-----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, Mt9WXLfAn3CHL2SVyoevgmhzWx4KJBvHPxm9RmcD6IVBRIsMZPHmLtYanVfHXG8x Qfx3DWDNlkdEuPP/p77IBA== 0000928385-99-001036.txt : 19990402 0000928385-99-001036.hdr.sgml : 19990402 ACCESSION NUMBER: 0000928385-99-001036 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: 99579584 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 1998 ------------------------------------------------------------------------------ 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, 1998 ----------------- 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 26, 1999, the latest practicable date, was (i) 781,208,438 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) 163,469 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 16,346,900 votes. As of the same date, the aggregate market value of voting stock held by non-affiliates of the registrant was $64,926,634,136, based on a closing price of $83.1875 per share. The approximate number of common equity security holders as of the same date was 177,137. Parts I and II incorporate information by reference to the Annual Report to Shareholders for the year ended December 31, 1998. 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, 1998. - ------------------------------------------------------------------------------ MOBIL CORPORATION Form 10-K December 31, 1998 TABLE OF CONTENTS Page(s) ------------------------ 1998 1998 Annual Annual Report on Report to Form 10-K Shareholders --------- ------------ PART I Item 1. Business ..................................... 1 -- (a) General ............................... 1 -- (b) Environmental Matters ................. 1 27,46 (c) Segment and Geographic Information .... 2 36,37 (d) Business Description and Properties ... 2 54-56,62 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 ....................... 19 -- PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters ............ 22 29 Item 6. Selected Financial Data ...................... 22 63 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition ........................ 22 14-30,32,34 Item 7A. Quantitative and Qualitative Disclosures About Market Risk .......................... 22 22,23 Item 8. Financial Statements and Supplementary Data ......................... 22 29,31,33,35-59 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ....................... 22 -- PART III Item 10. Directors and Executive Officers of the Registrant .......................... 22 -- Item 11. Executive Compensation ....................... 22 -- Item 12. Security Ownership of Certain Beneficial Owners and Management ...................... 22 -- Item 13. Certain Relationships and Related Transactions ....................... 22 -- 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 ..................................... 29 -- 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 41,500 people worldwide at December 31, 1998. 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. The current low crude oil prices can affect the ability of some countries to generate sufficient cash flows to meet budgets for their domestic needs and fund joint ventures with Mobil and other oil companies. These circumstances increase the political, economic, and hydrocarbon risks related to operations in countries that depend on hydrocarbon resources for significant cash flow. Countries in addition to the U.S. in which Mobil has significant operations include, Australia, Canada, Germany, Indonesia, Japan, Kazakhstan, Nigeria, Norway, Qatar, Saudi Arabia, the United Kingdom (U.K.), and Venezuela. (b) Environmental Matters The discussions of Environmental Matters on pages 27 and 46 of Mobil's 1998 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. -1- (c) Segment and Geographic Information Segment and Geographic information for 1996, 1997 and 1998 on pages 36 and 37 of Mobil's 1998 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 1998 Annual Report to Shareholders are incorporated herein by reference: 1998 Annual Report to Shareholders Description Page - ------------------------------------------------------------- ------------ Estimated Quantities of Net Proved Oil and Natural Gas Liquids Reserves (Table 1) .................... 54 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 over 3.4 million barrels a day. In 1998 Mobil produced the oil equivalent of about 1.7 million barrels daily of crude oil, natural gas liquids and natural gas and had refinery runs of 2.1 million barrels per day. Petroleum net sales in 1998 were $42,786 million, down 36% from 1996 and 21% from 1997. The decrease in 1998 from 1997 was principally due to the effects of falling crude, petroleum product and natural gas prices. - -------------------------------------------------------------------------------- Petroleum Sales (a) 1996 1997 1998 (Millions of dollars) - -------------------------------------------------------------------------------- Automotive gasoline ........................ $23,193 $17,180 $13,835 Distillate and jet fuels ................... 17,842 12,096 8,871 Other refined petroleum products ........... 8,193 6,686 5,853 ------- ------- ------- Total refined petroleum products ........... 49,228 35,962 28,559 Crude oil .................................. 11,206 12,564 9,608 Natural gas ................................ 5,369 4,653 3,612 Other products ............................. 