Document/Exhibit Description Pages Size
1: 10-K Shell Oil Company - 12/31/96 56 312K
2: EX-3.I Copy of Restated Articles of Incorporation 8 32K
3: EX-3.II Copy of By-Laws of the Registrant 12 72K
4: EX-10.I Letter of Agreement - Registrant & Shell Inter. 2± 11K
5: EX-21 Subsidiaries of the Registrant 2± 8K
6: EX-23 Consent of Independant Accountants 1 5K
7: EX-27 Financial Data Schedule 1 7K
1996
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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, 1996
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)
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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:
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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
28, 1997 -- 1,000 shares of Common Stock, of a par value of $10.00 a share.
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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, p.l.c., 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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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, p.l.c., London, England. Royal Dutch
Petroleum Company and The "Shell" Transport and Trading Company, p.l.c., 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. 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. Compared
with other integrated enterprises in the petroleum industry, the Company
believes that in 1996, 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 second 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, 1996, Shell Oil had 20,463 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.
The following is a summarized disaggregation of Shell Oil's consolidated
net income for each of the past three years.
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1996 1995 1994
-------- -------- --------
(millions of dollars)
SEGMENT NET INCOME (LOSS)
Oil and Gas Exploration and Production............ $1,349 $ 621 $ 257
Oil Products...................................... 383 474 373
Chemical Products................................. 243 694 161
Other............................................. (29) (78) (235)
------ ------ ------
TOTAL................................... 1,946 1,711 $ 556
NONALLOCATED COSTS..................................... (75) 191 48
------ ------ ------
NET INCOME.............................. $2,021 $1,520 $ 508
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2
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.
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1996 1995 1994
-------- -------- --------
(millions of dollars)
REVENUES
Sales and other operating revenue................ $ 3,010 $ 1,764 $ 1,490
Other revenue.................................... 55 90 33
Intersegment transfers........................... 3,123 2,659 2,257
------- ------- -------
TOTAL REVENUES......................... 6,188 4,513 3,780
COSTS AND EXPENSES
Costs and operating expenses..................... 2,943 2,293 2,163
Depreciation, depletion, amortization and
retirements.................................... 1,375 1,533 1,605
------- ------- -------
OPERATING PROFIT....................... 1,870 687 12
Allocated corporate expenses..................... 39 40 39
Allocated income taxes........................... 559 66 (210)
Minority interest................................ 44 42 20
Equity in net income of others................... (123) (83) (96)
------- ------- -------
INCOME FROM ONGOING OPERATIONS......... 1,351 622 259
Other charges*................................... 2 1 2
------- ------- -------
SEGMENT NET INCOME..................... $ 1,349 $ 621 $ 257
======= ======= =======
CAPITAL EXPENDITURES.................................. $ 2,053 $ 1,395 $ 952
======= ======= =======
IDENTIFIABLE ASSETS AT DECEMBER 31.................... $12,557 $11,976 $12,217
======= ======= =======
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* 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 1996, domestic onshore production accounted for 55 percent of
Shell Oil's crude oil production and 33 percent of its natural gas production.
The Gulf of Mexico, California and Texas are Shell Oil's principal areas of
production activity, providing about 82 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.
In 1995, Shell Oil and Tejas Gas Corporation (Tejas) formed a natural gas
marketing company, Coral Energy, L.P. (Coral). During 1996, Coral purchased
substantially all of Shell Oil's natural gas production as well as significant
additional volumes acquired under contracts with third parties. In early 1997,
Shell Oil completed the merger of its producing assets located in the Permian
Basin of West Texas/Southeast New Mexico with those of Amoco Corporation (Amoco)
in a limited partnership owned approximately 36 percent by Shell Oil and 64
percent by Amoco. This partnership is anticipated to extend the profitable life
of Permian
3
Basin assets due to cost reductions made possible by the venture. During 1996,
Shell Oil began discussions with Mobil Corporation concerning the possible
combination of Shell Oil's California exploration and production operations with
Mobil's California exploration and production operations to reduce costs and
leverage complementary skills and competencies. Negotiations are continuing.
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 44 percent of Shell
Oil's domestic crude oil production in 1996. Activities include steam injection
to produce heavy, more viscous crude oil, carbon dioxide (CO2) injection for
increased recovery of lighter oil and supplemental water injection.
Steam injection methods, primarily in California, accounted for 23 percent
of domestic crude oil production in 1996, slightly less than 1995. Also, in
1996, CO2 injection projects in West Texas and Mississippi accounted for 16,132
net barrels per day or approximately 4 percent of domestic crude oil production.
Domestic Offshore Oil and Gas
Shell Oil acquired interests in 261 tracts in the Gulf of Mexico during
1996 at a bonus cost of $109 million. Shell Oil now holds interests in 833
tracts in the Gulf, 517 of which are in water depths exceeding 1,500 feet,
comprising about one-fourth of the industry's deepwater leaseholds.
Exploration and development of offshore acreage continued in 1996 with
Shell Oil participating in the drilling of 97 gross wells, of which 71 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 continued at a rapid pace in 1996. First
production was achieved at the Mars field, from a tension leg platform (TLP)
located 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. At Tahoe, production from the Phase II
development began, with peak rates expected to reach 300 million cubic feet of
gas per day. Tahoe, owned 70 percent by Shell Oil (after payout of capital
costs), is planned as a 5 well development, including the original Phase I well.
A nearby 1996 discovery, Southeast Tahoe also began production during 1996.
Southeast Tahoe is owned 100 percent by Shell Oil.
Development continued on the Ram/Powell project (Shell Oil interest-38
percent). Production from Ram/Powell is expected to begin in late 1997 from a
TLP in 3,220 feet of water, reaching an expected peak of 60,000 barrels of oil
and 200 million cubic feet of gas per day. Gross ultimate recovery from the
Ram/Powell project is estimated at 250 million barrels of crude oil equivalents.
The Mensa project (Shell Oil interest-100 percent) is being developed using
subsea technology, with up to four wells being located on the sea floor, and is
expected to begin production in 1997. Peak production is expected to reach 300
million cubic feet of gas per day, flowing through a pipeline to a conventional
offshore platform about 68 miles away in shallower water. Gross ultimate
recovery from Mensa is projected at 720 billion cubic feet of natural gas. The
Troika project, (Shell Oil interest-33 1/3 percent) also a subsea development,
was announced in 1996. Initial production is expected by late 1997, with peak
rates of 80,000 barrels of oil and 140 million cubic feet of gas per day. Gross
ultimate recovery from Troika is estimated at 170 million barrels of crude oil
equivalents. Engineering and design work has begun for the Ursa project, (Shell
Oil interest-45.4 percent), which will be developed from a TLP in world record
water depth of approximately 3,950 feet. The TLP is expected to be installed in
early 1999, with first production anticipated in mid-1999. Expected peak
production for Ursa is 150,000 barrels of oil and 400 million cubic feet of
natural gas per day, with gross ultimate recovery estimated at 400 million
barrels of crude oil equivalents.
4
Planning and construction of the necessary infrastructure to support this
deepwater development continued in 1996.
Domestic Onshore Oil and Gas
During 1996, Shell Oil participated in drilling 458 gross development wells
of which 444 were successful. Most of this activity was in Shell Oil's heavy oil
fields in California.
Shell Oil participated in drilling 20 gross exploratory wells; 7 were
successful. Exploration activities were primarily along the Gulf Coast.
International Oil and Gas
Effective January 1, 1997, Shell Oil integrated its international oil and
gas new business development activities with those of other Royal Dutch/Shell
Group companies. The Company will concentrate its resources on domestic
exploration and development. The Company has, however, retained its
international producing properties located in Brazil, Cameroon, China and Yemen.
5
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.
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1996 1995 1994
------------------------------ ------------------------------ ------------------------------
U.S. INT'L TOTAL U.S. INT'L TOTAL U.S. INT'L TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- --------
(millions of dollars)
Sales.......................... $2,114 $ 66 $2,180 $1,236 $ 46 $1,282 $1,108 $ 41 $1,149
Transfers...................... 2,143 418 2,561 1,976 304 2,280 1,758 226 1,984
------ ---- ------ ------ ---- ------ ------ ---- ------
Total Revenues............ 4,257 484 4,741 3,212 350 3,562 2,866 267 3,133
Production costs............... 1,104 94 1,198 1,039 85 1,124 1,066 73 1,139
Exploration expenses........... 293 34 327 194 52 246 277 66 343
Depreciation, depletion and
amortization................. 1,212 127 1,339 1,371 119 1,490 1,477 111 1,588
Income tax expense............. 503 29 532 29 28 57 (229) 14 (215)
------ ---- ------ ------ ---- ------ ------ ---- ------
Results of Operations..... $1,145 $200 $1,345 $ 579 $ 66 $ 645 $ 275 $ 3 $ 278
------ ---- ------ ------ ---- ------ ------ ---- ------
Shell Oil's interest in results
of operations of equity
companies.................... -- 48 48 -- 36 36 -- 39 39
------ ---- ------ ------ ---- ------ ------ ---- ------
Total..................... $1,145 $248 $1,393 $ 579 $102 $ 681 $ 275 $ 42 $ 317
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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:
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1996 1995 1994
------------------------------ ------------------------------ ------------------------------
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.............. $18.40 $19.77 $18.58 $15.02 $16.28 $15.17 $13.41 $14.38 $13.51
Natural gas liquids....... 15.97 16.95 15.97 12.01 10.07 12.00 11.95 9.69 11.94
Weighted Average Price per
Thousand Cubic Feet of Net
Marketable Natural Gas
Produced.................. 2.34 2.14 2.33 1.65 1.99 1.66 1.90 1.64 1.88
Production Expenses (dollars
per barrel of equivalent
net hydrocarbon
production)............... 3.91 3.54 3.88 3.76 3.75 3.76 4.20 3.65 4.16
Results of Operations
(dollars per barrel of
equivalent net hydrocarbon
production)............... 4.05 7.49 4.35 2.10 2.88 2.16 1.09 0.13 1.02
6
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.
