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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________________
Commission File Number 1-2475
SHELL OIL COMPANY
(Exact Name of Registrant as Specified in its Charter)
<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)
</TABLE>
Registrant's Telephone Number, Including Area Code (713) 241-6161
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock, $10.00 par value, outstanding as of
September 30, 1996 - 1,000 shares.
-----------------
OMISSION OF CERTAIN INFORMATION
In accordance with General Instruction H of Form 10-Q, the registrant is
omitting Part II, Items 2, 3, and 4 because:
(1) Royal Dutch Petroleum Company, a Netherlands company, and the "Shell"
Transport and Trading Company, public limited company, an English company, each
of which is a reporting company under the Securities Exchange Act of 1934 that
has filed all material required to be filed by it pursuant to Section 13, 14,
or 15(d) thereof, own directly or indirectly 60 percent and 40 percent,
respectively, of the shares of the companies of the Royal Dutch/Shell Group of
Companies, including all the equity securities of the registrant; and
(2) during the preceding thirty-six calendar months and any subsequent period
of days, there has not been any material default in the payment of principal,
interest, sinking or purchase fund installment, or any other material default
not cured within thirty days with respect to any indebtedness of the registrant
or its subsidiaries, and there has not been any material default in the payment
by the registrant or its subsidiaries of rentals under material long-term
leases.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Millions of Dollars
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
---------------------- ----------------------
1996 1995 1996 1995
------- ------ -------- -------
<S> <C> <C> <C> <C>
REVENUES
Sales and other operating revenue . . . . . . . $ 8,149 $6,800 $23,257 $20,229
Less: Consumer excise and sales taxes . . . . 953 825 2,660 2,418
------- ------ ------- -------
7,196 5,975 20,597 17,811
Equity earnings, interest and other income . . 71 86 227 301
------- ------ ------- -------
TOTAL . . . . . . . . . . . . . . . . . . 7,267 6,061 20,824 18,112
------- ------ ------- -------
COSTS AND EXPENSES
Purchases and operating expenses . . . . . . . 5,517 4,293 15,726 13,229
Selling, general and administrative expenses . 149 251 670 708
Exploration, including exploratory dry holes . 74 42 199 155
Research expenses . . . . . . . . . . . . . . . 31 29 96 86
Depreciation, depletion, amortization and
retirements . . . . . . . . . . . . . . . . 529 630 1,580 1,574
Interest and discount amortization . . . . . . 52 59 155 163
Operating taxes . . . . . . . . . . . . . . . . 118 113 355 365
------ ------ ------- -------
TOTAL . . . . . . . . . . . . . . . . . . 6,470 5,417 18,781 16,280
------ ------ ------- -------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST . . . . . . . . . . . . . . . . . $ 797 $ 644 $ 2,043 $ 1,832
Federal and other income taxes . . . . . . . . 278 223 560 660
Minority interest in income
of subsidiaries . . . . . . . . . . . . . . 15 7 35 32
-------- ------ ------- -------
NET INCOME . . . . . . . . . . . . . . . . . . . . $ 504 $ 414 $ 1,448 $ 1,140
======= ====== ======= =======
</TABLE>
Note: Certain 1995 amounts have been reclassified to conform with current year
presentation.
