................... 957 303 328
Allocated corporate expenses....................... 17 16 24
Allocated income taxes............................. 371 98 119
Equity in net (income) loss of others.............. (135) (34) (35)
------ ------ ------
INCOME FROM ONGOING OPERATIONS........... 704 223 220
Other charges*..................................... 10 62 185
------ ------ ------
SEGMENT NET INCOME....................... $ 694 $ 161 $ 35
====== ====== ======
CAPITAL EXPENDITURES.................................... $ 422 $ 343 $ 319
====== ====== ======
IDENTIFIABLE ASSETS AT DECEMBER 31...................... $4,836 $4,520 $4,312
====== ====== ======
- ------------
* Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Chemical sales revenues were as follows for the periods indicated:
1995 1994 1993 1992 1991
------ ------- ------- ------- -------
(millions of dollars)
Primaries (olefins, aromatics)................ $1,184 $ 1,024 $ 869 $ 980 $ 967
Intermediates and solvents.................... 1,644 1,314 1,211 1,152 1,290
Polymers...................................... 1,861 1,550 1,434 1,013 942
Other......................................... 82 78 84 133 98
------ ------- ------- ------- -------
$4,771 $ 3,966 $ 3,598 $ 3,278 $ 3,297
====== ====== ====== ====== ======
The Company owns and operates chemical manufacturing facilities located at
Martinez, California; Lakeland, Florida; Argo and Wood River, Illinois; Geismar,
Norco, Taft and Reserve, Louisiana; Belpre, Ohio; Deer Park, Texas; and Pt.
Pleasant, West Virginia. In 1995, major expansions of ethylene oxide and
ethylene glycol capacities were completed at Geismar, and an increase in the
ethylene capacity was completed at the olefins complex at Norco. A modernization
of an olefins cracker at Deer Park is expected to be completed in early 1996. A
30 percent expansion in the annual capacity of the polyester resins plant at Pt.
Pleasant is expected to be onstream by mid-1996. In the first expansion outside
of the United States, a 200 million pound capacity polyester resins plant is
planned for Altamira, Mexico with operations expected to
16
17
begin in early 1998. In 1996, the Pt. Pleasant facility will begin to
manufacture CorterraTM, a new polymer product designed for use in staple and
continuous filament textile and carpet products. The rebuilding of a Kraton(R) D
elastomers unit, destroyed in a 1994 explosion and fire, is nearing completion
with start-up expected in early 1996.
OTHER BUSINESSES
In connection with its oil and gas exploration and production business,
Shell Oil has reserves of, and produces, sulfur and carbon dioxide. Sulfur is
recovered in some of its natural gas plants and refinery operations. In late
1995, Shell Oil sold its interest in certain high sulphur gas assets, very
significantly reducing its sulphur reserves. Estimated year-end proved reserves
and production of sulfur and carbon dioxide for each of the periods indicated
were as follows:
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
SULFUR (thousands of long tons)
Estimated proved reserves................... 183 3,860 4,075 4,304 4,681
Production.................................. 200 209 228 245 284
Recovered in refinery operations............ 326 251 255 207 241
Average price per ton....................... $29.25 $14.67 $30.04 $54.37 $84.44
CARBON DIOXIDE (billions of cubic feet)
Estimated proved reserves................... 4,122 4,212 4,250 4,315 4,788
Production.................................. 112 114 100 109 111
Average price per thousand cubic feet....... $ 0.22 $ 0.17 $ .37 $ .47 $ .46
OTHER MATTERS
General
The business affairs, operations and earnings of Shell Oil continue to be
affected by political developments and by legislation, regulation and other
actions taken by federal, state and local governments, and by governmental
entities outside the United States, particularly those directly or indirectly
affecting oil and natural gas production, transportation, purchase or sale; the
refining, manufacture, transportation or marketing of petroleum and chemical
products; environmental issues related to all of the preceding (as discussed in
"Environmental Matters" following); or restrictions or requirements imposed on
companies because of foreign ownership or affiliations. As such matters could
subject Shell Oil to changes in operations, as well as to litigation and claims
of a character which have not existed in the past, Shell Oil is unable to
predict the overall effect of the preceding on its operations and earnings.
Environmental Matters
Federal environmental laws and regulations including the National
Environmental Policy Act; the Clean Air Act; the Clean Water Act; the Safe
Drinking Water Act; the Resource Conservation and Recovery Act; the Toxic
Substances Control Act; the Comprehensive Environmental Response, Compensation
and Liability Act; and their implementing regulations, as well as numerous state
and local environmental laws, continue to have a significant impact on Shell
Oil's operations. Additional information concerning the effect that compliance
with such environmental requirements may have on capital expenditures, earnings
and competitive position, including information concerning allegations or claims
received regarding site cleanup obligations, is incorporated herein by reference
from Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, Environmental Matters (pages 29-31), and Item 3. Legal
Proceedings (pages 18-21).
Competition
All phases of the businesses in which Shell Oil is engaged are highly
competitive. Shell Oil competes at various levels with both petroleum and
non-petroleum companies in providing energy and other products to the consumer.
17
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The Oil and Gas Exploration and Production segment competes with numerous
other companies in the industry to locate and to obtain new sources of supply
and to produce oil and gas in a cost-effective and efficient manner. The
principal methods of competition include geological, geophysical and engineering
research and technology, experience and expertise, and economic analysis in
connection with property acquisitions.
Competitive methods in the Oil and Chemical Products segments consist of
product improvement and new product development through research and technology,
and efficient manufacturing and distribution systems. In the marketing phase of
the business, competitive factors include product quality and reliability,
price, advertising and sales promotion, and development of customer loyalty to
Shell products.
Research
Total research and development expenses charged to income (including
applicable operating taxes and depreciation) in 1995 amounted to $167 million,
compared with $170 million in 1994 and $192 million in 1993. In 1995, about 74
percent was spent on Shell Oil sponsored research and development activities
relating to the improvement of existing, and the development of new, products
and processes, as compared to 73 percent in 1994 and 65 percent in 1993. The
remainder in each period was spent primarily on oil and gas exploration and
production activities.
The Company and another company of the Royal Dutch/Shell Group of Companies
have an arrangement whereby each will perform for, and exchange with, the other,
research services in petroleum technology, chemicals and other fields. In
addition, certain subsidiaries of the Company have technology sharing agreements
with certain other affiliates.
ITEM 3. LEGAL PROCEEDINGS.
In December 1983, the United States filed a civil action in the United
States District Court for the District of Colorado against the Company alleging
environmental damage and other liabilities based primarily upon CERCLA and upon
alleged breaches of lease obligations and other common law claims resulting from
the Company's operations from 1952 to 1982 at the United States Army's Rocky
Mountain Arsenal near Denver, Colorado (RMA). The State of Colorado
contemporaneously filed in the same court an action under CERCLA against the
United States, the United States Army and the Company alleging in part that,
under CERCLA, the State is trustee of the natural resources in question. The
United States and the Company entered into a Consent Decree effective February
12, 1993. Under the Decree, the Company would pay 50 percent of any amount
expended for remedial costs and natural resource damages up to $500 million. The
Company would also pay 35 percent of such expenditures between $500 million and
$700 million and 20 percent of any amount expended in excess of $700 million. On
June 13, 1995 the United States, the State of Colorado, and the Company reached
agreement on a Conceptual Remedy for the cleanup of the RMA. The Conceptual
Remedy is subject to public review and comment and other formal proceedings
under CERCLA before it can be established in the official Record of Decision
(ROD) as the remediation plan. It is anticipated that the ROD for the RMA will
be published in 1996. The Conceptual Remedy is estimated to cost approximately
$2 billion (including sums already incurred by the U.S. Army and the Company).
The Company has accrued $500 million before tax for its share of related costs,
including provisions of $215 million in 1993 and $105 million in 1992. The
Company's share of expenditures through December 31, 1995 was approximately $265
million. The Company believes that accruals previously made in connection with
this matter will be adequate to cover anticipated costs under the Conceptual
Remedy. The Company has reached settlements with certain of its insurers,
resulting in the dismissal of the California insurance litigation regarding the
RMA.
Since 1984, the Company has been named as a defendant in numerous product
liability cases, including class actions, involving the failure of plumbing
systems in the United States constructed with polybutylene plastic pipe. Some
other claims involve pipe connecting end users with utility water lines and
other cases involve problems with municipal water distribution systems. Numerous
claims seeking reimbursement for repairs to leaking polybutylene plumbing
systems have also been received. The components of such plumbing
18
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systems were manufactured primarily by United States Brass Corporation (United
States Brass) and Vanguard Plastics, Inc. using polybutylene resin supplied by
the Company to fabricate the pipe and initially polyacetal resin supplied by
E.I. DuPont de Nemours and Company (DuPont) and Hoechst Celanese Corporation
(Hoechst Celanese) to fabricate the pipe fittings. The suits claim property
damages, principally from leaking residential plumbing systems and, in some
cases, fraud and intentional misrepresentation. The fabricators of the plumbing
systems and the manufacturers of the resin for the polyacetal fittings, as well
as the builders and installers of the systems in various locations, are also
defendants in these cases. The Company's position and most of the judgments to
date have confirmed that most of the leaks in residential plumbing systems have
occurred due to the failure of the polyacetal insert fitting system. Polyacetal
is no longer used to manufacture insert fittings for these systems. The number
of new claims received increased significantly during 1995.
In addition to the numerous individual claims, over 25 purported
nationwide, statewide or partial-statewide class action suits have been filed. A
settlement was certified against DuPont in a nationwide class action suit
pending in state court in Green County, Alabama and the Company and Hoechst
Celanese entered into a settlement in a nationwide class action pending in
Tennessee state court, which was approved by the Court in the fourth quarter of
1995. By year-end 1995, settlement had been reached with an attorney
representing many of the known opt-outs to such Tennessee settlement; however, a
significant number of opt-outs remain and at least some are likely to seek to
litigate their claims. The Tennessee settlement provides for the creation of an
entity to receive and handle claims (which entity will replace the Plumbing
Claims Group) and for a $950 million fund to pay defendants' claims, which
claims may be made over a period of up to 14 years, depending on various
factors. If the settlement funds are exhausted, additional funds may be provided
by the defendants or new claimants may seek their remedy in a new court
proceeding at that time. There are issues remaining to be resolved in connection
with certain litigation in other states and possible conflicts among the various
courts. There are also significant issues to be resolved as to how costs will be
shared among the defendants, certain of which issues are anticipated to be
resolved through arbitration during 1996. Additionally, in matters outside the
class actions, claims involving problems with polybutylene pipe used in
municipal water distribution systems increased during 1995. The Company will
continue to defend vigorously in these matters but it cannot currently predict
when or how polybutylene related matters will finally be resolved. The Company
believes it has certain insurance coverage regarding polybutylene and has filed
a declaratory judgement action seeking confirmation of such coverage through
mid-1985.
The Company is a party to litigation regarding Nemagon(R), an agricultural
chemical containing DBCP manufactured and sold by the Company from 1955 to 1978.
Decreases in the maximum contamination level for DBCP have resulted in residual
traces of DBCP present in the groundwater in the area of certain wells exceeding
certain state and federal maximum contamination levels. The claims in the
litigation seek the cost of cleanup and future monitoring of such water wells.
The Company is a co-defendant in these cases with other substantial
manufacturers and suppliers of the same chemical. During the second quarter of
1995, the majority of these cases were settled, with defendants accepting
certain future obligations. Ultimate exposure will not be known with certainty
until all cases are resolved and time has passed to see what cleanup will in
fact be required, which may be affected both by changes in levels detected in
certain water tables, new wells drilled and regulations in place. Cases
involving between 25,000 and 28,000 plaintiffs have been filed against the
Company, other substantial manufacturers and suppliers of DBCP and various
banana growers. These actions allege that the plaintiffs suffer fertility
problems arising from exposure to DBCP while working on banana plantations
outside the United States. Most of these cases were filed in Texas state court,
were removed to federal court in Texas, and have now been sent by the federal
court for handling in the courts of the various jurisdictions outside the United
States where the plaintiffs allege that damages were incurred. Four cases remain
pending in the United States, involving approximately 7,000 plaintiffs.
Challenges to jurisdiction and appropriate forum are being asserted by the
defendants in those cases. The Company is contesting whether any injury has in
fact been incurred by plaintiffs, whether DBCP was in fact the cause of any such
injury as may exist, and in any case if the Company was a supplier or otherwise
had liability in connection with any such injury. The Company believes that it
has insurance coverage regarding DBCP claims and has filed a declaratory
judgment action in California Superior Court seeking to resolve this coverage
issue.
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20
In December 1993, a Los Angeles County Superior Court jury, in two
consolidated lawsuits against the Company and its subsidiary involving the
condition of the Dominguez oil field, returned a verdict against "Shell" in the
amount of $46.9 million compensatory damages and $173 million punitive damages.
Plaintiffs allege they were defrauded, that the oil and gas lease was breached,
and that soil contamination on the property constitutes a continuing trespass.
Final resolution through the appeals process could take at least another year.
For a number of reasons, the Company believes the verdict was wrong and expects
ultimately to prevail in the litigation.
The Company, along with its parent companies and other affiliated
companies, was sued in the United States District Court for the Southern
District of New York in January of 1995 by Union Carbide Corporation (Union
Carbide), concerning a proposed joint venture between affiliates of the Company
and another company involving their polyolefins businesses. The plaintiff
alleged, among other things, that the new venture caused a breach of certain
contractual obligations of the Company to Union Carbide. Discovery continues in
the litigation after nonbinding mediation in December of 1995. In a separate
proceeding, the Federal Trade Commission (FTC) accepted a consent agreement
which permitted the formation of the new venture, Montell Polyolefins, on March
31, 1995. The Company agreed, as a part of such consent agreement, to hold
separate and divest its polypropylene-related assets. Pursuant to the agreement
reached with the FTC, during the first quarter of 1995, the Company formed a new
subsidiary and transferred its polypropylene-related assets to that subsidiary.
