<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 September 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
September 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>
THIRD QUARTER NINE MONTHS
----------------- -----------------
1995 1994 1995 1994
------- ------- ------ --------
<S> <C> <C> <C> <C>
REVENUES
Sales and other operating revenue . . . . . . . . . $ 6,800 $ 6,571 $20,229 $18,215
Less: Consumer excise and sales taxes . . . . . . 825 867 2,418 2,428
------- ------- ------ -------
5,975 5,704 17,811 15,787
Equity earnings, interest and other income. . . . . 86 38 301 (105)
------- ------- ------ -------
TOTAL . . . . . . . . . . . . . . . . . . . . . 6,061 5,742 18,112 15,682
------- ------- ------ -------
COSTS AND EXPENSES
Purchases and operating expenses. . . . . . . . . . 4,293 4,344 13,229 12,083
Selling, general and administrative expenses 258 234 740 933
Exploration, including exploratory dry holes 42 45 155 252
Research expenses . . . . . . . . . . . . . . . . . 29 31 86 89
Depreciation, depletion, amortization and
retirements . . . . . . . . . . . . . . . . . 630 476 1,574 1,692
Interest and discount amortization . . . . . . . . 59 36 163 111
Operating taxes . . . . . . . . . . . . . . . . . . 113 130 365 378
------- ------- ------ ------
TOTAL . . . . . . . . . . . . . . . . . . . . . 5,424 5,296 16,312 15,538
------- ------- ------ -------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . $ 637 $ 446 $ 1,800 $ 144
Federal and other income taxes . . . . . . . . . . 223 133 660 (153)
------- ------- ------ -------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . $ 414 $ 313 $ 1,140 $ 297
======= ======= ======= =======
</TABLE>
2
<PAGE> 3
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Millions of Dollars
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . $ 483 $ 617
Receivables and prepayments, less allowance for
doubtful accounts . . . . . . . . . . . . . . . . . 2,921 2,974
Inventories of oils and chemicals . . . . . . . . . . 713 564
Inventories of materials and supplies . . . . . . . . . 237 229
------- -------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . 4,354 4,384
INVESTMENTS, LONG-TERM RECEIVABLES AND
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . 3,083 2,911
PROPERTY, PLANT AND EQUIPMENT AT COST, LESS
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF $19,871 AT SEPTEMBER 30, 1995
AND $18,826 AT DECEMBER 31, 1994 . . . . . . . . . . . 19,569 19,084
------- -------
TOTAL . . . . . . . . . . . . . . . . . . . . $27,006 $26,379
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable - trade . . . . . . . . . . . . . . . $ 1,718 $ 1,953
Other payables and accruals . . . . . . . . . . . . . 1,095 1,058
Income, operating and consumer taxes . . . . . . . . . 771 700
Short-term debt . . . . . . . . . . . . . . . . . . . 2,198 1,449
------- -------
TOTAL CURRENT LIABILITIES . . . . . . . . . . 5,782 5,160
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . 1,295 1,546
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . 3,178 3,137
LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . 2,928 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 . . . . . . . . . . . . . . . . . 11,617 11,527
------- -------
TOTAL SHAREHOLDER'S EQUITY . . . . . . . . . . 13,823 13,733
------- -------
TOTAL . . . . . . . . . . . . . . . . . . . . $27,006 $26,379
======= =======
</TABLE>
3
<PAGE> 4
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Millions of Dollars
<TABLE>
<CAPTION>
NINE MONTHS
---------------------
1995 1994
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,140 $ 297
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, amortization and retirements . . . . . . . . . . . . . 1,574 1,692
Dividends in excess of (less than) equity income . . . . . . . . . . . . . . (97) 225
(Increases) decreases in working capital:
Receivables and prepayments . . . . . . . . . . . . . . . . . . . . . . . 53 (43)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (157) 36
Current payables and accruals . . . . . . . . . . . . . . . . . . . . . . (127) (271)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 (275)
Other noncurrent items . . . . . . . . . . . . . . . . . . . . . . . . . . . . (94) 212
------- -------
Net Cash Provided by Operating Activities . . . . . . . . . . . . . . . 2,333 1,873
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,150) (1,578)
Proceeds from property sales and salvage . . . . . . . . . . . . . . . . . . . . . 70 (9)
Other investments and advances . . . . . . . . . . . . . . . . . . . . . . . . . . (31) 76
------- -------
Net Cash Used for Investing Activities . . . . . . . . . . . . . . . . . (2,111) (1,511)
------- -------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . 97 41
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . (290) (325)
Proceeds from sales of redeemable securities of subsidiaries . . . . . . . . . . . 191 --
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,050) (1,050)
Increase (decrease) in short-term obligations . . . . . . . . . . . . . . . . . . 696 151
------- -------
Net Cash Provided by Financing Activities . . . . . . . . . . . . . . . (356) (1,183)
------- -------
NET CASH FLOWS
Increase (Decrease) in Cash and cash equivalents . . . . . . . . . . . . . . . . . $ (134) $ (821)
======= =======
CASH AND CASH EQUIVALENTS
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . $ 617 $ 1,296
Increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . . (134) (821)
------- -------
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . $ 483 $ 475
======= =======
</TABLE>
_________________________________
OPERATING SEGMENTS INFORMATION
Millions of Dollars
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SEGMENT NET INCOME (LOSS)
Oil and Gas Exploration and Production . . . . . . . . . $ 146 $ 137 $ 457 $ 253
Oil Products . . . . . . . . . . . . . . . . . . . . . . 139 119 259 306
Chemical Products . . . . . . . . . . . . . . . . . . . 215 111 610 29
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (86) (10) (89) (176)
Corporate Items . . . . . . . . . . . . . . . . . . . . . . -- (44) (97) (115)
-------- -------- -------- --------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . $ 414 $ 313 $ 1,140 $ 297
======== ======== ======== ========
</TABLE>
4
<PAGE> 5
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 "10-K"). 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 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>
September 30 December 31
Millions of dollars 1995 1994
------------ -----------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . $ 161 $ 161
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . 473 356
Current Liabilities . . . . . . . . . . . . . . . . . . . . . 79 61
Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . 70 70
</TABLE>
<TABLE>
<CAPTION>
Third Quarter Nine Months
----------------------- ----------------------
Millions of dollars 1995 1994 1995 1994
----- ----- ------ ------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $ 86 $ 72 $ 241 $ 203
Operating income . . . . . . . . . . . . . . . 45 35 128 93
Net income . . . . . . . . . . . . . . . . . . 35 28 98 73
</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 218 sites, including the Rocky Mountain
Arsenal (RMA) and the McColl site as discussed below. As of September 30,
1995, discussions or activities were ongoing concerning 110 of these sites, in
some cases in the
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early stages. During 1994, expenses recorded (including reserves) under CERCLA
and such state statutes were approximately $135 million; 1995 expenses as of
September 30, 1995 were approximately $8 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 September
30, 1995 was approximately $260 million. The Company believes its current
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 and has
ruled on the counterclaim for contribution holding the U.S. Government liable
under CERCLA. The EPA selected RCRA equivalent closure as the surface remedy
for the cleanup at McColl. The Company is working with other PRPs at the site
and the EPA to finalize the necessary plans to undertake cleanup design of the
site pursuant to an Order issued by the EPA on September 28, 1995. 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
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<PAGE> 7
resolved, the Company believes it unlikely that this water well litigation will
have a material adverse 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,
over 25 purported statewide, partial statewide or nationwide class actions have
been filed. During the third quarter, the Company and another co-defendant
announced they had reached a settlement in the nationwide class action suit
pending in state court in Tennessee and commenced extensive publication of
notice of such class settlement on television, radio and in the print media. A
more limited notice was thereafter distributed by the plaintiff's attorneys in
the nationwide class action pending in Alabama state court and a trial was
scheduled for the fourth quarter 1995 in that action. The Company plans to
have finalized the settlement in the Tennessee court by the fourth quarter
1995. 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 asbestos, 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.
_______________________
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Shell Oil Company reported net income of $414 million for the third
quarter of 1995, an increase of $101 million over the comparable 1994 period,
and the highest for a third quarter in eight years. Excluding special items in
both quarters, adjusted net income in the third quarter of 1995 totaled $431
million, an increase of $108 million or 33 percent.
Net income for the nine months of 1995 totaled $1,140 million, an
increase of $843 million over the comparable 1994 period. Excluding special
items in both periods, adjusted net income for the nine months of 1995 totaled
$1,122 million, an increase of $324 million or 41 percent.
Net income improvements in both 1995 periods reflected higher margins
for chemical products, increased sales volumes of refined products and higher
production of crude oil and natural gas. However, partially offsetting these
improvements in 1995 were unfavorable margins for refined products. Depressed
natural gas prices adversely affected both 1995 periods, offsetting the
benefits of higher average crude oil prices during the nine month period.
Special items in the 1995 periods reduced net income $17 million for
the quarter, but benefited net income $18 million for the nine months. In
comparison, special items reduced 1994 net income by $10 million for the
quarter and $501 million in the nine months.
