-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TcJPOlBPBQnGnPEha5y8M9QzpZ0m+xQ54sLeKvc26JVM1bH/8kVbAmfsRkOmMGf9 4iytYveILbiQcryMfx1q/A== 0000928385-98-000503.txt : 19980323 0000928385-98-000503.hdr.sgml : 19980323 ACCESSION NUMBER: 0000928385-98-000503 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980319 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOBIL CORP CENTRAL INDEX KEY: 0000067182 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 132850309 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07555 FILM NUMBER: 98568959 BUSINESS ADDRESS: STREET 1: 3225 GALLOWS RD CITY: FAIRFAX STATE: VA ZIP: 22037-0001 BUSINESS PHONE: 7038463000 MAIL ADDRESS: STREET 1: 3225 GALLOWS ROAD CITY: FAIRFAX STATE: VA ZIP: 22037-0001 10-K 1 FORM 10-K 1997 ______________________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549-1004 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 1997 ----------------- Commission File No. 1-7555 ------ MOBIL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-2850309 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3225 GALLOWS ROAD, FAIRFAX, VIRGINIA 22037-0001 TELEPHONE: (703) 846-3000 ----------------------------------------------------------- (Address of principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered - -------------------------------------- ----------------------- Common Stock, $1.00 Par Value New York Stock Exchange 7 5/8% Debentures due 2033 New York Stock Exchange 8% Debentures Due 2032 New York Stock Exchange 8 3/8% Notes Due 2001 New York Stock Exchange 8 5/8% Debentures Due 2021 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Guarantee, Mobil Oil Corporation Employee Stock Ownership Plan (ESOP) Trust 9.17% Sinking Fund Debentures Due 2000 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 . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. --- The number of voting securities of the registrant outstanding on February 27, 1998, the latest practicable date, was (i) 781,760,429 shares of common stock, all of which comprise a single class with a $1.00 par value, and each being entitled to one vote and (ii) 170,029 shares of Series B ESOP Convertible Preferred Stock, $1.00 par value per share, and each being entitled to 100 votes for a total of 17,002,900 votes. As of the same date, the aggregate market value of voting stock held by non-affiliates of the registrant was $56,436,828,571, based on a closing price of $72.25 per share. The approximate number of common equity security holders as of the same date was 185,419. Parts I and II incorporate information by reference to the Annual Report to Shareholders for the year ended December 31, 1997. Part III contains information incorporated by reference to the registrant's definitive proxy statement, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1997. ______________________________________________________________________________ MOBIL CORPORATION Form 10-K December 31, 1997 TABLE OF CONTENTS
PAGE(S) -------------------------- 1997 1997 Annual Annual Report on Report to Form 10-K Shareholders --------- --------------- PART I Item 1. Business......................................... 1 - (a) General.................................... 1 - (b) Environmental Matters...................... 1 30,49 (c) Segment and Geographic Information......... 2 38,39 (d) Business Description and Properties........ 2 55,56,62 Petroleum Operations..................... 2 - Upstream............................... 3 - Downstream............................. 16 - Chemical Operations...................... 17 - Other Operations......................... 18 - Item 2. Properties....................................... 19 - Item 3. Legal Proceedings................................ 19 - Item 4. Submission of Matters to a Vote of Security Holders............................ 20 - PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters................ 21 31 Item 6. Selected Financial Data.......................... 21 63 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition............................ 21 19-32,34,36 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................. 21 28 Item 8. Financial Statements and Supplementary Data............................. 21 31,33,35,37-59 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................... 21 - PART III Item 10. Directors and Executive Officers of the Registrant.............................. 21 - Item 11. Executive Compensation........................... 21 - Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 21 - Item 13. Certain Relationships and Related Transactions........................... 21 - PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 23 - Supplemental Financial Information............... 25 - Financial Statement Schedule................... 25 - Signatures....................................... 26 - Exhibit Index.................................... 27 - Exhibits......................................... 28 -
PART I ITEM 1. BUSINESS. (A) GENERAL MOBIL CORPORATION (Mobil) was incorporated in March 1976 in the state of Delaware. Mobil's principal business, which is conducted primarily through wholly-owned subsidiaries, is in the petroleum industry. Mobil is also a manufacturer and marketer of petrochemicals, packaging films and specialty chemical products. Through its subsidiaries, Mobil had business interests in about 140 countries and employed approximately 42,700 people worldwide at December 31, 1997. Through its subsidiaries, Mobil operates a worldwide oil and gas exploration and producing business, a global marketing and refining complex, a network of pipelines and tankers linking these worldwide oil and gas businesses, a world scale chemical business and a highly sophisticated research and engineering operation. A list of Mobil's most significant subsidiaries is contained on pages 30 through 32 of this Annual Report on Form 10-K. In this Report, except as otherwise indicated by the context, the term "Mobil" refers to the parent corporation and all of its subsidiaries and affiliates and their operating divisions collectively, and sometimes to one or more of them. Mobil makes no representations as to the future trend of its business and earnings, or as to future events and developments that could affect the oil industry in particular and that may affect other businesses in which Mobil is directly or indirectly engaged. These include such matters as the divestiture of certain operations, environmental quality control standards, oil imports, new discoveries of hydrocarbons and the demand for petroleum products. Furthermore, Mobil's business could be affected by future price changes or controls, material and labor costs, legislation, taxes, labor conditions, transportation regulations, tariffs, litigation, embargoes, foreign currency exchange restrictions and changes in foreign currency exchange rates. Mobil has direct and indirect investments and interests in many enterprises worldwide and makes no representation as to future developments, which may have a profound effect on its business enterprises throughout the world. Mobil also recognizes that such enterprises are subject to political uncertainties in many of the countries in which it operates. Countries in addition to the U.S. which currently are, and are expected to continue to be, significant contributors to Mobil's operating earnings are Australia, Canada, Germany, Indonesia, Nigeria, Norway, Saudi Arabia and the United Kingdom (U.K.). (B) ENVIRONMENTAL MATTERS The discussions of Environmental Matters on pages 30 and 49 of Mobil's 1997 Annual Report to Shareholders are incorporated herein by reference. Mobil and certain of its subsidiaries and affiliates are parties to numerous proceedings instituted by governmental authorities and others under provisions of applicable laws or regulations relating to the discharge of materials into the environment. Such environmental proceedings are further discussed herein on page 19 under Item 3. Legal Proceedings. Mobil -1- (C) SEGMENT AND GEOGRAPHIC INFORMATION Segment and Geographic information for 1995, 1996 and 1997 on pages 38 and 39 of Mobil's 1997 Annual Report to Shareholders is incorporated herein by reference. (D) BUSINESS DESCRIPTION AND PROPERTIES In addition to the business description and properties contained herein, the following data included in Mobil's 1997 Annual Report to Shareholders are incorporated herein by reference:
1997 Annual Report to Shareholders Description Page ----------------------------------------------- ------------ Estimated Quantities of Net Proved Oil and Natural Gas Liquids Reserves (Table 1).... 55 Estimated Quantities of Net Proved Natural Gas Reserves (Table 2).................... 56 Petroleum Product Sales..................... 62 Refinery Runs............................... 62 Chemical Sales by Product Category.......... 62
PETROLEUM OPERATIONS Mobil is one of the largest oil companies in the world, with petroleum product sales of 3.3 million barrels a day. In 1997 Mobil produced the oil equivalent of about 1.8 million barrels daily of crude oil, natural gas liquids and natural gas and had refinery runs of 2.2 million barrels per day. Petroleum net sales in 1997 were $54,183 million, down 7% from 1995 and 19% from 1996. The decrease in 1997 from 1996 was principally due to the effects of equity accounting for the Mobil-BP European downstream alliance.
- -------------------------------------------------------------------- PETROLEUM SALES (a) 1995 1996 1997 (Millions of dollars) - -------------------------------------------------------------------- Automotive gasoline..................... $21,697 $23,193 $17,180 Distillate and jet fuels................ 14,710 17,842 12,096 Other refined petroleum products........ 7,318 8,193 6,686 ------- ------- ------- Total refined petroleum products 43,725 49,228 35,962 Crude oil............................... 8,268 11,206 12,564 Natural gas............................. 5,282 5,369 4,653 Other products.......................... 846 906 1,004 ------- ------- ------- Net Sales of Petroleum.................. $58,121 $66,709 $54,183 ======= ======= ======= (a) Excludes excise and state gasoline taxes of.......................... $ 8,646 $ 9,236 $ 5,928 - --------------------------------------------------------------------
Prices for crude oil have experienced dramatic fluctuations during the past several years in response to both political and market factors, making it difficult to forecast future trends in prices or margins in Petroleum Operations. During 1997 average worldwide crude oil prices decreased about $1.50 per barrel, reflecting increased supplies, slower demand growth in Asia and milder weather. Mobil's Petroleum Operations are divided into two primary business activities - -- Upstream, which refers to exploration and producing; and Downstream, which refers to marketing, refining, supply and transportation. Mobil -2- PETROLEUM OPERATIONS -- UPSTREAM EXPLORATION AND PRODUCING SIGNIFICANT DEVELOPMENTS IN 1997 IN MOBIL'S EXPLORATION AND PRODUCING OPERATIONS INCLUDED THE FOLLOWING: WORLDWIDE In 1997, Mobil conducted exploration and producing activities in 38 countries. Net production of liquids (crude oil and natural gas liquids) averaged 927 thousand barrels a day (TBD) in 1997, an increase of 73 TBD from 854 TBD in 1996. Net natural gas production of 4,556 million cubic feet a day (MMCFD) in 1997 was 31 MMCFD lower than 1996. International total production was up 10%, primarily due to continued development of resources in Nigeria, new production in Equatorial Guinea and the 1996 acquisitions of Ampolex Ltd. of Australia and a 25% interest in the Tengiz field in Kazakhstan. Worldwide natural gas sales in 1997 were 4,575 MMCFD, a decrease of 900 MMCFD, as less third-party natural gas was purchased for resale due to the full-year impact of the natural gas marketing joint venture with Duke Energy (formerly PanEnergy). Proved liquids and natural gas reserve additions replaced 146% of 1997 production on a barrel of oil equivalent (BOE) basis, including purchases and sales. The following table summarizes net production of crude oil and natural gas liquids (NGL) and of natural gas for 1995 through 1997.
- -------------------------------------------------------------------------------- CRUDE OIL & NGL(TBD) NATURAL GAS(MMCFD) NET PRODUCTION 1995 1996 1997 1995 1996 1997 - -------------------------------------------------------------------------------- Fully consolidated companies United States................. 282 262 186 1,439 1,333 1,141 Europe........................ 173 153 158 1,098 1,187 1,233 Asia-Pacific.................. 97 106 97 1,554 1,581 1,596 Other Areas................... 213 271 348 432 446 474 --- --- --- ----- ----- ----- Total Consolidated............ 765 792 789 4,523 4,547 4,444 --- --- --- ----- ----- ----- Mobil's share of production of equity companies.............. 45 62 138 31 40 112 --- --- --- ----- ----- ----- Total Production................ 810 854 927 4,554 4,587 4,556 === === === ===== ===== =====
This table presents Mobil's net production from properties in which it has a working or royalty interest and its share of production of investees accounted for on the equity method. Net production excludes royalties and quantities due others when produced, whether taken in kind or settled in cash. - -------------------------------------------------------------------------------- UNITED STATES Including the production from Mobil's joint venture with Shell in California, Mobil's production in the United States was 1,161 MMCFD of natural gas and 244 TBD of liquids, or a total of 454 thousand barrels a day of oil equivalent (TBDOE) during 1997. Compared with 1996, total production decreased 10% as a result of natural declines of maturing fields and asset divestments offset somewhat by increases from additional capital investment. In CALIFORNIA, Mobil's heavy oil operations were joined with Shell's CalResources operation in the spring of 1997 creating a separate entity, Aera Energy LLC, which became the largest crude producer in California at about 250 TBDOE. In 1997, California contributed 105 TBDOE to Mobil's U.S. production. The Gulf of Mexico continental shelf operation continued to be a significant contributor for Mobil, accounting for approximately 25% of total U.S. production. In Mobile Bay, offshore Alabama, activity levels remained high in 1997 with the streaming of the Aloe Bay well, and the successful bidding of four more offshore Mobil -3- SIGNIFICANT DEVELOPMENTS -- CONTINUED blocks. Drilling is currently in progress at Mobile 823-A5 and in Block 914, immediately to the south of the Mobile Bay operation. Both wells are expected to be on stream in the spring of 1998. In DEEPWATER Gulf of Mexico, Mobil increased its presence by successfully bidding on over 20 additional blocks in 1997, and now holds working interests in over 240 blocks of deepwater acreage. Mobil signed a contract to secure a deepwater drillship for a three-year period commencing in the fourth quarter of 1998. EUROPE In the frontier Atlantic Margin basins of northwest Europe, Mobil was successful in acquiring several blocks of high potential acreage. In the United Kingdom, Mobil was awarded nine of the twelve tranches of blocks it bid for in the 17th license round and the Irish Rockall license round, increasing its net acreage position from 235,000 acres to over 900,000 acres. The first exploration well is planned to be drilled on Tranche 61 in 1998. Mobil was awarded three licenses with one operatorship in the Barents Sea, adding 523,000 net acres to its exploration inventory. Five wildcat wells are planned for 1998. Mobil was active in progressing the developing integrated European natural gas marketing business. The first throughput contract for the U.K.-Belgium Interconnector was finalized and the first contract for a direct sale of United Kingdom natural gas to a continental consumer was completed. With an improved domestic reserve position in Germany and the prospect of increased natural gas volumes from Norway and the Netherlands, Mobil has the ability to conclude additional natural gas sales. Mobil produced 75 TBD of liquids and 668 MMCFD of natural gas in the UNITED KINGDOM (U.K.) during 1997, records for both natural gas and total production on a BOE basis. Liquid volumes were up 15% from 1996 levels, primarily due to full- year production from the Nevis and Telford fields and start-up of the Katrine field. Natural gas production increased 8%, reflecting operating efficiencies and added flexibility gained from Mobil's re-negotiation of its North Sea natural gas contracts with British Gas in late 1996. In 1997, Mobil's share of Beryl area fields production totaled 48 TBD of liquids and 120 MMCFD of natural gas. This included better than anticipated oil and natural gas production rates from Nevis, a field that started production in late 1996 and accounted for 8 TBDOE in 1997. Both the Beryl A and the Beryl B facilities broke operational records in 1997 for continuous production. Mobil, together with the Beryl partners, acquired Conoco's UKCS Quadrant 9 assets in the vicinity of the Beryl infrastructure. As operator for the assets, Mobil contracted for a drilling rig to develop the Buckland and Sorby fields (Mobil shares, 35% and 38.2%, respectively). Start-up for Buckland is scheduled for 1999, followed by Sorby in 2000. All Mobil-equity and third-party natural gas from the Beryl and Scott areas is delivered for sale through the Mobil-operated 210-mile Scottish Area Gas Evacuation (SAGE) pipeline and onshore processing plant at St. Fergus, Scotland. Milestones for the SAGE natural gas plant in 1997 included the processing of its one trillionth cubic foot of natural gas as well as handling a record peak natural gas volume in excess of one billion cubic feet per day. The facility upgrade to accommodate processing of third-party natural gas from the Britannia field is on target for start-up in 1998. Mobil -4- SIGNIFICANT DEVELOPMENTS -- CONTINUED Field development approvals were obtained from the U.K. government for the Malory and Shearwater fields. Malory, a 1997 wildcat discovery (Mobil share, 76%) expects initial natural gas production in October, 1998, just 21 months from the date of discovery. In the Shearwater field (Mobil share, 16.5%) drilling has begun, and first deliveries of natural gas are planned for 2000. Mobil produced 79 TBD of liquids and 50 MMCFD of natural gas in NORWAY during 1997, primarily from two of Europe's largest fields, Statfjord and Oseberg. The successful start-up of the Njord field also contributed 2 TBD in 1997, which is expected to increase to 11 TBD in 1998. Replacement of production with proved reserves was 125% in 1997 and has averaged a significant 199% over the past five years. New developments in the core Statfjord/Oseberg area are expected to increase future production. Development of the Statfjord North Flank was approved in 1997 with an additional 40 TBD (Mobil share, 5 TBD) of production planned for 1999. Implementation of a major natural gas injection project to increase oil recovery is planned for 1998. Oseberg East is scheduled for production in late 1998, followed by Oseberg South in 2000 (Mobil share, 9 TBD). The "Plan for Development and Operation for the Fram Field" in Block 35/11 will be submitted to the Norwegian government in 1998. The development scenario for this project was improved by a significant exploration discovery in 1996, the 35/11-8S well. Mobil, with a 25% interest, expects to have 19 TBD at peak production. Initial production is scheduled for 2001. The Halten Terrace area is emerging as Mobil's new core area in Norway. This area includes the Njord, Aasgard and Halten South developments. The Njord field, in which Mobil acquired a 20% interest in 1995, is being developed using subsea completions and floating production facilities. First production of this field began in September 1997. Mobil's share of production at peak rate is expected to be 13 TBD. In 1998, the first liquids production of 204 TBD (Mobil share, 15 TBD) is expected at Aasgard, the world's largest subsea development. Aasgard's natural gas production is expected to stream two years later at over 800 MMCFD (Mobil share, 60 MMCFD). The Halten South project will develop two of the three largest Norwegian discoveries in the last ten years: Kristin (1997) and Lavrans (1995) together with two earlier discoveries, Tyrihans and Trestakk. Production for Halten South is planned for 2002. Mobil produced 455 MMCFD of natural gas and 4 TBD of crude oil, totaling 86 TBDOE in GERMANY. Natural gas sales were 549 MMCFD. Germany increased proved reserves of natural gas by 65 BCF, replacing 139% of natural gas production, as a result of a successful appraisal drilling program and enhanced reservoir performance. Mobil is positioned to grow its natural gas storage business through the ownership of several depleted reservoirs that can be converted to storage operations. The Albaching and the Buchhortst storage projects have been technically evaluated and have progressed such that projects with third party users can be considered over the next several years. ASIA-PACIFIC In INDONESIA, Mobil's share of production volumes averaged 1,571 MMCFD of liquefied natural gas (LNG), 27 TBD of condensate and 19 TBD of liquefied petroleum gas (LPG). LNG and LPG were delivered to customers in Japan and Korea, and condensate was sold to customers in Singapore, Korea, Japan and Australia. Mobil -5- SIGNIFICANT DEVELOPMENTS -- CONTINUED Additional discovered fields in North Sumatra are being developed to supplement declining Arun production. The Pase field began production in January 1998. Development activities are under way for the North Sumatra Offshore "A" field, with start-up expected in 1999. Additionally, in 1996 Mobil obtained a 26% participating interest in the production sharing contract (PSC) for the Natuna D-Alpha field which is located in the South China Sea northeast of Singapore. Joint efforts to commercialize the project are under way as a supply source for LNG and/or pipeline natural gas. Outside northern Sumatra, Mobil has a 68.6% interest in the Madura Block, located offshore East Java. Madura natural gas production is planned to provide fuel for an electrical power generation plant. Development of the Madura field has been delayed pending approval by the Indonesian government of the power plant project. Mobil acquired a 49% interest in the Cepu exploration block in East Java as part of the Ampolex acquisition and will begin drilling operations in the first quarter of 1998. Following the completion of the Ampolex Ltd. acquisition, Mobil is building its position in AUSTRALIA and PAPUA NEW GUINEA by utilizing strengths and assets from both companies. In 1997, Mobil's production in Australia and Papua New Guinea increased to 56 TBDOE. Over 60% of the oil production was from two offshore fields located in AUSTRALIA'S North West Shelf: Wandoo (Mobil share, 60% and Mobil-operated) and Griffin (Mobil share, 35%). The Wandoo "B" platform came on stream in March 1997 with peak production of 50 TBD (Mobil share, 30 TBD). At the Griffin field, all production was curtailed in mid-November 1997 as the result of an equipment failure onboard the floating production, storage, and off-loading vessel (FPSO). Mobil and the operator are actively working to bring the field safely back online in 1998. Future growth on the North West Shelf will be provided by developing the Gorgon field (Mobil share, 14.28%). This large natural gas development opportunity is operated by the Western Australia Petroleum Company on behalf of Mobil and its partners. Negotiations are under way with potential LNG buyers for deliveries as early as 2002-2003. Mobil's two new exploration permits adjacent to the Gorgon field together with this year's Athena natural gas discovery provide the potential to increase reserves. Exploration began in 1997 and will continue in 1998 on Australian acreage, including that acquired with the 1996 Ampolex acquisition. There have been four discoveries--three of them commercial. Two oil discoveries in the Carnarvon Basin, Woolybutt and Pitcairn, will be further appraised in 1998. In PAPUA NEW GUINEA (PNG), Mobil holds a 14.5% interest in the Kutubu oil project. Kutubu, PNG's first commercial oil development, produced an average 83 TBD (Mobil share, 12 TBD) in 1997. PNG production will be maintained in 1998 with the streaming of Gobe Main (Mobil share, 14.5%) and SE Gobe fields (Mobil share, 8%), Mobil -6- SIGNIFICANT DEVELOPMENTS -- CONTINUED replacing declining production from Kutubu. The Moran oil field, the most recent discovery in PNG, was brought on production in January 1998 at a rate of 3 TBD (Mobil share, 14.518%) through an extended well test. Production is expected to reach about 10 TBD, gross. OTHER In 1997, production in CANADA averaged 49 TBD of liquids and 397 MMCFD of gas. Liquids production remained flat, with higher heavy oil volumes offsetting the effects of natural field declines. Natural gas production was down 5% from 1996 mainly due to the sale of non-strategic assets. Ongoing development in western Canada and first oil from Hibernia resulted in Mobil's share of year-end production rates of 56 TBD of liquids and 425 MMCFD of natural gas. At Hibernia (Mobil share, 33.125%), the first oil was produced in mid- November, one month ahead of schedule. The first well produced at a sustained rate of 45 TBD, a new record for a Canadian oil well. The first cargo of Hibernia crude was shipped in December. At year end, Hibernia was producing a combined 70 TBD from two wells, while drilling proceeded on two others. The Hibernia operator, Hibernia Management Development Company, is investigating means to increase the peak production capacity of the platform from 135 TBD to 180 TBD (Mobil share, 60 TBD). Regulatory approvals were received to proceed with a 24-well development of Terra Nova (Mobil share, 22%), located 25 miles southeast of Hibernia. The wells will be produced using a floating vessel for the production, processing and storage of the crude oil. With the partners' management approval obtained in February 1998, first oil is expected by year-end 2000. Peak production of 115 TBD (Mobil share, 25 TBD) is expected from this field. Future potential in the area was enhanced in late 1997, when Mobil and its partners (Mobil share, 25%) successfully acquired key exploration licenses around Hibernia and Terra Nova. Newfoundland Transshipment Ltd. (Mobil share, 30%) began construction of a regional transshipment terminal at Whiffenhead, Newfoundland. This facility is being built to serve the needs of Hibernia with the potential to accommodate regional expansion, including the Terra Nova project. Completion of the transshipment terminal is targeted for late 1998. The Sable Offshore Energy Project (SOEP) received all necessary government and regulatory approvals and construction has begun. Mobil is the lead partner with a 50.8% interest. The SOEP consists of six fields, located 125 miles off the coast of Nova Scotia. Production is expected to commence by late 1999 and average 460 MMCFD of natural gas and 20 TBD of natural gas liquids by 2000 (Mobil share, 254 MMCFD and 10 TBD, respectively). Natural gas from SOEP will be transported to markets in the Canadian Maritimes and the U.S. Northeast via the Maritimes & Northeast Pipeline project (Mobil share, 25%). Increased capital investment in western Canada targeted natural gas and heavy oil opportunities. New natural gas volumes were added from southern Alberta, and heavy oil production, primarily from Celtic and Cold Lake, doubled to 9 TBD. Based on encouraging technical results from the pilot program, Mobil is progressing efforts to commercialize steam assisted gravity drainage technology that is applicable to its large heavy oil resources. Mobil -7- SIGNIFICANT DEVELOPMENTS -- CONTINUED The Athabasca heavy oil sands of Alberta represent a future opportunity for Mobil in one of the world's largest oil deposits. The Kearl project proposes to surface mine and separate a thick sand-oil mixture using conventional proven technology. An ongoing technical evaluation and business review will continue through 1998. The project could potentially contribute 100 TBD of production (Mobil share, 100%). Mobil holds a 40% interest in a joint venture with the Nigerian National Petroleum Corporation (NNPC) covering about 800,000 acres in shallow water offshore southeastern NIGERIA. Mobil also operates two deepwater blocks under Production Sharing Contracts: OPL 221, a 565,000 acre block in the southeast with a 50% interest, and OPL 215, a 641,800 acre block in the western Niger delta with a 20% interest. Mobil's 1997 equity production in Nigeria was 253 TBD, 21% more than 1996, and reserve replacement was 125% of production. Highlights included the start-up of the Edop Gas Injection and Ekpe Gas Compression projects and the Usari field development. The natural gas projects will facilitate injection into the major Edop and Asabo fields for enhanced oil recovery and natural gas conservation. Mobil's share of production is expected to grow to over 370 TBD by 2002. Projects initiated to support this production growth include the Usari field development, further development of the Oso field, and infill drilling in other fields. The Oso NGL project (Mobil share, 51%) which will extract natural gas liquids from the Oso field at a rate of 51 TBD (Mobil share, 26 TBD) is near completion, with the first NGL shipment expected about May 1998. An oil spill occurred on January 12, 1998 in Nigeria. The spill resulted from a rupture in the pipeline running from the Idoho production platform to the Qua Iboe terminal in southeastern Nigeria. There are indications that approximately 500 barrels of oil, just over one percent of the total spilled (estimated at 40,000 barrels of light crude oil), impacted the shoreline in intermittent patches along the coastline west of Bonny. A response plan was developed and implemented with the full cooperation of the authorities, industry partners, Clean Nigeria Associates, and experts from abroad. Clean up and repairs have been completed and production came back on stream February 10, 1998. A large portion of deferred production, approximately 100,000 barrels per day (Mobil share, 40%) is expected to be made up over the remainder of the year. Mobil is the operator of the Zafiro field located within the 547,000 acre Block B concession, 50 miles offshore of EQUATORIAL GUINEA. In March 1998, Mobil, United Meridan Corp. (UMC) and Equatorial Guinea agreed to a revised PSC for the offshore Block B project. Under the new agreement, Mobil's interest changes from 75% to 71.25%, with UMC holding 23.75% and the remaining 5% held by Equitorial Guinea. The initial phase of the Zafiro field development was delivering 30 TBD (Mobil share, 21 TBD) from six subsea wells by year-end 1996. During 1997, 9 additional wells were completed and production averaged 56 TBD (Mobil share, 37 TBD). Alternatives, including a platform utilizing extended reach drilling, are being considered for development of reserves added by 1997 wildcat discoveries at Serpentina, QIB, and Opalo East. In January 1997, within a year of drilling the first well, production began from the KF field in the Ebome Marine concession of CAMEROON, awarded in 1996, at 10 TBD (Mobil share, 4 TBD). Mobil -8- SIGNIFICANT DEVELOPMENTS -- CONTINUED Mobil, a subsidiary of Petroleos de Venezuela, SA (PDVSA) and an affiliate of Veba AG signed an Association Agreement in 1997, outlining the terms of a 35- year contract involving the production and upgrading of 120 TBD of extra-heavy crude oil from VENEZUELA'S Orinoco Tar Belt. When the facilities in Venezuela are completed, most of the crude will be sold to Chalmette Refining, L.L.C. for processing at its refinery in Louisiana. In 1997, Mobil drilled the first in a series of wells to test and develop western Venezuela's La Ceiba, a 445,000 acre exploration block located on the southeastern shore of Lake Maracaibo near several large producing fields. Mobil, the designated operator, spudded a second well in January 1998 to further define the potential of the block. In eastern Venezuela, drilling began in the fourth quarter of 1997 to explore new leads on the Quiamare-La Ceiba block acquired though the 1996 acquisition of Ampolex. This block is already in production, and Mobil and its partners continue to apply advanced technology to increase current production rates and target new prospects. In QATAR, the Qatargas project, in which Mobil has a 10% interest, completed its first full year of LNG deliveries in 1997. The LNG was delivered to Japan's Chubu Electric Power Company as part of a 25-year supply agreement. The second liquefaction train was streamed in early 1997, with a third scheduled for commissioning and start-up in 1998. Gross peak production volumes of 1,200 MMCFD of natural gas and 40 TBD of condensate will be reached soon thereafter. Development of Mobil's second LNG project in Qatar, Ras Laffan Liquefied Natural Gas Company, Ltd. (Ras Laffan), continues to progress. Ras Laffan reached agreement with Korea Gas Corporation early in 1997 to double the existing 25-year sales contract to 4.8 million MMTA of LNG. This agreement launched the construction of the second liquefaction train. Plant construction and field development are moving ahead, on schedule for streaming in 1999. With the finalized participation of Itochu Corporation and Nissho Iwai Corporation as shareholders in Ras Laffan in May 1997 and the eventual participation of Korean entities as part of the amended sales contract, Mobil will ultimately have a 25% equity stake in these two trains. Mobil has a 4.75% interest in an onshore oil concession operated by ADCO, the ABU DHABI Company for Onshore Oil Operations. In 1997, Mobil's net production from ADCO was 42 TBD of oil. An expansion program is well under way and is expected to increase Mobil's capacity to nearly 60 TBD by 2001. NEW BUSINESS DEVELOPMENT Mobil continued to take advantage of new business opportunities during 1997. SOUTH AMERICA - ------------- - PERU: Mobil is a partner with Shell (operator) in three license blocks, collectively known as Camisea, believed to be the largest natural gas field in Mobil -9- SIGNIFICANT DEVELOPMENTS -- CONTINUED South America. The scope of the Camisea project involves field development, construction of natural gas and NGL pipelines through the Andes Mountains to the Pacific coast, coastal facilities for fractionation and dispatching, an option on an independent power plant (IPP), and development of local markets and exports of natural gas and liquids. Terms of the Camisea license agreement require a shareholders' commitment in mid-1998 to develop the field with first production by 2002. Extensive work toward the goal of making this commitment took place in 1997. In addition to the work on the Camisea project, license agreements for Blocks 77 and 78 (the Tambopata area in the Madre de Dios basin of southern Peru) were signed by Mobil, Elf, and Esso, with each company holding a one-third interest. Seismic programs are nearing completion, and drilling is expected to begin in 1998 on the Candamo prospect. - ARGENTINA: Mobil is active in two hydrocarbon basins, the Neuquen basin in central Argentina and the Noroeste basin in northwest Argentina. With a 51% share in Sierra Chata, which is in the Neuquen basin, Mobil became one of the first companies to sell natural gas to Chile through the Gas Andes Pipeline. Sierra Chata's production is currently 147 MMCFD (Mobil share, 80 MMCFD). Mobil's 23% interest in the Aguarague block in the Noroeste Basin currently supplies natural gas to Buenos Aires and allows Mobil to capture natural gas sales in the growing Brazilian market. This market could also potentially be supplied with natural gas from the Camisea field in Peru. Mobil's share of current production from the Aguarague bock is 50 MMCFD of natural gas and 2 TBD of natural gas liquids. EUROPE - ------ - ITALY: Mobil and its partners drilled the fifth successful wildcat well in the Tempa Rossa area. The well was successfully completed in March 1998. A development decision is expected in late 1998. AFRICA - ------ - ANGOLA: A second wildcat well was drilled in the third quarter of 1997 in deepwater Block 20 of the lightly explored Kwanza Basin. Additional seismic is planned for 1998 to evaluate the commerciality of this block. - ALGERIA: Mobil drilled and suspended the second wildcat well on the 2.25 million-acre Touggourt concession. Potential to the east of this location is now being evaluated. In addition, Mobil is preparing to spud a third wildcat well to test the southern part of the concession. COMMONWEALTH OF INDEPENDENT STATES - ---------------------------------- - KAZAKHSTAN: In 1997, Mobil continued to build on the upstream position it has established over the past five years in the Republic of Kazakhstan. Mobil -10- SIGNIFICANT DEVELOPMENTS -- CONTINUED In November 1997, Mobil, along with six other major international petroleum companies, Kazakoil (the Kazakhstani national oil company) and the Republic of Kazakhstan, signed a Production Sharing Agreement (PSA) for exploration, development and production of the first twelve blocks in the Kazakhstani sector of the Caspian Sea. The Offshore Kazakhstan International Operating Company will act as operator on behalf of the participants in the PSA, and is the successor to the consortium, in which Mobil has participated since 1993. Selection of the blocks was completed in 1997, and drilling of the first exploratory well is planned for 1998. Mobil is a 25% participant in the Tengizchevroil joint venture, which operates the Tengiz oil field, located on the eastern shore of the Caspian Sea. Mobil's share of crude oil and natural gas liquids production from Tengiz averaged 36 TBD in 1997 despite facility shutdowns for construction to increase capacity. Mobil's share of production is expected to peak at approximately 200 TBD of crude oil and 35 TBD of natural gas liquids around the year 2014. Mobil increased its proved reserves to 637 million barrels of oil equivalent in 1997 as a result of a technical re-evaluation of the Tengiz field. Mobil is a 7.5% partner in the Caspian Pipeline Consortium (CPC) that is in the initial stages of developing a 900-mile dedicated pipeline system from the Tengiz field to the Russian Black Sea. Share acquisition in CPC was completed in May 1997. Other participants include the governments of Russia, Kazakhstan and Oman as well as seven other oil companies. The pipeline is scheduled for completion in 2000. Mobil (with a 25% interest) initiated the Tulpar Munai joint venture in 1995, which includes partners Kazakhoil (50%), Shell (12.5%) and Japan Kazakhstan Petroleum Company (12.5%), to explore and develop the 4 million acre Tulpar block in northern Kazakhstan. Seismic interpretation and drill site selection were completed in 1997, with the first wildcat exploratory well scheduled to be drilled in 1998. - AZERBAIJAN: Mobil was awarded a PSC granting a 50% interest in and the operatorship of the Oguz block. The remaining 50% interest is held by the State Oil Company of the Azerbaijan Republic (SOCAR). The Oguz block, east of Baku in the Azerbaijan sector of the Caspian Sea, is adjacent to the Neft Dashlary and Guneshli oil fields. Drilling is not expected to begin until early 2000. - TURKMENISTAN: As partners in a PSA with the government of Turkmenistan, Mobil and Monument Oil and Gas plc. are developing and exploring opportunities in the Nebit Dag license area, onshore western Turkmenistan (Mobil share, 40%). The license contains five producing properties and additional exploration acreage. Mobil -11- SIGNIFICANT DEVELOPMENTS -- CONTINUED RESERVES Mobil is required to report reserve estimates to the U.S. Department of Energy. During 1997 Mobil filed proved reserve estimates covering the year 1996 under forms EIA-23, Annual Survey of Domestic Oil and Gas Reserves, and EIA-28, Financial Reporting System. Such estimates were consistent with reserve data filed with the Securities and Exchange Commission (S.E.C.).
- -------------------------------------------------------------------------------- WELLS IN PROCESS OF BEING DRILLED TOTAL AT DECEMBER 31, 1997 GROSS NET - -------------------------------------------------------------------------------- United States...................................... 10 6 International...................................... 33 17 -- -- Worldwide.......................................... 43 23 == == - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- IMPROVED RECOVERY PROJECTS BEING INSTALLED IN OPERATION AT DECEMBER 31, 1997 GROSS NET GROSS NET - -------------------------------------------------------------------------------- United States..................... - - 188 44 International..................... 4 1 66 35 - - ----- ----- Worldwide......................... 4 1 254 79 = = ===== ===== - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- ------- INTERNATIONAL -------- PRODUCTIVE WELLS AT ASIA- OTHER WORLD- MULT. DECEMBER 31, 1997 U.S. EUROPE PACIFIC AREAS TOTAL WIDE COMPL.(a) - -------------------------------------------------------------------------------- Oil: Gross ....... 13,840 886 551 1,714 3,151 16,991 676 Net ......... 2,904 260 85 954 1,299 4,203 278 Gas: Gross ....... 4,201 472 79 959 1,510 5,711 718 Net ......... 2,739 129 79 272 480 3,219 410 (a) Multiple completions included in geographic totals. - --------------------------------------------------------------------------------
Mobil -12- SIGNIFICANT DEVELOPMENTS -- CONTINUED
- -------------------------------------------------------------------------------- NET EXPLORATORY AND ------- INTERNATIONAL -------- DEVELOPMENT WELLS ASIA- OTHER WORLD- DRILLED U.S. EUROPE PACIFIC AREAS TOTAL WIDE - -------------------------------------------------------------------------------- 1995 Exploratory wells Productive ............. 41 - - 25 25 66 Dry .................... 18 7 3 17 27 45 Development wells Productive ............. 476 14 1 62 77 553 Dry .................... 15 - 1 1 2 17 1996 Exploratory wells Productive ............. 21 3 1 45 49 70 Dry .................... 18 12 4 18 34 52 Development wells Productive ............. 293 13 12 100 125 418 Dry .................... 8 - 1 1 2 10 1997 Exploratory wells Productive ............. 13 1 1 23 25 38 Dry .................... 5 5 2 13 20 25 Development wells Productive ............. 229 10 17 209 236 465 Dry .................... 7 - 3 20 23 30 - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- OIL AND GAS ACREAGE AT DECEMBER 31, 1997 UNDEVELOPED ACREAGE DEVELOPED ACREAGE (THOUSANDS OF ACRES) GROSS NET GROSS NET - -------------------------------------------------------------------------------- UNITED STATES.......... 3,409 2,016 4,237 2,654 EUROPE................. 18,603 5,820 1,589 567 ASIA-PACIFIC........... 53,119 19,894 637 138 OTHER.................. 62,006 29,077 3,472 1,470 ------- ------ ----- ----- TOTAL INTERNATIONAL.. 133,728 54,791 5,698 2,175 ------- ------ ----- ----- WORLDWIDE.............. 137,137 56,807 9,935 4,829 ======= ====== ===== ===== - --------------------------------------------------------------------------------
Mobil -13- - -------------------------------------------------------------------------------- AVERAGE SALES PRICE/TRANSFER VALUE - -------------------------------------------------------------------------------- The following table shows Mobil's average sales price/transfer value (transfer values are essentially equal to third-party sales prices) and average production costs in oil and natural gas producing activities in 1995, 1996 and 1997. In calculating the "dollar per barrel" data, the divisor used is net production. Natural gas volumes have been converted to oil equivalent barrels and restated on a BTU (British Thermal Unit) basis, using 5,510, 5,519, and 5,519 cubic feet of gas per barrel for 1995, 1996, and 1997, respectively. Mobil's share of equity companies represents Mobil's share of after-tax results of operations for producing activities of investees accounted for on the equity method. The geographic segment "Other Areas", in this table, includes principally Canada, Kazakhstan, and West Africa.