The FTC approved the sale of such subsidiary to Union Carbide and, during the
first quarter of 1996, the Company sold its polypropylene subsidiary to Union
Carbide.
In July 1995, the Texas General Land Office (Texas GLO), on behalf of the
Permanent School Fund of the State of Texas, as well as several trusts and one
individual filed an action in the District Court of Travis County, Texas,
against a subsidiary of the Company and seven other oil companies alleging
underpayment of royalties for crude oil and condensate (crude oil). The suit
alleges that the defendants have set their posted prices for crude oil at
unreasonably low levels resulting in lower royalty payments. The lawsuit is also
brought on behalf of the class of persons to whom the oil companies have made
royalty or overriding royalty payments on the basis of posted prices for crude
oil. In November 1995, the plaintiffs' petition in this case was amended to add
the state of Texas on behalf of those state agencies with responsibilities for
collecting oil royalties, other than the Texas GLO, and on behalf of the
Comptroller of Public Accounts and to add additional defendants, including the
Company. The claim by the Comptroller is for underpayment of oil production tax
based upon an alleged under valuation of oil for purposes of calculating and
paying the tax. Similar cases claiming an underpayment of royalties based upon
allegedly low posted prices have been filed by private parties in the states of
Oklahoma and New Mexico, and by the State of Louisiana as to underpayment of
severance taxes. Further, a purported class action has been filed in Lee County,
Texas against numerous oil companies, including a subsidiary of the Company,
alleging a conspiracy to fix posted prices and violations of the Common
Purchaser Statute. Cases have also been filed challenging royalties paid in
connection with gas production, citing various grounds for such challenges. The
Shell Oil companies involved intend to vigorously defend such cases.
The Company has been informed that the premises of its former manufacturing
plant in Torrance, California have been noticed for listing as a CERCLA site.
The plant was used for the manufacture of synthetic rubber by the United States
government during World War II and the Korean War. The Company owned and
operated the plant from 1955 to 1972. The Company and the United States have
agreed to a cost sharing formula to cover the remediation of 3 acres of the
premises on which extensive waste disposal occurred; a final plan for such
remediation has not been approved. The Company is currently engaged in an
investigation of the remaining portions of the former plant site to determine if
any further remediation may be required.
In August 1990, the EPA and certain Louisiana state agencies conducted an
inspection of the Company's Norco, Louisiana Manufacturing Complex. As a result,
the Company has received notices alleging violations of the Safe Drinking Water
Act, the Resource Conservation and Recovery Act and other environmental statutes
arising out of waste handling and related practices at the complex. In January
1996, a complaint was filed against the Company in the United States District
Court, Eastern District of Louisiana, for violations stemming from such
inspection. The Consent Decree resolving the alleged violations was filed
contemporane-
20
21
ously with the Court. Pursuant to the Consent Decree, the Company agrees to pay
a penalty of $1 million and perform certain supplemental environmental projects.
On April 14, 1995, the Company received a Notice of Violation/Finding of
Violation from the EPA Region V alleging violations under the Clean Air Act and
the Illinois State Implementation Plan by the Wood River Manufacturing Complex.
The Company and the EPA are engaging in discussions regarding the allegations of
the notice. EPA Region V has also given indications to the Wood River
Manufacturing Complex that it is contemplating possible enforcement action
against the Complex for alleged violations of the Benzene Waste operations
NESHAP. The Company and EPA are engaging in discussions seeking to resolve this
matter.
Also, numerous federal, state and local income, property and excise tax
returns of Shell Oil are being examined by the respective taxing authorities,
and certain interpretations by Shell Oil of the complex tax statutes,
regulations and practices are being challenged in administrative proceedings and
in federal and state actions.
It is not possible for the Company to predict with precision what the final
effect of the foregoing litigation will be on the Company. However, while
periodic results may be significantly affected by costs in excess of provisions
related to one or more of these proceedings, based on developments to date, the
Company does not anticipate a material adverse effect on its financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
21
22
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is not publicly traded.
Cash dividends were paid quarterly as follows:
1995 1994
------------------------------ ------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
----- ------ ----- ------ ----- ------ ----- ------
(millions of dollars)
Cash dividends.............. $350 $350 $350 $350 $200 $500 $350 $350
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data is presented below for the periods indicated.
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(millions of dollars)
STATEMENT OF INCOME DATA
Revenues.............................. $24,650 $21,581 $21,092 $21,702 $22,411
Costs and expenses.................... 23,130 21,073 20,311 21,257 22,391
------- ------- ------- ------- -------
Income from operations................ 1,520 508 781 445 20
Cumulative effect of accounting
changes............................. -- -- -- (635) --
------- ------- ------- ------- -------
Net income (loss)..................... $ 1,520 $ 508 $ 781 $ (190) $ 20
======= ======= ======= ======= =======
BALANCE SHEET DATA
Total assets.......................... $27,021 $26,379 $26,851 $26,970 $27,998
Gross investment*..................... 41,150 40,045 39,822 39,971 39,672
Total debt............................ 3,251 2,995 3,014 3,703 4,288
Deferred income tax liability......... 2,841 3,137 3,754 3,541 4,115
Shareholder's equity.................. 13,853 13,733 14,624 14,608 15,605
STATEMENT OF CASH FLOWS
Cash provided by operating
activities.......................... $ 3,473 $ 3,014 $ 3,172 $ 2,446 $ 1,878
Capital expenditures.................. 2,957 2,451 1,981 2,239 2,615
Cash dividends........................ 1,400 1,400 763 750 750
- ------------
* Gross investment consists of gross assets less current liabilities.
The above financial results and historical data should not be construed as
necessarily indicative of future financial results; see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
KEY FINANCIAL RESULTS
-- Net income in 1995 was $1,520 million, compared with net income of $508
million in 1994 and $781 million in 1993.
-- Adjusted net income, which excludes special items, was $1,408 million in
1995, compared with $1,118 million in 1994 and $832 million in 1993.
-- Cash flows from operating activities in 1995 were $3,473 million,
compared with $3,014 million in 1994 and $3,172 million in 1993.
-- Revenues in 1995 were $24.6 billion, up from $21.6 billion in 1994 and
$21.1 billion in 1993.
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23
-- Shareholder's equity was $13.9 billion at the end of 1995, up from $13.7
billion in 1994, but down from $14.6 billion in 1993.
-- Net income as a percent of net investment was 8.0 percent in 1995,
compared with 2.8 percent in 1994 and 4.1 percent in 1993.
-- Total debt at the end of 1995 was $3,251 million compared with $2,995
million in 1994 and $3,014 million at year-end 1993. At that level, it
represented 19.0 percent of total capital, compared with 17.9 percent at
year-end 1994 and 17.1 percent at the end of 1993.
OIL AND GAS EXPLORATION AND PRODUCTION
INCOME HIGHLIGHTS 1995 1994 1993
----------------- ---- ---- ----
(millions of dollars)
Income from Ongoing Operations............................... $622 $259 $478
Other Charges*............................................... (1) (2) (1)
---- ---- ----
Segment Net Income........................................... 621 257 477
Special Items (includes "Other Charges")..................... 51 (200) 25
---- ---- ----
Adjusted Net Income.......................................... $570 $457 $452
==== ==== ====
- ---------------
* Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Oil and Gas Exploration and Production income from ongoing operations was
$622 million in 1995, compared with $259 million in 1994 and $478 million in
1993. Income from ongoing operations excludes charges to segment net income
which are associated with major product classifications for which there has been
no revenue stream or investment for the past five years.
Segment net income in 1995 was $621 million, compared with $257 million in
1994 and $477 million in 1993. Adjusted net income, which excludes special
items, was $570 million in 1995, an increase of $113 million over 1994 and $118
million over 1993.
For 1995, results improved over 1994 primarily due to increased production
of crude oil and natural gas and higher average crude oil prices. These benefits
more than offset the effect of lower average natural gas prices, which impaired
income about $120 million in comparison to 1994. Domestic crude oil prices in
1995 averaged $15.02 per barrel, up $1.61 over 1994 and $.94 over 1993. The
average selling price of net domestic marketable natural gas produced in 1995
was $1.65 per thousand cubic feet, down 25 cents from 1994 and 47 cents from
1993.
Special items increased segment net income by $51 million in 1995,
decreased net income by $200 million in 1994, but increased net income by $25
million in 1993. Special items in 1995 included a benefit from tax losses
totaling $125 million and an additional $30 million benefit as the result of
prior-year tax adjustments. Also benefiting net income in 1995 were gains
totaling $51 million related to the sale of oil and gas properties and the
receipt of $21 million in compensation related to a previously expropriated
international asset. Partially offsetting these benefits were a $145 million
after-tax charge related to the adoption of Statement of Financial Accounting
Standards No. 121 and $26 million in provisions for litigation and property
damages. Special items in 1994 included charges of $315 million attributable to
write-offs of undeveloped offshore frontier Alaska properties and nonproducing
heavy oil properties in California, exploratory dry holes and provisions for
restoration costs. Also, 1994 income was reduced $108 million for litigation
settlements and provisions. Partially offsetting these charges were benefits of
$223 million, primarily related to prior-year tax adjustments. Special items in
1993 included benefits from prior-year tax adjustments of $113 million,
partially offset by the $68 million effect from the tax rate change, and a
work-force reduction charge of $12 million.
Cash provided by operating activities was $1,923 million in 1995, compared
with $1,546 million in 1994, and $2,184 million in 1993.
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24
Crude Oil Production -- Domestic net crude oil production, on a barrels per
day basis, averaged 371,000 in 1995, 355,000 in 1994 and 349,000 in 1993.
Increased production in the Gulf of Mexico, particularly in the deepwater Gulf,
more than offset normal declines.
International net production, on a barrels per day basis, averaged 51,000
in 1995, up 8,000 over 1994, but down 10,000 from 1993. Increased production in
1995 over 1994 was primarily attributable to new production in China. In late
1993, Shell Oil exchanged the assets of subsidiaries which held production
rights in Syria for an interest in a Dutch affiliate.
Gas Production -- Average net natural gas production of 1,825 million cubic
feet per day in 1995 increased over both 1994 and 1993 by 12 percent and 21
percent, respectively. The increase in 1995 was due to new and increased
production in the Gulf of Mexico.
Natural Gas Liquids -- Net natural gas liquids production, on a barrels per
day basis, was 70,000 in 1995, up 9,000 over 1994 and 16,000 over 1993. The 1995
average price of $12.00 was $.06 higher than 1994, but $.93 lower than 1993.
Deepwater Development -- Deepwater development activity accelerated in
1995. At Prospect Mars, located approximately 130 miles southeast of New
Orleans, construction continued ahead of schedule for a tension leg platform
(TLP) to be placed in 2,940 feet of water. Mars, owned 71.5 percent by Shell
Oil, is designed to recover approximately 500 million barrels of crude oil
equivalents in its first phase. First production from Mars is now anticipated in
mid-1996. A decision to proceed with subsequent development of Mars will be made
about two to three years after production from the first phase commences.
Development of Prospect Ram/Powell (Shell Oil interest -- 38 percent) at a gross
cost of $1 billion was announced in January 1995. Production is expected to
begin in late 1997 from a TLP located in 3,220 feet of water, reaching a peak of
60,000 barrels of oil and 200 million cubic feet of natural gas per day. Gross
ultimate recovery from Ram/Powell is expected to be approximately 250 million
barrels of crude oil equivalents. Plans to develop Prospect Mensa (Shell Oil
interest -- 100 percent) in a world record water depth of 5,400 feet were
announced in May 1995. Gross ultimate recovery from Mensa is estimated at 720
billion cubic feet of natural gas. Initial production from Mensa is targeted for
late 1997, with peak production of 300 million cubic feet of natural gas per day
occurring shortly thereafter. Mensa will be a subsea development, with up to 4
wells located on the sea floor with flowlines connecting to a conventional
platform some 68 miles away in shallower water. In September 1995, Shell Oil
announced formation of a joint project team with co-venturers to begin final
design for a TLP to develop Prospect Ursa (Shell Oil interest -- 45.4 percent).
The Ursa TLP, which will set a new world record for TLP water depth at
approximately 3,950 feet, is expected to be installed in early 1999, with first
production anticipated in mid-1999. Anticipated peak daily production is
expected to be 150,000 barrels of oil and 400 million cubic feet of gas.
Estimated gross ultimate recovery for Ursa is between 250 to 500 million barrels
of crude oil equivalents.
Costs and Expenses -- Production costs in 1995 totaled $1,124 million, down
$15 million from 1994 and $111 million from 1993, primarily due to the
continuing success of cost reduction programs and changed operations in Syria.
Exploration expenses of $246 million in 1995, including dry hole costs of $96
million, decreased $97 million from 1994, and $52 million from 1993. Dry hole
costs in 1994 were higher than in 1995 and 1993, due primarily to write-offs
related to Alaska and other exploratory wells. Exclusive of dry holes, 1995
exploration costs increased marginally over 1994, but declined $37 million from
1993, reflecting cost containment measures and a more focused exploration
program.
Depreciation, depletion and amortization costs were $1,533 million in 1995,
down $72 million from 1994, but up $308 million over 1993. The higher costs in
1994 were primarily due to the write-offs of certain nonproducing properties and
to other property provisions. Excluding these write-offs, depreciation,
depletion and amortization costs were higher in 1995 than 1994 due primarily to
the impact from the adoption of Financial Accounting Standard No. 121 and
increased production.
Property sales in 1995 resulted in gains totaling $51 million, minimal
gains in 1994, and a gain of $10 million in 1993.