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1996 1995 1994
------------------------------ ------------------------------ ------------------------------
U.S. Int'l Total U.S. Int'l Total U.S. Int'l Total
-------- -------- -------- -------- -------- -------- -------- -------- --------
(millions of dollars)
CAPITALIZED COSTS
Proved properties........ $21,085 $1,474 $22,559 $20,893 $1,423 $22,316 $20,130 $1,392 $21,522
Unproved properties...... 1,195 15 1,210 866 22 888 999 25 1,024
Support equipment and
facilities............ 530 10 540 416 9 425 385 17 402
------- ------ ------- ------- ------ ------- ------- ------ -------
Total Capitalized
Costs............ 22,810 1,499 24,309 22,175 1,454 23,629 21,514 1,434 22,948
Accumulated depreciation,
depletion and
amortization.......... 13,125 890 14,015 12,671 775 13,446 11,866 669 12,535
------- ------ ------- ------- ------ ------- ------- ------ -------
NET CAPITALIZED
COSTS............ $ 9,685 $ 609 $10,294 $ 9,504 $ 679 $10,183 $ 9,648 $ 765 $10,413
------- ------ ------- ------- ------ ------- ------- ------ -------
Shell Oil's interest in
net capitalized costs
of equity companies... -- 115 115 -- 148 148 -- 256 256
------- ------ ------- ------- ------ ------- ------- ------ -------
Total............... $ 9,685 $ 724 $10,409 $ 9,504 $ 827 $10,331 $ 9,648 $1,021 $10,669
======= ====== ======= ======= ====== ======= ======= ====== =======
COSTS INCURRED IN PROPERTY
ACQUISITION, EXPLORATION
AND DEVELOPMENT
ACTIVITIES*
Acquisition of
properties
Proved.............. $ 205 $ -- $ 205 $ 15 $ -- $ 15 $ 79 $ -- $ 79
Other............... 140 -- 140 64 (1) 63 22 5 27
Exploration costs..... 583 42 625 423 58 481 381 44 425
Development costs..... 1,157 39 1,196 1,015 29 1,044 693 57 750
------- ------ ------- ------- ------ ------- ------- ------ -------
Costs Incurred...... $ 2,085 $ 81 $ 2,166 $ 1,517 $ 86 $ 1,603 $ 1,175 $ 106 $ 1,281
Shell Oil's share of
costs incurred by
equity companies.... -- 6 6 -- 146 146 -- 68 68
------- ------ ------- ------- ------ ------- ------- ------ -------
Total............... $ 2,085 $ 87 $ 2,172 $ 1,517 $ 232 $ 1,749 $ 1,175 $ 174 $ 1,349
======= ====== ======= ======= ====== ======= ======= ====== =======
------------
* 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
Shell Oil's oil and gas exploration and development net wells drilled and
the wells which were successful were as follows:
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1996 1995 1994
------------------------------ ------------------------------ ------------------------------
U.S. INT'L TOTAL U.S. INT'L TOTAL U.S. INT'L TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- --------
NET WELLS DRILLED
Exploratory
Oil and Gas Wells......... 22 -- 22 27 -- 27 13 -- 13
Dry Holes................. 27 1 28 17 2 19 20 2 22
Development
Oil and Gas Wells......... 447 7 454 242 6 248 204 2 206
Dry Holes................. 13 -- 13 3 -- 3 3 -- 3
OIL AND GAS WELLS PRODUCING OR
CAPABLE OF PRODUCING
Gross Wells
Oil....................... 20,946 399 21,345 22,406 411 22,817 23,879 341 24,220
Gas....................... 1,572 30 1,602 1,675 27 1,702 1,519 28 1,547
Net Wells
Oil....................... 13,071 107 13,178 13,548 111 13,659 14,495 95 14,590
Gas....................... 1,042 9 1,051 1,114 8 1,122 1,037 8 1,045
Number of net oil and gas
wells above completed in
more than one producing
formation................. 419 10 429 384 1 385 320 3 323
As of December 31, 1996, Shell Oil's interest in wells which were in the
process of being drilled was as follows:
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EXPLORATORY DEVELOPMENT TOTAL
------------- ------------- -------------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ---
WELLS IN PROCESS OF BEING DRILLED
United States....................... 15.0 10.6 30.0 23.0 45.0 33.6
International....................... -- -- 4.0 1.3 4.0 1.3
---- ---- ---- ---- ---- ----
Total.......................... 15.0 10.6 34.0 24.3 49.0 34.9
==== ==== ==== ==== ==== ====
Acreage in which Shell Oil had an interest at the end of each of the
periods indicated was as follows:
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1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(thousands of acres)
UNDEVELOPED ACREAGE
Gross
United States
Onshore........................... 2,068 1,563 1,542 1,354 1,983
Offshore.......................... 5,238 4,668 2,797 4,086 4,966
International........................ 3,409 48,241 37,685 37,823 40,860
------ ------ ------ ------ ------
TOTAL........................ 10,715 54,472 42,024 43,263 47,809
====== ====== ====== ====== ======
Net
United States
Onshore........................... 1,383 1,135 955 960 1,472
Offshore.......................... 5,223 4,543 2,717 3,717 4,544
International........................ 1,484 14,116 23,125 13,780 16,308
------ ------ ------ ------ ------
TOTAL........................ 8,090 19,794 26,797 18,457 22,324
====== ====== ====== ====== ======
PRODUCING OIL AND GAS ACREAGE
Gross
United States........................ 2,929 2,339 1,281 1,329 1,513
International........................ 123 100 90 69 109
------ ------ ------ ------ ------
TOTAL........................ 3,052 2,439 1,371 1,398 1,622
====== ====== ====== ====== ======
Net
United States........................ 2,448 1,973 1,003 1,072 1,115
International........................ 48 25 23 20 30
------ ------ ------ ------ ------
TOTAL........................ 2,496 1,998 1,026 1,092 1,145
====== ====== ====== ====== ======
8
Shell Oil's net production (after deducting interests of others, including
royalty) was as follows for the periods indicated:
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LIQUIDS (THOUSANDS OF BARRELS DAILY)
NATURAL GAS (MILLIONS OF CUBIC FEET DAILY) 1996 1995 1994 1993 1992
------------------------------------------ ----- ----- ----- ----- -----
NET CRUDE OIL AND CONDENSATE PRODUCED
United States
Gulf of Mexico............................ 161 154 133 113 122
California................................ 132 128 133 140 160
Louisiana................................. 9 10 9 8 10
Michigan.................................. 7 7 7 8 10
Texas..................................... 44 47 48 50 56
Other..................................... 23 25 25 30 30
----- ----- ----- ----- -----
Total United States....................... 376 371 355 349 388
International.................................. 58 51 43 61 63
----- ----- ----- ----- -----
Total consolidated companies.............. 434 422 398 410 451
Shell Oil's interest in production of equity
companies.................................... 38 34 31 29 --
NATURAL GAS LIQUIDS PRODUCED
Predominantly domestic......................... 75 70 61 54 59
----- ----- ----- ----- -----
TOTAL LIQUIDS PRODUCED.................... 547 526 490 493 510
===== ===== ===== ===== =====
NET NATURAL GAS PRODUCED*
United States
Gulf of Mexico............................ 1,135 1,012 785 741 711
Louisiana................................. 49 87 120 129 140
Michigan.................................. 99 103 107 120 134
Texas..................................... 360 382 345 370 343
Other..................................... 155 180 205 115 126
International.................................. 82 61 67 39 28
----- ----- ----- ----- -----
TOTAL GAS PRODUCED........................ 1,880 1,825 1,629 1,514 1,482
===== ===== ===== ===== =====
Net natural gas available for market, excluding
consumed in operations....................... 1,720 1,699 1,473 1,361 1,158
------------
* 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
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:
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1996 1995
LIQUIDS (MILLIONS OF BARRELS) -------------------------- -------------------------
NATURAL GAS (BILLIONS OF CUBIC FEET) U.S. INT'L TOTAL U.S. INT'L TOTAL
------------------------------------ ---- ----- ----- ---- ----- -----
OIL RESERVES
Proved Developed and Undeveloped
Beginning of year................... 1,780 116 1,896 1,810 118 1,928
Revisions of previous estimates..... (3) 9 6 (41) 7 (34)
Improved recovery................... 82 -- 82 16 -- 16
Purchases of reserves*.............. 43 -- 43 2 -- 2
Extensions and discoveries.......... 62 16 78 145 10 155
Sales of reserves................... (15) -- (15) (17) -- (17)
Production.......................... (137) (21) (158) (135) (19) (154)
------ ---- ----- ----- --- -----
End of year......................... 1,812 120 1,932 1,780 116 1,896
====== ==== ===== ===== === =====
Net changes for year................ 32 4 36 (30) (2) (32)
Shell Oil's interest in proved
reserves of equity companies at
end of year....................... -- 47 47 -- 73 73
Proved Developed
Beginning of year................... 1,124 80 1,204 1,156 74 1,230
End of year......................... 1,157 92 1,249 1,124 80 1,204
NATURAL GAS LIQUIDS RESERVES
Proved Developed and Undeveloped
Beginning of year................... 238 1 239 230 1 231
Revisions of previous estimates..... (5) -- (5) 7 -- 7
Purchases of reserves*.............. -- -- -- -- -- --
Extensions and discoveries.......... 19 -- 19 28 -- 28
Sales of reserves................... (1) -- (1) (1) -- (1)
Production.......................... (28) -- (28) (26) -- (26)
------ ---- ----- ----- --- -----
End of year......................... 223 1 224 238 1 239
====== ==== ===== ===== === =====
Net changes for year................ (15) -- (15) 8 -- 8
Proved Developed
Beginning of year................... 163 1 164 166 1 167
End of year......................... 161 1 162 163 1 164
NATURAL GAS RESERVES**
Proved Developed and Undeveloped
Beginning of year................... 5,382 267 5,649 5,546 265 5,811
Revisions of previous estimates..... 212 10 222 (76) 24 (52)
Improved recovery................... 6 -- 6 -- -- --
Purchases of reserves*.............. 144 -- 144 7 -- 7
Extensions and discoveries.......... 594 -- 594 731 -- 731
Sales of reserves................... (420) -- (420) (182) -- (182)
Production.......................... (658) (30) (688) (644) (22) (666)
------ ---- ----- ----- --- -----
End of year......................... 5,260 247 5,507 5,382 267 5,649
====== ==== ===== ===== === =====
Net changes for year................ (122) (20) (142) (164) 2 (162)
Shell Oil's interest in proved
reserves of equity companies at
end of year....................... -- 362 362 -- 414 414
Proved Developed
Beginning of year................... 3,464 267 3,731 3,646 265 3,911
End of year......................... 3,272 247 3,519 3,464 267 3,731
1994
LIQUIDS (MILLIONS OF BARRELS) -------------------------
NATURAL GAS (BILLIONS OF CUBIC FEET) U.S. INT'L TOTAL
------------------------------------ ---- ----- -----
OIL RESERVES
Proved Developed and Undeveloped
Beginning of year................... 1,956 127 2,083
Revisions of previous estimates..... (97) 4 (93)
Improved recovery................... 7 -- 7
Purchases of reserves*.............. 5 -- 5
Extensions and discoveries.......... 68 3 71
Sales of reserves................... -- -- --
Production.......................... (129) (16) (145)
----- --- -----
End of year......................... 1,810 118 1,928
===== === =====
Net changes for year................ (146) (9) (155)
Shell Oil's interest in proved
reserves of equity companies at
end of year....................... -- 68 68
Proved Developed
Beginning of year................... 1,252 79 1,331
End of year......................... 1,156 74 1,230
NATURAL GAS LIQUIDS RESERVES
Proved Developed and Undeveloped
Beginning of year................... 247 1 248
Revisions of previous estimates..... (15) -- (15)
Purchases of reserves*.............. 1 -- 1
Extensions and discoveries.......... 19 -- 19
Sales of reserves................... -- -- --
Production.......................... (22) -- (22)
----- --- -----
End of year......................... 230 1 231
===== === =====
Net changes for year................ (17) -- (17)
Proved Developed
Beginning of year................... 170 1 171
End of year......................... 166 1 167
NATURAL GAS RESERVES**
Proved Developed and Undeveloped
Beginning of year................... 4,911 288 5,199
Revisions of previous estimates..... (69) 2 (67)
Improved recovery................... 1 -- 1
Purchases of reserves*.............. 73 -- 73
Extensions and discoveries.......... 1,200 -- 1,200
Sales of reserves................... -- -- --
Production.......................... (570) (25) (595)
----- --- -----
End of year......................... 5,546 265 5,811
===== === =====
Net changes for year................ 635 (23) 612
Shell Oil's interest in proved
reserves of equity companies at
end of year....................... -- 306 306
Proved Developed
Beginning of year................... 3,712 288 4,000
End of year......................... 3,646 265 3,911
(Footnotes on following page)
10
------------
* 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.
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:
[Enlarge/Download Table]
1996 1995 1994
------------------------------ ------------------------------ ------------------------------
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..... $63,131 $3,414 $66,545 $41,076 $2,640 $43,716 $37,250 $2,482 $39,732
Future production and
development costs..... 17,468 917 18,385 16,447 869 17,316 17,609 890 18,499
Future income tax
expenses.............. 14,952 805 15,757 7,051 467 7,518 5,385 411 5,796
------- ------ ------- ------- ------ ------- ------- ------ -------
Future net cash
flows*................ 30,711 1,692 32,403 17,578 1,304 18,882 14,256 1,181 15,437
10 percent annual
discount for estimated
timing of cash
flows................. 12,202 483 12,685 7,125 399 7,524 6,253 387 6,640
------- ------ ------- ------- ------ ------- ------- ------ -------
TOTAL.............. $18,509 $1,209 $19,718 $10,453 $ 905 $11,358 $ 8,003 $ 794 $ 8,797
======= ====== ======= ======= ====== ======= ======= ====== =======
Shell Oil's share of
standardized measure
of discounted future
net cash flows of
equity companies...... $ -- $ 668 $ 668 $ -- $ 652 $ 652 $ -- $ 615 $ 615
======= ====== ======= ======= ====== ======= ======= ====== =======
------------
* 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 1996 were $21.35 and $23.52 per barrel,
respectively, compared to year-end 1995 prices of $15.14 and $18.25 per
barrel, respectively, and year-end 1994 prices of $13.72 and $17.10 per
barrel, respectively.
