<PAGE> 1
1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 1-2475
SHELL OIL COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
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
</TABLE>
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
<S> <C>
7 1/4% DEBENTURES DUE 2002 NEW YORK STOCK EXCHANGE
GUARANTEES --
EVIDENCING GUARANTEE OF 7 1/2% GUARANTEED
SINKING FUND DEBENTURES DUE 1999 OF
SHELL PIPE LINE CORPORATION NEW YORK STOCK EXCHANGE
</TABLE>
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No.
---- ----
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not applicable.
State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. None.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. Outstanding as of February
16, 1995 -- 1,000 shares of Common Stock, of a par value of $10.00 a share.
------------------------
OMISSION OF CERTAIN INFORMATION
In accordance with General Instruction J of Form 10-K, the registrant is
omitting Items 4, 10, 11, 12 and 13 (and related Exhibits) because:
(1) Royal Dutch Petroleum Company, a Netherlands company, and The "Shell"
Transport and Trading Company, public limited company, an English company, each
of which is a reporting company under the Securities Exchange Act of 1934 that
has filed all material required to be filed by it pursuant to Section 13, 14, or
15(d) thereof and is named in conjunction with the registrant's description of
its business, own directly or indirectly 60 percent and 40 percent,
respectively, of the shares of all the companies of Royal Dutch/Shell Group of
Companies, including all the equity securities of the registrant; and
(2) during the preceding thirty-six calendar months and any subsequent
period of days, there has not been any material default in the payment of
principal, interest, sinking or purchase fund installment, or any other material
default not cured within thirty days with respect to any indebtedness of the
registrant or its subsidiaries, and there has not been any material default in
the payment by the registrant or its subsidiaries of rentals under material
long-term leases.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE: None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
Shell Oil Company was incorporated under the laws of the State of Delaware
on February 8, 1922. It has its principal executive offices at One Shell Plaza,
Houston, Texas 77002, and its telephone number is (713) 241-6161. Unless
otherwise required by the context, the term "Company" as used herein refers to
Shell Oil Company and the term "Shell Oil" refers to the Company and its
consolidated subsidiaries.
The Company is wholly owned by Shell Petroleum Inc., a Delaware
corporation, whose shares are directly or indirectly owned 60 percent by Royal
Dutch Petroleum Company, The Hague, The Netherlands, and 40 percent by The
"Shell" Transport and Trading Company, public limited company, London, England.
Royal Dutch Petroleum Company and The "Shell" Transport and Trading Company,
public limited company, are holding companies which together directly or
indirectly own securities of companies of the Royal Dutch/Shell Group of
Companies, the members of which are severally engaged throughout the greater
part of the world in one or more phases of the oil and natural gas, chemical and
coal industries.
Shell Oil is engaged, principally in the United States, in the exploration
for, and development, production, purchase, transportation and marketing of,
crude oil and natural gas, and the purchase, manufacture, transportation and
marketing of oil and chemical products. In addition, Shell Oil is engaged in the
exploration for, and production of, crude oil and natural gas outside the United
States, including several ventures with companies of the Royal Dutch/Shell Group
of Companies. Also, Shell Oil is engaged in the development, production and
marketing of sulfur and carbon dioxide.
The three major reporting segments of Shell Oil's businesses are Oil and
Gas Exploration and Production, Oil Products and Chemical Products. The two
products segments are integrated through certain common manufacturing
facilities, raw material supplies and technical support.
Compared with other integrated enterprises in the petroleum industry, the
Company believes that in 1994, domestically, Shell Oil ranked third in the net
production of crude oil and natural gas liquids, sixth in net production of
natural gas, second in refined products sold and fourth in refinery processing
intakes. Additionally, within the petroleum industry, Shell Oil is a leader in
the domestic manufacturing and marketing of chemicals.
At December 31, 1994, Shell Oil had 21,496 employees.
FINANCIAL INFORMATION BY MAJOR BUSINESS SEGMENT
Information on revenue, operating profit, net income, identifiable assets
and capital expenditures of each business segment is reported in this item. The
discussion of segment results included in Management's Discussion and Analysis
of Financial Condition and Results of Operations appearing in Item 7 of this
report is incorporated herein by reference. Income taxes are allocated to
segments on the basis of contributions to taxable income reduced by applicable
tax credits. Segment revenues, operating profit and assets outside the United
States are not of a level which requires separate geographical reporting.
2
<PAGE> 3
The following is a summarized disaggregation of Shell Oil's consolidated
net income for each of the past three years.
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(millions of dollars)
<S> <C> <C> <C>
SEGMENT NET INCOME (LOSS)
Oil and Gas Exploration and Production............ $ 257 $ 477 $ 469
Oil Products...................................... 373 280 6
Chemical Products................................. 161 35 12
Other............................................. (235) (27) (70)
------ ------ ------
TOTAL................................... $ 556 765 417
NONALLOCATED COSTS..................................... 48 (16) (28)
------ ------ ------
INCOME FROM OPERATIONS.................. $ 508 $ 781 $ 445
------ ------ ------
CUMULATIVE EFFECT OF ACCOUNTING CHANGES........... -- -- (635)
------ ------ ------
NET INCOME (LOSS)....................... $ 508 $ 781 $ (190)
====== ====== ======
</TABLE>
OIL AND GAS EXPLORATION AND PRODUCTION
General
Total revenues, operating profit and segment income for Oil and Gas
Exploration and Production activities for each of the past three years, together
with capital expenditures and related identifiable assets at the end of each
year, were as set out below. For additional information, see Note 19 of the
Notes to Consolidated Financial Statements included in Item 14a.
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(millions of dollars)
<S> <C> <C> <C>
REVENUES
Sales and other operating revenue................ $ 1,490 $ 1,418 $ 1,280
Other revenue.................................... 33 96 113
Intersegment transfers........................... 2,257 2,492 3,032
------- ------- -------
TOTAL REVENUES......................... 3,780 4,006 4,425
COSTS AND EXPENSES
Costs and operating expenses..................... 2,183 2,110 2,404
Depreciation, depletion, amortization and
retirements.................................... 1,605 1,225 1,539
------- ------- -------
OPERATING PROFIT....................... (8) 671 482
Allocated corporate expenses..................... 39 53 62
Allocated income taxes........................... (210) 163 (29)
Equity in net (income) loss of others............ (96) (23) (20)
------- ------- -------
INCOME FROM ONGOING OPERATIONS......... 259 478 469
Other charges*................................... 2 1 --
------- ------- -------
SEGMENT NET INCOME..................... $ 257 $ 477 $ 469
======= ======= =======
CAPITAL EXPENDITURES.................................. $ 952 $ 877 $ 877
======= ======= =======
IDENTIFIABLE ASSETS AT DECEMBER 31.................... $12,217 $12,697 $13,525
</TABLE>
- ---------------
* Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Exploration and Production Operations
Domestically, Shell Oil produces crude oil (including condensate), natural
gas and natural gas liquids in 12 states, the Gulf of Mexico and offshore
California. In 1994, domestic onshore production accounted for 61 percent of
Shell Oil's crude oil production and 44 percent of its natural gas production.
The Gulf of Mexico,
3
<PAGE> 4
California and Texas are Shell Oil's principal areas of production activity,
providing about 86 percent of its combined oil and gas production on a crude oil
equivalent basis. The majority of Shell Oil's oil and gas production interests
are acquired under leases (including many leases on federal onshore and offshore
tracts); such leases are generally obtained for an initial fixed term which is
automatically extended by the establishment of production for so long as
production continues, subject to compliance with the terms of the lease
(including, in the case of federal leases, extensive regulations imposed by
federal law). Shell Oil also has international oil and gas production and
produces sulfur from its natural gas processing plants in the United States.
Supplemental and Enhanced Recovery
Shell Oil continues to develop and use supplemental and enhanced recovery
techniques to produce crude oil which could not be recovered by natural
reservoir forces. These recovery operations accounted for 57 percent of Shell
Oil's domestic crude oil production in 1994. Activities include steam injection
to produce heavy, more viscous crude oil, carbon dioxide (CO2) injection for
increased recovery of lighter oil and supplemental water injection.
Steam injection methods, primarily in California, accounted for 27 percent
of domestic crude oil production in 1994, slightly less than 1993. Also, in
1994, CO2 injection projects in West Texas and Mississippi accounted for 19,200
net barrels per day of crude oil production.
Domestic Offshore Oil and Gas
Shell Oil acquired interests in 46 tracts in the Gulf of Mexico during 1994
at a bonus cost of $17 million. Shell Oil now holds interests in 653 tracts in
the Gulf, 433 of which are in water depths exceeding 1,500 feet, comprising
about one-third of the industry's deep-water leaseholds.
Exploration and development of offshore acreage continued in 1994 with
Shell Oil participating in the drilling of 60 gross wells, of which 36 were
classified as producing or capable of producing (producers).
In April 1994, Shell Oil began production from the tension leg platform
(TLP) in its Auger field, 214 miles southwest of New Orleans. Initial production
rates have surpassed expectations, reaching as high as 55,000 barrels of oil per
day. Gross ultimate recovery from Auger is expected to be 220 million barrels of
crude oil equivalents. Construction has begun on a TLP for Prospect Mars,
located 130 miles southeast of New Orleans in approximately 2,940 feet of water.
Mars, owned 71.5 percent by Shell Oil, is designed to recover approximately 500
million barrels of crude oil equivalents in its first phase. Drilling operations
continue in anticipation of TLP installation in early 1996. First production is
expected in late 1996. A decision on subsequent development will be made about
two to three years after production from the first phase commences. Development
of Prospect Ram/Powell (Shell Oil interest 38 percent) was approved in late 1994
at a gross cost of $1 billion. Production is expected to begin in late 1997 from
a TLP, reaching a peak rate of 60,000 barrels of oil and 200 million cubic feet
of gas per day. Ultimate gross recovery is expected to be about the same as
Auger. Work continued on two smaller prospects, Tahoe and Popeye, in 1,500 and
2,100 feet of water, respectively, utilizing subsea technology. Tahoe began
production in 1994, while Popeye is expected to commence production in the
second half of 1995. After payout of capital costs, Shell Oil's share of Tahoe
is 70 percent and Popeye is 37.5 percent.
Domestic Onshore Oil and Gas
During 1994, Shell Oil participated in drilling 279 gross development wells
of which 277 were producers. Most of this activity was in Shell Oil's heavy oil
fields in California.
Shell Oil participated in drilling 7 gross exploratory wells. Two were
producers. Exploration activities were primarily along the Gulf Coast.
4
<PAGE> 5
International Oil and Gas
In 1994, the Company's subsidiaries were active in 9 countries outside of
the United States and had exploratory rights, as of December 31, 1994, to about
38 million gross acres. These subsidiaries participated in drilling 20 gross
exploratory and development wells, of which 12 were producers. The drilling
activity was concentrated in China and Yemen.
In 1993, Shell Oil exchanged the assets of subsidiaries which held
production rights in Syria for an interest in a Dutch affiliate which had also
acquired rights in the Danish North Sea from another affiliate. Shell Oil's
investment in the Dutch affiliate is accounted for using the equity method.
Production began in July 1993 from the Yemen-Masila Block and reached
165,000 gross barrels per day by year-end 1994. Shell Oil has a 20 percent
interest in this production.
With co-venturers, development of two fields in offshore China continues,
with initial production from the first field in November, 1994 (Shell Oil's
interest 12.5 percent). The second field (Shell Oil's interest 24.4 percent) is
expected to commence production in the fourth quarter of 1995.
Results of Operations and Costs
Results of operations for oil and gas producing activities, as prescribed
by Statement of Financial Accounting Standards No. 69, "Disclosures about Oil
and Gas Producing Activities," are shown below. These results exclude related
activities, such as the purchase and resale of natural gas, and revenues and
expenses associated with certain non-hydrocarbon products, such as sulfur and
carbon dioxide, which are included in the Segment Net Income data set forth
above and in Note 19 of the Notes to Consolidated Financial Statements included
in Item 14a of this report.
<TABLE>
<CAPTION>
1994 1993 1992
------------------------ ------------------------ ------------------------
U.S. INT'L TOTAL U.S. INT'L TOTAL U.S. INT'L TOTAL
------ ---- ------ ------ ---- ------ ------ ---- ------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................. $1,108 $ 41 $1,149 $1,111 $ 37 $1,148 $1,050 $ 31 $1,081
Transfers............. 1,758 226 1,984 1,901 359 2,260 2,269 423 2,692
------ ---- ------ ------ ---- ------ ------ ---- ------
Total Revenues... 2,866 267 3,133 3,012 396 3,408 3,319 454 3,773
Production costs*..... 1,066 73 1,139 1,104 131 1,235 1,348 137 1,485
Exploration
expenses............ 277 66 343 224 74 298 250 86 336
Depreciation,
depletion and
amortization........ 1,477 111 1,588 1,119 97 1,216 1,440 87 1,527
Income tax expense.... (229) 14 (215) 63 54 117 (195) 50 (145)
------ ---- ------ ------ ---- ------ ------ ---- ------
Results of
Operations**... 275 3 278 $ 502 $ 40 $ 542 $ 476 $ 94 $ 570
------ ---- ------ ------ ---- ------ ------ ---- ------
Shell Oil's interest
in results of
operations of equity
companies........... -- 39 39 -- $ 3 $ 3 -- -- --
====== ==== ====== ====== ==== ====== ====== ==== ======
</TABLE>
- ------------
* Beginning in 1993, the value of own production consumed as fuel was
eliminated from production costs. In 1993, the 1992 data was restated to
conform with this presentation.
** Excludes research, corporate overhead and interest costs.
5
<PAGE> 6
The weighted average price per unit of production of crude oil and
condensate, natural gas liquids and natural gas available for market, as well as
production expenses and results of operations for oil and gas producing
activities on a per barrel of equivalent net hydrocarbon production basis, for
each of the past three years were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------ ------------------------ ------------------------
U.S. INT'L TOTAL U.S. INT'L TOTAL U.S. INT'L TOTAL
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNIT STATISTICS
Weighted Average Price per
Barrel of Net Production:
Crude oil and condensate.... $13.41 $14.38 $13.51 $14.08 $16.05 $14.38 $15.78 $18.33 $16.14
Natural gas liquids......... 11.95 9.69 11.94 12.87 16.70 12.93 13.03 17.50 13.11
Weighted Average Price per
Thousand Cubic Feet of Net
Marketable Natural Gas
Produced.................... 1.90 1.64 1.88 2.12 2.22 2.12 1.71 1.07 1.69
Production Expenses (dollars
per barrel of equivalent net
hydrocarbon production)*.... 4.20 3.65 4.16 4.47 5.17 4.53 4.95 5.28 4.98
Results of Operations (dollars
per barrel of equivalent net
hydrocarbon production)*.... 1.09 0.13 1.02 2.12 1.63 2.07 2.02 3.83 2.18
</TABLE>
- ---------------
* Beginning in 1993, the value of own production consumed as fuel and
restructuring costs were eliminated from production expenses. In 1993, the
1992 data was restated to conform with this presentation. The restructuring
costs on a dollars per barrel of equivalent net hydrocarbon production basis
excluded for the years 1993 and 1992 were $0.07 and $0.26, respectively. There
were no restructuring costs in 1994.
6
<PAGE> 7
Capitalized costs related to oil and gas producing activities at year end,
and costs incurred in oil and gas property acquisition, exploration and
development activities for each year are shown below. These amounts do not
include costs of carbon dioxide and other non-hydrocarbon projects which for
segment reporting are included in the Oil and Gas Exploration and Production
data presented in Notes 14 and 19 of the Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------- -------------------------- --------------------------
U.S. INT'L TOTAL U.S. INT'L TOTAL U.S. INT'L TOTAL
------- ------ ------- ------- ------ ------- ------- ------ -------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITALIZED COSTS
Proved properties........ $20,130 $1,392 $21,522 $19,628 $1,335 $20,963 $19,925 $1,652 $21,577
Unproved properties...... 999 25 1,024 1,178 47 1,225 1,426 64 1,490
Support equipment and
facilities............ 385 17 402 459 16 475 554 70 624
------- ------ ------- ------- ------ ------- ------- ------ -------
Total Capitalized
Costs............ 21,514 1,434 22,948 21,265 1,398 22,663 21,905 1,786 23,691
Accumulated depreciation,
depletion and
amortization.......... 11,866 669 12,535 11,011 565 11,576 10,980 702 11,682
------- ------ ------- ------- ------ ------- ------- ------ -------
NET CAPITALIZED
COSTS............ $ 9,648 $ 765 $10,413 $10,254 $ 833 $11,087 $10,925 $1,084 $12,009
======= ====== ======= ======= ====== ======= ======= ====== =======
Shell Oil's interest in
net capitalized costs
of equity companies... -- 256 256 -- $ 226 $ 226 -- -- --
COSTS INCURRED IN PROPERTY
ACQUISITION, EXPLORATION
AND DEVELOPMENT
ACTIVITIES*
Acquisition of
properties
Proved.............. $ 79 $ -- $ 79 $ 20 $ -- $ 20 $ 6 $ -- $ 6
Other............... 22 5 27 17 6 23 12 6 18
Exploration costs..... 381 44 425 253 86 339 239 108 347
Development costs..... 693 57 750 554 209 763 612 201 813
------- ------ ------- ------- ------ ------- ------- ------ -------
Shell Oil's share of
costs incurred by
equity companies.... $ -- $ 68 $ 68 -- $ 19 $ 19 -- -- --
</TABLE>
- ------------
* Costs have been categorized on the basis of Financial Accounting Standards
Board definitions which include costs of oil and gas producing activities
whether capitalized or charged to expense as incurred.