24
25
Capital Expenditures -- Capital spending for Oil and Gas Exploration and
Production was $1,395 million in 1995, compared with $952 million in 1994 and
$877 million in 1993. The increase in 1995 over both 1994 and 1993 was due to
higher spending for production drilling and development in the Gulf of Mexico.
The higher level of capital spending is expected to continue through the decade
as Shell Oil develops the Gulf of Mexico projects.
Hydrocarbon Reserves -- In 1995, reserve additions, mainly from
discoveries, extensions and improved recovery techniques, were 333 million
barrels on a crude oil equivalent basis. These additions were offset by
producing property sales and revisions to previous reserve estimates of 86
million equivalent barrels, and production. In 1994 and 1993, reserves also
declined.
Net wells drilled in 1995 totaled 297, up 53 over both 1994 and 1993.
OIL PRODUCTS
INCOME HIGHLIGHTS 1995 1994 1993
----------------- ---- ---- ----
(millions of dollars)
Income from Ongoing Operations................................ $457 $427 $285
Other Charges*................................................ 17 (54) (5)
---- ---- ----
Segment Net Income............................................ 474 373 280
Special Items (includes "Other Charges")...................... 177 (24) (28)
---- ---- ----
Adjusted Net Income........................................... $297 $397 $308
==== ==== ====
- ---------------
* Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Oil Products income from ongoing operations in 1995 was $457 million,
compared with $427 million in 1994 and $285 million in 1993. Segment net income
in 1995 was $474 million, compared with $373 million in 1994 and $280 million in
1993.
Adjusted net income, which excludes special items, was $297 million in
1995, a decrease from the previous two years of $100 million and $11 million,
respectively. These results were lower than 1994 due to depressed refined
product margins. Early in 1995, margins were extremely low as selling prices
failed to cover increasing hydrocarbon costs. While margins improved over the
balance of 1995, the total year was still depressed relative to 1994. Progress
continued in 1995 in reducing fixed operating costs primarily in distribution,
manufacturing and marketing, while sales of branded automotive gasoline improved
2 percent and manufacturing reliability remained strong.
Special items improved segment net income in 1995 by $177 million,
primarily due to a gain of $166 million from the partial liquidation of crude
oil and refined product inventories valued on a last-in, first-out (LIFO) basis.
In 1994, net income was reduced by $54 million for environmental provisions
related to off-site contamination, partially offset by a gain of $28 million for
the partial liquidation of refined product inventories valued on a LIFO basis.
The remainder of the special items benefited income $2 million as a net gain
from asset sales was offset by environmental provisions. In 1993, special items
included net tax effects of $14 million, including $24 million from the tax-rate
change, work-force reduction charges of $9 million, an $8 million charge for the
partial liquidation of crude oil and refined product inventories and $5 million
for environmental remediation. Partially offsetting these charges were gains
from asset sales totaling $8 million.
Cash flow provided by operating activities was $1,130 million in 1995, up
$177 million and $380 million over 1994 and 1993, respectively. Capital
expenditures in 1995 of $1,065 million were about the same as 1994, decreasing
$22 million, but up $361 million over 1993. Spending in 1995 was mainly for the
coker and "clean fuels" project at the Martinez, California refinery. During
1995, the refinery upgrade, including the installation of a coker, was concluded
at the jointly-owned Deer Park refinery.
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26
Refined Product Sales Volumes -- Total 1995 refined product sales volumes
were 1,348,000 barrels per day, up from 1,272,000 in 1994 and 1,200,000 in 1993.
Automotive gasoline sales volumes in 1995 increased 9 percent over 1994 and 18
percent over 1993. Volumes sold through branded service stations in 1995 were up
2 percent over 1994 and 6 percent over 1993.
Jet fuel sales decreased slightly compared with 1994 and 1993. Kerosene,
heating and diesel oil sales increased 24 percent over 1994 and 35 percent from
1993.
Residuals sales volumes were down 6 percent from 1994 and 20 percent from
1993, in part due to the start-up in mid-year 1995 of the new coker unit at the
50 percent owned Deer Park refinery. Lubricants sales volumes were flat.
Refined Product Prices -- Average refined product selling prices increased
2 cents per gallon in 1995 over 1994 and were the same as in 1993. Prices
increased in 1995 in almost all product categories due to rising hydrocarbon
costs. Average automotive gasoline selling prices increased 1 cent per gallon
over 1994, but were down 2 cents per gallon from 1993.
CHEMICAL PRODUCTS
INCOME HIGHLIGHTS 1995 1994 1993
------------------------------------------------------------ ---- ----- -----
(millions of dollars)
Income from Ongoing Operations.............................. $704 $ 223 $ 220
Other Charges*.............................................. (10) (62) (185)
---- ---- ----
Segment Net Income.......................................... 694 161 35
Special Items (includes "Other Charges").................... (31) (265) (204)
---- ---- ----
Adjusted Net Income......................................... $725 $ 426 $ 239
==== ==== ====
- ---------------
* Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Chemical Products income from ongoing operations in 1995 was a record $704
million, compared with $223 million in 1994 and $220 million in 1993. Segment
net income in 1995 was $694 million, compared with $161 million in 1994 and $35
million in 1993.
Adjusted net income, which excludes special items, was $725 million in
1995, an increase of $299 million over 1994 and $486 million over 1993.
The substantial increase in adjusted net income in 1995 over both previous
years was primarily attributable to improved margins and increased sales volumes
across most product lines. Late in 1995, however, margins began to weaken.
Income performance in both 1995 and 1994 was burdened with significant costs for
litigation.
Special items reduced segment net income $31 million in 1995, $265 million
in 1994, and $204 million in 1993. In 1995, income was reduced $31 million due
to $22 million in charges related to environmental provisions, $5 million for
asset write-offs, and a $4 million dispute settlement. In 1994, income was
reduced by $201 million for litigation provisions, settlements and damage
claims, $62 million for environmental provisions related to off-site
contamination, and $34 million for write-offs of idle assets. Partially
offsetting these 1994 charges were gains of $32 million from asset sales. In
1993, income was reduced $185 million for environmental provisions mainly
related to the Rocky Mountain Arsenal in Colorado, $23 million for claims and
litigation, $5 million for work-force reductions, and a net $13 million from tax
items, including $19 million for the tax-rate change. Partially offsetting these
reductions were $22 million in gains from asset sales.
Cash provided by operating activities in 1995 was $952 million, compared
with $559 million in 1994 and $447 million in 1993.
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27
Despite weakening year-end margins, results in our 50 percent owned Saudi
Arabian petrochemical venture were improved in 1995 over both 1994 and 1993.
These 1995 improvements were due to higher margins and increased sales volumes
as strengthened market conditions in the Far East and Europe resulted in
increased demand.
Total chemical sales volumes in 1995 improved 3 percent over 1994 and 9
percent over 1993, reflecting improved economic conditions.
Capital spending for Chemical Products was $422 million in 1995, compared
with $343 million in 1994 and $319 million in 1993. Capital projects active in
1995 included expansions of the polyester resins plant capacity, spending for
the modernization of an olefins unit at Deer Park, and additional contributions
toward an MTBE plant and other facilities in Saudi Arabia. Additionally, a major
expansion of ethylene oxide and ethylene glycol capacity was completed at
Geismar. In early 1996, Shell Oil sold its polypropylene business and related
assets.
OTHER SEGMENT
INCOME HIGHLIGHTS 1995 1994 1993
------------------------------------------------------------- ---- ----- ----
(millions of dollars)
Segment Net Loss............................................. $(78) $(235) $(27)
Special Items................................................ (74) (208) --
---- ---- ----
Adjusted Net Loss............................................ $ (4) $ (27) $(27)
==== ==== ====
The Other operating segment incurred a net loss of $78 million in 1995,
compared with net losses of $235 million in 1994 and $27 million in 1993. The
loss in 1995 was mainly due to special items, which included an $84 million
write-down of real estate property held for sale, and $15 million related to the
adoption of Statement of Financial Accounting Standards No. 121, partially
offset by a tax benefit totaling $25 million. In 1994, the loss was mainly due
to special items totaling $208 million, which included the loss on the sale of a
coal investment and write-offs of nonproducing coal leases. The 1993 operating
loss was mainly attributable to equity interests in coal mining.
NONALLOCATED CORPORATE COSTS
INCOME HIGHLIGHTS 1995 1994 1993
----------------------------------------------------------- ----- ----- -----
(millions of dollars)
Nonallocated Costs......................................... $(191) $ (48) $ 16
Special Items.............................................. (11) 87 156
---- ---- ----
Adjusted Nonallocated Costs................................ $(180) $(135) $(140)
==== ==== ====
Corporate costs not allocated to the operating segments were $191 million
for the year 1995 and $48 million in 1994. In contrast, corporate items
benefited net income $16 million in 1993.
In 1995, special items included asset write-offs of $34 million, partially
offset by a gain from an insurance settlement. In 1994, special items included a
favorable prior-year tax adjustment of $100 million, partially offset by
provisions for claims and litigation settlement. In 1993, special items included
a favorable prior-year tax adjustment of $161 million, partially offset by
litigation provisions. Excluding these effects, corporate costs, primarily
related to financing, increased in 1995 compared with both previous years, due
primarily to higher interest expense related to a higher average debt level.
CAPITAL RESOURCES AND LIQUIDITY
Cash provided by operating activities continued to be the primary source of
funding for Shell Oil's capital investment program, dividends and other needs.
In 1995, cash provided by operating activities totaled $3,473 million, up $459
million over 1994, and exceeding cash used for investing activities in 1995 by
$790 million. Similarly, cash provided by operating activities in 1994 totaled
$3,014 million and exceeded cash used for investing activities by $751 million.
In 1993, cash provided by operating activities totaled $3,172 million and
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28
exceeded investing activities by $1,814 million. Total debt increased $256
million to $3,251 million, with the debt-to-total-capital ratio increasing to
19.0 percent. In addition, cash dividends were $1,400 million in 1995 and 1994,
compared with $763 million in 1993.
Cash Provided by Operating Activities -- In 1995, cash provided by
operating activities amounted to $3,473 million, compared with $3,014 million in
1994 and $3,172 million in 1993. In 1993, cash provided by operating activities
benefited from a nonrecurring crude oil advance sale. Higher earnings in 1995
accounted for the improvement over both 1994 and 1993.
Cash Used for Investing Activities -- The major use of cash flows from
operating activities was for capital expenditures, which amounted to $2,957
million in 1995, $2,451 million in 1994, and $1,981 million in 1993. Proceeds
from property sales in 1995 totaled $202 million and in 1994 totaled $77
million. Proceeds from property sales in 1993 totaled $539 million, including
sales of producing properties and 50 percent of the Deer Park refining assets.
The increase in net cash used for investing activities in 1995 over 1994 and
1993 was due to higher capital expenditures.
Debt Obligations -- At year-end 1995, Shell Oil had increased its total
debt by $256 million, compared with decreases of $19 million in 1994 and $689
million in 1993. Shell Oil's ratio of total debt-to-total-capital was 19.0
percent at the end of 1995, compared with 17.9 percent at the end of 1994 and
17.1 percent at the end of 1993.
Capital Spending -- Shell Oil's capital spending of $3.0 billion in 1995
was virtually the same as planned at the beginning of the year. In 1995,
exploration and production activities accounted for 47 percent of total capital,
compared with 39 percent in 1994 and 44 percent in 1993. These outlays were
primarily in the United States. Oil and Chemical Products accounted for 50
percent of total spending in 1995, compared with 58 percent in 1994 and 52
percent in 1993. Overall, Shell Oil's capital expenditures increased in 1995
compared to 1994 due to a higher level of spending in the Gulf of Mexico.
Capital and exploratory expenditures of $3.7 billion are planned for 1996.
About $2.4 billion is allocated for exploration and production activities, an
increase of over $700 million above the 1995 level. These expenditures reflect
plans to accelerate development of and production from primarily deepwater Gulf
of Mexico discoveries. Oil Products expenditures are budgeted for $800 million
in 1996, reflecting additional spending as the upgrading of Shell Oil's
Martinez, California refinery projects are completed. Chemical Products
expenditures are expected to be about the same at $500 million. Plans include
the expansion of olefins capacity and polyester resins business.
Dividends -- Cash dividends were $1,400 million in 1995, unchanged from
1994, but increased $637 million over 1993.
Liquidity -- Internally generated cash, access to outside financing based
on strong credit ratings, and prudent management of working capital are the
essential components of Shell Oil's liquidity position. Cash and cash
equivalents amounted to $421 million at year-end 1995, a decrease of $196
million from 1994 and $875 million from 1993.
Shell Oil's strategy continues to rely mainly on internally generated cash
to finance routine operating requirements and capital spending. Short-term
borrowings will generally be used to fund interim working capital needs and
unusual requirements. As of December 31, 1995, unused revolving credit
agreements of $500 million were available for general corporate purposes,
including support of commercial notes. The Company plans to manage the level of
backup facilities consistent with its cash and cash equivalents balances. As of
the end of 1995, $500 million of a $1.0 billion shelf registration remained,
allowing future flexibility in the public debt markets.
As further discussed in Note 10 of the Notes to Consolidated Financial
Statements, from time to time the Company utilizes financial derivatives to
minimize its borrowing costs, and to reduce price volatility risks on
commodities -- primarily crude oil, natural gas and refined products. During
1994, the Company used interest rate swaps to convert many of its fixed rate
debt and other obligations to floating rates. At December 31, 1995 and 1994, the
notional principal amounts of interest rate swaps outstanding were $2.3
28
29
billion and $2.6 billion, respectively, with maturities extending into the year
2017. The fair value of the swaps used to convert these fixed rate debt and
other obligations to floating rates was $67 million at December 31, 1995, and a
negative $174 million at the end of 1994.