11
The aggregate change in the standardized measure of discounted future net
cash flows was an increase of $8,360 million in 1996, an increase of $2,561
million in 1995 and an increase of $2,472 million in 1994. The principal sources
of change were as follows:
[Enlarge/Download Table]
1996 1995 1994
-------- -------- --------
(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..................................... $(3,543) $(2,438) $(1,994)
Net changes in prices and costs........................ 11,662 2,530 3,863
Extensions, discoveries, additions and improved
recovery, less related costs......................... 3,006 1,840 1,458
Net purchases and sales of reserves.................... (237) (238) 89
Development costs incurred during the period........... 1,196 1,044 750
Revisions of previous reserve estimates................ 400 (50) (518)
Accretion of discount.................................. 1,582 1,205 810
Net change in income taxes............................. (4,923) (1,209) (1,480)
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.
[Enlarge/Download Table]
1996 1995 1994
-------- -------- --------
(millions of dollars)
REVENUES
Sales and other operating revenue.............. $21,465 $17,375 $15,733
Other revenue.................................. 17 11 14
Intersegment transfers......................... 1,265 969 851
------- ------- -------
TOTAL REVENUES....................... 22,747 18,355 16,598
COSTS AND EXPENSES
Costs and operating expenses................... 21,746 17,212 15,559
Depreciation, depletion, amortization and
retirements.................................. 391 365 341
------- ------- -------
OPERATING PROFIT..................... 610 778 698
Allocated corporate expenses................... 36 34 29
Allocated income taxes......................... 196 232 218
Minority interest.............................. 5 -- --
Equity in net (income) loss of others.......... (13) 55 24
------- ------- -------
INCOME FROM ONGOING OPERATIONS....... 386 457 427
Other charges (credits)*....................... 3 (17) 54
------- ------- -------
SEGMENT NET INCOME................... $ 383 $ 474 $ 373
======= ======= =======
CAPITAL EXPENDITURES................................ $ 726 $ 1,065 $ 1,087
======= ======= =======
IDENTIFIABLE ASSETS AT DECEMBER 31.................. $ 9,326 $ 8,763 $ 7,892
======= ======= =======
------------
* Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
12
During 1996, Shell Oil began discussions with Texaco, Inc. and Star
Enterprises (a joint venture of Texaco and Saudi Aramco) regarding a possible
joint arrangement involving U.S. downstream operations. While the companies are
reviewing a range of options, the specific activities under consideration are
refining, marketing, transportation, trading and lubricants.
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 1996, 34 percent of the Company's net crude supply came from
sources outside the United States; approximately 25 percent was purchased from
government oil companies in seven foreign countries and 9 percent was purchased
from other international sources, including companies affiliated with the Royal
Dutch/Shell Group of Companies.
Net sources of crude oil were as follows for the periods indicated:
[Enlarge/Download Table]
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(thousands of barrels daily)
NET SOURCES OF CRUDE OIL
United States.............................. 623 547 561 527 591
International.............................. 320 294 329 339 334
----- ----- ----- ----- -----
TOTAL................................. 943 841 890 866 925
===== ===== ===== ===== =====
Manufacturing
During 1996, Shell Oil 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; Shell Oil operates the refinery on behalf of the
venture. During 1996, Shell Oil restructured its refining operations. The
refineries at Martinez, Wood River, Norco, Odessa and Anacortes each became
separate subsidiaries. The implementation of this new governance structure gives
each refinery greater autonomy, flexibility and accountability.
During 1996, Shell Oil's chemical products business segment acquired a
refinery in Mobile, Alabama. The refinery acquisition was made to assure the
chemical products segment advantaged feedstocks for its olefins operations at
chemical plants at Norco, Louisiana and Deer Park, Texas. Operating statistics
for this refinery are included in the Refinery Processing Intakes and Other
Refinery Statistics tables in this section; however, revenues and costs
attributable to this refinery are reflected in the chemical products business
segment.
Also during 1996, the $1 billion clean fuels upgrading project at the Shell
Martinez Refining Company was completed. This upgrade expanded the refinery's
capacity to manufacture reformulated gasoline, diesel fuel and jet fuel, while
reducing its production of heavy fuel oil. Spending continued for environmental
and waste management programs at all refining locations.
13
Refinery processing intakes of crude oil, natural gas liquids and other raw
materials for the manufacture of petroleum products at Shell Oil's refineries
and certain other refinery statistics were as follows for the periods indicated:
[Enlarge/Download Table]
1996 1995 1994 1993 1992
---- ---- ----- -------- --------
(thousands of barrels daily)
REFINERY PROCESSING INTAKES
Anacortes, Washington............................. 114 105 107 107 103
Deer Park, Texas*................................. 126 101 112 142 225
Martinez, California.............................. 150 165 161 168 165
Mobile, Alabama**................................. 29 -- -- -- --
Norco, Louisiana.................................. 250 236 239 232 202
Odessa, Texas..................................... 24 24 24 26 25
Wood River, Illinois.............................. 278 256 262 243 252
---- ---- ----- ------ ------
TOTAL........................................ 971 887 905 918 972
==== ==== ===== ====== ======
OTHER REFINERY STATISTICS*
Operable capacity of crude oil distillation units
at beginning of year............................ 907*** 856 847 892*** 967
Refinery intakes to crude oil distillation
units........................................... 901 821 850 854 900
Refinery crude oil distillation unit intakes as a
percent of operable capacity at beginning of
year............................................ 99.3% 95.9% 100.4% 95.7% 93.1%
Own net produced crude oil and natural gas liquids
as a percent of intakes to crude oil
distillation units.............................. 56.5% 59.9% 54.0% 54.3% 56.7%
---------------
* Reflects the Company's 50% equity interest in the Deer Park Refinery,
effective April 1, 1993.
** The Mobile plant was purchased in August, 1996.
*** Adjusted to reflect the Company's purchase of the Mobile plant in August,
1996, and the Company's 50% equity interest in the Deer Park Refinery,
effective April 1, 1993.
Transportation
At December 31, 1996, Shell Oil's wholly owned pipeline system consisted of
approximately 5,763 miles of pipelines of various sizes, of which 2,828 miles
were crude oil gathering and trunk lines, 2,788 miles were products lines, 130
miles were natural gas lines and 17 miles were carbon dioxide lines. In
addition, Shell Oil had varying stock, partnership or undivided interests in
pipelines consisting of approximately 3,224 miles of crude lines, 7,421 miles of
products lines and 791 miles of carbon dioxide lines. Shell Oil also owns 12
barges and 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 1996, in the Gulf of Mexico, four new pipelines, designed to transport
crude oil from current and future production were completed, including a 20 mile
line and another smaller line which expanded available capacity from the area of
Shell Oil's Auger field. Additionally in the Gulf, one new natural gas pipeline
began operation, and three more are under development, with two scheduled to
begin operation during 1997 and the third in mid-1998. These pipelines are owned
in most cases with partners.
During 1996, Shell Oil entered into a lease of the U.S. Department of
Energy terminal at St. James, Louisiana. This leased facility will add capacity
to handle and segregate, by quality, increased production of domestic offshore
crude and imports of foreign crude.
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,
14
bulk distributing plants and, at the end of 1996, approximately 8,900 service
stations displaying Shell trademarks. These stations are located in 41 states
and the District of Columbia.
The number of service stations was as follows at the end of the periods
indicated:
[Enlarge/Download Table]
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
SERVICE STATIONS*
Leased or owned.............................. 3,900 3,900 4,000 3,900 3,900
Jobber and other............................. 5,000 4,700 4,600 4,800 4,800
------ ------ ------ ------ ------
TOTAL................................... 8,900 8,600 8,600 8,700 8,700
====== ====== ====== ====== ======
------------
* Rounded to nearest hundred.
Shell Oil's refined product revenues and sales volumes were as follows for
the periods indicated:
[Enlarge/Download Table]
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(millions of dollars)
REFINED PRODUCT REVENUES
Automotive gasoline.................... $ 8,660 $ 7,642 $ 6,818 $ 6,687 $ 6,713
Jet fuel............................... 1,523 1,119 1,160 1,242 1,173
Kerosene, heating and diesel oils...... 1,230 601 462 449 368
Heavy fuel oils........................ 374 454 404 423 469
Propane and other LPG.................. 718 451 398 419 408
Asphalt................................ 309 284 240 230 168
Lubricants, grease, process oils and
wax................................. 604 614 596 551 575
Coke................................... 60 29 20 22 16
All other products..................... 1,119 922 962 763 753
------- ------- ------- ------- -------
TOTAL............................. $14,597 $12,116 $11,060 $10,786 $10,643
======= ======= ======= ======= =======
(thousands of barrels daily)
REFINED PRODUCT SALES VOLUMES
Automotive gasoline.................... 751 750 685 638 596
Jet fuel............................... 154 139 145 143 128
Kerosene, heating and diesel oils...... 124 73 59 54 42
Heavy fuel oils........................ 60 82 87 103 108
Propane and other LPG.................. 114 98 88 89 87
Asphalt................................ 45 42 40 37 35
Lubricants, grease, process oils and
wax................................. 18 19 19 17 18
Coke................................... 25 14 6 6 6
All other products..................... 130 131 143 113 100
------- ------- ------- ------- -------
TOTAL............................. 1,421 1,348 1,272 1,200 1,120
======= ======= ======= ======= =======
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 sales are 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 through joint
ventures with affiliated and other parties. To further improve long-term
profitability, Shell Oil
15
continues to pursue new business ventures and growth opportunities in areas that
complement its strengths in technology and feedstocks. In early 1996, the
Company completed the sale of its polypropylene-related assets.
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.
[Enlarge/Download Table]
1996 1995 1994
------ ------ ------
(millions of dollars)
REVENUES
Sales and other operating revenue.................... $4,305 $4,841 $4,075
Other revenue........................................ 8 15 12
Intersegment transfers............................... 213 152 158
------ ------ ------
TOTAL REVENUES............................. 4,526 5,008 4,245
COSTS AND EXPENSES
Costs and operating expenses......................... 3,958 3,778 3,654
Depreciation, depletion, amortization and
retirements........................................ 271 273 288
------ ------ ------
OPERATING PROFIT........................... 297 957 303
Allocated corporate expenses......................... 23 17 16
Allocated income taxes............................... 78 371 98
Equity in net income of others....................... (57) (135) (34)
------ ------ ------
INCOME FROM ONGOING OPERATIONS............. 253 704 223
Other charges*....................................... 10 10 62
------ ------ ------
SEGMENT NET INCOME......................... $ 243 $ 694 $ 161
====== ====== ======
CAPITAL EXPENDITURES...................................... $ 582 $ 422 $ 343
====== ====== ======
IDENTIFIABLE ASSETS AT DECEMBER 31........................ $5,089 $4,836 $4,520
====== ====== ======
------------
* 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:
[Download Table]
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(millions of dollars)
Primaries (olefins, aromatics)......... $1,411 $1,184 $1,024 $ 869 $ 980
Intermediates and solvents............. 1,505 1,644 1,314 1,211 1,152
Polymers............................... 1,309 1,861 1,550 1,434 1,013
Other.................................. 27 82 78 84 133
------ ------ ------ ------ ------
$4,252 $4,771 $3,966 $3,598 $3,278
====== ====== ====== ====== ======
The Company owns and operates manufacturing facilities located at Mobile,
Alabama; 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 1996, an increase of the ethylene capacity at
the olefins complex at Norco and a modernization of an olefins plant at Deer
Park were completed. Also in 1996, at Pt. Pleasant, a 30 percent expansion in
the capacity of the polyester resins plant was brought onstream and the
manufacturing began of Corterra(TM), a new polymer product designed for use in
staple and continuous filament textile and carpet products. The rebuilding at
the Belpre plant of a Kraton(R) D elastomers unit, destroyed in a 1994 explosion
and fire, was completed. The Company began construction of a 200 million pound
capacity polyester resins plant in Altamira, Mexico; operations at this plant
are expected to begin in mid-1997. During 1996, plans were announced to build
additional phenol capacity at Deer Park with startup expected in 1999.
16
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:
[Enlarge/Download Table]
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
SULFUR (thousands of long tons)
Estimated proved reserves................... 192 183 3,860 4,075 4,304
Production.................................. 15 200 209 228 245
Recovered in refinery operations............ 436 326 251 255 207
CARBON DIOXIDE (billions of cubic feet)
Estimated proved reserves................... 4,252 4,122 4,212 4,250 4,315
Production.................................. 129 112 114 100 109
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 28-30), and Item 3. Legal
Proceedings (pages 18-20).
