<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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)
Delaware 13-1299890
(State of Incorporation) (I.R.S. Employer Identification No.)
One Shell Plaza, Houston, Texas 77002
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (713) 241-6161
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares of Common Stock, $10.00 par value, outstanding as of June
30, 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>
SECOND QUARTER SIX MONTHS
---------------------- ----------------------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Sales and other operating revenue . . . . . . . $ 7,959 $ 7,122 $ 15,108 $ 13,429
Less: Consumer excise and sales taxes . . . . 864 833 1,707 1,592
------- ------- -------- --------
7,095 6,289 13,401 11,837
Equity earnings, interest and other income . . 93 104 156 214
------- ------- -------- --------
TOTAL . . . . . . . . . . . . . . . . . . 7,188 6,393 13,557 12,051
------- ------- -------- --------
COSTS AND EXPENSES
Purchases and operating expenses . . . . . . . 5,416 4,715 10,209 8,912
Selling, general and administrative expenses . 283 277 521 483
Exploration, including exploratory dry holes . 75 68 124 112
Research expenses . . . . . . . . . . . . . . . 34 28 65 57
Depreciation, depletion, amortization and
retirements . . . . . . . . . . . . . . . . 549 502 1,052 944
Interest and discount amortization . . . . . . 56 53 103 104
Operating taxes . . . . . . . . . . . . . . . . 106 124 237 252
------- ------- -------- --------
TOTAL . . . . . . . . . . . . . . . . . . 6,519 5,767 12,311 10,864
------- ------- -------- --------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST . . . . . . . . . . . . . . . . . $ 669 $ 626 $ 1,246 $ 1,187
Federal and other income taxes . . . . . . . . 198 228 282 437
Minority interest in income
of subsidiaries . . . . . . . . . . . . . . 10 13 20 25
------- ------- -------- --------
NET INCOME(LOSS) . . . . . . . . . . . . . . . . . $ 461 $ 385 $ 944 $ 725
======= ======= ======== ========
</TABLE>
Note: Certain 1995 amounts have been reclassified to conform with current year
presentation.
____________________
OPERATING SEGMENTS INFORMATION
Millions of Dollars
<TABLE>
<CAPTION>
SECOND QUARTER SIX MONTHS
---------------------- -----------------------
1996 1995 1996 1995
------- ------- -------- ------
<S> <C> <C> <C> <C>
SEGMENT NET INCOME (LOSS)
Oil and Gas Exploration and Production . . . . $ 307 $ 144 $ 622 $ 311
Oil Products . . . . . . . . . . . . . . . . . 137 106 208 119
Chemical Products . . . . . . . . . . . . . . . (46) 181 40 395
Other . . . . . . . . . . . . . . . . . . . . . (6) (5) (9) (4)
Corporate Items . . . . . . . . . . . . . . . . . . 69 (41) 83 (96)
------- ------- -------- -------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ 461 $ 385 $ 944 $ 725
======= ======= ======== =======
</TABLE>
2
<PAGE> 3
SHELL OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Millions of Dollars
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
--------- -----------
1996 1995
--------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 532 $ 421
Receivables and prepayments, less allowance for
doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . 3,472 3,415
Inventories of oils and chemicals . . . . . . . . . . . . . . . . . 852 567
Inventories of materials and supplies . . . . . . . . . . . . . . . 229 234
--------- ---------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . 5,085 4,637
INVESTMENTS, LONG-TERM RECEIVABLES AND
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . 3,087 2,912
PROPERTY, PLANT AND EQUIPMENT AT COST, LESS
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF $20,671 AT JUNE 30, 1996
AND $20,193 AT DECEMBER 31, 1995 . . . . . . . . . . . . . . . . . . 19,705 19,472
--------- ---------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,877 $ 27,021
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . . $ 1,921 $ 2,094
Other payables and accruals . . . . . . . . . . . . . . . . . . . . 1,437 1,212
Income, operating and consumer taxes . . . . . . . . . . . . . . . . 585 808
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 2,985 1,950
--------- ---------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . 6,928 6,064
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,003 1,301
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 2,658 2,841
LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . 2,351 2,213
MINORITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . 840 749
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 . . . . . . . . . . . . . . . . . . . . . . . . 11,891 11,647
--------- ---------
TOTAL SHAREHOLDER'S EQUITY . . . . . . . . . . . . . . . . . 14,097 13,853
--------- ---------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27,877 $ 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>
SIX MONTHS
--------------------------
1996 1995
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 944 $ 725
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, amortization and retirements . . . . . . . . . 1,052 944
Dividends in excess of (less than) equity income . . . . . . . . . (63) (67)
(Increases) decreases in working capital:
Receivables and prepayments . . . . . . . . . . . . . . . . . . (57) 53
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . (280) (98)