7
<PAGE> 8
Shell Oil's oil and gas exploration and development net wells drilled and
the wells which were producing or capable of producing, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- --------------------- ---------------------
U.S. INT'L TOTAL U.S. INT'L TOTAL U.S. INT'L TOTAL
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET WELLS DRILLED
Exploratory
Oil and Gas Wells......... 13 -- 13 27 1 28 8 5 13
Dry Holes................. 20 2 22 17 3 20 13 9 22
Development
Oil and Gas Wells......... 204 2 206 178 13 191 193 15 208
Dry Holes................. 3 -- 3 4 1 5 5 2 7
OIL AND GAS WELLS PRODUCING OR
CAPABLE OF PRODUCING
Gross Wells
Oil....................... 23,879 341 24,220 23,908 411 24,319 26,213 475 26,688
Gas....................... 1,519 28 1,547 1,578 25 1,603 1,799 33 1,832
Net Wells
Oil....................... 14,495 95 14,590 14,733 113 14,846 16,350 142 16,492
Gas....................... 1,037 8 1,045 1,011 8 1,019 1,077 10 1,087
Number of net oil and gas
wells above completed in
more than one producing
formation................. 320 3 323 289 3 292 390 2 392
</TABLE>
As of December 31, 1993, Shell Oil's interest in wells which were in the
process of being drilled was as follows:
<TABLE>
<CAPTION>
EXPLORATORY DEVELOPMENT TOTAL
------------- -------------- --------------
GROSS NET GROSS NET GROSS NET
----- --- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
WELLS IN PROCESS OF BEING DRILLED
United States....................... 6.0 4.2 40.0 34.0 46.0 38.2
International....................... -- -- 2.0 0.3 2.0 0.3
----- --- ----- ---- ----- ----
Total.......................... 6.0 4.2 42.0 34.3 48.0 38.5
===== ==== ===== ==== ===== ====
</TABLE>
Acreage in which Shell Oil had an interest at the end of each of the
periods indicated was as follows:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------- ------- -------- -------- --------
(thousands of acres)
<S> <C> <C> <C> <C> <C>
UNDEVELOPED ACREAGE
Gross
United States
Onshore........................ 1,542 1,354 1,983 2,535 3,644
Offshore....................... 2,797 4,086 4,966 6,390 6,698
International..................... 37,685 37,823 40,860 49,725 66,682
------- ------- -------- -------- --------
TOTAL..................... 42,024 43,263 47,809 58,650 77,024
====== ====== ======= ======= =======
Net
United States
Onshore........................ 955 960 1,472 1,948 2,790
Offshore....................... 2,717 3,717 4,544 5,550 5,747
International..................... 23,125 13,780 16,308 20,670 29,170
------- ------- -------- -------- --------
TOTAL..................... 26,797 18,457 22,324 28,168 37,707
====== ====== ======= ======= =======
PRODUCING OIL AND GAS ACREAGE
Gross
United States..................... 1,281 1,329 1,513 1,599 1,575
International..................... 90 69 109 110 99
------- ------- -------- -------- --------
TOTAL..................... 1,371 1,398 1,622 1,709 1,674
====== ====== ======= ======= =======
Net
United States..................... 1,003 1,072 1,115 1,167 1,131
International..................... 23 20 30 32 28
------- ------- -------- -------- --------
TOTAL..................... 1,026 1,092 1,145 1,199 1,159
====== ====== ======= ======= =======
</TABLE>
8
<PAGE> 9
Shell Oil's net production (after deducting interests of others, including
royalty) was as follows for the periods indicated:
<TABLE>
<CAPTION>
LIQUIDS (THOUSANDS OF BARRELS DAILY)
NATURAL GAS (MILLIONS OF CUBIC FEET
DAILY) 1994 1993 1992 1991 1990
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET CRUDE OIL AND CONDENSATE PRODUCED
United States
Gulf of Mexico................. 133 113 122 105 92
California..................... 133 140 160 181 188
Louisiana...................... 9 8 10 10 12
Michigan....................... 7 8 10 11 13
Texas.......................... 48 50 56 58 61
Other.......................... 25 30 30 35 35
------- ------- -------- -------- --------
Total United States............ 355 349 388 400 401
International....................... 43 61 63 81 80
------- ------- -------- -------- --------
Total consolidated companies... 398 410 451 481 481
Shell Oil's interest in production
of equity companies............... 31 29 -- -- --
NATURAL GAS LIQUIDS PRODUCED
Predominantly domestic.............. 61 54 59 56 60
------- ------- -------- -------- --------
TOTAL LIQUIDS PRODUCED......... 490 493 510 537 541
====== ====== ======= ======= =======
NET NATURAL GAS PRODUCED*
United States
Gulf of Mexico................. 785 741 711 709 763
Louisiana...................... 120 129 140 50 39
Michigan....................... 107 120 134 132 107
Oklahoma....................... -- -- -- -- 14
Texas.......................... 345 370 343 331 333
Other.......................... 205 115 126 151 159
International....................... 67 39 28 26 26
------- ------- -------- -------- --------
TOTAL GAS PRODUCED............. 1,629 1,514 1,482 1,399 1,441
====== ====== ======= ======= =======
Net natural gas available for
market, excluding consumed in
operations........................ 1,473 1,361 1,158 1,187 1,185
</TABLE>
- ------------
* Natural gas is reported on the basis of actual or calculated volumes which
remain after removal of liquefiable hydrocarbons by lease or field separation
facilities and of non-hydrocarbons where they occur in sufficient quantities
to render the gas unmarketable.
Proved Reserve Estimates
Oil and gas proved reserves cannot be measured exactly. Reserve estimates
are based on many factors related to reservoir performance which require
evaluation by the engineers interpreting the available data, as well as price
and other economic factors. The reliability of these estimates at any point in
time depends on both the quality and quantity of the technical and economic
data, the production performance of the reservoirs as well as extensive
engineering judgment. Consequently, reserve estimates are subject to revision as
additional data become available during the producing life of a reservoir. When
a commercial reservoir is discovered, proved reserves are initially determined
based on limited data from the first well or wells. Subsequent data may better
define the extent of the reservoir and additional production performance, well
tests and engineering studies will likely improve the reliability of the reserve
estimate. The evolution of technology may also result in the application of
improved recovery techniques such as supplemental or enhanced recovery projects,
or both, which have the potential to increase reserves beyond those envisioned
during the early years of a reservoir's producing life.
Shell Oil reports its reserve position annually. Revisions to reserves are
based on engineering analyses of individual reservoirs at the field level. Prior
to finalizing the annual reserve report, a team of senior technical
9
<PAGE> 10
employees of Shell Oil reviews the reserve estimates, procedures and explanation
of revisions for proven reservoirs.
Proved reserves are those quantities which, upon analysis of geological and
engineering data, appear with reasonable certainty to be recoverable in the
future from known oil and gas reservoirs under current prices and costs as of
the date the estimate is made. For major revisions, extensions and discoveries,
proved reserves must also be recoverable under future prices and costs
forecasted by Shell Oil. Proved developed reserves are those reserves which can
be expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are those reserves which are
expected to be recovered from new wells on undrilled acreage or from existing
wells where a relatively major expenditure is required.
Net proved reserves represent the estimated recoverable volumes after
deducting from gross proved reserves the portion due land owners or others as
royalty or operating interests.
Estimated quantities of net proved oil, natural gas liquids and natural gas
reserves and of changes in net quantities of proved developed and undeveloped
reserves for each of the periods indicated were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
LIQUIDS (MILLIONS OF BARRELS) ------------------------ ------------------------ ------------------------
NATURAL GAS (BILLIONS OF CUBIC FEET) U.S. INT'L TOTAL U.S. INT'L TOTAL U.S. INT'L TOTAL
----- ----- ------ ----- ----- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OIL RESERVES
Proved Developed and Undeveloped
Beginning of year...................... 1,956 127 2,083 1,984 255 2,239 2,229 294 2,523
Revisions of previous estimates........ (97) 4 (93) (72) (18) (90) (90) 10 (80)
Improved recovery...................... 7 -- 7 6 1 7 4 9 13
Purchases of reserves*................. 5 -- 5 1 (101)(1) (100) 2 -- 2
Extensions and discoveries............. 68 3 71 219 13 232 12 60 72
Sales of reserves...................... -- -- -- (55) -- (55) (31) (95)(2) (126)
Production............................. (129) (16) (145) (127) (23) (150) (142) (23) (165)
----- ---- ----- ----- ---- ----- ----- ---- -----
End of year............................ 1,810 118 1,928 1,956 127 2,083 1,984 255 2,239
===== ==== ===== ===== ==== ===== ===== ==== =====
Net changes for year................... (146) (9) (155) (28) (128) (156) (245) (39) (284)
Shell Oil's interest in proved reserves
of equity companies at end of year... -- 68 68 -- 69 69 -- -- --
Proved Developed
Beginning of year...................... 1,252 79 1,331 1,372 131 1,503 1,504 138 1,642
End of year............................ 1,156 74 1,230 1,252 79 1,331 1,372 131 1,503
NATURAL GAS LIQUIDS RESERVES
Proved Developed and Undeveloped
Beginning of year...................... 247 1 248 227 4 231 246 4 250
Revisions of previous estimates........ (15) -- (15) 17 (1) 16 (2) -- (2)
Purchases of reserves*................. 1 -- 1 -- (2)(1) (2) -- -- --
Extensions and discoveries............. 19 -- 19 32 -- 32 7 -- 7
Sales of reserves...................... -- -- -- (9) -- (9) (3) -- (3)
Production............................. (22) -- (22) (20) -- (20) (21) -- (21)
----- ---- ----- ----- ---- ----- ----- ---- -----
End of year............................ 230 1 231 247 1 248 227 4 231
===== ==== ===== ===== ==== ===== ===== ==== =====
Net changes for year................... (17) -- (17) 20 (3) 17 (19) -- (19)
Proved Developed
Beginning of year...................... 170 1 171 173 3 176 182 3 185
End of year............................ 166 1 167 170 1 171 173 3 176
NATURAL GAS RESERVES**
Proved Developed and Undeveloped
Beginning of year...................... 4,911 288 5,199 5,235 435 5,670 5,967 439 6,406
Revisions of previous estimates........ (69) 2 (67) (119) (21) (140) (322) (13) (335)
Improved recovery...................... 1 -- 1 4 -- 4 1 -- 1
Purchases of reserves*................. 73 -- 73 16 (112)(1) (96) 9 -- 9
Extensions and discoveries............. 1,200 -- 1,200 457 -- 457 261 19 280
Sales of reserves...................... -- -- -- (143) -- (143) (149) -- (149)
Production............................. (570) (25) (595) (539) (14) (553) (532) (10) (542)
----- ---- ----- ----- ---- ----- ----- ---- -----
End of year............................ 5,546 265 5,811 4,911 288 5,199 5,235 435 5,670
===== ==== ===== ===== ==== ===== ===== ==== =====
Net changes for year................... 635 (23) 612 (324) (147) (471) (732) (4) (736)
Shell Oil's interest in proved reserves
of equity companies at end of year... -- 306 306 -- 374 374 -- -- --
Proved Developed
Beginning of year...................... 3,712 288 4,000 4,215 332 4,547 4,602 327 4,929
End of year............................ 3,646 265 3,911 3,712 288 4,000 4,215 332 4,547
</TABLE>
(Footnotes on following page)
10
<PAGE> 11
- ------------
* Includes the net effect of exchanges of reserves with other companies.
** Natural gas is reported on the basis of actual or calculated volumes which
remain after removal of liquefiable hydrocarbons by lease or field separation
facilities and of non-hydrocarbons where they occur in sufficient quantities
to render the gas unmarketable. Natural gas reserve volumes include
liquefiable hydrocarbons approximating five percent of total gas reserves
which are recoverable at natural gas processing plants downstream from the
lease or field separation facilities. Such recoverable liquids also have been
included in natural gas liquids reserve volumes.
(1) Represents the transfer of reserves associated with Syrian operations which
were exchanged for an equity interest in a company affiliated with the Royal
Dutch/Shell Group of companies.
(2) Represents the transfer of reserves associated with Malaysian and Canadian
operations to companies affiliated with the Royal Dutch/Shell Group of
Companies.
Standardized Measure
The following disclosures concerning the standardized measure of future
cash flows from proved oil and gas reserves are presented in accordance with
Statement of Financial Accounting Standards No. 69. As prescribed by this
Statement, the amounts shown are based on prices and costs at the end of each
period, currently enacted tax rates and a 10 percent annual discount factor.
Since prices and costs do not remain static, and no price or cost changes have
been considered, the results are not necessarily indicative of the fair market
value of estimated proved reserves, but they do provide a common benchmark which
may enhance the users' ability to project future cash flows.
For this purpose, individual estimates of production quantities, revenues
and costs were developed for major fields and combinations of smaller, closely
related fields. These fields contained approximately 80 percent of Shell Oil's
total estimated proved reserves. Estimates for the remaining fields were
developed in the aggregate by major geographic regions. Extensive judgments are
involved in estimating the timing of production and the costs that will be
incurred throughout the remaining lives of these fields. Therefore, the results
may not be comparable to estimates disclosed by other oil and gas producers.
The standardized measure of discounted future net cash flows related to
proved oil and gas reserves at the end of each year was as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------
U.S. INT'L TOTAL U.S. INT'L TOTAL
------- ------ ------- ------- ------ -------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS
Future cash inflows................ $37,250 $2,482 $39,732 $33,240 $2,101 $35,341
Future production and development
costs............................ 17,609 890 18,499 19,953 927 20,880
Future income tax expenses......... 5,385 411 5,796 2,988 220 3,208
------- ------ ------- ------- ------ -------
Future net cash flows*............. 14,256 1,181 15,437 10,299 954 11,253
10 percent annual discount for
estimated timing of cash flows... 6,253 387 6,640 4,531 397 4,928
------- ------ ------- ------- ------ -------
TOTAL......................... $ 8,003 $ 794 $ 8,797 $ 5,768 $ 557 $ 6,325
======= ====== ======= ======= ====== =======
Shell Oil's share of standardized
measure of discounted future net
cash flows of equity companies... -- $ 615 $ 615 -- $ 353 $ 353
</TABLE>
- ------------
* Future net cash flows were estimated using year end prices and costs, and
currently enacted tax rates. Shell Oil's domestic and international weighted
average crude oil prices at year end 1994 were $13.72 per barrel and $17.10
per barrel, respectively, compared to year end 1993 prices of $9.89 and $13.23
per barrel, respectively.
11
<PAGE> 12
The aggregate change in the standardized measure of discounted future net
cash flows was an increase of $2,472 million in 1994, a decrease of $2,524
million in 1993 and an increase of $1,469 million in 1992. The principal sources
of change were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(millions of dollars)
<S> <C> <C> <C>
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS
Sales and transfers of oil and gas produced, net of
production costs................................... $(1,994) $(2,191) $(2,288)
Net changes in prices and costs...................... 3,863 (3,264) 1,613
Extensions, discoveries, additions and improved
recovery, less related costs....................... 1,458 1,291 559
Net purchases and sales of reserves.................. 89 (896) (793)
Development costs incurred during the period......... 750 763 813
Revisions of previous reserve estimates.............. (518) (252) (558)
Accretion of discount................................ 810 1,274 1,019
Net change in income taxes........................... (1,480) 2,119 (1,087)
</TABLE>
OIL PRODUCTS
General
The Oil Products business is engaged in the refining, transporting and
marketing of oil products, principally in the United States. This segment is
oriented toward light fuel products; accordingly, refineries are designed, and
are being further upgraded, to produce large quantities of motor gasoline and
aviation fuel. The Company is a leading U.S. marketer of gasoline and an
important supplier of aviation fuel, lubricants and asphalt.
Total revenues, operating profit and segment income for Oil Products'
activities for each of the past three years, together with capital expenditures
and related identifiable assets at the end of each year, were as set out below.
For additional information, see Note 19 of the Notes to Consolidated Financial
Statements included in Item 14a.
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(millions of dollars)
<S> <C> <C> <C>
REVENUES
Sales and other operating revenue.............. $15,733 $15,462 $15,650
Other revenue.................................. 14 8 11
Intersegment transfers......................... 851 949 1,007
------- ------- -------
TOTAL REVENUES....................... 16,598 16,419 16,668
COSTS AND EXPENSES
Costs and operating expenses................... 15,559 15,708 16,347
Depreciation, depletion, amortization and
retirements.................................. 341 253 259
------- ------- -------
OPERATING PROFIT..................... 698 458 62
Allocated corporate expenses................... 29 25 70
Allocated income taxes......................... 218 163 3
Equity in net (income) loss of others.......... 24 (15) (19)
------- ------- -------
INCOME FROM ONGOING OPERATIONS....... 427 285 8
Other charges*................................. 54 5 2
------- ------- -------
SEGMENT NET INCOME................... $ 373 $ 280 $ 6
======= ======= =======
CAPITAL EXPENDITURES................................ $ 1,087 $ 704 $ 790
======= ======= =======
IDENTIFIABLE ASSETS AT DECEMBER 31.................. $ 7,892 $ 7,232 $ 7,107
======= ======= =======
</TABLE>
- ------------
* Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
12
<PAGE> 13
Supplies
Shell Oil supplements its own crude oil production to meet its refinery
requirements by the purchase of crude oil from both domestic and international
sources. During 1994, 37 percent of the Company's net crude supply came from
sources outside the United States. Approximately 21 percent was purchased from
government oil companies in six foreign countries and 16 percent was purchased
from other sources, including companies affiliated with the Royal Dutch/Shell
Group of Companies.
Net sources of crude oil, and oil products supply and distribution were as
follows for the periods indicated:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
(thousands of barrels daily)
<S> <C> <C> <C> <C> <C>
NET SOURCES OF CRUDE OIL
United States.............................. 561 527 591 670 587
International.............................. 329 339 334 317 338
----- ----- ----- ----- -----
TOTAL................................. 890 866 925 987 925
===== ===== ===== ===== =====
OIL PRODUCTS SUPPLY
Net crude oil produced..................... 398 410 451 481 481
Natural gas liquids produced............... 61 54 59 56 60
Crude oil purchased........................ 1,288 1,182 1,164 1,173 1,028
Crude oil sold............................. (796) (726) (690) (667) (584)
Crude oil inventory change................. -- 5 -- (1) 23
Oil products purchased..................... 496 424 276 270 323
----- ----- ----- ----- -----
TOTAL SUPPLY.......................... 1,447 1,349 1,260 1,312 1,331
===== ===== ===== ===== =====
OIL PRODUCTS DISTRIBUTION
Refined products sold...................... 1,272 1,200 1,120 1,195 1,188
Used in chemical manufactures.............. 125 121 128 119 118
Product inventory change................... 16 6 (1) (7) 20
Own consumption, etc....................... 34 22 13 5 5
----- ----- ----- ----- -----
TOTAL DISTRIBUTION.................... 1,447 1,349 1,260 1,312 1,331
===== ===== ===== ===== =====
</TABLE>
Manufacturing
During 1994, the Company owned and operated refining facilities located at
Martinez, California; Wood River, Illinois; Norco, Louisiana; Odessa, Texas; and
Anacortes, Washington. Additionally, the Company and a subsidiary of Mexico's
national oil company Petroleos Mexicanos (Pemex) are in a 50/50 joint venture at
the Deer Park, Texas refinery; the Company operates the refinery on behalf of
the venture. A $1 billion refinery upgrading program continued on schedule at
the jointly owned Deer Park refinery. In January 1994, the Company broke ground
on a $1 billion clean fuels upgrading project at its Martinez, California
refinery. This upgrade is designed to increase reformulated gasoline production
to comply with new legal requirements as well as to increase diesel and jet fuel
production and to decrease heavy fuel oil production.