- -------------------------------------------------------------------------------- UNITED STATES 1995 1996 1997 - -------------------------------------------------------------------------------- Revenues Crude oil (per barrel)............................ $14.52 $17.40 $17.27 NGL (per barrel).................................. $ 9.94 $13.16 $11.96 Natural gas (per thousand cubic feet)............. $ 1.41 $ 2.17 $ 2.38 Average dollars per barrel of oil equivalent Revenues.......................................... $10.13 $13.48 $14.13 Production (lifting) costs........................ (4.95) (5.08) (5.13) Exploration expenses.............................. ( .36) ( .41) ( .53) Depreciation, depletion and amortization.......... (5.86) (3.46) (3.08) Other operating revenues/(expenses)............... .16 1.43 .73 Income tax expense................................ .34 (1.99) (2.09) ------ ------ ------ Results of operations for producing activities...... $( .54) $ 3.97 $ 4.03 ====== ====== ====== Mobil's share of equity companies................... - - 5.26 ====== ====== ====== Total............................................... $( .54) $ 4.00 $ 4.20 ====== ====== ====== Above results include the following special items: Asset sales....................................... ( .11) .65 .32 Restructuring provisions.......................... ( .26) ( .04) - Asset impairment.................................. (1.85) ( .37) - Litigation........................................ - - ( .07) Employee performance award........................ - - ( .02) - -------------------------------------------------------------------------------- EUROPE 1995 1996 1997 - -------------------------------------------------------------------------------- Revenues Crude oil (per barrel)............................ $17.47 $20.85 $19.32 NGL (per barrel).................................. $14.32 $17.47 $18.09 Natural gas (per thousand cubic feet)............. $ 2.70 $ 2.78 $ 2.78 Average dollars per barrel of oil equivalent Revenues.......................................... $15.99 $17.62 $16.34 Production (lifting) costs........................ (5.29) (5.44) (4.81) Exploration expenses.............................. ( .94) (1.17) ( .97) Depreciation, depletion and amortization.......... (3.43) (3.49) (3.19) Other operating revenues/(expenses)............... .91 .71 .95 Income tax expense................................ (4.06) (4.73) (4.45) ------ ------ ------ Results of operations for producing activities...... $ 3.18 $ 3.50 $ 3.87 ====== ====== ====== Mobil's share of equity companies................... $ 2.79 $ 4.04 $ 7.93 ====== ====== ====== Total............................................... $ 3.17 $ 3.50 $ 3.90 ====== ====== ====== Above results include the following special items: Asset sales....................................... .04 - - Restructuring provisions.......................... (.19) - - Tax related items................................. .19 - - Asset impairment.................................. (.09) - - Employee performance award........................ - - ( .01) - --------------------------------------------------------------------------------
Mobil -14-
- ------------------------------------------------------------------------------- ASIA-PACIFIC 1995 1996 1997 - ------------------------------------------------------------------------------- Revenues Crude oil (per barrel)............................ $15.09 $20.92 $19.78 NGL (per barrel).................................. $16.35 $18.19 $19.77 Natural gas (per thousand cubic feet)............. $ 2.15 $ 2.50 $ 2.51 Average dollars per barrel of oil equivalent Revenues.......................................... $12.77 $15.18 $14.98 Production (lifting) costs........................ (1.73) (2.01) (2.04) Exploration expenses.............................. ( .56) (1.09) ( .60) Depreciation, depletion and amortization.......... (1.48) (2.12) (2.36) Other operating revenues/(expenses)............... ( .06) .04 .18 Income tax expense................................ (5.18) (6.11) (5.84) ------ ------ ------ Results of operations for producing activities...... $ 3.76 $ 3.89 $ 4.32 ====== ====== ====== Mobil's share of equity companies................... $ 1.73 * $ * ====== ====== ====== Total............................................... $ 3.74 $ 3.87 $ 4.30 ====== ====== ====== Above results include the following special items: Asset sales....................................... .12 ( .15) .29 Restructuring provisions.......................... - ( .03) - Employee performance award........................ - - ( .01) - ------------------------------------------------------------------------------- OTHER AREAS 1995 1996 1997 - ------------------------------------------------------------------------------- Revenues Crude oil (per barrel)............................ $17.03 $20.67 $18.57 NGL (per barrel).................................. $14.74 $16.54 $16.05 Natural gas (per thousand cubic feet)............. $ .78 $ .89 $ 1.22 Average dollars per barrel of oil equivalent Revenues.......................................... $13.49 $17.03 $15.94 Production (lifting) costs........................ (5.83) (5.46) (5.29) Exploration expenses.............................. (1.41) ( .95) (1.28) Depreciation, depletion and amortization.......... (3.75) (1.41) (2.14) Other operating revenues/(expenses)............... .73 1.48 ( .27) Income tax expense................................ (3.44) (8.43) (5.22) ------ ------ ------ Results of operations for producing activities...... $( .21) $ 2.26 $ 1.74 ====== ====== ====== Mobil's share of equity companies................... $ .94 $ 2.02 $ 2.52 ====== ====== ====== Total............................................... $( .07) $ 2.23 $ 1.88 ====== ====== ====== Above results include the following special items: Asset sales....................................... - .22 - Restructuring provisions.......................... ( .12) - - Asset impairment.................................. ( .89) - - Employee performance award........................ - - ( .01) - ------------------------------------------------------------------------------- WORLDWIDE 1995 1996 1997 - ------------------------------------------------------------------------------- Revenues Crude oil (per barrel)............................ $16.10 $19.76 $18.59 NGL (per barrel).................................. $10.38 $15.48 $15.21 Natural gas (per thousand cubic feet)............. $ 1.87 $ 2.29 $ 2.62 Average dollars per barrel of oil equivalent Revenues.......................................... $12.75 $15.61 $15.36 Production (lifting) costs........................ (4.42) (4.50) (4.35) Exploration expenses.............................. ( .74) ( .87) ( .86) Depreciation, depletion and amortization.......... (3.85) (2.70) (2.68) Other operating revenues/(expenses)............... .39 .94 .38 Income tax expense................................ (2.70) (5.01) (4.41) ------ ------ ------ Results of operations for producing activities...... $ 1.43 $ 3.47 $ 3.44 ====== ====== ====== Mobil's share of equity companies................... $ 1.15 $ 2.26 $ 3.63 ====== ====== ====== Total............................................... $ 1.42 $ 3.42 $ 3.46 ====== ====== ====== Above results include special items, net............ ( .93) .08 .12 - -------------------------------------------------------------------------------
* Not meaningful due to the exploratory nature of related activities. Mobil -15- PETROLEUM OPERATIONS -- DOWNSTREAM REFINING Mobil's primary product supply comes from 25 refineries. Mobil's share of crude oil refinery capacity was 2,283 TBD, about 40% of which was located in the United States. Worldwide utilization of Mobil's refining capacity averaged 92% in 1995, 94% in 1996 and 94% in 1997. SIGNIFICANT DEVELOPMENTS IN 1997 IN MOBIL'S REFINING OPERATIONS INCLUDED THE FOLLOWING: - At ALTONA, AUSTRALIA, construction was completed on a new 23 TBD fluid catalytic cracking unit, which increased gasoline and distillate production at the refinery. The unit streamed in September 1997. - Construction was completed on a 25 TBD vacuum residual hydrocracker (Mobil share of production, 50%) at a joint venture refinery in KAWASKI, JAPAN. The unit, which increases production of gasoline and low-sulfur distillates and fuel oil, came on stream in July 1997. - Construction was completed on an 8 TBD lubricant hydroprocessing unit at the JURONG, SINGAPORE, refinery. The unit started up in September 1997. - At YANBU, SAUDI ARABIA, the Petromin Lubricating Oil Refining Company (Mobil share, 30%) completed construction on a new 5.5 TBD lubricant base oil refinery in December 1997. - In BARBADOS, Mobil agreed with the local government to close Mobil's refinery, completing the company's withdrawal from the Barbados market, following the sale of marketing assets in 1996. - At CHALMETTE, LOUISIANA, Mobil and a U.S. subsidiary of Petroleos de Venezuela, S.A., formed a jointly owned limited liability company to own and operate the Chalmette refinery. - At LLANDARCY, SOUTH WALES, Mobil and The British Petroleum p.l.c. (BP) alliance announced the closing of a standalone lubes refinery. MARKETING
- -------------------------------------------------------------------------------- PETROLEUM SALES VOLUMES BY PRODUCT (TBD) 1995 1996 1997 - -------------------------------------------------------------------------------- Automotive gasolines.................... 1,291 1,317 1,304 Jet fuels............................... 262 273 297 Distillates............................. 954 1,026 983 Other products.......................... 715 729 759 ----- ----- ----- Total*.................................. 3,222 3,345 3,343 ===== ===== ===== * Includes Mobil's share of the BP alliance. - --------------------------------------------------------------------------------
Mobil markets petroleum products extensively in the U.S. and in almost 100 other countries. Mobil has over 15,000 retail outlets, about 48% of which are located in the United States. Petroleum products include automotive and aviation gasolines, motor oils, lubricants and greases, marine fuels, jet fuels, fuel oil, diesel oil, kerosene, asphalts, naphthas, solvents, waxes and liquefied petroleum gas. The principal brand names identifying Mobil's products are "Mobil(R) Unleaded", "Mobil Super+(R) ", "Mobil(R) Special", "Mobil(R) Regular", and "Mobil(R) Premium" gasolines, and "Mobiloil(R)", "Mobilheat(TM)", "Mobilgrease(R)", "Mobil 1(R)", "Delvac 1(R)", and "Mobil(R)" industrial and marine lubricants and process products. Mobil -16- MARKETING -- CONTINUED The alliance of Mobil and BP in Europe was successfully implemented in substantially all countries in 1997, and the initial benefits contributed to improved earnings. In the United States, major initiatives included the completion of construction of over seventy On The Run(R) convenience stores and the successful rollout of the Speedpass(TM) program. In China, construction of a lube oil blend plant in Taicang was completed mid- year 1997. This is Mobil's third lube oil blend plant in China in support of the growing lubes business. In Africa, Mobil successfully integrated the acquisition of Exxon's marketing business in Kenya, acquired in late 1996, into the downstream operations and initiated a re-entry into the South African lubes business. TANKERS At December 31, 1997, Mobil owned 23 ocean-going tankers with an aggregate of 3,080 thousand deadweight tons. An additional 12 tankers, aggregating 1,079 thousand deadweight tons, were under term charter and operated by Mobil, including Mobil's double hulled, very large crude carriers (VLCCs), the RAVEN and the EAGLE. In September 1997, Mobil took delivery of the newly built petroleum products tanker AMERICAN PROGRESS from Newport News Shipbuilding. The AMERICAN PROGRESS, with a capacity of 45 thousand deadweight tons and registered in the United States, is the first vessel built in a U.S. shipyard to standards required in the U.S. Oil Pollution Act of 1990 (OPA-90). OPA-90 requires all ships carrying petroleum products in U.S. coastal waters to be of double-hull construction by 2015. The AMERICAN PROGRESS is operated by Mobil under a term charter arrangement. In November 1997, Mobil formed a joint venture company with Qatari partners, with Mobil holding a 50% interest. The purpose of the company is to acquire two double-hull tankers with a combined capacity of 160 thousand deadweight tons. The vessels are to be built by Hyundai Heavy Industries and will be operated and controlled by Mobil under a term charter agreement. The first of the newly contracted ships is scheduled for delivery in 1999 and the second in 2000. Also in November, Mobil formed a joint venture LNG shipping company with partners Qatar Shipping Company and Osprey Maritime for the primary purpose of providing marine transportation of LNG exports from Qatar. Mobil holds a 25% interest in this venture. PIPELINES At December 31, 1997, Mobil's U.S. pipeline system, including partly-owned facilities, consisted of 12,277 miles of crude oil, natural gas liquids, natural gas, and carbon dioxide trunk and gathering lines, and 7,993 miles of product lines. Also at that date, Mobil's pipeline system outside the U.S., including partly-owned facilities, consisted of 10,038 miles of crude oil, natural gas liquids, and natural gas trunk and gathering lines, and 2,754 miles of product lines. CHEMICAL OPERATIONS Mobil Chemical, with manufacturing operations in 11 countries, is a large producer of petrochemicals, packaging films and specialty chemical products. Mobil -17- CHEMICAL OPERATIONS -- CONTINUED
- -------------------------------------------------------------------------------- MOBIL CHEMICAL FACILITIES United Inter- World- AT DECEMBER 31, 1997 States national (a) wide - -------------------------------------------------------------------------------- Petrochemicals..................... 6 7 13 OPP Films.......................... 3 5 8 Additives and Synthetics........... 3 2 5 Research and Development........... 3 - 3 -- -- -- Total Chemical facilities.......... 15 14 29 == == == (a) Includes eight partly-owned facilities. - --------------------------------------------------------------------------------
Principal chemical products include basic petrochemicals (ethylene, propylene, benzene, paraxylene), intermediates (ethylene glycol) and a key derivative (polyethylene). Other products include synthetic lubricant base stocks and lube additives, and plastic films for packaging and industrial applications. SIGNIFICANT DEVELOPMENTS IN 1997 IN MOBIL'S CHEMICAL OPERATIONS INCLUDED THE FOLLOWING: - Mobil Yanbu Petrochemical Company and Saudi Basic Industries Corporation are expanding their 50-50 joint venture petrochemicals complex in YANBU, SAUDI ARABIA by the addition of a second ethylene production facility and facilities to produce additional polyethylene and ethylene glycol as well as polypropylene. Plant start-up is scheduled for mid-2000. - Mobil and Pequiven, the Venezuelan state-owned petrochemical company, are evaluating the feasibility of developing a new olefins complex at an existing petrochemicals site at JOSE, VENEZUELA. The facility will include an ethylene cracker and related facilities to produce polyethylene and ethylene glycol. - A modernization and expansion of the BEAUMONT, TEXAS olefins plant is well under way, with completion scheduled later in 1998. In March 1998, Mobil and Hoechst AG signed a letter of intent to enter into a 50-50 joint venture combining their global oriented polypropylene (OPP) films businesses. Completion of the joint venture is expected in the third quarter of 1998. OTHER OPERATIONS RESEARCH Mobil engages in research and development, principally in the U.S., Australia, France, Germany, Japan, Norway and the United Kingdom. Activities include the development of technologies and services which improve Mobil's competitiveness in core business areas -- finding oil and gas, and converting them to fuels, lubricants and chemicals while meeting environmental, health and safety standards. Annual research expense was $252 million in 1995, $206 million in 1996, and $234 million in 1997. Mobil -18- ITEM 2. PROPERTIES. Mobil and its subsidiaries own, lease or have interests in extensive production, manufacturing, marketing, transportation and other facilities worldwide. Information on these properties has been incorporated into Item 1. Business. ITEM 3. LEGAL PROCEEDINGS. Environmental Litigation Mobil periodically receives notices from the Environmental Protection Agency (EPA) or equivalent agencies at the state level that Mobil is a "potentially responsible party" under Superfund or equivalent state legislation with respect to various waste disposal sites. The majority of these sites are either still under investigation by the EPA or the state agencies concerned, or under remediation, or both. In certain instances, Mobil and other potentially responsible parties have been named in court or administrative proceedings by federal or state agencies seeking the cleanup of these sites. Mobil has also been named as a defendant in various suits brought by private parties alleging injury from disposal of wastes at these sites. The ultimate impact of these proceedings on the business or accounts of Mobil cannot be predicted at this time due to the large number of other potentially responsible parties and the speculative nature of clean-up cost estimates, but based on our long experience in managing environmental matters, we do not anticipate that the aggregate level of future remediation costs will increase above recent levels so as to materially and adversely affect our consolidated financial position or liquidity. In a letter to Mobil Oil Corporation dated November 17, 1997, the U.S. Department of Justice, on its own behalf and on behalf of the U.S. Environmental Protection Agency, alleged that the operations of the McElmo Creek and Rutherford production units, which are operated by Mobil Oil Corporation and in which Mobil Oil Corporation has an interest, had violated the Clean Water Act by reason of discharges of produced water into navigable waters of the U.S. and had also violated Spill Prevention Control and Countermeasures Regulations promulgated under the Clean Water Act, and indicated that, inter alia, a penalty ----- ---- of $2.3 million was sought. Settlement negotiations are in process. In a letter to Mobil Oil Corporation dated September 11, 1997, the U.S. Department of Justice and the U.S. Environmental Protection Agency advised Mobil Oil Corporation that they are contemplating legal proceedings against Mobil Oil Corporation in which it would be alleged that the operations of Mobil Oil Corporation's Torrance, California refinery have violated provisions of the Clean Air Act, the Clean Water Act, the Emergency Planning and Community Right to Know Act, and the Comprehensive Environmental Response, Compensation and Liability Act, and that a penalty would be sought. Mobil Oil Corporation anticipates that the amount of the penalty that would be sought will be between $1 million and $2 million. No proceeding has yet been brought. Mobil -19- ITEM 3. LEGAL PROCEEDINGS -- CONTINUED The matters described in the preceding paragraphs are not of material importance in relation to Mobil's accounts and are described in compliance with SEC rules regarding disclosure of such matters although not material. Other Than Environmental Litigation Mobil and its subsidiaries are engaged in various litigations and have a number of unresolved claims pending. While the amounts claimed are substantial and the ultimate liability in respect of such litigations and claims cannot be determined at this time, Mobil is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to be of material importance in relation to its accounts. Mobil has provided in its accounts for items and issues not yet resolved based on management's best judgement. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None submitted. Mobil -20- PART II The information required by Items 5 through 7A is incorporated herein by reference to Mobil's 1997 Annual Report to Shareholders. The charts, graphs and associated captions appearing on pages 18 through 36 of Mobil's 1997 Annual Report to Shareholders are not incorporated into this Annual Report on Form 10-K. Below is an index to the incorporated information.
1997 Annual Report To Shareholders ITEM Description Page(s) - ---- ---------------------------------------------------- ------------------ 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS............................... 31 6. SELECTED FINANCIAL DATA............................. 63 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ................. 19-32,34,36 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........................................ 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See page 23 for a list of the financial statements and supplementary data including those incorporated herein by reference to Mobil's 1997 Annual Report to Shareholders. 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. ITEM 11. EXECUTIVE COMPENSATION. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. For Item 10, the names and ages of the Executive Officers of Mobil as of March 1, 1998, and the position(s) each of them has held during the past five years, are provided on page 22 of this Annual Report on Form 10-K. The other information called for by Item 10, and the information called for by Items 11, 12 and 13, is incorporated by reference to the Registrant's definitive proxy statement for its Annual Meeting of Shareholders, to be held on May 14, 1998, which will be filed with the SEC within 120 days after December 31, 1997. Information required by Item 10 of this report related to the names and ages of the Executive Officers of Mobil Corporation as of March 1, 1998 and the position(s) each of them has held during the past five years, is provided on the following page. Mobil -21- - -------------------------------------------------------------------------------- EXECUTIVE OFFICERS OF THE REGISTRANT - --------------------------------------------------------------------------------
Name (Age) Position(s) Held During Past Five Years Years Held - ----------------- ---------------------------------------------------- ------------- Robert F. Vice President, Administration ............................ 1996-Present Amrhein (55) Manager, Human Resources, Mobil Business Resources Corporation ................................... 1995-1996 Manager, Employee Relations, Exploration and Producing Division, Mobil Oil Corporation................ 1992-1995 Peter J. Principal Accounting Officer .............................. 1997-Present Antico (55) Manager, Business Unit Controllers, Mobil Corporation ..... 1997-Present Manager, Global Accounting Center of Expertise, Mobil Business Resources Corporation .................... 1996-1997 Assistant Controller, Mobil Corporation ................... 1996-Present Deputy Controller, Marketing and Refining Division, Mobil Oil Corporation ......................... 1992-1996 Walter R. Treasurer ................................................. 1995-Present Arnheim (53) Vice President, Planning and Economics .................... 1991-1995 Harold R. Executive Vice President, Chief Financial Cramer (47) Officer - Elect ......................................... April 1, 1998 President, Mobil Europe and Central Asia Limited .......... 1996-April 1, 1998 President, Mobil Europe Limited ........................... 1996-1996 President, Mobil South, Inc. .............................. 1993-1996 Steven L. Controller ................................................ 1998-Present Davis (44) Assistant Treasurer, Chevron Corporation .................. 1997-1998 Comptroller, Chevron Products Company ..................... 1996-1997 Vice President - Finance, Chevron International Oil Company.............................................. 1991-1996 Thomas C. Senior Vice President, Chief Financial Officer ............ 1994-Present DeLoach, Jr. Executive Vice President - International, Marketing (50) and Refining Division, Mobil Oil Corporation ............ 1993-1994 Samuel H. Senior Vice President - Elect ............................. April 1, 1998 Gillespie III Vice President ............................................ 1996-Present (55) General Counsel ........................................... 1995-Present Associate General Counsel ................................. 1994-1995 General Counsel, Exploration and Producing Division, Mobil Oil Corporation ......................... 1990-1994 Aldis V. Vice President, Planning and Economics .................... 1995-Present Liventals (55) Vice President, Middle East and Marine Transportation Marketing and Refining Division, Mobil Oil Corporation ............................................. 1993-1995 Lucio A. Chairman of the Board and Chief Executive Officer ......... 1994-Present Noto (59) President and Chief Operating Officer ..................... 1993-March 1,1998 Chief Financial Officer ................................... 1989-1993 Vice President, Finance ................................... 1988-1993 Eugene A. President and Chief Operating Officer ..................... March 1,1998-Present Renna (53) Executive Vice President, responsible for: the North America Marketing and Refining, Europe/Former Soviet Union, South America and Supply, Trading and Transportation Business Groups ...................... 1996-March 1,1998 Executive Vice President, Marketing and Refining Division, Mobil Oil Corporation ......................... 1986-1996 Robert O. Executive Vice President .................................. March 1,1998-Present Swanson (61) Executive Vice President, responsible for: the Africa and Middle East Asia Pacific, Worldwide Chemical and Technology Business Groups, and the office of Diversity and Inclusion .............................. 1996-March 1,1998 Senior Vice President, responsible for: Mobil Chemical Company; Mobil Mining and Minerals Company; Mobil Land Development Corporation; and Mobil Technology Corporation .............................. 1993-1996
- -------------------------------------------------------------------------------- Mobil -22- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. Mobil's consolidated financial statements, together with the report thereon of Ernst & Young LLP, independent auditors, dated February 27, 1998, and Supplementary Information appearing in Mobil's 1997 Annual Report to Shareholders on the pages indicated below, are incorporated herein by reference. With the exception of the aforementioned information, no other data appearing in Mobil's 1997 Annual Report to Shareholders are deemed to be filed as part of this Annual Report under Items 8 and 14. Any chart, graph and/or associated caption appearing in the consolidated financial statements from pages 33 through 53 of Mobil's 1997 Annual Report to Shareholders are not incorporated into this Annual Report on Form 10-K.
Financial Statement Schedules: Page(s) ------------------------- 1997 Annual 1997 Annual Report on Report to Form 10-K Shareholders ----------- ------------ (a)1. Financial Statements. Consolidated Statement of Income.......... - 33 Consolidated Statement of Changes in Shareholders' Equity..................... - 33 Consolidated Balance Sheet................ - 35 Consolidated Statement of Cash Flows...... - 37 Segment and Geographic Information........ - 38,39 Notes to Financial Statements............. - 40-53 Report of Ernst & Young LLP, Independent Auditors................................. - 54 Supplementary Information................. - 31,55-59 (a)2. Financial Statement Schedules. Schedule II -- Valuation and Qualifying Accounts................................. 25 -
Schedules not included above have been omitted because they are not applicable, not material, or the required information is given in the financial statements or notes thereto or combined with the information presented in other schedules. Mobil -23- (a)3. Exhibits An index to exhibits filed as part of this Annual Report on Form 10-K is included on page 27. (b) Reports on Form 8-K. Date of 8-K Description of 8-K ----------------- ----------------------------------------------------- December 12, 1997 Submitted documents relating to "Pass Through Certificates", Series 1997-C, guaranteed by Mobil Corporation. January 28, 1998 Submitted a copy of the Mobil Corporation News Release dated January 28, 1998 reporting estimated earnings for the fourth quarter and full year of 1997. February 4, 1998 Submitted a copy of the Mobil Corporation News Release dated February 4, 1998 reporting Eugene A. Renna had been elected President and Chief Operating Officer of Mobil Corporation effective March 1, 1998. Mobil -24- (c) Supplemental Financial Information. FINANCIAL STATEMENT SCHEDULE - -------------------------------------------------------------------------------- MOBIL CORPORATION SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 1995, 1996 and 1997 (Millions of dollars) - --------------------------------------------------------------------------------
Balance Balance Beginning End of Description of Period Additions Deductions Period - ------------------------------- --------- --------- ---------- -------- For the year ended December 31, 1995: Reserves deducted in the balance sheet from the assets to which they apply: For doubtful accounts (a).... $122 $ 58 $74 $106 For investments and long-term receivables...... 35 5 - 40 For deferred tax assets (b).. 430 15 77 368 For the year ended December 31, 1996: Reserves deducted in the balance sheet from the assets to which they apply: For doubtful accounts (a).... $106 $ 61 $51 $116 For investments and long-term receivables...... 40 17 2 55 For deferred tax assets (b).. 368 62 12 418 For the year ended DECEMBER 31, 1997: Reserves deducted in the balance sheet from the assets to which they apply: For doubtful accounts (a).... $116 $130 $99 $147 For investments and long-term receivables...... 55 9 14 50 For deferred tax assets (b).. 418 237 28 627 (a) Deductions include accounts written off. (b) Deductions reflect utilization of tax credit carryforwards. - --------------------------------------------------------------------------------
Mobil -25- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant, Mobil Corporation, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGISTRANT MOBIL CORPORATION By: /s/ P. J. Antico ---------------------------- (P. J. Antico, Principal Accounting Officer) Date: March 19, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on March 19, 1998 on behalf of the registrant and in the capacities indicated. Signature Title --------- ----- Lucio A. Noto* Director, Chairman of the Board and - -------------------------- Chief Executive Officer (Lucio A. Noto) Thomas C. DeLoach, Jr.* Principal Financial Officer - -------------------------- (Thomas C. DeLoach, Jr.) P. J. Antico* Principal Accounting Officer - -------------------------- (P. J. Antico) DIRECTORS Lewis M. Branscomb* Donald V. Fites* Charles A. Heimbold, Jr.* Allen F. Jacobson* Samuel C. Johnson* Helene L. Kaplan* J. Richard Munro* Aulana L. Peters* Eugene A. Renna* Charles S. Sanford, Jr.* Robert G. Schwartz* Robert O. Swanson* Iain D. T. Vallance* *By: /s/ Gordon G. Garney -------------------------------------- (Gordon G. Garney, Attorney-in-fact) Date: March 19, 1998 Mobil -26- EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA - -------------------------------------- ------------------------------------- 3(I).1 Certificate of Incorporation Incorporated by reference to Exhibit of Mobil Corporation, as amended, 3(I).1 filed on Form 8-K,July 11, 1997. in effect May 20, 1997. 3(I).2 Certificate of Designation, Incorporated by reference to Exhibit Preferences and Rights of Series 3-a(ii) to the Registration Statement A Junior Participating Preferred on Form S-3 (S.E.C. File No. Stock of Mobil Corporation dated 33-32651), filed under Form SE dated April 25, 1986. December 14, 1989. 3(I).3 Certificate of Designation, Incorporated by reference to Exhibit Preferences and Rights of Series 3(I).2 filed on Form 8-K, July 11, 1997. B ESOP Convertible Preferred Stock of Mobil Corporation, as amended, in effect May 20, 1997. 3(ii).4 By-laws of Mobil Corporation, Incorporated by reference to Exhibit as amended to June 14, 1995. 3.4 filed on Form 8-K dated July 6, 1995. 10.1 1995 Mobil Incentive Compensation Incorporated by reference to and Stock Ownership Plan. Definitive Proxy Statement filed March 20, 1995. 10.2 1991 Mobil Incentive Compensation Incorporated by reference to Exhibit and Stock Option Plan. 15 to the Registration Statement on Form S-8 (S.E.C. File No. 33-48887) filed August 10, 1992. 10.3 1986 Mobil Incentive Compensation Incorporated by reference to Exhibit and Stock Option Plan. 15 to the Registration Statement on Form S-8 (S.E.C. File No. 33-5797) filed May 20, 1986. 11. Computation of Earnings per Electronic Common Share. (Page 28) 12. Computation of Ratio of Earnings Electronic to Fixed Charges. (Page 29) 13. Mobil Corporation 1997 Annual Electronic Report to Shareholders. 21. Subsidiaries of the Registrant. Electronic (Pages 30-32) 23. Consent of Ernst & Young LLP, Electronic Independent Auditors, dated March 12, 1998. (Page 33) 24.1 Power of attorney dated as of Electronic February 27, 1998, executed by the Board of Directors of Mobil Corporation authorizing execution of Annual Report on Form 10-K. 24.2 Certified copy of Board of Electronic Directors' Resolutions adopted February 27, 1998, authorizing signature by officers pursuant to power of attorney. 27. Financial Data Schedule. Electronic
Mobil -27- EX-11 2 EXHIBIT 11 EXHIBITS - -------------------------------------------------------------------------------- EXHIBIT 11 MOBIL CORPORATION COMPUTATION OF EARNINGS PER COMMON SHARE (MILLIONS OF DOLLARS EXCEPT PER-SHARE AMOUNTS; NUMBER OF SHARES IN THOUSANDS) - --------------------------------------------------------------------------------
1995 1996 1997 ---------- -------- -------- Net Income........................................... $ 2,376 $ 2,964 $ 3,272 Less: dividends on preferred stock................... 56 54 52 -------- -------- -------- Adjusted net income applicable to common shares...... $ 2,320 $ 2,910 $ 3,220 ======== ======== ======== Weighted average number of basic common shares outstanding ......................................... 790,888 788,292 786,294 ======== ======== ======== Net income per common share ........................... $ 2.93 $ 3.69 $ 4.10 ======== ======== ======== Net Income............................................ $2,376 $ 2,964 $ 3,272 Less: additional contribution to ESOP................. 13 10 8 Less: Stock Appreciation Rights compensation income (expense)................. 4 4 (4) -------- -------- -------- Adjusted net income applicable to common shares....... $ 2,359 $ 2,950 $ 3,268 ======== ======== ======== Weighted average number of basic common shares ........ 790,888 788,292 786,294 Increment to assumed exercise of stock options to reflect maximum dilutive effect..................... 7,968 9,418 11,445 Assumed conversion of preferred stock ................. 18,849 18,038 17,318 -------- -------- -------- Total ........................................... 817,705 815,748 815,057 ======== ======== ======== Net income per common share--assuming dilution ........ $ 2.88 $ 3.62 $ 4.01 ======== ======== ========
- -------------------- Prior year data have been restated to reflect a two-for-one stock split which had a record date of May 20, 1997. - -------------------------------------------------------------------------------- Mobil -28- EX-12 3 EXHIBIT 12 - -------------------------------------------------------------------------------- EXHIBIT 12 MOBIL CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN MILLIONS, EXCEPT FOR RATIO AMOUNT) - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, ------------------------------------------- 1993 1994 1995 1996 1997 ------ ------ ------ ------ ------ Income Before Change in Accounting Principle............. $2,084 $1,759 $2,376 $2,964 $3,272 Add: Income taxes..................... 1,931 1,919 2,015 3,147 3,093 Portion of rents representative of interest factor............. 339 340 368 376 346 Interest and amortization of debt discount expense....... 529(a) 461 467 455 428 Earnings less (greater) than dividends from equity affiliates.............. 265 (40) (51) 153 (59) ------ ------ ------ ------ ------ Income as Adjusted................. $5,148 $4,439 $5,175 $7,095 $7,080 ====== ====== ====== ====== ====== Fixed Charges: Interest and amortization of debt discount expense....... $ 529(a) $ 461 $ 467 $ 455 $ 428 Capitalized interest............. 42 37 47 78 101 Portion of rents representative of interest factor............. 339 340 368 376 346 ------ ------ ------ ------ ------ Total Fixed Charges................ $ 910 $ 838 $ 882 $ 909 $ 875 ====== ====== ====== ====== ====== Ratio of Earnings to Fixed Charges 5.7(a) 5.3 5.9 7.8 8.1 ====== ====== ====== ====== ======
For the years ended December 31, 1993, 1994, 1995, 1996 and 1997, Fixed Charges exclude $31 million, $37 million, $28 million, $24 million and $29 million, respectively, of interest expense attributable to debt issued by the Mobil Oil Corporation Employee Stock Ownership Plan Trust and guaranteed by Mobil. (a) Excludes the favorable effect of $205 million of interest benefits from the resolution of prior-period tax issues. - -------------------------------------------------------------------------------- Mobil -29- EX-13 4 EXHIBIT 13 ABOUT THE COVER: THE EMBROIDERED PEGASUS TRADEMARK INTRODUCING THIS ANNUAL REPORT REPRESENTS MOBIL AND ITS EMPLOYEES WORLDWIDE, MANY OF WHOM PROUDLY WEAR THE IMAGE DAILY AS A PATCH ON THEIR CLOTHING. [Bar Chart - Inside Front Cover] AVERAGE ANNUAL RETURN TO SHAREHOLDERS Mobil share-price appreciation plus reinvested dividends % as of year-end 1997 Mobil Competitors S & P 500 1 Year 22 21 33 5 Year 22 21 20 10 Year 19 17 18 TABLE OF CONTENTS Letter to Shareholders 1 Mobil At a Glance 4 People 6 Performance 8 Alliances improve results, prospects Convenience at the pump builds brand loyalty Growth 10 Hibernia beats schedule, surpasses estimates Expanding in the Caspian region Building on our leadership in LNG Growing reserves, production in a world of opportunities Lubricating oils: pushing to be first Staying ahead of the curve in chemicals Environment 16 FINANCIAL SECTION Management Discussion and Analysis 19 Consolidated Financial Statements 33 Notes to Financial Statements 40 Reports of Management and Independent Auditors 54 Supplementary Information 55 Shareholder Information 64 Directors and Officers 65
FINANCIAL HIGHLIGHTS 1996 1997 %Change .......................................................................................................... Net income (millions) $ 2,964 $ 3,272 10 Per common share(1) (based on average shares outstanding) 3.69 4.10 11 Per common share-assuming dilution(1) 3.62 4.01 11 .......................................................................................................... Return on average shareholders' equity 16.0 % 17.0% -- Return on average capital employed 12.7% 13.4% -- Income per dollar of revenue(2) 3.6(cent) 5.0(cent) 39 Petroleum earnings per gallon sold 4.5(cent) 5.1(cent) 13 .......................................................................................................... Revenues(2) (millions) $ 81,503 $ 65,906 (19) Total assets, year-end(2) (millions) 46,408 43,559 (6) Investment spending (millions) 7,019 5,306 (24) Shareholders' equity, year-end (millions) 19,072 19,461 2 Per common share(1) (based on shares outstanding at year-end) 23.81 24.41 3 .......................................................................................................... Common shares outstanding, year-end(1) (thousands) 787,589 783,364 (1) Shareholders of common stock, year-end 185,600 186,200 -- Number of employees, year-end 43,000 42,700 (1) .......................................................................................................... (1) Shares outstanding and per-share amounts reflect the two-for-one stock split in 1997. (2) Reflects the impact of equity accounting for alliances implemented in 1997.
