<PAGE> 1
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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 June 30, 1995
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 June
30, 1995 - 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>
SECOND QUARTER SIX MONTHS
----------------- -----------------
1995 1994 1995 1994
------- ------ -------- -------
<S> <C> <C> <C> <C>
REVENUES
Sales and other operating revenue . . . . . . . $ 7,122 $ 6,129 $ 13,429 $ 11,643
Less: Consumer excise and sales taxes . . . . 833 819 1,592 1,561
-------- ------- -------- --------
6,289 5,310 11,837 10,082
Equity earnings, interest and other income . . 104 (184) 214 (142)
-------- ------- -------- --------
TOTAL . . . . . . . . . . . . . . . . . . 6,393 5,126 12,051 9,940
-------- ------- -------- --------
COSTS AND EXPENSES
Purchases and operating expenses . . . . . . . 4,728 4,108 8,937 7,740
Selling, general and administrative expenses . 277 477 483 698
Exploration, including exploratory dry holes . 68 171 112 207
Research expenses . . . . . . . . . . . . . . . 28 31 57 59
Depreciation, depletion, amortization and
retirements . . . . . . . . . . . . . . . . 502 778 944 1,216
Interest and discount amortization . . . . . . 53 35 104 75
Operating taxes . . . . . . . . . . . . . . . . 124 122 252 248
-------- ------- -------- --------
TOTAL . . . . . . . . . . . . . . . . . . 5,780 5,722 10,889 10,243
-------- ------- -------- --------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . $ 613 $ (596) $ 1,162 $ (303)
Federal and other income taxes . . . . . . . . 228 (402) 437 (287)
-------- ------- -------- --------
NET INCOME(LOSS) . . . . . . . . . . . . . . . . . $ 385 $ (194) $ 725 $ (16)
======== ======= ======== ========
</TABLE>
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SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Millions of Dollars
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
----------- -----------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 729 $ 617
Receivables and prepayments, less allowance for
doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . 2,921 2,974
Inventories of oils and chemicals . . . . . . . . . . . . . . . . . 650 564
Inventories of materials and supplies . . . . . . . . . . . . . . . 241 229
---------- ---------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . 4,541 4,384
INVESTMENTS, LONG-TERM RECEIVABLES AND
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . 2,953 2,911
PROPERTY, PLANT AND EQUIPMENT AT COST, LESS
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF $19,528 AT JUNE 30, 1995
AND $18,826 AT DECEMBER 31, 1994 . . . . . . . . . . . . . . . . . . 19,478 19,084
---------- ---------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,972 $ 26,379
========== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . . $ 1,683 $ 1,953
Other payables and accruals . . . . . . . . . . . . . . . . . . . . 1,021 1,058
Income, operating and consumer taxes . . . . . . . . . . . . . . . . 553 700
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 2,502 1,449
---------- ---------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . 5,759 5,160
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,304 1,546
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 3,185 3,137
LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 2,966 2,803
SHAREHOLDER'S EQUITY
Common stock - 1,000 shares of $10 per share
par value . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Capital in excess of par value . . . . . . . . . . . . . . . . . . . 2,206 2,206
Earnings reinvested . . . . . . . . . . . . . . . . . . . . . . . . 11,552 11,527
---------- ---------
TOTAL SHAREHOLDER'S EQUITY . . . . . . . . . . . . . . . . . 13,758 13,733
---------- ---------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,972 $ 26,379
========== =========
</TABLE>
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SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Millions of Dollars
<TABLE>
<CAPTION>
SIX MONTHS
-------------------------
1995 1994
------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 725 $ (16)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, amortization and retirements . . . . . . . . . 944 1,216
Dividends in excess of (less than) equity income . . . . . . . . . (67) 5
(Increases) decreases in working capital:
Receivables and prepayments . . . . . . . . . . . . . . . . . . 53 (16)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (98) (41)
Current payables and accruals . . . . . . . . . . . . . . . . . (454) (394)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 48 (318)
Other noncurrent items . . . . . . . . . . . . . . . . . . . . . . (40) 494
-------- --------
Net Cash Provided by Operating Activities . . . . . . . . . . . 1,111 930
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,407) (940)
