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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
( ) TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number 1-2475
SHELL OIL COMPANY
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1299890
(State of Incorporation) (I.R.S. Employer
Identification No.)
One Shell Plaza, Houston, Texas 77002
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (713) 241-6161
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ( X ) No ( )
The number of shares of Common Stock, $10.00 par value, outstanding as of
October 31, 1994 - 1,000 shares.
--------------------
OMISSION OF CERTAIN INFORMATION
In accordance with General Instruction H of Form 10-Q, the registrant is
omitting Part II, Items 2, 3, and 4 because:
(1) Royal Dutch Petroleum Company, a Netherlands company, and the "Shell"
Transport and Trading Company, public limited company, an English company, each
of which is a reporting company under the Securities Exchange Act of 1934 that
has filed all material required to be filed by it pursuant to Section 13, 14,
or 15(d) thereof, own directly or indirectly 60 percent and 40 percent,
respectively, of the shares of the companies of the 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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<PAGE> 2
PART I. FINANCIAL INFORMATION
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Millions of Dollars
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
---------------------- ----------------------
1994 1993 1994 1993
------- ------ -------- -------
<S> <C> <C> <C> <C>
REVENUES
Sales and other operating revenue . . . . . . . $ 6,571 $ 6,001 $18,215 $17,678
Less: Consumer excise and sales taxes . . . . 867 687 2,428 1,960
------- ------- ------- --------
5,704 5,314 15,787 15,718
Equity earnings, interest and other income . . 38 55 (105) 219
------- ------- ------- --------
TOTAL . . . . . . . . . . . . . . . . . . 5,742 5,369 15,682 15,937
------- ------- ------- --------
COSTS AND EXPENSES
Purchases and operating expenses . . . . . . . 4,344 4,311 12,083 12,301
Selling, general and administrative expenses . 234 244 933 657
Exploration, including exploratory dry holes . 45 62 252 233
Research expenses . . . . . . . . . . . . . . . 31 38 89 111
Depreciation, depletion, amortization and
retirements . . . . . . . . . . . . . . . . 476 455 1,692 1,307
Interest and discount amortization . . . . . . 36 50 111 155
Operating taxes . . . . . . . . . . . . . . . . 130 119 378 412
------- ------- ------- --------
TOTAL . . . . . . . . . . . . . . . . . . 5,296 5,279 15,538 15,176
------- ------- ------- --------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . $ 446 $ 90 $ 144 $ 761
Federal and other income taxes . . . . . . . . 133 (97) (153) 133
------- ------- ------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . $ 313 $ 187 $ 297 $ 628
======= ======= ======== ========
</TABLE>
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SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Millions of Dollars
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
------------ -----------
1994 1993
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 475 $ 1,296
Receivables and prepayments, less allowance for
doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . 2,589 2,546
Inventories of oils and chemicals . . . . . . . . . . . . . . . . . 654 686
Inventories of materials and supplies . . . . . . . . . . . . . . . 224 228
------- -------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . 3,942 4,756
INVESTMENTS, LONG-TERM RECEIVABLES AND
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . 2,790 3,015
PROPERTY, PLANT AND EQUIPMENT AT COST, LESS
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF $18,633 AT SEPTEMBER 30, 1994
AND $17,454 AT DECEMBER 31, 1993 . . . . . . . . . . . . . . . . . . 18,964 19,080
------- -------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $25,696 $26,851
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . . $ 1,561 $ 1,689
Other payables and accruals . . . . . . . . . . . . . . . . . . . . 855 882
Income, operating and consumer taxes . . . . . . . . . . . . . . . . 480 596
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 1,252 1,316
------- -------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . 4,148 4,483
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,629 1,698
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 3,466 3,754
LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 2,582 2,292
SHAREHOLDER'S EQUITY
Common stock - 1,000 shares of $10 per share
par value . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Capital in excess of par value . . . . . . . . . . . . . . . . . . . 2,205 2,205
Earnings reinvested . . . . . . . . . . . . . . . . . . . . . . . . 11,666 12,419
------- -------
TOTAL SHAREHOLDER'S EQUITY . . . . . . . . . . . . . . . . . 13,871 14,624