LETTER TO SHAREHOLDERS RAISING OUR TARGETS I'm pleased to report that Mobil's 1997 operating profits reached $3.4 billion, up 11% from 1996. It was the third straight year of record operating results, and most of the increase stemmed from self-help. We raised volumes, improved performance, benefited from expense initiatives and business alliances, and strengthened our relationships with valued customers and partners. Our upstream and U.S. downstream segments achieved records, and chemical earnings improved as well. Our total return to shareholders reached 22% in 1997 and has averaged 22% over the past five years. While our 1997 results were middle of the pack, we outperformed the average return of our competitors and the Standard & Poor's 500 over five years. During 1997, Mobil split the stock two-for-one and raised the dividend. Then, early in 1998, we announced another dividend increase, of 7.5% annualized. This is the 11th straight year of higher dividend payments. Mobil's debt-to-capitalization ratio stood at 25% at year-end 1997. That means we have the flexibility to invest in profitable opportunities that fit our core businesses. If the debt-to-capitalization ratio stays much below our target in the 30% range, we'll consider additional stock buybacks. Over the last five years we've reduced our common shares outstanding by about 2%. GOALS POINT THE WAY In early 1997, it was clear that we had reached - almost two years early - the goals we had set in 1994. While our achievement was significant, we didn't stack up as well as we would have liked in relation to our competitors. So our new five-year goals contain as a centerpiece the objective of generating returns to shareholders that are in the first quartile of comparable energy companies. In order to reach that objective, we've set new targets, using 1996 as the base year: a 10% per year increase in operating earnings, which would bring us to $5 billion in 2001; a 14% average return on capital employed over the period; and, assuming constant market multiples, a $100 stock price by 2001. To support our targets, we established goals for our operating units, including: increasing oil and gas production by an average of at least 4% a year, replacing more than 110% of the reserves produced over the five-year period, growing our trade sales volumes in fuels and lubricants by an average of 4% to 5% a year, and increasing by 7% a year our chemical sales volumes. We can only achieve the business results we seek by having great people, so we're conscientiously trying to build a more inclusive workplace culture that leverages our diverse talent worldwide. At the same time we've set objectives to continually improve our environmental, health and safety performance. We did well against our operating goals in 1997. Worldwide production increased 4%, on trend with our five-year goal; and we had a banner year in reserve replacement, reaching 146%. Worldwide product trade sales were about flat, although volumes outside Europe increased some 4%. In LETTER TO SHAREHOLDERS Europe, despite lower volumes, our earnings benefited greatly because of our downstream alliance with BP. Overall chemical volumes grew 14%, in part because of a new aromatics complex in Beaumont, Texas. Despite our good start, getting all the way to where we want to be in 2001 won't be easy. We're in a very competitive industry with modest projected worldwide demand growth. We can't count on industry prices and margins to help us achieve our goals, so we rely on self-help - the components necessary for success: people, performance, growth. PEOPLE GET US THERE It's our people who formulate the strategies, attain the goals, and plan for tomorrow. Our workforce is talented, diverse and committed to making Mobil a great global company. Throughout the Mobil organization we are implementing programs to align employee interests more closely with those of the business unit, the company and the shareholder. We're beginning to see the results of a wide range of global initiatives we've undertaken to ensure that we are fully developing the talents and skills of our people and providing inclusive, high-performance work environments in which they can thrive. PERFORMANCE IMPROVES DRAMATICALLY On performance, our focus centers on becoming ever more efficient and delivering real value to our customers. Efforts by Mobil people everywhere are yielding improvements. In U.S. Marketing & Refining, which was lagging competitively in the early 1990s, operating performance and innovative marketing programs like the Speedpass(TM) system and On The Run(R) convenience stores helped spur a 51% increase in operating earnings to record levels. Upstream in the U.S., after years of declines, we ended 1997 with fourth-quarter production about level with the same period in 1996. Over the five-year period ended in 1996, Mobil's worldwide initiatives resulted in more than $3 billion in pretax expense savings. With 1996 as the base, programs now in place are expected to yield another $900 million in annualized pretax expense reductions and profit improvements. We are already seeing the results of our strategic alliances, especially those with BP in the European downstream and Shell in the California upstream. Meanwhile, we are continuing to sell assets that are noncore to Mobil or worth more to someone else. We've sold some of the fields that were included in our acquisition of Ampolex. The roughly $370 million we received represented a significant premium over our original valuation of those assets. Overall, during the last 10 years, Mobil asset sales generated more than $11 billion, which we redeployed into attractive growth opportunities. An area in which we are deeply committed to substantial improvement is the environment, health and safety. We have established challenging five-year goals for worker safety, spills and major incidents, and will publish our progress. We recognize that success in this area is critical for the company and all of our stakeholders, and our ultimate goal is to eliminate accidents and environmental incidents. GROWTH TARGETS RAISED We project 1998 investment spending of $5.9 billion, up from $5.3 billion in 1997. We believe that the best opportunities are in exploration and producing, and the primary sources of upstream growth for us over the next few years are likely to be West Africa, Eastern Canada, the Caspian region, Qatar's liquefied natural gas projects, South America, Norway, Australia and Papua New Guinea. Eastern Canada, where we have a dominant position, provided much good news for us in 1997. The Hibernia oil field offshore Newfoundland came on stream a month early and estimates for both NEW EXPLORATION AND ACQUISITIONS COULD RAISE OUR PRODUCTION BEYOND OUR CURRENT GOALS reserves and peak production have been increased. The nearby Terra Nova oil field and the Sable Gas Project off the coast of Nova Scotia received regulatory approvals in 1997. Elsewhere, we made important discoveries in Australia, Equatorial Guinea and Norway and progressed our growing relationships in Azerbaijan, Kazakhstan, Nigeria, Peru, Qatar, Turkmenistan and Venezuela. In 1994 we targeted production growth of 2% a year. We've since raised the goal twice to at least 4%. I like the trend, especially since the target is based on existing opportunities and recognizes reasonable decline rates in existing fields. While we may sell some assets, new exploration successes and acquisitions could raise our production further. In marketing and refining, market entries into growth regions will help us meet our goals. In lubricants, we have built two state-of-the-art blending plants in China, reentered the South African market and are expanding our presence throughout Latin America. In fuels, we are entering the liquefied petroleum gas business in China and India, entering markets in Venezuela and Mexico, and strengthening our position in Africa and Eastern Europe. The Asia-Pacific region has long been an important source of growth for Mobil. Recent economic turmoil there has slowed growth, but we believe it's a good place to do business over the long term, especially for a company like Mobil with good assets and a strong competitive position. While our initiatives will increase efficiency and improve profitability, we're maintaining a prudent level of investment spending geared toward maintaining the competitiveness of our assets. And we're on the lookout for opportunities that may develop. In the chemical business, we expect solid returns even though aromatics and olefins are entering the down part of their business cycles. Over the next five years we believe we can increase our earnings and generate average returns of 13% to 15% by investing in projects where we have a competitive advantage. Construction has begun on an expansion that will more than double the capacity of our joint- venture petrochemicals complex in Yanbu, Saudi Arabia, and we're planning a grass-roots joint-venture petrochemicals plant in Jose, Venezuela. EXECUTIVE CHANGES Early in 1998 the board elected Eugene A. Renna Mobil's President and Chief Operating Officer. A director since 1986, Gene combines a great understanding of our competitive industry with a deep respect for Mobil's unique qualities. He has shown the kind of leadership that creates success. Effective April 1, 1998, Mobil's operating units will be organized into seven business groups reporting to Gene. I am personally delighted with Gene's selection and with our leadership team. In September 1997 Mobil saw the close of a remarkable career as Paul J. Hoenmans, a board member and executive vice president, retired after 43 years of service. His legacy will be remembered, as he helped develop the generation that will lead us to tomorrow's growth. A FUTURE THAT'S BRIGHT While this industry has challenges, I'm confident that we'll reach our goals. We value our people, and we've seen what we can achieve when we have a clear vision of where we want to be and the energy to make it happen. Now we are aiming for the next level. The opportunities we seize today will lead to more growth, greater value and a better future for our shareholders, partners, customers, communities and employees in the decades to come. /S/LUCIO A. NOTO Lucio A. Noto Chairman and Chief Executive Officer MOBIL CORPORATION [Pegasus Art - Page 4] Mobil is a global energy company with a proud history, dating back over 130 years. With revenues of $65.9 billion and operating earnings of $3.4 billion, we do business in about 140 countries, on every continent. Our investment spending has averaged $4.9 billion a year over the last five years, and we have budgeted $5.9 billion for 1998. Our overriding five-year goal is to generate returns to shareholders that put us among the first quartile of major international oil companies. MOBIL AT A GLANCE EXPLORATION & PRODUCING Mobil produces oil or gas in 20 countries and explores in 34. Our daily production of 1.75 million barrels of oil or its equivalent in natural gas makes us the third largest among international majors, while our total proved reserves equal 7.2 billion barrels of oil equivalent. We project that our production will increase by an average of over 4% a year and that we will more than replace that production with new reserves. MARKETING & REFINING WE ARE THIRD LARGEST among major oil companies in sales of petroleum products, marketing to customers in over 125 nations. Our primary product supply comes from 25 refineries, which process crude oil into fuels, lubricants and petrochemical feedstocks. Over 15,000 Mobil-branded retail outlets participate in our fuels marketing network. With lubricant sales of more than 2 million gallons a day, we are pursuing the goal of becoming the world's #1 lube company. We have long been an acknowledged leader in premium lubricants, especially synthetics like Mobil 1(R) motor oil. CHEMICAL MOBIL CHEMICAL IS AN INTEGRATED manufacturer and marketer of basic petrochemicals, selected specialty chemicals, catalysts and flexible packaging films. We operate 29 facilities in 11 countries and market in over 100. Our petrochemicals are used to produce a wide range of derivative chemicals and industrial and consumer products. Our specialty chemicals business produces base stocks for world-class synthetic lubricants as well as additives for fuels and lubricants. Our goal is to grow our businesses profitably and deliver strong financial results even during industry downturns. WE HAVE the size, the strength, the scope, the agility and the experience to meet any challenge the energy business can present. We have the energy to make a difference, and our continued success rests on three pillars, which we examine on the pages that follow: PEOPLE - a global workforce that's diverse, talented and committed. PERFORMANCE- constant attention to getting the most out of our asset base. GROWTH-a commitment to seizing and developing the best opportunities. Our technical skills, our financial strengths, our experience managing major projects, and our dedication to environmental leadership and good corporate citizenship make Mobil a partner of choice for all of our stakeholders. MOBIL(R) The energy to make a difference. PEOPLE TO BEAT THE COMPETITION in today's global marketplace, a company needs astute strategies. But strategies alone won't distinguish one company from the pack. A great company depends on great people to execute the strategies. That means having the right people in the right places at the right times with the right sets of skills - in work environments that encourage employees to contribute their fullest. It isn't something to leave to chance. "In 1997 Mobil initiated a more rigorous approach to our people resource strategies," said Bob Amrhein, vice president, Human Resources. "We want to ensure that we manage our people resources at least as conscientiously as we do our other business assets. Our business units worldwide are addressing human resource issues as an integral part of their operating strategies." In 1997 Mobil established people development councils in regions around the world. The councils share common goals for staffing and people development. Maury Devine, general manager of Mobil Exploration Norway, heads the People Development Council for Europe, which aims to develop skills for all employees. "One of our most important missions is to facilitate training and job moves across functions and from country to country," she explained. "We also work with the business units to develop the strategies and people initiatives that will give us a competitive edge in Europe." Mobil Oil Australia's general manager, P.C. Tan, leads the Asia-Pacific development council. "You can't find a better training ground than in our international affiliates," he said. "In this region we have a superb mix of businesses, of mature and high-growth markets, and of a variety of cultures. For example, we have an Australian heading up Mobil Sekiyu in Japan and a Briton leading Mobil Oil New Zealand. I'm a Singaporean in charge of the Australian affiliate." BUSINESS UNITS AROUND THE WORLD MADE PROGRESS ON PROMOTING INCLUSION As part of the special effort to develop people to their fullest, Mobil's Global Leadership Development Council guides the progress of several hundred talented employees from Mobil's worldwide operations to ensure that they receive the right mix of business exposures. Another step is to realize every employee's potential, and that means fully developing the talents and skills of individuals throughout the company. Business units around the world took further steps in 1997 toward building inclusive, high-performance working environments. Their efforts, supported by the Office of Global Inclusion and Diversity, aim to fully tap the rich ethnic, cultural and geographic diversity of their locations and the worldwide Mobil organization. "Barriers that interfere with our getting the best from every employee are also barriers to improving the company's performance, and we'll do our best to remove them," said Bob Swanson, Mobil's executive vice president who oversees the inclusion and diversity initiatives. Mobil has also focused on aligning employees' performance with the goals of their business units and the corporation as a whole. The company has supported this strategy with balanced score cards and changes in pay and benefits. Mobil has adopted variable pay in the United States, giving every salaried employee a stake in his or her group as well as individual performance. Affiliates around the world are adopting similar pay philosophies as appropriate for their local cultures. In addition, Mobil employees worldwide received a 3% bonus in 1997 to recognize their success in meeting the company's financial goals nearly two years early. Another essential element in meeting Mobil's business goals is the company's technological excellence. "Technology is fundamental in improving our earnings, and technology is people," said Mike Ramage,Mobil's chief technology officer. "We will continue to need high-quality scientists and engineers in the regions where we are investing." Ramage is developing a framework for technical career development worldwide. Mobil recognizes that meeting earnings goals means meeting people goals. It has the commitment in place to do both. PERFORMANCE ALLIANCES IMPROVE RESULTS, PROSPECTS Mobil is reaping the rewards of recent alliances that strengthen the company and improve returns. Exam- ples are the Mobil and British Petroleum (BP) alliance to manufacture and market fuels and lubricants in Europe, and the California upstream joint venture between Mobil and CalResources LLC, an affiliate of Shell Oil Company. "The joint venture in Europe progressed full steam ahead in 1997, its first full year," said Hal Cramer, operating officer for Europe and Central Asia. "By the end of 1998 we expect to be realizing nearly all the anticipated benefits, worth more than $100 million a year to Mobil's bottom line." THE VENTURE IS A PLATFORM TO GROW IN KEY MARKETS IN EASTERN EUROPE AND RUSSIA With affiliates in 25 countries and revenues of $20 billion, "there was no template to follow in aligning our operations. Nothing on this scale had ever been attempted, but our people made it work," Cramer added. The joint marketing approach makes the alliance Europe's lubes leader and puts Mobil and BP on a par with Shell for the largest fuels market share in Europe. Just as important, the venture is a platform for future growth in key emerging markets in Eastern Europe and Russia. In June 1997 Mobil completed its agreement with CalResources to combine the companies' exploration and producing operations in California into a new company, Aera Energy. The proximity and scope of the combined operations give Aera the opportunity to realize a pretax benefit of about $1 per barrel of oil produced. Mike Yeager, president and general manager of Mobil Exploration & Producing U.S., said the venture "allows us to maintain top-quartile performance in the California upstream business and fits our ongoing strategy of developing advantaged regional businesses that create platforms for growth." IN THE EUROPEAN JOINT VENTURE, 9,000 BP-BRANDED SERVICE STATIONS PROVIDE HIGHLY VISIBLE OUTLETS FOR MOBIL LUBRICANTS. REFINERY MONITORING It's like giving a refinery a stress test. Using sensors much like those for electrocardiograms, refinery operators can monitor - in real time- THE TECHNOLOGY EDGE: the health of key equipment, stopping problems before they happen, extending equipment life and making the plant a safer place to work. the low-cost system was piloted at Mobil's refineries in Joliet, Illinois, and Beaumont, Texas. CONVENIENCE AT THE PUMP BUILDS LOYALTY "Our customers are looking for the fastest and easiest way to buy gasoline," said Brian Baker, operating officer for North American Marketing & Refining. "The Speedpass(TM) system delivers it. We have introduced the biggest marketing innovation of 1997, and our customers clearly appreciate it." Unveiled nationwide in the U.S. in the spring, the state-of-the-art technology enables motorists to use a miniature transponder to make gasoline purchases at participating Mobil stations. This innovative device has won acclaim from such publications as USA Today, Credit Card Marketing and Fortune. One version of the Speedpass system goes on the customer's key ring and gets waved at the fuel dispenser to activate the pump. The motorist then selects the grade, pumps the gasoline and drives off. In its first seven months, more than a million were activated, and the Speedpass system was taken to another level - a car-tag transponder that adheres to the vehicle's rear windshield. Either way, the customer is pumping gasoline within seconds of arriving at the station. "Speedpass enables motorists to fill up and drive away without ever having to dig out their wallets and hunt up a credit card," said Baker. "It draws drivers in - and gets them out in record time." U.S. motorists interested in the Speedpass system can call 1-800-459-2266. GROWTH HIBERNIA BEATS SCHEDULE, SURPASSES ESTIMATES An era began on November 17, 1997. On that day, a month ahead of schedule and at rates well in excess of estimates, oil began flowing from the Hibernia production platform on the Grand Banks off the coast of Newfoundland. "It was a solid beginning for the field and the birth of an oil and gas producing industry for Eastern Canada, where Mobil has been a participant in virtually all the significant discoveries," said Harvey Smith, president of the Hibernia Management and Development Company, in which Mobil holds 33%, the largest interest. The Hibernia producing platform represents an engineering milestone. "While it's in the same family as the giant concrete structures Mobil engineered in the North Sea, this platform is the first ever designed specifically to resist the impact of icebergs," explained Lou Allstadt, operating officer, Mobil North American Exploration & Producing. Mobil holds a 22% interest in the Terra Nova field, also in the Grand Banks; a 51% interest in the Sable Gas Project off the coast of Nova Scotia; and a share of the Maritimes and Northeast Pipeline, which will transport the gas. From a base of zero in 1996, Mobil's Eastern Canadian production should reach 135,000 barrels a day of oil or its equivalent in natural gas by 2002. Mobil also holds interests in much of the exploration acreage around these projects. EXPANDING IN THE CASPIAN REGION Among the global energy companies, Mobil has over the last four years developed an enviable network of ventures and growing relationships in the Caspian region. "We are committed to building a strong, integrated business in the Caspian region, founded on a deep understanding of the region and warm, long-term relations with its people," according to Richard Beazley, regional vice president, New Exploration & Producing Ventures. In November 1997 the company's burgeoning association with Kazakhstan progressed a significant step with the signing of a production sharing agreement between the Kazakhstani government and eight major oil companies, clearing the way for exploratory drilling to begin in 1998. "We're a 14% partner, and the only U.S.-based company, in the consortium," said Carl Burnett, president, Mobil Oil Kazakhstan Inc., in Almaty. "Our four-year seismic study has confirmed the world-class potential of the North Caspian Sea." Mobil is involved in three other exploration, production and transportation projects in Kazakhstan: o The giant Tengiz oil field (Mobil share 25%). Eventually, crude oil production could reach 800,000 barrels a day, with significant additional gas and natural gas liquids. o The Caspian Pipeline Consortium, which is planning to build a 900-mile pipeline from the Tengiz field to the Russian Black Sea. o The Tulpar Munai onshore exploration joint venture (Mobil share 25%). Elsewhere in the region in 1997, Mobil and the Azerbaijan state oil company, Socar, signed an agreement for Mobil to explore the Oguz concession in the Azeri sector of the Caspian Sea; while in Turkmenistan, Mobil and Monument Oil and Gas p.l.c. entered into a production-sharing agreement with the government covering the Nebit Dag license. BASIN MODELING Mobil has developed a proprietary software package that reduces the risk in looking for oil and gas beneath the earth's surface. Called THE TECHNOLOGY EDGE: Sextant, the package incorporates complex mathematical algorithms that permit our scientists to look at the dynamics of petroleum accumulations from millions of years in the past to the present day. This dynamic view provides a better understanding of the risks and rewards in exploration acreage, so we can improve the odds as we search for petroleum resources around the globe. GROWTH BUILDING ON OUR LEADERSHIP IN LNG One of the largest liquefied natural gas (LNG) operators in the world, Mobil continues to build on its leadership position in this growing segment of the global gas industry. "We helped pioneer the LNG industry in the 1970s when we and our partner, Pertamina, developed the Arun gas field and associated liquefaction plant in Indonesia," recalled John Simpson, operating officer for LNG and Independent Power Projects. The Arun field now supplies 11 million tons of LNG a year to Japan and Korea. "Much of the growth we see for us in LNG will come from two grass-roots projects with the Qatar General Petroleum Company," Simpson said. Qatar's North field, with at least 380 trillion cubic feet of reserves, is the foundation for both projects: Qatargas (Mobil share 10%) and RasGas (Mobil share 25%). The first Qatargas shipment arrived in Japan early in 1997, and eventually the venture will supply more than six million tons of LNG a year to eight Japanese gas and electric utilities. RasGas is at an earlier stage. During 1997 Mobil reached a 25-year agreement with Korea Gas Corporation doubling its sales agreement to 4.8 million tons a year, with shipments scheduled to begin in 1999. RasGas LNG sales are expected to grow to at least 10 million tons a year. CONSTRUCTION PROCEEDS ON THE RASGAS FAMILIAR AREAS, NEW LIQUEFACTION PLANT IN QATAR. SHIPMENTS ARE ONES OFFER POTENTIAL EXPECTED TO BEGIN IN 1999. BEYOND YEAR 2000 GROWING RESERVES, PRODUCTION IN A WORLD OF OPPORTUNITIES "We go where the opportunities are," according to Bill Scoggins, operating officer, New Exploration & Producing Ventures, "and we are finding them in all corners of the globe. We're confident that our projects in areas old and new will enable Mobil to continue to build its reserve base and fuel production growth beyond the turn of the century." West Africa is a region of continuing opportunity for Mobil. Mobil's share of Nigerian production is expected to reach 370,000 barrels a day early in the next century. Production is growing in Equatorial Guinea as well, and Mobil is expanding the pace of deepwater exploration in West Africa. South America is expected to become a key source of reserves and production growth. "In the Southern Cone, where gas demand is growing, Peru's Camisea gas field (Mobil share 42.5%) holds exciting potential for us," stated Ann Pickard, regional vice president, New Exploration & Producing Ventures. "We expect to initiate project development in 1998." Also in the Southern Cone, Mobil has built a position in two of the three key gas basins of Argentina, where the company's share of production should reach 40,000 barrels of oil equivalent a day by 2002. In Venzuela Mobil holds 41.7% interest in a joint venture to develop heavy oil from the Cerro Negro field. Mobil, highly experienced in heavy oil, operates the field. Most of the crude will be processed at the refinery in Chalmette, Louisiana, now co-owned by Mobil and an affiliate of the Venezuelan state oil company. With production from the field expected to start in 1999, Mobil's share should grow to 50,000 barrels a day by 2001. Also in Venezuela Mobil has a 50% interest in the La Ceiba block, where a promising discovery was made before Mobil's purchase in 1996, and a 25% interest in the Quiamare block. Norway - another familiar area on Mobil's map - continues to provide growth. Mobil's strong position in the North Sea, as well as Aasgard development and discoveries of the Kristin/Lavrans fields in the Haltenbanken area, will add more than 60,000 barrels a day in production of oil or its equivalent by 2002. As exploration progresses around the globe, successes in the Australia/Papua New Guinea area are giving Mobil another platform for growth. FLOATING LNG PLANTS Making LNG today means transporting gas to expensive onshore liquefaction plants, where it's processed and shipped. The high capital cost means THE TECHNOLOGY EDGE: that large customers, able to make long-term commitments, must be lined up well in advance of their need. Now we've invented a way to liquefy the gas at sea near the producing field, potentially eliminating the onshore plant. Smaller gas fields can potentially become commercially viable. On the receiving end, regasificiation plants using the same floating concept have the potential to expand LNG's market to smaller customers. GROWTH LUBRICATING OIL: PUSHING TO BE FIRST Lubricants have always been a strength for Mobil. Now the company is driving to become #1 worldwide and outpace the industry with 5%-a-year growth in lube sales over the next five years. One element of the strategy is to expand in developing markets in such growth areas as Asia, Latin America, Africa and Eastern Europe. In China, Mobil is the largest importer of finished lubricating oil on the mainland. "We've invested about $90 million in China to build two state-of-the-art blending plants to service the growing demand for lubricants more efficiently," said Steve Pryor, operating officer for the Asia-Pacific region. A key source of supply for Mobil in the region is its refinery in Singapore. During 1997 the company completed a $230 million plant there that uses hydrocracking technology to produce the most competitive base stocks in the region. Another element of the lubricant growth strategy is to build on the company's strong relationships with equipment manufacturers and enhance the value of Mobil's lube brands. Top teams in CART, NASCAR, Formula 1 and GT racing have selected Mobil 1(R) as their lubricant of choice, and it is the recommended oil and factory fill for AMG/Mercedes-Benz, Corvette, Porsche and Viper. STAYING AHEAD OF THE CURVE IN CHEMICALS Mobil has begun construction of a major expansion of its joint-venture Yanpet petrochemical complex in Yanbu, Saudi Arabia, and is progressing plans for a grass-roots complex at Jose, Venezuela. "The chemicals business is competitive and cyclical, but that means opportunities for a company with Mobil's staying power," said Ray McGowan, operating officer for Mobil Chemical. "We have identified projects with profitable growth potential for us, particularly in the olefins, aromatics and oriented-polypropylene segments." Called Yanpet II, the $2.5 billion Saudi expansion, to be completed in 2000, will more than double the capacity of the complex Mobil owns jointly with Saudi Basic Industries Corporation and will increase by almost 50% Mobil's worldwide capacity to make olefins derivatives. The $2.2 billion complex in Venezuela will be built in partnership with Pequiven, the petrochemical affiliate of Venezuela's state-owned oil company, PDVSA. Detailed engineering is to begin in 1998, with plant start-up in 2002. "The Saudi and Venezuelan complexes will be two of the lowest-cost olefins facilities in the world," McGowan said. Meanwhile, Mobil is expanding and modernizing its U.S. olefins and polyethylene plants to reduce costs, improve competitiveness and meet demand growth. The company increased capacity and reduced feedstock costs at its Houston, Texas, olefins plant and in 1998 will expand ethylene and polyethylene capacity at its plants in Beaumont, Texas. In the aromatics business, Mobil nearly doubled its global paraxylene capacity with two new units - one in Chalmette, Louisiana, that began operating in late 1996 and another in Beaumont that came on stream in 1997. These are the first units using MTPX (Mobil Toluene to Paraxylene) technology. In chemical specialties, last year Mobil doubled its capacity to make synthetic lubricant base stocks at Beaumont. PARAXYLENE COST ADVANTAGE Mobil's proprietary technology MTPX (Mobil Toluene to Paraxylene) is the lowest-cost process for making paraxylene, which goes into the build- THE TECHNOLOGY EDGE: ing blocks for polyester fibers and plastic films and bottles. The key is our catalyst that can select just the right molecules to interact with. It significantly reduces the cost of secondary processing steps in the manufacture of paraxylene. ENVIRONMENT IN 1956, when Mobil established its first formal policies to control environmental and health hazards, the company was clearly ahead of the pack. The environment had not yet become headline news. Mobil has steadily strengthened its commitment over the years by adopting environmental, health and safety management systems to implement its policies and improve performance. In 1996, Mobil adopted a new comprehensive policy, followed by public reporting in 1997 and a commitment to long-term goals in early 1998. "Setting goals gives us a standard internally, and publicly reporting our progress reinforces our accountability," said Bill Dalgetty, general manager, Environmental, Health & Safety (EHS). These goals call for the elimination of fatalities and major fires and explosions, and a substantial im-provement in worker safety and reduction in spills. In 1997 Mobil's businesses made significant progress toward the EHS goals by reducing lost-time injuries by 23% and spills by 8% over 1996 levels. Our worldwide refineries had no major fires, and many of our businesses and projects achieved injury-free records in 1997. For example, the RasGas onshore construction team in Qatar worked more than 10 million hours without a lost-time injury. Mobil is recognized around the world as an industry pacesetter in shipping safety. "We had not a single significant spill in 1996 and 1997," said Gerhard Kurz, president, Mobil Shipping & Transportation Company. In 1997 Mobil launched the American Progress, the first double-hull vessel built in a U.S. shipyard to U.S. government standards that will become mandatory in 2015. In 1998 Mobil began monitoring its worldwide air emissions, water discharges, waste generation and energy use as the first step in setting goals for reducing their impact at company facilities. "Over the last three years we've reduced carbon emissions by more than a million tons worldwide," Dalgetty said. Employing modern technology, Mobil cut the energy used to process a barrel of oil at its refineries, and eliminated both gas flaring from many offshore operations and methane emission leaks from natural gas production and distribution systems. Mobil Producing Nigeria (MPN), for example, has made great strides to date, and "we're committed to eliminating all flaring of natural gas by 2001," said Paul Caldwell, MPN general manager. Reducing flaring is one action that has an impact on global climate change. In addition to curbing emissions, improving energy efficiency and conducting applied research, Mobil sponsors a wide range of scientific studies at universities and other institutions, and is increasing its research funding. More information on Mobil's EHS initiatives and the EHS performance of people throughout the company's businesses is available in The People Behind the Commitment: Mobil's Environmental, Health and Safety Performance Report 1997, which will be available in May 1998 from Mobil's Publications Department at 1-800-293-5796 or on Mobil's web site, www.mobil.com. FINANCIAL SECTION 1997 HIGHLIGHTS o OPERATING EARNINGS OF $3.4 BILLION IMPROVED BY OVER $300 MILLION, DRIVEN PRIMARILY BY SELF-HELP INITIATIVES. THIS IS THE THIRD CONSECUTIVE YEAR OF RECORD EARNINGS. o E&P OPERATING EARNINGS OF $2.1 BILLION TOPPED LAST YEAR'S RECORD DESPITE LOWER CRUDE OIL PRICES. WORLDWIDE PRODUCTION WAS UP 4% AND NET RESERVE REPLACEMENT WAS 146% OF PRODUCTION. o M&R OPERATING EARNINGS OF $1.3 BILLION IMPROVED FROM LAST YEAR, REFLECTING RECORD U.S. PROFITS, DRIVEN BY HIGHER MARGINS AND EXCELLENT PERFORMANCE, AND BENEFITS FROM MOBIL'S ALLIANCE WITH BP IN EUROPE. o CHEMICAL INCOME GREW DUE TO HIGHER VOLUMES IN ALL SECTORS OF THE BUSINESS, HIGHER POLYETHYLENE MARGINS AND IMPROVED PLANT PERFORMANCE. FINANCIAL
KEY FINANCIAL INDICATORS (In millions, except per-share and ratio amounts) 1993 1994 1995 1996 1997 - ------------------------------------------------------------------------------------------------------------------ Operating Earnings(1) $ 2,224 $ 2,231(2) $ 2,846 $ 3,097 $ 3,430 Special Items (140) (472) (470) (133) (158) - ------------------------------------------------------------------------------------------------------------------ Income, Excluding the Effect of Change in Accounting Principle $ 2,084 $ 1,759(2) $ 2,376 $ 2,964 $ 3,272 Per common share(3) 2.54 2.14 2.93 3.69 4.10 Per common share-assuming dilution(3) 2.53 2.12 2.88 3.62 4.01 Common Stock Dividends Per Share(3) 1.63 1.70 1.81 1.96 2.12 - ------------------------------------------------------------------------------------------------------------------ Capital and Exploration Expenditures $ 3,656 $ 3,825 $ 4,268 $ 6,361 $ 4,689 Cash Investments in Equity Companies 31 102 257 658 617 Total Investment Spending $ 3,687 $ 3,927 $ 4,525 $ 7,019 $ 5,306 Debt-to-Capitalization Ratio 32% 31% 27% 29% 25% Total Debt $ 8,027 $ 7,727 $ 6,756 $ 7,875 $ 6,664 - ------------------------------------------------------------------------------------------------------------------ Shareholders' Equity $ 17,237 $ 17,146 $ 17,951 $ 19,072 $ 19,461 Per common share(3) 21.37 21.30 22.35 23.81 24.41 - ------------------------------------------------------------------------------------------------------------------ (1) Operating earnings exclude the effects of special items and change in accounting principle. (2) Excludes unfavorable effect of change in Inventory lower of cost or market policy in 1994 ($680 million). (3) Per-share amounts for all years reflect the two-for-one stock split in 1997.
MANAGEMENT DISCUSSION AND ANALYSIS OUTLOOK WHILE CONSIDERING THE COMPANY'S PLANS AND GOALS, THE READER MAY FIND IT HELPFUL TO KEEP IN MIND MOBIL'S OUTLOOK FOR THE PETROLEUM AND CHEMICAL INDUSTRIES. ALTHOUGH MOBIL CANNOT BE CERTAIN THIS VIEW WILL PROVE ACCURATE, DESCRIBED BELOW ARE BOTH KNOWN AND ANTICIPATED TRENDS RELEVANT TO PLANNING THE COMPANY'S FUTURE OPERATIONS. Overall, the energy industry will remain highly competitive, and large capital investments to support profitable future operations and growth will continue to be required. These investments will, because of the availability of opportunities, be predominantly in international areas. Due to the size of such investments, and the time often needed to complete them, a long-term view is required. Oil and natural gas will continue to satisfy much of the world's energy needs well into the 21st century. Over the long term, the company believes that the prices of these commodities, and related profitability, will continue to be volatile, influenced by market forces, political and economic uncertainties, host country regulations and new production sources. During the first two months of 1998, crude oil and natural gas prices declined significantly from average 1997 levels, in part due to recent economic difficulties in the Asia-Pacific region which will, in the near term, continue to affect worldwide supply/demand balances. The company believes that these prices will trend upward over time as demand increases. Additionally, Mobil remains convinced that the Asia-Pacific region will be a growth area for the future, and the company will continue to focus on making the operations of its existing facilities more efficient. Mobil believes the industry will continue to grow in the international upstream sector where investment opportunities to find and develop resources are abundant. Many countries, previously off-limits to the oil industry, are opening up to companies like Mobil who are recognized for the financial and technical strengths they provide. Mobil will look to these areas to contribute to its program to replace its hydrocarbon reserves and to provide continuing production and earnings growth. The marketing and refining industry will continue to face competitive market pressures, and margins will remain volatile. Worldwide downstream margins have generally weakened somewhat in the first two months of 1998 compared with average 1997 levels. Over the long term, worldwide downstream margins are expected to improve as demand growth outpaces capacity additions. Additionally, more downstream alliances are possible. Continuing environmental expenditures will also be required worldwide, including expenditures in the U.S. for the introduction of reformulated gasolines by the end of the decade. Mobil's U.S. refining system is generally well positioned to meet these requirements with only modest investments needed. The worldwide petrochemical business continues to be cyclical. In the near term, both polyethylene and paraxylene margins are expected to continue under pressure as new capacity streams, but they are expected to strengthen longer term in response to demand growth. Mobil's overall investment program will continue to reflect a strategy to assess and manage political, economic and geologic risks. This strategy is achieved through a geographically diverse portfolio of existing assets and new projects. It also employs the use of limited recourse financing, staged project development, joint ventures and cash exposure management. INVESTMENT PROGRAM Mobil's planned 1998 investment program, including capital and exploration expenditures and cash investments in equity companies, totals $5.9 billion. Spending continues to be directed to international projects (International -- 75%; U.S. -- 25%), where opportunities to find and develop resources are greater and product demand growth is projected to be higher. The 1998 spending program is also consistent with the company's strategy to grow the upstream sector as a percentage of its overall asset base. Almost two-thirds of the program will be allocated to the upstream business. Mobil will continue to monitor its business environment and remain flexible to adjust its plans as attractive opportunities arise or economic and political conditions change. Mobil's debt-to-capitalization ratio declined from 29% to 25% in 1997, reflecting strong earnings, the continuing sale of noncore assets and reduced working capital requirements, partly offset by the impact of share repurchases. The strong cash flow generation and low debt-to-capitaliza- [Bar Chart - Page 19] NET INCOME (Millions of dollars) 97 3,272 96 2,964 95 2,376 94 1,759* 93 2,084 *Excludes cumulative effect of change in accounting principle. MOBIL'S INCOME CONTINUED TO RISE, REFLECTING VOLUME GROWTH, BENEFITS FROM ALLIANCES AND IMPROVED PERFORMANCE. Graphs, charts and associated captions on pages 18-53 are not a part of the Consolidated Financial Statements and Notes thereto. MANAGEMENT DISCUSSION AND ANALYSIS INVESTMENT PROGRAM (concluded) tion ratio provides the flexibility to take advantage of attractive investment opportunities, to increase dividends to shareholders and/or to buy back shares of common stock. RESTRUCTURINGS During 1997, Mobil and The British Petroleum Company p.l.c. (BP) substantially completed implementation of their alliance, which combines the companies' European operations in the refining and marketing of fuels and lubricants. When fully completed in 1998, this alliance will result in the elimination of approximately 2,700 positions from the combined work forces of the two companies (about 1,000 Mobil positions), the rationalization of certain fuels marketing assets and the closure of surplus facilities. During 1996, Mobil established a restructuring provision of $184 million ($145 million after tax), primarily for separation costs related to work-force reductions and for facilities closure costs. As of December 31, 1997, cumulative charges against the reserve totaled $137 million ($112 million after tax, including cash charges of $86 million pretax, $73 million after tax). Additionally, $81 million ($69 million after tax) of one-time charges were incurred in 1997, primarily for reimaging of retail outlets and for systems implementation. An additional $59 million ($41 million after tax) is expected to be spent in 1998 to complete the reimaging and systems implementation program. Projected annualized benefits for Mobil are expected to reach at least $170 million pretax by the end of 1998. Additionally, in 1997, Mobil and BP announced that the alliance would implement a major restructuring of its lubricant base oil refining businesses. This program is aimed at reducing surplus base oil capacity and improving the competitiveness of the alliance's asset base. The program, expected to be completed by the end of 1999, will result in the elimination of approximately 460 positions and in write-downs and closure of certain facilities. Mobil recorded restructuring reserves in 1997 of $86 million ($82 million after tax) mainly for employee severance costs associated with work-force reductions and for write-downs and closure of certain facilities. Cash outlays associated with the restructuring will be made throughout 1998 and will be essentially complete by mid year 1999. Projected annualized benefits are $50 million pretax, of which Mobil's share is about $25 million. Mobil also commenced a major restructuring program of its Japanese marketing business during 1997 in response to the deregulated business environment in Japan. The company has established performance improvement targets aimed at expense reduction and revenue enhancement. This program will result in the elimination of approximately 300 positions and the rationalization of certain assets and should be essentially complete by year-end 1998. In 1997, Mobil recorded restructuring reserves of $126 million ($61 million after tax), primarily for separation costs related to work-force reductions and for disposal of certain facilities. Cash outlays related to the restructuring will be made throughout 1998. Projected annualized benefits from this program are expected to be approximately $170 million pretax. In addition, Mobil has initiated a cost reduction and asset rationalization program in its marketing operations in Australia. This program will result in the elimination of approximately 100 positions and the closure of under-performing service stations during 1998. Other initiatives to reduce the cost structure of the Australian marketing operations will be implemented during 1998 and 1999. In the fourth quarter of 1997, Mobil recorded restructuring reserves of $46 million pretax and after tax, primarily for costs associated with closing service stations and for separation costs related to work-force reductions. Cash outlays will be made during 1998. Projected annualized benefits are about $40 million pretax and are expected to be fully achieved by the end of 1999. During 1995 and 1996, Mobil implemented five major restructuring programs affecting worldwide staff support services, U.S. upstream and downstream businesses, and European refining and lubricant blending operations. These and other smaller programs resulted in the closure of certain facilities and the elimination of about 7,000 positions, approximately half in 1995 and half in 1996. During 1995 and 1996, the company established restructuring reserves of $922 million ($911 million in 1995 and $11 million in 1996), primarily to cover the cost of employee separation benefits and the closure of certain facilities. Of this amount, $682 million represented cash expenditures and the remainder was for noncash write-downs. These programs were implemented over the past three years and were complete as of December 31, 1997. See Note 2 to Financial Statements on pages 41-43 for further details of these restructurings. [Bar Chart - Page 20] TOTAL RETURN TO SHAREHOLDERS (Per $100 invested on December 31, 1992) MOBIL S $ P 500 97 275 251 96 226 188 95 200 153 94 145 112 93 131 110 MOBIL SHARE PRICE APPRECIATION PLUS REINVESTED DIVIDENDS RETURNED 22.4% ANNUALLY, ON AVERAGE, OVER THE LAST FIVE YEARS--2.2 PERCENTAGE POINTS ABOVE THE S&P 500. MANAGEMENT DISCUSSION AND ANALYSIS FINANCIAL RESULTS A DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL AND OPERATING PERFORMANCE APPEARS ON THIS PAGE. MOBIL'S BUSINESS SEGMENTS ARE SEPARATELY REVIEWED ON PAGES 22-27. WHILE READING THESE DISCUSSIONS, THE READER MAY FIND IT HELPFUL TO REFER TO PAGES 32-53 FOR THE CONSOLIDATED FINANCIAL STATEMENTS AND COMMENTARY, AND TO PAGES 55-63 FOR SUPPLEMENTARY INFORMATION.