Proceeds from property sales and salvage . . . . . . . . . . . . . . . . . 47 6
Other investments and advances . . . . . . . . . . . . . . . . . . . . . . 53 92
-------- --------
Net Cash Used for Investing Activities . . . . . . . . . . . . . (1,307) (842)
-------- --------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . 97 36
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . (32) (51)
Proceeds from sales of redeemable securities of subsidiaries . . . . . . . 192 --
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (700) (200)
Increase (decrease) in short-term obligations . . . . . . . . . . . . . . 751 50
-------- --------
Net Cash Provided by Financing Activities . . . . . . . . . . . 308 (165)
-------- --------
NET CASH FLOWS
Increase (Decrease) in Cash and cash equivalents . . . . . . . . . . . . . $ 112 $ ( 77)
======== ========
CASH AND CASH EQUIVALENTS
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . $ 617 $ 1,296
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . 112 (77)
-------- --------
Balance at end of period . . . . . . . . . . . . . . . . . . . . $ 729 $ 1,219
======== ========
</TABLE>
_________________________________
OPERATING SEGMENTS INFORMATION
Millions of Dollars
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
----------------- -----------------
1995 1994 1995 1994
------- ------ ------- ------
<S> <C> <C> <C> <C>
SEGMENT NET INCOME (LOSS)
Oil and Gas Exploration and Production . . . . $ 144 $ 44 $ 311 $ 115
Oil Products . . . . . . . . . . . . . . . . . 106 93 119 187
Chemical Products . . . . . . . . . . . . . . . 181 (148) 395 (82)
Other . . . . . . . . . . . . . . . . . . . . . (5) (151) (4) (165)
Corporate Items . . . . . . . . . . . . . . . . . . (41) (32) (96) (71)
-------- -------- -------- -------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ 385 $ (194) $ 725 $ (16)
======== ======== ======== =======
</TABLE>
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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, 1994. 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 second quarter and first six months of 1995 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>
June 30 December 31
----------- -----------
Millions of dollars 1995 1994
----------- -----------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . $ 163 $ 161
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . 422 356
Current Liabilities . . . . . . . . . . . . . . . . . . . . . 65 61
Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . 70 70
</TABLE>
<TABLE>
<CAPTION>
Second Quarter Six Months
----------------- -------------------
Millions of dollars 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $ 80 $ 68 $ 155 $131
Operating income . . . . . . . . . . . . . . . 43 29 82 58
Net income . . . . . . . . . . . . . . . . . . 33 24 63 46
</TABLE>
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
state statutes that it is involved at 216 sites, including the Rocky Mountain
Arsenal (RMA) and the McColl site as discussed below. As of June 30, 1995,
discussions or activities were ongoing concerning 107 of these sites, in some
cases in the early
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stages. During 1994, expenses recorded (including reserves) under CERCLA and
such state statutes were approximately $135 million; 1995 expenses as of June
30, 1995 were approximately $5 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 where the Company engaged in chemical
manufacturing operations from 1952 to 1982. Pursuant to such consent decree,
the Company will 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. On June 13, 1995 the United States, the State of Colorado, and the
Company reached agreement on a Conceptual Remedy for the cleanup of the RMA.
The Conceptual Remedy is subject to public review and comment and other formal
proceedings under CERCLA before it can be established in the official Record of
Decision (ROD) as the remediation plan. It is anticipated that the ROD for the
RMA will be published in late 1995 or early 1996. The Conceptual Remedy is
estimated to cost approximately $2 billion (including sums already incurred by
the U.S. Army and the Company). The Company has accrued $500 million for its
share of related costs. The Company's share of expenditures through June 30,
1995 was approximately $255 million. The Company believes that its existing
accruals will be adequate to cover its anticipated costs under the Conceptual
Remedy.
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. 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 July of 1995, the EPA
indicated that it had selected RCRA equivalent closure as the remedy for the
cleanup at McColl. The Company is working with other PRP's at the site and the
EPA to finalize the necessary plans to conclude the cleanup of the site. The
Company believes that it has fully accrued for its obligations in connection
with this site.