13
<PAGE> 14
Refinery processing intakes of crude oil, natural gas liquids and other raw
materials for the manufacture of petroleum products at the Company's refineries
and certain other refinery statistics were as follows for the periods indicated:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
(thousands of barrels daily)
<S> <C> <C> <C> <C> <C>
REFINERY PROCESSING INTAKES
Anacortes, Washington..................... 107 107 103 82 89
Deer Park, Texas*......................... 112 142 225 202 176
Martinez, California...................... 161 168 165 140 119
Norco, Louisiana.......................... 239 232 202 199 212
Odessa, Texas............................. 24 26 25 25 26
Wilmington, California**.................. -- -- -- 120 119
Wood River, Illinois...................... 262 243 252 234 224
----- ----- ----- ----- -----
TOTAL................................ 905 918 972 1,002 965
===== ===== ===== ===== =====
OTHER REFINERY STATISTICS*
Operable capacity of crude oil
distillation units at beginning of
year.................................... 847 892*** 967 1,083 1,079
Refinery intakes to crude oil
distillation units ..................... 850 854 900 949 904
Refinery crude oil distillation unit
intakes as a percent of operable
capacity at beginning of year........... 100.4% 95.7% 93.1% 87.6% 83.8%
Own net produced crude oil and natural gas
liquids as a percent of intakes to crude
oil distillation units.................. 54.0% 54.3% 56.7% 56.6% 59.8%
</TABLE>
- ---------------
* Reflects the Company's 50% equity interest in the Deer Park Refinery,
effective April 1, 1993.
** The Wilmington, California refinery was sold in December 1991.
*** Weighted average capacity. Adjusted to reflect the Company's 50% equity
interest in the Deer Park Refinery, effective April 1, 1993.
Transportation
At December 31, 1994, Shell Oil's wholly owned pipeline system consisted of
approximately 5,989 miles of pipelines of various sizes, of which 2,856 miles
were crude oil gathering and trunk lines, 2,765 miles were products lines, 130
miles were natural gas lines and 238 miles were carbon dioxide lines. In
addition, Shell Oil had varying stock, partnership or undivided interests in
pipelines consisting of approximately 2,928 miles of crude lines, 7,415 miles of
products lines and 784 miles of carbon dioxide lines. Shell Oil also engages
tankers and barges by a variety of methods, including spot charters, short-term
and long-term charters, contracts of affreightment and other contractual
arrangements for transportation of crude oil and products. Oil products are also
delivered to customers by truck and rail.
In late 1994, plans to construct a major new pipeline system to transport
crude oil from current and future deepwater production in the Gulf of Mexico
were announced. Construction of two 20 inch diameter lines having a total design
capacity of 200,000 barrels per day is anticipated to begin mid-1995 with
completion in 1996.
Marketing
Shell Oil distributes oil products principally under the "Shell" symbol or
other trademarks in which the word "Shell" appears. Oil marketing operations are
carried out through transportation systems, terminals, bulk distributing plants
and, at the end of 1994, approximately 8,600 service stations displaying Shell
trademarks. These stations are located in 40 states and the District of
Columbia.
14
<PAGE> 15
The number of bulk distributing plants and service stations was as follows
at the end of the periods indicated:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
BULK DISTRIBUTING PLANTS
Leased or owned.......................... 55 57 61 65 67
====== ====== ====== ====== ======
SERVICE STATIONS*
Leased or owned.......................... 4,000 3,900 3,900 3,900 4,000
Jobber and other......................... 4,600 4,800 4,800 5,000 5,400
------ ------ ------ ------ ------
TOTAL............................... 8,600 8,700 8,700 8,900 9,400
====== ====== ====== ====== ======
----------------------
* Rounded to nearest hundred.
</TABLE>
Shell Oil's refined product revenues and sales volumes were as follows for
the periods indicated:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(millions of dollars)
<S> <C> <C> <C> <C> <C>
REFINED PRODUCT REVENUES
Automotive gasoline.................... $ 6,818 $ 6,687 $ 6,713 $ 7,172 $ 8,499
Jet fuel............................... 1,160 1,242 1,173 1,387 1,673
Kerosene, heating and diesel oils...... 462 449 368 480 570
Heavy fuel oils........................ 404 423 469 495 483
Propane and other LPG.................. 398 419 408 390 375
Asphalt................................ 240 230 168 185 230
Lubricants, grease, process oils and
wax................................. 596 551 575 584 592
Coke................................... 20 22 16 42 52
All other products..................... 962 763 753 885 912
------- ------- ------- ------- -------
TOTAL............................. $11,060 $10,786 $10,643 $11,620 $13,386
======= ======= ======= ======= =======
(thousands of barrels daily)
REFINED PRODUCT SALES VOLUMES
Automotive gasoline.................... 685 638 596 636 663
Jet fuel............................... 145 143 128 141 142
Kerosene, heating and diesel oils...... 59 54 42 52 55
Heavy fuel oils........................ 87 103 108 113 84
Propane and other LPG.................. 88 89 87 74 68
Asphalt................................ 40 37 35 32 35
Lubricants, grease, process oils and
wax................................. 19 17 18 17 19
Coke................................... 6 6 6 15 16
All other products..................... 143 113 100 115 106
------- ------- ------- ------- -------
TOTAL............................. 1,272 1,200 1,120 1,195 1,188
======= ======= ======= ======= =======
</TABLE>
CHEMICAL PRODUCTS
The Company is a major producer in the United States of olefins, aromatics,
detergent alcohols, ethylene oxide and derivatives, thermoplastic elastomers,
epoxy resins, polypropylene, oxygenated and hydrocarbon solvents, polyester
resin, and ethylene oxide catalysts. These basic chemical products are used in
many consumer and industrial products and processes. They are sold primarily to
industrial markets in the United States through the Company's own sales force;
some products are also sold through distributors. Approximately 20 percent of
chemical volumes are sold outside the United States. Chemical products are
delivered to customers principally by rail, truck and pipeline. In addition,
petrochemicals are manufactured by a joint venture with Saudi Basic Industries
Corporation and sold in worldwide markets. To further improve long-
15
<PAGE> 16
term profitability, Shell Oil continues to pursue new business ventures and
growth opportunities in areas that complement its strengths in technology and
feedstocks. In early 1995, the Company announced plans to hold separate and
divest its polypropylene-related assets (see Item 3. Legal Proceedings, page
20).
Total revenues, operating profit and segment net income for Chemical
Products' activities for each of the past three years, together with capital
expenditures and related identifiable assets at the end of each year, were as
set out below. For additional information, see Note 19 of the Notes to
Consolidated Financial Statements included in Item 14a.
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(millions of dollars)
<S> <C> <C> <C>
REVENUES
Sales and other operating revenue................. $4,075 $3,687 $3,354
Other revenue..................................... 12 16 39
Intersegment transfers............................ 158 172 129
------ ------ ------
TOTAL REVENUES.......................... 4,245 3,875 3,522
COSTS AND EXPENSES
Costs and operating expenses...................... 3,654 3,315 3,133
Depreciation, depletion, amortization and
retirements..................................... 288 232 216
------ ------ ------
OPERATING PROFIT........................ 303 328 173
Allocated corporate expenses...................... 16 24 30
Allocated income taxes............................ 98 119 48
Equity in net (income) loss of others............. (34) (35) 2
------ ------ ------
INCOME FROM ONGOING OPERATIONS.......... 223 220 93
Other charges*.................................... 62 185 81
------ ------ ------
SEGMENT NET INCOME...................... $ 161 $ 35 $ 12
====== ====== ======
CAPITAL EXPENDITURES................................... $ 343 $ 319 $ 424
====== ====== ======
IDENTIFIABLE ASSETS AT DECEMBER 31..................... $4,520 $4,312 $4,131
====== ====== ======
</TABLE>
- ------------
* Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Chemical sales revenues were as follows for the periods indicated:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(millions of dollars)
<S> <C> <C> <C> <C> <C>
Primaries (olefins, aromatics)................ $ 1,024 $ 869 $ 980 $ 967 $ 1,167
Intermediates and solvents.................... 1,314 1,211 1,152 1,290 1,395
Polymers...................................... 1,550 1,434 1,013 942 965
Other......................................... 78 84 133 98 127
------- ------- ------- ------- -------
$ 3,966 $ 3,598 $ 3,278 $ 3,297 $ 3,654
====== ====== ====== ====== ======
</TABLE>
The Company owns and operates chemical manufacturing facilities located at
Martinez, California; Lakeland, Florida; Argo and Wood River, Illinois; Geismar,
Norco, Taft and Reserve, Louisiana; Belpre, Ohio; Deer Park, Texas; and Pt.
Pleasant, West Virginia. During 1994, a 35 percent increase in the annual
capacity of the polyester resin manufacturing plant in Point Pleasant, West
Virginia was completed, and an additional 33 percent expansion was begun with
completion expected in 1996. Also in 1994, ethylene unit expansions were begun
at Deer Park and Norco with first phase completion scheduled for late 1995. Two
expansions of production facilities at Lakeland, Florida for waterborne epoxy
resins were completed in 1994.
16
<PAGE> 17
OTHER BUSINESSES
Coal
In 1994, Shell Oil sold its 25 percent equity interest in Zeigler Coal
Holding Company.
Other
In connection with its oil and gas exploration and production business,
Shell Oil has reserves of, and produces, sulfur and carbon dioxide. Sulfur is
recovered in some of its natural gas plants and refinery operations. Estimated
year-end proved reserves and production of sulfur and carbon dioxide for each of
the periods indicated were as follows:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
SULFUR (thousands of long tons)
Estimated proved reserves................... 3,860 4,075 4,304 4,681 5,574
Production.................................. 209 228 245 284 310
Recovered in refinery operations............ 251 255 207 241 218
Average price per ton....................... $14.67 $30.04 $54.37 $84.44 $82.96
CARBON DIOXIDE (billions of cubic feet)
Estimated proved reserves................... 4,212 4,250 4,315 4,788 4,944
Production.................................. 114 100 109 111 130
Average price per thousand cubic feet....... $ 0.17 $ .37 $ .47 $ .46 $ .50
</TABLE>
OTHER MATTERS
General
The business affairs, operations and earnings of Shell Oil continue to be
affected by political developments and by legislation, regulation and other
actions taken by federal, state and local governments, and by governmental
entities outside the United States, particularly those directly or indirectly
affecting oil and natural gas production, transportation, purchase or sale; the
refining, manufacture, transportation or marketing of petroleum and chemical
products; environmental issues related to all of the preceding (as discussed in
"Environmental Matters" following); or restrictions or requirements imposed on
companies because of foreign ownership or affiliations. As such matters could
subject Shell Oil to changes in operations, as well as to litigation and claims
of a character which have not existed in the past, Shell Oil is unable to
predict the overall effect of the preceding on its operations and earnings.
Environmental Matters
Federal environmental laws and regulations including the National
Environmental Policy Act; the Clean Air Act; the Clean Water Act; the Safe
Drinking Water Act; the Resource Conservation and Recovery Act; the Toxic
Substances Control Act; the Comprehensive Environmental Response, Compensation
and Liability Act; and their implementing regulations, as well as numerous state
and local environmental laws, continue to have an increasing impact on Shell
Oil's operations. Additional information concerning the effect that compliance
with such environmental requirements may have on capital expenditures, earnings
and competitive position, including information concerning allegations or claims
received regarding site cleanup obligations, is incorporated herein by reference
from Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, Environmental Matters (pages 30-32), and Item 3. Legal
Proceedings (pages 18-22).
Competition
All phases of the businesses in which Shell Oil is engaged are highly
competitive. Shell Oil competes at various levels with both petroleum and
non-petroleum companies in providing energy and other products to the consumer.
17
<PAGE> 18
The Oil and Gas Exploration and Production segment competes with numerous
other companies in the industry to locate and to obtain new sources of supply
and to produce oil and gas in a cost-effective and efficient manner. The
principal methods of competition include geological, geophysical and engineering
research and technology, experience and expertise, and economic analysis in
connection with property acquisitions.
Competitive methods in the Oil and Chemical Products segments consist of
product improvement and new product development through research and technology,
and efficient manufacturing and distribution systems. In the marketing phase of
the business, competitive factors include product quality and reliability,
price, advertising and sales promotion, and development of customer loyalty to
Shell products.
Research
Total research and development expenses charged to income (including
applicable operating taxes and depreciation) in 1994 amounted to $170 million,
compared with $192 million in 1993 and $206 million in 1992. In 1994, about 73
percent was spent on Shell Oil sponsored research and development activities
relating to the improvement of existing, and the development of new, products
and processes, as compared to 65 percent in 1993 and 67 percent in 1992. The
remainder in each period was spent primarily on oil and gas exploration and
production activities.
The Company and another company of the Royal Dutch/Shell Group of Companies
have an arrangement whereby each will perform for, and exchange with, the other,
research services in petroleum technology, chemicals and other fields. In
addition, certain subsidiaries of the Company have technology sharing agreements
with certain other affiliates.
ITEM 3. LEGAL PROCEEDINGS.
In March 1983, the United States Environmental Protection Agency (EPA)
named the Company as one of several potentially responsible parties under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
for the costs of cleanup of the McColl Site, a site in Southern California used
for the disposal of refinery waste from 1942 to 1946. In April 1991, the
Company, Unocal, Arco and Texaco filed a counterclaim for contribution against
agencies of the United States government since the waste disposal at the McColl
Site arose primarily from the production of fuel for the U.S. 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 approximately $79 million but could go as
high as $120 million. In September 1993 the court ruled that the Company and
other defendants were liable for the costs of cleanup. The court has yet to rule
on the Company's counterclaim for contribution. In the second quarter of 1994,
the Company, Arco, Texaco and Unocal agreed to settle the EPA and certain state
claims for certain past costs incurred in connection with the McColl site for
$18 million; this settlement was completed on January 11, 1995. The Company is
also seeking a declaratory judgment in state Superior Court, San Mateo County,
California that it has insurance coverage.
In December 1983, the United States filed a civil action in the United
States District Court for the District of Colorado against the Company alleging
environmental damage and other liabilities based primarily upon CERCLA and upon
alleged breaches of lease obligations and other common law claims resulting from
the Company's operations from 1952 to 1982 at the United States Army's Rocky
Mountain Arsenal near Denver, Colorado. The State of Colorado contemporaneously
filed in the same court an action under CERCLA against the United States, the
United States Army and the Company alleging in part that, under CERCLA, the
State is trustee of the natural resources in question. The United States and the
Company entered into a settlement in February 1989. The settlement was approved
by the court in a Consent Decree effective February 12, 1993. Under the
settlement, the Company pays 50 percent of any amount expended for remedial
costs and natural resource damages up to $500 million. The Company would also
pay 35 percent of such expenditures between $500 million and $700 million and 20
percent of any amount expended in excess of $700 million. Based on its proposed
remediation alternative, the Company has accrued $500 million before tax for its
share of related costs, including provisions of $215 million in 1993 and $105
million in 1992. The
18
<PAGE> 19
Company's share of expenditures through December 31, 1994 was approximately $240
million. Other remediation alternatives, some of which could add significantly
to the Company's cost at the RMA, have been proposed by the State of Colorado
and the EPA; the Company does not believe such alternatives to be cost effective
or necessary to prevent risk to the environment. A final decision is not
expected until at least year end 1995 and possibly 1996. Future provisions may
be required as the scope and nature of remediation programs and related cost
estimates are clarified. The Company continues to litigate to establish
insurance coverage at the RMA through 1969 in the state Superior Court in San
Mateo County, California.
Since 1984, the Company has been named as a defendant in numerous product
liability cases, including class actions, involving the failure of plumbing
systems in the United States constructed with polybutylene plastic pipe.
Numerous claims seeking reimbursement for repairs to leaking polybutylene
plumbing systems have also been received. The components of such plumbing
systems were manufactured primarily by United States Brass Corporation (United
States Brass) and Vanguard Plastics, Inc. using polybutylene resin supplied by
the Company to fabricate the pipe and initially polyacetal resin supplied by
E.I. DuPont de Nemours and Company (DuPont) and Hoechst Celanese Corporation
(Hoechst Celanese) to fabricate the pipe fittings. The suits claim property
damages, principally from leaking residential plumbing systems and, in some
cases, fraud and intentional misrepresentation. Some claims involve pipe
connecting end users with utility water lines and a small number of cases
involve problems with municipal water distribution systems. The fabricators of
the plumbing systems and the manufacturers of the resin for the fittings, as
well as the builders and installers of the systems in various locations, are
also defendants in these cases. The Company's position and most of the judgments
to date have confirmed that most of the leaks in residential plumbing systems
have occurred due to the failure of the polyacetal insert fitting system.
Polyacetal is no longer used to manufacture insert fittings for these systems.
Current rough estimates are that claims of leaks have been made concerning about
4% of the polybutylene plumbing systems installed with such fittings. In late
1994, the Company with various other defendants had open claims concerning leaks
in approximately 130,000 of these systems, about 100,000 of which were the
subject of litigation. These numbers exclude claims arising as a part of class
actions since the number of plumbing systems involved in such actions has not
been ascertained. The number of new claims received increased significantly
during 1994 despite the resolution of 11,000 claims in a single settlement in
June, 1994. Class actions are pending in California, Nevada and Arizona
(involving potentially 50,000 site built units), and in Texas.
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 that the allocations among the participating defendants had not
been decided. The settlement, if it becomes final, 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 no final determination regarding the class
settlement is expected until late 1995.
The judgments in the polybutylene cases are generally joint and several.