CONSOLIDATED RESULTS - ---------------------------------------------------------------------------------------- Net Income (In millions, except per-share amounts) 1995 1996 1997 - ---------------------------------------------------------------------------------------- Petroleum Operations Exploration & Producing $ 845 $2,109 $2,212 Marketing & Refining 673 913 1,025 - ---------------------------------------------------------------------------------------- Total Petroleum 1,518 3,022 3,237 Chemical 1,164 306 403 - ---------------------------------------------------------------------------------------- Segment Earnings 2,682 3,328 3,640 Corporate and Financing (306) (364) (368) - ---------------------------------------------------------------------------------------- Net Income $2,376 $2,964 $3,272 Per common share(1) $ 2.93 $ 3.69 $ 4.10 Per common share-assuming dilution(1) $ 2.88 $ 3.62 $ 4.01 - ---------------------------------------------------------------------------------------- (1) Per-share amounts for all years reflect the two-for-one stock split in 1997.
MOBIL'S GOAL FOR THE PERIOD 1997-2001 IS TO ATTAIN FIRST-QUARTILE PERFORMANCE BASED ON TOTAL RETURN TO SHAREHOLDERS VERSUS OTHER MAJOR OIL COMPANIES. CONSOLIDATED NET INCOME of $3,272 million in 1997 was $308 million higher than 1996. Charges for special items reduced net income in 1997 by $158 million, as restructuring-related provisions, litigation charges and a one-time cash award for employee performance to recognize early achievement of prior goals were partly offset by gains on the sale of noncore assets and favorable inventory adjustments. This year's earnings reflected strong volume growth in the upstream business, higher volumes in Chemical and improved performance by all business segments. Benefits from the Mobil-BP downstream alliance in Europe also contributed significantly to the improved results. Overall for the year, industry factors were slightly favorable as higher integrated margins in the U.S. and Europe, higher natural gas prices and higher polyethylene margins were largely offset by lower crude oil prices and weaker margins in parts of Asia-Pacific. Expense reductions from initiatives were offset by inflation and by higher expenses for business development in new venture areas. Consolidated net income in 1996 of $2,964 million was $588 million higher than 1995. The improvement primarily reflected favorable industry fundamentals, a lower level of restructuring-related special charges in 1996 and the effects of higher sales volumes, partly offset by increased refinery downtime and the absence of income from businesses divested in 1995. A gain on the sale of Mobil's plastics business in 1995 was largely offset by FAS 121 impairment charges. - -------------------------------------------------------------------------------- OPERATING EARNINGS (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------- Operating Earnings $2,846 $3,097 $3,430 Memo:Special Items(1) (470) (133) (158) - -------------------------------------------------------------------------------- (1) Special items represent the earnings effects from events or circumstances not attributable to Mobil's current operations and are more fully described in the business segment charts that follow. OPERATING EARNINGS in 1997 were $3,430 million, a third consecutive annual record. Mobil's continued earnings growth reflected higher volumes in the upstream and chemical businesses, contributions from recently formed alliances, improved performance and overall favorable industry fundamentals. Expense reductions from initiatives were offset by inflation and higher expenses for growth in new venture areas. [Bar Chart - Page 21] ANNUAL DIVIDENDS (Per share of common stock, in dollars)* 97 2.12 96 1.96 95 1.81 94 1.70 93 1.63 92 1.60 91 1.56 90 1.41 89 1.28 88 1.18 87 1.10 *Per-share amounts for all year reflect the two-for-one stock split in 1997. DIVIDEND PAYMENTS INCREASED FOR THE TENTH CONSECUTIVE YEAR. MANAGEMENT DISCUSSION AND ANALYSIS PETROLEUM OPERATIONS UPSTREAM-EXPLORATION & PRODUCING - -------------------------------------------------------------------------------- EXPLORATION & PRODUCING SEGMENT FINANCIAL INDICATORS - -------------------------------------------------------------------------------- (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------- U.S. Income (Loss) $ (107) $ 737 $ 697 International Income 952 1,372 1,515 - -------------------------------------------------------------------------------- Total Upstream Net Income $ 845 $ 2,109 $ 2,212 - -------------------------------------------------------------------------------- Revenues(1) $11,081 $12,841 $11,840 Assets $14,393 $18,279 $18,840 Capital Expenditures $ 2,247 $ 3,914 $ 2,888 Exploration Expenses 427 512 499 Cash Investments in Equity Companies 213 520 277 - -------------------------------------------------------------------------------- Total Investment Spending $ 2,887 $ 4,946 $ 3,664 - -------------------------------------------------------------------------------- (1) Includes intersegment revenues. MOBIL'S PRIMARY UPSTREAM GOALS ARE TO GROW EARNINGS BY INCREASING PRODUCTION BY AN AVERAGE OF AT LEAST 4% PER YEAR OVER THE LONG TERM; TO REPLACE MORE THAN 110% OF PRODUCTION WITH NEW RESERVES; AND TO AVERAGE A 17% RETURN ON CAPITAL EMPLOYED, WHILE ENHANCING THE CORE ASSET BASE. Performance in 1997 demonstrated strong progress toward achieving the company's goals of long-term growth in production, reserves and earnings. Worldwide production increased 4%, new reserve additions replaced 146% of this higher production, and operating earnings increased by 4%. In 1997, Mobil produced 927,000 barrels per day of liquids and 4,556 million cubic feet per day of natural gas. Worldwide production increased the equivalent of 68,000 barrels per day from 1996 due to growth programs in West Africa and Qatar and the full-year impact of the 1996 Tengiz field and Ampolex acquisitions, offset somewhat by natural field declines and prior-year asset sales in the United States, and lower liquids production in Indonesia (Arun field). In Nigeria and Equatorial Guinea, continued investment increased total upstream production by about 73,000 barrels per day during the year. Production from the Hibernia field, off Eastern Canada, came on stream in November 1997, and by year-end the field was producing about 70,000 barrels per day (23,000 barrels per day, Mobil share). Additional equity interests in producing fields and increased contract commitments contributed to strong volume performance from the United Kingdom, South America and Kazakhstan. Mobil replaced 146% of its production with new reserves, compared with a 133% replacement rate in 1996. The reserve base is now 7.2 billion barrels of oil equivalent with the most significant contributions coming from the Tengiz field in Kazakhstan and the North field in Qatar. Efforts to replace reserves continue through exploration activities, participation in new producing ventures and acquisitions. In 1997, Mobil drilled 36 wildcat exploration wells, resulting in nine discoveries including Mobil's second major find in Norway in the last three years, success on Ampolex acreage in Australia and Papua New Guinea, and continued success in Equatorial Guinea. New acreage acquisitions in the Americas, Northern Europe, Africa, the Caspian area and Southeast Asia also strengthened the company's portfolio. Exploration activities are conducted in nine focus areas around the world. Investment spending in 1997 was $3.7 billion, down $1.3 billion from 1996, which included the acquisitions of Ampolex and a 25% equity interest in the joint venture that owns the Tengiz field. Planned investment spending for 1998 is $3.9 billion and continues to be focused in international areas. Revenues decreased primarily due to the full-year impact of equity accounting for Mobil's gas marketing alliance with Duke Power (formerly PanEnergy) and the absence of revenues from Mobil's heavy-oil alliance with Shell in California which commenced operations in mid-1997. In 1996, revenues were up 16% from 1995, primarily due to the effects of higher crude oil and natural gas prices and higher international volumes. Revenues include sales to other segments of the company, which are eliminated in consolidated financial reports. [Bar Charts - Page 22] UPSTREAM EARNINGS (Millions of dollars) 97 96 95 Operating Earning 2,138 2,059 1,397 Net Income 2,212 2,109 845 UPSTREAM OPERATING EARNINGS EXCEEDED LAST YEAR'S RECORD, DRIVEN BY VOLUME INCREASES. NET PRODUCTION (Thousands of barrels daily of oil equivalent) International & U.S. 1,753 1,685 1,636 MOBIL'S 4% VOLUME GROWTH IN 1997 WAS IN THE TOP TIER OF ITS COMPETITOR GROUP. MANAGEMENT DISCUSSION AND ANALYSIS PETROLEUM OPERATIONS (continued) UPSTREAM net income of $2,212 million was $103 million higher than in 1996. Operating earnings of $2,138 million (U.S.,$660 million; International, $1,478 million; refer to tables below) increased $79 million, or 4%, as the effect of higher liquids production in international areas was partly offset by higher expenses for new business development and lower production in the United States. The effects of higher natural gas prices, primarily in North America, largely offset lower worldwide crude oil prices. In 1996, net income of $2,109 million was $1,264 million higher than in 1995. Operating earnings of $2,059 million increased $662 million due to higher worldwide crude oil and natural gas prices, lower operating expenses and lower capital recovery charges. Average worldwide crude oil prices in 1997 declined about $1.50 per barrel from 1996 (see graph at right), reflecting increased supplies, slower demand growth in Asia and milder weather. Mobil's U.S. average natural gas prices increased about $.20 per thousand cubic feet due to the benefits of stronger gas prices in the mid-continent region and in the West, where Mobil has a strong presence. - -------------------------------------------------------------------------------- U.S. EXPLORATION & PRODUCING EARNINGS - -------------------------------------------------------------------------------- (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------- U.S. Income (Loss) $(107) $ 737 $ 697 Special Items in Income Asset sales (22) 119 53 Litigation -- -- (12) Employee performance award -- -- (4) Asset impairment (366) (69) -- Restructuring provisions (51) (7) -- - -------------------------------------------------------------------------------- Operating Earnings (Excludes Special Items) $ 332 $ 694 $ 660 - -------------------------------------------------------------------------------- U.S. UPSTREAM operating earnings of $660 million in 1997 were $34 million lower than 1996, reflecting the effects of lower production volumes and lower crude oil prices. The lower volumes were mainly due to natural field declines and the carry-over effect of 1996 asset sales, partly offset by the effects of new capital programs. Earnings benefited from higher natural gas prices and lower operating expenses. Operating earnings of $694 million in 1996 were $362 million higher than 1995, mainly due to higher prices for crude oil and natural gas. Lower producing expenses and decreased capital recovery charges largely offset the impacts of lower production volumes that resulted primarily from natural field declines and asset disposals. Opportunity losses on forward hydrocarbon sales slightly lessened the favorable impact of the higher prices. - -------------------------------------------------------------------------------- INTERNATIONAL EXPLORATION & PRODUCING EARNINGS - -------------------------------------------------------------------------------- (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------- International Income $ 952 $ 1,372 $1,515 Special Items in Income Asset sales 23 12 41 Employee performance award -- -- (4) Restructuring provisions (41) (5) -- Asset impairment (121) -- -- Tax rate changes and other items 26 -- -- - -------------------------------------------------------------------------------- Operating Earnings (Excludes Special Items) $ 1,065 $ 1,365 $1,478 - -------------------------------------------------------------------------------- International Upstream operating earnings of $1,478 million were $113 million higher than 1996, principally due to the effects of higher production levels and higher natural gas prices in Canada, partly offset by lower crude oil prices and higher expenses for future growth in new venture areas. Production increased 10% in 1997, mainly from growth in Nigeria, Equatorial Guinea, the United Kingdom, Kazakhstan, South America and Qatar. Operating earnings of $1,365 million in 1996 were $300 million higher than 1995, mainly due to higher crude oil and natural gas prices. Increased production volumes also contributed to higher earnings. These factors were slightly offset by higher exploration expenses. [Bar Charts - Page 23] CRUDE OIL AVERAGE SPOT MARKET PRICES (Dollars per barrel) 97 96 95 Brent 19.09 20.67 17.02 West Texas Intermediate 20.61 22.16 18.42 CRUDE OIL PRICES REMAINED VOLATILE IN 1997, DROPPING AN AVERAGE OF ABOUT $1.50 PER BARREL. NATURAL GAS AVERAGE SALES PRICES (Dollars per thousand cubic feet) 97 96 95 International 2.72 2.66 2.47 U.S. 2.38 2.17 1.41 HIGHER WORLDWIDE NATURAL GAS PRICES LARGELY OFFSET THE EFFECTS OF LOWER CRUDE OIL PRICES. MANAGEMENT DISCUSSION AND ANALYSIS PETROLEUM OPERATIONS (continued) DOWNSTREAM-MARKETING & REFINING - -------------------------------------------------------------------------------- MARKETING & REFINING SEGMENT FINANCIAL INDICATORS - -------------------------------------------------------------------------------- (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------- U.S. Income $ 226 $ 407 $ 542 International Income 447 506 483 - -------------------------------------------------------------------------------- Total Downstream Net Income $ 673 $ 913 $ 1,025 - -------------------------------------------------------------------------------- Revenues(1) $62,362 $70,796 $55,871 - -------------------------------------------------------------------------------- Assets $22,463 $23,592 $20,284 Capital Expenditures $ 1,292 $ 1,554 $ 928 Cash Investments in Equity Companies 41 131 340 - -------------------------------------------------------------------------------- Total Investment Spending $ 1,333 $ 1,685 $ 1,268 - -------------------------------------------------------------------------------- (1) Includes intersegment revenues. MOBIL'S PRIMARY DOWNSTREAM GOAL IS TO RAISE THE RETURN ON CAPITAL EMPLOYED TO 12% BY GROWING SALES OF FUELS AND LUBES BY 4% TO 5% PER YEAR, CONTINUING TO IMPROVE THE PERFORMANCE OF CORE ASSETS, AND PURSUING ATTRACTIVE GROWTH OPPORTUNITIES. In the U.S., major initiatives in 1997 included the completion of construction of over seventy On The Run(R) convenience stores and the successful rollout of the Speedpass(TM) program. In addition, Mobil and a U.S. subsidiary of Petroleos de Venezuela, S.A., formed a jointly owned limited liability company to own and operate the Chalmette refinery. A portion of the crude oil processed into petroleum products for the U.S. market at the Chalmette refinery will be heavy oil from Venezuela. During 1997, the Mobil-BP alliance in Europe was implemented with substantially all country partnerships established by year-end, and the initial benefits contributing to improved earnings. In addition, following a strategy study to address lubes base stock refining overcapacity in Europe, Mobil and BP announced the closure of BP's stand-alone lubes refinery at Llandarcy in South Wales and a streamlining program at the other European lubes refineries. In the Asia-Pacific region, a new 23 thousand barrels daily (TBD) fluid catalytic cracking (FCC) complex was streamed at the Altona refinery in Australia, increasing yields of gasoline and distillate . Additionally, Mobil initiated a cost reduction and asset rationalization program in its Australian marketing operations. At the Jurong refinery in Singapore, a new lubricant base stock manufacturing unit with a capacity of 8 TBD was completed and streamed. In Japan, a new 25 TBD vacuum residual hydrocracker was successfully brought on stream at Tonen's Kawasaki refinery. This unit upgrades low-value residual fuels to higher-value distillates. Also, in an effort to improve profitability in Japan, initiatives were implemented to enhance revenue and reduce expenses, including the elimination of approximately 300 positions by year-end 1998. In China, a lube oil blend plant was completed in Taicang near Shanghai. In Africa, Mobil successfully integrated Exxon's marketing business in Kenya, acquired in late 1996, and initiated a re-entry into the South African lubes business. In Latin America, the company continued to grow in the fuels markets in Colombia, Peru and Ecuador. This growth will be supplemented by the fuels market entry in Venezuela, which is currently under way. In addition, Mobil's lubes business continued to grow throughout the region. In Barbados, Mobil reached agreement with the local government to close its refinery, completing the withdrawal from the Barbados market following the sale of the company's marketing assets in 1996. Investment spending totaled $1.3 billion in 1997, about 30% in the U.S., including spending for construction related to On The Run(R) convenience stores. The remainder was mostly for expansion projects in international areas. Planned spending for 1998 is $1.5 billion, up 18% from 1997, with approximately 35% in the U.S. and 65% in international areas. Downstream revenues decreased 21% in 1997 versus 1996 due to the effects of equity accounting for the Mobil-BP European alliance, partly offset by the effects of higher sales volumes elsewhere. Revenues increased in 1996 versus 1995 due to higher product trade sales volumes and prices. [Bar Charts - Page 24] DOWNSTREAM EARNINGS (Millions of dollars) 97 96 95 Operating Earnings 1,312 1,051 1,135 Net Income 1,025 913 673 OPERATING EARNINGS IN 1997 INCREASED PRIMARILY DUE TO IMPROVED PERFORMANCE, HIGHER MARGINS AND BENEFITS FROM THE MOBIL-BP ALLIANCE. REFINERY RUNS FOR MOBIL (Thousands of barrels daily) 97 96 95 International & U.S. 2,191 2,142 2,121 REFINERY RUNS CONTINUED TO TREND UPWARD, PRIMARILY REFLECTING IMPROVED OPERATING PERFORMANCE IN THE UNITED STATES. MANAGEMENT DISCUSSION AND ANALYSIS PETROLEUM OPERATIONS (concluded) DOWNSTREAM net income of $1,025 million in 1997 was $112 million higher than 1996. Excluding special items, operating earnings of $1,312 million (U.S., $562 million, International, $750 million; refer to tables below) increased $261 million. Higher product trade sales volumes outside of Europe, benefits from the Mobil-BP European alliance and strong performance contributed to higher earnings in 1997. Additionally, improved integrated margins in the U.S. and Europe more than offset lower margins in parts of Asia-Pacific. Net income in 1996 was $913 million, $240 million higher than in 1995. Excluding special items, operating earnings of $1,051 million decreased $84 million from 1995. Lower margins in some of Mobil's key markets more than offset the benefits from cost savings and growth initiatives, including higher worldwide product sales volumes. - -------------------------------------------------------------------------------- U.S. MARKETING & REFINING EARNINGS - -------------------------------------------------------------------------------- (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------- U.S. Income $226 $407 $542 Special Items in Income Asset Impairment -- -- (18) Employee performance award -- -- (10) LIFO/other inventory adjustments -- 35 8 Restructuring provisions (104) -- -- - -------------------------------------------------------------------------------- Operating Earnings (Excludes Special Items) $330 $372 $562 - -------------------------------------------------------------------------------- U.S. Downstream operating earnings were $562 million in 1997, $190 million higher than 1996. Results in 1997 benefited from higher product sales volumes, excellent refinery performance and higher integrated margins. Initiatives in marketing such as Speedpass(TM) and On The Run(R) contributed to growth in retail automotive gasoline sales, which were up almost 3%. Wider spreads between heavy and light crudes also helped results due to the refineries' strong capability to process heavy crudes. In 1996, operating earnings of $372 million were $42 million higher than 1995. Results benefited from higher margins and continued growth in retail automotive gasoline sales. Partly offsetting these favorable factors was a higher level of refinery downtime. - -------------------------------------------------------------------------------- INTERNATIONAL MARKETING & REFINING EARNINGS - -------------------------------------------------------------------------------- (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------- International Income $447 $506 $483 Special Items in Income Restructuring provisions (316) (154) (258) Employee performance award -- -- (21) LIFO/other inventory adjustments (13) 8 12 Other (29) (27) -- - -------------------------------------------------------------------------------- Operating Earnings (Excludes Special Items) $805 $679 $750 - -------------------------------------------------------------------------------- International Downstream operating earnings were $750 million, $71 million higher than in 1996. In Europe, results improved significantly, primarily due to benefits from the Mobil-BP alliance and stronger integrated margins. These gains were partly offset by lower margins in parts of Asia-Pacific. Operating earnings of $679 million in 1996 were $126 million lower than in 1995, primarily due to lower marketing margins in Europe and Asia-Pacific. Lower paraxylene margins at Mobil's Singapore refinery, where earnings are shared between Marketing & Refining and Chemical, and a higher level of scheduled refinery downtime also reduced earnings. These factors were partly offset by improved refining margins in Singapore and higher product sales volumes. [Bar Charts - Page 25] DOWNSTREAM PETROLEUM PRODUCT SALES VOLUMES* (Thousands of barrels daily) 97 96 95 International & U.S. 3,343 3,345 3,222 * Includes supply sales. WORLDWIDE SALES VOLUMES WERE ESSENTIALLY FLAT IN 1997 AS LOWER VOLUMES IN EUROPE WERE OFFSET BY INCREASES IN OTHER AREAS. DOWNSTREAM PETROLEUM PRODUCT SALES REVENUES (Millions of dollars) 97 96 95 International & U.S. 35,962 49,228 43,725 HIGHER SALES REVENUES IN ENCLAVES OUTSIDE OF EUROPE WERE MORE THAN OFFSET BY THE EFFECTS OF EQUITY ACCOUNTING FOR THE MOBIL-BP EUROPEAN ALLIANCE. MANAGEMENT DISCUSSION AND ANALYSIS CHEMICAL - -------------------------------------------------------------------------------- CHEMICAL SEGMENT FINANCIAL INDICATORS - -------------------------------------------------------------------------------- (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------- Petrochemicals Income $ 544 $ 167 $ 214 Other Income 135 139 141 Asset Sales, net of Restructuring Provisions 485 -- 48 - -------------------------------------------------------------------------------- Total Chemical Net Income $1,164 $ 306 $ 403 - -------------------------------------------------------------------------------- Revenues(1) $6,390 $3,280 $3,533 Assets $3,212 $2,987 $3,111 - -------------------------------------------------------------------------------- Capital Expenditures $ 220 $ 339 $ 323 Cash Investments in Equity Companies -- 7 -- - -------------------------------------------------------------------------------- Total Investment Spending $ 220 $ 346 $ 323 - -------------------------------------------------------------------------------- (1) Includes intersegment revenues. CHEMICAL'S GOALS ARE TO GROW VOLUMES AN AVERAGE OF 7% PER YEAR AND TO ACHIEVE AN AVERAGE RETURN ON CAPITAL EMPLOYED IN THE 13%-15% RANGE, LONG TERM. After a series of asset sales totaling about $1.6 billion in the past three years, Chemical is now comprised of three strategic business units: petrochemicals, chemical specialties and oriented polypropylene (OPP) films. Petrochemicals is the largest segment, representing about 90% of Chemical's sales volumes, with major product lines of polyethylene resin, paraxylene, benzene, propylene and ethylene glycol. Chemical is pursuing a long-term strategy of growing through competitively advantaged projects in its leader businesses by actively progressing two major petrochemical expansion projects in geographically diverse areas as well as by investing in significant de-bottlenecking or cost-effective expansion projects in its North American facilities. Mobil Yanbu Petrochemical Company and Saudi Basic Industries Corp. have begun an expansion that will double the current capacity of their Yanpet olefins complex in Yanbu, Saudi Arabia. The partners recently completed a $2.3 billion commercial bank financing for this project. Plant start-up is scheduled for mid-2000. Mobil and Pequiven, the Venezuelan state-owned petrochemical company, have continued studying the feasibility of developing a new olefins complex in Jose, Venezuela. The proposed site is at an existing petrochemicals facility, with access to low-cost feedstocks and opportunities to achieve substantial synergies with the current operations. Mobil, in conjunction with the Singapore Economic Development Board, is also considering a world-scale ethylene plant near Mobil's existing Jurong refining and petrochemicals complex. A modernization and expansion of Mobil's Beaumont olefins plant is well under way, with completion scheduled later in 1998. This project will increase ethylene capacity by 45%, improve operating flexibility to process the most economically attractive feedstocks and lower energy consumption by 35%. Mobil's Houston olefins plant expansion was completed in 1997, and doubled the plant's ability to process low-cost refinery gas feedstocks, thereby reducing the plant's cash cost to produce ethylene by more than a penny a pound. To effectively utilize the incremental ethylene output from these two projects, a low-cost de-bottleneck of the Beaumont low-pressure polyethylene plant is now under construction. In the aromatics business, Mobil completed two major expansions, one in late 1996 and one in 1997. The paraxylene capacity of the Chalmette refinery was doubled to 380 million pounds, of which Mobil has a 50% interest. The new Beaumont aromatics plant was streamed in mid year with a capacity of 670 million pounds of paraxylene and 625 million pounds of benzene. These two projects, which both utilize Mobil's newest and most economical toluene to paraxylene (MTPX) technology, raise Mobil's worldwide paraxylene capacity to 1.7 billion pounds. Chemical's investment spending in 1997 was $323 million, slightly below the 1996 level of $346 million. Planned investment spending for 1998 is in the $400-$450 million range, mainly to support continued worldwide productivity improvements and capacity expansions, notably the Yanpet project. [Bar Charts - Page 26] CHEMICAL EARNINGS (Millions of dollars) 97 96 95 Operating Earnings 350 306 679 Net Income 403 306 1,164 HIGHER OPERATING EARNINGS IN 1997 REFLECTED STRONGER SALES VOLUMES AND POLYETHYLENE MARGINS, AS WELL AS IMPROVED PLANT OPERATING RELIABILITY. CHEMICAL NET SALES TO TRADE (Millions of dollars) 97 96 95 Petrochemicals & Other 2,994 2,846 4,948 SALES REVENUES INCREASED IN 1997 DUE TO HIGHER VOLUMES AND POLYETHYLENE PRICES, PARTLY OFFSET BY LOWER PARAXYLENE PRICES. MANAGEMENT DISCUSSION AND ANALYSIS CHEMICAL (concluded) CHEMICAL income of $403 million included $53 million of income from special items including a gain on the sale of a substantial portion of the European stretch film business and a favorable patent litigation settlement, partially offset by a charge for the employee performance award. There were no special items in Chemical's 1996 income. - -------------------------------------------------------------------------------- CHEMICAL EARNINGS - -------------------------------------------------------------------------------- (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------- Chemical Income $1,164 $ 306 $ 403 Special Items in Income Asset sales 501 -- 48 Litigation -- -- 10 Employee performance award -- -- (5) Restructuring provisions (16) -- -- - -------------------------------------------------------------------------------- Operating Earnings (Excludes Special Items) $ 679 $ 306 $ 350 - -------------------------------------------------------------------------------- Chemical operating earnings, excluding special items, were $350 million in 1997, up 14% from the prior year, largely as a result of an increase in sales volumes, improved plant operating reliability and higher polyethylene margins. These earnings improved Chemical's return on average capital employed to 15%, up from 13% last year. While most industry fundamentals for Chemical's businesses were favorable in 1997, aromatics margins were weaker as capacity additions outstripped demand growth. Operating earnings of $306 million in 1996 reflected lower worldwide petrochemical margins and were $373 million lower than the record 1995 earnings of $679 million, when margins for integrated polyethylene resins were strong and Asia-Pacific paraxylene margins set record highs as demand was strong and supply was tight. Trade sales revenues (see graph on page 26) of $3.0 billion in 1997 increased 5% from the prior year primarily due to the 14% increase in sales volumes. Substantially all of the decrease in trade sales in 1996 from 1995 resulted from the divestiture of businesses. CORPORATE AND FINANCING - -------------------------------------------------------------------------------- CORPORATE AND FINANCING EXPENSE - -------------------------------------------------------------------------------- (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------- Corporate and Financing Expense $ (306) $ (364) $ (368) Special Items included: Asset sales 74 30 39 Litigation 71 -- (31) Employee performance award -- -- (6) Staff redesign implementation -- (75) -- Restructuring provisions (62) -- -- Environmental provision (24) -- -- - -------------------------------------------------------------------------------- Operating Expense (Excludes Special Items) $ (365) $ (319) $ (370) - -------------------------------------------------------------------------------- CORPORATE AND FINANCING expense was $368 million in 1997, essentially unchanged from 1996. This category includes the results from Real Estate operations and Mining and Minerals (substantially all of these businesses were sold in 1996), corporate administrative expenses, net financing expense and other items. Excluding special items from both periods, Corporate and Financing operating expense of $370 million was $51 million higher than 1996, primarily due to a number of one-time charges in 1997 that were only partly offset by lower interest expense due to lower average net debt balances and lower interest rates. Excluding special items, Corporate and Financing operating expense of $319 million in 1996 was $46 million lower than in 1995, primarily reflecting the effects of higher capitalized interest for major projects in Canada, Nigeria and Qatar, and certain other favorable, nonrecurring items. MANAGEMENT DISCUSSION AND ANALYSIS RISK MANAGEMENT Because Mobil operates in the worldwide oil and gas markets and has significant financing requirements, it has exposure to fluctuations in interest rates, foreign currency exchange rates and hydrocarbon prices, which can affect the cost of operating, investing and financing. In order to manage these exposures, management has established defined benchmarks for hedging in order to achieve a desired risk profile for the environment in which Mobil operates and finances its assets. The management-defined benchmarks are periodically reviewed and are subject to change. DEBT-RELATED INSTRUMENTS Mobil has fixed and floating rate U.S. and foreign currency denominated debt. Mobil's benchmark for interest rate risk is 100% floating rate. Mobil uses interest rate swaps, cross-currency interest rate swaps, futures, forward exchange contracts and option contracts to manage its debt portfolio toward the established benchmark. These instruments have the effect of changing the interest rate and currency of the original borrowings with the objective of minimizing Mobil's borrowing costs. At December 31, 1997, Mobil was primarily exposed to U.S. dollar LIBOR. NONDEBT-RELATED FOREIGN CURRENCY EXCHANGE RATE INSTRUMENTS Mobil has foreign currency exchange rate risk because it operates in about 140 countries. Mobil's benchmark is to fully hedge identified net exposures to foreign currency exchange rate risk resulting from transactions in currencies that are not the functional currency of the affected affiliate. Mobil has entered into forward exchange contracts and currency option contracts to hedge U.S. dollar payables for purchases of hydrocarbons, firm commitments for capital projects, cash returns from net investments in foreign affiliates to be remitted within the coming year, and certain local currency taxes. At December 31, 1997, the primary currencies under management include the Japanese yen, Canadian dollar and Australian dollar. COMMODITY INSTRUMENTS Mobil balances its overall crude oil and petroleum product supply and demand, and manages its current and future price risk by entering into hydrocarbon futures, forwards, swaps and options in various markets. Mobil's benchmark for hydrocarbons is the prevailing market price. To achieve this benchmark, Mobil manages its hydrocarbon price exposure associated with fixed-priced commodity purchases and sales, and inventory positions that vary from management's defined sustainable inventory levels, primarily through the use of strategies that qualify as hedges. However, certain strategies manage risk at a macro level and do not qualify as hedges. Mobil may take commodity positions based on its views or expectations of specific hydrocarbon prices or price differentials between commodity types. Mobil does not hedge oil and gas reserves. At December 31, 1997, Mobil was exposed to the general price levels of broadly traded oil and gas commodities. VALUE AT RISK In its risk management activities, Mobil uses a number of tools to measure and manage risk, including value-at-risk models. Mobil measures its value at risk using statistical techniques that project expected changes in values from market movements on financial and commodity exposures that vary from management's defined benchmarks. These benchmarks are established by management and represent the desired risk profile of the environment in which Mobil operates. Value at risk is defined as the maximum potential gain or loss in fair value from a one-day market movement using historical statistical models that would cover 99.7% of all such movements over the last three years measured against the benchmarks. Value at risk includes those exposures that are being managed. The value at risk of options is determined by using the forward equivalent of the underlying exposure. The value-at-risk amounts as measured against the above management-defined benchmarks were $7 million for interest rate risk, $1 million for foreign currency exchange rate risk, and $8 million for commodity price risk (including trading contracts) at December 31, 1997. The value-at-risk analysis of commodity price risk includes managed physical commodities as well as hedging and trading derivatives because Mobil manages this risk on a combined basis. MANAGEMENT DISCUSSION AND ANALYSIS YEAR 2000 ISSUE Many existing computer programs will be unable to properly recognize dates in the year 2000 and beyond. During 1997, Mobil conducted a company-wide study of its systems and operations, including systems being developed to improve business functionality, to identify those of its computer hardware, software and process control systems that do not properly recognize dates after December 31, 1999, and those that are linked to third parties' systems. Based on this study, Mobil commenced a major project to ensure that well in advance of the year 2000, all of Mobil's systems that are critical to the company's operations properly recognize such dates. The project is utilizing both internal and external resources to reprogram or replace, and test, affected computer hardware, software and process control systems to ensure that they are year 2000 compliant. Mobil has also initiated communications with third parties whose computer systems' functionality could impact Mobil. These communications will facilitate coordination of year 2000 conversions and will, additionally, permit Mobil to determine the extent to which the company may be vulnerable to failures of third parties to address their own year 2000 issues. The costs of Mobil's year 2000 compliance effort are being funded with cash flows from operations. Some of these costs relate solely to the modification of existing systems, while others are for new systems which will improve business functionality. In total, these costs are not expected to be substantially different from the normal, recurring costs that are incurred for systems development and implementation, in part due to the reallocation of internal resources and the deferral of other projects. As a result, these costs are not expected to have a material adverse effect on Mobil's overall results of operations or cash flows. The assessment of the costs of Mobil's year 2000 compliance effort, and the timetable for Mobil's planned completion of its own year 2000 modifications, are management's best estimates. These estimates were based upon numerous assumptions as to future events, including assumptions as to the continued availability of certain resources, in particular personnel with expertise in this area, and as to the ability of such personnel to locate and either re-program or replace, and test, all affected computer hardware, software and process control systems in accordance with Mobil's planned schedule. There can be no guarantee that these estimates will prove accurate, and actual results could differ from those estimated if these assumptions prove inaccurate. Based upon progress to date, however, Mobil believes that it is unlikely that the foregoing factors will cause actual results to differ significantly from those estimated. As to the systems of the third parties that are linked to Mobil's, there can be no guarantee that those of such systems that are not now year 2000 compliant will be timely converted to year 2000 compliance. Additionally, there can be no guarantee that third parties of business importance to Mobil will successfully and timely reprogram or replace, and test, all of their own computer hardware, software and process control systems. While the failure of a single third party to timely achieve year 2000 compliance should not have a material adverse effect on Mobil's results of operations in a particular period, the failure of several key third parties to achieve such compliance could have such an effect. Mobil is developing contingency plans to alter business relationships in the event certain third parties fail to become year 2000 compliant. MANAGEMENT DISCUSSION AND ANALYSIS OVER THE PAST THREE YEARS MOBIL HAS SPENT $2.2 BILLION TO SAFEGUARD THE ENVIRONMENT. ENVIRONMENTAL MATTERS - -------------------------------------------------------------------------------- ENVIRONMENTAL EXPENDITURES U.S. INTERNATIONAL - -------------------------------------------------------------------------------- (In millions) 1995 1996 1997 1995 1996 1997 - -------------------------------------------------------------------------------- Capital $172 $149 $105 $135 $108 $105 Protection and Compliance Ongoing operations 238 212 213 184 171 128 Remediation 67 46 46 24 27 28 - -------------------------------------------------------------------------------- Total Environmental Expenditures $477 $407 $364 $343 $306 $261 - -------------------------------------------------------------------------------- MOBIL'S COMMITMENT AND PRACTICE IS TO CONDUCT ITS OPERATIONS WITH FULL CONCERN FOR SAFEGUARDING THE ENVIRONMENT, EMPLOYEES, CUSTOMERS AND THE PUBLIC--WHEREVER IT OPERATES. The company accomplishes this through clear, visible corporate policies, innovative technologies, sharing best practices, extensive training and constant attention to environmental matters in its day-to-day operations. Environmental expenditures are a significant cost of doing business, and the U.S. and other countries continue to impose stringent environmental requirements. While these costs reflect a downward trend, environmental operating performance has been improving. Although Mobil cannot predict accurately how environmental expenditures will affect future operations and earnings, it expects to continue to incur substantial costs. Mobil believes its costs will not vary significantly from those of its competitors. CAPITAL EXPENDITURES are additions or modifications to plants and facilities to limit, monitor and control emissions and waste generation and to manufacture newly formulated products. The majority of U.S. environmental capital expenditures have been made to comply with federal and state clean air and water regulations as well as waste-management requirements. As required in 1995, Mobil began selling clean-burning reformulated gasoline in those metropolitan areas designated by the Environmental Protection Agency (EPA) where Mobil markets gasoline products. Additional emission reductions are mandated by the year 2000. Internationally, capital expenditures were made in large part to help protect ground and surface water and to reduce air emissions. Worldwide capital expenditures for environmental matters in 1998 are expected to remain near the 1997 expenditure level. PROTECTION AND COMPLIANCE EXPENDITURES are Mobil's recurring costs associated with managing hazardous substances, emissions and waste generation in ongoing operations, and the costs to remediate identified contamination. U.S. remediation expenditures reflect corrective action taken in prior years to meet compliance requirements, the use of improved remediation technology and resource utilization, and a continuing government/industry trend toward utilizing a risk-based corrective action approach to remediating subsurface contamination. Like many other companies, Mobil periodically receives notices from the EPA, or equivalent state agencies, that it has been designated as a potentially responsible party (PRP) for remediation of hazardous-waste sites. The majority of these sites are still under investigation by the EPA or the state agencies concerned. All PRPs are jointly and severally liable under the federal Superfund law; however, since the early 1980s, Mobil has been successful in sharing cleanup costs with other financially sound companies. At December 31, 1997, Mobil had been successful in resolving its involvement in 175 of the 276 sites where it had been named a PRP. The number of PRP sites does not represent a relevant measure of liability as each company's involvement in a site can vary substantially. Mobil believes it has provided adequate reserves for known environmental obligations. However, Mobil may be subject to future environmental remediation liabilities relating to assets previously sold, closed facilities, requirements not yet identified or the sale or disposition of operating facilities. While the amounts could be material to Mobil's earnings in the periods in which such liabilities arise, the extent of such future remediation requirements and costs is not subject to reasonable estimation. Based on Mobil's long experience in managing environmental matters in its businesses, it does not anticipate that the aggregate level of future remediation costs will increase above recent levels so as to materially and adversely affect its consolidated financial position or liquidity. See also Note 12 to Financial Statements on page 49 for further discussion of environmental liabilities. MANAGEMENT DISCUSSION AND ANALYSIS
QUARTERLY FINANCIAL DATA (unaudited) 1996 --------------------------------------------------------- First Second Third Fourth Full (In millions, except per-share amounts) Quarter Quarter Quarter Quarter Year - ----------------------------------------------------------------------------------------------------- REVENUES Sales and services $ 18,528 $ 19,262 $ 19,852 $ 22,723 $ 80,365 Income from equity affiliates 85 106 84 4 279 Income from asset sales, interest and other 87 152 390 230 859 - ----------------------------------------------------------------------------------------------------- Total Revenues 18,700 19,520 20,326 22,957 81,503 - ----------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Crude oil, products and operating supplies and expenses 10,671 11,228 11,788 13,803 47,490 Exploration expenses 76 72 143 221 512 Selling and general expenses 1,126 1,239 1,176 1,646 5,187 Depreciation, depletion and amortization 655 603 645 822 2,725 Interest and debt discount expense 116 97 119 123 455 Taxes other than income taxes 4,534 4,693 4,850 4,946 19,023 Income taxes 786 805 836 720 3,147 - ----------------------------------------------------------------------------------------------------- Total Costs and Expenses 17,964 18,737 19,557 22,281 78,539 - ----------------------------------------------------------------------------------------------------- NET INCOME $ 736 $ 783 $ 769 $ 676 $ 2,964 Per common share(1) $ .92 $ .98 $ .96 $ .84 $ 3.69 Per common share-assuming dilution(1) $ .90 $ .95 $ .94 $ .83 $ 3.62 - ----------------------------------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE(1) $ .46 $ .50 $ .50 $ .50 $ 1.96 - ----------------------------------------------------------------------------------------------------- SPECIAL ITEMS INCLUDED IN NET INCOME Restructuring provisions $ -- $ -- $ -- $ (166) $ (166) Asset sales gains/(losses) -- -- 129 41 170 Employee performance award -- -- -- -- -- Litigation -- -- -- -- -- LIFO/other inventory adjustments -- -- -- 43 43 Asset impairment -- -- -- (69) (69) Staff redesign project implementation -- (31) (28) (16) (75) Other -- -- -- (36) (36) - ----------------------------------------------------------------------------------------------------- Total Special Items -- (31) 101 (203) (133) - ----------------------------------------------------------------------------------------------------- OPERATING EARNINGS(2) $ 736 $ 814 $ 668 $ 879 $ 3,097 - ----------------------------------------------------------------------------------------------------- Sales Price per Common Share(1) (3) High $59 1/16 $60 1/16 $59 15/16 $62 15/16 $62 15/16 Low $53 3/4 $54 5/16 $53 7/8 $56 5/8 $53 3/4 - ----------------------------------------------------------------------------------------------------- (1) Per-share amounts for all periods reflect the two-for-one stock split in 1997. (2) Excludes special items. (3) The principal market for trading of Mobil's common stock is the New York Stock Exchange. The stock symbol is "MOB." The reported prices represent a composite of transactions on the New York Stock Exchange, the Chicago, Pacific, Philadelphia, Boston and Cincinnati regional exchanges and the over-the-counter market.