------- -------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,696 $26,851
======= =======
</TABLE>
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SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Millions of Dollars
<TABLE>
<CAPTION>
NINE MONTHS
--------------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 297 $ 628
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, amortization and retirements . . . . . . . . . 1,692 1,307
Dividends in excess of (less than) equity income . . . . . . . . . 225 (23)
(Increases) decreases in working capital:
Receivables and prepayments . . . . . . . . . . . . . . . . . . (43) 222
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 36 49
Current payables and accruals . . . . . . . . . . . . . . . . . (271) (294)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (275) (8)
Other noncurrent items . . . . . . . . . . . . . . . . . . . . . . 212 281
-------- --------
Net Cash Provided by Operating Activities . . . . . . . . . . . 1,873 2,162
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,578) (1,285)
Proceeds from property sales and salvage . . . . . . . . . . . . . . . . . (9) 503
Other investments and advances . . . . . . . . . . . . . . . . . . . . . . 76 54
-------- --------
Net Cash Used for Investing Activities . . . . . . . . . . . . . (1,511) (728)
-------- --------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . 41 21
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . (325) (279)
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,050) (563)
Increase (decrease) in short-term obligations . . . . . . . . . . . . . . 151 (171)
-------- --------
Net Cash Provided by Financing Activities . . . . . . . . . . . (1,183) (992)
-------- --------
NET CASH FLOWS
Increase (Decrease) in Cash and cash equivalents . . . . . . . . . . . . . $ (821) $ 442
======== ========
CASH AND CASH EQUIVALENTS
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . $ 1,296 $ 734
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . (821) 442
-------- --------
Balance at end of period . . . . . . . . . . . . . . . . . . . . $ 475 $ 1,176
======== ========
</TABLE>
4
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OPERATING SEGMENTS INFORMATION
Millions of dollars
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
---------------------- ---------------------
1994 1993** 1994 1993**
------- -------- ------- --------
<S> <C> <C> <C> <C>
Oil and Gas Exploration and Production
Income from Ongoing Operations . . . . . . . . $ 138 $ 112 $ 254 $ 363
Other Charges* . . . . . . . . . . . . . . . . (1) - (1) -
------- -------- -------- --------
Segment Net Income . . . . . . . . . . . . . 137 112 253 363
Oil Products
Income from Ongoing Operations . . . . . . . . 119 77 321 252
Other Charges* . . . . . . . . . . . . . . . . - - (15) (4)
------- -------- -------- --------
Segment Net Income . . . . . . . . . . . . . 119 77 306 248
Chemical Products
Income from Ongoing Operations . . . . . . . . 114 46 43 167
Other Charges* . . . . . . . . . . . . . . . . (3) (169) (14) (182)
------- -------- -------- --------
Segment Net Income/(Loss) . . . . . . . . . 111 (123) 29 (15)
Other . . . . . . . . . . . . . . . . . . . . . . (10) (5) (176) (16)
Corporate Items . . . . . . . . . . . . . . . . . . (44) 126 (115) 48
------- -------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . $ 313 $ 187 $ 297 $ 628
======= ======== ======== ========
</TABLE>
- ---------------
* Amounts associated with major product classifications for which there has
been no revenue stream or investment in the last 5 years.
** Segment net income for the third quarter and nine months of 1993 has been
restated. Certain 1993 environmental and litigation provisions previously
reported in the Corporate/Other segment have been allocated to the operating
segments as "Other Charges."
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SHELL OIL COMPANY AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
A. INTERIM FINANCIAL STATEMENT MATTERS
The unaudited financial statements and summarized notes of Shell Oil
Company (the Company) and its consolidated subsidiaries (Shell Oil) included in
this report do not include complete financial information and should be read in
conjunction with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements filed with the Securities and Exchange
Commission in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993. The financial information presented in the financial
statements included in this report reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of results for the
interim periods presented. Any such adjustments are of a normal recurring
nature, except as may otherwise be described in Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The results for the third quarter and nine months of 1994 should not
be construed as necessarily indicative of future financial results.