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.
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.
17
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 1996 amounted to $173 million,
compared with $167 million in 1995 and $170 million in 1994. In 1996, about 66
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 74 percent in 1995 and 73 percent in 1994. 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
Since 1984, the Company has been named with others as a defendant in
numerous product liability cases, including class actions, involving the failure
of residential plumbing systems in the United States constructed with
polybutylene plastic pipe. The Company has also been sued regarding failures in
polybutylene pipe connecting users with utility water lines and polybutylene
pipe used in municipal water distribution systems. The polybutylene pipe was
manufactured primarily by United States Brass Corporation and Vanguard Plastics,
Inc. using polybutylene resin supplied by the Company to fabricate the pipe and
initially, in the case of residential plumbing systems, polyacetal resin
supplied by E.I. DuPont de Nemours and Company (DuPont) and Hoechst Celanese
Corporation (Hoechst Celanese) to fabricate the pipe fittings. The plaintiffs in
the litigation claim property damages and, in some cases, fraud and intentional
misrepresentation seeking punitive damages. The Company's position is, 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
fittings. Polyacetal is no longer used to manufacture insert fittings for these
systems and during 1996, the Company announced it would no longer sell
polybutylene resin for use in the domestic pipe market. The number of new
plumbing claims involving residential plumbing systems and problems with
polybutylene pipe used to connect to residential utility water lines increased
significantly during 1996. The Company, Dupont and Hoechst Celanese have agreed
on a mechanism to fund the payment of most of the residential plumbing claims as
the result of two class action settlements (the "class action settlement"). The
class action 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 claimants who have not received their full benefits under the
class action settlement may seek their remedy in a new court proceeding at that
time. Additionally, a small percentage of defendants have opted out of the class
action settlement and must assert their claims outside such settlement.
Significant issues remain to be resolved as to how costs will be shared among
the defendants. One fittings co-defendant has agreed to fund 10% of all acetal
fitting costs related to the class action settlement; the Company and the other
fittings co-defendant have agreed to arbitrate to determine how the remaining
acetal fittings portion of the costs of the class action settlement will be
shared between them. Additionally, in matters outside the residential plumbing
claims and the class action settlement, claims involving municipal water
distribution systems have continued to increase during the past two years. The
Company will continue to defend these matters vigorously but it cannot currently
predict when or how all polybutylene related matters will finally be resolved.
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 resulted in residual
traces of DBCP present in the groundwater in the area of certain water wells
18
exceeding certain state and federal maximum contamination levels. The claims in
this 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. Almost all of these cases have
now been settled, with defendants accepting certain future obligations. The
Company believes that it has established adequate reserves to fund its future
liabilities in connection with all such cases. Cases involving approximately
25,000 plaintiffs 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. 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. Plaintiffs have appealed this decision. Several cases remain
pending in the United States, involving several thousand 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.
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 several years. 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 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. The Company strongly contests these
allegations. Discovery continues in the litigation.
Numerous lawsuits have been filed and demands made against the Company and
its subsidiaries, as well as other large producers, by federal and state
governmental parties and private parties alleging underpayment of oil and gas
royalty. At the federal level, notices of investigation and in some cases claims
have been received regarding underpayment of oil royalties on production from
federal lands (including offshore leases). Suits have also been filed on behalf
of various state agencies and private parties in Texas, New Mexico and Louisiana
against the Company, subsidiaries of the Company and other oil companies
alleging underpayment of royalties and severance taxes on crude oil production.
Further, purported nation-wide private class actions have been filed in Texas
and Alabama against numerous oil companies, including the Company and
subsidiaries of the Company, alleging a conspiracy to fix posted prices at
unreasonably low levels. At issue in all these claims is whether the crude oil
price on which royalty was calculated and paid was calculated in compliance with
lease terms and regulations. In the case of natural gas production from federal
lands, predominantly offshore leases, federal claims of underpayment of royalty
have been made, alleging that sales prices between affiliated companies was not
the acceptable measure for purposes of royalty determination. Additionally,
litigation has been filed in state court by private landowners, mainly in South
Texas, challenging primarily market valuation assessments and the
appropriateness of certain cost deductions in connection with royalty paid to
those royalty owners. While significant amounts have been alleged to be due in
connection with these claims, numerous factual issues distinguish each claim and
such issues must be individually analyzed in each case. Shell Oil believes that
it can defend successfully that its past royalty payments have been made on a
fair and legally justifiable basis and expects to resolve these issues over
time, as the result of negotiation or successful litigation if necessary.
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
19
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 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. In 1996, the
Company received a further Notice of Violation from the EPA alleging additional
violations. Shell Oil and the EPA are engaging in discussions seeking to resolve
these and other previously reported matters at Wood River.
The Company has received numerous claims concerning potential liabilities
in connection with environmental laws involving past and present operating and
waste disposal locations (as further discussed in the Environmental Matters
section of the Management Discussion and Analysis, page 28). 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.
20
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:
[Enlarge/Download Table]
1996 1995
----------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
----- ------ ----- ------ ----- ------ ----- ------
(millions of dollars)
Cash dividends.............. $350 $350 $400 $400 $350 $350 $350 $350
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data is presented below for the periods indicated.
[Enlarge/Download Table]
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(millions of dollars)
STATEMENT OF INCOME DATA
Revenues.............................. $29,151 $24,650 $21,581 $21,092 $21,702
Costs and expenses.................... 27,130 23,130 21,073 20,311 21,257
------- ------- ------- ------- -------
Income from operations................ 2,021 1,520 508 781 445
Cumulative effect of accounting
changes............................. -- -- -- -- (635)
------- ------- ------- ------- -------
Net income............................ $ 2,021 $ 1,520 $ 508 $ 781 $ (190)
======= ======= ======= ======= =======
BALANCE SHEET DATA
Total assets.......................... $28,709 $27,021 $26,379 $26,851 $26,970
Gross investment*..................... 42,779 41,150 40,045 39,822 39,971
Total debt............................ 3,212 3,251 2,995 3,014 3,703
Deferred income tax liability......... 3,229 2,841 3,137 3,754 3,541
Shareholder's equity.................. 14,374 13,853 13,733 14,624 14,608
STATEMENT OF CASH FLOWS
Cash provided by operating
activities.......................... $ 4,124 $ 3,473 $ 3,014 $ 3,172 $ 2,446
Capital expenditures.................. 3,414 2,957 2,451 1,981 2,239
Cash dividends........................ 1,500 1,400 1,400 763 750
------------
* 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 1996 was a record $2,021 million, compared with net income
of $1,520 million in 1995 and $508 million in 1994.
-- Adjusted net income, which excludes special items, was a record $1,860
million in 1996, compared with $1,408 million in 1995 and $1,118 million in
1994.
-- Cash flows from operating activities in 1996 were $4,124 million,
compared with $3,473 million in 1995 and $3,014 million in 1994.
-- Revenues in 1996 were $29.2 billion, up from $24.6 billion in 1995 and
$21.6 billion in 1994.
21
-- Shareholder's equity was $14.4 billion at the end of 1996, up from $13.9
billion in 1995 and $13.7 billion in 1994.
-- Net income as a percent of net investment was 10.5 percent in 1996,
compared with 8.0 percent in 1995 and 2.8 percent in 1994.
-- Total debt at the end of 1996 was $3,212 million compared with $3,251
million in 1995 and $2,995 million at year-end 1994. At that level, it
represented 18.3 percent of total capital, compared with 19.0 percent at
year-end 1995 and 17.9 percent at the end of 1994.
OIL AND GAS EXPLORATION AND PRODUCTION
[Download Table]
INCOME HIGHLIGHTS 1996 1995 1994
----------------- ------ ---- -----
(millions of dollars)
Income from Ongoing Operations............................. $1,351 $622 $ 259
Other Charges*............................................. (2) (1) (2)
------ ---- -----
Segment Net Income......................................... 1,349 621 257
Special Items (includes "Other Charges")................... 37 51 (200)
------ ---- -----
Adjusted Net Income........................................ $1,312 $570 $ 457
====== ==== =====
---------------
* 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
$1,351 million in 1996, compared with $622 million in 1995 and $259 million in
1994. 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 1996 was $1,349 million, compared with $621 million
in 1995 and $257 million in 1994. Adjusted net income, which excludes special
items, was $1,312 million in 1996, an increase of $742 million over 1995 and
$855 million over 1994.
For 1996, results improved over 1995 primarily due to higher average crude
oil and natural gas prices. These benefits, coupled with increased production of
both crude oil and natural gas, more than offset higher producing and
exploratory expenses, including dry holes. Domestic crude oil prices in 1996
averaged $18.40 per barrel, up $3.38 over 1995 and $4.99 over 1994. The average
selling price of net domestic marketable natural gas produced in 1996 was $2.34
per thousand cubic feet, up 69 cents over 1995 and 44 cents over 1994.
Special items increased segment net income by $37 million in 1996 and $51
million in 1995, but decreased net income by $200 million in 1994. Special items
in 1996 included gains totaling $48 million related to the sale of oil and gas
properties, and $45 million from prior-year tax adjustments. Partially
offsetting these benefits were $30 million in charges against litigation and
royalty reserves, and a $24 million asset write-off. 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.
Cash provided by operating activities was $2,493 million in 1996, compared
with $1,923 million in 1995, and $1,546 million in 1994.
22
Crude Oil Production -- Domestic net crude oil production, on a barrels per
day basis, averaged 376,000 in 1996, 371,000 in 1995 and 355,000 in 1994.
Increased production in the Gulf of Mexico, particularly in the deepwater Gulf,
and in California more than offset normal declines elsewhere.
International net production, on a barrels per day basis, averaged 58,000
in 1996, up 7,000 over 1995 and 15,000 over 1994. Increased production in 1996
over 1995 was primarily attributable to new production in China.
Gas Production -- Average net natural gas production of 1,880 million cubic
feet per day in 1996 increased over both 1995 and 1994 by 3 percent and 15
percent, respectively. The increase in 1996 was due in part to new and increased
production in the Gulf of Mexico, and also to higher production in Brazil.
Natural Gas Liquids -- Net natural gas liquids production, on a barrels per
day basis, was 75,000 in 1996, up 5,000 over 1995 and 14,000 over 1994. The 1996
average price of $15.97 was $3.97 higher than 1995 and $4.03 higher than 1994.
Costs and Expenses -- Production costs in 1996 totaled $1,198 million, up
$74 million over 1995 and $59 million over 1994, primarily due to increased
costs associated with higher production and higher energy costs. Exploration
expenses of $327 million in 1996, including dry hole costs of $142 million,
increased $81 million over 1995, but declined $16 million from 1994. Dry hole
costs in 1994 were high due primarily to write-offs related to Alaska and other
exploratory wells. Exclusive of dry holes, 1996 exploration costs increased $35
million over 1995 and $48 million over 1994, reflecting a more aggressive
spending program in the Gulf of Mexico.
Depreciation, depletion and amortization costs were $1,375 million in 1996,
down $158 million from 1995, and $230 million from 1994. 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 from 1994 and the
impact from the adoption of Statement of Financial Accounting Standards No. 121
from 1995, depreciation, depletion and amortization costs were higher in 1996
due primarily to increased production.
Property sales resulted in gains totaling $48 million in 1996 and $51
million in 1995, and minimal gains in 1994.
New Developments -- In early 1997 Shell Oil completed the merger of its
producing assets in the Permian Basin of West Texas/Southeast New Mexico with
those of Amoco Corporation. This new limited partnership, Altura Energy, Ltd.,
is owned approximately 36 percent by Shell Oil and approximately 64 percent by
Amoco. The aim of this new venture is to create an entrepreneurial environment
that will support the quest for cost leadership in the basin. Also, negotiations
are currently underway with Mobil Corporation regarding the possible combination
of Mobil's California exploration and production operations with those of Shell
Oil; the new venture, if finalized, is expected to be owned 60 percent by Shell
Oil and 40 percent by Mobil. The proposed joint venture would offer
opportunities to reduce costs and leverage complementary skills and
competencies.