QUARTERLY FINANCIAL DATA (unaudited)(continued) 1997 ----------------------------------------------------------- FIRST SECOND THIRD FOURTH FULL (In millions, except per-share amounts) QUARTER QUARTER QUARTER QUARTER YEAR - ----------------------------------------------------------------------------------------------------- REVENUES Sales and services $ 15,935 $ 16,372 $ 15,950 $ 16,070 $ 64,327 Income from equity affiliates 102 167 143 284 696 Income from asset sales, interest and other 149 210 304 220 883 - ----------------------------------------------------------------------------------------------------- Total Revenues 16,186 16,749 16,397 16,574 65,906 - ----------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Crude oil, products and operating supplies and expenses 10,468 10,531 10,159 10,039 41,197 Exploration expenses 75 82 105 237 499 Selling and general expenses 806 1,136 1,057 1,358 4,357 Depreciation, depletion and amortization 643 615 590 706 2,554 Interest and debt discount expense 98 91 142 97 428 Taxes other than income taxes 2,406 2,706 2,682 2,712 10,506 Income taxes 864 738 770 721 3,093 - ----------------------------------------------------------------------------------------------------- Total Costs and Expenses 15,360 15,899 15,505 15,870 62,634 - ----------------------------------------------------------------------------------------------------- NET INCOME $ 826 $ 850 $ 892 $ 704 $ 3,272 Per common share(1) $ 1.03 $ 1.06 $ 1.12 $ .88 $ 4.10 Per common share-assuming dilution(1) $ 1.01 $ 1.04 $ 1.09 $ .86 $ 4.01 - ----------------------------------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE(1) $ .53 $ .53 $ .53 $ .53 $ 2.12 - ----------------------------------------------------------------------------------------------------- SPECIAL ITEMS INCLUDED IN NET INCOME Restructuring provisions $ (18) $ (20) $ (72) $ (148) $ (258) Asset sales gains/(losses) -- -- 140 41 181 Employee performance award -- -- (50) -- (50) Litigation -- -- (33) -- (33) LIFO/other inventory adjustments -- -- -- 20 20 Asset impairment -- -- -- (18) (18) Staff redesign project implementation -- -- -- -- -- Other -- -- -- -- -- - ----------------------------------------------------------------------------------------------------- Total Special Items (18) (20) (15) (105) (158) - ----------------------------------------------------------------------------------------------------- OPERATING EARNINGS(2) $ 844 $ 870 $ 907 $ 809 $ 3,430 - ----------------------------------------------------------------------------------------------------- Sales Price per Common Share(1) (3) High $68 $72 1/4 $78 $77 1/2 $ 78 Low $60 5/8 $60 $69 5/8 $66 7/16 $ 60 - -----------------------------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS COMMENTARY ON CONSOLIDATED STATEMENT OF INCOME REVENUES from Sales and Services decreased $16,038 million from 1996 primarily due to the effects of equity accounting for the Mobil-BP European downstream alliance, equity accounting for gas marketing activities in the United States, lower crude oil prices and currency translation effects. Partly offsetting these decreases were the effects of higher sales volumes and higher average worldwide natural gas prices. The increase in 1996 from 1995 resulted mainly from higher crude oil, natural gas and petroleum product prices, and higher product sales volumes. Income from Equity Affiliates increased in 1997 due to significantly higher income from equity investments, mainly in Europe, Kazakhstan and the United States. Income from Asset Sales, Interest and Other decreased in 1996 from 1995 primarily reflecting the gain on sale of the Plastics Division in 1995. Total COSTS AND EXPENSES decreased by $15,905 million from 1996 mainly due to the effects of equity accounting for the Mobil-BP European downstream and Mobil-Shell California upstream alliances. The increase in 1996 from 1995 was primarily due to higher costs for crude oil and products, higher volume-related expenses and new growth programs, partially offset by benefits from initiatives. Crude Oil, Products and Operating Supplies and Expenses decreased $6,293 million in 1997, primarily due to the effects of equity accounting for the Mobil-BP and Mobil-Shell alliances and lower average costs for crude oil, partly offset by higher volume-related expenses and increased spending for growth programs in new venture areas. The increase in 1996 from 1995 was due to increased worldwide crude oil and product-related costs and higher volumes, partly offset by the effects of divested businesses. Included in this expense category are research costs of $252 million in 1995, $206 million in 1996 and $234 million in 1997. Exploration Expenses were somewhat lower in 1997 primarily due to a smaller planned program this year. Expenses in 1996 increased from 1995 primarily reflecting higher dry drilling expenses and Ampolex's exploration activities. Selling and General Expenses decreased $830 million primarily due to the effects of equity accounting for the Mobil-BP alliance and expense reductions associated with cost-savings initiatives, partly offset by restructuring reserves and the employee performance award. The decrease in 1996 from 1995 was mainly due to a lower level of restructuring charges in 1996, expense reductions resulting from prior-year restructuring programs, and the effects of the divestiture of various chemical businesses. Depreciation, Depletion and Amortization Expenses were somewhat lower in 1997 as decreases resulting from equity accounting for the Mobil-BP and Mobil-Shell alliances were largely offset by the effects of last year's acquisition of Ampolex and other capital spending. Expenses in 1996 decreased from 1995 largely due to the effects of adopting FAS 121 in the fourth quarter of 1995 and the absence of 1995 restructuring-related asset write-downs. Taxes Other than Income Taxes decreased $8,517 million in 1997 from 1996 as the effects of equity accounting for the alliances were partly offset by the effects of higher sales volumes. In 1996, Taxes Other than Income Taxes were essentially unchanged from 1995 as the effects of higher product sales volumes were offset by the absence of import duties on crude oil resulting from the closure of the Woerth refinery in Germany. Income Taxes decreased slightly as the effects of higher pretax income were more than offset by mix changes in the sources of earnings. Income Taxes increased in 1996 versus 1995, mainly due to higher pretax income and mix changes in the sources of earnings. COMMENTARY ON CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Total SHAREHOLDERS' EQUITY rose $389 million in 1997 due to an increase of $1,553 million in Earnings Retained in the Business. Largely offsetting this increase was a net charge to the Cumulative Foreign Exchange Translation Adjustment account reflecting a strengthening U.S. dollar relative to local currencies in certain countries in which the company has significant operations. Also, the cost of Common Stock Held in the Treasury increased as 7,458,400 shares were purchased in the open market to offset the dilutive effects of stock options and reduce the number of shares outstanding. Return on Average Shareholders' Equity increased from 13.5% in 1995 to 16.0% in 1996 and to 17.0% in 1997. Common stock dividends paid were $1.8125 per share, $1.9625 per share and $2.12 per share in 1995, 1996 and 1997, respectively. Per-share amounts reflect the two-for-one stock split in 1997. [Bar Chart - Page 32] RETURN ON AVERAGE SHAREHOLDERS' EQUITY (In percent) 97 17.0 96 16.0 95 13.5 RETURN ON AVERAGE SHAREHOLDERS' EQUITY IMPROVED AGAIN, IN LINE WITH THIS YEAR'S HIGHER EARNINGS. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME Year ended December 31 (In millions, except per-share amounts) 1995 1996 1997 - -------------------------------------------------------------------------------- REVENUES Sales and services(1) $73,413 $80,365 $64,327 Income from equity affiliates 397 279 696 Income from asset sales, interest and other 1,560 859 883 - -------------------------------------------------------------------------------- Total Revenues 75,370 81,503 65,906 - -------------------------------------------------------------------------------- COSTS AND EXPENSES Crude oil, products and operating supplies and expenses 41,630 47,490 41,197 Exploration expenses 427 512 499 Selling and general expenses 5,688 5,187 4,357 Depreciation, depletion and amortization 3,748 2,725 2,554 Interest and debt discount expense 467 455 428 Taxes other than income taxes(1) 19,019 19,023 10,506 Income taxes 2,015 3,147 3,093 - -------------------------------------------------------------------------------- Total Costs and Expenses 72,994 78,539 62,634 - -------------------------------------------------------------------------------- NET INCOME $ 2,376 $ 2,964 $ 3,272 Per common share(2) $ 2.93 $ 3.69 $ 4.10 Per common share--assuming dilution(2) $ 2.88 $ 3.62 $ 4.01 - -------------------------------------------------------------------------------- (1) Includes excise and state gasoline taxes: 1995-$8,646 million; 1996-$9,236 million; 1997-$5,928 million. (2) Per-share amounts for all years reflect the two-for-one stock split in 1997.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Year ended December 31 (In millions) 1995 1996 1997 - ---------------------------------------------------------------------------------------- PREFERRED STOCK (ESOP-related) -Beginning of year $ 745 $ 722 $ 686 -End of year, after redemptions $ 722 $ 686 $ 665 - ---------------------------------------------------------------------------------------- UNEARNED EMPLOYEE COMPENSATION (ESOP-related) -Beginning of year $ (472) $ (411) $ (365) -End of year, after amortization $ (411) $ (365) $ (329) - ---------------------------------------------------------------------------------------- COMMON STOCK AT PAR -Beginning of year $ 885 $ 888 $ 891 -End of year, after issuance of shares $ 888 $ 891 $ 894 - ---------------------------------------------------------------------------------------- CAPITAL SURPLUS -Beginning of year $ 1,325 $ 1,396 $ 1,468 -End of year, after issuance of common shares $ 1,396 $ 1,468 $ 1,549 - ---------------------------------------------------------------------------------------- EARNINGS RETAINED IN THE BUSINESS -Beginning of year $ 16,859 $ 17,745 $ 19,108 -Net income 2,376 2,964 3,272 -Common stock dividends (1,434) (1,547) (1,667) -Preferred stock dividends (ESOP-related) (56) (54) (52) - ---------------------------------------------------------------------------------------- -End of year $ 17,745 $ 19,108 $ 20,661 - ---------------------------------------------------------------------------------------- CUMULATIVE FOREIGN EXCHANGE TRANSLATION ADJUSTMENT -Beginning of year $ (123) $ (27) $ (73) -End of year, after adjustments $ (27) $ (73) $ (821) - ---------------------------------------------------------------------------------------- COMMON STOCK HELD IN TREASURY, AT COST -Beginning of year $ (2,073) $ (2,362) $ (2,643) -End of year, after purchases $ (2,362) $ (2,643) $ (3,158) - ---------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY $ 17,951 $ 19,072 $ 19,461 - ---------------------------------------------------------------------------------------- See Notes to Financial Statements on pages 40-53.
MANAGEMENT DISCUSSION AND ANALYSIS COMMENTARY ON CONSOLIDATED BALANCE SHEET Total CURRENT ASSETS decreased $3,173 million, primarily reflecting lower Accounts and Notes Receivable and lower Inventories. Cash and Cash Equivalents increased $12 million from 1996. The movements that contributed to this increase are presented in the Consolidated Statement of Cash Flows on page 37. Accounts and Notes Receivable decreased mainly due to the effects of equity accounting for the Mobil-BP European downstream alliance, lower crude oil and international natural gas prices, the sale of certain receivables associated with the company's credit card operations and currency translation effects. Inventories were lower in 1997 primarily due to the effects of equity accounting for the Mobil-BP and Chalmette alliances, and currency translation. Investments and Long-term Receivables increased $3,401 million to $8,479 million, mainly reflecting Mobil's investment in the European downstream alliance with BP, the California upstream alliance with Shell and Mobil's alliance at the Chalmette refinery. Net Properties, Plants and Equipment decreased $2,923 million to $24,556 million as capital expenditures were more than offset by the effects of equity accounting for the alliances, asset sales, depreciation and the effects of currency translation. Total CURRENT LIABILITIES of $12,421 million decreased $2,827 million from year-end 1996. Short-term Debt declined $431 million due to strong earnings, continued sale of noncore assets and reduced working capital requirements. Accounts Payable decreased $1,517 million primarily due to the effects of equity accounting for the Mobil-BP alliance, decreases in crude oil and international gas prices from year-end 1996 and currency translation effects. Accrued Liabilities decreased mainly due to the effects of the Mobil-BP alliance and a payment related to Mobil's pipeline investment in Kazakhstan, partly offset by reserves for restructurings in Japan. Additionally, Income, Excise, State Gasoline and Other Taxes Payable were lower, primarily reflecting the effects of equity accounting for the Mobil-BP alliance and currency translation. At year-end 1997, the total DEBT of Mobil and its consolidated subsidiaries was $6,664 million, a decrease of $1,211 million from the prior year. The reduction from 1996 reflects lower debt levels resulting from strong earnings, the continued sale of noncore assets, reduced working capital requirements and currency effects, partly offset by the impact of net share repurchases. Mobil's year-end debt-to-capitalization ratio was 25%, down from 29% at year-end 1996. Mobil continues to have ready access to global financial markets, providing flexibility to take advantage of growth opportunities and low borrowing costs. At year-end 1997, Mobil had effective shelf registration statements on file with the Securities and Exchange Commission (SEC) that would permit the offer and sale of an aggregate of $1,815 million of debt securities pursuant to Rule 415 of the Securities Act of 1933. Also in place were a Euro-Medium-Term-Note program to facilitate the offering and sale outside the U.S. of an additional $2 billion of debt securities in 1998 or later years and a facility allowing the issuance in Japan of bonds having a principal amount of 30 billion Japanese yen. Accrued Restoration, Removal and Environmental Costs declined due to the effects of equity accounting for Mobil's California heavy-oil alliance with Shell and the sale of certain properties in the Gulf of Mexico. In October 1997, Mobil contributed assets with an aggregate fair value of $622 million to Mobil Oil & Gas Associates LLC for an interest of 67%. The remaining 33 percent was purchased by an unrelated investor. The net result of this transaction was to increase Minority Interest in Subsidiary Companies by $300 million. Total SHAREHOLDERS' EQUITY rose $389 million (see Commentary on Consolidated Statement of Changes in Shareholders' Equity on page 32). [Bar Charts - Page 34] TOTAL DEBT (Millions of dollars) 97 96 95 International & U.S. 6,664 7,875 6,756 DEBT DECREASED SIGNIFICANTLY DUE TO THIS YEAR'S STRONG EARNINGS AND CONTINUED ASSET SALES. RETURN ON AVERAGE CAPITAL EMPLOYED (In percent) 97 13.4 96 12.7 95 10.9 RETURN ON AVERAGE CAPITAL EMPLOYED CONTINUED TO RISE, REFLECTING MOBIL'S FOCUS ON GROWTH AND STRENGTHENING ITS ASSET BASE. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET At December 31 (In millions) 1996 1997 - -------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 808 $ 820 Accounts and notes receivable 8,192 5,952 Inventories 3,017 2,156 Prepaid expenses and other current assets 627 623 Deferred income taxes 251 171 - -------------------------------------------------------------------------------------------- Total Current Assets 12,895 9,722 - -------------------------------------------------------------------------------------------- Investments and Long-term Receivables 5,078 8,479 Net Properties, Plants and Equipment 27,479 24,556 Deferred Charges and Other Assets 956 802 - -------------------------------------------------------------------------------------------- TOTAL ASSETS $ 46,408 $ 43,559 - -------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term debt $ 3,425 $ 2,994 Accounts payable 5,935 4,418 Accrued liabilities 2,968 2,794 Income, excise, state gasoline and other taxes payable 2,615 1,906 Deferred income taxes 305 309 - -------------------------------------------------------------------------------------------- Total Current Liabilities 15,248 12,421 - -------------------------------------------------------------------------------------------- Long-term Debt 4,450 3,670 Reserves for Employee Benefits 1,681 1,745 Accrued Restoration, Removal and Environmental Costs 1,240 1,072 Deferred Credits and Other Noncurrent Obligations 1,255 1,274 Deferred Income Taxes 3,416 3,535 Minority Interest in Subsidiary Companies 46 381 - -------------------------------------------------------------------------------------------- Total Liabilities 27,336 24,098 - -------------------------------------------------------------------------------------------- Shareholders' Equity(1) Preferred stock (ESOP-related)--shares issued and outstanding: 1996-176,336; 1997-171,093 686 665 Unearned employee compensation (ESOP-related) (365) (329) Common stock--shares issued: 1996-891,075,610; 1997-894,308,872 891 894 Capital surplus 1,468 1,549 Earnings retained in the business 19,108 20,661 Cumulative foreign exchange translation adjustment (73) (821) Common stock held in treasury, at cost--shares: 1996-103,486,700; 1997-110,945,100 (2,643) (3,158) - -------------------------------------------------------------------------------------------- Total Shareholders' Equity 19,072 19,461 - -------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 46,408 $ 43,559 - -------------------------------------------------------------------------------------------- (1) Share amounts reflect the two-for-one stock split in 1997. See Notes to Financial Statements on pages 40-53.
MANAGEMENT DISCUSSION AND ANALYSIS COMMENTARY ON CONSOLIDATED STATEMENT OF CASH FLOWS The Statement of Cash Flows reports movements in cash balances from year to year and summarizes the cash provided and used during the year for operating, investing and financing activities. The impact of changes in foreign currency translation rates has been removed from the amounts reported in this statement. Therefore, except for Cash and Cash Equivalents, these amounts do not agree with the differences that would be derived from the changes in Balance Sheet amounts. During 1997, Net Cash from Operating Activities exceeded Net Cash Used in Investing Activities and Cash Dividends by $863 million. - -------------------------------------------------------------------------------- CASH REQUIREMENTS--OPERATING ACTIVITIES OVER (UNDER) INVESTING(1) - -------------------------------------------------------------------------------- Year ended December 31 (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------- Net cash from operating activities $ 4,988 $ 6,399 $ 6,977 Net cash used in investing activities (2,462) (5,200) (4,395) Cash dividends (1,490) (1,601) (1,719) - -------------------------------------------------------------------------------- Excess (shortfall) of cash requirements $ 1,036 $ (402) $ 863 - -------------------------------------------------------------------------------- (1) Prior year data restated to conform with current year presentation. NET CASH FROM OPERATING ACTIVITIES increased by $578 million from 1996. Net Cash from Operating Activities is derived by adjusting reported Net Income for charges or credits that have no cash effect (primarily Depreciation, Depletion and Amortization, and Deferred Income Taxes) and cash items reported elsewhere in this Statement (primarily Exploration Expenses). NET CASH USED IN INVESTING ACTIVITIES decreased by $805 million from 1996, reflecting last year's higher level of expenditures for the acquisitions of Ampolex and an interest in the Tengiz field in Kazakhstan, partly offset by a lower level of proceeds from asset sales in 1997. NET CASH USED IN FINANCING ACTIVITIES in 1997 was $2,548 million versus $908 million used in financing activities in 1996. The variance reflects the absence of financing associated with last year's two major acquisitions of Ampolex and an interest in the Tengiz field, together with strong operating cash flow that enabled debt repayment.
- ---------------------------------------------------------------------------------------------- INVESTMENT SPENDING - ---------------------------------------------------------------------------------------------- Year ended December 31 (In millions) 1995 1996 1997 - ---------------------------------------------------------------------------------------------- Petroleum Operations Exploration & Producing -- U.S. $ 758 $ 480 $ 427 -- International 1,489 3,434(1) 2,461 Marketing & Refining -- U.S. 484 403 357 -- International 808 1,151 571 Chemical -- U.S. 165 301 288 -- International 55 38 35 Corporate and Other 82 42 51 - ---------------------------------------------------------------------------------------------- Total Capital Expenditures $3,841 $5,849 $4,190 - ---------------------------------------------------------------------------------------------- Exploration Expenses -- U.S. 72 76 76 -- International 355 436 423 - ---------------------------------------------------------------------------------------------- Total Exploration Expenses 427 512 499 - ---------------------------------------------------------------------------------------------- Total Capital Expenditures and Exploration Expenses $4,268 $6,361 $4,689 - ---------------------------------------------------------------------------------------------- Cash Investments in Equity Companies 257 658 617 - ---------------------------------------------------------------------------------------------- Total Investment Spending $4,525 $7,019 $5,306 - ---------------------------------------------------------------------------------------------- (1) Includes $1,394 million for the acquisition of Ampolex
At year-end 1997, the unspent balance of total appropriations for capital expenditures was $4.8 billion. Mobil has large unspent balances of total appropriations for capital expenditures at the end of each year.The company is not contractually committed to spend all of these appropriations but generally expects to do so over the next several years. [Bar Charts - Page 36] ASSET SALES PROCEEDS (Millions of dollars) 97 1,050 96 1,759 95 2,034 MOBIL SELLS ASSETS THAT DO NOT FIT LONG-TERM STRATEGIES OR ARE WORTH MORE TO OTHERS. PROCEEDS HAVE TOTALED $4.8 BILLION OVER THE PAST THREE YEARS. INVESTMENT SPENDING (Millions of dollars) Capital Expeditures, 97 96 95 Exploration Expenses & Equity Investment 5,306 7,019 4,525 INVESTMENT SPENDING WAS LOWER IN 1997, PRIMARILY REFLECTING THE ABSENCE OF THE 1996 ACQUISITIONS OF AMPOLEX AND TENGIZ. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31 (In millions) 1995 1996 1997 - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 2,376 $ 2,964 $ 3,272 Adjustments to reconcile to net cash from operating activities Depreciation, depletion and amortization 3,748 2,725 2,554 Deferred income taxes (233) 446 404 Earnings (greater) less than distributions from equity affiliates (51) 153 (59) Exploration expenses (includes noncash charges: 1995-$26; 1996-$36; 1997-$30) 427 512 499 Gain on sales of properties, plants and equipment and other assets (1,041) (423) (389) (Increase) decrease in working capital items (detailed below) (388) (290) 475 Other, net(1) 150 312 221 - ----------------------------------------------------------------------------------------------------- Net Cash from Operating Activities 4,988 6,399 6,977 - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital and exploration expenditures (4,268) (4,967) (4,689) Acquisition of Ampolex Limited, net of $47 cash acquired -- (1,347) -- Proceeds from sales of properties, plants and equipment and other assets 2,034 1,759 1,050 Payments attributable to investments and long-term receivables (228) (645)(2) (756)(2) - ----------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (2,462) (5,200) (4,395) - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends (1,490) (1,601) (1,719) Proceeds from borrowings having original terms greater than three months 1,739 1,494 923 Repayments of borrowings having original terms greater than three months (1,594) (1,215) (1,772) (Decrease) increase in other borrowings (991) 667 112 Increase (decrease) in minority interest(1) 36 (47) 339 Proceeds from issuance of common stock 74 75 84 Purchase of common stock for treasury (289) (281) (515) - ----------------------------------------------------------------------------------------------------- Net Cash Used in Financing Activities (2,515) (908) (2,548) - ----------------------------------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash and Cash Equivalents(3) (44) 19 (22) - ----------------------------------------------------------------------------------------------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (33) 310 12 Cash and Cash Equivalents--Beginning of Year 531 498 808 - ----------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS--END OF YEAR $ 498 $ 808 $ 820 - ----------------------------------------------------------------------------------------------------- (1) Prior year data restated to conform with current year presentation. (2) Includes the cash expenditure for the acquisition of a 25% interest in a joint venture that owns the Tengiz field. (3) Cash equivalents are liquid investments convertible to cash and have original maturities of three months or less.
- -------------------------------------------------------------------------------------------- CHANGES IN WORKING CAPITAL ITEMS Decrease (Increase) - -------------------------------------------------------------------------------------------- Accounts and notes receivable $ (994) $(1,199) $ 834 Inventories (66) 91 (17) Prepaid expenses and other current assets (22) 24 (69) Accounts payable 477 836 (307) Accrued liabilities 83 (19) 334 Income, excise, state gasoline and other taxes payable 134 (23) (300) - -------------------------------------------------------------------------------------------- (Increase) Decrease in Working Capital Items $ (388) $ (290) $ 475 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- MEMO ITEMS - -------------------------------------------------------------------------------------------- Cash income taxes paid $ 2,091 $ 2,416 $ 2,687 Cash interest paid 556 458 528 - -------------------------------------------------------------------------------------------- See Notes to Financial Statements on pages 40-53.
CONSOLIDATED FINANCIAL STATEMENTS SEGMENT AND GEOGRAPHIC INFORMATION Year ended December 31 (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------- REVENUES BY SEGMENT Petroleum Operations Exploration & Producing - Third Party $ 7,028 $ 8,055 $ 7,381 - Intersegment 4,053 4,786 4,459 Marketing & Refining - Third Party 61,376 69,931 55,007 - Intersegment 986 865 864 Chemical - Third Party 6,155 3,023 3,251 - Intersegment 235 257 282 Corporate and Other 811 494 267 Intersegment Elimination (5,274) (5,908) (5,605) - -------------------------------------------------------------------------------- Total Revenues $ 75,370 $ 81,503 $ 65,906 - -------------------------------------------------------------------------------- REVENUES BY GEOGRAPHIC AREA United States - Third Party $ 25,598 $ 27,447 $ 28,563 - Intersegment 537 461 533 Europe - Third Party 23,676 25,414 7,684 - Intersegment 899 1,478 1,423 Asia-Pacific - Third Party 17,160 17,690 17,075 - Intersegment 796 675 654 Other Areas(1) - Third Party 8,125 10,458 12,317 - Intersegment 5,574 5,657 4,002 Corporate and Other 811 494 267 Intergeographic Elimination (7,806) (8,271) (6,612) - -------------------------------------------------------------------------------- Total Revenues $ 75,370 $ 81,503 $ 65,906 - -------------------------------------------------------------------------------- At December 31 (In millions) - -------------------------------------------------------------------------------- IDENTIFIABLE ASSETS BY SEGMENT Petroleum Operations Exploration & Producing $ 14,393 $ 18,279 $ 18,840 Marketing & Refining 22,463 23,592 20,284 Chemical 3,212 2,987 3,111 Corporate and Other 2,510 2,042 1,791 Adjustments (440) (492) (467) - -------------------------------------------------------------------------------- Total Assets $ 42,138 $ 46,408 $ 43,559 - -------------------------------------------------------------------------------- IDENTIFIABLE ASSETS BY GEOGRAPHIC AREA United States $ 14,268 $ 13,726 $ 13,161 Europe 9,920 10,049 8,033 Asia-Pacific 8,778 11,316 10,020 Other Areas(1) 7,312 9,965 11,106 Corporate and Other 2,510 2,042 1,791 Adjustments (650) (690) (552) - -------------------------------------------------------------------------------- Total Assets $ 42,138 $ 46,408 $ 43,559 - -------------------------------------------------------------------------------- (1) Includes principally West Africa, Saudi Arabia, Canada and Kazakhstan. The distribution of Mobil's operations by business segment and geographic area is presented above. Petroleum Operations consist of exploration, producing, marketing and refining. Exploration & Producing explores for, develops and produces crude oil and natural gas, and extracts natural gas liquids, sulfur and carbon dioxide. Marketing & Refining is responsible for petroleum refining operations and the marketing of all refined petroleum products. Chemical manufactures and sells various petroleum-based chemical products. Corporate and Other includes the operations of Real Estate and Mining and Minerals (substantially all of these businesses were sold in 1996), corporate administrative expenses and other items. CONSOLIDATED FINANCIAL STATEMENTS
SEGMENT AND GEOGRAPHIC INFORMATION (concluded) Year ended December 31 (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------------- EARNINGS BY SEGMENT Pretax Operating Profits Petroleum Operations Exploration & Producing $ 2,410 $ 5,075 $ 4,997 Marketing & Refining 894 1,338 1,569 Chemical 1,551 342 493 - -------------------------------------------------------------------------------------- Total Pretax Operating Profits 4,855 6,755 7,059 Income Taxes (2,173) (3,427) (3,419) - -------------------------------------------------------------------------------------- Segment Earnings 2,682 3,328 3,640 Corporate and Financing (Net of income taxes) (306) (364) (368) - -------------------------------------------------------------------------------------- Net Income $ 2,376 $ 2,964 $ 3,272 - -------------------------------------------------------------------------------------- EARNINGS BY GEOGRAPHIC AREA (Net of income taxes) United States $ 827 $ 1,293 $ 1,471 Europe 323 357 633 Asia-Pacific 1,193 1,096 923 Other Areas(1) 339 582 613 - -------------------------------------------------------------------------------------- Geographic Earnings 2,682 3,328 3,640 Corporate and Financing (306) (364) (368) - -------------------------------------------------------------------------------------- Net Income $ 2,376 $ 2,964 $ 3,272 - -------------------------------------------------------------------------------------- CAPITAL EXPENDITURES BY SEGMENT Petroleum Operations Exploration & Producing $ 2,247 $ 3,914 $ 2,888 Marketing & Refining 1,292 1,554 928 Chemical 220 339 323 - -------------------------------------------------------------------------------------- Segment Capital Expenditures 3,759 5,807 4,139 Corporate and Other 82 42 51 - -------------------------------------------------------------------------------------- Total Capital Expenditures $ 3,841 $ 5,849 $ 4,190 - -------------------------------------------------------------------------------------- DEPRECIATION, DEPLETION AND AMORTIZATION BY SEGMENT Petroleum Operations Exploration & Producing $ 2,230 $ 1,596 $ 1,557 Marketing & Refining 1,168 966 835 Chemical 290 126 141 - -------------------------------------------------------------------------------------- Segment Depreciation, Depletion and Amortization 3,688 2,688 2,533 Corporate and Other 60 37 21 - -------------------------------------------------------------------------------------- Total Depreciation, Depletion and Amortization $ 3,748 $ 2,725 $ 2,554 - -------------------------------------------------------------------------------------- (1) Includes principally West Africa, Saudi Arabia, Canada and Kazakhstan.