Working capital at the end of 1995 decreased $651 million over a year
earlier due primarily to higher short-term debt and lower cash balances. Shell
Oil's liquidity position is considerably stronger than indicated by these
working capital levels because of relatively lower historical costs assigned to
inventories under LIFO accounting procedures. The year-end inventory values
included in working capital were below their current costs by $672 million at
the end of 1995, $1,011 million in 1994 and $648 million in 1993.
ENVIRONMENTAL MATTERS
Shell Oil continues to make substantial capital and operating expenditures
relating to the environment, including expenditures associated with compliance
with federal, state and local environmental regulations. Included within such
expenditures are costs of compliance with the various laws, regulations and
permit requirements concerning reduction of releases into air and water and
disposal and handling of wastes at ongoing operating locations. Also included
within such overall environmental expenditures are the costs of remedial orders,
corrective action requirements and other cleanup obligations under federal,
state and local law and by contract both at operating locations and at
previously owned or operated properties, as well as remediation costs at
off-premises sites.
Discussions are ongoing with governmental agencies as to the scope and
magnitude of Shell Oil's present closure and post-closure Resource Conservation
and Recovery Act (RCRA) and similar state or local remediation obligations at
operating locations. Such discussions are part of the normal RCRA regulatory
process. Shell Oil anticipates that those discussions will result in corrective
action being required at its manufacturing locations. The complexity of the
factual issues and the evolving legal requirements, coupled with the many
choices made available by diverse technologies that may be used in such
corrective action, make it difficult to estimate with great reliability the
total costs of such action. However, Shell Oil currently estimates the costs of
implementing corrective action at its Martinez, California Manufacturing Complex
to be about $20 million, substantially all of which has been expended.
Corrective action at Shell Oil's Carson Plant (part of the former Wilmington
Refinery) is expected to cost about $13 million, which amount is also provided
for in the accounts. We are not aware of any state in which Shell Oil operates
manufacturing facilities with stricter cleanup requirements than California; at
this point, we do not believe that conditions requiring corrective action are
more extensive at other manufacturing locations. Thus it is currently reasonable
to assume that the costs estimated to be incurred at these two facilities are
indicative of the costs which can be expected at other manufacturing locations.
Based upon these facts and discussions with regulatory agencies, Shell Oil does
not expect that the costs of taking corrective action over time under RCRA and
similar state and local regulations at operating facilities will be material to
Shell Oil's consolidated financial position or operating income in any year. All
such expenditures are included in the environmental expenditures reported below
and this matter is under continual review.
RCRA also imposes obligations with respect to closure of a RCRA covered
facility (i.e., a facility at which certain wastes are treated, stored or
disposed of) and in certain cases for a 30-year post-closure period. The costs
associated with such RCRA obligations are subject to a number of uncertainties
including when such facilities will actually close and the time period over
which closure/post-closure activity may take place. In 1995, Shell Oil confirmed
its ability to pay $200 million for RCRA-related closure, post-closure and
liability costs. The calculation of potential exposure in this area was made
pursuant to the requirements of applicable federal and state law. Approximately
$175 million of the closure/post-closure costs relate to Oil Products and $17
million to Chemical Products. Approximately $70 million of this exposure applies
to actual closure costs ($59 million Oil Products, $11 million Chemical
Products). It is reasonable to anticipate that all facilities will not incur
such closure costs at the same time. Thus, such amounts will almost certainly be
spent over a period of many years as the various facilities close. Approximately
$122 million ($115 million related to Oil Products, $7 million to Chemical
Products) of this $200 million relates to post-closure obligations over a thirty
year period beginning at a still to be determined point, in most cases well into
the future. While the ultimate closure and post-closure costs as required by
RCRA cannot be precisely estimated at this time,
29
30
management does not currently anticipate that they will materially adversely
affect Shell Oil's consolidated financial position or operating income in any
year.
Shell Oil has established and reviews annually a reserve calculated to
provide for RCRA closure and post-closure costs over the estimated useful life
of its covered facilities. Shell Oil also recognizes certain abandonment and
restoration obligations in connection with its oil and gas operations. Reserves
are established and built over the estimated life of production with the
intention to provide for the estimated costs of carrying out required statutory
and lease obligations to plug and abandon wells and otherwise restore property
by the time oil and gas production ceases.
Shell Oil has received allegations or claims under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) or similar state
statutes that it is involved at 220 sites, including the Rocky Mountain Arsenal
(RMA) in Colorado, as further discussed in Note 16 of the Notes to Consolidated
Financial Statements. Approximately 127 of these sites are alleged to involve
Oil Products operations, 62 Chemical Products operations and 29 Exploration and
Production operations. In a number of instances more than one business is
alleged to be involved. As of December 1995, discussions or activities
concerning 88 of these sites were active involving Shell Oil, other potentially
responsible parties and relevant agencies or claimants. A site is considered
active where discussion or activity is in progress between Shell Oil and the
agency or claimant. At a number of these sites, matters remain in the early
stages of investigation. Of the 220 total sites, 81 sites were considered
inactive, meaning that no discussions or activity were pending or had occurred
for more than one year and 51 sites were considered settled. In 1994 Shell Oil
reported 208 such sites, 117 of which were active, 51 inactive and 40 settled.
In 1995, recorded expenses under CERCLA or similar state statutes relating
to the 220 sites were approximately $3 million. In addition, during 1995,
approximately $45 million was charged to previously established reserves,
primarily for sites related to prior Chemical Products operations. 1994 recorded
expenses were $135 million, which included increases to reserves of $120 million
for sites related to prior Chemical and Oil Products operations. Included in
reserves are costs of cleanup and monitoring and to a much lesser degree
administrative costs. All reserves are calculated consistently with Shell Oil's
articulated "Accounting Policies -- Environmental Costs," as set forth in Note 1
of the Notes to Consolidated Financial Statements. No reserve reflects any
insurance reimbursement, although Shell Oil believes certain coverage exists,
has obtained some recovery from certain insurers and expects to obtain further
recovery. At certain third party sites where Shell Oil has only a small dollar
exposure, Shell Oil may accept the cleanup cost estimates of the parties
managing the site and reserve on that basis; such increases to environmental
reserves would be immaterial in the aggregate. The complexities of CERCLA
regulations, particularly in relation to joint and several liability and
multiple cleanup options, as well as the incomplete factual data at some sites,
make it impossible to predict with certainty the total cleanup costs Shell Oil
will incur for the 88 active sites referenced above. However, Shell Oil believes
the following to be true: at the majority of the above referenced sites, Shell
Oil should have responsibility for only a small percentage share of the total
cleanup costs (and other viable potentially responsible parties have already
been identified to lessen the potential burden of joint and several liability at
such sites); the CERCLA sites will be cleaned up over time and not
simultaneously; Shell Oil is currently aware of only a small percentage of the
active sites where an individually significant financial exposure exists and,
based on its current knowledge, Shell Oil has established reserves for such
sites reflecting Shell Oil's share of the probable cleanup costs. Shell Oil
manages these matters closely to help assure prudent and cost effective cleanup
in full compliance with all legal requirements. Changes to reserves are recorded
as new information enables Shell Oil to better estimate the cost of cleanup at
these sites. Based on the preceding, while operating income may be significantly
adversely affected in a particular period, Shell Oil does not currently believe
costs related to CERCLA cleanup will materially adversely affect Shell Oil's
financial position.
While certain environmental expenditures are discrete and readily
identifiable, others must be reasonably estimated or allocated based on
technical and financial judgments as developed over time, affecting comparisons
in certain years. All estimates are stated on a before tax basis. Consistent
with the preceding, Shell Oil estimates that environmental capital expenditures
in 1995 were about $310 million, about $120 million below 1994, due mainly to
completion of expenditures to comply with the Clean Air Act provisions
30
31
relating to reformulated fuels and reduction in benzene emissions. Of this
total, Oil Products expenditures account for about $250 million, Chemical
Products $25 million and Exploration and Production $35 million. In 1994, total
expenditures were about $430 million, including $375 million for Oil Products,
$35 million for Exploration & Production and $20 million for Chemical Products.
Environmental capital expenditures are expected to be about $100 million in
1996. Capital expenditures over the last three years of the decade are expected
to average about $125 million per year, attributable primarily to Clean Air Act
regulations relating to control of conventional and toxic emissions. These
projections, which are subject to change, are down about $100-$150 million from
last year reflecting the changes in the regulatory environment. Risk assessment
as a determinant of response action is gaining in importance on both the
regulatory and legislative fronts and is leading to more reasoned and
cost-effective approaches. Redesign efforts are also contributing to these
reduced projections.
Shell Oil's operating, maintenance and administrative costs related to
environmental protection and remediation of waste disposal sites were
approximately $850 million in 1995 as compared with $930 million in 1994 and
$1,030 million in 1993. Oil Product's 1995 costs were about $600 million,
Chemical Product's $160 million and Exploration and Production's $90 million,
compared to $615 million, $225 million, and $90 million, respectively, in 1994.
These costs do not include amounts expended or reserved for restoration and
abandonment of oil and gas properties. Expenses in 1995 were lower than 1994,
primarily due to a decrease in environmental provisions, which was partially
offset by an increase in the estimated incremental costs required to make the
reformulated, cleaner gasolines required under the Clean Air Act regulations.
During the next several years, total environmental expenditures for both
capital and operating, maintenance and administrative costs are expected to
average about $1 billion per year, as Shell Oil complies with requirements under
existing laws, as well as with regulations yet to be promulgated or finalized.
The federal Clean Air Act and related state laws such as the California air
emission standards, the federal Oil Pollution Act, reauthorization of RCRA and
CERCLA, underground produced water injection regulations under the Safe Drinking
Water Act, and numerous related state and local laws affecting all aspects of
the environment are expected to have a pronounced effect on all areas of Shell
Oil's operations over the next decade as we and those with whom we do business
strive to adapt to such evolving requirements. Shell Oil intends to continue its
efforts to implement process redesign and operating efficiencies to comply with
these laws in the most efficient and cost-effective manner.
Shell Oil is unable to predict with certainty the effect that compliance
with above described environmental requirements, particularly laws and
regulations not yet finalized or reauthorized, may have upon its competitive
position or future earnings. However, while operating income may be materially
adversely affected in particular periods as the result of environmental
expenses, based on the facts, law and technologies in existence as of this date,
including a belief that all major competitors will incur comparably significant
costs to comply with these laws, Shell Oil believes that it can comply fully
without material adverse impact on its financial position.
OTHER MATTERS
In addition to economic conditions and other matters discussed above
affecting Shell Oil, the operations, earnings and financial condition of Shell
Oil may be affected by the matters discussed in Note 16 of the Notes to
Consolidated Financial Statements, as well as by political developments;
litigation; and legislation, regulation and other actions taken by federal,
state, local governmental entities, and by governments outside the United
States.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements, the Notes to Consolidated Financial
Statements and the Report of Independent Accountants are included in Item 14a of
this report. The Quarterly Results of Operations are reported in Note 20 of the
Notes to Consolidated Financial Statements included in Item 14a. Information on
Oil and Gas producing activities is included in Items 1 and 2.
31
32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION.
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
32
33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
A. CERTAIN DOCUMENTS FILED AS PART OF THIS REPORT
PAGE
Report of Independent Accountants........................................ 34
Consolidated Statement of Income and Earnings Reinvested for the years
1995, 1994 and 1993.................................................... 35
Consolidated Balance Sheet at December 31, 1995 and 1994................. 36
Consolidated Statement of Cash Flows for the years 1995, 1994 and 1993... 37
Notes to Consolidated Financial Statements............................... 38
B. REPORTS ON FORM 8-K
None.
C. EXHIBITS*
3. Copy of Restated Articles of Incorporation of the Registrant
effective December 8, 1986 and Copy of By-Laws of the Registrant,
as amended through December 8, 1986, are incorporated by
reference to Item 14c of the Company's Annual Report on Form 10-K
for the year ended December 31, 1986.
4. The Registrant will provide to the Securities and Exchange
Commission, upon request, copies of instruments defining the
rights of holders of long-term debt listed in Note 9 of the Notes
to Consolidated Financial Statements.
10. Material Contracts:
(i) Copy of letter agreement dated December 7, 1995 between the
Company and Shell Internationale Research Maatschappij, B.V.
continuing for the calendar year 1996 the Agreement for Research
Services dated January 1, 1960, as amended.
(ii) Composite copy of the Agreement for Research Services dated
January 1, 1960, as amended through August 19, 1982 is
incorporated by reference to Item 14 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
21. Subsidiaries of the Registrant
23. Consent of Independent Accountants
24. Powers of Attorney
27. Financial Data Schedule
- ------------
* Copies of Exhibits may be obtained for 25 cents per page, prepaid, by writing
to the Corporate Secretary.
D. FINANCIAL STATEMENT SCHEDULES
The schedules filed by the Company are listed in Item 14a above. No
separate financial statements are required to be included because reporting
tests are not met. Certain schedules have been omitted because the required
information is shown in the financial statements or notes thereto.
33
34
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND
SHAREHOLDER OF SHELL OIL COMPANY
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14a on page 33 present fairly, in all material respects,
the financial position of Shell Oil Company and its subsidiaries at December 31,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for the impairment of long-lived assets in 1995
to comply with the provisions of Statement of Financial Accounting Standards No.
121.