Current payables and accruals . . . . . . . . . . . . . . . . . (171) (454)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (183) 48
Minority interest in income of subsidiaries . . . . . . . . . . . 20 25
Other noncurrent items . . . . . . . . . . . . . . . . . . . . . . (8) (44)
-------- ---------
Net Cash Provided by Operating Activities . . . . . . . . . . . 1,254 1,132
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,589) (1,407)
Proceeds from property sales and salvage . . . . . . . . . . . . . . . . . 297 47
Other investments and advances . . . . . . . . . . . . . . . . . . . . . . (54) 53
-------- ---------
Net Cash Used for Investing Activities . . . . . . . . . . . . . (1,346) (1,307)
-------- ---------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . 68 97
Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . (277) (32)
Proceeds from sales of redeemable securities of subsidiaries . . . . . . . 97 192
Dividends to minority interest . . . . . . . . . . . . . . . . . . . . . . (26) (21)
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (700) (700)
Increase (decrease) in short-term obligations . . . . . . . . . . . . . . 1,041 751
-------- ---------
Net Cash Provided by Financing Activities . . . . . . . . . . . 203 287
-------- ---------
NET CASH FLOWS
Increase (Decrease) in Cash and cash equivalents . . . . . . . . . . . . . $ 111 $ 112
======== =========
CASH AND CASH EQUIVALENTS
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . $ 421 $ 617
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . 111 112
-------- ---------
Balance at end of period . . . . . . . . . . . . . . . . . . . . $ 532 $ 729
======== =========
</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 second quarter and first six 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>
June 30 December 31
--------- -----------
Millions of dollars 1996 1995
--------- -----------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . $ 93 $ 154
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . 639 524
Current Liabilities . . . . . . . . . . . . . . . . . . . . . 67 89
Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . 78 73
</TABLE>
<TABLE>
<CAPTION>
Second Quarter Six Months
----------------- -------------------
Millions of dollars 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $ 86 $ 80 $ 173 $155
Operating income . . . . . . . . . . . . . . . 44 43 94 82
Net income . . . . . . . . . . . . . . . . . . 34 33 71 63
</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.
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 225 sites,
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including the Rocky Mountain Arsenal (RMA). As of June 30, 1996, discussions
or activities were ongoing concerning 85 of these sites, in some cases in the
early stages. During the first half of 1996, expenses recorded under CERCLA
and such state statutes were approximately $4 million and approximately $16
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, $276 million of which had been spent as of June 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 during 1996 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 increased during 1995. 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 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
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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. In California, the claims involve alleged contamination of water wells
based on revisions to governmental standards. The claims in the litigation
seek the cost of cleanup and future monitoring of such water wells. The
Company is a co-defendant in these cases with other substantial manufacturers
and suppliers of the same chemical. During the second quarter of 1995, the
majority of these cases were settled, with the defendants accepting certain
future obligations. Ultimate exposure will not be known with certainty until
all cases are resolved and time has passed to see what cleanup will in fact be
required, which may be affected both by changes in DBCP levels detected in
certain water tables, new wells drilled and regulations in place. 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 second quarter net income of $461 million,
an increase of $76 million over the second quarter of 1995. Excluding special
items in both quarters, adjusted net income in the second quarter of 1996
totaled $445 million, an increase of $58 million or 15 percent.
The key operational elements contributing to these results in the
second quarter of 1996 as compared to 1995 were higher prices for crude oil and
natural gas, increased natural gas production and higher refined product
margins, all of which more than offset the negative effects from significantly
lower chemical margins.
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For the first six months of 1996, net income was a record $944
million, an increase of $219 million, or 30 percent, over the same period last
year. Excluding special items, adjusted net income for 1996 totaled $830
million, an increase of $140 million, or 20 percent, over 1995.
Contributing to these higher earnings in the first six months of 1996
were improved prices and production of crude oil and natural gas, increased
sales volumes of oil and chemical products, and higher margins for oil
products. Partially offsetting these benefits were lower chemical margins,
which declined substantially from their higher levels in 1995.