B. 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.
<TABLE>
<CAPTION>
September 30 December 31
------------ -----------
Millions of dollars 1994 1993
------------ -----------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . $ 161 $ 115
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . 331 299
Current Liabilities . . . . . . . . . . . . . . . . . . . . . 61 58
Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . 73 71
</TABLE>
<TABLE>
<CAPTION>
Third Quarter Nine Months
----------------- ------------------
Millions of dollars 1994 1993* 1994 1993*
---- ----- ---- -----
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $ 72 $ 64 $ 203 $191
Operating income . . . . . . . . . . . . . . . 35 31 93 89
Net income . . . . . . . . . . . . . . . . . . 28 21 73 66
</TABLE>
* Certain balances have been restated to conform with Shell Oil's consolidated
financial reporting.
C. 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, private claims, and product liability
actions. In addition, federal, state and local income, property and excise tax
returns are being examined and certain interpretations by Shell Oil of complex
tax statutes, regulations and practices are being challenged.
Shell Oil has received allegations or claims under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) or similar
statutes that it is involved at 206 sites, including the Rocky Mountain Arsenal
(RMA) and the McColl site as discussed below. As of September 30,
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1994, discussions or activities were ongoing concerning 113 of these sites, in
some cases in the early stages. During 1993, expenses recorded under CERCLA and
such state statutes relating to the 206 sites were approximately $250 million;
additional 1994 expenses as of September 30 were approximately $37 million.
Shell Oil also has certain obligations under the Resource Conservation and
Recovery Act (RCRA) and similar state laws regarding corrective action at
manufacturing locations and provides assurances regarding its financial ability
to meet certain closure and post-closure obligations that will arise in the
future at such locations under such laws.
The United States and the Company have entered into a consent decree
to settle environmental claims at the RMA whereby the Company would pay 50
percent of amounts expended for remedial costs and natural resource damages up
to $500 million; 35 percent of expenditures between $500 million and $700
million; and 20 percent of expenditures in excess of $700 million. Based on its
proposed remediation alternative, the Company has accrued $500 million for its
share of related costs including the provision of $215 million in 1993 and $105
million in 1992. The Company's share of expenditures through September 30, 1994
was approximately $235 million. A final remediation plan is not expected before
1995.
In 1983 the Company was named as one of several potentially
responsible parties for the costs of cleanup of the McColl site which was used
for the disposal of refining waste from 1942 to 1946. The Environmental
Protection Agency (EPA) and the State of California sued the Company and others
in February 1991. In April 1991 the Company and others filed a counterclaim for
contribution naming the United States Department of Defense and others, since
the waste disposal at the McColl site arose primarily from the production of
fuel for the United States military during World War II. In June 1993 the EPA
selected Soft Material Solidification as the remedy, with a contingency for
RCRA equivalent closure. The EPA states that the cost of its remedy is expected
to be $79 million but could go as high as $120 million. In September 1993 the
court ruled the Company and other defendants liable for the costs of
remediation but has yet to rule on the counterclaim for contribution.
In December 1993 a Los Angeles Superior Court jury, in two
consolidated lawsuits against the Company and its subsidiary, returned a
verdict for the plaintiffs in the amount of $46.9 million compensatory damages
and $173 million punitive damages. Both cases involve the condition of the
Dominguez oil field. Plaintiffs alleged they were defrauded, that the oil and
gas lease was breached, and that soil contamination on the property constitutes
a continuing trespass. Final resolution through the appeals' process could take
two or more 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. In California, the claims involved alleged contamination of water wells
based on recent revisions to governmental standards. The claims in the
litigation seek the cost of cleanup and future monitoring of such water wells.
The Company is a co-defendant in these cases with other substantial
manufacturers and suppliers of the same chemical. In Texas, ten cases,
including three alleged class actions, were filed in 1993 against the Company,
other substantial manufacturers and suppliers of DBCP and various banana
growers. These actions allege that the plaintiffs suffer fertility problems
arising from exposure to DBCP while working on banana plantations outside the
United States. 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.
Since 1984 the Company has been named as a defendant in numerous
product liability cases, including class actions, involving the failure of
plumbing systems in the U.S. constructed with polybutylene plastic pipe. The
Company manufactured the resin used to make the pipe in these systems. Two
other substantial manufacturers made the resins for the polyacetal fittings
used in these systems and are also defendants in these cases, as are the
fabricators and installers of the systems. The plaintiffs in the litigation
claim actual and punitive damages arising primarily from leaking residential
plumbing
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systems. The Company's position and most of the judgments to date have
confirmed that most of the leaks have occurred due to failure of the polyacetal
fitting system, which is no longer used. Almost all the current claims outside
of litigation are handled through a joint venture established by the Company
and two other co-defendants. The joint venture makes arrangements for the
repair of leaking polybutylene pipe systems, the costs of which are allocated
on a variable basis depending on the component part manufacturer and the
producer of the polyacetal resin used.