PRICE WATERHOUSE LLP
Houston, Texas
February 6, 1996
34
35
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND EARNINGS REINVESTED
(Millions of dollars)
YEARS ENDED DECEMBER 31
-----------------------------------
1995 1994 1993
------- ------- -------
REVENUES
Sales and other operating revenue.................... $27,668 $24,789 $23,581
Less: Consumer excise and sales taxes................ 3,370 3,163 2,728
------- ------- -------
24,298 21,626 20,853
Equity earnings, interest and other income........... 352 (45) 239
------- ------- -------
Total........................................... 24,650 21,581 21,092
------- ------- -------
COSTS AND EXPENSES
Purchases and operating expenses..................... 18,051 16,694 16,368
Selling, general and administrative expenses......... 1,203 1,148 882
Exploration, including exploratory dry holes......... 238 335 289
Research expenses.................................... 124 127 149
Depreciation, depletion, amortization and
retirements........................................ 2,303 2,334 1,739
Interest and discount amortization................... 216 154 198
Operating taxes...................................... 483 482 540
------- ------- -------
Total........................................... 22,618 21,274 20,165
------- ------- -------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST.......... $ 2,032 $ 307 $ 927
Federal and other income taxes....................... 468 (221) 134
Minority Interest in income of subsidiaries.......... 44 20 12
------- ------- -------
NET INCOME................................................ $ 1,520 $ 508 $ 781
======= ======= =======
EARNINGS REINVESTED
Balance at beginning of year......................... $11,527 $12,419 $12,403
Net Income........................................... 1,520 508 781
Dividends -- Cash.................................... (1,400) (1,400) (763)
-- Other................................... -- -- (2)
------- ------- -------
Balance at end of year............................. $11,647 $11,527 $12,419
======= ======= =======
The accompanying notes are an integral part of these statements.
35
36
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of dollars, except per share amounts)
AS OF DECEMBER 31
--------------------
1995 1994
------- -------
ASSETS
Current Assets
Cash and cash equivalents...................................... $ 421 $ 617
Receivables and prepayments, less allowance for doubtful
accounts...................................................... 3,254 2,850
Owing by related parties....................................... 161 124
Inventories of oils and chemicals.............................. 567 564
Inventories of materials and supplies.......................... 234 229
------- -------
Total Current Assets...................................... 4,637 4,384
Investments, Long-Term Receivables and Deferred Charges............. 2,912 2,911
Property, Plant and Equipment at cost, less accumulated
depreciation, depletion and amortization........................... 19,472 19,084
------- -------
Total..................................................... $27,021 $26,379
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable -- trade...................................... $ 2,094 $ 1,953
Other payables and accruals.................................... 1,139 988
Income, operating and consumer taxes........................... 808 700
Owing to related parties....................................... 73 70
Short-term debt................................................ 1,950 1,449
------- -------
Total Current Liabilities................................. 6,064 5,160
Long-Term Debt...................................................... 1,301 1,546
Deferred Income Taxes............................................... 2,841 3,137
Long-Term Liabilities............................................... 2,213 2,251
Minority Interest................................................... 749 552
Shareholder's Equity
Common stock -- 1,000 shares of $10 per share par value
authorized and outstanding.................................... -- --
Capital in excess of par value................................. 2,206 2,206
Earnings reinvested............................................ 11,647 11,527
------- -------
Total Shareholder's Equity................................ 13,853 13,733
------- -------
Total..................................................... $27,021 $26,379
======= =======
The accompanying notes are an integral part of these statements.
36
37
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
YEARS ENDED DECEMBER 31
---------------------------------
1995 1994 1993
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................... $ 1,520 $ 508 $ 781
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, amortization and
retirements................................. 2,303 2,334 1,739
Dividends in excess of (less than) equity
income...................................... (51) 235 8
(Increases) decreases in working capital:
Receivables and prepayments.............. (441) (428) 296
Inventories.............................. (8) 121 167
Payables and accruals.................... 403 544 (206)
Deferred income taxes......................... (296) (617) 122
Minority interest in income of subsidiaries... 44 20 12
Other non-current items....................... (1) 297 253
------- ------- -------
Net Cash Provided by Operating
Activities............................. 3,473 3,014 3,172
------- ------- -------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Capital expenditures............................... (2,957) (2,451) (1,981)
Proceeds from property sales and salvage........... 202 77 539
Other investments and advances..................... 72 111 84
------- ------- -------
Net Cash Used for Investing Activities... (2,683) (2,263) (1,358)
------- ------- -------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Proceeds from issuance of long-term debt........... 135 119 21
Principal payments on long-term debt............... (276) (578) (542)
Proceeds from sales of redeemable securities
of subsidiaries.................................. 190 139 200
Contributed capital................................ -- 1 --
Dividends.......................................... (1,400) (1,400) (763)
Dividends to minority interests.................... (37) (26) --
Increase (decrease) in short-term obligations...... 402 315 (168)
------- ------- -------
Net Cash Used for Financing Activities... (986) (1,430) (1,252)
------- ------- -------
NET CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents... $ (196) $ (679) $ 562
======= ======= =======
CASH AND CASH EQUIVALENTS
Balance at beginning of year....................... $ 617 $ 1,296 $ 734
Increase (decrease) in cash and cash equivalents... (196) (679) 562
------- ------- -------
Balance at end of year................... $ 421 $ 617 $ 1,296
======= ======= =======
The accompanying notes are an integral part of these statements.
37
38
SHELL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Shell Oil Company (the Company) is wholly owned by Shell Petroleum Inc., a
Delaware corporation, whose shares are directly or indirectly owned 60 percent
by Royal Dutch Petroleum Company, The Hague, The Netherlands, and 40 percent by
The "Shell" Transport and Trading Company, public limited company, London,
England.
This summary of the major accounting policies of Shell Oil Company and its
consolidated subsidiaries (Shell Oil) is presented to assist the reader in
evaluating Shell Oil's financial statements and other data contained in this
report.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and subsidiaries owned directly or
indirectly more than 50 percent. Investments in affiliates in which the Company
has a significant ownership interest, generally 20 to 50 percent, are accounted
for by the equity method. Other investments are carried at cost. Intercompany
accounts and transactions are eliminated.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications -- Certain 1994 and 1993 amounts have been reclassified
to conform with current year presentation.
Cash Equivalents -- Cash equivalents consist of highly liquid investments
that are readily convertible into cash and have a maturity of three months or
less at date of acquisition.
Inventories -- Inventories of oils and chemicals are valued at the lower of
cost, predominantly on a last-in, first-out (LIFO) basis, or market, and include
certain costs directly related to the production process. Materials and supplies
are carried at average cost or less.
Exploration and Development -- The "successful efforts" method of
accounting is used for oil and gas exploration, development and production
activities.
Property Acquisition Costs -- Costs of acquiring developed or
undeveloped leaseholds including lease bonus, brokerage and other fees are
capitalized. The costs of undeveloped properties which become productive
are transferred to a producing property account.
Exploratory Costs -- Costs of exploratory wells are initially
capitalized, but should the efforts be determined to be unsuccessful, they
are then charged against income. All other exploratory costs are charged to
income as incurred.
Development Costs -- Costs of development wells, including dry holes,
platforms, well equipment and attendant production facilities are
capitalized.
Depreciation, Depletion and Amortization -- Depreciation, depletion and
amortization of the capitalized cost of producing properties, both tangible and
intangible, are provided on a unit of production basis. On a field basis,
developed reserves are used for drilling and development costs, and total proved
reserves are used for producing leasehold costs. Amortization of unproven
leasehold costs from the date of acquisition is based primarily upon experience
in establishing rates in order to fully amortize the cost of those leases that
may be productive over the holding period. Estimated dismantlement, restoration
and abandonment costs and estimated residual salvage values are taken into
account in determining amortization and depreciation provisions.
Other plant and equipment are depreciated on a straight-line basis over
their estimated useful lives. Gains and losses are not recognized for normal
retirements of properties, plant and equipment subject to
38
39
composite group amortization or depreciation. Gains or losses from abnormal
retirements or sales are recognized currently in income. Expenditures for
maintenance and repairs are expensed as incurred.
Environmental Costs -- Environmental costs relating to current operations
are expensed or capitalized, as appropriate, depending on whether such costs
provide future economic benefits. Liabilities are recognized when the costs are
considered probable and can be reasonably estimated. Such recognition occurs no
later than the Company's commitment to a formal plan of action. Measurement of
liabilities is based on currently enacted laws and regulations, existing
technology and undiscounted, site-specific costs. Environmental liabilities in
connection with properties which are sold or closed are realized upon such sale
or closure, to the extent they are probable and estimable and not previously
reserved. In assessing environmental liabilities, no set-off is made for
potential insurance recoveries. Recognition of any joint and several liability
is based upon Shell Oil's best estimate of its final pro rata share of the
liability. All liabilities are monitored and adjusted regularly as indicated by
new facts or changes in law or technology.
2. IMPAIRMENT OF LONG-LIVED ASSETS
Effective with the fourth quarter 1995, Shell Oil adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of affected assets may not be recoverable.
Shell Oil considers adoption of SFAS No. 121 to be an event under the
Standard and thus has tested its long-lived assets for impairment by comparing
carrying amounts with estimated future cash flows expected from use of the
assets and from their disposition. Estimates of future cash flows were developed
utilizing Shell Oil's internal estimates of future costs, product prices,
capital costs and salvage values. Assets which were determined to be impaired
through such comparison were subjected to an impairment measurement process
which utilized the assets' "fair values," determined primarily by discounting
the previously determined cash flows. Amounts equivalent to the excess of book
carrying values over such "fair values" were charged against Shell Oil's income
from continuing operations in the fourth quarter 1995.
Total charges resulting from adoption of the Standard increased
depreciation, depletion and amortization for exploration and production oil and
gas properties by $223 million and selling, general and administrative expenses
by $23 million. The affected assets, primarily oil and gas producing properties,
were deemed to be impaired because they were acquired or developed in
anticipation of higher product prices than are presently expected to materialize
or in anticipation of more efficient recovery of hydrocarbon reserves than is
now expected.
3. INTEREST
Interest costs were as follows:
1995 1994 1993
---- ---- ----
(millions of dollars)
Interest incurred........................................ $216 $154 $198
Interest paid............................................ 228 161 206
4. FOREIGN CURRENCY TRANSACTIONS
The U.S. Dollar is the functional currency for each of Shell Oil's foreign
operations. The net, after-tax effects of foreign currency transactions were a
loss of $2 million in 1995, a gain of $8 million in 1994, and a loss of $3
million in 1993.
39
40
5. TRANSACTIONS WITH RELATED PARTIES
Shell Oil has entered into transactions with related parties including
companies affiliated with the Royal Dutch/Shell Group. Such transactions were in
the ordinary course of business and included the purchase, sale and
transportation of crude oil and natural gas, and petroleum and chemical
products. The aggregate amount of such transactions was as follows:
1995 1994 1993
------ ------ ------
(millions of dollars)
Sales and other operating revenue.................... $1,003 $ 832 $ 554
Purchases and transportation......................... 752 806 1,057
These amounts are commingled with other revenues and costs and the profit
thereon is not accurately determinable without effort and expense
disproportionate to the relative importance of such amount.
The Company is also a partner in several international joint ventures with
affiliates of the Royal Dutch/Shell Group. Such joint ventures are engaged in
the exploration for and development and production of crude oil and natural gas.
The Company has also entered into arrangements with affiliated companies for the
sharing of research services in petroleum technology, chemicals and other
fields.
In 1993, Shell Oil exchanged the assets of subsidiaries which held
production rights in Syria for an interest in a Dutch affiliate which had
acquired rights in the Danish North Sea from another affiliate. Shell Oil's
investment in the Dutch affiliate of $360 million is recorded using the equity
method.
In 1995, Shell Oil and Tejas Gas Corporation formed a jointly owned gas
marketing enterprise, Coral Energy Resources, L.P. The partnership will market
substantially all of Shell Oil's natural gas production. Shell Oil accounts for
its investment in the partnership using the equity method.
Also in 1995, Shell Oil purchased $150 million of debt instruments issued
by Deer Park Refining Limited Partnership, an equity investee of the Company.
Additionally, during 1995, the Company borrowed $250 million at market rates and
terms from a company affiliated with the Royal Dutch/Shell Group.
6. INVENTORIES OF OILS AND CHEMICALS
Inventories are carried predominantly on a LIFO basis which was lower than
current cost by $672 million at December 31, 1995, $1,011 million at December
31, 1994, and $648 million at December 31, 1993. Partial liquidations of
inventories valued on a LIFO basis improved 1995 and 1994 net income by $167
million and $29 million, respectively, and impaired 1993 net income by $10
million.
7. RECEIVABLES AND PREPAYMENTS
Receivables, prepayments and allowances for doubtful accounts as of
December 31, 1995 and 1994 consisted of the following:
1995 1994
------ ------
(millions of dollars)
Trade receivables.............................................. $2,334 $1,999
Other receivables.............................................. 611 522
Prepayments.................................................... 328 352
------ ------
3,273 2,873
Less: Allowance for Doubtful Accounts
Balance beginning of year................................. 23 31
Provision............................................ 15 15
Net write-offs....................................... (19) (23)
------ ------
Balance end of year....................................... 19 23
------ ------
Total........................................... $3,254 $2,850
====== ======
40
41
8. SHORT-TERM DEBT
Debt due within one year from December 31 consisted of the following:
1995 1994
------ ------
(millions of dollars)
Commercial notes............................................. $1,218 $ 817
Bank loans................................................... 50 50
Industrial Revenue Bonds..................................... 382 273
------ ------
1,650 1,140
Current maturities of long-term debt......................... 300 309
------ ------
Total......................................... $1,950 $1,449
====== ======
The weighted average interest rate on short-term debt outstanding was 5.73
percent at both December 31, 1995 and 1994.