OPERATING SEGMENTS INFORMATION
Millions of Dollars
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
---------------------- -----------------------
1996 1995 1996 1995
------- ------ ------- ------
<S> <C> <C> <C> <C>
SEGMENT NET INCOME (LOSS)
Oil and Gas Exploration and Production . . . . $ 286 $ 146 $ 908 $ 457
Oil Products . . . . . . . . . . . . . . . . . 110 139 318 259
Chemical Products . . . . . . . . . . . . . . . 112 215 152 610
Other . . . . . . . . . . . . . . . . . . . . . (8) (86) (17) (89)
Corporate Items . . . . . . . . . . . . . . . . . . 4 -- 87 (97)
------- ------- ---------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . $ 504 $ 414 $ 1,448 $ 1,140
======= ======= ========== =========
</TABLE>
2
<PAGE> 3
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Millions of Dollars
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
----------------- --------------
1996 1995
----------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 593 $ 421
Receivables and prepayments, less allowance for
doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . 3,496 3,415
Inventories of oils and chemicals . . . . . . . . . . . . . . . . . 886 567
Inventories of materials and supplies . . . . . . . . . . . . . . . 228 234
---------- ---------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . 5,203 4,637
INVESTMENTS, LONG-TERM RECEIVABLES AND
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . 3,059 2,912
PROPERTY, PLANT AND EQUIPMENT AT COST, LESS
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF $20,969 AT SEPTEMBER 30, 1996
AND $20,193 AT DECEMBER 31, 1995 . . . . . . . . . . . . . . . . . . 20,000 19,472
-------- --------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $28,262 $27,021
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . . $ 1,998 $ 2,094
Other payables and accruals . . . . . . . . . . . . . . . . . . . . 1,578 1,212
Income, operating and consumer taxes . . . . . . . . . . . . . . . . 697 808
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 2,871 1,950
--------- ---------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . 7,144 6,064
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 987 1,301
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 2,749 2,841
LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 2,332 2,213
MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . 849 749
SHAREHOLDER'S EQUITY
Common stock - 1,000 shares of $10 per share
par value . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Capital in excess of par value . . . . . . . . . . . . . . . . . . . 2,206 2,206
Earnings reinvested . . . . . . . . . . . . . . . . . . . . . . . . 11,995 11,647
-------- --------
TOTAL SHAREHOLDER'S EQUITY . . . . . . . . . . . . . . . . . 14,201 13,853
-------- --------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,262 $27,021
======= =======
</TABLE>
Note: Certain 1995 amounts have been reclassified to conform with current year
presentation.
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SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Millions of Dollars
<TABLE>
<CAPTION>
NINE MONTHS
--------------------------
1996 1995
------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,448 $ 1,140
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, amortization and retirements . . . . . . . . . 1,580 1,574
Dividends in excess of (less than) equity income . . . . . . . . . (88) (97)
(Increases) decreases in working capital:
Receivables and prepayments . . . . . . . . . . . . . . . . . . (81) 53
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (313) (157)
Current payables and accruals . . . . . . . . . . . . . . . . . 159 (127)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (92) 41
Minority interest in income of subsidiaries . . . . . . . . . . . 35 32
Other noncurrent items . . . . . . . . . . . . . . . . . . . . . . . . . 7 (99)
-------- --------
Net Cash Provided by Operating Activities . . . . . . . . . . . 2,655 2,360
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,476) (2,150)
Proceeds from property sales and salvage . . . . . . . . . . . . . . . . . 359 70
Other investments and advances . . . . . . . . . . . . . . . . . . . . . . (30) (31)
----------- ----------
Net Cash Used for Investing Activities . . . . . . . . . . . . . (2,147) (2,111)
--------- ----------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . 68 97
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . (292) (290)
Proceeds from sales of redeemable securities of subsidiaries . . . . . . . 104 191
Dividends to minority interest . . . . . . . . . . . . . . . . . . . . . . (39) (27)
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,100) (1,050)
Increase (decrease) in short-term obligations . . . . . . . . . . . . . . 923 696
-------- ---------
Net Cash Used For Financing Activities . . . . . . . . . . . . . (336) (383)
---------- ----------
NET CASH FLOWS
Increase (Decrease) in cash and cash equivalents . . . . . . . . . . . . . $ 172 $ (134)
======== ==========
CASH AND CASH EQUIVALENTS
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . $ 421 $ 617
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . 172 (134)
------- ----------
Balance at end of period . . . . . . . . . . . . . . . . . . . . $ 593 $ 483
======== =======
</TABLE>
Note: Certain 1995 amounts have been reclassified to conform with current year
presentation.