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 involve alleged contamination of water wells
based on revisions to governmental standards. The claims in the litigation
seek the cost of cleanup and future monitoring of such water wells. The
Company is a co-defendant in these cases with other substantial manufacturers
and suppliers of the same chemical. During the second quarter, the majority of
these cases were settled. While some cases and liabilities remain to be
resolved, the Company believes it unlikely that this water well litigation will
have a material adverse
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effect on its financial results. Cases have been filed against the Company,
other substantial manufacturers and suppliers of DBCP and various banana
growers alleging that the plaintiffs suffer fertility problems arising from
exposure to DBCP while working on banana plantations outside the United States.
The Company is contesting whether any injury has in fact been incurred by
plaintiffs, whether DBCP was in fact the cause of any such injury as may exist,
and in any case if the Company was a supplier or otherwise has liability in
connection with any such injury.
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 plaintiffs
in the litigation claim actual and punitive damages arising primarily from
leaking residential plumbing systems. The Company manufactured the resin used
to make the pipe in these systems. Two other substantial manufacturers made
the resins for the polyacetal insert fittings used in the residential plumbing
systems and are also defendants in these cases. The Company's position and
most of the judgments to date have confirmed that most of the leaks have
occurred in residential plumbing systems due to failure of the polyacetal
insert fitting system, which is no longer used. In addition to the numerous
cases which have been filed on behalf of individual claimants, statewide or
partial statewide class actions have been filed in 18 states, and four proposed
nationwide class actions have been filed, three in state court and another in
federal court. There are numerous issues to be resolved in connection with
jurisdiction, pre-existing litigation and conflicts among the various courts.
The Company will continue to defend vigorously in these matters but it cannot
currently predict when or how these claims will be resolved. Almost all the
current claims outside of litigation are handled through a corporation owned by
the Company and the manufacturers of the resins for the polyacetyl fittings.
This corporation makes arrangements for the repair of leaking polybutylene pipe
systems, the costs of which are allocated on a variable basis depending
generally on the manufacturers of the component parts and the resins.
The Company is litigating insurance coverage at the RMA through 1969 and for
the McColl site and other environmental claims. A declaratory judgment action
has also been filed to resolve insurance coverage for polybutylene through
mid-1985 and coverage for Nemagon(R) and other toxic tort claims.
The Company's assessment of these matters is continuing. Future
provisions may be required as administrative and judicial proceedings progress
and the scope and nature of remediation programs and related costs estimates
are clarified. However, while periodic results may be significantly affected
by these matters, based upon developments to date, the management of the
Company anticipates that it will be able to meet related obligations without a
material adverse effect on its financial position.
_______________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported net income of $385 million for the second quarter
of 1995, an increase of $579 million over the comparable 1994 period, when
special items reduced net income by $451 million. Only once in the past decade
has the Company reported higher second quarter net income.
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Adjusted net income, which excludes special items, was $387 million for the
second quarter of 1995, an increase of $130 million or 51 percent.
In comparison to the 1994 quarter, revenues increased almost 25
percent, production of domestic crude oil and natural gas increased 9 percent
and 13 percent respectively, and sales of light refined products were up 6
percent. Additionally, chemical products net income increased significantly,
reflecting favorable economic conditions, and crude oil prices were higher and
margins improved for refined products.
Net income in the first half of 1995 reached $725 million. Compared to
net income reported for the comparable six month periods, this represented an
increase of $741 million over 1994, and the second- best performance in the
past decade. Excluding special items in the 1994 and 1995 periods, adjusted net
income for the first half of 1995 totaled $690 million, an increase of $215
million or 45 percent over 1994. Improvements resulted primarily from sharply
higher net income in chemical products and higher production of crude oil and
natural gas. Partially offsetting these improvements for the six month period
were unfavorable margins for refined products and depressed natural gas prices.
Special items in the 1995 periods reduced net income $2 million for
the quarter, but benefited net income $35 million for the first half. In
comparison, special items reduced 1994 net income by $451 million for the
quarter and $491 million in the first half.