Progress continued in 1996 with new development in the deepwater Gulf of
Mexico. Production began at Mars, establishing a world water-depth record of
2,940 feet for a permanent drilling and production platform. Also in 1996,
production initiated from Phase II of Tahoe, originally a one-well subsea
development, as well as from Southeast Tahoe, a new discovery. Development of
the Ram/Powell and Mensa projects continued on schedule for 1997 startup, the
Troika project was announced with startup of production scheduled in late 1997
and the Ursa project remained on schedule for 1999 startup. Based upon
encouraging results from existing operations, existing and planned developments,
and expected new opportunities, and assuming no reductions in existing
production except due to normal declines in producing fields, Shell Oil's
anticipated average annual production growth rate through 2001 is about 15
percent for both oil and gas.
Capital Expenditures -- Capital spending for Oil and Gas Exploration and
Production was $2,053 million in 1996, compared with $1,395 million in 1995 and
$952 million in 1994. The substantial increase in 1996 over both 1995 and 1994
was due to higher spending for production drilling and development in the Gulf
of Mexico
23
and for gas pipeline facilities to accommodate deepwater production. 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 1996, reserve additions, mainly from
discoveries, extensions, improved recovery techniques and revisions to previous
reserve estimates, were 396 million barrels on a crude oil equivalent basis.
These additions were more than offset by producing property sales of 91 million
equivalent barrels, and by production during the year. In 1995 and 1994,
reserves also declined.
Net wells drilled in 1996 totaled 517, up 220 over 1995 and 273 over 1994.
OIL PRODUCTS
[Download Table]
INCOME HIGHLIGHTS 1996 1995 1994
----------------- ---- ---- ----
(millions of
dollars)
Income from Ongoing Operations.............................. $386 $457 $427
Other Charges*.............................................. (3) 17 (54)
---- ---- ----
Segment Net Income.......................................... 383 474 373
Special Items (includes "Other Charges").................... (9) 177 (24)
---- ---- ----
Adjusted Net Income......................................... $392 $297 $397
==== ==== ====
---------------
* 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 1996 was $386 million,
compared with $457 million in 1995 and $427 million in 1994. Segment net income
in 1996 was $383 million, compared with $474 million in 1995 and $373 million in
1994.
Adjusted net income, which excludes special items, was $392 million in
1996, an increase of $95 million over 1995, but $5 million lower than 1994.
Results were higher in 1996 compared to 1995 due to slightly improved refined
product margins which were weak industry-wide in 1995. In 1996, margins improved
during the first half of the year but weakened in the later months as West Coast
retail marketing conditions deteriorated and crude costs increased. Fixed
operating costs increased in 1996 primarily in marketing, while sales of branded
automotive gasoline improved about 1 percent.
Special items in 1996 reduced segment net income by $9 million due to $20
million in charges against property damage and litigation reserves, offset in
part by a $10 million gain on a property sale. 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.
Cash flow provided by operating activities was $762 million in 1996, down
$368 million from 1995 and $191 million from 1994. Capital expenditures in 1996
of $726 million declined $339 million from 1995 and were $361 million lower than
1994. Spending in 1995 and 1994 was mainly for the coker and "clean fuels"
project at the Martinez, California refinery, completed in 1996, and the
refinery upgrade, including the installation of a coker, at the jointly-owned
Deer Park, Texas refinery in 1994.
Refined Product Sales Volumes -- Total 1996 refined product sales volumes
were 1,421,000 barrels per day, up from 1,348,000 in 1995 and 1,272,000 in 1994.
Automotive gasoline sales volumes in 1996 increased marginally over 1995, but
were up 10 percent over 1994. Volumes sold through branded service stations in
1996 were up about 1 percent over 1995 and 3 percent over 1994.
24
Jet fuel sales increased compared with 1995 and 1994, up 11 percent and 6
percent, respectively. Other light products, including kerosene, heating and
diesel oil sales increased 70 percent over 1995 and 110 percent over 1994,
reflecting in part the benefits derived from the new coking units at both
Martinez and Deer Park. Conversely, residuals sales volumes were down 27 percent
from 1995 and 31 percent from 1994.
Overall, lubricants sales volumes in 1996 declined from both 1995 and 1994.
Refined Product Prices -- Average refined product selling prices increased
8 cents per gallon in 1996 over 1995 and were up 10 cents per gallon over 1994.
Prices increased in 1996 in all product categories due to rising hydrocarbon
costs. Average automotive gasoline selling prices increased 9 cents per gallon
over 1995 and 10 cents per gallon over 1994.
New Developments -- During 1996, Shell Oil began discussions with Texaco,
Inc. and Star Enterprises (a joint venture of Texaco and Saudi Aramco) regarding
a possible joint arrangement involving U.S. downstream operations. While the
companies are reviewing a range of options, the specific activities under
consideration are refining, marketing, transportation, trading and lubricants.
CHEMICAL PRODUCTS
[Download Table]
INCOME HIGHLIGHTS 1996 1995 1994
----------------- ----- ---- -----
(millions of dollars)
Income from Ongoing Operations.............................. $ 253 $704 $ 223
Other Charges*.............................................. (10) (10) (62)
----- ---- -----
Segment Net Income.......................................... 243 694 161
Special Items (includes "Other Charges").................... (108) (31) (265)
----- ---- -----
Adjusted Net Income......................................... $ 351 $725 $ 426
===== ==== =====
---------------
* 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 1996 was $253 million,
compared with a record $704 million in 1995 and $223 million in 1994. Segment
net income in 1996 was $243 million, compared with $694 million in 1995 and $161
million in 1994.
Adjusted net income, which excludes special items, was $351 million in
1996, a decrease of $374 million from 1995 and $75 million from 1994.
The substantial decline in adjusted net income in 1996 from 1995 was
primarily attributable to lower margins across most product lines, partially
offset by increased sales volumes of primary chemicals. Income performance in
all three years was burdened with significant costs for litigation.
Special items reduced segment net income $108 million in 1996, $31 million
in 1995, and $265 million in 1994. In 1996, such charges against income totaled
$167 million, including additional provisions for product liability and an asset
write-off. Partially offsetting these charges were favorable insurance
recoveries and prior-period tax adjustments. In 1995, special items reduced
income by $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.
Cash provided by operating activities in 1996 was $729 million, compared
with $952 million in 1995 and $559 million in 1994.
Results at Sadaf, our 50 percent owned Saudi Arabian petrochemical venture,
declined in 1996 over 1995, but improved slightly above 1994. Lower Sadaf
earnings in 1996 were due to depressed margins. Partially offsetting this
decline were increased sales volumes, as favorable market conditions held in the
Far
25
East and Europe resulting in increased demand. During 1996, the joint venture
began commissioning facilities for the manufacture of MTBE and expanded
facilities for the manufacture of ethylene dichloride and caustic soda.
Total chemical sales volumes in 1996 improved 11 percent over 1995 and 18
percent over 1994, reflecting higher sales of primary chemicals.
Capital spending for Chemical Products was $582 million in 1996, compared
with $422 million in 1995 and $343 million in 1994. Capital projects active in
1996 included spending for the replacement of the Kraton unit located at Belpre,
Ohio, additional capital outlays toward the modernization of an olefins unit at
Deer Park, the purchase of the Mobile, Alabama site to improve olefins
feedstocks, and increased spending for a propylene pipeline.
OTHER SEGMENT
[Download Table]
INCOME HIGHLIGHTS 1996 1995 1994
----------------- ---- ---- -----
(millions of dollars)
Segment Net Loss............................................ $(29) $(78) $(235)
Special Items............................................... (4) (74) (208)
---- ---- -----
Adjusted Net Loss........................................... $(25) $ (4) $ (27)
==== ==== =====
The Other operating segment incurred a net loss of $29 million in 1996,
compared with net losses of $78 million in 1995 and $235 million in 1994. In
1996, the loss was mainly due to settlement costs associated with an exited
business and losses incurred on real estate properties held for sale. 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 a $15 million charge
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.
NONALLOCATED CORPORATE COSTS
[Download Table]
INCOME HIGHLIGHTS 1996 1995 1994
----------------- ----- ----- -----
(millions of dollars)
Nonallocated Costs......................................... $ 75 $(191) $ (48)
Special Items.............................................. 245 (11) 87
----- ----- -----
Adjusted Nonallocated Costs................................ $(170) $(180) $(135)
===== ===== =====
Corporate items not allocated to the operating segments benefited net
income $75 million in 1996, while reducing net income $191 million for the year
1995 and $48 million in 1994.
Special items in 1996 included gains from insurance recoveries and the
benefit from prior-year tax adjustments. 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. Excluding these effects, corporate costs, primarily
related to financing, decreased in 1996 compared to 1995 due primarily to lower
interest expense, but increased over 1994 when average debt levels were lower.
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 1996, cash provided by operating activities totaled $4,124 million, up $651
million over 1995, and exceeded cash used for investing activities in 1996 by
$1,354 million. Similarly, cash provided by operating activities in 1995 totaled
$3,473 million and exceeded
26
cash used for investing activities by $790 million. In 1994, cash provided by
operating activities totaled $3,014 million and exceeded investing activities by
$751 million. Total debt in 1996 declined $39 million to $3,212 million, with
the debt-to-total-capital ratio decreasing to 18.3 percent. In addition, cash
dividends increased to $1,500 million in 1996, compared with $1,400 million in
1995 and 1994.
Cash Provided by Operating Activities -- In 1996, cash provided by
operating activities amounted to $4,124 million, compared with $3,473 million in
1995 and $3,014 million in 1994. Higher earnings in 1996 accounted for the
improvement over both 1995 and 1994.
Cash Used for Investing Activities -- The major use of cash flows from
operating activities was for capital expenditures, which amounted to $3,414
million in 1996, $2,957 million in 1995, and $2,451 million in 1994. Proceeds
from property sales in 1996 totaled $743 million and in 1995 totaled $202
million. The increase in net cash used for investing activities in 1996 over
1995 and 1994 was due to higher capital expenditures.
Debt Obligations -- At year-end 1996, Shell Oil had decreased its total
debt by $39 million, compared with an increase of $256 million in 1995 and a
decrease of $19 million in 1994. Shell Oil's ratio of total debt-
to-total-capital was 18.3 percent at the end of 1996, compared with 19.0 percent
at the end of 1995 and 17.9 percent at the end of 1994.
Capital Spending -- Shell Oil's capital spending of $3,414 million in 1996
was virtually the same as planned at the beginning of the year. In 1996,
exploration and production activities accounted for 61 percent of total capital
expenditures, compared with 47 percent in 1995 and 39 percent in 1994. These
outlays were primarily in the United States. Oil and Chemical Products accounted
for 38 percent of total spending in 1996, compared with 50 percent in 1995 and
58 percent in 1994. The reduction in 1996 was due mainly to the completion of
major refinery upgrades. Overall, Shell Oil's capital expenditures increased in
1996 compared to 1995 due to a higher level of spending in the deepwater Gulf of
Mexico.
Capital and exploratory expenditures of $3.8 billion are planned for 1997.
About $2.5 billion is allocated for exploration and production activities, an
increase of $100 million above the 1996 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
1997, reflecting increased spending for new and upgraded service stations as
compared to recent years. Chemical Products expenditures are expected to be
about $500 million, down slightly from 1996 levels. Chemical plans include the
expansion of phenol capacity and the polyester resins business.
Dividends -- Cash dividends were $1,500 million in 1996, increasing $100
million over both 1995 and 1994.
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 $393 million at year-end 1996, a decrease of $28 million
from 1995 and $224 million from 1994.
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, 1996, 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 1996, $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, 1996 and 1995, the
notional principal amounts of interest rate swaps outstanding were $2.1 billion
and $2.3 billion, respectively, with maturities extending into the year 2017.
The fair value of the swaps
27
used to convert these fixed rate debt and other obligations to floating rates
was $6 million at December 31, 1996, $67 million at the end of 1995, and a
negative $174 million at the end of 1994.
Working capital at the end of 1996 increased $53 million over a year
earlier due primarily to higher receivables offset in part by increased
payables. 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 $978
million at the end of 1996, $672 million in 1995 and $1,011 million in 1994.