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SHELL OIL COMPANY AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
A. INTERIM FINANCIAL STATEMENT MATTERS
The unaudited financial statements and summarized notes of Shell Oil
Company (the Company) and its consolidated subsidiaries (Shell Oil) included in
this report do not include complete financial information and should be read in
conjunction with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements filed with the Securities and Exchange
Commission in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995. The financial information presented in the financial
statements included in this report reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of results for the
interim periods presented. Any such adjustments are of a normal recurring
nature, except as may otherwise be described in Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The results for the third quarter and first nine months of 1996 should
not be construed as necessarily indicative of future financial results.
B. SUMMARIZED FINANCIAL INFORMATION - SHELL PIPE LINE CORPORATION
The following summarized financial information for Shell Pipe Line
Corporation, a wholly owned subsidiary of Shell Oil Company, is presented here
for the information of holders of Shell Pipe Line Corporation's 7 1/2%
Guaranteed Sinking Fund Debentures due 1999, which are fully guaranteed by
Shell Oil Company.
<TABLE>
<CAPTION>
September 30 December 31
---------------- --------------
Millions of dollars 1996 1995
---------------- --------------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . $ 108 $ 154
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . 692 524
Current Liabilities . . . . . . . . . . . . . . . . . . . . . 94 89
Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . 80 73
</TABLE>
<TABLE>
<CAPTION>
Third Quarter Nine Months
----------------- -------------------
Millions of dollars 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $ 98 $ 86 $ 271 $241
Operating income . . . . . . . . . . . . . . . 49 45 143 128
Net income . . . . . . . . . . . . . . . . . . 38 35 109 98
</TABLE>
C. CONTINGENCIES AND OTHER MATTERS
Shell Oil is subject to a number of possible loss contingencies.
These include actions based upon environmental laws involving present and past
operating and waste disposal locations and related private claims, contract and
product liability actions, and actions challenging the correctness of oil and
gas royalty calculations. In addition, federal, state and local income,
property and excise tax returns are being examined and certain interpretations
by Shell Oil of complex tax statutes, regulations and practices are being
challenged.
5
<PAGE> 6
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 227 sites, including the Rocky Mountain
Arsenal (RMA). As of September 30, 1996, discussions or activities were
ongoing concerning 86 of these sites, in some cases in the early stages.
During the first nine months of 1996, expenses recorded under CERCLA and such
state statutes were approximately $10 million and approximately $21 million was
charged to previously established reserves. The United States, the State of
Colorado and the Company have agreed upon a remediation plan at the RMA and
such plan has been formally incorporated in the Record of Decision (ROD). The
Company has accrued $500 million for its share of the related costs, $279
million of which had been spent as of September 30, 1996. The Company believes
its current accruals will be adequate to cover its anticipated costs under the
ROD for the RMA. Shell Oil also has certain obligations under the Resource
Conservation and Recovery Act (RCRA) and similar state laws regarding
corrective action at manufacturing locations and provides assurances regarding
its financial ability to meet certain closure and post-closure obligations that
will arise in the future at such locations under such laws.
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. 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 (the fittings' co-defendants) and,
with the manufacturers of the fittings and pipe, are also defendants in these
cases. The Company's position and most of the judgments to date have confirmed
that most of the leaks have occurred in residential plumbing systems due to
failure of the polyacetal insert fitting system, which is no longer used. In
addition to the numerous cases which have been filed on behalf of individual
claimants, over 25 purported statewide, partial statewide or nationwide class
actions have been filed. During 1995, Shell and one of the fittings
co-defendants settled a nationwide class action in Tennessee State Court while
the other fittings co-defendant settled a nationwide class action in Alabama
State Court. The parties agreed to coordinate the implementation of these two
settlements. Settlement has also been reached with an attorney representing
many of the known opt-outs to such Tennessee settlement. However, a significant
number of opt-outs remain and at least some are likely to seek to litigate
their claims. The class action settlements provide for the creation of an
entity to receive and handle claims and for a $950 million fund to pay such
claims, which claims may be made over a period of up to 14 years, depending on
various factors. If the settlement funds are exhausted, additional funds may
be provided by the defendants, or claimants who have not received their full
benefits under the settlements may seek their remedy in a new court proceeding
at that time. There are significant issues to be resolved as to how costs will
be shared among certain co-defendants. The Company and one fittings
co-defendant have agreed to arbitration to determine how the costs of the
settlements will be shared between them; the other fittings co-defendant has
agreed to fund 10% of all acetal fitting costs related to the class action
settlements. At least some contribution to the settlements is expected from
other parties. There are issues remaining to be resolved in connection with
certain litigation in other states and possible conflicts among the various
courts. Additionally, in matters outside the residential plumbing litigation
and settlements, claims involving problems with polybutylene pipe used in
municipal water distribution systems have increased during the past two years.