OIL AND GAS EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
Income Highlights Second Quarter Six Months
- ----------------- ------------------- --------------------
(millions of dollars) 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from Ongoing Operations . . . . . . . . . $ 144 $ 44 $ 311 $ 115
Other Charges* . . . . . . . . . . . . . . . . . -- -- -- --
------- -------- -------- -------
Segment Net Income . . . . . . . . . . . . . . 144 44 311 115
Special Items (includes "Other Charges") . . . . (3) (66) 37 (82)
------- -------- -------- -------
Adjusted Net Income . . . . . . . . . . . . . . 147 110 274 197
</TABLE>
- -----------
*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 segment net income in the
second quarter of 1995 was $144 million, an increase of $100 million over 1994.
For the first half of 1995, net income was $311 million, up $196 million.
Adjusted net income, which excludes special items, increased $37 million in the
1995 quarter versus 1994, and $77 million in the first-half comparison.
Increased production of crude oil and natural gas and higher average
crude oil prices were the primary factors in the income improvements in both
1995 periods. However, average natural gas prices declined by 16 percent in the
quarter and 23 percent in the first six months. Average domestic production of
crude oil increased in the 1995 quarter and six months over the comparable 1994
periods, as higher production in the deep-water Gulf of Mexico more than offset
natural declines elsewhere. Natural gas production also increased 13 percent in
both 1995 periods, reaching the highest level in the past eight years.
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OIL PRODUCTS
<TABLE>
<CAPTION>
Income Highlights Second Quarter Six Months
- ----------------- ------------------- --------------------
(millions of dollars) 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from Ongoing Operations . . . . . . . . . $ 107 $ 94 $ 120 $ 202
Other Charges* . . . . . . . . . . . . . . . . . (1) (1) (1) (15)
------- -------- -------- -------
Segment Net Income . . . . . . . . . . . . . . 106 93 119 187
Special Items (includes "Other Charges") . . . . (4) 2 (4) (15)
------- -------- -------- -------
Adjusted Net Income . . . . . . . . . . . . . . 110 91 123 202
</TABLE>
- -----------
*Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Oil products segment net income was $106 million in the second quarter
of 1995, an increase of $13 million over 1994. In the first six months of 1995,
net income totaled $119 million, down $68 million from 1994. Adjusted net
income, which excludes special items, was $110 million and $123 million for the
1995 quarter and six month period, respectively, reflecting an increase of $19
million and a decrease of $79 million over the comparable 1994 periods.
In the quarter comparison, improved refined product margins and lower
operating costs were the key factors contributing to the higher 1995 income
levels. For the first six months of 1995, however, income was impaired from
lower average margins than in the comparable 1994 period as raw material costs
increased more than selling prices. Refined product sales volumes in the second
quarter and the first six months of 1995 were slightly higher than in 1994,
with automotive gasoline sales volumes 8 percent higher in both periods.
CHEMICAL PRODUCTS
<TABLE>
<CAPTION>
Income Highlights Second Quarter Six Months
- ----------------- ------------------- --------------------
(millions of dollars) 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from Ongoing Operations . . . . . . . . . $ 183 $ (139) $ 400 $ (71)
Other Charges* . . . . . . . . . . . . . . . . . (2) (9) (5) (11)
------- -------- -------- --------
Segment Net Income . . . . . . . . . . . . . . 181 (148) 395 (82)
Special Items (includes "Other Charges") . . . . 5 (233) 2 (235)
------- -------- -------- --------
Adjusted Net Income . . . . . . . . . . . . . . 176 85 393 153
</TABLE>
- -----------
*Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Chemical products segment net income in the second quarter of 1995 was
$181 million, an increase of $329 million over the comparable 1994 quarter. For
the first six months of 1995, chemical products net income totaled $395
million, an increase of $477 million. Excluding special items in the
comparable periods, adjusted net income for the 1995 quarter was $176 million,
up $91 million, and $393 million for the first six months, up $240 million.
In the net income comparison, both 1994 periods were impaired by
significant special items totaling $233 million for the quarter and $235
million for the six months. Adjusted net income, which excludes
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special items, increased in the 1995 periods over comparable 1994 periods due
to improved margins across most product lines, reflecting strong business
demand.