Punitive damages have been awarded against the Company in only two cases and the
Company is appealing those decisions. In Texas and California, the juries
allocate percentage liability in joint defendant negligence cases which provides
a basis for contribution among the liable co-defendants. Some of the smaller
co-defendant installers are no longer in business and other co-defendant
fabricators and installers may have problems paying their share of costs
assessed in these cases. On May 22, 1994, United States Brass filed bankruptcy
proceedings in United States Bankruptcy Court for the Eastern District of Texas
in Plano, Texas. It is not clear as to the insurance coverage of certain
co-defendants. The Company initially sought a declaratory judgment action in
federal court in the Northern district of Illinois with respect to insurance
coverage through mid-1985 for polybutylene claims against the Company. During
the third quarter of 1994, that action was dismissed on procedural grounds. The
Company has since amended a previously filed coverage action pending in state
court in San Francisco, California to add its polybutylene coverage claims in
that action.
19
<PAGE> 20
Almost all of the current polybutylene plumbing claims which are outside of
litigation involve claims made to the Plumbing Claims Group, Inc. ("PCG"), a
corporation owned by the Company, DuPont and Hoechst Celanese which employs
approximately 100 people to take claims and arrange repairs concerning leaking
polybutylene pipe systems. Costs of the PCG are billed based on interim sharing
ratios which vary depending generally on the manufacturer of the component parts
and the resins.
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. 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. The
final number of wells involved and the extent and manner of appropriate cleanup
will be resolved in the litigation. Trial proceedings began in one of the larger
of these cases, the City of Fresno v. Shell et al., in late December and a
decision is not expected before midyear. In Texas, ten cases, including three
alleged class actions, involving approximately 20,000 named plaintiffs 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 had liability in connection with any such injury. The
Company believes that it has insurance coverage regarding DBCP claims and has
filed a declaratory judgment action in California Superior Court seeking to
resolve this coverage issue.
In December 1993, a Los Angeles County Superior Court jury, in two
consolidated lawsuits against the Company and its subsidiary, returned a verdict
against "Shell" 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 allege they were defrauded, that the oil and gas lease was
breached, and that soil contamination on the property constitutes a continuing
trespass. Final resolution through the appeals process could take two or more
years. For a number of reasons, the Company believes the verdict was wrong and
expects ultimately to prevail in the litigation.
The Company, along with its parent companies and other affiliated
companies, was sued in the United States District Court for the Southern
District of New York in January of this year by Union Carbide Corporation. The
complaint seeks preliminary and permanent injunctive relief concerning a
proposed joint venture between affiliates of the Company and another company
involving their polyolefins businesses (New Venture). In addition, the plaintiff
alleges that the Company breached certain contractual obligations to Union
Carbide.
In a separate proceeding, the Federal Trade Commission (FTC) has accepted
for public comment a consent agreement that permits the formation of the
proposed New Venture. The Company has agreed with the FTC to hold separate and
divest its polypropylene-related assets. The Company is proceeding to comply
with the FTC consent agreement.
The Company has been informed that the premises of its former manufacturing
plant in Torrance, California have been noticed for listing as a CERCLA site.
The plant was used for the manufacture of synthetic rubber by the United States
government during World War II and the Korean War. The Company owned and
operated the plant from 1955 to 1972. The Company and the United States have
agreed to a cost sharing formula to cover the remediation of 3 acres of the
premises on which extensive waste disposal occurred; a final plan for such
remediation has not been approved. The Company is currently engaged in a Phase I
investigation of the remaining portions of the former plant site to determine if
any further remediation may be required.
In November, 1994 the Occupational Safety and Health Administration of the
U.S. Department of Labor ("OSHA") issued citations to the Company demanding
$3,017,000 in civil penalties for alleged safety
20
<PAGE> 21
violations at the Belpre Chemical Plant. The case was immediately resolved
through an Informal Settlement Agreement which included a payment of $3,017,000
to OSHA.
In August 1990, the EPA and certain Louisiana state agencies conducted an
inspection of the Company's Norco, Louisiana Manufacturing Complex. As a result,
the Company has received notices alleging violations of the Safe Drinking Water
Act, the Resource Conservation and Recovery Act and other environmental statutes
arising out of waste handling and related practices at the complex. In April
1991, the EPA and the Company commenced negotiating an appropriate range of
penalties.
In February 1991, the Nevada Division of Environmental Protection brought
an action against the Company and others for alleged violations of the
provisions of the Nevada Water Pollution Control Law, the Nevada Storage Tank
Law and the Nevada Hazardous Waste Disposal Law. The action arises out of
alleged discharges that have resulted in an underground plume of fuel in Sparks,
Nevada and seeks payment of civil penalties and the performance of remedial
work. In August 1991, the EPA issued a Comprehensive Environmental Response,
Compensation and Liability Act Section 106 order to the Company and other
companies to develop and implement a removal action. In February 1992, the state
action was amended to include a claim for nuisance abatement. On June 29, 1992
the Company notified the EPA that it would participate in the action required by
the Section 106 order. Mediation among the participating parties with regard to
the allocation of cleanup costs at the site was concluded in early February,
1995. Unresolved issues will proceed to trial in January 1996.
On October 5, 1992, the California Public Interest Research Group and two
of its individual members filed a citizens' 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,
California Manufacturing Complex of its National Pollutant Discharge Elimination
System permit by numerous exceedances of certain effluent discharge limits. A
similar suit was filed on February 18, 1993 by the Pacific Coast Federation of
Fisherman's Association. The suits, which were consolidated, seek among other
things civil penalties. A tentative settlement has been reached between the
plaintiffs and the Company in these actions. The terms of settlement have been
embodied in a proposed consent decree and judgment which was filed on January 6,
1995. Before becoming final, it 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 $650,000 increased by 10% compounded annually, 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.
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 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.
In February 1994, the Company received a notice letter from the Attorney
General's Office of the State of California informing that the California
Department of Toxic Substances Control had asked the Office to initiate an
enforcement proceeding against the Company's Martinez Manufacturing Complex
regarding alleged violations of state hazardous waste statutes and regulations
by that facility. No action has yet been filed; the Company and the Attorney
General's Office are engaging in discussions to resolve the matter prior to the
filing of any complaint.
During September 1994, two individuals filed separate citizens'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
21
<PAGE> 22
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.
In January 1993 the U.S. EPA, Region VI, filed an Administrative Complaint
against the Company pertaining to the Deer Park Manufacturing Complex located at
Deer Park, Texas. The Complaint relates to the multi-media inspection conducted
by the EPA and State of Texas at the Deer Park Complex during December 1991 and
January 1992. The Complaint alleges four counts under the Resource Conservation
and Recovery Act, six counts under the Comprehensive Environmental Response,
Compensation and Liability Act, and one count under the Emergency Planning and
Community Right to Know Act. The Complaint contains a proposed penalty of
$136,500. This Complaint has been consolidated with a complaint filed on March
31, 1993 alleging four counts under the Toxic Substances Control Act with a
proposed penalty of $35,000 and a Complaint filed September 30, 1993 alleging
two counts under the Toxic Substances Control Act with a proposed penalty of
$102,000.
In April 1994 the Company received a Report of Violation from the
California Air Resources Board (CARB) alleging violation of regulations
regarding gasoline additization. It is anticipated that Shell will settle this
matter by paying $1 million to Phillips Petroleum who in turn will provide CARB
with specially blended fuel valued at $1 million for testing purposes.
In May 1993 the Department of Environmental Resources of Dade County,
Florida, filed a state court suit against the Company demanding unspecified
civil penalties and injunctive relief pertaining to groundwater cleanup at a
service station. The matter was settled prior to trial. The Company paid
$40,000.
Also, numerous federal, state and local income, property and excise tax
returns of Shell Oil are being examined by the respective taxing authorities,
and certain interpretations by Shell Oil of the complex tax statutes,
regulations and practices are being challenged in administrative proceedings and
in federal and state actions.
It is not possible for the Company to predict with precision what the final
effect of the foregoing litigation will be on the Company. However, while
periodic results may be significantly affected by costs in excess of provisions
related to one or more of these proceedings, based on developments to date, the
management of the Company does not anticipate a material adverse effect on its
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
22
<PAGE> 23
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is not publicly traded.
Cash dividends were paid quarterly as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------------ ------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
----- ------ ----- ------ ----- ------ ----- ------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash dividends.............. $200 $500 $350 $350 $188 $187 $188 $200
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data is presented below for the periods indicated.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(millions of dollars)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Revenues.............................. $21,581 $21,092 $21,702 $22,411 $24,790
Costs and expenses.................... 21,073 20,311 21,257 22,391 23,754
------- ------- ------- ------- -------
Income from operations................ 508 781 445 20 1,036
Cumulative effect of accounting
changes............................. -- -- (635) -- --
------- ------- ------- ------- -------
Net income (loss)..................... $ 508 $ 781 $ (190) $ 20 $ 1,036
======= ======= ======= ======= =======
BALANCE SHEET DATA
Total assets.......................... $26,379 $26,851 $26,970 $27,998 $28,496
Gross investment*..................... 40,045 39,822 39,971 39,672 38,882
Total debt............................ 2,995 3,014 3,703 4,288 3,489
Deferred income taxes................. 3,137 3,754 3,541 4,115 4,355
Shareholder's equity.................. 13,733 14,624 14,608 15,605 16,335
STATEMENT OF CASH FLOWS
Cash provided by operating
activities.......................... $ 2,988 $ 3,172 $ 2,446 $ 1,878 $ 3,133
Capital expenditures.................. 2,451 1,981 2,239 2,615 2,344
Cash dividends........................ 1,400 763 750 750 750
</TABLE>
- ------------
* Gross investment consists of gross assets less current liabilities.
The above financial results and historical data should not be construed as
necessarily indicative of future financial results; see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
23
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
KEY FINANCIAL RESULTS
-- Net income in 1994 was $508 million, compared with net income of $781
million in 1993 and a net loss of $190 million in 1992. The net loss in 1992
resulted from charges of $635 million related to the cumulative effect of
accounting changes.
-- Adjusted net income in 1994, which excludes special items, was $1,118
million, compared with $832 million in 1993 and $400 million in 1992.
-- Cash flows from operating activities in 1994 were $2,988 million,
compared with $3,172 million in 1993 and $2,446 million in 1992.
-- Net cash generated before working capital movements in 1994 totaled
$3,077 million, compared with $2,528 million in 1993 and $2,559 million in 1992.
-- Revenues in 1994 were $21.6 billion, up from $21.1 billion in 1993, but
down from $21.7 billion in 1992.
-- Shareholder's equity was $13.7 billion at the end of 1994, declining
from $14.6 billion at the end of both 1993 and 1992.
-- Net income as a percent of net investment was 2.7 percent in 1994,
compared with 4.1 percent in 1993.
-- Total debt at the end of 1994 was $2,995 million compared with $3,014
million in 1993 and $3,703 million at year-end 1992. At that level, it
represented 17.9 percent of total capital, compared with 17.1 percent at
year-end 1993 and 20.2 percent at the end of 1992.
OIL AND GAS EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
INCOME HIGHLIGHTS 1994 1993 1992
---------------------------------------------------------- ---- ---- ----
(millions of dollars)
<S> <C> <C> <C>
Income from Ongoing Operations............................ $259 $478 $469
Other Charges*............................................ (2) (1) --
---- ---- ----
Segment Net Income........................................ 257 477 469
Special Items (includes other charges).................... (200) 25 11
---- ---- ----
Adjusted Net Income....................................... $457 $452 $458
==== ==== ====
</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 income from ongoing operations was
$259 million in 1994, compared with $478 million in 1993 and $469 million in
1992. Income from ongoing operations excludes charges to segment net income
which are associated with major product classifications for which there has been
no revenue stream or investment for the past five years.
Segment net income in 1994 was $257 million, compared with $477 million in
1993 and $469 million in 1992. Adjusted net income, which excludes special
items, was $457 million in 1994, an increase of $5 million over 1993, but down
$1 million from 1992.
For 1994, results improved over 1993 primarily from significant progress
made in reducing producing and exploration costs. This more than offset income
reductions of about $150 million from lower average crude oil and natural gas
prices. Domestic crude oil prices in 1994 averaged $13.41 per barrel, down $.67
from 1993 and $2.37 from 1992. The average selling price of net marketable
natural gas produced in 1994 was $1.88 per thousand cubic feet, down 24 cents
from 1993, but up 19 cents over 1992.
24
<PAGE> 25
Special items decreased segment net income $200 million in 1994, while
increasing net income by $25 million in 1993 and $11 million in 1992. Special
items in 1994 included charges of $315 million attributable to write-offs of
undeveloped offshore frontier Alaska properties and nonproducing heavy oil
properties in California, exploratory dry holes and provisions for restoration
costs. Also, income was reduced $108 million for litigation settlements and
provisions. Partially offsetting these charges were benefits of $223 million,
primarily related to tax adjustments. Special items in 1993 included benefits
from prior-year tax adjustments of $113 million, partially offset by the effect
from the tax rate change of $68 million, and a work-force reduction charge of
$12 million. Special items in 1992 included write-offs and property provisions
of $169 million, litigation provisions of $54 million and a work-force reduction
charge of $49 million, offset by benefits from tax adjustments totaling $236
million and a natural gas contract settlement of $50 million.
Cash provided by operating activities was $1,546 million in 1994, compared
with $2,184 million in 1993, and $1,690 million in 1992.
Crude Oil Production -- Domestic net crude oil production, on a barrels per
day basis, averaged 355,000 in 1994, 349,000 in 1993 and 388,000 in 1992.
Increased production in the Gulf of Mexico, primarily from the Auger field, more
than offset normal declines.
International net production, on a barrels per day basis, averaged 43,000
in 1994, down 18,000 from 1993 and 20,000 from 1992, both of which included
production in Syria. In late 1993, Shell Oil exchanged the assets of
subsidiaries which held production rights in Syria for an interest in a Dutch
affiliate; Shell Oil's equity interest in the company is 25 percent.
Gas Production -- Average net natural gas production of 1,629 million cubic
feet per day in 1994 increased over both 1993 and 1992, by 8 percent and 10
percent, respectively. The increase in 1994 was due to new and increased
production in the Gulf of Mexico, including initial production from the Auger
field.
Natural Gas Liquids -- Net natural gas liquids production, on a barrels per
day basis, was 61,000 in 1994, up 7,000 over 1993 and 2,000 over 1992. The 1994
average price of $11.94 was $.99 lower than 1993 and $1.17 lower than 1992.
Costs and Expenses -- Production costs in 1994 totaled $1,139 million, down
$96 million from 1993 and $346 million from 1992, primarily due to the
continuing success of cost reduction programs and the change in operations in
Syria. Exploration expenses of $343 million in 1994, including dry hole costs of
$206 million, increased $45 million over 1993, and $7 million over 1992. The
increase in 1994 was the result of higher dry hole costs, primarily related to
Alaska and other exploratory wells. Exclusive of dry holes, exploration costs
declined $50 million from 1993, reflecting cost containment measures and a more
focused exploration program.
Depreciation, depletion and amortization costs were $1,605 million in 1994,
an increase of $380 million over 1993 and $66 million over 1992. The higher
costs in both 1994 and 1992 were primarily due to the write-offs of certain
nonproducing properties and to other property provisions and increased
production rates in 1994.
Property sales in 1994 resulted in a minimal gain, compared with a gain of
$10 million in 1993 and a loss of $34 million in 1992.
Capital Expenditures -- Capital spending for Oil and Gas Exploration and
Production was $952 million in 1994, compared with $877 million in both 1993 and
1992. The increase from both 1993 and 1992 was due to higher spending for
production drilling and development, primarily in the Gulf of Mexico.
Hydrocarbon Reserves -- In 1994, reserve additions, mainly from
discoveries, extensions and improved recovery techniques, were 331 million
barrels on a crude oil equivalent basis. These additions were offset by
revisions to previous reserve estimates of 120 million equivalent barrels, and
production. In 1993 and 1992, reserves also declined.
Net wells drilled in 1994 totaled 244, the same as in 1993, but down from
250 in 1992.
25
<PAGE> 26
OIL PRODUCTS
<TABLE>
<CAPTION>
INCOME HIGHLIGHTS 1994 1993 1992
---------------------------------------------------------- ---- ---- ----
(millions of dollars)
<S> <C> <C> <C>
Income from Ongoing Operations............................ $427 $285 $ 8
Other Charges*............................................ (54) (5) (2)
---- ---- ----
Segment Net Income........................................ 373 280 6
Special Items (includes other charges).................... (24) (28) (6)
---- ---- ----
Adjusted Net Income....................................... $397 $308 $ 12
==== ==== ====
</TABLE>
- ---------------
* Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Oil Products income from ongoing operations in 1994 was $427 million,
compared with $285 million in 1993 and $8 million in 1992. Segment net income in
1994 was $373 million, compared with $280 million in 1993 and $6 million in
1992.
Adjusted net income, which excludes special items, was $397 million in
1994, an increase over the previous two years by $89 million and $385 million,
respectively.
Results in 1994 were improved over 1993 as benefits from lower operating
costs and increased refined products sales more than offset the effects of lower
margins. Progress continued in reducing fixed operating costs primarily in
marketing and manufacturing, while branded sales of automotive gasoline improved
and manufacturing reliability remained strong. While hydrocarbon costs were
lower in 1994 vs. 1993, selling prices declined at a faster pace, resulting in
lower refined product margins.
Special items decreased segment net income in all three periods, by $24
million, $28 million and $6 million, respectively. In 1994, net income was
reduced by $54 million for environmental provisions related to off-site
contamination, partially offset by a gain of $28 million for the partial
liquidation of refined product inventories valued on a last-in, first-out (LIFO)
basis. The remainder of the special items benefited income $2 million, as a net
gain from asset sales was offset by environmental provisions. In 1993, special
items included net tax effects of $14 million, including $24 million from the
tax-rate change, work-force reduction charges of $9 million, an $8 million
charge for the partial liquidation of crude oil and refined product inventories
and $5 million for environmental remediation. Partially offsetting these charges
were gains from asset sales totaling $8 million. Included in 1992 special items
was a $34 million charge for work-force reductions and $2 million for
environmental remediation, offset by $30 million in gains on asset sales.
Cash flow provided by operating activities was $953 million in 1994, up
$203 million and $434 million over 1993 and 1992, respectively. Capital
expenditures in 1994 of $1,087 million were up $383 million and $297 million
over 1993 and 1992, respectively. The increase in 1994 was primarily
attributable to spending for the coker and "clean fuels" project at the
Martinez, California refinery.