The Company will continue to defend vigorously in these matters but it cannot
currently predict when or how polybutylene related matters will finally be
resolved.
In December 1993, a Los Angeles Superior Court jury, in two
consolidated lawsuits against the Company and its subsidiary involving the
condition of the Dominguez oil field, returned a verdict for
6
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the plaintiffs in the amount of $46.9 million compensatory damages and $173
million punitive damages. Plaintiffs alleged they were defrauded, that the oil
and gas lease was breached, and that soil contamination on the property
constitutes a continuing trespass. Final resolution through the appeals
process could take at least another year. The Company and its subsidiary
believe the verdict was wrong and expect ultimately to prevail in the
litigation.
The Company is a party to litigation regarding Nemagon(R), an
agricultural chemical containing DBCP manufactured and sold by it from 1955 to
1978. Cases have been filed against the Company, other substantial
manufacturers and suppliers of DBCP and 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.
The Company has filed declaratory judgment actions to resolve
insurance coverage for polybutylene through mid-1985; for asbestos, Nemagon(R)
and other toxic tort claims; and for certain environmental claims.
The Company's assessment of these matters is continuing. Future
provisions may be required as administrative and judicial proceedings progress
and the scope and nature of remediation programs and related costs estimates
are clarified. However, while periodic results may be significantly affected
by these matters, based upon developments to date, the management of the
Company anticipates that it will be able to meet related obligations without a
material adverse effect on its financial position.
_______________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Shell Oil reported a record third quarter net income of $504 million,
an increase of $90 million over the same quarter of 1995. Excluding special
items in both quarters, adjusted net income in the third quarter of 1996
totaled $493 million, an increase of $62 million or 14 percent over the 1995
quarter and a record adjusted net income level for any quarter.
Overall improvements in the third quarter of 1996 compared to the 1995
quarter were the result of higher average prices for crude oil and natural gas.
In addition, 1996 refined product margins improved slightly and sales volumes
increased for both refined products and chemicals over the 1995 quarter.
Net income for the nine months of 1996 totaled $1,448 million, an
increase of $308 million over the comparable 1995 period. Excluding special
items in both periods, adjusted net income for the nine months of 1996 totaled
$1,323 million, an increase of $201 million or 18 percent.
The improvements contributing to the higher earnings in the first nine
months of 1996 included higher prices and production of crude oil and natural
gas, increased sales volumes of oil and chemical
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<PAGE> 8
products, and higher margins for oil products. Partially offsetting these
benefits were lower chemical margins, which declined substantially from 1995
levels.
Special items in the 1996 periods increased net income $11 million for
the quarter and $125 million for the nine months. In comparison, special items
in 1995 reduced net income by $17 million for the quarter, but improved the
first nine months by $18 million. Special items in the 1996 quarter included
proceeds from insurance recoveries, offset in part by litigation settlements
and provisions, and a net loss on property sales.
OIL AND GAS EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
Income Highlights Third Quarter Nine Months
- ----------------- ------------------- --------------------
(millions of dollars) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from Ongoing Operations . . . . . . . . . $ 288 $ 146 $ 910 $ 457
Other Charges* . . . . . . . . . . . . . . . . . (2) -- (2) --
------ ------ ------- ------
Segment Net Income . . . . . . . . . . . . . . 286 146 908 457
Special Items (includes "Other Charges") . . . . (9) 2 41 39
------- ----- ----- -----
Adjusted Net Income . . . . . . . . . . . . . . 295 144 867 418
- -----------
</TABLE>
*Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Oil and gas exploration and production segment net income in the third
quarter of 1996 totaled $286 million, an increase of $140 million over 1995.