ENVIRONMENTAL MATTERS
Shell Oil continues to make substantial capital and operating expenditures
relating to the environment. Included within such expenditures are costs of
compliance with federal, state and local laws, regulations and permit
requirements concerning reduction of releases into air and water, disposal and
handling of wastes, and corrective action and other cleanup obligations under
law and by contract at operating locations, at previously owned or operated
properties and 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 does not currently expect that
the costs of taking corrective action over time 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. In 1996, Shell Oil confirmed its ability to pay $188
million ($162 million Oil Products, $18 million Chemical Products) 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 $55 million of this exposure
applies to actual closure costs ($44 million Oil Products, $11 million Chemical
Products); approximately $125 million ($118 million related to Oil Products, $7
million to Chemical Products) relates to post-closure obligations which extend
up to 30 years after closure. It is reasonable to anticipate that all facilities
will not incur such closure and post-closure costs at the same time. While the
ultimate closure and post-closure costs as required by RCRA cannot be precisely
estimated at this time, 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 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 228 sites. Approximately 132 of these sites are
alleged to involve Oil Products operations, 66 Chemical Products operations and
30 E&P operations. In a number of instances more than one business is alleged to
be involved. As of December 1996, discussions or activities concerning 71 of
these sites were active involving Shell Oil, other potentially responsible
parties and relevant agencies or claimants; at a number of these sites, matters
remain in the early investigation stages. Ninety-four sites were considered
inactive, meaning that no discussions or activity were pending or had occurred
for more than one year and 63 sites were considered settled. In 1995 Shell Oil
reported 220 such sites, 88 of which were active, 81 inactive and 51 settled.
28
In 1996, recorded expenses under CERCLA or similar state statutes relating
to the 228 sites were approximately $12 million; additionally, approximately $33
million was charged to previously established reserves, primarily for sites
related to prior Chemical Products operations. At the Rocky Mountain Arsenal,
where Shell Oil is a party to a consent decree concerning required cleanup at
that site, Shell Oil has accrued $500 million for its share of the costs of such
cleanup. As of December 31, 1996 the balance remaining in such reserve was $213
million, which the Company believes will be adequate to meet its share of the
obligations in connection with such site. In 1995 recorded expenses were $3
million; additionally, there were charges to reserves of $45 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 the Consolidated Financial Statements. 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. 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 (PRPs)
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,
basis 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 1996 were about $155 million ($108 million Oil Products, $19 million Chemical
Products and $28 million Exploration & Production), about $155 million below
1995, due mainly to completion of expenditures to comply with clean fuel
requirements, primarily in California. In 1995, total expenditures were $310
million (Oil Products $250 million; Chemical Products $25 million and
Exploration & Production $35 million.) Environmental capital expenditures are
expected to be about $120 million in 1997 and about $100 million per year over
the last two years of the decade, 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 $25 million from last
year. More cost effective regulations than originally expected are envisioned.
Redesign efforts are also contributing to these reduced projections. 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.
Shell Oil's operating, maintenance and administrative costs related to
environmental protection and remediation of waste disposal sites were
approximately $740 million in 1996, including $567 million for Oil Products,
$110 million for Chemical Products, and $63 million for Exploration and
Production. Total 1995 costs were $850 million; (Oil Products $600 million;
Chemical Products $160 million and Exploration & Production $90 million.) These
costs do not include amounts expended or reserved for restoration and
abandonment of oil and gas properties. Expenses in 1996 were lower than 1995,
primarily due to reduced tax assessments under federal environmental laws,
operating efficiencies, application of improved cost/risk analysis information,
cleanup strategies, and more efficient remediation techniques.
During the next several years, total environmental expenditures for both
capital and operating, maintenance and administrative costs are expected to
average about $900 million per year, as Shell Oil complies with
29
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, 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
30
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.
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a. CERTAIN DOCUMENTS FILED AS PART OF THIS REPORT
[Download Table]
PAGE
----
Report of Independent Accountants........................... 33
Consolidated Statement of Income and Earnings Reinvested for
the years 1996, 1995 and 1994............................. 34
Consolidated Balance Sheet at December 31, 1996 and 1995.... 35
Consolidated Statement of Cash Flows for the years 1996,
1995 and 1994............................................. 36
Notes to Consolidated Financial Statements.................. 37
b. REPORTS ON FORM 8-K
None.
c. EXHIBITS*
3. (i) Copy of Restated Articles of Incorporation of the Registrant
effective December 8, 1986.
(ii) Copy of By-Laws of the Registrant, as amended through December 8,
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 18, 1996 between the
Company and Shell Internationale Research Maatschappij, B.V.
continuing for the calendar year 1997 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.
32
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 32 present fairly, in all material respects,
the financial position of Shell Oil Company and its subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, 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, 1997
33
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND EARNINGS REINVESTED
(Millions of dollars)
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31
---------------------------------
1996 1995 1994
------- ------- -------
REVENUES
Sales and other operating revenue.................... $32,450 $27,668 $24,789
Less: Consumer excise and sales taxes................ 3,627 3,370 3,163
------- ------- -------
28,823 24,298 21,626
Equity earnings, interest and other income........... 328 352 (45)
------- ------- -------
Total........................................... 29,151 24,650 21,581
------- ------- -------
COSTS AND EXPENSES
Purchased raw materials and products................. 18,355 14,225 12,447
Operating expenses................................... 3,773 3,826 4,247
Selling, general and administrative expenses......... 1,012 1,203 1,148
Exploration, including exploratory dry holes......... 319 238 335
Research expenses.................................... 136 124 127
Depreciation, depletion, amortization and
retirements........................................ 2,066 2,303 2,334
Interest and discount amortization................... 203 216 154
Operating taxes...................................... 452 483 482
------- ------- -------
Total........................................... 26,316 22,618 21,274
------- ------- -------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST.......... $ 2,835 $ 2,032 $ 307
Federal and other income taxes....................... 763 468 (221)
Minority Interest in income of subsidiaries.......... 51 44 20
------- ------- -------
NET INCOME................................................ $ 2,021 $ 1,520 $ 508
======= ======= =======
EARNINGS REINVESTED
Balance at beginning of year......................... $11,647 $11,527 $12,419
Net Income........................................... 2,021 1,520 508
Dividends -- Cash.................................... (1,500) (1,400) (1,400)
------- ------- -------
Balance at end of year............................. $12,168 $11,647 $11,527
======= ======= =======
The accompanying notes are an integral part of these statements.
34
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of dollars, except per share amounts)
[Download Table]
AS OF DECEMBER 31
---------------------
1996 1995
-------- --------
ASSETS
Current Assets
Cash and cash equivalents......................... $ 393 $ 421
Receivables and prepayments, less allowance for
doubtful accounts................................ 4,076 3,254
Owing by related parties.......................... 300 161
Inventories of oils and chemicals................. 631 567
Inventories of materials and supplies............. 219 234
------- -------
Total Current Assets......................... 5,619 4,637
Investments, Long-Term Receivables and Deferred
Charges............................................... 3,098 2,912
Property, Plant and Equipment at cost, less accumulated
depreciation, depletion and amortization.............. 19,992 19,472
------- -------
Total........................................ $28,709 $27,021
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable -- trade......................... $ 2,568 $ 2,094
Other payables and accruals....................... 1,505 1,139
Income, operating and consumer taxes.............. 416 808
Owing to related parties.......................... 86 73
Short-term debt................................... 2,418 1,950
------- -------
Total Current Liabilities.................... 6,993 6,064
Long-Term Debt......................................... 794 1,301
Deferred Income Taxes.................................. 3,229 2,841
Long-Term Liabilities.................................. 2,458 2,213
Minority Interest...................................... 861 749
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............................... 12,168 11,647
------- -------
Total Shareholder's Equity................... 14,374 13,853
------- -------
Total........................................ $28,709 $27,021
======= =======
The accompanying notes are an integral part of these statements.
35
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31
----------------------------------
1996 1995 1994
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................... $ 2,021 $ 1,520 $ 508
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, amortization and
retirements................................. 2,066 2,303 2,334
Dividends in excess of (less than) equity
income...................................... (115) (51) 235
(Increases) decreases in working capital:
Receivables and prepayments.............. (845) (441) (428)
Inventories.............................. (49) (8) 121
Payables and accruals.................... 461 403 544
Deferred income taxes......................... 388 (296) (617)
Minority interest in income of subsidiaries... 51 44 20
Other non-current items....................... 146 (1) 297
------- ------- -------
Net Cash Provided by Operating
Activities............................. 4,124 3,473 3,014
------- ------- -------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Capital expenditures............................... (3,414) (2,957) (2,451)
Proceeds from property sales and salvage........... 743 202 77
Other investments and advances..................... (99) 72 111
------- ------- -------
Net Cash Used for Investing Activities... (2,770) (2,683) (2,263)
------- ------- -------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Proceeds from issuance of long-term debt........... 387 135 119
Principal payments on long-term debt............... (293) (276) (578)
Proceeds from sales of redeemable securities
of subsidiaries.................................. 111 190 139
Contributed capital................................ -- -- 1
Dividends.......................................... (1,500) (1,400) (1,400)
Dividends to minority interests.................... (50) (37) (26)
Increase (decrease) in short-term obligations...... (37) 402 315
------- ------- -------
Net Cash Used for Financing Activities... (1,382) (986) (1,430)
------- ------- -------
NET CASH FLOWS
Decrease in Cash and Cash Equivalents.............. $ (28) $ (196) $ (679)
======= ======= =======
CASH AND CASH EQUIVALENTS
Balance at beginning of year....................... $ 421 $ 617 $ 1,296
Decrease in cash and cash equivalents.............. (28) (196) (679)
------- ------- -------
Balance at end of year................... $ 393 $ 421 $ 617
======= ======= =======
The accompanying notes are an integral part of these statements.
36
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 1995 and 1994 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
37
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. 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.
Total 1995 charges resulting from adoption of the Standard increased
depreciation, depletion and amortization expenses by $223 million, and selling,
general and administrative expenses by $23 million. The affected assets were
primarily oil and gas producing properties.
During 1996, certain oil and gas producing properties were reclassified as
"assets to be disposed of" and, under the provisions of SFAS No. 121, were
written down to their estimated net realizable value resulting in a $38 million
charge to depreciation, depletion and amortization expenses.
3. INTEREST
Interest costs were as follows:
[Enlarge/Download Table]
1996 1995 1994
-------- -------- --------
(millions of dollars)
Interest incurred........................................ $203 $216 $154
Interest paid............................................ 207 228 161
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
gain of $3 million in 1996, a loss of $2 million in 1995, and a gain of $8
million in 1994.
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:
[Enlarge/Download Table]
1996 1995 1994
-------- -------- --------
(millions of dollars)
Sales and other operating revenue.................... $2,216 $1,003 $ 832
Purchases and transportation......................... 1,260 752 806
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.
38
The Company is also a partner in 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 1995, Shell Oil and Tejas Gas Corporation formed a jointly owned gas
marketing enterprise, Coral Energy, L.P. (Coral). The partnership markets
substantially all of Shell Oil's natural gas production. Shell Oil accounts for
its investment in the partnership using the equity method. Shell Oil's sales to
Coral in 1996 and 1995 included in the table above were $1,346 million and $175
million, respectively. Shell Oil's purchases from Coral in 1996 and 1995
included in the table above were $622 million and $83 million, respectively.
Also in 1995, Shell Oil purchased $150 million of debt instruments issued
by Deer Park Refining Limited Partnership, an equity investee of the Company.
Shell Oil supplements its short-term financing with borrowings at market
rates and terms from a company affiliated with the Royal Dutch/Shell Group. At
December 31, 1996 the total amount borrowed was $800 million. This amount is
included in the Commercial notes amount shown in Note 8 of the Notes to
Consolidated Financial Statements.
6. INVENTORIES OF OILS AND CHEMICALS
Inventories are carried predominantly on a LIFO basis which was lower than
current cost by $978 million at December 31, 1996, $672 million at December 31,
1995, and $1,011 million at December 31, 1994. Partial liquidations of
inventories valued on a LIFO basis improved 1996, 1995 and 1994 net income by
$11 million, $167 million and $29 million, respectively.