Refined Product Sales Volumes -- Total 1994 refined product sales volumes
were 1,272,000 barrels per day, up from 1,200,000 in 1993 and 1,120,000 in 1992.
Automotive gasoline sales volumes in 1994 increased 7 percent over 1993, and 15
percent over 1992. Volumes sold through branded service stations in 1994 were up
3 percent over 1993 and 4 percent over 1992.
Jet fuel sales increased slightly compared with 1993 and were 13 percent
above 1992. Kerosene, heating and diesel oil sales increased 9 percent from 1993
and 40 percent from 1992.
Residuals sales volumes were down 16 percent from 1993 and 19 percent from
1992. Lubricants sales volumes increased 12 percent over 1993 and 6 percent over
1992.
Refined Product Prices -- Average refined product selling prices decreased
2 cents per gallon from 1993, and were 5 cents lower than in 1992. Prices
declined in 1994 in almost all product categories due to
26
<PAGE> 27
competitive conditions. Average automotive gasoline selling prices decreased 3
cents per gallon from 1993 and 8 cents per gallon from 1992.
CHEMICAL PRODUCTS
<TABLE>
<CAPTION>
INCOME HIGHLIGHTS 1994 1993 1992
---------------------------------------------------------- ---- ---- ----
(millions of dollars)
<S> <C> <C> <C>
Income from Ongoing Operations............................ $223 $220 $ 93
Other Charges*............................................ (62) (185) (81)
---- ---- ----
Segment Net Income........................................ 161 35 12
Special Items (includes other charges).................... (265) (204) (93)
---- ---- ----
Adjusted Net Income....................................... $426 $239 $105
==== ==== ====
</TABLE>
- ---------------
* Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Chemical Products income from ongoing operations in 1994 was $223 million,
compared with $220 million in 1993 and $93 million in 1992. Segment net income
in 1994 was $161 million, compared with $35 million in 1993 and $12 million in
1992.
Adjusted net income, which excludes special items, was $426 million in
1994, an increase over the previous two years of $187 million and $321 million,
respectively.
The substantial increase in adjusted net income in 1994 over both 1993 and
1992 was primarily attributable to improved margins for commodity chemicals and
increased sales volumes across most product lines. Margins in the downstream
chemical businesses, however, suffered from higher feedstock costs. This overall
relatively strong performance was marred in the second quarter of 1994 by an
explosion and fire at the Belpre Chemical Plant. In addition to the tragic loss
of life, one unit was destroyed, the entire facility was closed for two months
and KRATON(R) remains on allocation.
Special items reduced segment net income $265 million in 1994, $204 million
in 1993, and $93 million in 1992. In 1994, income was reduced by $201 million
for litigation provisions, settlements and damage claims, $62 million for
environmental provisions related to off-site contamination, and $34 million for
write-offs of idle assets. Partially offsetting these charges were gains of $32
million from asset sales. In 1993, income was reduced $185 million for
environmental provisions mainly related to the Rocky Mountain Arsenal in
Colorado, $23 million for claims and litigation, $5 million for work-force
reductions, and a net $13 million from tax items, including $19 million for the
tax-rate change. Partially offsetting these reductions were gains from asset
sales of $22 million. In 1992, income was reduced by $81 million for
environmental provisions, $17 million for work-force reductions and $10 million
from litigation provisions. Partially offsetting these impacts was $15 million
in gains from asset sales.
Cash provided by operating activities in 1994 was $559 million, compared
with $447 million in 1993 and $242 million in 1992.
Results of the Saudi Arabian petrochemical venture were improved in 1994
over both 1993 and 1992 due to increased sales volumes and higher margins.
Improved market conditions in the Far East and Europe resulted in increased
demand.
Total chemical sales volumes in 1994 improved 6 percent over 1993 and 12
percent over 1992, reflecting tightening of industry capacity for commodity
chemicals and improved economic conditions.
Capital spending for Chemical Products was $343 million in 1994, compared
with $319 million in 1993 and $424 million in 1992. Capital projects active in
1994 included expansions of the ethylene oxide/ethylene glycol and the polyester
resins businesses, initial spending for the rebuild of the KRATON unit at
Belpre, and contributions toward an MTBE plant and other facilities in Saudi
Arabia. The purchase of Goodyear's polyester resins business was a major outlay
in 1992.
27
<PAGE> 28
OTHER SEGMENT
<TABLE>
<CAPTION>
INCOME HIGHLIGHTS 1994 1993 1992
------------------------------------------------------- ----- ----- -----
(millions of dollars)
<S> <C> <C> <C>
Segment Net Income..................................... $(235) $ (27) $ (70)
Special Items.......................................... (208) -- (60)
----- ----- -----
Adjusted Net Income.................................... $ (27) $ (27) $ (10)
===== ===== =====
</TABLE>
The Other operating segment incurred a net loss of $235 million in 1994,
compared with net losses of $27 million in 1993 and $70 million in 1992. In
1994, the loss was mainly attributable to special items totaling $208 million,
which included the sale of a coal investment and write-offs of nonproducing coal
leases. The 1993 operating loss was mainly attributable to equity interests in
coal mining. Of the 1992 loss, about $60 million was due to the sale of the
mining subsidiary and the balance reflected lower earnings from operations prior
to its disposition.
NONALLOCATED CORPORATE COSTS
<TABLE>
<CAPTION>
INCOME HIGHLIGHTS 1994 1993 1992
------------------------------------------------------- ----- ----- -----
(millions of dollars)
<S> <C> <C> <C>
Nonallocated Costs..................................... $ (48) $ 16 $ 28
Special Items.......................................... 87 156 193
----- ----- -----
Adjusted Nonallocated Costs............................ $(135) $(140) $(165)
===== ===== =====
</TABLE>
Corporate costs not allocated to the operating segments were $48 million
for the year 1994. In contrast, corporate items benefited net income $16 million
in 1993 and $28 million in 1992.
In 1994, special items included a favorable prior-year tax adjustment of
$100 million, partially offset by provisions for claims and litigation
settlement. In 1993, special items included a favorable prior-year tax
adjustment of $161 million, partially offset by litigation provisions. Special
items in 1992 benefited corporate costs $193 million, including $207 million in
interest related to prior-year tax adjustments, partially offset by a $14
million charge related to a litigation settlement. Excluding these effects,
corporate costs, primarily related to financing, declined in 1994 compared with
both previous years, due primarily to lower interest expense.
CAPITAL RESOURCES AND LIQUIDITY
Cash provided by operating activities continued to be the primary source of
funding for Shell Oil's capital investment program, dividends and other needs.
In 1994, cash provided by operating activities totaled $2,988 million, down
$184 million from 1993, but exceeding cash used for investing activities in 1994
by $725 million. Similarly, cash provided by operating activities in 1993
totaled $3,172 million and exceeded cash used for investing activities by $1,814
million. In 1992, cash provided by operating activities totaled $2,446 million
and exceeded investing activities by $1,037 million. Total debt declined $19
million to $2,995 million, enabling the debt-to-total-capital ratio to remain at
a low level. In addition, dividends were increased to $1,400 million in 1994,
compared with $763 million in 1993 and $750 million in 1992.
Cash Provided by Operating Activities -- In 1994, cash provided by
operating activities amounted to $2,988 million, compared with $3,172 million in
1993 and $2,446 million in 1992. In 1993, cash provided by operating activities
benefited from a nonrecurring crude oil advance sale. Net cash generated before
working capital movements in 1994 totaled $3,077 million, an increase of $549
million over 1993 and $518 million over 1992. Higher earnings in 1994 accounted
for the improvement.
Cash Used for Investing Activities -- The major use of cash flows from
operating activities was for capital expenditures, which amounted to $2,451
million in 1994, $1,981 million in 1993, and $2,239 million in 1992. Proceeds
from property sales in 1994 totaled $77 million. Proceeds from property sales in
1993 totaled
28
<PAGE> 29
$539 million, including sales of producing properties and 50 percent of the Deer
Park refining assets. In 1992, proceeds totaled $779 million, reflecting the
sale of Shell Oil's coal mining subsidiary and the disposition of several
producing properties. Net cash used for investing activities in 1994 increased
over 1993 and 1992 primarily due to higher capital expenditures and lower
proceeds from property sales.
Debt Obligations -- In 1994, Shell Oil decreased its total debt $19
million, compared with decreases of $689 million in 1993 and $585 million in
1992. Shell Oil's ratio of total debt to total capital was 17.9 percent at the
end of 1994, compared with 17.1 percent at the end of 1993 and 20.2 percent at
the end of 1992.
Capital Spending -- Shell Oil's capital spending of $2.5 billion in 1994
was about $300 million less than planned at the beginning of the year. In 1994,
exploration and production activities accounted for 39 percent of total capital,
compared with 44 percent in 1993 and 42 percent in 1992. These outlays were
primarily in the United States. Oil and Chemical Products accounted for 58
percent of total spending in 1994, compared with 52 percent in 1993 and 54
percent in 1992. Capital expenditures increased in 1994 compared to 1993 due to
higher spending in manufacturing, primarily for projects to conform with clean
fuels requirements.
Capital and exploratory expenditures of $3.4 billion are planned for 1995.
About $1.8 billion is allocated for exploration and production activities, an
increase of $500 million over the 1994 level. These expenditures include funds
for additional development activities in the Gulf of Mexico. Oil Products
expenditures are budgeted to reach $1.1 billion in 1995, reflecting additional
spending associated with the upgrading of Shell Oil's Martinez, California
refinery, service station programs, deep-water pipelines and clean fuel
projects. Chemical Products expenditures are expected to be about the same at
$400 million. Plans include the expansion of Shell Oil's olefins capacity, and
continued spending for the rebuild of the KRATON unit at Belpre, Ohio, and
expansion of PET resin facilities.
Dividends -- Cash dividends were $1,400 million in 1994, an increase of
$637 million over 1993 and $650 million over 1992. In 1992, $217 million of net
assets, representing Canadian tar sands and Malaysian operations, were
transferred to affiliates of the Royal Dutch/Shell Group of Companies.
Liquidity -- Internally generated cash, access to outside financing based
on strong credit ratings, and prudent management of working capital are the
essential components of Shell Oil's liquidity position. Cash and cash
equivalents amounted to $617 million at year-end 1994, a decrease of $679
million from 1993 and $117 million from 1992.
Shell Oil's strategy continues to rely mainly on internally generated cash
to finance routine operating requirements and capital spending. Short-term
borrowings will generally be used to fund interim working capital needs and
unusual requirements. As of December 31, 1994, unused revolving credit
agreements of $500 million were available for general corporate purposes,
including support of commercial notes. The Company plans to manage the level of
backup facilities consistent with its cash and cash equivalents balances. During
1994, Shell Oil redeemed all of the existing $50 million of 8 percent Debentures
Due 2007 and $18 million of 8 1/2 percent Debentures Due 2000. As of the end of
1994, $500 million of a $1.0 billion shelf registration remained, allowing
future flexibility in the markets.
As further discussed in Note 10 of the Notes to Consolidated Financial
Statements, from time to time the Company utilizes financial derivatives to
manage its financial risk exposure to interest rates and certain commodity
prices. During 1994, the Company used interest rate swaps to convert many of its
fixed rate debt and other obligations to floating rates. At December 31, 1994
and 1993, the notional principal amounts of interest rate swaps outstanding was
$2.6 billion and $250 million, respectively, with maturities extending into the
year 2017. Due to rising interest rates in 1994, the reduction in the fair value
of these fixed rate debt and other obligations between the dates on which the
swaps were executed and December 31, 1994 was estimated to be $169 million. For
the same reason, the fair value of the swaps used to convert these fixed rate
and other obligations to floating rates was a negative $174 million at December
31, 1994, as disclosed in Note 11 of the Notes to Consolidated Financial
Statements.
Working capital at the end of 1994 decreased $1,049 million over a year
earlier due primarily to higher payables and lower cash balances and
inventories. Shell Oil's liquidity position is considerably stronger than
indicated by these working capital levels because of relatively lower historical
costs assigned to inventories
29
<PAGE> 30
under LIFO accounting procedures. The year-end inventory values included in
working capital were below their current costs by $1,011 million at the end of
1994, $648 million in 1993 and $1,049 million in 1992. Current liabilities
exceeded current assets by $776 million at the end of 1994, while current assets
exceeded current liabilities by $273 million at the end of 1993 and $88 million
at the end of 1992.
ENVIRONMENTAL MATTERS
Shell Oil continues to make substantial capital and operating expenditures
relating to the environment, including expenditures associated with compliance
with federal, state and local environmental regulations. Included within such
expenditures are costs of compliance with the various laws, regulations and
permit requirements concerning reduction of releases into air and water and
disposal and handling of wastes at ongoing operating locations. Also included
within such overall environmental expenditures are the costs of remedial orders,
corrective action requirements and other cleanup obligations under federal,
state and local law and by contract both at operating locations and at
previously owned or operated properties, as well as remediation costs at
off-premises sites.
Discussions are ongoing with governmental agencies as to the scope and
magnitude of Shell Oil's present closure and post-closure Resource Conservation
and Recovery Act (RCRA) and similar state or local remediation obligations at
operating locations. Such discussions are part of the normal RCRA regulatory
process. Shell Oil anticipates that those discussions will result in corrective
action being required at its manufacturing locations. The complexity of the fact
issues and the evolving legal requirements, coupled with the many choices made
available by diverse technologies that may be used in such corrective action,
make it difficult to estimate with great reliability the total costs of such
action. However, Shell Oil currently estimates the costs of implementing
corrective action at its Martinez, California Manufacturing Complex to be about
$20 million, of which approximately $18 million has been expended and the
remainder has been provided for in the accounts. Corrective action at Shell
Oil's Carson Plant (part of the former Wilmington Refinery) is expected to cost
about $13 million, which amount is also provided for in the accounts. We are not
aware that any state in which Shell Oil has manufacturing facilities has
stricter cleanup requirements than California and at this point, there is no
reason to believe that conditions requiring corrective action are more extensive
at other manufacturing locations. Thus, it is currently reasonable to assume
that the costs estimated to be incurred at these two facilities are indicative
of the costs which can be expected at other manufacturing locations. Based upon
these facts, discussions with regulatory agencies and expectations as to the
final content of still emerging regulations, Shell Oil does not expect that the
costs of taking corrective action over time under RCRA and similar state and
local regulations at operating facilities will be material to Shell Oil's
financial position or operating income in any year. All such expenditures are
included in the environmental expenditures reported below and this matter is
under continual review.
RCRA also imposes obligations with respect to closure of a RCRA covered
facility (i.e., a facility at which certain wastes are treated, stored or
disposed of) and in certain cases for a 30-year post-closure period. The costs
associated with such RCRA obligations are subject to a number of uncertainties
including when such facilities will actually close and the time period over
which closure/post-closure activity may take place. In 1994, as required by
federal regulations, Shell Oil confirmed its ability to pay $210 million for
RCRA-related closure and post-closure costs. The calculation of Shell Oil's
potential exposure in this area was made pursuant to the requirements of
applicable federal and state law. Approximately $125 million of this $210
million relates to post-closure obligations over a 30-year period beginning at a
still to be determined point, in most cases well into the future. As to the $85
million for RCRA closure costs, it is reasonable to anticipate that all
facilities will not incur closure costs at the same time. Thus, such amounts
will almost certainly be spent over a period of many years as the various
facilities in fact close, and post-closure costs follow. While the ultimate
closure and post-closure costs as required by RCRA cannot be precisely estimated
at this time, management does not currently anticipate that they will materially
adversely affect Shell Oil's financial position or operating income in any year.
Shell Oil has established a reserve calculated to provide for RCRA closure
and post-closure costs over the estimated useful life of its covered facilities.
Shell Oil also recognizes certain abandonment and restoration obligations in
connection with its oil and gas operations. Reserves are established and built
over the estimated
30
<PAGE> 31
life of production with the intention to provide for the estimated costs of
carrying out required statutory and lease obligations to plug and abandon wells
and otherwise restore property by the time oil and gas production ceases.
Shell Oil has received allegations or claims under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) or similar state
statutes that it is involved at 208 sites, including the Rocky Mountain Arsenal
(RMA) in Colorado and the McColl site in Southern California, as further
discussed in Note 17 of the Notes to Consolidated Financial Statements. As of
December 1994, discussions or activities concerning 117 of these sites were
active involving Shell Oil, other potentially responsible parties and relevant
agencies or claimants. A site is considered active where discussion or activity
is in progress between Shell Oil and the agency or claimant. At a number of
these sites, matters remain in the early investigation stages. Fifty-one sites
were considered inactive, meaning that no discussions or activities were pending
or had occurred for more than one year end and 40 sites are considered settled.
In 1993 Shell Oil reported 189 such sites, 110 of which were active, 41 inactive
and 38 settled.
In 1994, recorded expenses under CERCLA or similar state statutes relating
to the 208 sites were approximately $135 million, which includes reserves of
about $120 million. Included in reserves are costs of cleanup and monitoring and
to a much lesser degree administrative costs. All reserves are calculated
consistently with Shell Oil's articulated "Accounting Policies -- Environmental
Costs," as set forth in Note 1 to the Consolidated Financial Statements. No
reserve reflects any insurance reimbursement, although Shell Oil believes at
least certain coverage exists and expects to ultimately obtain some recovery. At
certain third party sites where Shell Oil has only a small dollar exposure,
Shell Oil may accept the cleanup cost estimates of the parties managing the site
and reserve on that basis; such increases to environmental reserves would be
immaterial in the aggregate. The complexities of CERCLA regulations,
particularly in relation to joint and several liability and multiple cleanup
options, as well as the incomplete factual data at some sites, make it
impossible to predict with certainty the total cleanup costs Shell Oil will
incur for the 117 active sites referenced above. However, Shell Oil believes the
following to be true: at the majority of the above referenced sites, Shell Oil
should have responsibility for only a small percentage share of the total
cleanup costs (and other viable potentially responsible parties (PRP's) have
already been identified to lessen the potential burden of joint and several
liability at such sites); the CERCLA sites will be cleaned up over time and not
simultaneously; based on current knowledge only a small percentage of the active
sites represent an individually significant financial exposure and Shell Oil has
established reserves for such sites reflecting Shell Oil's share of at least the
lower limit of the range of probable cleanup costs and, where known, a better
estimate of such probable costs. Shell Oil manages these matters closely to help
assure prudent and cost effective cleanup as new information enables Shell Oil
to better estimate the cost of cleanup at these sites. Based on the preceding,
while operating income may be significantly adversely affected in a particular
period, Shell Oil does not currently believe costs related to CERCLA cleanup
will materially adversely affect Shell Oil's financial position.