9. LONG-TERM DEBT
Debt due after one year from December 31 consisted of the following:
1995 1994
------ ------
(millions of dollars)
Shell Oil Company:
7 1/4% Debentures Due 2002................................ $ 4 $ 12
7.70% Notes Due 1996...................................... 250 250
7% Notes Due 1995......................................... -- 250
6% Notes Due 1997......................................... 250 250
6.95% Notes Due 1998...................................... 250 250
6 5/8% Notes Due 1999..................................... 250 250
6.70% Notes Due 2002...................................... 250 250
7.65% to 8.5% Notes Due 1996................................ 10 10
Production Payment.......................................... 198 205
Industrial Revenue Bonds.................................... 16 16
Other....................................................... 123 112
------ ------
1,601 1,855
Less: Amounts due within one year.......................... 300 309
------ ------
Total........................................ $1,301 $1,546
====== ======
Shell Oil had $500 million of unused revolving credit agreements in place
as of December 31, 1995, which were available for general corporate purposes,
including support of commercial notes. None of the agreements require
compensating balances. Under the agreements, interest will be based on rates in
effect at the time of borrowing.
The amount of long-term debt maturities during each of the next five years
are $300 million, $298 million, $264 million, $266 million and $11 million,
respectively.
In previous years, the Company purchased U.S. government securities and
deposited them in irrevocable trusts to be used to fund the scheduled principal
and interest payments on certain portions of the Company's long-term debt. Such
government securities and debt were removed from the balance sheet, and at
December 31, 1995, $156 million of such defeased debt remained outstanding. In
1994, the Company purchased $111 million of such defeased debentures and
recorded the cost and associated premium of these debentures in long-term
investments on the consolidated balance sheet.
41
42
10. FINANCIAL INSTRUMENTS
Derivative Financial Instruments
Shell Oil uses derivative financial instruments to minimize its borrowing
costs and to reduce price volatility risks on commodities -- primarily crude
oil, natural gas and refined products, as further discussed below. At December
31, 1995, all of Shell Oil's derivatives positions were classified as for
"purposes other than trading" under the provisions of Statement of Financial
Accounting Standards No. 119.
Interest Rate Swaps. From time to time Shell Oil enters into interest rate
swaps with the intent of minimizing its borrowing costs. Most of Shell Oil's
long-term interest bearing liabilities reflected on its consolidated balance
sheet are fixed rate instruments. The Company also has other long-term
obligations not reflected on its balance sheet which involve annual fixed rate
payments. Shell Oil uses interest rate swaps to modify the interest rate
characteristics of these obligations from fixed rates of interest to variable
rates of interest, with the ultimate intent of minimizing the interest expense
associated with the underlying obligations. All such interest rate swaps require
the counterparty to the swap to pay to the Company a fixed rate of interest on
"notional" amounts of principal, and for the Company to pay to the counterparty
a variable rate of interest on the same amounts of "notional" principal, i.e.,
"fixed rate to variable rate." In all cases, the Company remains obligated to
pay to the holder of the underlying obligation the fixed rate owing.
At December 31, 1995 and 1994, the notional principal amounts of interest
rate swaps outstanding were $2,319 million and $2,604 million, respectively.
Both the payment of interest to the holder of the underlying obligation and
the payment of the variable rate to the counterparty are recognized as a current
charge to interest expense by the Company. Additionally, the receipt of the
fixed rate payment from the counterparty is recognized by the Company as a
current reduction of interest expense. The effect of this accounting is the
current recognition of the net increase or decrease to interest expense
resulting from the swap of fixed rates to variable rates.
The terms of the swaps related to the fixed rate bonds and notes issued by
the Company, including the mechanism by which the variable interest rate paid by
the Company to the counterparty is determined, are indicated in the accompanying
Interest Rate Swaps table. During 1995, the net effect of these transactions was
that the Company paid 5.81% and received 5.61% effective rates of interest. On
the swaps designed to convert on a notional basis the imputed fixed interest
component of the other obligations of the Company as shown in the Interest Rate
Swaps table to a variable rate, the Company paid 5.97% and received 6.5%
effective rates of interest. The combined effect of these transactions,
accounted for as described above, was a net pretax decrease in interest expense
of $0.6 million and $16.5 million in 1995 and 1994, respectively. As shown in
the Fair Value of Financial Instruments table on page 44, the fair value of
these interest rate swaps was $67 million and $(174) million at year-end 1995
and 1994, respectively. These values were derived from quotes from the
counterparties and from third-parties of prices to "buy out" and cancel such
swaps. By their terms, however, the swaps are noncancellable until the
underlying obligation expires. The Company believes that over time variable rate
terms are more favorable to the Company than are fixed rates. Therefore, this
fair value number has only limited economic significance to the Company until an
intention exists to attempt to buy out these swaps.
Shell Oil bears two different risks under these interest rate swaps. There
is a credit risk that payment due to Shell Oil from the counterparty will not be
made. In such case, Shell Oil loses any benefit of the swap differential between
the fixed rate specified under the terms of the swap and the floating rate.
Shell Oil also bears the market risk that changes in floating interest rates may
result in greater total costs than would have arisen on the fixed rate and other
obligations alone.
42
43
INTEREST RATE SWAPS
- ------------------------------------------------------------------------------------
"NOTIONAL"
PRINCIPAL
(MILLIONS
OF INTEREST RATE
DOLLARS) MATURITY OBLIGATION MECHANISM
- ---------- -------- ------------------------------ ----------------------
$125 1996 7.7% bonds Commercial paper based
125 1996 7.7% bonds Commercial paper based
25 1997 12% bonds Three month LIBOR
50 1997 6% bonds Three month LIBOR
50 1997 6% bonds Three month LIBOR
75 1997 6% bonds Three month LIBOR
75 1997 6% bonds Three month LIBOR
125 1998 6.95% bonds Commercial paper based
125 1998 6.95% bonds Commercial paper based
235 1999 Preferred stock (6.1%)* Commercial paper based
250 1999 6.625% bonds Commercial paper based
171 2000 Production payment (6.45%)* Commercial paper based
250 2002 6.7% bonds Commercial paper based
200 2008 Obligation of investee
(6.47%)* Commercial paper based
170 2013 Obligation of investee
(6.64%)* Commercial paper based
185 2015 Building lease (9.8%)* Commercial paper based
83 2017 Building lease (8.4%)* Commercial paper based
- ---------------
* Imputed interest rate
Derivative Commodity Instruments. Shell Oil uses derivative instruments in
certain instances to reduce price volatility risk on commodities -- primarily
crude oil, natural gas and refined products. Generally, Shell Oil's strategy is
to hedge its exposure to price declines by locking in certain sales volumes at
fixed prices. Shell Oil accounts for commodity derivatives as hedges.
Usually, such derivatives are for terms of less than one year and cover
volumes substantially below anticipated sales. The exposure on such commodities
derivatives includes the credit risk that the counterparty will not pay if the
market declines below the established fixed price. In such case, Shell Oil loses
the benefit of the derivative differential on the volume of commodities covered
by the derivatives. In any case, Shell Oil would continue to receive market
price on actual volumes. Shell Oil also bears the risk that it could lose the
benefit of market improvements over the fixed derivative price for the term and
volume of the derivative securities (as such improvements would accrue to the
benefit of the counterparty). In certain instances involving very small volumes
relative to Shell Oil's gross purchases and sales, Shell Oil enters into
derivative contracts to hedge its exposure under short-term fixed price purchase
or sale commitments. In such cases, Shell Oil swaps its fixed price commitment
for a floating price, the net economic result being that its covered purchases
and sales are at market price.
During 1995, Shell Oil had a gain of $12 million in connection with its
commodity trades. At December 31, 1995, there were open positions covering 9.7
million barrels of crude oil and refined petroleum products, and 69 thousand
MMCF of natural gas. In addition, deferred natural gas hedge losses for January
1996 were $29.1 million. This hedge loss was offset against January 1996
physical natural gas sales. Deferred hedge gains for crude oil and refined
petroleum products were $2.4 million at December 31, 1995.
In all cases involving credit risk on derivative securities, it is always
possible that Shell Oil will make payments when due, and that the counterparty
will subsequently default on payments due the Company, translating into higher
costs or further reduced revenues over time. However, the Company believes its
credit analysis regarding counterparties and the terms, nature and size of its
derivative portfolio significantly reduce this risk.
43
44
Fair Value of Financial Instruments
At December 31, 1995 and 1994, the estimated fair values, determined
primarily by market quotes, of Shell Oil's financial instruments were as
follows:
1995 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------ ------- ------
(millions of dollars)
Investments............................ $ 394 $ 410 $ 114 $ 114
Long-term debt......................... 1,301 1,330 1,546 1,492
Interest rate swaps.................... -- 67 -- (174)
Commodity futures/swaps................ 4 (8) 2 (4)
As indicated in the table, the fair value of outstanding commodity
derivatives at December 31, 1995 was $(8) million, with a carrying value of $4
million; such derivatives positions were not material or reasonably likely to be
material to any business segment.
The reported amounts of financial instruments such as cash equivalents,
marketable securities and short-term debt approximate fair value because of
their short maturities.
11. TAXES
Operating and income taxes incurred by Shell Oil were as follows:
1995 1994 1993
----- ----- -----
(millions of dollars)
OPERATING TAXES
Real and personal property........................... $ 177 $ 170 $ 196
Sales and use........................................ 138 144 154
Oil and gas production............................... 52 53 64
Payroll.............................................. 81 77 81
Franchise............................................ 29 31 34
Import and export duties............................. 2 3 8
Other................................................ 4 4 3
----- ----- -----
TOTAL...................................... $ 483 $ 482 $ 540
===== ===== =====
FEDERAL AND OTHER INCOME TAXES
Current
U.S. federal.................................... $ 667 $ 327 $(101)
Foreign......................................... 76 34 108
State and local................................. 35 35 5
----- ----- -----
778 396 12
Deferred
U.S. federal.................................... (332) (622) (4)
U.S. federal tax rate change.................... -- -- 95
State and other................................. 22 5 31
----- ----- -----
(310) (617) 122
----- ----- -----
TOTAL...................................... $ 468 $(221) $ 134
===== ===== =====
44
45
Deferred income taxes are provided for the temporary differences between
the tax basis of Shell Oil's assets and liabilities and the amounts reported in
the financial statements. Significant components of deferred tax liabilities and
assets as of December 31, 1995 and 1994 are as follows:
1995 1994
------ ------
(millions of
dollars)
Deferred tax liabilities:
Items associated with capitalized costs and write-offs...... $3,431 $3,745
Other....................................................... 424 339
------ ------
Total deferred tax liabilities......................... $3,855 $4,084
====== ======
Deferred tax assets:
Other postretirement obligations............................ $ 328 $ 344
Environmental and other reserves............................ 391 364
Loss carryforwards.......................................... 123 163
Other....................................................... 315 205
------ ------
Total deferred tax assets.............................. $1,157 $1,076
Valuation allowance.............................................. -- --
------ ------
Net deferred tax assets.......................................... $1,157 $1,076
------ ------
Net deferred tax liabilities..................................... $2,698 $3,008
------ ------
Receivables and prepayments included $143 million and $129 million of net
current deferred tax assets as of December 31, 1995 and 1994, respectively.
Total income taxes paid in the years 1995, 1994 and 1993 were $648 million,
$264 million and $50 million, respectively. Total income tax expense for the
years 1995, 1994 and 1993 was equivalent to effective tax rates of 23.0, (72.0)
and 14.5 percent, respectively, on earnings before income taxes and minority
interest of $2,032 million, $307 million and $927 million, respectively.
Reconciliation to the expected tax at the U.S. statutory rate (35 percent) is as
follows:
1995 1994 1993
----- ----- -----
(millions of dollars)
Expected tax at U.S. statutory rate....................... $ 711 $ 107 $ 324
State and foreign tax..................................... 47 34 76
Prior year adjustment..................................... (57) (282) (279)
Tax credits............................................... (65) (66) (55)
Benefit of tax losses..................................... (150) (8) (10)
Tax rate change........................................... -- -- 95
Other..................................................... (18) (6) (17)
----- ----- -----
TOTAL...................................... $ 468 $(221) $ 134
===== ===== =====
Shell Oil has tax loss carryforwards of $350 million expiring in 1997 ($3
million), 1998 ($7 million), 1999 ($316 million), 2000 ($4 million), and 2008
($20 million).
Shell Oil Company is included in the consolidated federal income tax return
of its parent, Shell Petroleum Inc. (SPI). Federal income tax amounts are
allocated among members of the consolidated tax group based on separate return
calculations. Federal income tax balances owing to SPI at December 31, 1995 and
1994 were $4 million and, $5 million, respectively.
12. INVESTMENTS
The equity method of accounting is used for investments in certain
partnerships and for investments in companies in which Shell Oil has a voting
stock interest between 20 and 50 percent. Such investments include: Saudi
Petrochemical Company, a petrochemical company in Saudi Arabia; Syria Shell
Holdings,
45
46
B.V.*, a Dutch holding company with oil and gas producing operations in Syria
and the Danish North Sea; Deer Park Refining Limited Partnership, a domestic
refining operation; Coral Energy Resources, L.P., a domestic gas marketing
company; investments in several pipelines; and in 1993, Zeigler Coal Holding
Company, a domestic coal mining company. Aggregate investment at December 31,
1995, 1994 and 1993 was $1,162 million, $1,131 million and $1,486 million,
respectively; dividends received on these investments in 1995, 1994 and 1993
were $111 million, $91 million and $63 million, respectively. In 1994, Shell Oil
sold its interest in Zeigler Coal Holding Company. Summarized financial
information for these investments and Shell Oil's equity share thereof is as
follow:
1995 1994 1993
---------------- ---------------- ---------------
EQUITY EQUITY EQUITY
TOTAL SHARE TOTAL SHARE TOTAL SHARE
------ ------ ------ ------ ------ ------
(millions of dollars)
COMPANIES ACCOUNTED FOR ON AN
EQUITY BASIS
Current assets.................... $1,043 $ 508 $ 772 $ 267 $1,199 $ 402
Noncurrent assets................. 5,402 2,520 5,649 2,243 5,712 2,162
Current liabilities............... 1,265 608 1,136 486 1,250 501
Noncurrent liabilities............ 3,064 1,399 2,594 1,068 2,890 1,095
Deferred income taxes............. 252 84 241 60 229 57
Revenues.......................... 3,452 1,281 3,469 1,075 2,600 894
Net income........................ 595 171 402 119** 143 50
- ------------
* At December 31, 1995, the unamortized excess of Shell Oil's investment in
this Dutch affiliate over its equity in the underlying net assets of the
affiliate approximated $215 million.