Special items in the 1996 periods benefited net income $16 million for
the quarter and $114 million for the first half. Special items in the second
quarter of 1996 included proceeds from an insurance recovery and benefits from
prior period tax credits, offset in part by an increase to an existing
provision for product liability, losses on the sale of producing properties and
a charge for property damages. In addition to these second quarter items, the
first half of 1996 also included further benefits from prior year tax
adjustments. In contrast, special items reduced 1995 net income by $2 million
for the quarter, but benefited the first half by $35 million.
OIL AND GAS EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
Income Highlights Second Quarter Six Months
- ----------------- ---------------------- -----------------------
(millions of dollars) 1996 1995 1996 1995
------- -------- --------- -------
<S> <C> <C> <C> <C>
Income from Ongoing Operations . . . . . . . . . $ 307 $ 144 $ 622 $ 311
Other Charges* . . . . . . . . . . . . . . . . . -- -- -- --
------- -------- -------- -------
Segment Net Income . . . . . . . . . . . . . . 307 144 622 311
Special Items (includes "Other Charges") . . . . 27 (3) 50 37
------- -------- -------- -------
Adjusted Net Income . . . . . . . . . . . . . . 280 147 572 274
</TABLE>
- -----------
*Amounts associated with major product classifications for which there has been
no revenue stream or investment in the last five years.
Oil and gas exploration and production segment net income in the
second quarter of 1996 was $307 million, an increase of $163 million over 1995.
For the first half of 1996, net income was $622 million, up $311 million.
Excluding special items in the comparable periods, adjusted net income
increased $133 million in the 1996 quarter versus 1995, and $298 million in the
first-half comparison.
Both 1996 periods benefited from higher average domestic prices for crude
oil and natural gas. Natural gas prices for the second quarter of 1996
averaged $2.37 per thousand cubic feet, up 41 percent over the same 1995
period, while average domestic crude oil prices were $18.02 per barrel, up 12
percent. Similarly, in the first-half comparison, average natural gas prices in
1996 increased 46 percent while domestic crude oil prices increased 12 percent.
Average domestic production of crude oil declined slightly in the 1996
quarter, averaging 374,000 barrels per day, a decrease of 4,000 barrels. For
the first six months, however, domestic production increased 9,000 barrels per
day, averaging 377,000 barrels. The quarter decrease was the result of a
temporary curtailment of production due to the installation of pipeline
facilities at Auger. For the first six months of 1996, increased domestic
production was attributable to the deep-water Gulf of Mexico,
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which more than offset natural declines elsewhere. Natural gas production
increased in both 1996 periods over 1995, up 5 percent in the quarter
comparison and 7 percent in the six months.
OIL PRODUCTS
<TABLE>
<CAPTION>
Income Highlights Second Quarter Six Months
- ----------------- --------------------- -----------------------
(millions of dollars) 1996 1995 1996 1995
------- -------- -------- -------
<S> <C> <C> <C> <C>
Income from Ongoing Operations . . . . . . . . . $ 138 $ 107 $ 209 $ 120
Other Charges* . . . . . . . . . . . . . . . . . (1) (1) (1) (1)
------- -------- -------- -------
Segment Net Income . . . . . . . . . . . . . . 137 106 208 119
Special Items (includes "Other Charges") . . . . (11) (4) (11) (4)
------- -------- -------- -------
Adjusted Net Income . . . . . . . . . . . . . . 148 110 219 123
</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 $137 million in the second quarter of
1996, an increase of $31 million over 1995. In the first six months of 1996,
net income totaled $208 million, up $89 million from 1995. Excluding special
items in comparable periods, adjusted net income increased $38 million versus
the 1995 quarter, and improved $96 million in the six-months comparison.
In the second quarter of 1996, benefits were derived from improved refined
product margins and higher sales volumes. The improvement was partially offset
by higher marketing costs and by a fire at the Martinez, California refinery.
The fire disrupted production of light products, including gasoline; however,
supply arrangements, including additional purchases of light products, were
utilized to meet customer demands. For the first six months of 1996, income
benefited primarily from improved refined product margins and higher sales
volumes.
Refined product sales volumes in the second quarter and the first six
months of 1996 were higher than in 1995, with automotive gasoline sales volumes
to branded service stations essentially unchanged.