The Company is attempting to establish insurance coverage at the RMA
through 1969 and for the McColl site and other environmental claims.
Declaratory judgment actions have also been filed to confirm insurance covering
polybutylene through 1985 and insurance covering Nemagon(R) claims.
The Company's assessment of these matters is continuing. Future
provisions may be required as administrative and judicial proceedings progress
and the scope and nature of remediation programs and related costs estimates
are clarified. However, while periodic results may be significantly affected by
these matters, based upon developments to date, the management of the Company
anticipates that the Company will be able to meet related obligations without
material adverse effect on its financial position.
________________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Shell Oil Company reported net income of $313 million in the third
quarter of 1994, an increase of $126 million, or 67 percent, over the $187
million reported in the same 1993 period. Reported net income in the third
quarter of 1994 was the highest in any quarter since the Company began major
initiatives to improve results in early 1991. With special items excluded, net
income was the highest for a third quarter since 1985. The main factors in the
improvement over the third quarter of 1993 were increased sales volumes of
refined products and chemicals, and lower costs throughout the company. In
addition, the third quarter benefited from increases in domestic oil and gas
production, attributable mainly to the greater-than-expected production from
the Company's Auger field in the deep-water Gulf of Mexico.
Special items reduced net income $10 million in the third quarter of
1994. Adjusted for special items, net income improved $80 million, or 33
percent over 1993.
For the first nine months of 1994, reported net income was $297
million compared with $628 million in 1993. Special items reduced net income
$501 million in the 1994 nine months period and $18 million in 1993. Excluding
special items from both periods, adjusted net income for the nine months of
1994 was $798 million, compared with $646 million in 1993, an improvement of
$152 million, or about 24 percent. Significantly lower operating costs and
increased sales volumes of refined products and chemicals were again the
primary contributors to this improvement.
Cash flows from operating activities totaled $943 million in the third
quarter of 1994 compared with $1,513 million in the same period last year, and
$1,873 million in the 1994 nine months compared with $2,162 million in 1993.
Cash flows in the third quarter of 1993 benefited significantly from
nonrecurring cash items, including a tax refund and lower working capital
requirements.
Shell Oil now expects total capital and exploratory expenditures for
all of 1994 to amount to $2.9 billion, down about $200 million from our
announced plans.
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<PAGE> 9
OIL AND GAS EXPLORATION AND PRODUCTION
Oil and gas exploration and production income from ongoing operations
in the third quarter of 1994 was $138 million, an increase of $26 million over
1993. For the nine months of 1994, income from ongoing operations was $254
million, down $109 million. 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.
Oil and gas exploration and production segment net income in the third quarter
of 1994 was $137 million, an increase of $25 million over 1993. For the nine
months of 1994, segment net income was $253 million, down $110 million.
Excluding special items, segment net income improved $50 million in the 1994
quarter versus 1993, but was $3 million lower in the nine-month comparison.
Production from Auger contributed significantly to both volume and
financial improvements realized in the third quarter 1994. Another factor
influencing income in the 1994 quarter was lower exploration costs. While
average crude oil prices were higher in the 1994 quarter versus 1993, these
benefits were offset by lower natural gas prices.
For the nine months of 1994, income benefited from continued progress
in reducing producing and exploration costs, offsetting the negative effects
from lower domestic crude oil prices averaging about $1.58 per barrel less than
in 1993.
OIL PRODUCTS
Oil products income from ongoing operations was $119 million in the
third quarter of 1994 and $321 million in the nine months of 1994, increasing
$42 million and $69 million, respectively, over comparable 1993 income. 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. Oil products segment net
income was $119 million in the third quarter of 1994 and $306 million in the
nine months of 1994, increasing $42 million and $58 million, respectively, over
comparable 1993 periods. Excluding special items, segment net income was $9
million higher in the 1994 quarter compared with 1993, and $72 million higher
in the nine months of 1994.