** Does not include a loss of $232 million on the sale of Shell Oil's interest
in Zeigler Coal Holding Company which was included in Equity earnings,
interest and other income on the Consolidated Statement of Income.
13. PROPERTY, PLANT AND EQUIPMENT
Investments in property, plant and equipment, including capitalized lease
assets, were as follows:
INVESTMENT
-----------------------------------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------- -------------------------------
COST RESERVE* NET COST RESERVE* NET
------- ------- ------- ------- ------- -------
(millions of dollars)
PROPERTY, PLANT AND EQUIPMENT
Exploration and Production
Oil and gas............... $23,893 $13,623 $10,270 $23,231 $12,668 $10,563
Other energy.............. 145 89 56 149 89 60
Oil and Chemical
manufacturing
facilities................ 10,430 4,597 5,833 9,452 4,232 5,220
Marketing facilities........ 3,082 749 2,333 2,930 682 2,248
Transportation facilities... 1,176 587 589 1,028 587 441
Other....................... 939 548 391 1,120 568 552
------- ------- ------- ------- ------- -------
TOTAL............. $39,665 $20,193 $19,472 $37,910 $18,826 $19,084
======= ======= ======= ======= ======= =======
- ------------
* Accumulated depreciation, depletion and amortization.
14. POSTRETIREMENT BENEFITS
The Company and certain of its subsidiaries currently provide health care
benefits for retired employees and their dependents. Eligibility for such
benefits requires retirement from the Company with entitlement to an immediate
pension generally upon the earlier of the attainment of age 50, when such age
plus years of service equals 80, or the attainment of age 65. Other
postretirement benefits provided by the Company
46
47
include life insurance plans. These life insurance plans are primarily funded by
employees; as a result, the cost of such plans to the Company is not material.
The health care plans for retired employees and their dependents are
unfunded defined benefit plans. The benefit is defined as the Company's
contributions to such plans. Annually, retirees are advised of the amount of the
Company's monthly contribution to the plans for the following year and the
monthly amount such retirees must pay for the particular coverage desired.
Coverage under the plans is arranged through insurance companies. The Company's
portion of premium payments was $41 million in 1995, $47 million in 1994 and $44
million in 1993.
The assumed annual health care cost trend rate used in measuring the
accumulated postretirement benefit obligation (APBO) was 9% in 1995, 8.25% in
1996, and gradually declines to 5% by the year 2002, remaining at that level
thereafter. Increasing the assumed health care cost trend rate by one percentage
point in each year would increase the APBO by approximately $125 million and the
aggregate of the 1995 service cost and interest cost components of expense by
$11 million. The APBO as of December 31, 1995 and 1994 was based on discount
rates of 7% and 8.75%, respectively. Unrecognized net gains or losses in excess
of 10% of the APBO (corridor) are amortized over three years.
Net postretirement benefits cost consisted of the following:
1995 1994
---- ----
(millions of
dollars)
Service cost for benefits earned.......................... $ 9 $ 15
Interest cost on the APBO................................. 63 60
Net amortization and deferral............................. (60) (22)
---- ----
TOTAL.............................................. $ 12 $ 53
==== ====
The postretirement benefits plan status at December 31 was as follows:
1995 1994
---- ----
(millions of
dollars)
Accumulated postretirement benefit obligation
Retirees................................................... $575 $501
Fully eligible active plan participants.................... 42 32
Other active plan participants............................. 333 208
---- ----
TOTAL................................................. $950 $741
Unrecognized gain from past experience different from that
assumed and from changes in assumptions.................... 4 238
Prior service gain not yet recognized in net periodic
postretirement benefit cost................................ 13 18
---- ----
ACCRUED POSTRETIREMENT BENEFIT COST................... $967 $997
==== ====
15. PENSION PLANS AND PROVIDENT FUND
The Shell Pension Plan covers employees of the Company and certain
subsidiaries. Benefits are based on years of service and the employee's average
final compensation. Company contributions to the Shell Pension Trust are based
on the projected unit credit actuarial method using rates determined to be
reasonable by an independent actuary. The methodology meets the requirements of
the Employee Retirement Income Security Act. There were no contributions to the
Shell Pension Trust in 1995 and 1994 due to the full-funding limitation of the
applicable tax law.
47
48
The plan's funded status at December 31 was as follows:
1995 1994
------ ------
(millions of dollars)
Actuarial present value:
Accumulated benefit obligation including vested benefits of
$3,820 and $3,067 for 1995 and 1994, respectively............. $4,153 $3,307
------ ------
Projected benefit obligation..................................... $4,786 $3,698
Plan assets at fair value, primarily common stocks and fixed income
investments...................................................... 4,792 4,165
------ ------
Plan assets in excess of projected benefit obligation.............. $ 6 $ 467
Remaining unrecognized net asset existing at date of initial
application of SFAS No. 87....................................... (42) (54)
Unrecognized net loss from past experience different from that
assumed and effects of changes in assumptions.................... 483 124
Prior service cost not yet recognized in net periodic pension
cost............................................................. 190 80
------ ------
NET PREPAID PENSION EXPENSE.............................. $ 637 $ 617
====== ======
Shell Oil also has a Benefit Restoration Plan and a Senior Staff Plan. The
Benefit Restoration Plan generally provides for payments of amounts in excess of
limits imposed by federal tax law on benefit payments under the Shell Pension
Plan. The Senior Staff Plan provides for defined monthly supplemental pension
payments to members of the senior staff (consisting of certain officers and
other high-ranking employees). Both of these plans are unfunded. The accumulated
benefit obligation for these plans totaled $259 million and $183 million at
December 31, 1995 and 1994, respectively. The projected benefit obligation for
these plans totaled $302 million and $214 million at December 31, 1995 and 1994,
respectively. Of the 1995 projected benefit obligation amount, $199 million will
be expensed in the future and $103 million of unfunded accrued pension cost is
included in liabilities on the Consolidated Balance Sheet. The estimated
additional minimum pension liability recorded at December 31, 1995 and 1994 was
$93 million and $99 million, respectively.
The components of net pension expense for the Shell Pension Plan, Benefit
Restoration Plan and Senior Staff Plan were:
1995 1994 1993
----- ----- -----
(millions of dollars)
Service cost -- benefits earned during the period........ $ 79 $ 104 $ 87
Interest cost on projected benefit obligation............ 336 315 311
Actual return on plan assets*............................ (912) 25 (538)
Net amortization and deferral*........................... 515 (435) 134
----- ----- -----
NET PENSION EXPENSE............................... $ 18 $ 9 $ (6)
===== ===== =====
- ------------
* Estimated long-term rates of return on plan assets of 9.5 percent in 1995 and
10 percent in 1994 and 1993 were used in determining pension expense for the
period. The difference between actual return and estimated return is included
in Net amortization and deferral.
Current year pension expense is based on measurements of the projected
benefit obligation and the market-related value of plan assets as of the end of
the previous year. The projected benefit obligation as of December 31, 1995 and
1994 was based on discount rates of 7 percent and 8.75 percent, respectively,
and an average long-term rate of compensation growth of 5 percent for 1995 and
1994.
The Shell Provident Fund covers employees of the Company and certain
subsidiaries after stated periods of service, and provides for contributions by
the employing company based on a stated percentage of the employees' salaries
and wages. Employees may also contribute amounts up to a stated percentage.
48
49
Total costs of these plans were as follows:
1995 1994 1993
---- ---- ----
(millions of dollars)
Pension plans............................................... $ 18 $ 9 $ (6)
Provident Fund.............................................. 101 95 96
---- ---- ----
TOTAL................................................ $119 $104 $ 90
==== ==== ====
In addition, several subsidiary companies have separate pension plans using
actuarial rates and assumptions determined to be appropriate to those companies.
Such plans are not material and were excluded from the above disclosures.
16. CONTINGENCIES AND OTHER MATTERS
Shell Oil is subject to a number of possible loss contingencies. These
include actions based upon environmental laws involving present and past
operating and waste disposal locations and related private claims, contract and
product liability actions, and actions challenging the correctness of oil and
gas royalty calculations. In addition, federal, state and local income, property
and excise tax returns are being examined and certain interpretations by Shell
Oil of complex tax statutes, regulations and practices are being challenged.
Shell Oil has received allegations or claims under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) or similar state
statutes that it is involved at 220 sites, including the Rocky Mountain Arsenal
(RMA). As of December 31, 1995, discussions or activities were ongoing
concerning 88 of these sites, in some cases in the early stages. During 1995,
expenses recorded under CERCLA and such state statutes were approximately $3
million and approximately $45 million was charged to previously established
reserves. The United States and the Company have entered into a consent decree
to settle environmental claims at the RMA and, with the State of Colorado, have
agreed to a Conceptual Remedy for the cleanup. The Company has accrued $500
million for its share of the related costs, $265 million of which had been spent
as of December 31, 1995. The Company believes its current accruals will be
adequate to cover its anticipated costs under the Conceptual Remedy for the RMA.
Shell Oil also has certain obligations under the Resource Conservation and
Recovery Act (RCRA) and similar state laws regarding corrective action at
manufacturing locations and provides assurances regarding its financial ability
to meet certain closure and post-closure obligations that will arise in the
future at such locations under such laws.
Since 1984, the Company has been named as a defendant in numerous product
liability cases, including class actions, involving the failure of plumbing
systems in the United States constructed with polybutylene plastic pipe. The
plaintiffs in the litigation claim actual and punitive damages arising primarily
from leaking residential plumbing systems. The Company manufactured the resin
used to make the pipe in these systems. Two other substantial manufacturers made
the resins for the polyacetal insert fittings used in the residential plumbing
systems and are also defendants in these cases. The Company's position and most
of the judgments to date have confirmed that most of the leaks have occurred in
residential plumbing systems due to failure of the polyacetal insert fitting
system, which is no longer used. In addition to the numerous cases which have
been filed on behalf of individual claimants, over 25 purported statewide,
partial statewide or nationwide class actions have been filed. In the third
quarter of 1995, a settlement was certified as to one defendant in a nationwide
class action in Alabama state court. During the same quarter, the Company and
another co-defendant entered into a settlement in a nationwide class action
pending in Tennessee state court and, during the fourth quarter, the Court in
the Tennessee class action entered a final judgment approving that settlement.
By year-end, settlement had been reached with an attorney representing many of
the known opt-outs to such Tennessee settlement; however, a significant number
of opt-outs remain and at least some are likely to seek to litigate their
claims. The Tennessee settlement provides for the creation of an entity to
receive and handle claims and for a $950 million fund to pay such claims, which
claims may be made over a period of up to 14 years, depending on various
factors. If the settlement funds are exhausted, additional funds may be provided
by the defendants or new claimants may seek their remedy in a new court
proceeding at that time. There are issues remaining to be resolved in connection
with certain litigation in other states and possible conflicts among the various
courts. There are also significant issues to be resolved as to how costs will be
shared among
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the defendants, certain of which issues are anticipated to be resolved through
arbitration during 1996. Additionally, in matters outside the class actions,
claims involving problems with polybutylene pipe used in municipal water
distribution systems increased during 1995. The Company will continue to defend
vigorously in these matters but it cannot currently predict when or how
polybutylene related matters will finally be resolved.
In December 1993, a Los Angeles Superior Court jury, in two consolidated
lawsuits against the Company and its subsidiary involving the condition of the
Dominguez oil field, returned a verdict for the plaintiffs in the amount of
$46.9 million compensatory damages and $173 million punitive damages. Both cases
involve the condition of the Dominguez oil field. Plaintiffs alleged they were
defrauded, that the oil and gas lease was breached, and that soil contamination
on the property constitutes a continuing trespass. Final resolution through the
appeals process could take at least another year. The Company and its subsidiary
believe the verdict was wrong and expect ultimately to prevail in the
litigation.
The Company is a party to litigation regarding Nemagon(R), an agricultural
chemical containing DBCP manufactured and sold by it from 1955 to 1978. In
California, the claims involve alleged contamination of water wells based on
revisions to governmental standards. The claims in the litigation seek the cost
of cleanup and future monitoring of such water wells. The Company is a
co-defendant in these cases with other substantial manufacturers and suppliers
of the same chemical. During the second quarter of 1995, the majority of these
cases were settled, with the defendants accepting certain future obligations.
Ultimate exposure will not be known with certainty until all cases are resolved
and time has passed to see what cleanup will in fact be required, which may be
affected by changes in DBCP levels detected in certain water tables, new wells
drilled and regulations in place. Cases have been filed against the Company,
other substantial manufacturers and suppliers of DBCP and various banana growers
alleging that the plaintiffs suffer fertility problems arising from exposure to
DBCP while working on banana plantations outside the United States. The Company
is contesting whether any injury has in fact been incurred by plaintiffs,
whether DBCP was in fact the cause of any such injury as may exist, and in any
case if the Company was a supplier or otherwise has liability in connection with
any such injury.
The Company has filed declaratory judgment actions to resolve insurance
coverage for polybutylene through mid-1985; for asbestos, Nemagon(R) and other
toxic tort claims; and for certain environmental claims.