CHEMICAL PRODUCTS
<TABLE>
<CAPTION>
Income Highlights Second Quarter Six Months
- ----------------- ---------------------- -----------------------
(millions of dollars) 1996 1995 1996 1995
------- -------- -------- -------
<S> <C> <C> <C> <C>
Income from Ongoing Operations . . . . . . . . . $ (44) $ 183 $ 45 $ 400
Other Charges* . . . . . . . . . . . . . . . . . (2) (2) (5) (5)
------- -------- -------- -------
Segment Net Income . . . . . . . . . . . . . . (46) 181 40 395
Special Items (includes "Other Charges") . . . . (119) 5 (104) 2
------- -------- -------- -------
Adjusted Net Income . . . . . . . . . . . . . . 73 176 144 393
</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 incurred a net loss of $46 million in the
second quarter of 1996, a decrease of $227 million over the comparable 1995
quarter. For the first six months of 1996, chemical
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<PAGE> 10
products net income was $40 million, a decrease of $355 million. Excluding
special items in the comparable periods, adjusted net income for the 1996
quarter was $73 million, a decline of $103 million, and for the first six
months, totaled $144 million, down $249 million.
Chemical margins in both 1996 periods declined significantly from those
high levels achieved in 1995 due to lower selling prices and rising feedstock
costs. Overall, sales volumes increased in both 1996 periods, due mainly to
higher sales of primary chemicals.
OTHER
The other segment incurred net losses of $6 million and $9 million in
the second quarter and the first half of 1996, respectively, compared to net
losses of $5 million and $4 million in the comparable 1995 periods.
CORPORATE ITEMS
Corporate items totaled a positive $69 million in the second quarter
of 1996 and $83 million in the first half of 1996, compared to charges of $41
million and $96 million in the respective 1995 periods. Excluding special
items, corporate incurred charges of $50 million in the 1996 quarter and $96
million in the first six months of 1996.
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
Cash flow provided by operating activities totaled $1,254 million for
the first six months of 1996, compared with $1,132 million in the comparable
period last year, an increase of $122 million. The period to period increase
was attributable to higher earnings. Cash generated from operating activities,
coupled with an increase in debt of $832 million and proceeds from property
sales of $297 million in the first six months of 1996, was used primarily for
capital expenditures of $1,589 million and dividend payments of $700 million.
OTHER MATTERS
In addition to the economic conditions and other matters discussed
above affecting Shell Oil, the operations, earnings and financial condition of
Shell Oil may be affected by political developments; litigation; and
legislation, regulation and other actions taken by federal, state, local and
foreign governmental entities, including those matters discussed in Note C of
the Notes to Interim Financial Statements.
_________________________
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported in the Company's 1995 Annual Report on Form 10-K
(10-K), the United States, the State of Colorado and the Company reached a
Conceptual Remedy regarding clean-up of the Rocky Mountain Arsenal (RMA) on
June 13, 1995. During the second quarter of 1996, the Conceptual
10
<PAGE> 11
Remedy was formally incorporated in the Record of Decision (ROD) as the
remediation plan. The ROD for the RMA was executed on June 11, 1996.
As previously reported in the 10-K, the Company received a Notice of
Violation/Finding of Violation from the EPA Region V alleging violations under
the Clean Air Act and the Illinois State Implementation Plan by the Wood River
Manufacturing Complex. On June 24, 1996, the Company received a further Notice
of Violation from the EPA alleging additional violations. Shell Oil and the EPA
are engaging in discussions seeking to resolve these and other previously
reported matters at Wood River.
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: July 26, 1996
11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
27 Financial Data Schedule . . . . . . . . . . . .
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 532
<SECURITIES> 0
<RECEIVABLES> 2,113
<ALLOWANCES> 16
<INVENTORY> 1,081
<CURRENT-ASSETS> 5,085
<PP&E> 40,376
<DEPRECIATION> 20,671
<TOTAL-ASSETS> 27,877
<CURRENT-LIABILITIES> 6,928
<BONDS> 1,003
<COMMON> 0
0
0
<OTHER-SE> 14,097
<TOTAL-LIABILITY-AND-EQUITY> 27,877
<SALES> 13,242
<TOTAL-REVENUES> 13,557
<CGS> 10,209
<TOTAL-COSTS> 10,446
<OTHER-EXPENSES> 1,176
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 103
<INCOME-PRETAX> 1,246
<INCOME-TAX> 282
<INCOME-CONTINUING> 944
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 944
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