While certain environmental expenditures are discrete and readily
identifiable, others must be reasonably estimated or allocated based on
technical and financial judgments as developed over time, affecting comparisons
in certain years. All estimates are stated on a before tax basis. Consistent
with the preceding, Shell Oil estimates that environmental capital expenditures
in 1994 amounted to about $430 million, about $95 million above 1993
expenditures of $335 million, due mainly to Clean Air Act regulations regarding
reformulated fuels. Approximately 75% of 1994 capital expenditures were related
to clean air regulations. Environmental capital expenditures are expected to be
about $200 million in each of 1995 and 1996. Capital expenditures over the last
three years of the decade are expected to average about $250 million per year,
attributed to Clean Air Act regulations relating to control of conventional and
toxic emissions.
Shell Oil's operating, maintenance and administrative costs related to
environmental protection and remediation of waste disposal sites were
approximately $930 million in 1994 as compared with $1,030 million in 1993 and
$905 million in 1992. 1993 expenses were higher than 1994 expenses primarily due
to larger increases to environmental reserves, primarily the RMA. These costs do
not include amounts expended or reserved for restoration and abandonment of oil
and gas properties.
31
<PAGE> 32
During the next several years, total environmental expenditures for both
capital and operating, maintenance and administrative costs are expected to
average at least $1 billion per year, as Shell Oil complies with requirements
under existing laws, as well as with regulations yet to be promulgated or
finalized. The federal Clean Air Act and related state laws such as the
California air emission standards, the federal Oil Pollution Act,
reauthorization of RCRA and CERCLA, underground produced water injection
regulations under the Safe Drinking Water Act, and numerous related state and
local laws affecting all aspects of the environment are expected to have a
pronounced, but as yet not fully understood, effect on all areas of Shell Oil's
operations over the next decade as we and those with whom we do business strive
to adapt to such evolving requirements. Shell Oil intends to continue its
efforts to implement process redesign and operating efficiencies to comply with
these laws in the most efficient and cost-effective manner.
Shell Oil is unable to predict with certainty the effect that compliance
with above described environmental requirements, particularly laws and
regulations not yet finalized, may have upon its competitive position or future
earnings. However, while operating income may be materially adversely affected
in particular periods as the result of environmental expenses, based on the
facts currently known to Shell Oil, and the law and technology in existence as
of this date, including a belief that all major competitors will incur
comparably significant costs to comply with these laws, Shell Oil believes that
it can comply fully without material adverse impact on its financial position.
OTHER MATTERS
In addition to economic conditions and other matters discussed above
affecting Shell Oil, the operations, earnings and financial condition of Shell
Oil may be affected by the matters discussed in Note 17 of the Notes to
Consolidated Financial Statements and in Item 3. Legal Proceedings, as well as
by political developments; litigation; and legislation, regulation and other
actions taken by federal, state, local governmental entities, and by governments
outside the United States.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements, the Notes to Consolidated Financial
Statements and the Report of Independent Accountants are included in Item 14a of
this report. The Quarterly Results of Operations are reported in Note 21 of the
Notes to Consolidated Financial Statements included in Item 14a. Information on
Oil and Gas producing activities is included in Items 1 and 2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION.
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
32
<PAGE> 33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
A. CERTAIN DOCUMENTS FILED AS PART OF THIS REPORT
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants........................................ 34
Consolidated Statement of Income and Earnings Reinvested for the years
1994, 1993 and 1992.................................................... 35
Consolidated Balance Sheet at December 31, 1994 and 1993................. 36
Consolidated Statement of Cash Flows for the years 1994, 1993 and 1992... 37
Notes to Consolidated Financial Statements............................... 38
</TABLE>
B. REPORTS ON FORM 8-K
None.
C. EXHIBITS*
3. Copy of Restated Articles of Incorporation of the Registrant
effective December 8, 1986 and Copy of By-Laws of the Registrant, as
amended through December 8, 1986, are incorporated by reference to
Item 14c of the Company's Annual Report on Form 10-K for the year
ended December 31, 1986.
4. The Registrant will provide to the Securities and Exchange
Commission, upon request, copies of instruments defining the rights
of holders of long-term debt listed in Note 9 of the Notes to
Consolidated Financial Statements.
10. Material Contracts:
(i) Copy of letter agreement dated December 13, 1994 between the
Company and Shell Internationale Research Maatschappij, B.V.
continuing for the calendar year 1995 the Agreement for Research
Services dated January 1, 1960, as amended.
(ii) Composite copy of the Agreement for Research Services dated
January 1, 1960, as amended through August 19, 1982 is incorporated
by reference to Item 14 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
21. Subsidiaries of the Registrant
23. Consent of Independent Accountants
24. Powers of Attorney
27. Financial Data Schedule
- ------------
* Copies of Exhibits may be obtained for 25 cents per page, prepaid, by writing
to the Corporate Secretary.
D. FINANCIAL STATEMENT SCHEDULES
The schedules filed by the Company are listed in Item 14a above. No
separate financial statements are required to be included because reporting
tests are not met. Certain schedules have been omitted because the required
information is shown in the financial statements or notes thereto.
33
<PAGE> 34
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND
SHAREHOLDER OF SHELL OIL COMPANY
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14a on page 33 present fairly, in all material respects,
the financial position of Shell Oil Company and its subsidiaries at December 31,
1994 and 1993, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for postretirement benefits other than pensions
and for income taxes in 1992.
PRICE WATERHOUSE LLP
Houston, Texas
February 7, 1995
34
<PAGE> 35
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND EARNINGS REINVESTED
(Millions of dollars)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
REVENUES
Sales and other operating revenue.................... $24,789 $23,581 $23,711
Less: Consumer excise and sales taxes................ 3,163 2,728 2,551
------- ------- -------
21,626 20,853 21,160
Equity earnings, interest and other income........... (45) 239 542
------- ------- -------
Total........................................... 21,581 21,092 21,702
COSTS AND EXPENSES
Purchases and operating expenses..................... 16,694 16,368 16,618
Selling, general and administrative expenses......... 1,168 894 1,146
Exploration, including exploratory dry holes......... 335 289 325
Research expenses.................................... 127 149 161
Depreciation, depletion, amortization and
retirements........................................ 2,334 1,739 2,082
Interest and discount amortization................... 154 198 250
Operating taxes...................................... 482 540 643
------- ------- -------
Total........................................... 21,294 20,177 21,225
------- ------- -------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES...................................... $ 287 $ 915 $ 477
Federal and other income taxes....................... (221) 134 32
------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES..... $ 508 $ 781 $ 445
Cumulative effect of accounting changes.............. -- -- (635)
------- ------- -------
NET INCOME (LOSS)......................................... $ 508 $ 781 $ (190)
======= ======= =======
EARNINGS REINVESTED
Balance at beginning of year......................... $12,419 $12,403 $13,560
Net Income (Loss).................................... 508 781 (190)
Dividends -- Cash.................................... (1,400) (763) (750)
-- Other................................... -- (2) (217)
------- ------- -------
Balance at end of year............................. $11,527 $12,419 $12,403
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
35
<PAGE> 36
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of dollars, except per share amounts)
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------
1994 1993
------- -------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents...................................... $ 617 $ 1,296
Receivables and prepayments, less allowance for doubtful
accounts...................................................... 2,850 2,429
Owing by related parties....................................... 124 117
Inventories of oils and chemicals.............................. 564 686
Inventories of materials and supplies.......................... 229 228
------- -------
Total Current Assets...................................... 4,384 4,756
Investments, Long-Term Receivables and Deferred Charges............. 2,911 3,015
Property, Plant and Equipment at cost, less accumulated
depreciation, depletion and amortization........................... 19,084 19,080
------- -------
Total..................................................... $26,379 $26,851
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable -- trade...................................... $ 1,953 $ 1,689
Other payables and accruals.................................... 988 797
Income, operating and consumer taxes........................... 700 596
Owing to related parties....................................... 70 85
Short-term debt................................................ 1,449 1,316
------- -------
Total Current Liabilities................................. 5,160 4,483
Long-Term Debt...................................................... 1,546 1,698
Deferred Income Taxes............................................... 3,137 3,754
Long-Term Liabilities............................................... 2,803 2,292
Shareholder's Equity
Common stock -- 1,000 shares of $10 per share par value
authorized and outstanding.................................... -- --
Capital in excess of par value................................. 2,206 2,205
Earnings reinvested............................................ 11,527 12,419
------- -------
Total Shareholder's Equity................................ 13,733 14,624
------- -------
Total..................................................... $26,379 $26,851
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
36
<PAGE> 37
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................... $ 508 $ 781 $ (190)
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of Accounting Changes....... -- -- 635
Depreciation, depletion, amortization and
retirements................................. 2,334 1,739 2,082
Dividends in excess of equity income.......... 235 8 32
------- ------- -------
3,077 2,528 2,559
(Increases) decreases in working capital:
Receivables and prepayments.............. (428) 296 107
Inventories.............................. 121 167 72
Payables and accruals.................... 544 (206) (181)
Deferred income taxes......................... (617) 122 (270)
Other non-current items....................... 291 265 159
------- ------- -------
Net Cash Provided by Operating
Activities............................. 2,988 3,172 2,446
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Capital expenditures............................... (2,451) (1,981) (2,239)
Proceeds from property sales and salvage........... 77 539 779
Other investments and advances..................... 111 84 51
------- ------- -------
Net Cash Used for Investing Activities... (2,263) (1,358) (1,409)
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Proceeds from issuance of long-term debt........... 119 21 1,013
Principal payments on long-term debt............... (578) (542) (130)
Proceeds from sales of redeemable securities
of subsidiaries.................................. 139 200 164
Contributed capital................................ 1 -- 160
Dividends.......................................... (1,400) (763) (750)
Increase (decrease) in short-term obligations...... 315 (168) (1,312)
------- ------- -------
Net Cash Used for Financing Activities... (1,404) (1,252) (855)
NET CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents... $ (679) $ 562 $ 182
======= ======= =======
CASH AND CASH EQUIVALENTS
Balance at beginning of year....................... $ 1,296 $ 734 $ 552
Increase (decrease) in cash and cash equivalents... (679) 562 182
------- ------- -------
Balance at end of year................... $ 617 $ 1,296 $ 734
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
37
<PAGE> 38
SHELL OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Shell Oil Company (the Company) is wholly owned by Shell Petroleum Inc., a
Delaware corporation, whose shares are directly or indirectly owned 60 percent
by Royal Dutch Petroleum Company, The Hague, The Netherlands, and 40 percent by
The "Shell" Transport and Trading Company, public limited company, London,
England.
This summary of the major accounting policies of Shell Oil Company and its
consolidated subsidiaries (Shell Oil) is presented to assist the reader in
evaluating Shell Oil's financial statements and other data contained in this
report.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and subsidiaries owned directly or
indirectly more than 50 percent. Investments in affiliates in which the Company
has a significant ownership interest, generally 20 to 50 percent, are accounted
for by the equity method. Other investments are carried at cost. Intercompany
accounts and transactions are eliminated.
Cash Equivalents -- Cash equivalents consist of highly liquid investments
that are readily convertible into cash and have a maturity of three months or
less at date of acquisition.
Inventories -- Inventories of oils and chemicals are valued at the lower of
cost, predominantly on a last-in, first-out (LIFO) basis, or market. Materials
and supplies are carried at average cost or less.
Exploration and Development -- The "successful efforts" method of
accounting is used for oil and gas exploration, development and production
activities.
Property Acquisition Costs -- Costs of acquiring developed or
undeveloped leaseholds including lease bonus, brokerage and other fees are
capitalized. The costs of undeveloped properties which become productive
are transferred to a producing property account.
Exploratory Costs -- Costs of exploratory wells are initially
capitalized, but should the efforts be determined to be unsuccessful, they
are then charged against income. All other exploratory costs are charged to
income as incurred.
Development Costs -- Costs of development wells, including dry holes,
platforms, well equipment and attendant production facilities are
capitalized.
Depreciation, Depletion and Amortization -- Depreciation, depletion and
amortization of the capitalized cost of producing properties, both tangible and
intangible, are provided on a unit of production basis. On a field basis,
developed reserves are used for drilling and development costs, and total proved
reserves are used for producing leasehold costs. Amortization of unproven
leasehold costs from date of acquisition is based primarily upon experience in
establishing rates to fully amortize over the holding period those leases that
may be unproductive. Estimated dismantlement, restoration and abandonment costs
and estimated residual salvage values are taken into account in determining
amortization and depreciation provisions.
Other plant and equipment are depreciated on a straight-line basis over
their estimated useful lives. Gains and losses are not recognized for normal
retirements of properties, plant and equipment subject to composite group
amortization or depreciation. Gains or losses from abnormal retirements or sales
are recognized currently. Expenditures for maintenance and repairs are expensed.
Environmental Costs -- Environmental costs relating to current operations
are expensed or capitalized, as appropriate, depending on whether such costs
provide future economic benefits. Liabilities are recognized when the costs are
considered probable and can be reasonably estimated. Such recognition occurs no
later than the Company's commitment to a formal plan of action. Measurement of
liabilities is based on currently enacted laws and regulations, existing
technology and undiscounted, site-specific costs. Environmental
38
<PAGE> 39
liabilities in connection with properties which are sold or closed are realized
upon such sale or closure, to the extent they are probable and estimable and not
previously reserved. In assessing environmental liabilities, no set-off is made
for potential insurance recoveries. Recognition of any joint and several
liability is based upon Shell Oil's best estimate of its final pro rata share of
the liability. All liabilities are monitored and adjusted regularly as indicated
by new facts or changes in law or technology.
2. ACCOUNTING CHANGES
In 1992, Shell Oil adopted Statement of Financial Accounting Standards
(SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," and SFAS No. 109, "Accounting for Income Taxes."
A summary of the cumulative effect of these accounting changes on years
prior to 1992 is as follow:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-----------------------------------------
OTHER DEFERRED NET
POSTRETIREMENT INCOME INCOME
ACCOUNTING CHANGE BENEFIT EXPENSE TAXES 1992
- ------------------------------------------------ --------------- -------- ------
(millions of dollars)
<S> <C> <C> <C>
Implementation of SFAS No. 106.................. $ 950 $ (323) $(627)
Implementation of SFAS No. 109.................. -- 8 (8)
----- ------ -----
Total................................. $ 950 $ (315) $(635)
===== ====== =====
</TABLE>
3. INTEREST
Interest costs were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(millions of dollars)
<S> <C> <C> <C>
Interest incurred........................................ $154 $198 $250
Interest paid............................................ 161 206 225
</TABLE>
4. FOREIGN CURRENCY TRANSACTIONS
The U.S. Dollar is the functional currency for each of Shell Oil's foreign
operations. The net, after-tax effects of foreign currency transactions were a
gain of $8 million in 1994, a loss of $3 million in 1993, and a gain of $1
million in 1992.
5. TRANSACTIONS WITH RELATED PARTIES
Shell Oil has entered into transactions with companies affiliated with the
Royal Dutch/Shell Group. Such transactions were in the ordinary course of
business and included the purchase, sale and transportation of crude oil and
petroleum and chemical products. The aggregate amount of such transactions was
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ -----
(millions of dollars)
<S> <C> <C> <C>
Sales and other operating revenue.................... $ 832 $ 554 $ 787
Purchases and transportation......................... 806 1,057 1,161
</TABLE>
These amounts are commingled with other revenues and costs and the profit
thereon is not accurately determinable without effort and expense
disproportionate to the relative importance of such amount.
The Company is also a partner in several international joint ventures with
affiliates of the Royal Dutch/Shell Group. Such joint ventures are engaged in
the exploration for and development and production of crude oil and natural gas.
The Company has also entered into arrangements with affiliated companies for the
sharing of research services in petroleum technology, chemicals and other
fields.
39
<PAGE> 40
In 1993, Shell Oil exchanged the assets of subsidiaries which held
production rights in Syria for an interest in a Dutch affiliate which had
acquired rights in the Danish North Sea from another affiliate. Shell Oil's
investment in the Dutch affiliate of $389 million is recorded using the equity
method.
In 1992, oil and gas producing assets in Malaysia and the stock of a wholly
owned subsidiary which held interests in a tar sands project in Canada, were
transferred to companies affiliated with the Royal Dutch/Shell Group. The
transfers of the Malaysian and Canadian assets were recognized as dividends in
the amount of $159 million and $58 million, respectively.
6. INVENTORIES OF OILS AND CHEMICALS
Inventories are carried predominantly on a LIFO basis which was lower than
current cost by $1,011 million at December 31, 1994, $648 million at December
31, 1993, and $1,049 million at December 31, 1992. Partial liquidations of
inventories valued on a LIFO basis improved 1994 and 1992 net income by $29
million and $2 million, respectively, and impaired 1993 net income by $10
million.
7. RECEIVABLES AND PREPAYMENTS
Receivables, prepayments and allowances for doubtful accounts as of
December 31, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------ ------
(millions of dollars)
<S> <C> <C>
Trade receivables.............................................. $1,999 $1,745
Other receivables.............................................. 522 406
Prepayments.................................................... 352 309
------ ------
2,873 2,460
Less: Allowance for Doubtful Accounts
Balance beginning of year................................. 31 34
Provision............................................ 15 38
Net write-offs....................................... (23) (41)
------ ------
Balance end of year....................................... 23 31
------ ------
Total........................................... $2,850 $2,429
====== ======
</TABLE>
8. SHORT-TERM DEBT
Debt due within one year from December 31 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------ ------
(millions of dollars)
<S> <C> <C>
Commercial notes............................................. $ 817 $ 502
Bank loans................................................... 50 50
Industrial Revenue Bonds..................................... 273 197
------ ------
1,140 749
Add: Long-term debt due within one year.................... 309 567
------ ------
Total................................................. $1,449 $1,316
====== ======
</TABLE>
The weighted average interest rate on short-term debt outstanding at
December 31, 1994 and 1993 was 5.73 percent and 3.45 percent, respectively.