OIL AND GAS EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
Income Highlights Third Quarter Nine Months
- ----------------- ---------------------- ------------------------
(millions of dollars) 1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income from Ongoing Operations . . . . . . . . . $ 146 $ 138 $ 457 $ 254
Other Charges* . . . . . . . . . . . . . . . . . -- (1) -- (1)
------- ------- ------- -------
Segment Net Income . . . . . . . . . . . . . . 146 137 457 253
Special Items (includes "Other Charges") . . . . 2 (14) 39 (96)
------- ------- ------- -------
Adjusted Net Income . . . . . . . . . . . . . . 144 151 418 349
</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 third
quarter of 1995 was $146 million, an increase of $9 million over 1994. Adjusted
net income, which excludes special items, was $144 million, down $7 million in
the 1995 quarter versus 1994. During the quarter, increased production of crude
oil and natural gas was more than offset by depressed average natural gas
prices.
For the nine months of 1995, net income was $457 million, up $204
million. Adjusted net income, which excludes special items, was $418 million,
up $69 million in the nine-month comparison. Increased production of crude oil
and natural gas was the key factor in the improvement. Income benefits derived
from higher average crude oil prices were offset by lower natural gas prices.
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<PAGE> 9
Average natural gas prices declined by 18 percent in the quarter and
22 percent in the nine months from 1994. Average domestic production of crude
oil increased in the 1995 quarter and nine months over the comparable 1994
periods, as higher production in the Gulf of Mexico more than offset natural
declines elsewhere. Natural gas production increased about 13 percent in both
1995 periods, with the current quarter's production the highest in any quarter
in the past 14 years.
OIL PRODUCTS
<TABLE>
<CAPTION>
Income Highlights Third Quarter Nine Months
- ----------------- ------------------- -------------------
(millions 0f dollars 1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income from Ongoing Operations . . . . . . . . . . $ 133 $ 119 $ 254 $ 321
Other Charges* . . . . . . . . . . . . . . . . . . 6 -- 5 (15)
------- ------- ------- -------
Segment Net Income . . . . . . . . . . . . . . 139 119 259 306
Special Items (includes "Other Charges") . . . . . 28 -- 24 (15)
------- ------- ------- -------
Adjusted Net Income . . . . . . . . . . . . . . . 111 119 235 321
</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 $139 million in the third quarter
of 1995, an increase of $20 million over 1994. Included in net income in the
third quarter of 1995 was a special item which represented a gain of $25
million related to the partial liquidation of crude oil and refined product
inventories, which are valued on a LIFO basis. Adjusted net income, which
excludes special items, was $111 million, down $8 million in the 1995 quarter
versus 1994.
For the nine months of 1995, net income totaled $259 million, down $47
million from 1994. Adjusted net income, which excludes special items, was $235
million, down $86 million over the comparable 1994 period.
The key factor in the declines in adjusted net income for both 1995
periods compared with 1994 was lower refined product margins, which have been
weak industry wide throughout 1995. Overall sales volumes of refined products
rose in both 1995 periods. In the third quarter of 1995, these volumes rose 7
percent over the same period last year, with sales of light oil products
increasing 9 percent, partially as a result of the first full quarter of
operations of the new coker unit at the jointly owned Deer Park refinery.
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CHEMICAL PRODUCTS
<TABLE>
<CAPTION>
Income Highlights Third Quarter Nine Months
- ----------------- ---------------------- ------------------------
(millions of dollars) 1995 1994 1995 1994
------- ------- -------- -------
<S> <C> <C> <C> <C>
Income from Ongoing Operations . . . . . . . . . $ 208 $ 114 $ 608 $ 43
Other Charges* . . . . . . . . . . . . . . . . . 7 (3) 2 (14)
------- ------- -------- -------
Segment Net Income . . . . . . . . . . . . . . 215 111 610 29
Special Items (includes "Other Charges") . . . . 7 11 9 (224)
------- ------- -------- -------
Adjusted Net Income . . . . . . . . . . . . . . 208 100 601 253
</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 third quarter of 1995 was
$215 million, an increase of $104 million over the comparable 1994 quarter. For
the nine months of 1995, chemical products net income totaled $610 million, an
increase of $581 million. Excluding special items in the comparable periods,
adjusted net income for the 1995 quarter was $208 million, up $108 million, and
for the nine months was $601 million, up $348 million.
Increases in both 1995 periods were due to improved margins across
most product lines, reflecting strong business demand.