Mobil's share of the net income of companies accounted for on the equity method are included in Revenues. Financial information on these affiliates is presented in Note 5 on page 44. Intersegment and intergeographic revenues are sales to other business or geographic segments within Mobil and are at estimated market prices. These intercompany transactions are eliminated for consolidation purposes. Income taxes are allocated to segments and geographic areas on the basis of operating results. BENEFITS FROM THE MOBIL-BP ALLIANCE CONTRIBUTED TO HIGHER EARNINGS IN EUROPE. NOTES TO FINANCIAL STATEMENTS 1. MAJOR ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of all companies owned more than 50% and controlled. Significant investments in affiliated companies owned 50% or less, or where Mobil does not have control, are accounted for on the equity basis. Investments in other companies in which Mobil owns less than a majority interest are stated at cost less applicable reserves. Investments that represent direct interests in the assets, liabilities and operations of ventures are reported as Mobil's share of each account in the venture. Intercompany transactions are eliminated. USE OF ESTIMATES The financial statements, which are prepared in conformity with generally accepted accounting principles, include amounts that are based, in part, on management's best estimates and judgments. INVENTORIES Substantially all crude oil and product inventories are valued at cost under the last-in, first-out (LIFO) method. Other inventories, primarily materials and supplies, are valued generally at average cost. OIL AND GAS ACCOUNTING Mobil follows the successful efforts method of accounting for oil and gas exploration and producing activities. Under this method, direct acquisition costs of unproved mineral rights are capitalized and then amortized as described below. Payments made in lieu of drilling on nonproducing leaseholds are charged to expense currently. Geological and geophysical costs are charged to expense as incurred. Costs of all development wells and of exploratory wells that result in additions to proved reserves are capitalized. DEPRECIATION, DEPLETION AND AMORTIZATION Annual charges to income for depreciation are computed on a straight-line basis over the useful lives of the assets. Costs of producing properties are generally accumulated by field. Depletion of these costs and amortization of capitalized, intangible drilling costs are calculated on a unit-of-production basis. Capitalized acquisition costs of significant unproved mineral rights are assessed periodically on a property-by-property basis to determine whether their values have been impaired; where impairment is indicated, a loss is recognized. Capitalized acquisition costs of other unproved mineral rights are amortized over the expected holding period. When a mineral right is surrendered, any unamortized cost is charged to expense. When a property is determined to contain proved reserves, the mineral right then becomes subject to depletion on a unit-of-production basis. When assets that are part of a composite group are retired, sold, abandoned or otherwise disposed of, the cost is charged against accumulated depreciation, depletion and amortization. Where depreciation is accumulated for specific assets, gains or losses on disposal are included in income currently. RESTORATION, REMOVAL AND ENVIRONMENTAL LIABILITIES The estimated costs of restoration and removal of major producing facilities are accrued on a unit-of-production basis over the life of the property. The estimated future costs for known environmental remediation requirements are accrued when it is probable that a liability has been incurred and the amount of remediation costs can be reasonably estimated. These amounts are the undiscounted, future estimated costs under existing regulatory requirements and using existing technology. DERIVATIVE FINANCIAL INSTRUMENTS Mobil uses derivative instruments primarily for purposes of hedging its exposure to fluctuations in interest rates, foreign currency exchange rates and hydrocarbon prices. Gains and losses on hedging contracts are recognized concurrent with the recognition of the economic impact of the underlying exposures using either the accrual or deferral method of accounting. To a lesser extent, Mobil uses derivative commodity instruments, including swaps, futures, forwards and options, for trading purposes. Gains and losses on these trading contracts are recognized immediately in earnings. The accrual method is used for interest rate swaps, cross-currency interest rate swaps and commodity swaps. In order to qualify for the accrual method, the derivative must be designated and effective as a hedge. Under the accrual method, differentials in the swapped amounts are recorded as adjustments of the underlying periodic cash flows that are being hedged. Gains and losses on closed contracts are accrued and amortized over the original life of the terminated contract. In the event the hedged item matures, is sold, or is terminated or the anticipated transaction is no longer expected to occur, the realized NOTES TO FINANCIAL STATEMENTS 1. MAJOR ACCOUNTING POLICIES (concluded) DERIVATIVE FINANCIAL INSTRUMENTS (concluded) and unrealized gains and losses are recognized in income coincidental with the transaction, and the derivative would be redesignated as trading. Interest differentials paid or received on interest rate swaps and cross-currency interest rate swaps are reported as accrued interest receivable or payable, and interest expense is recognized over the life of the contracts using the adjusted effective yield of the underlying debt. Price differentials paid or received on commodity swaps are accrued and are recognized when the price exposure on the physical movement ends and is recorded in Sales and Services or in Crude Oil, Products and Operating Supplies and Expenses. Cash flow from derivative instruments that qualify for hedge accounting is included in the same category for cash flow purposes as the item being hedged. The deferral method is used for futures exchange contracts, forward contracts, commodity swaps and covered options. In order to qualify for deferral accounting, derivatives must be designated and effective as a hedge. Premiums or discounts are amortized over the life of the contract for interest rate and foreign exchange contracts and are recognized when realized for commodity instruments. Gains and losses resulting from changes in value of derivative instruments are deferred and recognized in the same period as the gains and losses of the items being hedged. Gains and losses on closed contracts are deferred and recognized when the underlying transaction occurs or the hedged item is recognized in earnings. In the event the hedged item matures, is sold, or is terminated or the anticipated transaction is no longer expected to occur, the realized and unrealized gains and losses are recognized in income coincidental with the transaction, and the derivative would be redesignated as trading. Gains and losses on contracts related to debt principal and current interest are recorded in interest expense; gains and losses related to future period interest, firm commitments and forecasted transactions are deferred and are recognized in the measurement of the future period interest, firm commitments or forecasted transactions; and gains or losses on contracts that hedge the foreign currency exchange rate risk of net investments are recorded in the Cumulative Foreing Exchange Translation Adjustment account in Shareholders' Equity, net of related taxes. Cash flows from derivative instruments that qualify for hedge accounting are included in the same category for cash flow purposes as the item being hedged. For options, the portion of the premium related to time value is amortized over the life of the option, and intrinsic value is recognized in income concurrent with the underlying item being hedged. In all portfolios, the options are carried at fair value with gains and losses recognized in earnings. FOREIGN CURRENCY TRANSLATION The functional currency for most foreign operations is the local currency. The cumulative effects of translating the balance sheet accounts from the functional currency into the U.S. dollar at current exchange rates are included in the Cumulative Foreign Exchange Translation Adjustment account in Shareholders' Equity. The U.S. dollar is used as the functional currency for operations in highly inflationary foreign economies, in Singapore which is predominantly export-oriented and for exploration and producing operations in Indonesia, Nigeria and Australia. For all operations, gains or losses from remeasuring foreign currency transactions into the functional currency are included in income. NET INCOME PER SHARE Net Income per common share is net income less preferred stock dividends divided by the weighted average number of common shares outstanding. Net Income per common share assuming dilution includes the dilutive effects of stock options and convertible preferred stock. 2. ALLIANCES AND RESTRUCTURINGS ALLIANCE WITH SHELL In 1997, Mobil Exploration and Producing U.S. Inc., a subsidiary of Mobil Corporation, and CalResources LLC, an affiliate of Shell Oil Company, formed a joint venture to combine the California upstream operations of both companies. The combined enterprise began operating under the name Aera Energy LLC on June 1, 1997. Aera Energy commenced operations with proved reserves of more than one billion barrels of oil equivalent and production of approximately 250 thousand barrels of oil equivalent per day. Shell has a 58.6% equity interest in the venture, with Mobil owning the remaining 41.4% interest. The venture is accounted for on the equity method. NOTES TO FINANCIAL STATEMENTS 2. ALLIANCES AND RESTRUCTURINGS (continued) ALLIANCE WITH BP During 1997 Mobil substantially completed its alliance with The British Petroleum Company p.l.c. (BP), combining the two companies' European refining and marketing operations for fuels and lubricants. The alliance was implemented through separate operating businesses for fuels and for lubricants in each of the countries where Mobil and BP affiliates were already active or where they might develop future business. The 43 countries covered by the alliance include the 15 European Union nations, together with Switzerland, Turkey, Cyprus, all of the countries of Eastern Europe and Russia west of the Urals. In each country, Mobil has a 30% interest in the fuels business and a 51% interest in the lubricants business. Employees and management teams of the two companies were realigned so that BP manages and operates the fuels businesses and Mobil manages and operates the lubricants businesses. Commercial and financial strategy for the alliance is coordinated by a committee with an equal number of representatives from each company. Accounting for the businesses is on the equity method. The implementation of the alliance will result in work-force reductions of about 1,000 Mobil employees, the rationalization of certain marketing assets and the closure of surplus facilities when completed in 1998. In 1996, Mobil recorded restructuring charges of $184 million primarily for employee separation costs and facilities closure costs. As of December 31, 1997, cumulative charges against the reserve totaled $137 million (including $86 million cash). Additionally $81million of one-time charges were incurred in 1997, primarily for reimaging of retail outlets and for systems implementation. An additional $59 million is expected to be spent in 1998 for reimaging and systems implementation costs. Additionally, in 1997, the alliance commenced a major restructuring of its lubricant base oil refining business. The program is expected to result in the elimination of approximately 460 positions and write-downs and closure of certain facilities and is expected to be completed by the end of 1999. Provisions for this program totaled $86 million and were charged to income in 1997. Cash outlays are expected to total $66 million, primarily for employee separation benefits. Noncash costs for facility write-downs and closures are expected to total $20 million. ALLIANCE WITH DUKE POWER (formerly PanEnergy) Mobil owns a 40% interest in Duke Energy Trading and Marketing (formerly PanEnergy), a natural gas marketing venture whereby Mobil processes its U.S. and Canadian equity natural gas with Duke for an initial period through 2006. The venture is accounted for on the equity method. VENEZUELA ALLIANCE In 1997, Mobil entered into a joint agreement with a subsidiary of Petroleos de Venezuela, SA (PDVSA) and an affiliate of Veba AG to produce, transport, upgrade and sell extra-heavy crude oil from the Orinoco Belt in Venezuela (upgraded crude oil venture). Under the terms of the agreement Mobil has a 41.7% interest in the venture. CHALMETTE ALLIANCE Mobil and a U.S. subsidiary of PDVSA signed an agreement in 1997 to form a jointly owned company, Chalmette Refining, L.L.C. Mobil contributed its Chalmette refinery for its interest in the company. That company will obtain a portion of the crude oil it requires for processing in its refinery from the Venezuela Alliance described directly above. Mobil uses the equity method of accounting for Chalmette Refining, L.L.C. OTHER RESTRUCTURINGS In 1997, Mobil initiated restructuring programs in Japan and Australia that will result in the elimination of approximately 300 and 100 positions, respectively, as well as the rationalization of certain assets. Provisions for these programs totaled $172 million and were charged to income in 1997 as the programs were announced. Cash outlays are expected to total $81 million, primarily for employee separation benefits. Noncash costs for facility closures or disposals are expected to total $91 million. During 1995 and 1996, Mobil implemented five major restructuring programs affecting worldwide staff support services, U.S. upstream and downstream businesses, and European refining and lubricant blending operations, resulting in the elimination of about 7,000 positions and the closure of certain facilities. Provisions for these and other smaller programs were charged to income as they were announced NOTES TO FINANCIAL STATEMENTS 2. ALLIANCES AND RESTRUCTURINGS (concluded) ($911 million in 1995 and $11 million in 1996). Of these amounts, $682 million was cash for employee separation benefits and $240 million was noncash for facilities write-downs. These programs were implemented over the past three years and were complete as of December 31, 1997. 3. ACQUISITIONS AND DISPOSITIONS In 1997, Mobil sold a substantial portion of its European Stretch Films business, Desert Mountain (the one remaining project from Mobil's land development business) and various other noncore assets, mainly upstream properties in the U.S. and Australia. Total proceeds from asset sales in 1997 were $1,050 million. In 1996, Mobil Exploration and Producing Australia Pty Ltd, an Australian subsidiary of Mobil, acquired Ampolex Limited (Ampolex), an Australian oil and natural gas company, for $1,394 million. This acquisition was recorded using the purchase accounting method for business combinations, with the purchase price being allocated to the assets acquired and liabilities assumed on the basis of estimated fair value. In 1996, Mobil acquired a 25% equity interest in a joint venture that owns the Tengiz oil field in the Republic of Kazakhstan. To date, Mobil has paid $746 million and has recorded its obligation for the remaining $355 million that is payable in installments, through the year 2000, upon reaching certain project milestones. Accounting for the venture is on the equity method. In 1995 and 1996 proceeds from asset sales totaled $2,034 million and $1,759 million, respectively. In 1995, Mobil Chemical sold its Plastics Division for $1.27 billion, generating a gain on sale of assets in excess of $500 million after tax. In 1996, asset sales included the land development business, certain chemical businesses, Exploration and Producing properties in North America and other noncore assets. Net pretax gains from asset sales are included on the line "Income from asset sales, interest and other" on the Consolidated Statement of Income (see page 33). These sales are part of Mobil's long-term strategy of redirecting its investments to its core petroleum and petrochemicals businesses. 4. INVENTORIES Inventories valued at cost under the LIFO method represented 58% and 55% of Mobil's worldwide consolidated inventories, at December 31, 1996 and 1997, respectively. - -------------------------------------------------------------------------------- INVENTORIES (In millions) - -------------------------------------------------------------------------------- At December 31 1996 1997 - -------------------------------------------------------------------------------- Crude oil and petroleum products $2,314 $1,535 Chemical products 260 253 Other, mainly materials and supplies 443 368 - -------------------------------------------------------------------------------- Total $3,017 $2,156 - -------------------------------------------------------------------------------- At December 31, 1996, the worldwide excess of market over book value of inventories valued under the LIFO method was $1,621 million. At December 31, 1997, the worldwide excess of market over book value of inventories valued under the LIFO method was $1,048 million ($936 million--U.S.; $28 million--Europe; $47 million--Asia-Pacific; and $37 million--Other Areas). The lower of cost or market test is measured, and the results are recognized separately, on a country-by-country basis, and any resulting write-downs to market, if required, would be recorded as permanent adjustments to the LIFO cost of inventories. NOTES TO FINANCIAL STATEMENTS 5. SUMMARY FINANCIAL INFORMATION OF UNCONSOLIDATED EQUITY AFFILIATES Summary financial information for affiliated companies accounted for on the equity method is shown in the table below. Mobil's investment in these companies is included in Investments and Long-term Receivables. The equity affiliates are primarily engaged in producing, refining and marketing in Europe, the Middle East, Kazakhstan, Japan and elsewhere in the Asia-Pacific region, North American gas marketing, heavy crude oil production and refining in the U.S. and petrochemical and lubes manufacturing in the Middle East. Also included are interests in several pipeline ventures. Undistributed earnings of the equity affiliates included in Earnings Retained in the Business were $783 million at December 31, 1997. Distributions received from these companies were $346 million in 1995, $432 million in 1996 and $637 million in 1997. Accounts and Notes Receivable in the Consolidated Balance Sheet include $359 million and $271 million at December 31, 1996 and 1997, respectively, of amounts due from equity affiliates. Accounts Payable include $609 million and $468 million at December 31, 1996 and 1997, respectively, of amounts due to equity affiliates.
- ------------------------------------------------------------------------------------------------ EQUITY METHOD AFFILIATES (In millions) 1995 1996 1997(1) - ------------------------------------------------------------------------------------------------ Total Mobil Share Total Mobil Share Total Mobil Share - ------------------------------------------------------------------------------------------------ Current assets $ 8,345 $ 2,678 $ 9,784 $ 3,237 $ 16,281 $ 5,626 Noncurrent assets 12,220 3,735 16,224 5,260 25,526 9,132 Current liabilities (8,027) (2,643) (9,817) (3,354) (15,580) (5,353) Long-term debt (2,520) (758) (4,455) (1,117) (6,193) (1,588) Other liabilities (2,122) (595) (2,064) (605) (3,028) (854) - ------------------------------------------------------------------------------------------------ Net assets $ 7,896 $ 2,417 $ 9,672 $ 3,421 $ 17,006 $ 6,963 - ------------------------------------------------------------------------------------------------ Gross revenues $ 31,324 $ 9,835 $ 32,296 $ 10,337 $ 72,725 $ 22,706 Income before taxes $ 1,360 $ 466 $ 1,307 $ 429 $ 2,319 $ 834 Net income 1,088 397 969 279 1,782 696 - ------------------------------------------------------------------------------------------------ Capital expenditures $ 1,650 $ 337 $ 2,044 $ 435 $ 3,842 $ 988 - ------------------------------------------------------------------------------------------------ (1) The increases in 1997 from 1996 reflect the impact of newly formed alliances.
6. PROPERTIES, PLANTS AND EQUIPMENT Properties, plants and equipment are stated at cost, less accumulated depreciation, depletion and amortization of $27,648 million at December 31, 1996, and $25,074 million at December 31, 1997.
- ----------------------------------------------------------------------------------------- Properties, plants and equipment (In millions) 1996 1997 - ----------------------------------------------------------------------------------------- At December 31 Net Gross Net Gross - ----------------------------------------------------------------------------------------- Petroleum Operations Exploration & Producing $14,000 $30,472 $13,810 $29,672 Marketing 5,213 8,030 4,155 6,225 Refining 5,251 10,545 3,624 7,764 Other Marketing & Refining Activities 1,003 2,583 899 2,358 Chemical 1,662 2,919 1,740 3,077 Corporate and Other 350 578 328 534 - ----------------------------------------------------------------------------------------- Total $27,479 $55,127 $24,556 $49,630 - -----------------------------------------------------------------------------------------
In the fourth quarter of 1995, Mobil adopted FAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, resulting in a before-tax, $774 million noncash charge to "Depreciation, depletion and amortization" on the Consolidated Statement of Income ($487 million after tax). The charge relates to impairment of upstream producing properties, primarily in the U.S. and Canada. The adoption of FAS 121 required that the company change to a policy of: (1) assessing all producing fields, without regard to the carrying value of a field, on a field-by-field basis; (2) using breakeven, based on undiscounted cash flows, for the recognition test, and (3) measuring impairment based on fair values rather than undiscounted breakeven values. NOTES TO FINANCIAL STATEMENTS 7. LEASES Mobil leases real estate, service stations, pipelines, tankers and other equipment through noncancelable capital and operating leases. - -------------------------------------------------------------------------------- RENTAL EXPENSE (In millions) - -------------------------------------------------------------------------------- Year ended December 31 1995 1996 1997 - -------------------------------------------------------------------------------- Minimum rentals $1,195 $1,260 $1,093 Contingent rentals 97 55 81 - -------------------------------------------------------------------------------- Total 1,292 1,315 1,174 Less: sublease rental income 187 188 137 - -------------------------------------------------------------------------------- Net rental expense $1,105 $1,127 $1,037 - -------------------------------------------------------------------------------- Contingent lease rentals for operating and capital leases are determined generally by volumetric measurement or sales revenue. Some rental agreements contain escalation provisions that may require higher, future rent payments. Mobil does not expect that such rent increases, if any, will have a material effect on future earnings. - -------------------------------------------------------------------------------- FUTURE MINIMUM LEASE PAYMENTS UNDER NONCANCELABLE LEASES (In millions) - -------------------------------------------------------------------------------- At December 31, 1997 Operating Leases Capital Lease Obligations - -------------------------------------------------------------------------------- 1998 $ 264 $ 81 1999 200 82 2000 156 21 2001 132 21 2002 122 21 Later years 1,365 290 - -------------------------------------------------------------------------------- Future minimum lease payments $2,239 $516 Less: executory costs 1 interest 180 - -------------------------------------------------------------------------------- Total capital lease obligations 335 Less: short-term portion of capital lease obligations 48 - -------------------------------------------------------------------------------- Long-term portion of capital lease obligations $287 - -------------------------------------------------------------------------------- Future minimum lease payments have not been reduced by future minimum sublease rentals of $63 million under operating leases. Capital leases included in Net Properties, Plants and Equipment were $243 million at December 31, 1996, and $301 million at December 31, 1997. 8. SHORT-TERM DEBT At December 31, 1997, Mobil had $645 million of unused short-term lines of credit supporting commercial paper borrowing arrangements. A total of $369 million of these unused lines is subject to annual commitment fees. Interest on borrowings under these lines is based on the London Interbank Offered Rate, the Domestic Certificate of Deposit Rate or a specified prime rate, as selected from time to time by Mobil.
- ----------------------------------------------------------------------------------------------- SHORT-TERM DEBT (In millions) 1996 1997 - ----------------------------------------------------------------------------------------------- At December 31 Amount Interest Rate(1) AMOUNT INTEREST RATE(1) - ----------------------------------------------------------------------------------------------- Notes and loans payable Commercial paper $1,634 5 7/8% $1,097 5 7/8% Banks and Other 894 6 5/8% 1,168 7 1/8% - ----------------------------------------------------------------------------------------------- Total notes and loans payable 2,528 2,265 Long-term debt maturing within one year 897 729 Total short-term debt $3,425 $2,994 - ----------------------------------------------------------------------------------------------- (1) Percentages shown in the table are weighted average interest rates at the end of the year.
NOTES TO FINANCIAL STATEMENTS OUR DEBT-TO-CAPITALIZATION RATIO OF 25% PROVIDES FINANCIAL FLEXIBILITY TO INCREASE INVESTMENT SPENDING, TO INCREASE DIVIDENDS AND/OR TO REPURCHASE STOCK. 9. LONG-TERM DEBT The table below summarizes Mobil's consolidated Long-term Debt. A significant portion of this debt is issued by subsidiaries and is guaranteed by Mobil. At year-end 1997, Mobil had shelf registrations on file with the SEC that would permit the offer and sale of $1,815 million of debt securities. Additionally, at December 31, 1997, the ESOP Trust had a shelf registration on file with the SEC permitting the offer and sale of $115 million of debt securities, guaranteed by Mobil. Subsequent to year-end, the ESOP Trust issued $45 million principal amount of fixed-rate notes, with the proceeds used to fund a portion of the scheduled principal and interest payments on its existing indebtedness. The proceeds of any additional debt securities issued by the ESOP Trust would similarly be used to refund its existing indebtedness. Also at year-end 1997, shelf registrations allowing the issuance of U.S. $2 billion of Euro-Medium-Term Notes and bonds having a principal amount of 30 billion Japanese yen were in place. Long-term debt that becomes due during the next five years is: 1998-$729 million; 1999-$859 million; 2000-$400 million; 2001-$385 million; and 2002-$98 million. - -------------------------------------------------------------------------------- LONG-TERM DEBT (In millions) - -------------------------------------------------------------------------------- At December 31 1996 1997 - -------------------------------------------------------------------------------- 6 1/2% notes due 1997 $ 148 $ -- 6 3/8 notes due 1998 200 200 7 1/4% notes due 1999(1) 162 148(2) 8 5/8% notes due 2006 250 250 7 5/8% debentures due 2033(1) 240 216(2) 8% debentures due 2032(1) 250 164(2) 8 1/8% Canadian dollar Eurobonds due 1998 111 111 (swapped into 6.8% U.S. $ debt) 8 3/8% notes due 2001(1) 200 180(2) 8 5/8% debentures due 2021(1) 250 250 9% Canadian dollar Eurobonds due 1997 110 -- (swapped into 7.0% U.S. $ debt) 9% European Currency Unit Eurobonds due 1997 148 -- (swapped into 7.0% U.S. $ debt) 9 5/8% U.K. sterling Eurobonds due 1999 187 182 Variable rate notes due 1999 (6.8%)(3) 110 -- Japanese yen loans due 2003-2005 (2.6%)(1) (3) 388 347 ESOP Trust debentures/notes due 2000-2004 (8.3%)(1)(3) 525 497 Variable rate project financing due 1998 (6.6%)(3) 105 52 Industrial revenue bonds due 1998-2030 (5.5%)(1)(3) 491 484 Other foreign currencies due 1997-2030 (5.8%)(1)(3) 1,090 764 Other due 1997-2008 (7.0%)(3) 135 219 Capital lease obligations 247 335 - -------------------------------------------------------------------------------- Total 5,347 4,399 Less: long-term debt maturing within one year 897 729 - -------------------------------------------------------------------------------- Total long-term debt $4,450 $3,670 - -------------------------------------------------------------------------------- (1) Swapped principally into floating rate debt. (2) Net of repurchases. (3) The percentages shown in parentheses in the table are weighted average interest rates at December 31, 1997. NOTES TO FINANCIAL STATEMENTS 10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Mobil uses derivative financial instruments to manage risks resulting from fluctuations in underlying interest rates, foreign currency exchange rates and hydrocarbon prices. Because Mobil operates in the international oil and gas markets and has significant financing requirements, it has exposure to these risks, which can affect the cost of operating, investing and financing. Derivative instruments creating essentially equal and offsetting market exposures are used to help manage these risks. Derivative financial instruments held by Mobil are not leveraged and are principally held for purposes other than trading. For additional information regarding Mobil's risk management activities, please refer to Management's Discussion and Analysis on page 28. The notional principal amounts of derivative financial instruments at December 31, are as follows: At December 31 (In millions) 1996 1997 - -------------------------------------------------------------------------------- Debt-related instruments $ 4,053 $4,444 Nondebt-related foreign currency exchange rate instruments 10,075 9,706 Commodity financial instruments requiring cash settlement 1,404 2,438 - -------------------------------------------------------------------------------- The fair value of Mobil's debt portfolio was $7,825 million ($7,784 million debt plus $41 million derivatives) at December 31, 1996 and $6,464 million ($6,524 million debt less $60 million derivatives) at December 31, 1997. These fair values were greater than the carrying values by $106 million and $166 million at December 31, 1996 and 1997, respectively. This change was due to a small decrease in long-term interest rates. The fair value of all other financial instruments approximated their carrying value. In addition to creating market risks that offset the risks associated with the underlying business exposures, derivative instruments also give rise to credit risk due to possible nonperformance by counter-parties. However, through its ongoing control procedures, Mobil monitors the creditworthiness of its counter-parties and its existing exposures to them under the derivative instruments. Any potential loss due to credit risk is not expected to be material. NOTES TO FINANCIAL STATEMENTS 11. TAXES
- ------------------------------------------------------------------------------------------------------------------------------------ TOTAL TAXES (In millions) 1995 1996 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Year ended December 31 U.S. Foreign Total U.S. Foreign Total U.S. FOREIGN TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ Excise and state gasoline $ 3,972 $ 4,674 $ 8,646 $ 4,207 $ 5,029 $ 9,236 $ 4,458 $ 1,470 $ 5,928 Import duties -- 9,657 9,657 -- 9,130 9,130 -- 4,027 4,027 Property, production, payroll and other 427 289 716 385 272 657 347 204 551 - ------------------------------------------------------------------------------------------------------------------------------------ Total other than income taxes 4,399 14,620 19,019 4,592 14,431 19,023 4,805 5,701(1) 10,506 Income taxes U.S. state and local 113 -- 113 63 -- 63 45 -- 45 U.S. federal and foreign -current 336 1,799 2,135 217 2,421 2,638 208 2,436 2,644 -deferred (140) (93) (233) 163 283 446 250 154 404 - ------------------------------------------------------------------------------------------------------------------------------------ Total income taxes 309 1,706 2,015 443 2,704 3,147 503 2,590 3,093 Total taxes $ 4,708 $ 16,326 $ 21,034 $ 5,035 $ 17,135 $ 22,170 $ 5,308 $ 8,291 $ 13,599 - ------------------------------------------------------------------------------------------------------------------------------------ (1) The change in 1997 from 1996 primarily reflects the impact of equity accounting for Mobil's European downstream alliance with BP.
Income from U.S. operations before income taxes was $1,261 million in 1995, $1,939 million in 1996 and $2,187 million in 1997. Income from foreign operations before income taxes for the same three years was $3,594 million, $4,816 million and $4,872 million, respectively. The loss from Corporate and Financing before income taxes for the same three years was $464 million, $644 million and $694 million, respectively. Deferred income taxes are provided for the temporary differences between the financial statement and tax bases of Mobil's assets and liabilities, and relate primarily to depreciation, intangible drilling costs, and provisions for restoration, removal and environmental costs, and employee benefits. Mobil does not provide deferred taxes for amounts that could result from the remittance of undistributed earnings of foreign affiliates since it is generally Mobil's intention to continue reinvesting these earnings indefinitely. Mobil's share of the undistributed earnings of consolidated subsidiaries and equity method affiliates, which could be subject to additional income taxes if remitted, was approximately $3.6 billion at December 31, 1997. If such dividends were to be remitted, foreign tax credits available under present law would reduce the amount of U.S. taxes payable. - -------------------------------------------------------------------------------- DEFERRED TAXES (In millions) - -------------------------------------------------------------------------------- At December 31 1996 1997 - -------------------------------------------------------------------------------- Deferred tax liabilities Depreciation, depletion and amortization $4,034 $3,946 Other 1,287 1,337 - -------------------------------------------------------------------------------- Total deferred tax liabilities 5,321 5,283 - -------------------------------------------------------------------------------- Deferred tax assets Book reserves 1,442 1,544 Tax credits available for carry-forward (primarily without expiration) 827 693 - -------------------------------------------------------------------------------- Total deferred tax assets 2,269 2,237 Valuation allowance (418) (627) Net deferred tax liabilities $3,470 $3,673 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS 11. TAXES (concluded)
- -------------------------------------------------------------------------------------------- RECONCILIATION OF U.S. STATUTORY RATE TO ACTUAL TAX RATE (In millions) 1995 1996 1997 - -------------------------------------------------------------------------------------------- Year ended December 31 Amount % Amount % Amount % - -------------------------------------------------------------------------------------------- Income before taxes $ 4,391 100.0 $ 6,111 100.0 $ 6,365 100.0 Theoretical tax at U.S. rate 1,537 35.0 2,139 35.0 2,228 35.0 Foreign taxes in excess of U.S. statutory rate 611 13.9 1,108 18.1 1,151 18.1 Other items, net (133) (3.0) (100) (1.6) (286) (4.5) - -------------------------------------------------------------------------------------------- Total income taxes $ 2,015 45.9 $ 3,147 51.5 $ 3,093 48.6 - --------------------------------------------------------------------------------------------
12. RESTORATION, REMOVAL AND ENVIRONMENTAL LIABILITIES Exploration and producing properties must generally be restored to their original condition when the oil or gas reserves are depleted and/or operations cease. At December 31, 1996 and 1997, $864 million and $780 million, respectively, had been accrued for restoration and removal costs, mainly related to offshore producing facilities. The decrease in 1997 from 1996 reflects the impact of equity accounting for the heavy-oil alliance with Shell in the United States. Mobil accrues for its best estimate of the future costs associated with known environmental remediation requirements at its service stations, marketing terminals, refineries and plants, and at certain Superfund sites. At December 31, 1996 and 1997, the accumulated reserve for environmental remediation costs was $460 million and $372 million, respectively. Of these amounts, $84 million and $80 million were included in current accrued liabilities in the Consolidated Balance Sheet. Amounts accrued with respect to Superfund waste disposal sites are based on the company's best estimate of its portion of the costs of remediating such sites. These amounts are not material. 13. FOREIGN CURRENCY Foreign exchange transaction gains of $7 million in 1995, and losses of $21 million in 1996 and $52 million in 1997, have been included in income. The effect of foreign currency translation on Mobil's balance sheet accounts is shown below. - -------------------------------------------------------------------------------- CUMULATIVE FOREIGN EXCHANGE TRANSLATION ADJUSTMENT (In millions) - -------------------------------------------------------------------------------- At December 31 1995 1996 1997 - -------------------------------------------------------------------------------- Properties, plants and equipment, net $(124) $ (27) $ (940) Deferred income taxes (252) (256) (103) Working capital, debt and other items, net 349 210 222 - -------------------------------------------------------------------------------- Total $ (27) $ (73) $ (821)(1) - -------------------------------------------------------------------------------- (1) The change in 1997 from 1996 reflects the strengthening U.S. dollar relative to local currencies in certain countries, including several in the Asia-Pacific region, in which the company has significant operations. 14. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) Mobil Oil's Employees Savings Plan includes an ESOP covering most U.S. employees. In 1989 the ESOP Trust borrowed $800 million and used the proceeds to buy shares of Series B ESOP Convertible Preferred Stock. Each preferred share has a liquidation value of $3,887.50, is convertible into 100 shares of common stock and is entitled to 100 votes. Dividends on the preferred stock are cumulative and payable at an annual rate of $300 per share. The ESOP Trust uses the preferred dividends not allocated to employees to make principal and interest payments on the notes. As debt service exceeds the dividends, Mobil is required to fund the excess. In 1995, 1996 and 1997, this excess was $50 million, $47 million and $21 million, respectively. The guaranteed ESOP borrowing is included in Mobil's debt. The future compensation to be earned by employees is classified in Shareholders' Equity. These amounts are reduced and expense is recognized as the debt is repaid and shares are earned by employees. In 1995, 1996 and 1997, total ESOP-related expenses were $54 million, $49 million and $24 million, respectively. Interest incurred on ESOP debt in 1995, 1996 and 1997 was $54 million, $48 million and $43 million, respectively. Share and per-share amounts reflect the two-for-one stock split in 1997. NOTES TO FINANCIAL STATEMENTS 15. EMPLOYEE BENEFITS Employee benefits that Mobil provides in the U.S. are contributory and noncontributory medical and dental plans, pension plans, group life insurance, savings plans, an employee stock ownership plan, disability plans for sickness and accidents, and termination plans. Mobil's international affiliates also provide various pension and other employee benefit plans. Mobil makes contributions to funded plans and provides book reserves for unfunded plans. Mobil also provides certain postretirement health care and life insurance benefits for most U.S. retirees, if they are working for the company when they become eligible for retirement. Premium costs are shared on a plan-by-plan basis between Mobil and the participants. Postretirement health care benefits are provided both before and after eligibility for Medicare. The life insurance plans provide for a single lump-sum payment to a designated beneficiary. The amount of the lump-sum payment varies depending on employment date, age and years since retirement. There is no material obligation for Mobil to provide postretirement benefits for international retirees because they are covered primarily by local government programs. The charge to Mobil's income for U.S. postretirement health care and life insurance plans was $60 million in 1995, $64 million in 1996 and $63 million in 1997. The components of Mobil's net postretirement benefit expense for U.S. plans and the status of Mobil's U.S. postretirement benefit plans and the amounts recognized in the Consolidated Balance Sheet are detailed below:
- --------------------------------------------------------------------------------------------------------------- POSTRETIREMENT BENEFIT EXPENSE, EXCLUDING PENSIONS (In millions) Health Care Life Insurance - --------------------------------------------------------------------------------------------------------------- Year ended December 31 1995 1996 1997 1995 1996 1997 - --------------------------------------------------------------------------------------------------------------- Benefits earned by employees during the year $ 8 $ 10 $ 8 $ 1 $ 2 $ 1 Interest cost on accumulated postretirement benefit obligations 28 27 31 28 26 24 Amortization of unrecognized amounts (5) (1) (1) -- -- -- - --------------------------------------------------------------------------------------------------------------- Net postretirement benefit expense $ 31 $ 36 $ 38 $ 29 $ 28 $ 25 - ---------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------ STATUS OF POSTRETIREMENT BENEFIT PLANS (In millions) Health Care Life Insurance - ------------------------------------------------------------------------------------------ At December 31 1996 1997 1996 1997 - ------------------------------------------------------------------------------------------ Actuarial present value of accumulated postretirement benefit obligations Retirees $315 $328 $302 $317 Other fully eligible plan participants 37 46 34 38 Other active plan participants 96 89 18 16 - ------------------------------------------------------------------------------------------ Accumulated postretirement benefit obligations $448 $463 $354 $371 - ------------------------------------------------------------------------------------------ Book reserves $457 $464 $359 $363 Book reserves greater (less) than accumulated postretirement benefit obligations $ 9 $ 1 $ 5 $ (8) - ------------------------------------------------------------------------------------------ Consisting of: Unrecognized prior service costs $ 10 $ 2 $ -- $ -- Unrecognized net (loss) gain (1) (1) 5 (8) - ------------------------------------------------------------------------------------------
At December 31, 1997, the health care cost trend used to calculate the accumulated postretirement benefit obligations is 8.0% for 1998 and is assumed to decrease gradually over 7 years to 5.0%. At December 31, 1996, the health care cost trend rate was assumed to be 9.1% for 1997, declining gradually to 5.5% after 8 years. A 1% increase in the assumed health care cost trend rate for each year would increase the 1997 net postretirement benefit expense and the accumulated postretirement benefit obligation as of December 31, 1997, by approximately $5 million and $47 million, respectively. The discount rate used in determining the postretirement benefit obligation was 7.25% in 1996 and 7.0% in 1997. NOTES TO FINANCIAL STATEMENTS 15. EMPLOYEE BENEFITS (concluded) The majority of full-time U.S. employees are covered by funded noncontributory pension plans. These plans are primarily final average pay plans. Mobil's funding for these plans is based on the projected unit credit actuarial cost method. Mobil's international employees are covered by pension and similar plans. Coverage and benefits vary from country to country. Mobil's funding policy also varies, in line with local commercial, actuarial and taxation practices. The worldwide charge to Mobil's income for pension plans was $192 million in 1995, $208 million in 1996 and $150 million in 1997. The components of net pension expense for Mobil's plans and the status of Mobil's pension plans and the amounts recognized in the Consolidated Balance Sheet are detailed below:
- ----------------------------------------------------------------------------------------------------- PENSION EXPENSE (In millions) U.S. Plans International Plans - ----------------------------------------------------------------------------------------------------- Year ended December 31 1995 1996 1997 1995 1996 1997 - ----------------------------------------------------------------------------------------------------- Benefits earned by employees during the year $ 76 $ 92 $ 72 $ 85 $ 84 $ 85 Interest cost on projected benefit obligations 190 185 181 125 128 119 Actual earnings on assets (638) (334) (451) (143) (101) (147) Deferral of actual earnings on assets greater than expected returns 418 94 213 68 24 69 Amortization of unrecognized amounts (10) (16) (14) 21 52 23 - ----------------------------------------------------------------------------------------------------- Net pension expense $ 36 $ 21 $ 1 $ 156 $ 187 $ 149 - -----------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------ STATUS OF PENSION PLANS (In millions) U.S. Plans International Plans - ------------------------------------------------------------------------------------------------------------------------------ At December 31 1996 1997 1996 1997 - ------------------------------------------------------------------------------------------------------------------------------ ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS Vested $ 2,026 $ 2,192 $ 1,679 $ 1,658 Non-vested 146 119 129 104 - ------------------------------------------------------------------------------------------------------------------------------ Accumulated benefit obligations 2,172 2,311 1,808 1,762 Additional amounts related to projected pay increases 398 440 438 355 - ------------------------------------------------------------------------------------------------------------------------------ Projected benefit obligations $ 2,570 $ 2,751 $ 2,246 $ 2,117 - ------------------------------------------------------------------------------------------------------------------------------ ASSETS AND BOOK RESERVES Plan assets at fair value, primarily in equity and fixed income securities $ 2,750 $ 3,007 $ 1,145 $ 1,158 Book reserves 136 146 1,060 996 - ------------------------------------------------------------------------------------------------------------------------------ Total assets and book reserves $ 2,886 $ 3,153 $ 2,205 $ 2,154 - ------------------------------------------------------------------------------------------------------------------------------ ASSETS AND BOOK RESERVES GREATER (LESS) THAN PROJECTED BENEFIT OBLIGATIONS $ 316 $ 402 $ (41) $ 37 - ------------------------------------------------------------------------------------------------------------------------------ Consisting of: Unrecognized net asset (liability) at date of initial application of FAS 87 $ 150 $ 120 $ (26) $ (18) Unrecognized prior service cost (178) (183) (27) (21) Unrecognized net gain (loss) 192 282 (213) (137) Minimum liability and pre-funded expenses 152 183 225 213 - ------------------------------------------------------------------------------------------------------------------------------ Assets and book reserves greater (less) than projected benefit obligations $ 316 $ 402 $ (41) $ 37 - ------------------------------------------------------------------------------------------------------------------------------ WEIGHTED AVERAGE RATES USED IN DETERMINING THE ACTUARIAL PRESENT VALUE OF THE PROJECTED BENEFIT OBLIGATIONS (percent) Discount rate 7.25 7.00 6.9 6.5 Rate of increase in future compensation levels 4.00 4.00 5.3 5.1 EXPECTED LONG-TERM RATE OF RETURN ON PLAN ASSETS USED IN DETERMINING CURRENT YEAR EXPENSE (percent) 9.00 9.00 8.4 8.2 - ------------------------------------------------------------------------------------------------------------------------------ Memo: assets and book reserves greater than accumulated benefit obligations $ 714 $ 842 $ 397 $ 392 - ------------------------------------------------------------------------------------------------------------------------------
PENSION PLAN ASSETS AND BOOK RESERVES EXCEEDED ACCUMULATED BENEFIT OBLIGATIONS BY $1,234 MILLION AT THE END OF 1997. NOTES TO FINANCIAL STATEMENTS 16. STOCK-BASED COMPENSATION PLANS (1) Under the 1995 Mobil Incentive Compensation and Stock Ownership Plan (the Plan) approved by shareholders, options may be granted to key employees to purchase annually a maximum of 0.9% of the total common shares outstanding at the end of the year preceding each year of its five-year life (less the number of shares of restricted stock granted and the number of equivalent share units allotted as long-term incentive awards under the Plan), cumulative from the effective date of the Plan. No additional options may be granted under earlier plans. Stock options have a maximum term of 10 years, are granted at 100% of the fair market value of Mobil common stock at the time of the award, and may be exercised to purchase stock after vesting requirements have been met. Stock appreciation rights (SARs), where applicable, permit the holder to receive stock, cash or a combination thereof equal to the amount by which the fair market value at the time of relinquishment of the option exceeds the option price. Based on the December 31, 1997, number of shares outstanding, there were 13,739,652 shares or share units available for option grants and other awards referred to above in 1998. Based on the December 31, 1996, number of shares outstanding, there were 11,228,348 shares or share units available for option grants and other awards referred to above in 1997.
- ----------------------------------------------------------------------------------------------------------------------------- STOCK OPTION TRANSACTIONS 1986 Plan 1991 Plan 1995 Plan - ----------------------------------------------------------------------------------------------------------------------------- Shares Weighted Shares Weighted Shares Weighted Average Average Average Price Price Price - ----------------------------------------------------------------------------------------------------------------------------- January 1, 1995-shares under option 8,953,932 $ 26.44 17,720,712 $ 35.05 - ----------------------------------------------------------------------------------------------------------------------------- Changes during 1995 Options granted 5,368,700 43.67 Options expired or canceled (52,462) 42.84 (25,800) 43.66 Options exercised (2,001,782) 24.52 (1,068,540) 32.63 (2,440) 43.66 SARs exercised (243,498) 28.48 (218,888) 31.44 - ----------------------------------------------------------------------------------------------------------------------------- December 31, 1995-shares under option 6,708,652 $ 26.94 16,380,822 $ 35.23 5,340,460 $ 43.68 Changes during 1996 Options granted 4,475,700 57.50 Options expired or canceled (1,000) 14.39 (44,700) 43.03 (103,500) 51.79 Options exercised (1,793,004) 24.68 (1,431,478) 34.10 (117,820) 43.66 SARs exercised (82,888) 31.32 (56,892) 31.03 - ----------------------------------------------------------------------------------------------------------------------------- December 31, 1996-shares under option 4,831,760 $ 27.71 14,847,752 $ 35.34 9,594,840 $ 50.04 Changes during 1997 Options granted 4,679,600 61.83 Options expired or canceled (34,500) 43.03 (270,200) 58.33 Options exercised (1,555,129) 26.51 (1,579,144) 34.21 (180,148) 46.27 SARs exercised (16,752) 30.78 (97,836) 30.88 - ----------------------------------------------------------------------------------------------------------------------------- December 31, 1997-shares under option 3,259,879 $ 28.26 13,136,272 $ 35.48 13,824,092 $ 53.91 Weighted average contractual life (years) 1.62 5.05 7.97 Range of exercise price $22.09-32.13 $30.72-43.03 $43.66-73.16 - ----------------------------------------------------------------------------------------------------------------------------- Options exercisable at December 31, 1995 6,708,652 $ 26.94 13,034,700 $ 33.48 368,560 $ 43.66 - ----------------------------------------------------------------------------------------------------------------------------- Options exercisable at December 31, 1996 4,831,760 $ 27.71 12,884,752 $ 34.16 1,219,540 $ 44.37 - ----------------------------------------------------------------------------------------------------------------------------- Options exercisable at December 31, 1997 3,259,879 $ 28.26 13,136,272 $ 35.48 2,034,292 $ 47.63 - ----------------------------------------------------------------------------------------------------------------------------- (1) Share amounts for all years have been restated to reflect the two-for-one stock split in 1997.