7. RECEIVABLES AND PREPAYMENTS
Receivables, prepayments and allowances for doubtful accounts as of
December 31, 1996 and 1995 consisted of the following:
[Enlarge/Download Table]
1996 1995
-------- --------
(millions of dollars)
Trade receivables........................................... $2,677 $2,334
Other receivables........................................... 1,049 611
Prepayments................................................. 368 328
------ ------
4,094 3,273
Less: Allowance for Doubtful Accounts
Balance beginning of year.............................. 19 23
Provision......................................... 15 15
Net write-offs.................................... (16) (19)
------ ------
Balance end of year.................................... 18 19
------ ------
Total........................................ $4,076 $3,254
====== ======
39
8. SHORT-TERM DEBT
Debt due within one year from December 31 consisted of the following:
[Download Table]
1996 1995
------- -------
(millions of dollars)
Commercial notes............................................ $1,202 $1,218
Bank loans.................................................. 30 50
Industrial Revenue Bonds.................................... 713 382
------ ------
1,945 1,650
Current maturities of long-term debt........................ 473 300
------ ------
Total........................................ $2,418 $1,950
====== ======
The weighted average interest rate on short-term debt outstanding was 5.42
percent at December 31, 1996 and 5.73 percent at December 31, 1995.
9. LONG-TERM DEBT
Debt due after one year from December 31 consisted of the following:
[Download Table]
1996 1995
------- -------
(millions of dollars)
Shell Oil Company:
7 1/4% Debentures Due 2002................................ $ -- $ 4
7.70% Notes Due 1996...................................... -- 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
Production Payment.......................................... 194 198
Industrial Revenue Bonds.................................... 6 16
Other....................................................... 67 123
------ ------
1,267 1,601
Less: Amounts due within one year.......................... 473 300
------ ------
Total........................................ $ 794 $1,301
====== ======
Shell Oil had $500 million of unused revolving credit agreements in place
as of December 31, 1996, 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 amounts of long-term debt maturities during each of the next five years
are $473 million, $266 million, $262 million, $9 million and $7 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, 1996, $141 million of such defeased debt remained outstanding.
40
10. FINANCIAL INSTRUMENTS
Derivative Financial Instruments
Shell Oil uses interest rate swaps to minimize its borrowing costs, and
derivative commodity instruments to reduce price volatility risks on
commodities -- primarily crude oil, natural gas and refined products, as further
discussed below. At December 31, 1996, the notional principal amounts of
interest rate swaps outstanding were $2,103 million, all of which were
classified as for "purposes other than trading" under the provisions of
Statement of Financial Accounting Standards No. 119. At December 31, 1996, Shell
Oil held commodity derivatives positions having notional amounts of $697
million. Of that amount, $614 million was classified as for "purposes other than
trading."
Interest Rate Swaps. 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.
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 1996, the net effect of these transactions was
that the Company paid 5.38% and received 5.74% 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 5.36% and received 6.34%
effective rates of interest. The combined effect of these transactions,
accounted for as described above, was a net pretax decrease in interest expense
of $11.4 million and $0.6 million in 1996 and 1995, respectively. As shown in
the Fair Value of Financial Instruments table on page 43, the fair value of
these interest rate swaps was $6 million and $67 million at year-end 1996 and
1995, respectively. These values were derived from quotes from the
counterparties and from a third-party of prices to "buy out" and cancel such
swaps. However, assuming no default or other failure by either party to meet
contractual requirements, 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.
However, the counterparties to these contractual arrangements are major
financial institutions. The Company does not anticipate nonperformance by
counterparties to these contracts and no material loss would be expected from
such nonperformance. 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.
41
[Enlarge/Download Table]
INTEREST RATE SWAPS
----------------------------------------------------------------------------------------------------------------
"NOTIONAL"
PRINCIPAL
(MILLIONS
OF DOLLARS) MATURITY OBLIGATION INTEREST RATE MECHANISM
---------------------- ---------------------- ------------------------------------- -----------------------
6 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
135 2000 Production payment (6.45%)* Commercial paper based
100 2001 Fixed coupon preferred stock Commercial paper based
250 2002 6.7% bonds Commercial paper based
195 2008 Obligation of investee (6.47%)* Commercial paper based
163 2013 Obligation of investee (6.64%)* Commercial paper based
185 2015 Building lease (9.8%)* Commercial paper based
84 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 variances by locking in prices for future
purchases and sales. Shell Oil accounts for such commodity derivatives as
hedges. In 1996 Shell Oil executed on a limited basis commodity transactions
which were not hedges but were entered into as trading transactions. The Company
accounts for such transactions, which are limited to common futures, options and
swaps transactions with no leverage or multiplier features, on a mark-to market
basis, recognizing gains or losses each business period.
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 1996, Shell Oil had a loss of $2 million in connection with its
commodity derivatives. At December 31, 1996, there were open positions covering
13 million barrels of crude oil and refined petroleum products, and 99.2 million
MCF of natural gas. Transactions for all but 3.4 million barrels were classified
as for "purposes other than trading." The average fair value during 1996 of the
positions "held for trading purposes" was $12 million. Positions held for
trading purposes generated a net gain of $0.3 million for the year.
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.
42
Fair Value of Financial Instruments
At December 31, 1996 and 1995, the estimated fair values, determined
primarily by market quotes, of Shell Oil's financial instruments were as
follows:
[Enlarge/Download Table]
1996 1995
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
(millions of dollars)
Investments............................... $448 $448 $ 394 $ 410
Long-term debt............................ 794 803 1,301 1,330
Interest rate swaps....................... -- 6 -- 67
Commodity futures/swaps................... -- 212 4 (8)
As indicated in the table, the fair value of outstanding commodity
derivatives at December 31, 1996 was $212 million representing primarily the
value of natural gas swaps. Such amount will be essentially offset in 1997 as
the Company acquires natural gas to fulfill supply obligations.
The reported amounts of financial instruments such as cash equivalents,
marketable securities, accounts and notes receivable/payable 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:
[Enlarge/Download Table]
1996 1995 1994
-------- -------- --------
(millions of dollars)
OPERATING TAXES
Real and personal property............................ $166 $ 177 $ 170
Sales and use......................................... 105 138 144
Oil and gas production................................ 65 52 53
Payroll............................................... 75 81 77
Franchise............................................. 33 29 31
Import and export duties.............................. 2 2 3
Other................................................. 6 4 4
---- ----- -----
TOTAL....................................... $452 $ 483 $ 482
==== ===== =====
FEDERAL AND OTHER INCOME TAXES
Current
U.S. federal..................................... $295 $ 667 $ 327
Foreign.......................................... 88 76 34
State and local.................................. 51 35 35
---- ----- -----
434 778 396
Deferred
U.S. federal..................................... 316 (332) (622)
State and other.................................. 13 22 5
---- ----- -----
329 (310) (617)
---- ----- -----
TOTAL....................................... $763 $ 468 $(221)
==== ===== =====
43
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, 1996 and 1995 are as follows:
[Download Table]
1996 1995
-------- --------
(millions of dollars)
Deferred tax liabilities:
Items associated with capitalized costs and
write-offs........................................... $3,830 $3,431
Other.................................................. 404 424
------ ------
Total deferred tax liabilities.................... $4,234 $3,855
====== ======
Deferred tax assets:
Other postretirement obligations....................... $ 323 $ 328
Environmental and other reserves....................... 393 391
Loss carryforwards..................................... 140 123
Other.................................................. 454 315
------ ------
Total deferred tax assets......................... $1,310 $1,157
Valuation allowance......................................... 88 --
------ ------
Net deferred tax assets..................................... $1,222 $1,157
------ ------
Net deferred tax liabilities................................ $3,012 $2,698
------ ------
Receivables and prepayments included $217 million and $143 million of net
current deferred tax assets as of December 31, 1996 and 1995, respectively.
Total income taxes paid in the years 1996, 1995 and 1994 were $579 million,
$648 million and $264 million, respectively. Total income tax expense for the
years 1996, 1995 and 1994 was equivalent to effective tax rates of 26.9, 23.0,
and (72.0) percent, respectively, on earnings before income taxes and minority
interest of $2,835 million, $2,032 million and $307 million, respectively.
Reconciliation to the expected tax at the U.S. statutory rate (35 percent) is as
follows:
[Enlarge/Download Table]
1996 1995 1994
-------- -------- --------
(millions of dollars)
Expected tax at U.S. statutory rate....................... $ 992 $ 711 $ 107
State and foreign tax..................................... 21 47 34
Prior year adjustment..................................... (151) (57) (282)
Tax credits............................................... (96) (65) (66)
Benefit of tax losses..................................... -- (150) (8)
Other..................................................... (3) (18) (6)
----- ----- -----
TOTAL...................................... $ 763 $ 468 $(221)
===== ===== =====
Shell Oil has tax loss carryforwards of $401 million expiring as follows:
1997 ($3 million); 1998 ($7 million); 1999 ($316 million); 2000 ($4 million);
2008 ($20 million); and 2011 ($51 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, 1996 and
1995 were nil and $4 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; Shell
Exploration and Production Holdings, B.V.*, a Dutch holding company with oil and
gas producing operations in the Danish
44
North Sea; Deer Park Refining Limited Partnership, a domestic refining
operation; Coral Energy, L.P., a domestic gas marketing company; and investments
in several pipelines.
Aggregate investment in these affiliates at December 31, 1996, 1995 and
1994 was $1,402 million, $1,162 million and $1,131 million, respectively;
dividends received on these investments in 1996, 1995 and 1994 were $78 million,
$111 million and $91 million, respectively. Undistributed earnings of these
equity affiliates included in Shell Oils retained earnings were $132 million at
December 31, 1996.
Summarized financial information for these investments and Shell Oil's
equity share thereof is as follow:
[Enlarge/Download Table]
1996 1995 1994
------------------- ------------------- -------------------
EQUITY EQUITY EQUITY
TOTAL SHARE TOTAL SHARE TOTAL SHARE
-------- -------- -------- -------- -------- --------
(millions of dollars)
COMPANIES ACCOUNTED FOR ON AN
EQUITY BASIS
Current assets.................... $1,272 $ 647 $1,043 $ 508 $ 772 $ 267
Noncurrent assets................. 6,256 2,948 5,402 2,520 5,649 2,243
Current liabilities............... 1,259 641 1,265 608 1,136 486
Noncurrent liabilities............ 3,439 1,593 3,064 1,399 2,594 1,068
Deferred income taxes............. 438 160 252 84 241 60
Revenues.......................... 5,304 2,885 3,452 1,281 3,469 1,075
Net income........................ 452 212 595 171 402 119**
------------
* At December 31, 1996, the unamortized excess of Shell Oil's investment in
this Dutch affiliate over its equity in the underlying net assets of the
affiliate approximated $206 million.
** Does not include a loss of $232 million on the 1994 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:
[Enlarge/Download Table]
INVESTMENT
-------------------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------------- --------------------------------
COST RESERVE* NET COST RESERVE* NET
-------- -------- -------- -------- -------- --------
(millions of dollars)
PROPERTY, PLANT AND EQUIPMENT
Exploration and Production
Oil and gas............... $24,576 $14,171 $10,405 $23,893 $13,623 $10,270
Other energy.............. 93 9 84 145 89 56
Oil and Chemical
manufacturing
facilities................ 11,019 4,936 6,083 10,430 4,597 5,833
Marketing facilities........ 3,255 819 2,436 3,082 749 2,333
Transportation facilities... 1,194 586 608 1,176 587 589
Other....................... 918 542 376 939 548 391
------- ------- ------- ------- ------- -------
TOTAL............. $41,055 $21,063 $19,992 $39,665 $20,193 $19,472
======= ======= ======= ======= ======= =======
------------
* 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
45
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 $40 million in 1996, $41 million in 1995 and $47
million in 1994.
The assumed annual health care cost trend rate used in measuring the
accumulated postretirement benefit obligation (APBO) was 8.5% in 1996, 7.5% in
1997, 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 $103 million and the
aggregate of the 1996 service cost and interest cost components of expense by
$11 million. The APBO as of December 31, 1996 and 1995 was based on discount
rates of 7.5% and 7%, 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:
[Download Table]
1996 1995
-------- --------
(millions of dollars)
Service cost for benefits earned............................ $ 18 $ 9
Interest cost on the APBO................................... 54 63
Net amortization and deferral............................... (29) (60)
---- ----
TOTAL................................................ $ 43 $ 12
==== ====
The postretirement benefits plan status at December 31 was as follows:
[Download Table]
1996 1995
-------- --------
(millions of dollars)
Accumulated postretirement benefit obligation
Retirees.................................................. $437 $575
Fully eligible active plan participants................... 53 42
Other active plan participants............................ 286 333
---- ----
TOTAL................................................ $776 $950
Unrecognized gain from past experience different from that
assumed and from changes in assumptions................... 175 4
Prior service gain not yet recognized in net periodic
postretirement benefit cost............................... 17 13
---- ----
ACCRUED POSTRETIREMENT BENEFIT COST.................. $968 $967
==== ====
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 1996 and 1995 due to the full-funding limitation of the
applicable tax law.