The Company's assessment of these matters is continuing. Future provisions
may be required as administrative and judicial proceedings progress and the
scope and nature of remediation programs and related costs estimates are
clarified. However, while periodic results may be significantly affected by
these matters, based upon developments to date, the management of the Company
anticipates that it will be able to meet related obligations without a material
adverse effect on its financial position.
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17. COMMITMENTS
Shell Oil conducts a portion of its operations using leased facilities,
including service stations, barges and tankers. Future minimum payments under
operating leases with initial or remaining terms of one year or more consisted
of the following at December 31, 1995:
OPERATING
LEASES
---------
(millions
of
dollars)
1996........................................................................ $ 230
1997........................................................................ 204
1998........................................................................ 110
1999........................................................................ 68
2000........................................................................ 53
Thereafter.................................................................. 769
-------
Total minimum lease payments...................................... $ 1,434
=======
The composition of total rental expense for all operating leases, except
those with terms of a month or less that were not renewed, was as follows:
1995 1994 1993
---- ---- ----
(millions of dollars)
Minimum rentals........................................... $381 $369 $336
Contingent rentals
(Generally based on sales volumes)...................... 2 2 2
Less: sublease rentals.................................... (41) (38) (42)
---- ---- ----
Total........................................... $342 $333 $296
==== ==== ====
Under long-term agreements with an offshore port and certain pipeline
companies in which stock interests are held, Shell Oil may be required to
advance funds against future transportation charges in the event such companies
are unable to meet their financial obligations. Also, at December 31, 1995,
Shell Oil had commitments related to agreements for the future purchase of
materials and services, and for the acquisition and construction of facilities,
all made in the normal course of business. Additionally, at December 31, 1995,
Shell Oil had guaranteed $158 million of debt and other obligations of others.
All such commitments and guarantees are expected to be fulfilled with no adverse
consequences material to Shell Oil's operations or financial condition.
18. OPERATING SEGMENTS INFORMATION
Shell Oil is engaged, principally in the United States, in the exploration
for, and development, production, purchase, transportation and marketing of,
crude oil and natural gas, and the purchase, manufacture, transportation and
marketing of oil and chemical products. These activities are conducted through
three major business segments -- Oil and Gas Exploration and Production, Oil
Products and Chemical Products as follows:
Oil and Gas Exploration and Production explores for and develops and
produces crude oil, natural gas and natural gas liquids primarily in the
continental United States and the offshore Gulf of Mexico. This segment is
also engaged on a limited and selective basis in exploration and production
activities outside the United States, including several ventures with
companies of the Royal Dutch/Shell Group of Companies.
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Oil Products transports, refines and markets crude oil and petroleum
products principally in the United States. This segment is oriented toward
light fuel products; accordingly, refineries are designed to produce large
quantities of motor gasoline and other light fuels. The Company is a
leading marketer of gasoline in the United States and an important supplier
of aviation fuel, lubricants and asphalt. In 1995, Shell Oil's own net
produced crude oil and natural gas liquids was equivalent to about 60
percent of its intakes into its crude oil distillation units. The Company
further supplements its own crude oil production to meet its refinery
requirements by the purchase of crude oil from both domestic and
international sources. During 1995, 35 percent of the Company's net crude
oil supply came from sources outside the United States; approximately 24
percent was purchased from government oil companies and 11 percent was
purchased from other international sources including companies affiliated
with the Royal Dutch/Shell Group of Companies.
Chemical Products is a major producer in the United States of olefins,
aromatics, detergent alcohols, ethylene oxide and derivatives,
thermoplastic elastomers, epoxy resins, oxygenated and hydrocarbon solvents
and polyester resins. These basic chemical products are used in many
consumer and industrial products and processes. They are sold primarily to
industrial markets in the United States; approximately 20 percent of
chemical volumes are sold outside the United States. In addition,
petrochemicals are manufactured by a joint venture with Saudi Basic
Industries Corporation and sold in world wide markets. Ethylene oxide and
other catalysts are manufactured and sold through joint ventures with
affiliates and other parties.
Operating segments information for the years 1995, 1994 and 1993 is
presented below. Income taxes are allocated to segments on the basis of
contributions to taxable income reduced by applicable tax credits. Shell Oil's
activity outside the United States has not reached a level warranting separate
reporting.
OIL AND GAS
EXPLORATION
AND OIL CHEMICAL
PRODUCTION PRODUCTS PRODUCTS OTHER TOTAL
----------- ------- -------- ------ -------
(millions of dollars)
1995 SUMMARY STATEMENT OF INCOME
Sales and other operating revenue...... $ 1,764 $17,375 $ 4,841 $ 318 $24,298
Other revenue.......................... 90 11 15 5 121
Intersegment transfers................. 2,659 969 152 -- --
------- ------- -------- ------ -------
TOTAL REVENUE................ 4,513 18,355 5,008 323 24,419(1)
Costs and operating expenses........... 2,293 17,212 3,778 353 19,856(1)
Depreciation, amortization, etc........ 1,533 365 273 132 2,303
------- ------- -------- ------ -------
OPERATING PROFIT (LOSS)...... 687 778 957 (162) 2,260
Corporate expense--allocated........... 40 34 17 -- 91
Income tax expense
(benefit)--allocated................. 66 232 371 (86) 583
Minority interest...................... 42 -- -- 2 44
Equity in net (income) loss of
others............................... (83) 55 (135 ) -- (163)
------- ------- -------- ------ -------
INCOME (LOSS) FROM ONGOING
OPERATIONS................. 622 457 704 (78) 1,705
Other charges(4)....................... 1 (17) 10 -- (6)
------- ------- -------- ------ -------
SEGMENT NET INCOME (LOSS).... $ 621 $ 474 $ 694 $ (78) $ 1,711
-------
Nonallocated costs..................... $ 191
NET INCOME................... $ 1,520
=======
1995 CAPITAL EXPENDITURES................... $ 1,395 $ 1,065 $ 422 $ 13 $ 2,957(2)
IDENTIFIABLE ASSETS DECEMBER 31, 1995....... $11,976 $ 8,763 $ 4,836 $ 254 $27,021(3)
(Table continued on following page)
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OIL AND GAS
EXPLORATION
AND OIL CHEMICAL
PRODUCTION PRODUCTS PRODUCTS OTHER TOTAL
----------- ------- -------- ------ -------
(millions of dollars)
1994 SUMMARY STATEMENT OF INCOME
Sales and other operating revenue...... $ 1,490 $15,733 $ 4,075 $ 325 $21,623
Other revenue.......................... 33 14 12 2 61
Intersegment transfers................. 2,257 851 158 -- --
------- ------- -------- ------ -------
TOTAL REVENUE................ 3,780 16,598 4,245 327 21,684(1)
Costs and operating expenses........... 2,163 15,559 3,654 350 18,460(1)
Depreciation, amortization, etc........ 1,605 341 288 90 2,324
------- ------- -------- ------ -------
OPERATING PROFIT (LOSS)...... 12 698 303 (113) 900
Corporate expense--allocated........... 39 29 16 -- 84
Income tax expense
(benefit)--allocated................. (210) 218 98 (125) (19)
Minority interest...................... 20 -- -- -- 20
Equity in net (income) loss of
others............................... (96) 24 (34) 247 141
------- ------- -------- ------ -------
INCOME (LOSS) FROM ONGOING
OPERATIONS................. 259 427 223 (235) 674
Other charges(4)....................... 2 54 62 -- 118
------- ------- -------- ------ -------
SEGMENT NET INCOME (LOSS).... $ 257 $ 373 $ 161 $ (235) $ 556
Nonallocated costs..................... 48
-------
NET INCOME................... $ 508
=======
1994 CAPITAL EXPENDITURES................... $ 952 $ 1,087 $ 343 $ 8 $ 2,451(2)
IDENTIFIABLE ASSETS DECEMBER 31, 1994....... $12,217 $ 7,892 $ 4,520 $ 409 $26,379(3)
1993 SUMMARY STATEMENT OF INCOME
Sales and other operating revenue...... $ 1,418 $15,462 $ 3,687 $ 282 $20,849
Other revenue.......................... 96 8 16 -- 120
Intersegment transfers................. 2,492 949 172 -- --
------- ------- -------- ------ -------
TOTAL REVENUE................ 4,006 16,419 3,875 282 20,969(1)
Costs and operating expenses........... 2,098 15,708 3,315 299 17,807(1)
Depreciation, amortization, etc........ 1,225 253 232 11 1,721
------- ------- -------- ------ -------
OPERATING PROFIT (LOSS)...... 683 458 328 (28) 1,441
Corporate expense--allocated........... 53 25 24 1 103
Income tax expense
(benefit)--allocated................. 163 163 119 (20) 425
Minority interest...................... 12 -- -- -- 12
Equity in net (income) loss of
others............................... (23) (15) (35) 18 (55)
------- ------- -------- ------ -------
INCOME (LOSS) FROM ONGOING
OPERATIONS................. 478 285 220 (27) 956
Other charges(4)....................... 1 5 185 -- 191
------- ------- -------- ------ -------
SEGMENT NET INCOME (LOSS).... $ 477 $ 280 $ 35 $ (27) $ 765
Nonallocated costs..................... (16)(5)
-------
NET INCOME................... $ 781
=======
1993 CAPITAL EXPENDITURES................... $ 877 $ 704 $ 319 $ 20 $ 1,981(2)
IDENTIFIABLE ASSETS DECEMBER 31, 1993....... $12,697 $ 7,232 $ 4,312 $ 659 $26,851(3)
- ------------
(1) After elimination of intersegment transfers of $3,780 million in 1995,
$3,266 million in 1994 and $3,613 million in 1993, which are based on
estimated market-related values.
(2) Includes non-segment capital expenditures of $62 million in 1995, $61
million in 1994, and $61 million in 1993.
(3) Includes non-segment assets of $1,192 million in 1995, $1,341 million in
1994 and $1,951 million in 1993.
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(4) Amounts associated with major product classifications for which there has
been no revenue stream or investment in the last 5 years.
(5) Nonallocated costs in 1993 includes a favorable prior-year tax adjustment of
$161 million.
19. SUMMARIZED FINANCIAL INFORMATION -- SHELL PIPE LINE CORPORATION
The following summarized financial information for Shell Pipe Line
Corporation, a wholly owned subsidiary of Shell Oil Company, is presented here
for the information of holders of Shell Pipe Line Corporation's 7 1/2%
Guaranteed Sinking Fund Debentures Due 1999, which are fully guaranteed by Shell
Oil Company.
1995 1994 1993
---- ---- ----
(millions of dollars)
SHELL PIPE LINE CORPORATION
Current assets........................................... $154 $161 $115
Noncurrent assets........................................ 524 356 299
Current liabilities...................................... 89 61 58
Noncurrent liabilities................................... 73 70 71
Revenue.................................................. 322 281 271
Operating income......................................... 167 128 120
Net income............................................... 130 101 97
20. QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
1995 1994
--------------------------------- ---------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------ ------ ------ ------ ------ ------ ------ ------
(millions of dollars)
Sales and other operating
revenue.................. $5,548 $6,289 $5,975 $6,487 $4,773 $5,310 $5,704 $5,839
Revenues, less purchases
and operating expenses... 1,448 1,665 1,768 1,716 1,185 1,018 1,398 1,288
Income before income taxes
and minority interest.... 561 626 644 200 299 (590) 453 147
Net income (loss).......... $ 340 $ 385 $ 414 $ 380 $ 179 $ (194) $ 313 $ 211
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on February 29, 1996.
SHELL OIL COMPANY
(Registrant)
By /s/ PHILIP J. CARROLL
---------------------------------------
(Philip J. Carroll, President)
------------------------
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Philip
J. Carroll, S. A. Lackey, and Jack B. Edrington, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on February 29, 1996 by the following persons on
behalf of the Registrant in the capacities indicated.
SIGNATURE TITLE
--------- -----
/s/ PHILIP J. CARROLL President and Director
- --------------------------------------------- (Principal Executive Officer)
(Philip J. Carroll)
/s/ P. G. TURBERVILLE Vice President Finance
- --------------------------------------------- (Principal Financial Officer)
(P. G. Turberville)
/s/ N. J. CARUSO Controller (Principal
- --------------------------------------------- Accounting Officer)
(N. J. Caruso)
/s/ JOSEPH E. ANTONINI Director
- ---------------------------------------------
(Joseph E. Antonini)
/s/ RAND V. ARASKOG Director
- ---------------------------------------------
(Rand V. Araskog)
(Signatures continued on next page)
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(Signatures continued from preceding page)
SIGNATURE TITLE
--------- -----
/s/ ROBERT F. DANIELL Director
- ---------------------------------------------
(Robert F. Daniell)
/s/ C. A. J. HERKSTROTER Director
- ---------------------------------------------
(C. A. J. Herkstroter)
/s/ JOHN S. JENNINGS Director
- ---------------------------------------------
(John S. Jennings)
/s/ JACK E. LITTLE Director
- ---------------------------------------------
(Jack E. Little)
/s/ HAROLD A. POLING Director
- ---------------------------------------------
(Harold A. Poling)
/s/ GORDON R. SULLIVAN Director
- ---------------------------------------------
(Gordon R. Sullivan)
/s/ JOHN F. WOODHOUSE Director
- ---------------------------------------------
(John F. Woodhouse)
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INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ------- ----------- --------
3 Articles of Incorporation and By-Laws..................................... *
10 Material Contracts:
(i) Letter Agreement between Registrant and Shell Internationale
Research Maatschappij B. V..................................... 58
(ii) Agreement for Research Services................................ *
21 Subsidiaries of the Registrant............................................ 59
23 Consent of Independent Accountants........................................ 60
24 Powers of Attorney........................................................ 55
27 Financial Data Schedule...................................................
- ------------
* Incorporated by reference; see Item 14c, page 33.
57