If compensation expense had been recorded using the fair value of the options at the date of grant, net income would have been reduced by $9 million, $19 million and $29 million in 1995, 1996 and 1997, respectively. NOTES TO FINANCIAL STATEMENTS 17. CAPITAL STOCK At December 31, 1997, 1,200,000,000 shares of $1.00 par value common stock were authorized and 894,308,872 shares were issued, including 110,945,100 shares held in the treasury. At December 31, 1997, 30,000,000 shares of $1.00 par value preferred stock were authorized, of which 6,000,000 shares of Series A Junior Participating Preferred Stock were authorized for issuance upon exercise of certain preferred stock purchase rights (no shares issued or outstanding) and 191,062 shares of Series B ESOP Convertible Preferred Stock were authorized for issuance. At December 31, 1996 and 1997, respectively, 176,336 and 171,093 shares of Series B ESOP Convertible Preferred Stock were outstanding. During 1996 and 1997, 9,392 and 5,243 of such shares, respectively, were redeemed.
- ------------------------------------------------------------------------------------------------------- CHANGES IN SHARES OF COMMON STOCK OUTSTANDING - ------------------------------------------------------------------------------------------------------- Year ended December 31 1995 1996 1997 - ------------------------------------------------------------------------------------------------------- Common shares outstanding- beginning of year 791,974,034 789,119,762 787,588,910 Purchase of common stock for treasury (5,992,700) (4,795,400) (7,458,400) Exercise of stock options and stock appreciation rights 3,109,890 3,199,632 3,177,748 Incentive compensation awards and restricted stock 28,538 64,916 55,514 - ------------------------------------------------------------------------------------------------------- Common shares outstanding- end of year 789,119,762 787,588,910 783,363,772 - -------------------------------------------------------------------------------------------------------
At the company's annual meeting on May 8, 1997, shareholders approved an increase in the authorized shares of common stock from 600,000,000 to 1,200,000,000 and approved a two-for-one stock split of the Company's issued common stock, with a record date of May 20, 1997. In addition, a special distribution of Series B ESOP Convertible Preferred Stock was made, doubling the number of shares of that stock outstanding, and the liquidation value, conversion price and dividend rate of each share were halved. All share and per-share amounts for common stock and Series B ESOP Convertible Preferred Stock have been restated to reflect the stock split. 18. COMMITMENTS AND CONTINGENT LIABILITIES Substantial commitments are made in the normal course of business for the purchase of crude oil and petroleum products, and the acquisition or construction of properties, plants and equipment (including tankers for time charter to Mobil). Mobil has guaranteed $150 million of the obligations of others, excluding $432 million of certain cross-guarantees, primarily foreign customs duties, made with other responsible companies in the ordinary course of business. Mobil has also indirectly guaranteed repayment of approximately $500 million of debt issued by companies in which Mobil has an interest in the event projects financed with that debt are not completed as specified in the project completion guarantee agreements. In addition, Mobil has guaranteed specified revenues from crude oil, product and carbon dioxide shipments under agreements with pipeline companies in which it holds stock interests. If these companies are unable to meet certain obligations, Mobil may be required to advance funds against future transportation charges. No material loss is anticipated under these guarantees. Mobil and its subsidiaries are engaged in various litigations and have a number of unresolved claims pending. The amounts claimed are substantial, and the ultimate liability in respect of such litigations and claims cannot be determined at this time. Mobil has provided in its accounts for these items based on management's best judgment. Mobil is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to be of material importance in relation to its accounts. REPORTS REPORT OF MANAGEMENT The management of Mobil Corporation has the responsibility for preparing the accompanying financial statements and for their integrity and objectivity. The statements, which include amounts that are based, in part, on management's best estimates and judgments, were prepared in conformity with generally accepted accounting principles. Mobil maintains a system of internal accounting controls and a program of internal auditing that we believe provide us with reasonable assurance that Mobil's assets are protected and that published financial statements are reliable and free of material misstatement. The Audit Committee of the Board of Directors, composed solely of directors who are not officers or employees, meets regularly with Mobil's financial management and counsel, with Mobil's General Auditor, and with the independent auditors. These meetings include discussion of internal accounting controls and the quality of financial reporting. The independent auditors and the General Auditor have free and independent access to the Audit Committee to discuss the results of their audits or any other matters relating to Mobil's financial affairs. The accompanying consolidated financial statements have been audited by Ernst & Young LLP, independent auditors, whose appointment was approved by the shareholders. Ernst & Young's audit report follows. /S/LUCIO A. NOTO /S/THOMAS C. DELOACH, JR. LUCIO A. NOTO THOMAS C. DELOACH, JR. Chairman and Chief Executive Officer Senior Vice President and Chief Financial Officer REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS BOARD OF DIRECTORS AND SHAREHOLDERS MOBIL CORPORATION We have audited the accompanying consolidated balance sheets of Mobil Corporation as of December 31, 1996 and 1997, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997, appearing on pages 33, 35, and 37 through 53. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mobil Corporation at December 31, 1996 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. As discussed in Note 6 to the financial statements, in 1995, Mobil Corporation changed its method of accounting for the impairment of long-lived assets. /S/ERNST & YOUNG L.L.P. Fairfax, Virginia February 27, 1998 SUPPLEMENTARY INFORMATION OIL AND GAS PRODUCING ACTIVITIES (unaudited) THE ACCOMPANYING TABLES SET FORTH INFORMATION CONCERNING MOBIL'S OIL AND GAS PRODUCING ACTIVITIES AT DECEMBER 31, 1995, 1996 AND 1997, AND FOR THE YEARS THEN ENDED, AS REQUIRED BY FINANCIAL ACCOUNTING STANDARD (FAS) 69, DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES.
- ------------------------------------------------------------------------------------------------------------------------------------ TABLE 1: ESTIMATED QUANTITIES OF NET PROVED OIL AND NATURAL GAS LIQUIDS RESERVES (Millions of barrels) - ------------------------------------------------------------------------------------------------------------------------------------ Consolidated Companies Equity Companies(1) Worldwide --------------------------------------------- --------------------------------- ------------ Asia- Other Asia- Other U.S. Europe Pacific Areas Total U.S. Europe Pacific Areas - ------------------------------------------------------------------------------------------------------------------------------------ RESERVES AT JANUARY 1, 1995 1,052 401 175 1,291 2,919 -- 2 7 516 3,444 Revisions (9) (13) (37) 105 46 -- -- 1 (4) 43 Improved recovery 32 20 -- 21 73 -- -- -- -- 73 Purchases 11 24 -- 2 37 -- -- -- -- 37 Sales (6) -- -- (4) (10) -- -- (7) -- (17) Extensions, discoveries and other additions 9 5 -- 89 103 -- -- -- 32 135 Production (103) (64) (35) (78) (280) -- -- (1) (15) (296) - ------------------------------------------------------------------------------------------------------------------------------------ RESERVES AT DECEMBER 31, 1995 986 373 103 1,426 2,888 -- 2 -- 529 3,419 Revisions (8) 7 5 69 73 -- -- -- 9 82 Improved recovery 40 9 -- 49 98 -- -- -- -- 98 Purchases 4 -- 54 10 68 -- -- -- 336(2) 404 Sales (36) (6) -- (31) (73) -- -- -- -- (73) Extensions, discoveries and other additions 12 40 -- 113 165 -- -- -- -- 165 Production (96) (57) (39) (98) (290) -- -- -- (23) (313) - ------------------------------------------------------------------------------------------------------------------------------------ RESERVES AT DECEMBER 31, 1996 902 366 123 1,538 2,929 -- 2 -- 851 3,782 Aera joint venture (3) (314) -- -- -- (314) 417 -- -- -- 103 Revisions (56) 19 30 4 (3) -- -- -- 190 187 Improved recovery 92 10 -- 4 106 -- -- -- -- 106 Purchases 1 16 -- 1 18 -- -- -- -- 18 Sales (20) (5) (9) (3) (37) -- -- -- (5) (42) Extensions, discoveries and other additions 2 19 -- 235 256 -- -- -- 34 290 Production (68) (57) (36) (127) (288) (21) -- -- (30) (339) - ------------------------------------------------------------------------------------------------------------------------------------ RESERVES AT DECEMBER 31, 1997 539 368 108 1,652 2,667 396 2 -- 1,040 4,105 - ------------------------------------------------------------------------------------------------------------------------------------ Developed Reserves At January 1, 1995 826 215 165 809 2,015 -- 2 6 493 2,516 At December 31, 1995 816 184 93 910 2,003 -- 2 -- 474 2,479 At December 31, 1996 759 204 91 967 2,021 -- 1 -- 666 2,688 At December 31, 1997 509 180 80 1,035 1,804 268 1 -- 633 2,706 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Amounts shown for equity companies represent Mobil's share of investees accounted for on the equity method. (2) Acquisition of a 25% interest in a joint venture that owns the Tengiz field in the Republic of Kazakhstan. (3) In June 1997, Mobil commenced operations of its California heavy-oil alliance with Shell, which resulted in an increase in proved reserves and a reduction in nonproved reserves.
Mobil's estimated net proved reserves and changes thereto for the years 1995, 1996 and 1997 are presented in Tables 1 and 2. The estimates represent only those volumes considered to be proved reserves and include fields where additional investment may be required to recover these reserves. Definitions used in developing these data are in accordance with the SEC guidelines, which state: "Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made." Proved developed reserves are recoverable from existing wells with existing equipment and operating methods. These reserve estimates are subject to revisions over time as more information becomes available. In the past, some revisions have been significant. The company's net proved reserves exclude royalties and interests owned by others, and natural gas liquids volumes received under natural gas processing contracts. SUPPLEMENTARY INFORMATION OIL AND GAS PRODUCING ACTIVITIES (unaudited) (continued)
- ------------------------------------------------------------------------------------------------------------------------------------ TABLE 2: ESTIMATED QUANTITIES OF NET PROVED NATURAL GAS RESERVES (Billions of cubic feet) - ------------------------------------------------------------------------------------------------------------------------------------ Consolidated Companies Equity Companies(1) Worldwide --------------------------------------------- --------------------------------- ------------ Asia- Other Asia- Other U.S. Europe Pacific Areas Total U.S. Europe Pacific Areas - ------------------------------------------------------------------------------------------------------------------------------------ RESERVES AT JANUARY 1, 1995 5,055 4,251 5,607 1,744 16,657 -- 33 94 891 17,675 Revisions 317 110 (198) 50 279 -- 4 -- -- 283 Improved recovery 51 18 -- 61 130 -- -- -- -- 130 Purchases 42 15 -- 1 58 -- -- -- -- 58 Sales (52) (42) -- (19) (113) -- -- (88) -- (201) Extensions, discoveries and other additions 173 237 54 105 569 -- 2 -- 1,114 1,685 Production (525) (401) (567) (158) (1,651) -- (5) (6) -- (1,662) - ------------------------------------------------------------------------------------------------------------------------------------ RESERVES AT DECEMBER 31, 1995 5,061 4,188 4,896 1,784 15,929 -- 34 -- 2,005 17,968 Revisions (43) (15) (338) (42) (438) -- 3 -- (36) (471) Improved recovery 20 10 -- 19 49 -- -- -- -- 49 Purchases 6 -- 92 368 466 -- -- -- 467(2) 933 Sales (173) -- -- (182) (355) -- -- -- -- (355) Extensions, discoveries and other additions 16 452 -- 190 658 -- 2 -- -- 660 Production (488) (434) (579) (163) (1,664) -- (5) -- (10) (1,679) - ------------------------------------------------------------------------------------------------------------------------------------ RESERVES AT DECEMBER 31, 1996 4,399 4,201 4,071 1,974 14,645 -- 34 -- 2,426 17,105 Aera joint venture (3) (34) -- -- -- (34) 146 -- -- -- 112 Revisions (114) 276 (281) 58 (61) -- 3 -- 278 220 Improved recovery 25 13 -- 51 89 -- -- -- -- 89 Purchases 1 67 -- -- 68 -- -- -- -- 68 Sales (95) (1) (119) (25) (240) -- -- -- (126) (366) Extensions, discoveries and other additions 26 159 -- 250 435 -- 2 -- 954 1,391 Production (416) (450) (583) (173) (1,622) (7) (5) -- (29) (1,663) - ------------------------------------------------------------------------------------------------------------------------------------ RESERVES AT DECEMBER 31, 1997 3,792 4,265 3,088 2,135 13,280 139 34 -- 3,503 16,956 - ------------------------------------------------------------------------------------------------------------------------------------ Developed Reserves At January 1, 1995 3,902 3,081 3,810 1,223 12,016 -- 31 92 -- 12,139 At December 31, 1995 3,923 3,094 3,018 1,212 11,247 -- 32 -- -- 11,279 At December 31, 1996 3,826 2,907 2,175 1,138 10,046 -- 32 -- 856 10,934 At December 31, 1997 3,368 2,699 1,838 1,273 9,178 77 33 -- 834 10,122 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Amounts shown for equity companies represent Mobil's share of investees accounted for on the equity method. (2) Acquisition of a 25% interest in a joint venture that owns the Tengiz field in the Republic of Kazakhstan. (3) In June 1997, Mobil commenced operations of its California heavy-oil alliance with Shell, which resulted in an increase in proved reserves and a reduction in nonproved reserves.
- ------------------------------------------------------------------------------------------------------------------------------ TABLE 3: CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES (In millions) - ------------------------------------------------------------------------------------------------------------------------------ United States Europe Asia-Pacific At December 31 1995 1996 1997 1995 1996 1997 1995 1996 1997 - ------------------------------------------------------------------------------------------------------------------------------ Capitalized costs: Unproved properties $ 212 $ 197 $ 233 $ 11 $ 58 $ 11 $ 13 $ 273 $ 307 Proved properties, wells, plants and other equipment 13,638 12,535 10,642 7,119 7,639 7,596 2,149 3,854 3,873 - ------------------------------------------------------------------------------------------------------------------------------ Total capitalized costs 13,850 12,732 10,875 7,130 7,697 7,607 2,162 4,127 4,180 Accumulated depreciation, depletion and amortization 9,181 8,623 7,640 4,123 4,593 4,536 1,457 1,742 2,021 - ------------------------------------------------------------------------------------------------------------------------------ Net capitalized costs 4,669 4,109 3,235 3,007 3,104 3,071 705 2,385 2,159 Net capitalized costs of equity companies(1) -- -- 656(2) 37 34 29 1 1 -- - ------------------------------------------------------------------------------------------------------------------------------ Total $ 4,669 $ 4,109 $ 3,891 $ 3,044 $ 3,138 $ 3,100 $ 706 $ 2,386 $ 2,159 - ------------------------------------------------------------------------------------------------------------------------------ (1) Represents Mobil's share of net capitalized costs of investees accounted for on the equity method. (2) Reflects the impact of the California heavy-oil alliance with Shell.
- ----------------------------------------------------------------------------------------------------- TABLE 3: CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES (In millions) (continued) - ----------------------------------------------------------------------------------------------------- Other Areas Total At December 31 1995 1996 1997 1995 1996 1997 - ----------------------------------------------------------------------------------------------------- Capitalized costs: Unproved properties $ 137 $ 324 $ 328 $ 373 $ 852 $ 879 Proved properties, wells, plants and other equipment 4,533 5,592 6,682 27,439 29,620 28,793 - ----------------------------------------------------------------------------------------------------- Total capitalized costs 4,670 5,916 7,010 27,812 30,472 29,672 Accumulated depreciation, depletion and amortization 1,599 1,514 1,665 16,360 16,472 15,862 - ----------------------------------------------------------------------------------------------------- Net capitalized costs 3,071 4,402 5,345 11,452 14,000 13,810 Net capitalized costs of equity companies(1) 269 1,558 2,136 307 1,593 2,821 - ----------------------------------------------------------------------------------------------------- Total $ 3,340 $ 5,960 $ 7,481 $11,759 $15,593 $16,631 - -----------------------------------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION OIL AND GAS PRODUCING ACTIVITIES (unaudited) (continued) Table 3 (page 56) summarizes the aggregate amount of capitalized costs related to oil and gas producing activities and related accumulated depreciation, depletion and amortization at December 31, 1995, 1996 and 1997. Capitalized costs include: (1) mineral interests in properties; (2) wells, plants and related equipment and facilities; and (3) support equipment and facilities used in oil and gas producing activities.
- ---------------------------------------------------------------------------------------------------------------------------------- TABLE 4: COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES (In millions) - ---------------------------------------------------------------------------------------------------------------------------------- Equity Consolidated Companies Companies(1) Worldwide -------------------------------------------------- ------------ --------------- Asia- Other U.S. Europe Pacific Areas Total - ---------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1995 Property Acquisition Costs: Unproved properties $ 28 $ -- $ -- $ 34 $ 62 $ -- $ 62 Proved properties 9 4 -- 16 29 -- 29 - ---------------------------------------------------------------------------------------------------------------------------------- Total capitalized costs 37 4 -- 50 91 -- 91 Exploration costs 183 177 72 193 625 11 636 Development costs 593 421 78 833 1,925 116 2,041 - ---------------------------------------------------------------------------------------------------------------------------------- Total expenditures $ 813 $ 602 $ 150 $1,076 $2,641 $ 127 $2,768 - ---------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1996 Property acquisition costs:(2) Unproved properties $ 8 $ 46 $ 260 $ 122 $ 436 $ 611 $1,047 Proved properties 57 -- 1,455 388 1,900 490 2,390 - ---------------------------------------------------------------------------------------------------------------------------------- Total capitalized costs 65 46 1,715 510 2,336 1,101 3,437 Exploration costs 122 192 79 215 608 6 614 Development costs 417 398 273 981 2,069 209 2,278 - ---------------------------------------------------------------------------------------------------------------------------------- Total expenditures $ 604 $ 636 $2,067 $1,706 $5,013 $1,316 $6,329 - ---------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1997 Property acquisition costs: Unproved properties $ 50 $ -- $ 6 $ 71 $ 127 $ 5 $ 132 Proved properties 5 55 7 52 119 2 121 - ---------------------------------------------------------------------------------------------------------------------------------- Total capitalized costs 55 55 13 123 246 7 253 Exploration costs 111 180 94 251 636 1 637 Development costs 335 547 374 1,095 2,351 478 2,829 - ---------------------------------------------------------------------------------------------------------------------------------- Total expenditures $ 501 $ 782 $ 481 $1,469 $3,233 $ 486 $3,719 - ---------------------------------------------------------------------------------------------------------------------------------- (1) Represents Mobil's share of costs incurred for companies accounted for on the equity method. Prior year data restated to conform with current year presentation. (2) Primarily as a result of recording deferred taxes of $506 million, the total costs allocated to property for the Ampolex acquisition exceeded the net purchase price by $690 million ($607 million-Asia-Pacific; and $83 million-Other Areas).
The table above sets forth certain costs incurred, both capitalized and expensed, in oil and gas producing activities. Property acquisition costs represent costs incurred to purchase or lease oil and gas properties. Exploration costs include costs of geological and geophysical activities and drilling of exploratory wells. Expenditures to drill and equip development wells and construct production facilities to extract, treat and store oil and gas are included in development costs. Exploration and development costs also include depreciation of support equipment and facilities used in these activities rather than the acquisition costs for support equipment. SUPPLEMENTARY INFORMATION OIL AND GAS PRODUCING ACTIVITIES (unaudited) (continued)
- ------------------------------------------------------------------------------------------------------------------------------------ TABLE 5: RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES (In millions)(1) - ------------------------------------------------------------------------------------------------------------------------------------ Equity Consolidated Companies Companies(2) Worldwide --------------------------------------------------- ------------ --------- Asia- Other U.S. Europe Pacific Areas Total - ------------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1995 Revenues: Trade sales $ 678 $ 1,357 $ 1,429 $ 411 $ 3,875 $ 41 $ 3,916 Intercompany sales 1,330 815 339 1,022 3,506 168 3,674 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues(3) 2,008 2,172 1,768 1,433 7,381 209 7,590 Production (lifting) costs (982) (719) (239) (619) (2,559) (30) (2,589) Exploration expenses (72) (128) (77) (150) (427) (9) (436) Depreciation, depletion and amortization (1,161) (466) (205) (398) (2,230) (10) (2,240) Other operating revenues and (expenses) 32 123 (8) (76) 71 17 88 Income tax expense(4) 68 (551) (717) (212) (1,412) (156) (1,568) - ------------------------------------------------------------------------------------------------------------------------------------ Results of operations for producing activities $ (107) $ 431 $ 522 $ (22) $ 824 $ 21 $ 845 - ------------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1996 Revenues: Trade sales $ 1,027 $ 1,535 $ 1,811 $ 464 $ 4,837 $ 145 $ 4,982 Intercompany sales 1,458 841 369 1,727 4,395 201 4,596 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues(3) 2,485 2,376 2,180 2,191 9,232 346 9,578 Production (lifting) costs (937) (734) (288) (702) (2,661) (49) (2,710) Exploration expenses (76) (158) (156) (122) (512) (6) (518) Depreciation, depletion and amortization (638) (471) (305) (182) (1,596) (16) (1,612) Other operating revenues and (expenses) 263 96 6 4 369 (21) 348 Income tax expense(4) (367) (638) (878) (897) (2,780) (197) (2,977) - ------------------------------------------------------------------------------------------------------------------------------------ Results of operations for producing activities $ 730 $ 471 $ 559 $ 292 $ 2,052 $ 57 $ 2,109 - ------------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1997 Revenues: Trade sales $ 977 $ 1,628 $ 1,641 $ 500 $ 4,746 $ 332 $ 5,078 Intercompany sales 1,049 647 470 2,022 4,188 529 4,717 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues(3) 2,026 2,275 2,111 2,522 8,934 861 9,795 Production (lifting) costs (736) (669) (288) (837) (2,530) (223) (2,753) Exploration expenses (76) (135) (85) (203) (499) (2) (501) Depreciation, depletion and amortization (441) (444) (333) (339) (1,557) (97) (1,654) Other operating revenues and (expenses) 104 132 26 (42) 220 (116) 104 Income tax expense(4) (299) (620) (822) (826) (2,567) (212) (2,779) - ------------------------------------------------------------------------------------------------------------------------------------ Results of operations for producing activities $ 578 $ 539 $ 609 $ 275 $ 2,001 $ 211 $ 2,212 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Prior year data reclassified to conform with current year presentation. (2) Represents Mobil's share of results of operations for producing activities of investees accounted for on the equity method. (3) Revenues in this table will not agree with Exploration & Producing Segment Revenues (pages 22 and 38) because revenues from operations that are ancillary to oil and gas producing activities have been classified as Other Operating Revenues and Expenses for this presentation. (4) Includes for equity companies, Mobil's income taxes on its share of results of operations.
Mobil's results of operations for producing activities for the years ended December 31, 1995, 1996 and 1997, are shown above. Revenues include sales to unaffiliated parties and sales or transfers (essentially at third-party sales prices) to Mobil's other operations. All revenues reported in this table are net of royalty interests of others. Production (lifting) costs and exploration expenses are determined as defined by accounting standards. SUPPLEMENTARY INFORMATION OIL AND GAS PRODUCING ACTIVITIES (unaudited) (concluded) FAS 69 requires disclosure with respect to future net cash flows from future production of net proved, developed and undeveloped reserves. Future cash inflows are computed by applying year-end prices to estimated future production of net proved reserves. Future price changes are considered only to the extent they are covered by contractual agreements in existence at year-end. Development and production costs are based on year-end estimated future expenditures incurred in developing and producing net proved reserves, assuming continuation of existing economic conditions. Future income taxes are calculated using year-end statutory tax rates. Discounted future net cash flows are computed using a discount factor of 10%. The standardized measure data are not intended to replace the historical cost-based financial data included in the audited financial statements. As such, many of the data disclosed in this section represent estimates, assumptions and computations that are subject to continual change as the future unfolds. For example, a significant decrease in year-end crude oil prices from 1996 to 1997 contributed to the lower discounted future net cash flow amount for 1997. Accordingly, Mobil cautions investors and analysts that the data are of questionable utility for decision making. Tables 6 and 7 below set forth the standardized measure of discounted future net cash flows relating to proved oil and gas reserves, and quantify the causes of the changes in the standardized measure of the cash flows relating to those reserves. Since the estimates reflect proved reserves only, they exclude revenues that could result from unproved reserves that could become productive in later years.
- --------------------------------------------------------------------------------------------------------------------------- TABLE 6: STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES (In millions) - --------------------------------------------------------------------------------------------------------------------------- United States Europe At December 31 1995 1996 1997 1995 1996 1997 - --------------------------------------------------------------------------------------------------------------------------- Future cash inflows $ 23,763 $ 33,036 $ 16,598 $ 16,064 $ 19,869 $ 17,963 Future production costs (9,312) (8,125) (6,261) (4,822) (4,374) (4,859) Future development costs (1,644) (1,200) (527) (1,203) (1,202) (1,285) Future income tax expenses (3,928) (7,968) (3,121) (5,156) (7,830) (6,025) - --------------------------------------------------------------------------------------------------------------------------- Future net cash flows 8,879 15,743 6,689 4,883 6,463 5,794 10% annual discount for estimated timing of cash flows (3,928) (6,919) (2,897) (1,534) (2,091) (2,078) - --------------------------------------------------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows 4,951 8,824 3,792 3,349 4,372 3,716 - --------------------------------------------------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows of equity companies(1) -- -- 1,055(2) 23 35 28 - --------------------------------------------------------------------------------------------------------------------------- Total $ 4,951 $ 8,824 $ 4,847 $ 3,372 $ 4,407 $ 3,744 - ---------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ TABLE 6: STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES (In millions) (continued) - ------------------------------------------------------------------------------------------------------------------------------------ Asia-Pacific Other Areas Total At December 31 1995 1996 1997 1995 1996 1997 1995 1996 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Future cash inflows $ 11,565 $ 14,416 $ 9,728 $ 24,543 $ 39,107 $ 29,776 $ 75,935 $ 106,428 $ 74,065 Future production costs (2,026) (2,196) (1,895) (8,589) (9,952) (8,715) (24,749) (24,647) (21,730) Future development costs (764) (1,030) (700) (1,866) (5,006) (3,639) (5,477) (8,438) (6,151) Future income tax expenses (3,951) (4,599) (2,766) (9,344) (15,536) (9,701) (22,379) (35,933) (21,613) - ------------------------------------------------------------------------------------------------------------------------------------ Future net cash flows 4,824 6,591 4,367 4,744 8,613 7,721 23,330 37,410 24,571 10% annual discount for estimated timing of cash flows (2,017) (2,578) (1,498) (2,252) (3,834) (2,944) (9,731) (15,422) (9,417) - ------------------------------------------------------------------------------------------------------------------------------------ Standardized measure of discounted future net cash flows 2,807 4,013 2,869 2,492 4,779 4,777 13,599 21,988 15,154 - ------------------------------------------------------------------------------------------------------------------------------------ Standardized measure of discounted future net cash flows of equity companies(1) -- -- -- 460 1,845 1,585 483 1,880 2,668 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 2,807 $ 4,013 $ 2,869 $ 2,952 $ 6,624 $ 6,362 $ 14,082 $ 23,868 $ 17,822 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Represents Mobil's share of standardized measure of discounted future net cash flows of investees accounted for on the equity method. (2) Reflects the impact of the California heavy-oil alliance with Shell.
- -------------------------------------------------------------------------------------------------------------------- TABLE 7: CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (In millions) - -------------------------------------------------------------------------------------------------------------------- Year ended December 31 1995 1996 1997 - -------------------------------------------------------------------------------------------------------------------- Beginning of year $ 13,371 $ 14,082 $ 23,868 Changes resulting from: Sales and transfers of production, net of production costs (4,822) (6,571) (6,404) Net changes in prices and in development and production costs 862 15,191 (16,579) Extensions, discoveries, additions and purchases, less related costs 1,078 2,577 1,533 Development costs incurred during the period 1,925 2,069 2,351 Revisions of previous quantity estimates 731 633 672 Accretion of discount 2,406 2,625 4,277 Net change in income taxes (1,477) (8,135) 8,095 Other 8 1,397 9 - -------------------------------------------------------------------------------------------------------------------- End of year $ 14,082 $ 23,868 $ 17,822 - --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
FIVE-YEAR OPERATING HIGHLIGHTS (unaudited) 1993 1994 1995 1996 1997 - ------------------------------------------------------------------------------------------------------------- NET PRODUCTION OF LIQUIDS (thousands of barrels daily) (1) Consolidated companies United States 305 300 282 262 186 International Australia -- 23 20 29 39 Canada 58 57 53 50 49 Equatorial Guinea -- -- -- 8 37 Indonesia 90 77 77 66 46 Nigeria 169 175 157 209 253 Norway 95 95 91 83 79 Papua New Guinea -- -- -- 11 12 United Kingdom 58 70 75 65 75 Other countries 9 10 10 9 13 - ------------------------------------------------------------------------------------------------------------- Total International 479 507 483 530 603 - ------------------------------------------------------------------------------------------------------------- TOTAL CONSOLIDATED COMPANIES 784 807 765 792 789 - ------------------------------------------------------------------------------------------------------------- Mobil's Share of Production of Equity Companies (2) U.S. (Aera) -- -- -- -- 58 Abu Dhabi 44 43 41 42 42 Kazakhstan -- -- -- 18 36 Other 10 4 4 2 2 - ------------------------------------------------------------------------------------------------------------- Total equity companies 54 47 45 62 138 - ------------------------------------------------------------------------------------------------------------- WORLDWIDE LIQUIDS PRODUCTION 838 854 810 854 927 - ------------------------------------------------------------------------------------------------------------- NET PRODUCTION OF NATURAL GAS (millions of cubic feet daily) Consolidated companies United States 1,529 1,568 1,439 1,333 1,141 International Argentina -- -- -- 30 77 Australia -- 10 12 25 25 Canada 492 461 432 416 397 Germany 362 368 404 463 455 Indonesia 1,658 1,654 1,542 1,556 1,571 Netherlands 84 61 66 53 60 Norway 51 49 51 53 50 United Kingdom 390 470 577 618 668 - ------------------------------------------------------------------------------------------------------------- Total International 3,037 3,073 3,084 3,214 3,303 - ------------------------------------------------------------------------------------------------------------- TOTAL CONSOLIDATED COMPANIES 4,566 4,641 4,523 4,547 4,444 - ------------------------------------------------------------------------------------------------------------- Mobil's Share of Production of Equity Companies (2) U.S. (Aera) -- -- -- -- 20 Austria 13 12 13 12 13 Indonesia 31 17 18 -- -- Kazakhstan -- -- -- 24 35 Qatar -- -- -- 4 44 - ------------------------------------------------------------------------------------------------------------- Total Equity Companies 44 29 31 40 112 - ------------------------------------------------------------------------------------------------------------- WORLDWIDE NATURAL GAS PRODUCTION 4,610 4,670 4,554 4,587 4,556 - ------------------------------------------------------------------------------------------------------------- Barrels of oil equivalent ( thousands of barrels daily)(3) 837 847 826 831 826 - ------------------------------------------------------------------------------------------------------------- Total Production ( thousands of barrels daily of oil equivalent)(3) 1,675 1,701 1,636 1,685 1,753 - ------------------------------------------------------------------------------------------------------------- See footnotes on page 61.
[Bar Chart - Page 60] NET PRODUCTION (Thousands of barrels daily of oil equivalent) Equity Companies, International & U.S. 97 1,753 96 1,685 95 1,636 94 1,701 93 1,675 E&P'S WORLDWIDE PRODUCTION INCREASED 4% IN 1997, ON TRACK WITH ITS LONG-TERM GOAL. SUPPLEMENTARY INFORMATION
FIVE-YEAR OPERATING HIGHLIGHTS (unaudited) 1993 1994 1995 1996 1997 - ------------------------------------------------------------------------------------------------------------ NET RESERVES OF LIQUIDS (millions of barrels) (1) Consolidated companies United States 1,116 1,052 986 902 539 Europe 357 401 373 366 368 Asia-Pacific 204 175 103 123 108 Other Areas 1,132 1,291 1,426 1,538 1,652 - ------------------------------------------------------------------------------------------------------------ Total Consolidated Companies 2,809 2,919 2,888 2,929 2,667 - ------------------------------------------------------------------------------------------------------------ Mobil's share of reserves of equity companies (2) 534 525 531 853 1,438 - ------------------------------------------------------------------------------------------------------------ WORLDWIDE RESERVES OF LIQUIDS 3,343 3,444 3,419 3,782 4,105 - ------------------------------------------------------------------------------------------------------------ NET RESERVES OF NATURAL GAS (billions of cubic feet) Consolidated companies United States 5,372 5,055 5,061 4,399 3,792 Europe 4,021 4,251 4,188 4,201 4,265 Asia-Pacific 6,058 5,607 4,896 4,071 3,088 Other Areas 1,508 1,744 1,784 1,974 2,135 - ------------------------------------------------------------------------------------------------------------ Total Consolidated Companies 16,959 16,657 15,929 14,645 13,280 - ------------------------------------------------------------------------------------------------------------ Mobil's share of reserves of equity companies (2) 724 1,018 2,039 2,460 3,676 - ------------------------------------------------------------------------------------------------------------ WORLDWIDE RESERVES OF NATURAL GAS 17,683 17,675 17,968 17,105 16,956 - ------------------------------------------------------------------------------------------------------------ Barrels of oil equivalent (millions of barrels)(3) 3,212 3,204 3,261 3,099 3,072 - ------------------------------------------------------------------------------------------------------------ TOTAL RESERVES (millions of barrels of oil equivalent)(3) 6,555 6,648 6,680 6,881 7,177 - ------------------------------------------------------------------------------------------------------------ RESERVES REPLACEMENT PERCENTAGE(3) (4) 91% 115% 105% 133% 146% - ------------------------------------------------------------------------------------------------------------ AVERAGE U.S. SALES PRICE/TRANSFER VALUE(5) Crude Oil (per barrel) $13.54 $12.91 $14.52 $17.40 $17.27(6) NGL (per barrel) 11.25 10.37 9.94 13.16 11.96 Natural Gas (per thousand cubic feet) 2.01 1.72 1.41 2.17 2.38 - ------------------------------------------------------------------------------------------------------------ AVERAGE INTERNATIONAL SALES PRICE/ TRANSFER VALUE(5) Crude Oil (per barrel) $16.99 $15.66 $16.94 $20.81 $18.94 Natural Gas (per thousand cubic feet) 2.62 2.44 2.47 2.66 2.72 - ------------------------------------------------------------------------------------------------------------ (1) Crude oil and natural gas liquids (NGL). (2) Represents Mobil's share of investees accounted for on the equity method. (3) Natural gas volumes have been converted to oil equivalent barrels on a BTU basis with 5,506, 5,516, 5,510, 5,519, and 5,519 cubic feet of gas per barrel in 1993, 1994, 1995, 1996 and 1997, respectively. (4) Reserves replacement percentage is calculated by dividing the net adjustments to reserves for the year plus the annual production by the annual production. (5) Transfer values are essentially equal to third-party sales. (6) Excludes the impact of heavy crudes from June 1997 forward due to the implementation of the California heavy-oil alliance with Shell. Excluding heavy crudes, prices in 1993, 1994, 1995, 1996 and 1997 would have been $14.84, $13.86, $15.27, $18.54 and $17.61 per barrel, respectively. Alternatively, the inclusion of California heavy crudes for the full-year 1997 would have realized a price of $16.59 per barrel.
[Bar Chart - Page 61] TOTAL PRODUCTION VS. RESERVE ADDITIONS (Millions of barrels of oil equivalent) Total Reserve Production Additions 97 640 936 96 617 818 95 597 629 94 621 714 93 611 558 IN 1997, MOBIL'S WORLDWIDE PRODUCTION WAS UP 4% AND NET RESERVES REPLACEMENT WAS 146% OF PRODUCTION. SUPPLEMENTARY INFORMATION
FIVE-YEAR OPERATING HIGHLIGHTS (unaudited) (concluded) 1993 1994 1995 1996 1997 - ------------------------------------------------------------------------------------------------------------------------------------ PETROLEUM PRODUCT SALES(1) (thousands of barrels daily) United States 1,080 1,172 1,286 1,362 1,435 Europe(2) 810 810 807 804 679 Asia-Pacific(3) 730 777 799 800 815 Other Areas 314 316 330 379 414 - ------------------------------------------------------------------------------------------------------------------------------------ Worldwide 2,934 3,075 3,222 3,345 3,343 - ------------------------------------------------------------------------------------------------------------------------------------ PETROLEUM PRODUCT SALES(1) (millions of dollars) United States $10,181 $10,492 $11,904 $14,254 $14,848 Europe 14,555 14,395 15,421 17,008 2,900 Asia-Pacific(3) 10,619 11,466 12,426 13,258 12,802 Other Areas 3,382 3,707 3,974 4,708 5,412 - ------------------------------------------------------------------------------------------------------------------------------------ Worldwide $38,737 $40,060 $43,725 $49,228 $35,962 - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE UNITED STATES PRODUCT PRICE (per gallon)(4) 61.5(cent) 58.4(cent) 60.4(cent) 68.1(cent) 67.5(cent) - ------------------------------------------------------------------------------------------------------------------------------------ REFINERY RUNS (thousands of barrels daily) United States 836 857 895 921 956 Europe(2) 466 440 420 333 371 Asia-Pacific(5) 607 622 657 705 678 Other Areas 163 163 149 183 186 - ------------------------------------------------------------------------------------------------------------------------------------ Worldwide Runs for Mobil 2,072 2,082 2,121 2,142 2,191 - ------------------------------------------------------------------------------------------------------------------------------------ CHEMICAL SALES BY PRODUCT CATEGORY (millions of dollars) Petrochemicals $ 1,608 $ 2,088 $ 2,914 $ 1,876 $ 2,151 Films Products 580 653 764 766 707 Chemical Products 81 101 115 126 136 Plastics/Other 1,139 1,193 1,155 78 -- - ------------------------------------------------------------------------------------------------------------------------------------ Net sales to trade $ 3,408 $ 4,035 $ 4,948 $ 2,846 $ 2,994 - ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF EMPLOYEES (year-end) Petroleum Operations-United States 21,600 20,300 18,400 13,200 13,200 -International 25,200 25,200 24,300 20,000 19,500 Chemical -United States 9,700 8,100 3,500 2,500 2,600 -International 2,100 1,800 1,600 1,600 1,300 Other -United States 2,800 2,700 2,200 4,400(6) 4,700 -International 500 400 400 1,300(6) 1,400 - ------------------------------------------------------------------------------------------------------------------------------------ Total 61,900 58,500 50,400 43,000 42,700 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Includes supply/other product sales (2) Includes Mobil's share of the downstream alliance with BP that commenced in late 1996. Full-year 1996 sales volumes have been restated. (3) Includes primarily Australia, China, Hong Kong, Japan, Malaysia, New Zealand and Singapore. (4) Represents the average amount Mobil charges dealers, service stations, etc. for petroleum products, including gasoline. Excise taxes and other items included in the "pump" price consumers pay for gasoline are not reflected in this amount. (5) Includes Australia, Japan, New Zealand and Singapore. (6) In 1996, Mobil reorganized its staff support groups, now shown in Other.