OTHER
The other segment incurred net losses of $5 million in the second
quarter of 1995 and $4 million in the first half of 1995, compared to losses of
$151 million and $165 million in the respective 1994 periods. A special item
in 1994, reflecting the write-down of a coal investment, was the major factor
in the higher 1994 charges.
CORPORATE ITEMS
Charges totaling $41 million in the second quarter of 1995 were $9
million higher than the same 1994 quarter. For the first six months of 1995,
charges totaled $96 million, up $25 million compared to 1994. Higher interest
expense in both 1995 periods was the primary factor contributing to these
higher charges.
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
Cash flow provided by operating activities totaled $1,111 million for
the first six months of 1995, compared with $930 million in the comparable
period last year, an increase of $181 million. The period to period increase
was attributable to higher earnings. Cash generated from operating activities,
coupled with an increase in debt of $1,008 million in the first six months of
1995, was used primarily for capital expenditures of $1,407 million and
dividend payments of $700 million.
OTHER MATTERS
NEW NATURAL GAS MARKETING COMPANY
The Company and Tejas Gas Corporation jointly announced in July of
1995 an agreement to form a new independently managed company bringing together
the natural gas marketing activities of Shell Oil and Tejas Gas.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In March 1995, the Financial Accounting Standards Board issued
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."
This standard is effective for financial statements for fiscal years beginning
after December 15, 1995, and will require that asset carrying values be
reviewed whenever events or changes in circumstances indicate that such values
may not be recoverable. Should an asset be determined to be impaired, the
standard requires that a charge against income be recognized to reduce such
asset's carrying value to fair value, and that such charges be disclosed in the
financial statements. The Company has not yet completed its evaluation of the
impact of the adoption of the provisions of SFAS No. 121.
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
foreign 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 previously reported in the Company's Annual Report on Form 10-K for
1994 (the 10-K), in December 1983, the United States filed a civil action in
the United States District Court for the District of Colorado against the
Company alleging environmental damage and other liabilities based primarily
upon the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) and upon alleged breaches of lease obligations and other common law
claims resulting from the Company's operations from 1952 to 1982 at the United
States Army's Rocky Mountain Arsenal (RMA) near Denver, Colorado. The State of
Colorado contemporaneously filed in the same court an action under CERCLA
against the United States, the United States Army and the Company alleging in
part that, under CERCLA, the State is trustee of the natural resources in
question. On June 13, 1995 the United States, the State of Colorado, and the
Company reached agreement on a Conceptual Remedy for the cleanup of the RMA.
The Conceptual Remedy is subject to public review and comment and other formal
proceedings under CERCLA before it can be established in the official Record of
Decision (ROD) as the remediation plan. It is anticipated that the ROD for the
RMA will be published in late 1995 or early 1996. The Conceptual Remedy is
estimated to cost approximately $2 billion (including sums already incurred by
the U.S. Army and the Company). The Company believes that its existing
accruals in connection with this matter will be adequate to cover its
anticipated costs under the Conceptual Remedy.
As previously reported in the 10-K and the Company's 10-Q for the
quarter ending March 31, 1995, since 1984 the Company has been named as a
defendant, along with other co-defendants, in numerous product liability cases,
including class actions, involving the failure of plumbing systems in the
United States constructed with polybutylene pipe. During the second quarter
additional class action suits were filed, bringing the total number of
purported nationwide, statewide or partial-statewide class action suits to
thirty. During the second quarter, a settlement was certified against one
defendant in a nationwide class action suit pending in state court in Green
County, Alabama; a nationwide class action was certified in a Tennessee state
court; a nationwide class action suit was filed in state court in Charleston,
South Carolina; and the nationwide class action filed in U.S. District Court in
Galveston, Texas during the first quarter was transferred to the federal court
in Houston, Texas. Statewide or partial-statewide class actions are now
pending in state court in each of Nevada, Louisiana, Missouri, Illinois, South
Carolina, Florida, Oregon, Colorado, Iowa, Pennsylvania, Maryland, Georgia,
Michigan, New Jersey, Ohio, Wisconsin, California and Arizona. During the
second quarter, the Company settled countywide class action litigation in San
Diego, California. There are numerous issues to be resolved in connection with
jurisdiction, pre-existing litigation and conflicts among the various courts.