OTHER
The other segment incurred net losses of $86 million in the third
quarter of 1995 and $89 million in the nine months of 1995, compared to losses
of $10 million and $176 million in the respective 1994 periods. Special items
in the 1995 quarter totaled $84 million, reflecting the write-down of a real
estate property held for sale. In the nine month comparison, a special item in
1994, reflecting the write-down of a coal investment, was the major factor in
the higher 1994 charges.
CORPORATE ITEMS
Corporate charges netted to zero for the third quarter of 1995,
compared to charges totaling $44 million in the comparable 1994 quarter. For
the nine months of 1995, charges totaled $97 million, down $18 million compared
to 1994. Lower overhead costs and a gain related to an insurance settlement in
the 1995 quarter were the primary factors in the improvements. Interest costs
associated with financing activities were higher in both 1995 periods.
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
Cash flow provided by operating activities totaled $2,333 million for
the nine months of 1995, compared with $1,873 million in the comparable period
last year, an increase of $460 million. Cash flow in 1995 benefited from higher
net income as compared with the 1994 period. Cash generated from operating
activities, combined with a year to date increase in debt of $503 million and
reduction in cash balances of $134 million, was used primarily for capital
expenditures of $2,150 million and dividend payments of $1,050 million. During
the third quarter of 1995, the Company borrowed $250 million at market rates
and terms from an affiliated company.
10
<PAGE> 11
OTHER MATTERS
JOINT VENTURE ANNOUNCED
In October 1995, Shell Oil and Amoco Corporation ("Amoco") announced
plans to form a limited partnership combining the ownership and operation of
their oil and gas exploration and production assets in the greater Permian
Basin of West Texas and Southeast New Mexico. The plan calls for Amoco to hold
a 65% interest in the new company, with Shell Oil holding a 35% interest. Final
establishment of the partnership is subject to the successful conclusion of
ongoing negotiations.
STATEMENT 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. Shell Oil is continuing to evaluate the impact of
adoption of the provisions of SFAS No. 121. This evaluation is currently
expected to be completed by the end of fourth quarter, 1995.
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.
_________________________
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported in the 10-K, and in the first and second
quarter 1995 Reports on Form 10-Q, since 1984, the Company has been named as a
defendant, along with other co-defendants, in numerous product liability cases,
including over 25 purported nationwide, statewide or partial state-wide class
action suits, involving the failure of plumbing systems in the United States
constructed with polybutylene pipe. During the third quarter, the Company and
another co-defendant announced they had reached a settlement in the nationwide
class action suit pending in state court in Tennessee and commenced extensive
publication of notice of such class settlement on television, radio and in the
print media. A more limited notice was thereafter distributed by the
plaintiff's attorneys in the nationwide class action pending in Alabama state
court and a trial was scheduled for the fourth quarter 1995 in that action.
The Company plans to have finalized the settlement in the Tennessee court by
the fourth quarter 1995. 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 these matters
but it cannot currently predict when or how these claims will be resolved.
As previously reported in the 10-K, and in the second quarter 1995
Report on Form 10-Q, 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 product waste from 1942 to 1946. In
the third quarter, the court ruled that the United States has liability under
CERCLA in connection with this site and ordered all the PRP's at the site to
participate in a mandatory settlement conference.
As previously reported in the 10-K, in January 1993, the U.S. EPA,
Region VI, filed an administrative complaint against the Company pertaining to
the Deer Park Manufacturing Complex which resulted from a "multi-media"
environmental inspection. This complaint has been consolidated with two other
environmental administrative complaints filed by the EPA against the Company's
Deer Park Complex. During the third quarter, the Company and the EPA settled
these consolidated complaints with the Company paying a penalty in the amount
of $170,950.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
None
12
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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: October 27, 1995
13
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 483
<SECURITIES> 0
<RECEIVABLES> 2,046
<ALLOWANCES> 19
<INVENTORY> 950
<CURRENT-ASSETS> 4,354
<PP&E> 39,440
<DEPRECIATION> 19,871
<TOTAL-ASSETS> 27,006
<CURRENT-LIABILITIES> 5,782
<BONDS> 1,295
<COMMON> 0
0
0
<OTHER-SE> 13,823
<TOTAL-LIABILITY-AND-EQUITY> 27,006
<SALES> 17,571
<TOTAL-REVENUES> 18,112
<CGS> 13,229
<TOTAL-COSTS> 13,594
<OTHER-EXPENSES> 1,729
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 163
<INCOME-PRETAX> 1,800
<INCOME-TAX> 660
<INCOME-CONTINUING> 1,140
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,140
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