40
<PAGE> 41
9. LONG-TERM DEBT
Debt due after one year from December 31 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------ ------
(millions of dollars)
<S> <C> <C>
Shell Oil Company --
8 1/2% Debentures Due 2000................................ -- $ 18
7 1/4% Debentures Due 2002................................ $ 12 21
8% Debentures Due 2007.................................... -- 50
7.70% Notes Due 1996...................................... 250 250
7 1/8% Notes Due 1994..................................... -- 250
7% Notes Due 1995......................................... 250 250
6 1/8% Notes Due 1994..................................... -- 250
6% Notes Due 1997......................................... 250 250
6.95% Notes Due 1998...................................... 250 250
6 5/8% Notes Due 1999..................................... 250 250
6.70% Notes Due 2002...................................... 250 250
7.65% to 8.5% Notes Due 1995-1996........................... 10 18
Industrial Revenue Bonds.................................... 16 16
Other....................................................... 318 144
------ ------
Total including long-term term debt due within one
year.............................................. 1,856 2,267
Less: Unamortized discount................................. 1 2
Long-term debt due within one year................... 309 567
------ ------
Total................................................ $1,546 $1,698
====== ======
</TABLE>
Shell Oil had $500 million of unused revolving credit agreements in place
as of December 31, 1994, which were available for general corporate purposes,
including support of commercial notes. None of the agreements require
compensating balances. Under the agreements, interest will be based on rates in
effect at the time of borrowing.
The amount of long-term debt maturities during each of the next five years
are $309 million, $290 million, $276 million, $264 million, and $262 million,
respectively.
In previous years, the Company purchased U.S. government securities and
deposited them in irrevocable trusts to be used to fund the scheduled principal
and interest payments on certain portions of the Company's long-term debt. Such
government securities and debt were removed from the balance sheet, and at
December 31, 1994, $285 million of such defeased debt remained outstanding. In
1994, the Company purchased $111 million of such defeased debentures and
recorded the cost and associated premium of these debentures in long-term
investments on the consolidated balance sheet.
10. DERIVATIVE FINANCIAL INSTRUMENTS
From time to time Shell Oil enters into interest rate swaps with the intent
of managing the exposure to interest rate risk. Interest rate swaps are
contractual agreements between two parties for the exchange of interest payments
on a notional principal amount and agreed upon fixed or floating rates, for
defined time periods. Most of Shell Oil's long-term interest bearing liabilities
reflected on its consolidated balance sheet are fixed rate instruments. Shell
Oil also has other long-term obligations not reflected on its balance sheet
which involve annual fixed rate payments. Shell Oil has used swaps to convert
many of these fixed rate debt and other obligations to floating rates.
Shell Oil bears two different risks under the swaps. There is a credit risk
that payments due to Shell Oil will not be made. In such case, Shell Oil loses
any benefit of the swap differential between the fixed rate specified under the
terms of the swap and the floating rate. Shell Oil remains obligated to pay the
fixed rate owing under the long term instruments and other obligations. Shell
Oil also bears the market risk that changes
41
<PAGE> 42
in floating interest rates may result in greater total costs than would have
arisen on the fixed rate and other obligations alone.
At December 31, 1994 and 1993, the notional principal amounts of interest
rate swaps outstanding were $2.6 billion and $250 million, respectively. Shell
Oil recognizes net gains or losses from interest rate swaps in its consolidated
statement of income and earnings on a current basis.
Shell Oil also uses derivative instruments in certain instances to reduce
price volatility risk on commodities. Generally, Shell Oil's strategy is to
hedge its exposure to price declines by locking in certain sales volumes at
fixed prices. Shell Oil accounts for commodity derivatives as hedges.
Usually, such derivatives are for terms of less than one year and cover
volumes substantially below anticipated sales. The exposure on such commodities
derivatives includes the credit risk that the counterparty will not pay if the
market declines below the established fixed price. In such case, Shell Oil loses
the benefit of the derivative differential on the volume of commodities covered
by the derivatives. In any case Shell Oil would continue to receive market price
on actual volumes as sold. Shell Oil also bears the risk that it could lose the
benefit of market improvements over the fixed derivative price for the term and
volume of the derivative securities (as such improvement would accrue to the
benefit of the counterparty.) In certain instances involving very small volumes
relative to Shell Oil's gross purchases and sales, Shell Oil enters into
derivative contracts to hedge its exposure under short term fixed price purchase
or sale commitments. In such cases, Shell Oil swaps its fixed price commitment
for a floating price, the net economic result being that its covered purchases
and sales are at market price.
In all cases involving credit risk on derivative securities, it is always
possible that Shell Oil will make payments when due, and that the counterparty
will subsequently default on payments due the Company, translating into higher
costs or further reduced revenues over time. However, the Company believes its
credit analysis regarding counterparties and the terms, nature and size of its
derivative portfolio significantly reduce this risk.
At December 31, 1994 all of Shell Oil's derivatives positions were
classified as for "purposes other than trading" under the provisions of
Statement of Financial Accounting Standards No. 119.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of Shell Oil's financial instruments are as
follows:
<TABLE>
<CAPTION>
1994 1993
------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE* VALUE VALUE*
-------- ------ -------- ------
(millions of dollars)
<S> <C> <C> <C> <C>
Investments............................ $ 114 $ 114 $ 109 $ 112
Long-term debt......................... 1,546 1,492 1,698 1,772
Interest rate swaps.................... -- (174) -- --
Commodity futures/swaps................ 2 (4) -- --
</TABLE>
- ---------------
* Fair value determined primarily by market quotations.
Market value is not readily determinable for certain investments in equity
securities and long-term receivables with a carrying value of $172 million and
$216 million at December 31, 1994 and 1993, respectively. The reported amounts
of financial instruments such as cash equivalents, marketable securities and
short-term debt approximate fair value because of their short maturities.
42
<PAGE> 43
12. TAXES
Operating and income taxes incurred by Shell Oil were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
(millions of dollars)
<S> <C> <C> <C>
OPERATING TAXES
Real and personal property........................... $ 170 $ 196 $ 209
Sales and use........................................ 144 154 176
Oil and gas production............................... 53 64 116
Payroll.............................................. 77 81 92
Franchise............................................ 31 34 34
Import and export duties............................. 3 8 13
Other................................................ 4 3 3
----- ----- -----
TOTAL...................................... $ 482 $ 540 $ 643
===== ===== =====
FEDERAL AND OTHER INCOME TAXES
Current
U.S. federal.................................... $ 327 $(101) $ 130
Foreign......................................... 34 108 144
State and local................................. 35 5 27
----- ----- -----
396 12 301
----- ----- -----
Deferred
U.S. federal.................................... (622) (4) (314)
U.S. federal tax rate change.................... -- 95 --
State and other................................. 5 31 45
----- ----- -----
(617) 122 (269)
----- ----- -----
TOTAL...................................... $(221) $ 134 $ 32
===== ===== =====
</TABLE>
Deferred income taxes are provided for the temporary differences between
the tax basis of Shell Oil's assets and liabilities and their reported amounts.
Significant components of deferred tax liabilities and assets as of December 31,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
(millions of
dollars)
<S> <C> <C>
Deferred tax liabilities:
Items associated with capitalized costs and write-offs...... $3,745 $4,189
Other....................................................... 339 271
------ ------
Total deferred tax liabilities......................... $4,084 $4,460
====== ======
Deferred tax assets:
Other postretirement obligations............................ $ 344 $ 334
Environmental reserves...................................... 297 240
Loss carryforwards.......................................... 163 --
Other....................................................... 272 256
------ ------
Total deferred tax assets.............................. $1,076 $ 830
------ ------
Valuation allowance.............................................. -- --
------ ------
Net deferred tax assets.......................................... $1,076 $ 830
------ ------
Net deferred tax liabilities..................................... $3,008 $3,630
------ ------
</TABLE>
Receivables and prepayments included $129 million and $124 million of net
current deferred tax assets as of December 31, 1994 and 1993, respectively.
43
<PAGE> 44
Total income taxes paid in the years 1994, 1993 and 1992 were $264 million,
$50 million and $337 million, respectively. Total income tax expense for the
years 1994, 1993 and 1992 was equivalent to effective tax rates of (77.0), 14.7
and 6.7 percent, respectively, on earnings before income taxes and accounting
changes of $287 million, $915 million and $477 million, respectively.
Reconciliation to the expected tax at the U.S. statutory rate (35 percent in
1994 and 1993; 34 percent in 1992) is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
(millions of dollars)
<S> <C> <C> <C>
Expected tax at U.S. statutory rate....................... $ 100 $ 320 $ 162
State and foreign tax..................................... 34 76 136
Prior year adjustment..................................... (282) (279) (100)
Tax credits............................................... (66) (55) (51)
Benefit of tax losses..................................... (8) (10) (101)
Tax rate change........................................... -- 95 --
Other..................................................... 1 (13) (14)
----- ----- -----
TOTAL...................................... $(221) $ 134 $ 32
===== ===== =====
</TABLE>
Shell Oil has tax loss carryforwards of $434 million expiring in 1997 ($3
million), 1998 ($7 million), 1999 ($316 million), 2008 ($20 million), and 2009
($88 million).
Shell Oil Company joins in the filing of a consolidated federal income tax
return with its parent, Shell Petroleum Inc., (SPI). Federal income tax amounts
are allocated among members of the consolidated tax group based on separate
return calculations. Federal income tax balances owing by/(to) Shell Petroleum
Inc. at December 31, 1994 and 1993 were ($5) million and, $14 million,
respectively.
13. INVESTMENTS
The equity method of accounting is used for investments in certain
partnerships and for investments in companies in which Shell Oil has a voting
stock interest between 20 and 50 percent. Such investments include: Saudi
Petrochemical Company, a petrochemical company in Saudi Arabia; Syria Shell
Holdings, B.V.*, a Dutch holding company with oil and gas producing operations
in Syria and the Danish North Sea; Deer Park Refining Limited Partnership, a
domestic refining operation; investments in several pipelines; and in 1993 and
1992, Zeigler Coal Holding Company, a domestic coal mining company. Aggregate
investment at December 31, 1994, 1993 and 1992 was $1,131 million, $1,486
million and $966 million, respectively; dividends received on these investments
in 1994, 1993 and 1992 were $91 million, $63 million and $62 million,
respectively. In 1994, Shell Oil sold its interest in Zeigler Coal Holding
Company. Summarized financial information for these investments and Shell Oil's
equity share thereof is as follow:
<TABLE>
<CAPTION>
1994 1993 1992
---------------- ---------------- ---------------
EQUITY EQUITY EQUITY
TOTAL SHARE TOTAL SHARE TOTAL SHARE
------ ------ ------ ------ ------ ------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
COMPANIES ACCOUNTED FOR ON AN
EQUITY BASIS
Current assets.................... $ 772 $ 267 $1,199 $ 402 $ 982 $ 401
Noncurrent assets................. 5,649 2,243 5,712 2,162 3,566 1,529
Current liabilities............... 1,136 486 1,250 501 803 326
Noncurrent liabilities............ 2,594 1,068 2,890 1,095 2,623 1,040
Deferred income taxes............. 241 60 229 57 55 14
Revenues.......................... 3,469 1,075 2,600 894 1,280 515
Net income........................ 402 119** 143 50 135 51
</TABLE>
- ------------
* At December 31, 1994, the unamortized excess of Shell Oil's investment in
this Dutch affiliate over its equity in the underlying net assets of the
affiliate approximated $219 million.
** Does not include a loss of $232 million on the sale of Shell Oil's interest
in Zeigler Coal Holding Company which was included in Equity earnings,
interest and other income on the Consolidated Statement of Income.
44
<PAGE> 45
14. PROPERTY, PLANT AND EQUIPMENT
Investments in property, plant and equipment, including capitalized lease
assets, were as follows:
<TABLE>
<CAPTION>
INVESTMENT
-------------------------------------------------------------------
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------------- -------------------------------
COST RESERVE* NET COST RESERVE* NET
------- ------- ------- ------- ------- -------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Exploration and Production
Oil and gas............. $23,231 $12,668 $10,563 $22,918 $11,679 $11,239
Other energy............ 149 89 60 151 4 147
Oil and Chemical
manufacturing
facilities.............. 9,452 4,232 5,220 8,719 3,947 4,772
Marketing facilities...... 2,930 682 2,248 2,831 697 2,134
Transportation
facilities.............. 1,028 587 441 983 576 407
Other..................... 1,120 568 552 932 551 381
------- ------- ------- ------- ------- -------
TOTAL........... $37,910 $18,826 $19,084 $36,534 $17,454 $19,080
======= ======= ======= ======= ======= =======
</TABLE>
- ------------
* Accumulated depreciation, depletion and amortization.
15. POSTRETIREMENT BENEFITS
The Company and certain of its subsidiaries currently provide health care
benefits for retired employees and their dependents. Eligibility for such
benefits requires retirement from the Company with entitlement to an immediate
pension generally upon the earlier of the attainment of age 50, when such age
plus years of service equals 80, or the attainment of age 65. Other
postretirement benefits provided by the Company include life insurance plans.
These insurance plans are primarily funded by employees; as a result, the cost
of such plans to the Company is not material.
The health care plans for retired employees and their dependents are
unfunded defined benefit plans. The benefit is defined as the Company's
contributions to such plans. Annually, retirees are advised of the amount of the
Company's monthly contribution to the plans for the following year and the
monthly amount such retirees must pay for the particular coverage desired.
Coverage under the plans is arranged through insurance companies. The Company's
portion of premium payments was $47 million in 1994, $44 million in 1993 and $38
million in 1992.
The assumed annual health care cost trend rate used in measuring the
accumulated postretirement benefit obligation (APBO) was 8% in 1994, 9% in 1995
and gradually declines to 5% by the year 2002, remaining at that level
thereafter. Increasing the assumed health care cost trend rate by one percentage
point in each year would increase the APBO by approximately $92 million and the
aggregate of the 1994 service cost and interest cost components of expense by
$11 million. The APBO as of December 31, 1994 and 1993 was based on discount
rates of 8.75% and 7.5%, respectively. Unrecognized net gains or losses in
excess of 10% of the APBO (corridor) are amortized over three years.
45
<PAGE> 46
Net postretirement benefits cost consisted of the following:
<TABLE>
<CAPTION>
1994 1993
---- ----
(millions of
dollars)
<S> <C> <C>
Service cost for benefits earned.......................... $ 15 $ 12
Interest cost on the APBO................................. 60 67
Net amortization and deferral............................. (22) (35)
Plan curtailment.......................................... -- 21
---- ----
TOTAL.............................................. $ 53 $ 65
==== ====
</TABLE>
The postretirement benefit plan status at December 31 was as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
(millions of
dollars)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees................................................... $501 $651
Fully eligible active plan participants.................... 32 35
Other active plan participants............................. 208 252
---- ----
TOTAL................................................. $741 $938
Plan assets at fair value.................................... -- --
---- ----
Accumulated postretirement benefit obligation in excess of
plan assets................................................ $741 $938
Unrecognized gain from past experience different from that
assumed and from changes in assumptions.................... 238 34
Prior service gain not yet recognized in net periodic
postretirement benefit cost................................ 18 20
---- ----
ACCRUED POSTRETIREMENT BENEFIT COST................... $997 $992
==== ====
</TABLE>
16. PENSION PLANS AND PROVIDENT FUND
The Shell Pension Plan covers employees of the Company and certain
subsidiaries. Benefits are based on years of service and the employee's average
final compensation. Company contributions to the Shell Pension Trust are based
on the projected unit credit actuarial method using rates determined to be
reasonable by an independent actuary. The methodology meets the requirements of
the Employee Retirement Income Security Act. There were no contributions to the
Shell Pension Trust in 1994 and 1993 due to the full-funding limitation of the
applicable tax law.
46
<PAGE> 47
The plan's funded status at December 31 was as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
(millions of dollars)
<S> <C> <C>
Actuarial present value:
Accumulated benefit obligation including vested benefits
of $3,067 and $3,530 for 1994 and 1993,
respectively.......................................... $3,307 $3,849
------ ------
Projected benefit obligation............................. $3,698 $4,453
Plan assets at fair value, primarily common stocks and
fixed income investments................................. 4,165 4,483
------ ------
Plan assets in excess of projected benefit obligation...... $ 467 $ 30
Remaining unrecognized net asset existing at date of
initial application of SFAS No. 87....................... (54) (66)
Unrecognized net (gain) loss from past experience different
from that assumed and effects of changes in
assumptions.............................................. 124 537
Prior service cost not yet recognized in net periodic
pension cost............................................. 80 89
------ ------
NET PREPAID PENSION EXPENSE...................... $ 617 $ 590
====== ======
</TABLE>
Shell Oil also has a Benefit Restoration Plan and a Senior Staff Plan. The
Benefit Restoration Plan generally provides for payments of amounts in excess of
limits imposed by federal tax law on benefit payments under the Shell Pension
Plan. The Senior Staff Plan provides for defined monthly supplemental pension
payments to members of the senior staff (consisting of certain officers and
other high-ranking employees). Both of these plans are unfunded. The accumulated
benefit obligation for these plans totaled $183 million and $175 million at
December 31, 1994 and 1993, respectively. The projected benefit obligation for
these plans totaled $214 million and $211 million at December 31, 1994 and 1993,
respectively. Of the 1994 projected benefit obligation amount, $124 million will
be expensed in the future and $90 million of unfunded accrued pension cost is
included in liabilities on the Consolidated Balance Sheet. The estimated
additional minimum pension liability at December 31, 1994 and 1993 was $99
million and $83 million, respectively.
The components of net pension expense for the Shell Pension Plan, Benefit
Restoration Plan and Senior Staff Plan were:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
(millions of dollars)
<S> <C> <C> <C>
Service cost -- benefits earned during the period....... $ 104 $ 87 $ 82
Interest cost on projected benefit obligation........... 315 311 300
Actual return on plan assets*........................... 25 (538) (203)
Net amortization and deferral*.......................... (435) 134 (176)
----- ----- -----
NET PENSION EXPENSE.............................. $ 9 $ (6) $ 3
===== ===== =====
</TABLE>
- ------------
* Estimated long-term rates of return on plan assets of 10 percent in 1994, 1993
and 1992 were used in determining pension expense for the period. The
difference between actual return and estimated return is included in Net
amortization and deferral.
Current year pension expense is based on measurements of the projected
benefit obligation and the market-related value of plan assets as of the end of
the previous year. The projected benefit obligation as of December 31, 1994 and
1993 was based on discount rates of 8.75 percent and 7 percent, respectively,
and an average long-term rate of compensation growth of 5 percent for 1994 and
1993.