46
The plan's funded status at December 31 was as follows:
[Enlarge/Download Table]
1996 1995
------- -------
(millions of dollars)
Actuarial present value:
Accumulated benefit obligation including vested benefits
of $3,748 and $3,820 for 1996 and 1995, respectively... $4,079 $4,153
------ ------
Projected benefit obligation.............................. $4,648 $4,786
Plan assets at fair value, primarily common stocks and fixed
income investments........................................ 5,278 4,792
------ ------
Plan assets in excess of projected benefit obligation....... $ 630 $ 6
Remaining unrecognized net asset existing at date of initial
application of SFAS No. 87................................ (30) (42)
Unrecognized net (gain)/loss from past experience different
from that assumed and effects of changes in assumptions... (159) 483
Prior service cost not yet recognized in net periodic
pension
cost...................................................... 171 190
------ ------
NET PREPAID PENSION EXPENSE....................... $ 612 $ 637
====== ======
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 $253 million and $259 million at
December 31, 1996 and 1995, respectively. The projected benefit obligation for
these plans totaled $284 million and $302 million at December 31, 1996 and 1995,
respectively. Of the 1996 projected benefit obligation amount, $165 million will
be expensed in the future and $119 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, 1996 and 1995 was
$155 million and $93 million, respectively.
The components of net pension expense for the Shell Pension Plan, Benefit
Restoration Plan and Senior Staff Plan were:
[Download Table]
1996 1995 1994
----- ----- -----
(millions of dollars)
Service cost -- benefits earned during the period.......... $ 114 $ 79 $ 104
Interest cost on projected benefit obligation.............. 345 336 315
Actual return on plan assets*.............................. (783) (912) 25
Net amortization and deferral*............................. 389 515 (435)
----- ----- -----
NET PENSION EXPENSE................................. $ 65 $ 18 $ 9
===== ===== =====
------------
* Estimated long-term rates of return on plan assets of 9.5 percent in 1996 and
1995, and 10 percent in 1994 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, 1996 and
1995 was based on discount rates of 7.5 percent and 7 percent, respectively, and
an average long-term rate of compensation growth of 5 percent for 1996 and 1995.
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.
47
Total costs of these plans were as follows:
[Download Table]
1996 1995 1994
----- ----- -----
(millions of dollars)
Pension plans............................................... $ 65 $ 18 $ 9
Provident Fund.............................................. 100 101 95
---- ---- ----
TOTAL................................................ $165 $119 $104
==== ==== ====
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 federal, state and private 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.
Since 1984, the Company has been named with others as a defendant in
numerous product liability cases, including class actions, involving the failure
of residential plumbing systems in the United States constructed with
polybutylene plastic pipe. The Company has also been sued regarding failures in
polybutylene pipe connecting users with utility water lines and polybutylene
pipe used in municipal water distribution systems. The plaintiffs in the
litigation claim property damages and in some cases fraud and intentional
misrepresentation seeking punitive damages. 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 many of the residential
plumbing systems (the fittings' co-defendants) 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 fittings. Shell and the fittings co-defendants
have agreed on a mechanism to fund the payment of most of the residential
plumbing claims as the result of two class action settlements (the "class action
settlement"); a small percentage of opt-outs must assert their claims outside
the class. The class action 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 claimants who have not received their full benefits under
the class action settlements may seek their remedy in a new court proceeding at
that time. One fittings co-defendant has agreed to fund 10% of all acetal
fittings costs related to the class action settlement; the Company and the other
fittings co-defendant have agreed to arbitration to determine how the remaining
acetyl fittings portion of the costs will be shared between them. Additionally,
in matters outside the residential plumbing litigation and class action
settlement, claims involving problems with polybutylene pipe used in municipal
water distribution systems have increased during the past two years. The Company
will continue to defend these matters vigorously 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. 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 several years. 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. Cases
have been filed against the Company, other substantial manufacturers and
suppliers of DBCP and banana growers alleging that the plaintiffs suffer
fertility problems
48
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'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
costs in excess of provisions related to one or more of these proceedings, 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.
17. COMMITMENTS
Shell Oil conducts a portion of its operations using leased facilities,
including service stations, barges, tankers and drilling rigs. Future minimum
payments under operating leases with initial or remaining terms of one year or
more consisted of the following at December 31, 1996:
[Download Table]
OPERATING
LEASES
---------
(millions
of
dollars)
1997........................................................ $ 349
1998........................................................ 269
1999........................................................ 219
2000........................................................ 166
2001........................................................ 103
Thereafter.................................................. 707
------
Total minimum lease payments...................... $1,813
======
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:
[Enlarge/Download Table]
1996 1995 1994
-------- -------- --------
(millions of dollars)
Minimum rentals........................................... $345 $381 $369
Contingent rentals
(Generally based on sales volumes)...................... 2 2 2
Less: sublease rentals.................................... (36) (41) (38)
---- ---- ----
Total........................................... $311 $342 $333
==== ==== ====
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, 1996,
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, 1996,
Shell Oil had guaranteed $156 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.
49
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 ventures with companies of
the Royal Dutch/Shell Group of Companies.
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 1996, Shell Oil's own net
produced crude oil and natural gas liquids was equivalent to about 57
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 1996, 34 percent of the Company's net crude
oil supply came from sources outside the United States; approximately 25
percent was purchased from government oil companies in seven foreign
countries and 9 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.
50
Operating segments information for the years 1996, 1995 and 1994 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.
[Enlarge/Download Table]
OIL AND GAS
EXPLORATION AND OIL CHEMICAL
PRODUCTION PRODUCTS PRODUCTS OTHER TOTAL
--------------- -------- -------- ------ --------
(millions of dollars)
1996 SUMMARY STATEMENT OF INCOME
Sales and other operating revenue...... $ 3,010 $21,465 $ 4,305 $ 44 $28,824
Other revenue.......................... 55 17 8 2 82
Intersegment transfers................. 3,123 1,265 213 -- --
------- ------- ------- ------ -------
TOTAL REVENUE................ 6,188 22,747 4,526 46 28,906(1)
Costs and operating expenses........... 2,943 21,746 3,958 61 24,107(1)
Depreciation, amortization, etc........ 1,375 391 271 23 2,060
------- ------- ------- ------ -------
OPERATING PROFIT (LOSS)...... 1,870 610 297 (38) 2,739
Corporate expense--allocated........... 39 36 23 (2) 96
Income tax expense
(benefit)--allocated................. 559 196 78 (9) 824
Minority interest...................... 44 5 -- 2 51
Equity in net (income) loss of
others............................... (123) (13) (57) -- (193)
------- ------- ------- ------ -------
INCOME (LOSS) FROM ONGOING
OPERATIONS................. 1,351 386 253 (29) 1,961
Other charges(4)....................... 2 3 10 -- 15
------- ------- ------- ------ -------
SEGMENT NET INCOME (LOSS).... $ 1,349 $ 383 $ 243 $ (29) $ 1,946
Nonallocated amounts................... $ (75)
-------
NET INCOME................... $ 2,021
=======
1996 CAPITAL EXPENDITURES................... $ 2,053 $ 726 $ 582 $ 49 $ 3,414(2)
IDENTIFIABLE ASSETS DECEMBER 31, 1996....... $12,557 $ 9,326 $ 5,089 $ 226 $28,709(3)
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 (credits)(4)............. 1 (17) 10 -- (6)
------- ------- ------- ------ -------
SEGMENT NET INCOME (LOSS).... $ 621 $ 474 $ 694 $ (78) $ 1,711
-------
Nonallocated amounts................... $ 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)
51
[Enlarge/Download Table]
OIL AND GAS
EXPLORATION AND OIL CHEMICAL
PRODUCTION PRODUCTS PRODUCTS OTHER TOTAL
--------------- -------- -------- ------ --------
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 amounts................... 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)
------------
(1) After elimination of intersegment transfers of $4,601 million in 1996,
$3,780 million in 1995 and $3,266 million in 1994, which are based on
estimated market-related values.
(2) Includes non-segment capital expenditures of $4 million in 1996, $62 million
in 1995, and $61 million in 1994.
(3) Includes non-segment assets of $1,511 million in 1996, $1,192 million in
1995 and $1,341 million in 1994.
(4) Amounts associated with major product classifications for which there has
been no revenue stream or investment in the last 5 years.
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.
[Enlarge/Download Table]
1996 1995 1994
-------- -------- --------
(millions of dollars)
SHELL PIPE LINE CORPORATION
Current assets......................................... $141 $154 $161
Noncurrent assets...................................... 739 524 356
Current liabilities.................................... 140 89 61
Noncurrent liabilities................................. 79 73 70
Revenue................................................ 370 322 281
Operating income....................................... 184 167 128
Net income............................................. 144 130 101
52
20. QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
[Enlarge/Download Table]
1996 1995
----------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
-------- -------- -------- -------- -------- -------- -------- --------
(millions of dollars)
Sales and other operating
revenue.................. $6,306 $7,095 $7,196 $8,226 $5,548 $6,289 $5,975 $6,487
Revenues, less purchased
raw materials and
products, and operating
expenses................. 1,576 1,772 1,750 1,923 1,448 1,665 1,768 1,716
Income before income taxes
and minority interest.... 577 669 797 792 561 626 644 200
Net income................. $ 483 $ 461 $ 504 $ 573 $ 340 $ 385 $ 414 $ 380
53
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 March 7, 1997.
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 March 7, 1997 by the following persons on behalf
of the Registrant in the capacities indicated.
[Enlarge/Download Table]
SIGNATURE TITLE
--------- -----
/s/ PHILIP J. CARROLL President and Director
----------------------------------------------------- (Principal Executive Officer)
(Philip J. Carroll)
/s/ D. GARDY Vice President Finance
----------------------------------------------------- (Principal Financial Officer)
(D. Gardy)
/s/ N. J. CARUSO Controller and General Auditor
----------------------------------------------------- (Principal Accounting Officer)
(N. J. Caruso)
/s/ JOSEPH E. ANTONINI Director
-----------------------------------------------------
(Joseph E. Antonini)
Director
-----------------------------------------------------
(Rand V. Araskog)
(Signatures continued on next page)
54
(Signatures continued from preceding page)
[Download Table]
SIGNATURE TITLE
--------- -----
/s/ ROBERT F. DANIELL Director
-----------------------------------------------------
(Robert F. Daniell)
/s/ C. A. J. HERKSTROTER Director
-----------------------------------------------------
(C. A. J. Herkstroter)
Director
-----------------------------------------------------
(John S. Jennings)
/s/ JACK E. LITTLE Director
-----------------------------------------------------
(Jack E. Little)
/s/ VILMA S. MARTINEZ Director
-----------------------------------------------------
(Vilma S. Martinez)
/s/ HAROLD A. POLING Emeritus Director
-----------------------------------------------------
(Harold A. Poling)
/s/ GORDON R. SULLIVAN Director
-----------------------------------------------------
(Gordon R. Sullivan)
Director
-----------------------------------------------------
(John F. Woodhouse)
55
INDEX TO EXHIBITS
[Download Table]
EXHIBIT
NO. DESCRIPTION PAGE NO.
------- ----------- --------
3 Articles of Incorporation and By-Laws
(i) Copy of Restated Articles of Incorporation of the
Registrant............................................. 57
(ii) Copy of By-Laws of the Registrant, as Amended......... 65
10 Material Contracts:
(i) Letter Agreement between Registrant and Shell
Internationale Research Maatschappij B. V................... 77
(ii) Agreement for Research Services....................... *
21 Subsidiaries of the Registrant.............................. 78
23 Consent of Independent Accountants.......................... 79
24 Powers of Attorney.......................................... 54
27 Financial Data Schedule.....................................
------------
* Incorporated by reference; see Item 14c, page 32.
56
Dates Referenced Herein and Documents Incorporated by Reference
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