Increased refined products sales volumes, primarily automotive
gasoline, were the key element contributing to the improved quarter income in
1994. Refined products margins averaged less in the 1994 quarter due primarily
to higher hydrocarbon costs. Nine-month 1994 income improved over 1993 due to
lower operating costs and increased sales volumes, more than offsetting the
effects from lower refined products margins throughout 1994.
CHEMICAL PRODUCTS
Chemical products income from ongoing operations was $114 million in
the third quarter of 1994 and $43 million in the nine months, compared with $46
million and $167 million, respectively, in 1993. Income from ongoing operations
excludes charges to segment net income which are associated with major product
classifications for which there has been no revenue stream or investment for
the past five years. Chemical products segment net income was $111 million in
the third quarter of 1994 and $29 million in the nine months of 1994, compared
to net losses of $123 million and $15 million in the comparable 1993 periods.
Excluding special items, segment net income increased $33 million for the
quarter compared with 1993, and $84 million for the nine months of 1994.
Income in both 1994 periods was significantly improved due to higher
sales volumes. Sales volumes increased across most product lines, while to a
lesser degree, margins improved in commodity chemicals.
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<PAGE> 10
OTHER
Other operations incurred losses of $10 million and $176 million for
the third quarter and nine months of 1994, compared with losses of $5 million
and $16 million in the 1993 periods, respectively. A special item, reflecting
the write-down of a residual coal investment to approximate published estimates
of market value, was the major factor in the nine month comparison.
CORPORATE ITEMS
Charges totaling $44 million in the third quarter of 1994 and $115
million for the nine months of 1994 were higher by $170 million and $163
million compared to the respective 1993 periods. Both 1993 periods benefited
from a favorable prior year tax adjustment. Additionally, the company ceased
allocating certain corporate expenses to operating segments in 1994. As a
result, corporate expenses for the nine months of 1994 were higher by $19
million. Interest expense in both 1994 periods was lower than in 1993.
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
Cash flow provided by operating activities totaled $1,873 million for
the nine months of 1994, compared with $2,162 million last year, a decrease of
$289 million. Cash flow in 1993 benefited significantly from nonrecurring cash
items, including a tax refund and lower working capital requirements. The
major uses of cash generated from operating activities coupled with a
reduction in cash balances of $821 million, were for capital expenditures of
$1,578 million and dividend payments of $1,050 million.
OTHER MATTERS
In addition to the economic conditions and other matters discussed
above affecting Shell Oil, the operations, earnings and financial condition of
Shell Oil may be affected by political developments; litigation; and
legislation, regulation and other actions taken by federal, state, local and
international governmental entities, including those matters discussed in Note
C of the Notes to Interim Financial Statements.
_________________________
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As discussed in the Company's 1993 Annual Report on Form 10-K and the
Company's Report on Form 10-Q for the second quarter of 1994, the Company has
been named as a defendant in numerous actions involving the failure of plumbing
systems made with polybutylene pipe. During the third quarter of 1994, the
action filed by the Company in federal court in Illinois seeking a declaratory
judgment that the Company had insurance covering polybutylene claims through
mid-1985 was dismissed on procedural grounds. The Company is currently
evaluating whether to appeal such dismissal or seek coverage in another
jurisdiction. Additionally, on October 24, 1994 a hearing was held in Beeman
v. Shell Oil Company et al., the proposed nationwide class action pending in
Texas state court. The plaintiffs and defendants in Beeman announced they had
reached an overall settlement, but the allocations among the parties had not
been decided. The settlement, if approved, would commit the three participating
defendants (the Company, Hoechst Celanese and DuPont) to spend at least $750
million to handle claims; if the $750 million was expended, the defendants
could then continue to fund the settlement or withdraw, in which case they
would be subject to suit for claims not resolved as part of the class
settlement. The settlement would not cover ongoing litigation filed prior to
the filing of the class action. Certain plaintiffs' counsel in other
polybutylene cases have opposed the class and the judge has indicated concerns
over the jurisdiction of the court to hear the matter. No final determination
regarding the class settlement is expected until 1995.