For the nine months of 1996, net income was $908 million, up $451 million.
Excluding special items in the comparable periods, adjusted net income was up
$151 million in the 1996 quarter versus 1995 and up $449 million in the
nine-month comparison.
Higher selling prices for both crude oil and natural gas benefited both
1996 periods. For the 1996 quarter, domestic crude oil prices averaged $18.20
per barrel, up $3.51 per barrel, while natural gas prices averaged $2.34 per
thousand cubic feet, up $.81 over the same 1995 period. For the first nine
months of 1996, domestic crude prices were up $2.40 per barrel and natural gas
prices were up $.78 per thousand cubic feet over 1995.
Domestic production of crude oil in the third quarter of 1996 averaged
368,000 barrels per day, a decrease of 5,000 barrels per day from the same
period in 1995. For the nine months of 1996, domestic crude oil production
averaged 374,000 barrels per day, up 4,000. For the quarter, new and increased
production in the deep water Gulf of Mexico was offset by normal declines
elsewhere. Natural gas production was virtually unchanged in the quarter
comparison, and up 4 percent in the nine months of 1996 over 1995.
During the third quarter of 1996, production began on schedule from Mars, a
tension leg platform located in the deep water Gulf of Mexico. By the end of
September, daily rates of production averaged 22,000 barrels of crude oil and
21 million cubic feet of gas.
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<PAGE> 9
OIL PRODUCTS
<TABLE>
<CAPTION>
Income Highlights Third Quarter Nine Months
- ----------------- ---------------------- ------------------------
(millions of dollars) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from Ongoing Operations . . . . . . . . . $ 111 $ 133 $ 320 $ 254
Other Charges* . . . . . . . . . . . . . . . . . (1) 6 (2) 5
------ ------ ------ ----
Segment Net Income . . . . . . . . . . . . . . . 110 139 318 259
Special Items (includes "Other Charges") . . . . (11) 28 (22) 24
------- ------- -------- -----
Adjusted Net Income . . . . . . . . . . . . . . 121 111 340 235
- -----------
</TABLE>
*Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Oil products segment net income was $110 million in the third quarter of
1996, a decrease of $29 million from 1995. In the nine months of 1996,
however, net income totaled $318 million, up $59 million over 1995. Excluding
special items in the comparable periods, adjusted net income was $10 million
higher than in the 1995 quarter and up $105 million over 1995 in the
nine-months comparison.
For the third quarter of 1996, improved margins were partially offset by a
higher level of scheduled manufacturing turnarounds. For the nine months of
1996, income benefited primarily from improved refined product margins.
Overall sales volumes of refined products in the third quarter of 1996 rose
3 percent over the same period last year. Sales of light oil products
increased 8 percent, with automotive gasoline sales volumes to branded service
stations increasing 1 percent. Sales volumes for the first nine months of 1996
increased 4 percent.
CHEMICAL PRODUCTS
<TABLE>
<CAPTION>
Income Highlights Third Quarter Nine Months
- ----------------- ---------------------- ------------------------
(millions of dollars) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from Ongoing Operations . . . . . . . . . $ 114 $ 208 $ 159 $ 608
Other Charges* . . . . . . . . . . . . . . . . . (2) 7 (7) 2
------- ------ ------- -----
Segment Net Income . . . . . . . . . . . . . . . 112 215 152 610
Special Items (includes "Other Charges") . . . . (2) 7 (106) 9
------- ------- ------ ------
Adjusted Net Income . . . . . . . . . . . . . . 114 208 258 601
- -----------
</TABLE>
*Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Chemical products segment net income in the third quarter of 1996 was
$112 million, a decrease of $103 million from 1995. For the nine months of
1996, chemical products segment net income totaled $152 million, a decrease of
$458 million. Excluding special items in the comparable periods, adjusted net
income was down $94 million in the 1996 quarter and $343 million in the nine
months of 1996.