Mobil markets autogasoline through over 15,000 Mobil-branded retail outlets in over 50 countries. Mobil's primary product supply comes from 25 refineries. Petroleum product sales (including supply and other sales) have increased 14% based on daily volume since 1993. Mobil operates 29 chemical facilities in 11 countries, and chemical sales extend to more than 100 countries. Mobil is a 50% partner in a complex in Saudi Arabia that produces polyethylene and ethylene glycol. [Bar Charts - Page 62] REFINERY RUNS VS. PETROLEUM PRODUCT SALES (Thousands of barrels daily) Petroleum Refinery Product Sales Runs by Mobil 97 3,343 2,191 96 3,345 2,142 95 3,222 2,121 94 3,075 2,082 93 2,934 2,072 REFINERY RUNS INCREASED IN 1997, REFLECTING IMPROVED OPERATING PERFORMANCE, WHILE PRODUCT SALES WERE ABOUT EQUAL TO 1996. NUMBER OF EMPLOYEES (At year-end) Petroleum Operations Chemical & Other 97 42,700 96 43,000 95 50,400 94 58,500 93 61,900 REDUCTIONS IN THE NUMBER OF EMPLOYEES DUE TO ALLIANCES AND OTHER INITIATIVES WERE PARTLY OFFSET BY INCREASES RELATED TO NEW BUSINESS DEVELOPMENT. SUPPLEMENTARY INFORMATION
FIVE-YEAR FINANCIAL SUMMARY (In millions, except for per-share amounts) 1993 1994 1995 1996 1997 - ------------------------------------------------------------------------------------------------------------------------------------ REVENUES $ 63,975 $ 67,383 $ 75,370 $ 81,503 $ 65,906 - ------------------------------------------------------------------------------------------------------------------------------------ SEGMENT EARNINGS: Petroleum Operations Exploration & Producing -United States $ 363 $ 125 $ (107) $ 737 697 -International 1,289 951 952 1,372 1,515 - ------------------------------------------------------------------------------------------------------------------------------------ Total Exploration & Producing 1,652 1,076 845 2,109 2,212 - ------------------------------------------------------------------------------------------------------------------------------------ Marketing & Refining -United States 151 241 226 407 542 -International 554 647 447 506 483 - ------------------------------------------------------------------------------------------------------------------------------------ Total Marketing & Refining 705 888 673 913 1,025 - ------------------------------------------------------------------------------------------------------------------------------------ Total Petroleum Operations 2,357 1,964 1,518 3,022 3,237 Chemical 44 102 1,164 306 403 - ------------------------------------------------------------------------------------------------------------------------------------ Segment Earnings 2,401 2,066 2,682 3,328 3,640 Corporate and Financing (317) (307) (306) (364) (368) - ------------------------------------------------------------------------------------------------------------------------------------ Income Before Change in Accounting Principle 2,084 1,759 2,376 2,964 3,272 Cumulative Effect of Change in Accounting Principle -- (680)(1) -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 2,084 $ 1,079 $ 2,376 $ 2,964 $ 3,272 - ------------------------------------------------------------------------------------------------------------------------------------ PER COMMON SHARE(2) Income Before Change in Accounting Principle $ 2.54 $ 2.14 $ 2.93 $ 3.69 $ 4.10 Net Income $ 2.54 $ 1.28 $ 2.93 $ 3.69 $ 4.10 PER COMMON SHARE-ASSUMING DILUTION(2) Income Before Change in Accounting Principle $ 2.53 $ 2.12 $ 2.88 $ 3.62 $ 4.01 Net income $ 2.53 $ 1.29 $ 2.88 $ 3.62 $ 4.01 NET INCOME AS PERCENT OF Average shareholders' equity 12.3% 10.4%(3) 13.5% 16.0% 17.0% Average capital employed(4) 9.7% 8.4%(3) 10.9% 12.7% 13.4% Revenues 3.3% 2.6%(3) 3.2% 3.6% 5.0% - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT SPENDING $ 3,687 $ 3,927 $ 4,525 $ 7,019 $ 5,306 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE SHEET POSITION AT YEAR-END Current assets $ 11,217 $ 11,181 $ 12,056 $ 12,895 $ 9,722 Net properties, plants and equipment 25,037 25,503 24,850 27,479 24,556 Total assets 40,733 41,542 42,138 46,408 43,559 Current liabilities 12,351 13,418 13,054 15,248 12,421 Long-term debt 5,027 4,714 4,629 4,450 3,670 Shareholders' equity 17,237 17,146 17,951 19,072 19,461 Per common share(2)(5) $ 21.37 $ 21.30 $ 22.35 $ 23.81 $ 24.41 - ------------------------------------------------------------------------------------------------------------------------------------ DEBT-TO-CAPITALIZATION RATIO(6) 32% 31% 27% 29% 25% - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE COMMON SHARES OUTSTANDING (thousands of shares)(2) 798,308 795,910 790,888 788,292 786,294 AVERAGE COMMON SHARES OUTSTANDING-- ASSUMING DILUTION (thousands of shares)(2) 822,922 820,902 817,705 815,748 815,057 - ------------------------------------------------------------------------------------------------------------------------------------ COMMON SHARES OUTSTANDING (thousands of shares, year-end)(2) 796,336 791,974 789,120 787,589 783,364 SHAREHOLDERS OF COMMON STOCK (year-end) 200,100 193,900 188,800 185,600 186,200 COMMON STOCK DIVIDENDS $ 1,298 $ 1,353 $ 1,434 $ 1,547 $ 1,667 As percent of net income less preferred dividends 64% 80%(3) 62% 53% 52% Per share(2) $ 1.63 $ 1.70 $ 1.81 $ 1.96 $ 2.12 - ------------------------------------------------------------------------------------------------------------------------------------ YEAR-END MARKET PRICE PER COMMON SHARE(2) $39 9/16 $42 1/8 $55 7/8 $61 1/8 $72 3/16 - ------------------------------------------------------------------------------------------------------------------------------------ (1) Accounting change: LCM in 1994. (2) Shares Outstanding and per-share amounts for all years reflect the two-for-one stock split in 1997. (3) Excludes cumulative effect of change in LCM policy in 1994 ($680 million). (4) Net income plus income applicable to minority interests plus interest expense, net of tax, divided by the sum of average shareholders' equity, minority interests and debt. (5) Shareholders' equity less the effect of the ESOP-related accounts (preferred stock and unearned employee compensation), divided by the number of common shares outstanding at year-end. (6) Total debt divided by the sum of total debt, shareholders' equity and minority interests.
[Bar Charts - Page 63] YEAR-END MARKET PRICE PER COMMON SHARE* (Dollars) 97 72.19 95 55.88 93 39.56 91 33.94 89 31.31 87 19.56 *Share prices reflect the two-for-one stock split in 1997. OVER THE PAST 10 YEARS, MOBIL'S STOCK PRICE HAS INCREASED AT AN ANNUALIZED RATE OF 14%. DEBT-TO-CAPITALIZATION RATIO (In percent) 97 25 95 27 93 32 91 32 89 30 87 37 MOBIL'S DEBT-TO-CAPITALIZATION RATIO DECLINED TO 25% IN 1997, PROVIDING FLEXIBILITY TO INVEST IN GROWTH OPPORTUNITIES, TO INCREASE DIVIDENDS AND/OR TO REPURCHASE STOCK. SHAREHOLDER INFORMATION THE TICKER SYMBOL FOR MOBIL on the New York Stock Exchange is MOB. THE 1998 ANNUAL MEETING for shareholders will be held Thursday, May 14, at 10 a.m. in the Grand Ballroom, Hyatt Regency Reston, Reston, Virginia. DIVIDEND PAYMENTS on common stock are paid quarterly following declaration by the Board of Directors. The next four tentative payment dates are: June 10, 1998; September 10, 1998; December 10, 1998, and March 10, 1999. DIRECT REGISTRATION SYSTEM offers new investors and participating shareholders another way to register their shares without having a physical certificate issued. For information call ChaseMellon Shareholder Services at 1-800-648-9291. MOBIL'S STOCK PURCHASE AND DIVIDEND REINVESTMENT PLAN allows new investors to buy Mobil common stock for as little as $250 and existing shareholders to automatically reinvest dividends-both without paying commissions or service fees. Once enrolled, you can make purchases through monthly cash deposits ranging from $10 to $7,500. Optional cash deposits are invested weekly. For more information, request a prospectus on Mobil's Stock Purchase and Dividend Reinvestment Plan from: ChaseMellon Shareholder Services, L.L.C., Dividend Reinvestment Services, P.O. Box 3336, South Hackensack, New Jersey 07606-1936. Telephone 1-800-648-9291, or visit Mobil's Internet site. QUESTIONS ABOUT DIVIDEND CHECKS, electronic payment of dividends, stock certificates, address changes, account consolidation, transfer procedures and year-end tax information? Write: ChaseMellon Shareholder Services, L.L.C., Shareholder Relations, P.O. Box 3315, South Hackensack, New Jersey 07606-1915. Telephone 1-800-648-9291 (Telecommunications Device for the Deaf 1-800-231-5469). SHAREHOLDERS OR OTHERS WANTING GENERAL INFORMATION should write: Secretary's Department, Room 7D2135, Mobil Corporation, 3225 Gallows Road, Fairfax, Virginia 22037-0001. Telephone 1-703-846-3898. PUBLICATIONS AVAILABLE TO SHAREHOLDERS: o Mobil's Annual Report on Form 10-K, filed with the Securities and Exchange Commission. o 1997 Mobil Fact Book, a supplement to the annual report with additional financial and operating data. o Quarterly Earnings Press Releases. o The People Behind the Commitment: Mobil's EHS Performance Report, an account of Mobil's environmental, health and safety performance. For copies, visit Mobil's Internet site, call Mobil Publications at 1-800-293-5796, or write: Secretary's Department, Room 7D2135, Mobil Corporation, 3225 Gallows Road, Fairfax, Virginia 22037-0001. ANALYSTS AND INSTITUTIONAL INVESTORS wanting information about Mobil should write: Investor Relations, 6th floor, Mobil Corporation, 3225 Gallows Road, Fairfax, Virginia 22037-0001. Telephone 1-703-846-3955. INTERNATIONAL SHAREHOLDERS should call 201-329-8660 (Telecommunications Device for the Deaf 201-329-8354). AUDITORS: Ernst & Young LLP, Fairfax Square Tower II, 8075 Leesburg Pike, Vienna, Virginia 22182-2709. TRANSFER AGENT AND REGISTRAR IN THE U.S.: ChaseMellon Shareholder Services, L.L.C., Overpeck Centre, 85 Challenger Road, Ridgefield Park, New Jersey 07660. Telephone 1-800-648-9291 (Telecommunications Device for the Deaf 1-800-231-5469). TRANSFER AGENT AND REGISTRAR IN CANADA: Montreal Trust Company of Canada, 151 Front Street West, 8th Floor, Toronto, Ontario M5J 2N1, Canada. Telephone 1-416-981-9500. Montreal Trust Company of Canada, Western Gas Tower, 530 8th Avenue, S.W., Calgary, Alberta T2P 3S8, Canada. Telephone 1-403-267-6800. BENEFITS AND CONTRIBUTIONS: Information on employee benefits plans is contained in plan descriptions, annual reports and other materials regularly furnished to employees under the Employee Retirement Income Security Act of 1974. A statement of charitable contributions by Mobil Foundation Inc. is prepared annually. An important part of the operations covered by this report is carried on by operating divisions, subsidiaries and affiliates under the direction and control of their own managements. Except as otherwise indicated by the context, this report uses such terms as "Mobil," "corporation," "company," "we" and "our," sometimes for the parent corporation and all such divisions, subsidiaries and affiliates collectively, and sometimes for one or more of them. Duplicate mailings of this annual report may be eliminated by sending a written request to: ChaseMellon Shareholder Services, L.L.C., Shareholder Relations, P.O. Box 3315, South Hackensack, New Jersey 07606-1915. Eliminating duplicate mailings will not affect your dividend, proxy statement or proxy card mailings. Mobil's Internet address: http://www.mobil.com BOARD OF DIRECTORS [Photograph of Board of Directors] Lewis M. Branscomb Elected 1978, Aetna Professor, Public Policy and Corporate Management, Emeritus, John F. Kennedy School of Government, Harvard University. Committees: Audit (Chmn.), Public Issues Donald V. Fites Elected 1990, Chairman and Chief Executive Officer, Caterpillar Inc. Committees: Management Compensation and Organization, Directors and Board Affairs, Finance Charles A. Heimbold Jr. Elected 1995, Chairman and Chief Executive Officer, Bristol-Myers Squibb. Committees: Audit, Directors and Board Affairs, Finance Allen F. Jacobson Elected 1988, Former Chairman of the Board and Chief Executive Officer, 3M. Committees: Directors and Board Affairs (Chmn.), Management Compensation and Organization Samuel C. Johnson Elected 1981, Chairman of the Board, S. C. Johnson & Son, Inc. Committees: Management Compensation and Organization, Public Issues (Chmn.) Helene L. Kaplan Elected 1989, Of Counsel, Skadden, Arps, Slate, Meagher & Flom. Committees: Audit, Directors and Board Affairs, Finance J. Richard Munro Elected 1989, Chairman of the Board, Genentech, Inc. Committees: Management Compensation and Organization, Public Issues Lucio A. Noto Elected 1988, Chairman of the Board and Chief Executive Officer. Joined Mobil 1962. Committee: Executive (Chmn.) Aulana L. Peters Elected 1992, Partner, Gibson, Dunn & Crutcher. Committees: Audit, Finance, Public Issues Eugene A. Renna Elected 1986, President and Chief Operating Officer. Joined Mobil 1968. Committee: Executive Charles S. Sanford Jr. Elected 1990, Former Chairman and Chief Executive Officer, Bankers Trust Company. Committees: Directors and Board Affairs, Finance (Chmn.) Robert G. Schwartz Elected 1987, Former Chairman of the Board, President and Chief Executive Officer, Metropolitan Life Insurance Co. Committees: Management Compensation and Organization (Chmn.), Public Issues Robert O. Swanson Elected 1991, Executive Vice President. Joined Mobil 1958. Committee: Executive Iain D.T. Vallance Elected 1996, Chairman, British Telecommunications plc. Committees: Audit, Finance, Public Issues MOBIL CORPORATION OFFICERS Lucio A. Noto Chairman of the Board and Chief Executive Officer Eugene A. Renna President and Chief Operating Officer Robert O. Swanson Executive Vice President Thomas C.DeLoach,Jr. Senior Vice President and Chief Financial Officer Robert F. Amrhein Vice President Aldis V. Liventals Vice President Samuel H. Gillespie III Vice President and General Counsel Walter R. Arnheim Treasurer Carole J. Yaley Secretary Steven L. Davis Controller APPENDIX TO FORM 10-K FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND EDGAR-FILED TEXTS: (1) Boldface typeface is displayed with capital letters, italic typeface is displayed in normal type. (2) Because the printed page breaks are not reflected, certain tabular and columnar headings and symbols are displayed differently in this filing. (3) Bullet points and similar graphic signals are omitted. (4) Page numbering has been omitted. (5) The registered mark symbol has been replaced by (R). (6) The trade mark symbol has been replaced by (TM). GRAPHIC APPENDIX LIST - 1997 Front Cover - Photogragh of head and upper portion of embroidered Mobil Pegasus logo, in red, fills most of the page. In the upper portion of the page, centered above the Pegasus' head, are the words, "Mobil" and "The energy to make a difference". At the bottom of the page, centered below the Pegasus' head, are the words "1997 Annual Report". Inside front cover - Upper Left Side are the words, "About the cover: The embroidered Pegasus introducing this annual report represents Mobil and its employees worldwide, many of whom wear the image daily as a patch on their clothing." One Graph - middle left side. Words "Average annual return to shareholders" above graph. Graph--Average annual returns to shareholders, Mobil share-price appreciation plus reinvested dividends vs. Competitors, and S&P 500-1 year, 5 years, 10 years. Upper right side. Words "Table of contents". Table of contents appears on the upper right side under words. Center of page are words "Financial highlights" appearing above a table of "Financial Highlights". Page 1 - Top. Enlarged letters, "Letter to Shareholders". Photo. Center of page: Lucio A. Noto, Chairman and Chief Executive Officer. Page 3 - Upper left side. Enlarged letters, "New exploration and acquisitions could raise our production beyond our current goals." Page 4 - Center left side are enlarged letters, "Mobil at a glance". Upper middle are enlarged letters, "Mobil Corporation" and "Red Pegasus" logo in white circle background. Right middle-page are enlarged letters, "Exploration & Producing". Photo. Lower middle-page: Modern, floating production platform. Page 5 - Upper left-page are enlarged letters, "Marketing & Refining". Photo. Upper left: Porsche with Mobil 1 logos. Middle left-page are enlarged letters, "Chemical". Photo. Lower left: chemical molecule. Page 6 - Enlarged letters, "People" in middle left of page. Photo. Upper middle-page: researchers at Mobil Technology Company's laboratories in Paulsboro, New Jersey. Page 7 - Middle left-page: enlarged letters, "Business units around the world made progress on promoting inclusion". Photo. Upper right-page: Mobil employees in Melbourne, Australia. Photo. Lower center-page: Mobil employees in Stavanger, Norway. Page 8 - Middle left-page are enlarged letters, "Performance" Photo. Upper right-page: Customers servicing car at BP-branded service station. Lower left-page are enlarged letters, "The venture is a platform to grow in key markets in Eastern Europe, Russia" Page 9 - Middle right-page are enlarged letters, "The Technology Edge:" Page 10 - Middle left-page are enlarged letters, "Growth" Photo. Upper center-page: Mobil employee at work on Hibernia platform. Page 11 - Photo. Upper left-page: Worker at Tengiz oil field in Kazakhstan. Lower right-page are enlarged letters, "The Technology Edge:" Page 12 - Photo. Upper center-page: Construction site at RasGas liquefaction plant in Qatar. Page 13 - Upper right-page are enlarged letters, "Familiar areas, new ones offer potential beyond year 2000" Middle right-page are enlarged letters, "The Technology Edge:" Page 14 - Photo. Center right-page: Employee at Mobil's lubricant blending plant in China, near Shanghai. Page 15 - Photo. Upper center-page: Construction site at petrochemicals expansion in Yanbu, Saudi Arabia. Lower right-page are enlarged letters, "The Technology Edge:" Page 16 - Middle left-page are englarged letters, "Environment" Photo. Lower left-page: The American Progress, a double-hulled vessel. Page 17 - Photo. Upper center-page: Mobil employe converts the sludge from storage tanks into fertilizer. Page 18 - Enlarged letters, "Financial" in center of page. Page 19 - One Bar Graph: Net Income of Mobil (millions of dollars) for years 1993 through 1997 (excludes the LCM accounting policy change in 1994). Page 20 - One Bar Graph: Total return to shareholders (per $100 invested on 12/31/92), S&P 500 and Mobil -- share price appreciation plus reinvested dividends --for years 1993 through 1997. Page 21 - One Bar Graph: Annual dividends per share of common stock (dollars) for years 1987 through 1997. Page 22 - Two Bar Graphs: Top Mobil's Upstream Net Income and Operating Earnings (millions of dollars), for years 1995 through 1997. Bottom Mobil's U.S. and International net production of oil and gas (thousands of barrels daily of oil equivalent) for the years 1995 through 1997. Page 23 - Two Bar Graphs: Top Crude oil average spot market prices (dollars per barrel) for Brent and West Texas Intermediate for years 1995 through 1997. Bottom Mobil's U.S. and interantional average natural gas sales prices (dollars per thousand cubic feet), for years 1995 through 1997. Page 24 - Two Bar Graphs: Top Mobil's Downstream Net Income and Operating Earnings (millions of dollars), for years 1995 through 1997. Bottom Mobil's U.S. and interantional refinery runs (thousands of barrels daily), for years 1995 through 1997. Page 25 - Two Bar Graphs: Top Mobil's U.S. and international Downstream petroleum product sales volumes (thousands of barrels daily) for years 1995 through 1997. Bottom Mobil's U.S. and international Downstream petroleum product sales revenues (millions of dollars) for years 1995 through 1997. Page 26 - Two Bar Graphs: Top Mobil's Chemical segment Net Income and Operating Earnings (in millions of dollars) are presented for years 1995 through 1997. Bottom Mobil's Chemical segment net sales to trade (Petrochemicals and Other in millions of dollars) are presented for years 1995 through 1997. Page 32 - One Bar Graph: Mobil's return on average shareholders' equity (in percent) for years 1995 through 1997. Page 34 - Two Bar Graphs: Top Total Debt of Mobil, U.S. and international (millions of dollars) for years 1995 through 1997. Bottom Mobil's return on average capital employed (in percent) for years 1995 through 1997. Page 36 - Two Bar Graphs: Top Proceeds from sales of assets (in millions of dollars) for years 1995 through 1997. Bottom Mobil's capital expenditures, exploration expenses and equity investments (in millions of dollars) for years 1995 through 1997. Page 60 - One Bar Graph: Mobil's net production (in thousands of barrels of oil equivalent) for equity companies, U.S. and international for years 1993 through 1997. Page 61 - One Bar Graph: Mobil's total production vs. reserve additions (millions of barrels of oil equivalent) for years 1993 through 1997. Page 62 - Two Bar Graphs: Top Refinery runs vs. petroleum product sales (thousands of barrels daily) for years 1993 through 1997. Bottom Number of employees (at year-end) for Mobil for years 1993 through 1997, split between Petroleum Operations segment, Chemical segment and Other. Page 63 - Two Bar Graphs: Top Mobil's year-end market price per common share (in dollars) for years 1987, 1989, 1991, 1993, 1995 and 1997. Bottom Mobil's debt-to-capitalization ratio (in percent) for years 1987, 1989, 1991, 1993, 1995 and 1997. Page 64 - Enlarged letters appear in upper left-page, "Shareholder information". Page 65 - Enlarged letters appear in upper right-page, "Board of Directors". Photo. (Inside Back Cover: Fourteen-member group photo of Mobil's Board of Directors. Back cover - Photograph of the wings of Mobil Pegasus in red fills most of the page. Centered above the Pegasus' wings are the words, "Mobil Corporation," the address, the telephone number, and Mobil's internet address. EX-21 5 EXHIBIT 21.1 - -------------------------------------------------------------------------------- EXHIBIT 21 MOBIL CORPORATION SUBSIDIARIES OF THE REGISTRANT - --------------------------------------------------------------------------------
Percentage of Voting Securities Organized Owned by Level under Laws of Immediate Parent - ----- ------------- ----------------- 1 MOBIL CORPORATION................................. Delaware MAJOR SUBSIDIARIES AS OF DECEMBER 31, 1997: 2 Mobil Business Resources Corporation............. Delaware 100.00 2 Mobil Equatorial Guinea Inc...................... Delaware 100.00 2 Mobil Exploration and Development Venezuela Inc................................... Delaware 100.00 2 Mobil Exploration & Producing U.S. Inc........... Delaware 100.00 2 Mobil Exploration and Producing North America Inc..................................... Nevada 100.00 3 Mobil California Exploration & Producing Asset Company.................................. Delaware 1.50* 3 Mobil Investments Canada Inc.................... Delaware 34.69* 4 Mobil Oil Canada, Ltd.......................... Canada 100.00 3 Mobil Oil Exploration & Producing Southeast Inc.................................. Delaware 100.00 3 Mobil Oil Indonesia Inc......................... Delaware 100.00 2 Mobil International Finance Corporation.......... Delaware 100.00 3 Mobil Investments Inc........................... Delaware 100.00 2 Mobil Natural Gas Inc............................ Delaware 100.00 2 Mobil International Petroleum Corporation........ Delaware 100.00 3 Mobil de Colombia S.A........................... Colombia 80.07* 3 General Petroleum Company, Inc.................. New York 100.00 4 Mobil Oil do Brazil (Industria e Comercio) Ltda................................ Brazil 10.00* 4 Mobil Oil Egypt (S.A.E.)....................... Egypt .36* 3 Mobil Chemical International Ltd................ Delaware 100.00 3 Mobil Exploration Norway Inc.................... Delaware 100.00 3 Mobil Oil Abu Dhabi Inc......................... Delaware 100.00 3 Mobil Oil Aktiengesellschaft.................... Germany 10.00* 4 Mobil Erdgas-Erdoel GMBH....................... Germany 100.00 4 Mobil Marketing Und Raffinerie GMBH............ Germany 100.00 5 Mobil Beteiligungs-und Vertriebsgesellschaft MBH.................... Germany 100.00 3 Mobil Oil Cameroun.............................. Cameroun 99.98 3 Mobil Oil Company de Colombia................... Delaware 100.00 4 Mobil de Colombia S.A.......................... Colombia .06* 3 Mobil Oil Cote d'Ivoire......................... Ivory Coast 100.00 3 Mobil Oil do Brazil (Industria e Comercio) Ltda................................. Brazil 90.00* 3 Mobil Oil East Africa Limited................... Delaware 100.00 3 Mobil Oil Egypt (S.A.E.)........................ Egypt 99.28* 3 Mobil Oil Francaise............................. France 99.98 4 Mobil Oil Maroc................................ Morocco 12.45* 3 Mobil Oil Malaysia Sendirian Berhad............. Malaysia 100.00 3 Mobil Oil Singapore Pte. Ltd.................... Singapore 100.00 3 Mobil Petroleum Company Inc..................... Delaware 100.00
(Level indicates the parent/subsidiary hierarchical relationship.) (Asterisk indicates 100% ownership held by two or more Mobil subsidiaries.) - -------------------------------------------------------------------------------- Mobil -30- - -------------------------------------------------------------------------------- EXHIBIT 21 MOBIL CORPORATION SUBSIDIARIES OF THE REGISTRANT - --------------------------------------------------------------------------------
Percentage of Voting Securities Organized Owned by Level under Laws of Immediate Parent - ----- ------------- ----------------- 1 MOBIL CORPORATION (CONTINUED) 2 Mobil International Petroleum Corporation (continued) 3 Mobil Petroleum Company Inc. (continued) 4 Mobil Australia Finance Company Inc......... Delaware 100.00 4 Mobil de Colombia S.A....................... Colombia 16.28* 4 Mobil Europe Inc............................ Delaware 100.00 4 Mobil Exploration & Producing Australia Pty Ltd.................................... Australia 100.00 5 Ampolex Limited............................ Australia 100.00 4 Mobil Holdings (U.K.) Limited............... Delaware 100.00 5 Mobil Holdings (Europe and Africa) Limited................................... Delaware 100.00 6 Mobil Oil Portuguesa, LDA................. Portugal 99.98* 5 Mobil Holdings Limited..................... United Kingdom 99.93* 6 Mobil Oil Company Limited................. United Kingdom 100.00 7 Vacuum Oil Company Limited............... United Kingdom 98.00* 6 Mobil Trading and Supply Limited.......... United Kingdom 99.90* 6 Mobil Data Services Limited............... United Kingdom 100.00 7 Mobil Services Company Limited........... United Kingdom .01* 6 Mobil Services Company Limited............ United Kingdom 99.99* 7 Vacuum Oil Company Limited............... United Kingdom 2.00* 7 Superior Oil (U.K.) Limited.............. United Kingdom .10* 7 Mobil Trading and Supply Limited......... United Kingdom .10* 7 Mobil Oil Portuguesa, LDA................ Portugal .02* 5 Mobil North Sea Limited.................... Delaware 100.00 5 Mobil Oil Hellas A.E....................... Greece .03* 5 Superior Oil (U.K.) Limited................ United Kingdom 99.90* 4 Mobil Holdings Benelux Inc.................. Delaware 100.00 5 Mobil Oil B.V.............................. The Netherlands 100.00 6 Mobil Oil, S.A............................ Spain 100.00 5 Mobil Oil Hellas A.E....................... Greece 99.97* 4 Mobil Marine Transportation Limited......... Canada 100.00 5 Mobil Shipping and Transportation Company................................... Liberia 100.00 4 Mobil Oil (Switzerland)..................... Switzerland 100.00 4 Mobil Oil Aktiengesellschaft................ Germany 90.00* 4 Mobil Oil Australia Limited................. Australia 100.00 5 Vacuum Oil Company Proprietary Limited................................... Australia 100.00 6 Mobil Refining Australia Pty LTD........... Australia 100.00 4 Mobil Oil Austria Aktiengesellschaft......... Austria 100.00 4 Mobil Oil Egypt (S.A.E.)..................... Egypt .36* 4 Mobil Oil Hong Kong Limited.................. Hong Kong 99.90 4 Mobil Oil Kazakhstan Inc..................... Delaware 100.00 4 Mobil Oil Maroc.............................. Morocco 87.55*
(Level indicates the parent/subsidiary hierarchical relationship.) (Asterisk indicates 100% ownership held by two or more Mobil subsidiaries.) - -------------------------------------------------------------------------------- Mobil -31- - -------------------------------------------------------------------------------- EXHIBIT 21 MOBIL CORPORATION SUBSIDIARIES OF THE REGISTRANT - --------------------------------------------------------------------------------
Percentage of Voting Securities Organized Owned by Level under Laws of Immediate Parent - ----- ------------- ----------------- 1 MOBIL CORPORATION (CONCLUDED) 2 Mobil International Petroleum Corporation (concluded) 3 Mobil Petroleum Company Inc. (concluded) 4 Mobil Oil New Zealand Limited............ New Zealand 100.00 4 Mobil Oil Qatar Inc...................... Delaware 100.00 4 Mobil Oil Turk A.S....................... Turkey 100.00 4 Mobil Producing Netherlands Inc.......... Delaware 100.00 4 Mobil Saudi Arabia Inc................... Delaware 100.00 4 Mobil Sekiyu Kabushiki Kaisha............ Japan 100.00 4 Mobil Vietnam Inc........................ Delaware 100.00 4 Mobil Yanbu Petrochemical Company Inc.... Delaware 100.00 4 Mobil Yanbu Refining Company Inc......... Delaware 100.00 4 Mobil Petrochemical Sales and Supply Corporation............................. Delaware 100.00 3 Mobil Petrochemicals International Limited.................................. Delaware 100.00 3 Mobil Pipe Line Company................... Delaware 100.00 3 Mobil Plastics Europe, Inc................ Delaware 100.00 4 Mobil Petrochemical Holdings Co. Inc..... Delaware 100.00 3 Mobil Sales and Supply Corporation........ Delaware 100.00 4 Mobil Gas Liquids Trading, Inc........... Delaware 100.00 2 Mobil Oil Corporation...................... New York 100.00 3 Mobil Alaska Pipeline Company............. Delaware 100.00 3 Mobil California Exploration & Producing Asset Company............................ Delaware 98.50* 3 Mobil Chemical Company Inc................ Delaware 100.00 3 Mobil Development Nigeria Inc............. Delaware 100.00 4 Mobil Producing Nigeria Unlimited........ Nigeria 50.00* 3 Mobil Exploration and Producing Services Inc. .................................... Delaware 100.00 3 Mobil Exploration Nigeria Inc............. Delaware 100.00 4 Mobil Producing Nigeria Unlimited........ Nigeria 50.00* 3 Mobil Oil Credit Corporation.............. Delaware 100.00 3 Mobil Oil Nigeria Public Limited Company.. Nigeria 60.00 3 Mobil Oil Refining Corporation............ Delaware 100.00 3 Mobil Technology Company.................. Delaware 100.00 3 Mobil Rocky Mountain Inc.................. Delaware 100.00 4 Mobil Investments Canada Inc............. Delaware 65.31* 2 Mobil Produccion E Industrialization de Venezula.................................. Delaware 100.00 2 Mobil Producing Texas & New Mexico Inc..... Delaware 100.00 2 Mobil Qatargas Inc......................... Delaware 100.00 2 The Superior Oil Company................... Delaware 100.00
(Level indicates the parent/subsidiary hierarchical relationship.) (Asterisk indicates 100% ownership held by two or more Mobil subsidiaries.) - -------------------------------------------------------------------------------- Mobil -32- EX-23 6 EXHIBIT 23 - -------------------------------------------------------------------------------- EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- We consent to the incorporation by reference in this Annual Report on Form 10-K of Mobil Corporation of our report dated February 27, 1998, included in the 1997 Annual Report to Shareholders of Mobil Corporation. Our audits also included the financial statement schedule of Mobil Corporation listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-18130 and 333-16819) pertaining to the Employees Savings Plan of Mobil Oil Corporation; Form S-8 (No. 33-5797) pertaining to the 1986 Mobil Incentive Compensation and Stock Option Plan; Form S-3 (No. 33-34133-01) of the Mobil Oil Corporation Employee Stock Ownership Plan Trust for the registration of $300,000,000 principal amount of debt securities guaranteed by Mobil Corporation; Form S-3 (No. 33-43745) for the registration of $1,500,000,000 of Mobil Corporation Debt Securities; Form S-3 (No. 33-49945) for the registration of $1,500,000,000 of Mobil Corporation Debt Securities; Form S- 8 (No. 33-48887) pertaining to the 1991 Mobil Incentive Compensation and Stock Option Plan; Form S-3 (No. 33-50943) pertaining to the Mobil Corporation Stock Purchase and Dividend Reinvestment Plan for the registration of 5,000,000 shares of Mobil Corporation Common Stock (on a pre two-for-one stock split basis) and related Preferred Share Purchase Rights; Form S-8 (No. 33-61657) pertaining to the 1995 Mobil Incentive Compensation and Stock Ownership Plan; Form S-3 (No. 333-13457) for the registration of $650,000,000 Pass Through Certificates with the applicable underlying payments guaranteed by Mobil Corporation; and in the related Prospectuses of our report dated February 27, 1998, with respect to the financial statements incorporated herein by reference and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report on Form 10-K of Mobil Corporation. /s/ Ernst & Young LLP Ernst & Young LLP Fairfax, Virginia March 12, 1998 - -------------------------------------------------------------------------------- Mobil -33- EX-24.1 7 EXHIBIT 24.1 Exhibit 24 MOBIL CORPORATION I, G. G. GARNEY, Senior Assistant Secretary of MOBIL CORPORATION, a corporation organized and existing under the laws of the State of Delaware, DO HEREBY CERTIFY that at a duly constituted meeting of the Board of Directors of MOBIL CORPORATION held on February 27, 1998, at which meeting a quorum was present, the following resolution was approved: RESOLVED, that the Corporation's 1997 Annual Report on Form 10-K in substantially the form presented at this meeting, be and the same hereby is approved, and that the officers of the Corporation be and they and each of them hereby are authorized to sign and file such Report, including any amendments to such annual report on Form 10-K, on behalf of the Corporation with the Securities and Exchange Commission, the New York Stock Exchange and such other exchanges as may be necessary and appropriate, with such changes or amendments therein, if any, as may be approved by the officer or officers signing the same, which changes or amendments are hereby expressly approved. I further certify that the foregoing resolution is still in full force and effect. IN TESTIMONY WHEREOF, I have signed my name and affixed the Corporate Seal at Fairfax, VA this 16th day of March, 1998. /s/ G. G. Garney _________________________________ G. G. Garney Senior Assistant Secretary EX-24.2 8 EXHIBIT 24.2 MOBIL CORPORATION ----------------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each of the under-signed directors and/or officers of Mobil Corporation, a Delaware corporation, hereby constitutes and appoints WALTER R. ARNHEIM, PETER J. ANTICO, CAROLE J. YALEY and GORDON G. GARNEY his or her true and lawful attorneys-in-fact and agents to execute in his or her name and capacity the 1997 annual report on Form 10-K of this Corporation and any amendments to such annual report with all exhibits thereto, and any and all documents in connection therewith pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, each of such persons having full power to act without the others; AND FURTHER, that each of the undersigned directors and/or officers of the Corporation hereby grants to said attorneys-in-fact and agents and each of them, full power and authority to do and perform any and all acts and things essential and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person in connection with the proper exercise of the powers granted hereunder. IN WITNESS WHEREOF, the undersigned, as directors and/or officers of said Mobil Corporation or as individuals, have here- unto set their hands and seals as of the 27th day of February, 1998. /s/ Lucio A. Noto NAME AND TITLE ___________________________________ Lucio A. Noto, Director, Chairman of the Board, Principal Executive Officer /s/ Thomas C. DeLoach, Jr. NAME AND TITLE ____________________________________ Thomas C. DeLoach, Jr., Senior Vice President, Principal Financial Officer -2- /s/ Peter J. Antico NAME AND TITLE ____________________________________ Peter J. Antico, Assistant Controller, Principal Accounting Officer /s/ Lewis M. Branscomb NAME AND TITLE ____________________________________ Lewis M. Branscomb, Director /s/ Donald V. Fites NAME AND TITLE ____________________________________ Donald V. Fites, Director /s/ Charles A. Heimbold, Jr. NAME AND TITLE ____________________________________ Charles A. Heimbold, Jr., Director /s/ Allen F. Jacobson NAME AND TITLE ____________________________________ Allen F. Jacobson, Director /s/ Samuel C. Johnson NAME AND TITLE ____________________________________ Samuel C. Johnson, Director /s/ Helene L. Kaplan NAME AND TITLE ____________________________________ Helene L. Kaplan, Director /s/ J. Richard Munro NAME AND TITLE ____________________________________ J. Richard Munro, Director /s/ Aulana L. Peters NAME AND TITLE ____________________________________ Aulana L. Peters, Director /s/ Eugene A. Renna NAME AND TITLE ____________________________________ Eugene A. Renna, Director -3- /s/ Charles S. Sanford, Jr. NAME AND TITLE ____________________________________ Charles S. Sanford, Jr., Director /s/ Robert G. Schwartz NAME AND TITLE ____________________________________ Robert G. Schwartz, Director /s/ Robert O. Swanson NAME AND TITLE ____________________________________ Robert O. Swanson, Director /s/ Iain D. T. Vallance NAME AND TITLE ____________________________________ Iain D. T. Vallance, Director EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 820 0 5,952 0 2,156 9,722 49,630 24,556 43,559 12,421 3,670 0 665 894 17,902 43,559 64,327 65,906 41,197 43,751 11,005 0 428 6,365 3,093 3,272 0 0 0 3,272 4.10 4.01 sales and total revenues include $5,928 million of excise and state gasoline taxes
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