The Shell Provident Fund covers employees of the Company and certain
subsidiaries after stated periods of service, and provides for contributions by
the employing company based on stated percentage of the employees' salaries and
wages. Employees may also contribute amounts up to a stated percentage.
47
<PAGE> 48
Total costs of these plans were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
(millions of dollars)
Pension plans.............................................. $ 9 $ (6) $ 3
Provident Fund............................................. 95 96 103
---- ---- ----
TOTAL............................................... $104 $ 90 $106
==== ==== ====
</TABLE>
In addition, several subsidiary companies have separate pension plans using
actuarial rates and assumptions determined to be appropriate to those companies.
Such plans are not material and were excluded from the above disclosures.
17. CONTINGENCIES
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 208 sites, including the Rocky Mountain Arsenal
(RMA) and the McColl site as discussed below. As of year end 1994, discussions
or activities were ongoing concerning 117 of these sites, in some cases in the
early stages. During 1994, expenses recorded (including reserves) under CERCLA
and such state statutes relating to the 208 sites were approximately $135
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 postclosure 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. 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. Other remediation alternatives, some
of which could significantly increase the Company's cost at the RMA, have been
proposed by the State of Colorado and the EPA; the Company does not believe such
alternatives to be cost effective or necessary to prevent risk to the
environment. A final remediation plan is not expected until at least year end
1995 and possibly 1996. The Company's share of expenditures through December 31,
1994 was approximately $240 million.
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
48
<PAGE> 49
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. In Texas, 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, as are the fabricators and
installers of the systems. 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. 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. Claims continued to increase during 1994. A proposed settlement
in a nationwide class action has been filed but has not become final. In no case
would such class action settlement apply to litigation filed prior to September
10, 1993.
The Company is litigating insurance coverage at the RMA through 1969 and
for the McColl site and other environmental claims. Declaratory judgment actions
have also been filed to resolve insurance coverage for polybutylene through
mid-1985 and insurance coverage for 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 it will be able to meet related obligations without a material
adverse effect on its financial position.
49
<PAGE> 50
18. COMMITMENTS
Shell Oil conducts a portion of its operations using leased facilities,
including service stations, barges and tankers. Future minimum payments under
operating and capital leases with initial or remaining terms of one year or more
consisted of the following at December 31, 1994:
<TABLE>
<CAPTION>
OPERATING CAPITALIZED
LEASES LEASES
------ ------
(millions of
dollars)
<S> <C> <C>
1995............................................................ $ 154 $ 1
1996............................................................ 123 1
1997............................................................ 89 --
1998............................................................ 60 --
1999............................................................ 45 --
Thereafter...................................................... 754 --
------ ---
Total minimum lease payments*......................... $1,225 2
Estimated executory costs (such as taxes, maintenance,
insurance, operating costs)................................... --
---
Net minimum lease payments............................ 2
Imputed interest................................................ --
---
Present value of net minimum lease payments**......... $ 2
===
</TABLE>
- ------------
* Minimum lease payments have not been reduced by minimum sublease rentals of
$1 million due in the future under noncancelable subleases for operating
leases. There were no contingent rentals applicable to capital leases.
** Of the amount shown, substantially all is reflected in Long-term debt on the
Consolidated Balance Sheet.
The composition of total rental expense for all operating leases, except
those with terms of a month or less that were not renewed, was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(millions of dollars)
<S> <C> <C> <C>
Minimum rentals........................................... $369 $336 $351
Contingent rentals
(Based on sales volumes)................................ 2 2 3
Less: sublease rentals.................................... (38) (42) (45)
---- ---- ----
Total........................................... $333 $296 $309
==== ==== ====
</TABLE>
Under long-term agreements with an offshore port and certain pipeline
companies in which stock interests are held, Shell Oil may be required to
advance funds against future transportation charges in the event such companies
are unable to meet their financial obligations. Also, at December 31, 1994,
Shell Oil had commitments related to agreements for the future purchase of
materials and services, and for the acquisition and construction of facilities,
all made in the normal course of business. Additionally, at December 31, 1994,
Shell Oil had guaranteed $159 million of debt and other obligations of others.
All such commitments and guarantees are expected to be fulfilled with no adverse
consequences material to Shell Oil's operations or financial condition.
50
<PAGE> 51
19. OPERATING SEGMENTS INFORMATION
Operating segments information for the years 1994, 1993 and 1992 is
presented below. Income taxes are allocated to segments on the basis of
contributions to taxable income reduced by applicable tax credits. Shell Oil's
activity outside the United States has not reached a level warranting separate
geographical reporting.
<TABLE>
<CAPTION>
OIL AND
GAS
EXPLORATION
AND OIL CHEMICAL
PRODUCTION PRODUCTS PRODUCTS OTHER TOTAL
---------- -------- -------- ------ -------
(millions of dollars)
<S> <C> <C> <C> <C> <C>
1994 SUMMARY STATEMENT OF INCOME
Sales and other operating revenue...... $ 1,490 $15,733 $ 4,075 $ 325 $21,623
Other revenue.......................... 33 14 12 2 61
Intersegment transfers................. 2,257 851 158 -- --
------- ------- -------- ------ -------
TOTAL REVENUE................ 3,780 16,598 4,245 327 21,684(1)
Costs and operating expenses........... 2,183 15,559 3,654 350 18,480(1)
Depreciation, amortization, etc........ 1,605 341 288 90 2,324
------- ------- -------- ------ -------
OPERATING PROFIT (LOSS)...... (8) 698 303 (113) 880
Corporate expense--allocated........... 39 29 16 -- 84
Income tax expense
(benefit)--allocated................. (210) 218 98 (125) (19)
Equity in net (income) loss of
others............................... (96) 24 (34 ) 247 141
------- ------- -------- ------ -------
INCOME (LOSS) FROM ONGOING
OPERATIONS................. 259 427 223 (235) 674
Other charges(4)....................... 2 54 62 -- 118
------- ------- -------- ------ -------
SEGMENT NET INCOME (LOSS).... $ 257 $ 373 $ 161 $ (235) $ 556
Nonallocated costs..................... 48
-------
NET INCOME................... $ 508
=======
1994 CAPITAL EXPENDITURES................... $ 952 $ 1,087 $ 343 $ 8 $ 2,451(2)
IDENTIFIABLE ASSETS
DECEMBER 31, 1994......................... $12,217 $ 7,892 $ 4,520 $ 409 $26,379(3)
1993 SUMMARY STATEMENT OF INCOME
Sales and other operating revenue...... $ 1,418 $15,462 $ 3,687 $ 282 $20,849
Other revenue.......................... 96 8 16 -- 120
Intersegment transfers................. 2,492 949 172 -- --
------- ------- -------- ------ -------
TOTAL REVENUE................ 4,006 16,419 3,875 282 20,969(1)
Costs and operating expenses........... 2,110 15,708 3,315 299 17,819(1)
Depreciation, amortization, etc........ 1,225 253 232 11 1,721
------- ------- -------- ------ -------
OPERATING PROFIT (LOSS)...... 671 458 328 (28) 1,429
Corporate expense--allocated........... 53 25 24 1 103
Income tax expense
(benefit)--allocated................. 163 163 119 (20) 425
Equity in net (income) loss of
others............................... (23) (15) (35 ) 18 (55)
------- ------- -------- ------ -------
INCOME (LOSS) FROM ONGOING
OPERATIONS................. 478 285 220 (27) 956
Other charges(4)....................... 1 5 185 -- 191
------- ------- -------- ------ -------
SEGMENT NET INCOME (LOSS).... $ 477 $ 280 $ 35 $ (27) $ 765
Nonallocated costs..................... (16)(5)
-------
NET INCOME................... $ 781
=======
1993 CAPITAL EXPENDITURES................... $ 877 $ 704 $ 319 $ 20 $ 1,981(2)
IDENTIFIABLE ASSETS DECEMBER 31, 1993....... $12,697 $ 7,232 $ 4,312 $ 659 $26,851(3)
</TABLE>
(Table continued on following page)
51
<PAGE> 52
<TABLE>
<CAPTION>
OIL AND
GAS
EXPLORATION
AND OIL CHEMICAL
PRODUCTION PRODUCTS PRODUCTS OTHER TOTAL
---------- -------- -------- ------ -------
(millions of dollars)
<S> <C> <C> <C> <C> <C>
1992 SUMMARY STATEMENT OF INCOME
Sales and other operating revenue...... $ 1,280 $15,650 $ 3,354 $ 869 $21,153
Other revenue.......................... 113 11 39 5 168
Intersegment transfers................. 3,032 1,007 129 -- --
------- ------- -------- ------ -------
TOTAL REVENUE................ 4,425 16,668 3,522 874 21,321(1)
Costs and operating expenses........... 2,404 16,347 3,133 888 18,604(1)
Depreciation, amortization, etc........ 1,539 259 216 53 2,067
------- ------- -------- ------ -------
OPERATING PROFIT (LOSS)...... 482 62 173 (67) 650
Corporate expense--allocated........... 62 70 30 7 169
Income tax expense
(benefit)--allocated................. (29) 3 48 (3) 19
Equity in net (income) loss of
others............................... (20) (19) 2 (1) (38)
------- ------- -------- ------ -------
INCOME (LOSS) FROM ONGOING
OPERATIONS................. 469 8 93 (70) 500
Other charges(4)....................... -- 2 81 -- 83
------- ------- -------- ------ -------
SEGMENT NET INCOME (LOSS).... $ 469 $ 6 $ 12 $ (70) $ 417
-------
Nonallocated costs..................... $ (28)(5)
Cumulative effect of accounting
changes.............................. (635)
-------
NET INCOME (LOSS)............ $ (190)
=======
1992 CAPITAL EXPENDITURES................... $ 877 $ 790 $ 424 $ 70 $ 2,239(2)
IDENTIFIABLE ASSETS DECEMBER 31, 1992....... $13,525 $ 7,107 $ 4,131 $ 740 $26,970(3)
</TABLE>
- ------------
(1) After elimination of intersegment transfers of $3,266 million in 1994,
$3,613 million in 1993, and $4,168 million in 1992, which are based on
estimated market-related values.
(2) Includes non-segment capital expenditures of $61 million in 1994, $61
million in 1993, and $78 million in 1992.
(3) Includes non-segment assets of $1,341 million in 1994, $1,951 million in
1993, and $1,467 million in 1992.
(4) Amounts associated with major product classifications for which there has
been no revenue stream or investment in the last 5 years. For 1992, these
costs have been reclassified from "Costs and operating expenses."
(5) Nonallocated costs in 1993 includes a favorable prior-year tax adjustment of
$161 million. Nonallocated costs in 1992 includes interest income of $207
million related to a prior-year tax adjustment.
52
<PAGE> 53
20. 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>
1994 1993 1992*
---- ---- ----
(millions of dollars)
<S> <C> <C> <C>
SHELL PIPE LINE CORPORATION
Current assets......................................... $161 $115 $ 50
Noncurrent assets...................................... 356 299 286
Current liabilities.................................... 61 58 82
Noncurrent liabilities................................. 70 71 65
Revenue................................................ 281 271 281
Operating income....................................... 128 120 103
Net income............................................. 101 97 103
</TABLE>
- ---------------
* Certain balances have been restated to conform with Shell Oil's consolidated
financial reporting.
21. QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
--------------------------------- ---------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------ ------ ------ ------ ------ ------ ------ ------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and other operating
revenue.................. $4,773 $5,310 $5,704 $5,839 $4,999 $5,404 $5,314 $5,136
Revenues, less purchases
and operating expenses... 1,185 1,018 1,398 1,288 1,319 1,261 1,058 1,088
Income before income
taxes.................... 295 (596) 446 144 391 281 90 153
Net income (loss).......... $ 179 $ (194) $ 313 $ 211 $ 239 $ 203 $ 187 $ 152
</TABLE>
53
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on February 16, 1995.
SHELL OIL COMPANY
(Registrant)
By /s/ PHILIP J. CARROLL
------------------------------------
(Philip J. Carroll, President)
------------------------
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Philip
J. Carroll, S. A. Lackey, and Jack B. Edrington, and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on February 16, 1995 by the following persons on
behalf of the Registrant in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
/s/ PHILIP J. CARROLL President and Director
- --------------------------------------------- (Principal Executive Officer)
(Philip J. Carroll)
/s/ P. G. TURBERVILLE Vice President -- Finance
- --------------------------------------------- (Principal Financial Officer)
(P. G. Turberville)
/s/ HENRY E. BLECHL Controller and General Auditor
- --------------------------------------------- (Principal Accounting Officer)
(Henry E. Blechl)
Director
- ---------------------------------------------
(Joseph E. Antonini)
/s/ RAND V. ARASKOG Director
- ---------------------------------------------
(Rand V. Araskog)
</TABLE>
(Signatures continued on next page)
54
<PAGE> 55
(Signatures continued from preceding page)
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ ROBERT F. DANIELL Director
- ---------------------------------------------
(Robert F. Daniell)
/s/ C. A. J. HERKSTROTER Director
- ---------------------------------------------
(C. A. J. Herkstroter)
/s/ JOHN S. JENNINGS Director
- ---------------------------------------------
(John S. Jennings)
/s/ JACK E. LITTLE Director
- ---------------------------------------------
(Jack E. Little)
/s/ HAROLD A. POLING Director
- ---------------------------------------------
(Harold A. Poling)
/s/ JOHN F. WOODHOUSE Director
- ---------------------------------------------
(John F. Woodhouse)
</TABLE>
55
<PAGE> 56
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
- -------
<C> <C> <S> <C>
3 Articles of Incorporation and By-Laws..................................... *
10 Material Contracts:
(i) Letter Agreement between Registrant and Shell Internationale
Research Maatschappij B. V..................................... 57
(ii) Agreement for Research Services................................ *
21 Subsidiaries of the Registrant............................................ 58
23 Consent of Independent Accountants........................................ 59
24 Powers of Attorney........................................................ 54
27 Financial Data Schedule...................................................
</TABLE>
- ------------
* Incorporated by reference; see Item 14c, page 33.
56
<PAGE> 1
EXHIBIT 10(I)
SHELL DEVELOPMENT COMPANY
A DIVISION OF SHELL OIL COMPANY
ONE SHELL PLAZA
P. O. BOX 2463
HOUSTON, TEXAS 77252-2463
L. L. SMITH
VICE PRESIDENT
SAFETY, ENVIRONMENT & TECHNOLOGY
SHELL OIL COMPANY
Our Ref: STVP LGVP
Shell Internationale Research Maatschappij, B. V.
P. O. Box 162
30 Carel van Bylandtlaan
The Hague 2076, The Netherlands
SUBJECT: AGREEMENT FOR RESEARCH SERVICES
Gentlemen:
This refers to the Agreement dated January 1, 1960, between our companies
entitled "Agreement for Research Services," as amended.
Programs and budget for the year 1995 having been exchanged in accordance with
paragraph 9 of said Agreement, and the parties having agreed to the factors
referred to in subparagraph 10 (c) (iii), we now wish to confirm our
understanding with you that said Agreement, as amended, shall be continued for
the calendar year 1995, with the amount of the monthly payment to be determined
and paid according to the terms of said Agreement.
Please indicate your concurrence to the continuation of the said Agreement on
the basis indicated above by executing both of the executed letters enclosed and
returning one of them to us and retaining the other for your files.
Yours very truly,
SHELL OIL COMPANY
By /s/ L. L. Smith
------------------------------
L. L. Smith
Accepted and Agreed to:
The Hague, 13 December, 1994
Shell Internationale Research Maatschappij, B. V.
By /s/ J. R. Street /s/ C. T. Leenders
------------------------ ---------------------------
J. R. Street C. T. Leenders
57
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME INCORPORATED IN
- ---- ---------------
<S> <C>
Shell Pipe Line Corporation................................................... Maryland
Seashell Pipeline Company................................................... Delaware
Concha Chemical Pipeline Company............................................ Delaware
Shell Finance Company......................................................... Delaware
Shell Energy Resources Inc. ................................................ Delaware
Shell Western E&P Inc. .................................................. Delaware
Shell Cortez Pipeline Company.......................................... Delaware
SOI Holdings Inc. ....................................................... Alabama
Shell Offshore Inc. ................................................... Delaware
Power Limited Partnership........................................... Delaware
Shell Oil & Gas Investments, Limited Partnership.................... Delaware
Shell Onshore Ventures Inc. ...................................... Delaware
SOI Royalties Inc. ................................................. Delaware
Shell Frontier Oil and Gas Inc. .................................... Delaware
Shell Energy Company..................................................... Delaware
Shell Coal Resources Inc. ............................................. Delaware
Shell Gas Trading Company.............................................. Delaware
Pecten International Company........................................... Delaware
Pecten Ash Sham Company............................................. Delaware
Pecten Cameroon Company............................................. Delaware
Pecten Brazil Exploration Company................................... Delaware
Shell Leasing Company......................................................... Delaware
Pecten Export Corporation Ltd. ............................................... Bermuda
Shell LSO Property Company.................................................... Delaware
Pecten Arabian Company........................................................ Delaware
</TABLE>
The names of other subsidiaries have been omitted because, as of December
31, 1994, such subsidiaries considered in the aggregate as a single subsidiary
would not constitute a "significant subsidiary."
58
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-45397) of
Shell Oil Company of our report dated February 7, 1995 appearing on page 34 of
this Form 10-K.
PRICE WATERHOUSE LLP
Houston, Texas
February 16, 1995
59
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000089629
<NAME> SHELL OIL COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-END> DEC-31-1994
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<CASH> 617
<SECURITIES> 0
<RECEIVABLES> 1,999
<ALLOWANCES> 23
<INVENTORY> 793
<CURRENT-ASSETS> 4,384
<PP&E> 37,910
<DEPRECIATION> 18,826
<TOTAL-ASSETS> 26,379
<CURRENT-LIABILITIES> 5,160
<BONDS> 1,546
<COMMON> 0
0
0
<OTHER-SE> 13,733
<TOTAL-LIABILITY-AND-EQUITY> 26,379
<SALES> 21,236
<TOTAL-REVENUES> 21,581
<CGS> 16,694
<TOTAL-COSTS> 17,176
<OTHER-EXPENSES> 2,669
<LOSS-PROVISION> 23
<INTEREST-EXPENSE> 154
<INCOME-PRETAX> 287
<INCOME-TAX> (221)
<INCOME-CONTINUING> 508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 508
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