The Company will continue to defend vigorously in these matters but it cannot
currently predict when or how these claims will be resolved.
As previously reported in the 10-K, the Company is a party to
litigation in California and in Texas regarding Nemagon(R), an agricultural
chemical containing DBCP manufactured and sold by the Company from 1955 to
1978. In California, decreases in the maximum contamination level for DBCP
have resulted in residual traces of DBCP present in the groundwater in the area
of certain wells exceeding certain state and federal maximum contamination
levels. The claims in the litigation seek the cost of cleanup and future
monitoring of such water wells. The Company is a co- defendant in these cases
with other substantial manufacturers and suppliers of the same chemical.
During the second quarter, 13 of these cases settled prior to trial and the
largest of these cases, the City of Fresno v. Shell
11
<PAGE> 12
Oil Company, was resolved during the course of the trial of that case. The
settlements require certain payments in cash and, in the case of the City of
Fresno, the acceptance by the defendants of certain defined contingencies for a
period of up to forty years. While seven municipal water pollution suits
remain to be resolved, the Company believes it unlikely that this water well
litigation will have a material adverse effect on its financial results.
As previously reported in the 10-K, 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 refined waste from 1942 to 1946.
The Environmental Protection Agency (EPA) and the State of California sued the
Company and others in February 1991. In July of 1995, the EPA indicated that
it had selected RCRA equivalent closure as the remedy for the cleanup at
McColl. The Company is working with other PRP's at the site and the EPA to
finalize the necessary plans to conclude the cleanup of the site. The Company
believes that it has fully accrued for its obligations in connection with this
site.
In July 1995, the Texas General Land Office, on behalf of the
Permanent School Fund of the State of Texas, as well as several trusts and one
individual filed an action in the District Court of Travis County, Texas,
against a subsidiary of the Company and seven other oil companies alleging
underpayment of royalties for crude oil and condensate ("crude oil"). The suit
alleges that the defendants have set their posted prices for crude oil at
unreasonably low levels resulting in lower royalty payments. The lawsuit is
also brought on behalf of the class of persons to whom the oil companies have
made royalty or overriding royalty payments on the basis of posted prices for
crude oil. The Shell subsidiary intends to vigorously defend the case.
On April 14, 1995, the Company received a Notice of Violation/Finding
of Violation from the EPA Region V alleging violations under the Clean Air Act
and the Illinois State Implementation Plan by the Wood River Manufacturing
Complex. The Company and the EPA are engaging in discussions regarding the
allegations of the notice. EPA Region V has also given indications to the Wood
River Manufacturing Complex that it is contemplating possible enforcement
action against the Complex for alleged violations of the Benzene Waste
operations NESHAP. The Company and EPA are engaging in discussions seeking to
resolve this matter.
As reported in the 10-K, the California Attorney General's Office and
the Department of Toxic Substances Control had notified the Martinez
Manufacturing Complex of their intention to bring an enforcement action against
the Complex for alleged violations of state hazardous waste regulations. This
matter has been resolved by the entry by the agency, on June 28, 1995, of a
Stipulation and Order which provides for a total payment by the Company of
$500,000 and the undertaking of certain actions or practices at the Complex.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
None
12
<PAGE> 13
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 N. J. CARUSO
N. J. Caruso, Controller
(Principal Accounting and
Duly Authorized Officer)
Date: July 27, 1995
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<PAGE> 14
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000089629
<NAME> SHELL OIL COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 729
<SECURITIES> 0
<RECEIVABLES> 2038
<ALLOWANCES> 19
<INVENTORY> 891
<CURRENT-ASSETS> 4541
<PP&E> 39006
<DEPRECIATION> 19528
<TOTAL-ASSETS> 26972
<CURRENT-LIABILITIES> 5759
<BONDS> 1304
<COMMON> 0
0
0
<OTHER-SE> 13758
<TOTAL-LIABILITY-AND-EQUITY> 26972
<SALES> 11679
<TOTAL-REVENUES> 12051
<CGS> 8937
<TOTAL-COSTS> 9189
<OTHER-EXPENSES> 1056
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> 1162
<INCOME-TAX> 437
<INCOME-CONTINUING> 725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 725
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