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<PAGE> 10
Decreases in both 1996 periods were due to lower margins across most
product lines due to lower selling prices. Overall, sales volumes increased in
both 1996 periods, due mainly to higher sales of primary chemicals. In
addition, costs were lower in the third quarter of 1996, as compared to the
1995 period and the prior 1996 quarters, reflecting decreased litigation
expenses.
OTHER
The other segment incurred net losses of $8 million and $17 million in
the third quarter and the nine month periods of 1996, respectively, compared to
net losses of $86 million and $89 million in the comparable 1995 periods. The
higher 1995 charges reflected the write-down of a real estate property held for
sale.
CORPORATE ITEMS
Corporate items totaled a positive $4 million in the third quarter of
1996 and $87 million for the nine months of 1996, compared to charges netting
to zero and $97 million in the respective 1995 periods. Corporate costs in the
1996 periods benefited from proceeds from an insurance recovery.
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
Cash flow provided by operating activities totaled $2,655 million for
the first nine months of 1996, compared with $2,360 million in the comparable
period last year, an increase of $295 million. Cash flow in 1996 benefited from
higher net income as compared with the 1995 period. Cash generated from
operating activities and property sales, combined with an increase in debt of
$699 million, was used primarily for capital expenditures of $2,476 million and
dividend payments of $1,100 million.
OTHER MATTERS
RECENT DEVELOPMENTS
On October 7, 1996, Shell Oil confirmed news reports of the same date
indicating discussions with Texaco Inc. and Saudi Refining, Inc. regarding the
potential for joint arrangements involving the U.S. downstream operations of
Shell, Texaco and Star Enterprise. Star Enterprise is a joint venture between
Texaco and Saudi Refining. While the companies are reviewing a range of
options, the specific activities under consideration are refining, marketing
and transportation. No agreements have been reached and it should not be
assumed that the discussions will result in joint arrangements.
In addition to the economic conditions and other matters discussed
above affecting Shell Oil, the operations, earnings and financial condition of
Shell Oil may be affected by political developments; litigation; and
legislation, regulation and other actions taken by federal, state, local and
foreign governmental entities, including those matters discussed in Note C of
the Notes to Interim Financial Statements.
_________________________
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In August 1996, a complaint was filed against Shell Oil before the
Illinois Pollution Control Board by the Illinois Attorney General's Office,
alleging violations of certain state air regulations at the Wood River
Manufacturing Complex from May 1992 to present. The Company and the State of
Illinois are engaging in negotiations seeking to resolve this matter.
On October 4, 1996, Shell Oil received a copy of an administrative
complaint and proposed compliance order issued by the Environmental Protection
Agency ("EPA") Region 5 office alleging certain regulatory violations
pertaining to the burning of hazardous waste in onsite boilers at the Belpre,
Ohio, plant. The proposed penalty is $176,725. The violations are based on
inspections conducted by the state and the EPA in 1995 and 1996 as part of an
EPA nationwide enforcement initiative. Negotiations are ongoing to resolve this
matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHELL OIL COMPANY
By N. J. CARUSO
--------------------------------
N. J. Caruso, Controller
(Principal Accounting and
Duly Authorized Officer)
Date: October 31, 1996
11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C>
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000089629
<NAME> SHELL OIL COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 593
<SECURITIES> 0
<RECEIVABLES> 2,345
<ALLOWANCES> 17
<INVENTORY> 1,114
<CURRENT-ASSETS> 5,203
<PP&E> 40,969
<DEPRECIATION> 20,969
<TOTAL-ASSETS> 28,262
<CURRENT-LIABILITIES> 7,144
<BONDS> 987
<COMMON> 0
0
0
<OTHER-SE> 14,201
<TOTAL-LIABILITY-AND-EQUITY> 28,262
<SALES> 20,352
<TOTAL-REVENUES> 20,824
<CGS> 15,726
<TOTAL-COSTS> 16,081
<OTHER-EXPENSES> 1,779
<LOSS-PROVISION> 13
<INTEREST-EXPENSE> 155
<INCOME-PRETAX> 2,043
<INCOME-TAX> 560
<INCOME-CONTINUING> 1,448
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,448
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