As discussed in the Company's 1993 Annual Report on Form 10-K, on
October 5, 1992 the California Public Interest Research Group and two of its
individual members filed a citizen's suit under the Clean Water Act against the
Company in the United States District Court for the Northern District of
California, alleging violations by the Company's Martinez Manufacturing Complex
of its National Pollutant Discharge Elimination System permit due to
exceedances of selenium and cyanide effluent discharge limits. A similar suit
was filed on February 18, 1993 by the Pacific Coast Federation of Fishermen's
Associations. The suits, which were consolidated, seek, among other things,
civil penalties. A tentative settlement has been reached between the plaintiffs
and the Company in this action. The terms of settlement are to be embodied in a
consent decree and judgment and, before becoming final, must be approved by the
court, following appropriate agency review and public notice and opportunity
for comment. The significant terms of the pending settlement are: (a) the
Company will pay the sum of $3,000,000; and (b) the Martinez Complex will seek
to achieve certain selenium mass emission reduction objectives, calculated on a
running annual average basis, over agreed time periods. In the event the
Complex fails to meet an objective for any of the agreed periods, the Company
shall make a per-pound payment of either $650,000 (which amount by agreement
shall not be deductible by the Company in determining taxes), or $650,000
increased by 10% compounded annually (which amount would be deductible by the
Company in determining taxes), in either case calculated pro-rata based on the
amount by which the running annual average selenium discharge exceeds the
applicable objective on the applicable date. The consent decree, and
jurisdiction of the court, shall continue until attainment of a selenium level
of 2.13 pounds per day, running annual average, over a specified time period.
Also as discussed in the Company's 1993 Annual Report on Form 10-K,
in December 1992 the United States EPA, Region V, filed an Administrative
Complaint against the Company pertaining to its Wood River Manufacturing
Complex located in Wood River, Illinois under Section 103 of the Comprehensive
Environmental Response, Compensation and Liability Act and Section 304 of the
Emergency Planning and Community Right to Know Act. The Complaint contained a
proposed penalty of $914,650. In September 1994, the Company and EPA settled
this matter for $431,488.
The Wood River Manufacturing Complex was informed by the Office of the
Attorney General of the State of Illinois of its intention to file a civil
enforcement complaint against the complex, alleging
11
<PAGE> 12
violation of various state environmental statutes and regulations with regard
to certain incidents and conditions occurring at the Complex in 1990-1993.
Following negotiation, the Company and the Attorney General have agreed to
settle these allegations with the Company's payment of $118,000. This
settlement is to be incorporated into a Consent Decree, to be filed
simultaneously with the State's complaint.
During September 1994, two individuals filed separate citizen's suits
under the Endangered Species Act against the Company in the United States
District Court for the Northern District of California alleging the Company's
violation of that Act by virtue of the Martinez Manufacturing Complex's
discharge of excessive amounts of selenium into San Francisco Bay. The
complaints allege that such discharges have deleterious effects on certain
endangered fish and fowl in the area and thus constitute a "taking" of these
species. The actions seek civil penalties, injunctive relief and attorneys'
fees. Plaintiffs in these actions are commercial party-boat fishermen in the
Bay area, both of whom have pending tort actions against the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHELL OIL COMPANY
By /s/ H. E. BLECHL
______________________________
H. E. Blechl, Controller
(Principal Accounting and
Duly Authorized Officer)
Date: October 31, 1994
12
<PAGE> 13
EXHIBIT INDEX
Exhibit
_______
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000089629
<NAME> SHELL OIL COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 475
<SECURITIES> 0
<RECEIVABLES> 1,798
<ALLOWANCES> 25
<INVENTORY> 878
<CURRENT-ASSETS> 3,942
<PP&E> 37,597
<DEPRECIATION> 18,633
<TOTAL-ASSETS> 25,696
<CURRENT-LIABILITIES> 4,148
<BONDS> 1,629
<COMMON> 0
0
0
<OTHER-SE> 13,871
<TOTAL-LIABILITY-AND-EQUITY> 25,696
<SALES> 15,504
<TOTAL-REVENUES> 15,682
<CGS> 12,083
<TOTAL-COSTS> 12,461
<OTHER-EXPENSES> 1,944
<LOSS-PROVISION> 19
<INTEREST-EXPENSE> 111
<INCOME-PRETAX> 144
<INCOME-TAX> (153)
<INCOME-CONTINUING> 297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 297
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