906 1,004 1,007 ------- ------- ------- Net Sales of Petroleum ..................... $66,709 $54,183 $42,786 ======= ======= ======= (a) Excludes excise and state gasoline taxes of ............................. $ 9,236 $ 5,928 $ 5,853 - -------------------------------------------------------------------------------- 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 1998 average worldwide crude oil prices decreased about $6.50 per barrel, reflecting increased supplies, slower worldwide demand growth due to the Asian financial crisis 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. -2- PETROLEUM OPERATIONS -- UPSTREAM Exploration and Producing Developments in 1998 in Mobil's exploration and producing operations included the following: Worldwide In 1998, Mobil conducted exploration and producing activities in 38 countries. Net production of liquids (crude oil and natural gas liquids) averaged 935 thousand barrels a day (TBD) in 1998, an increase of 8 TBD from 927 TBD in 1997. Net natural gas production of 4,296 million cubic feet a day (MMCFD) in 1998 was 260 MMCFD lower than 1997. Total production was down 40 thousand barrels per day of oil equivalent (TBDOE), primarily due to reduced volumes related to a change in the production sharing split in Indonesia, declines in mature areas such as the United States and Europe and limitations on production in Nigeria. The lower production was somewhat offset by new volumes from Hibernia (located offshore Eastern Canada), Equatorial Guinea, Kazakhstan and Turkmenistan. Proved liquids and natural gas reserve additions replaced 165% of 1998 production on a barrel of oil equivalent (BOE) basis, including purchases and sales. The following table summarizes net production of crude oil, natural gas liquids (NGL) and natural gas for 1996 through 1998. - -------------------------------------------------------------------------------- Crude Oil & NGL(TBD) Natural Gas(MMCFD) - -------------------------------------------------------------------------------- Net Production 1996 1997 1998 1996 1997 1998 - -------------------------------------------------------------------------------- Fully consolidated companies United States .............. 262 186 136 1,333 1,141 1,043 Europe ..................... 153 158 139 1,187 1,233 1,199 Asia-Pacific ............... 106 97 86 1,581 1,596 1,359 Other Areas ................ 271 348 378 446 474 554 ----- ----- ----- ----- ----- ----- Total Consolidated ......... 792 789 739 4,547 4,444 4,155 ----- ----- ----- ----- ----- ----- Mobil's share of production of equity companies ........... 62 138 196 40 112 141 ----- ----- ----- ----- ----- ----- Total Production ............. 854 927 935 4,587 4,556 4,296 ===== ===== ===== ===== ===== ===== 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 Mobil's share of production from its upstream alliance with Shell in California, Mobil's production in the United States during 1998 was 240 TBD of liquids and 1,077 MMCFD of natural gas or a total of 435 TBDOE. Compared with 1997, total production decreased 19 TBDOE as a result of natural field declines, the effects of divestments of noncore assets, operational downtime due to the storms in the Gulf of Mexico and a rationalization of the capital program. Aera Energy, Mobil's upstream alliance with Shell in California, continues to be the largest hydrocarbon producer (290 TBDOE at year end 1998, 100% basis) in the state. In November, Mobil traded several non-strategic Gulf of Mexico shelf properties to ARCO for ARCO's interest in several California properties thereby increasing Mobil's net reserves. Mobil then contributed these to the Aera joint venture, increasing Mobil's equity interest in Aera from 41.4% to 48.2%. -3- Significant developments - continued The Gulf of Mexico, including Mobile Bay, remains a strong contributor to Mobil's total domestic production. In 1998, Mobile Bay produced 320 MMCFD (178 MMCFD, Mobil share) of natural gas. Also, in 1998, Mobil greatly increased its acreage and prospect inventory in the deepwater Gulf of Mexico. While exiting from less strategic blocks, Mobil added 98 new blocks, increasing Mobil's total inventory of prospective deepwater blocks to almost 300. Mobil participated in the 1998 Llano discovery in Garden Banks Block 386, which is currently being appraised. In 1998, Mobil successfully drilled wells confirming the Chinook (Mobil share, 66%) discovery in the Main Pass/Viosca Knoll area in the Gulf of Mexico. This development is expected to stream late 1999, with an expected production rate of about 17 TBDOE (Mobil share) by 2000. Europe - ------ Mobil produced 63 TBD of liquids and 596 MMCFD of natural gas in the United Kingdom during 1998. Liquids production was down 16% from 1997 levels primarily due to natural declines in older fields and a trade, with Monument Oil and Gas plc, of the majority of Mobil's 20% equity interest in the Hudson field for additional interest in Argentina's Sierra Chata gas field. Natural gas production was down 11% from 1997 levels primarily due to warmer weather in the first half of the year and natural field declines in older fields, partly offset by the streaming of production from several new fields in the Southern Gas Basin and record natural gas production from the Beryl area. Mobil's 50% share in Beryl area fields (Beryl, Ness, Nevis, Katrine) produced 45 TBD of liquids and 143 MMCFD of natural gas during 1998. Mobil participated in five new field start-ups during 1998. First production started from Nevis North, a Beryl area satellite, Malory, Deben, Bure West and Delilah fields. Mobil's combined share of production from these new fields will be around 2 TBD of liquids and 50 MMCFD of natural gas in 1999. Mobil has a 50% interest in Nevis North, 76% interest in Malory, 23.33% interests in Deben and Bure West, and 10.69% interest in Delilah. Field development approval was obtained from the U. K. government for Buckland, Jupiter phase II, and Katrine. The Mobil-operated Buckland field (Mobil share, 35%) is expected to begin production in 1999, ramping up to about 11 TBD of liquids and 11 MMCFD of natural gas (Mobil share) by 2000. First production from the Jupiter phase II satellites (Callisto North, Europa and Sinope) is expected in 1999 at 9 MMCFD of natural gas, increasing to 35 MMCFD (Mobil share) of natural gas in 2000. Mobil has a 50% interest in Jupiter phase II. Continued production following the successful 1997 Katrine extended well test will contribute an additional 2 TBDOE (Mobil share, 50%) to 1999 volumes. The Shearwater development (Mobil share, 16.5%) progressed with four of the five development wells now drilled in the main reservoir. Commercial agreements were signed for the construction and operation of the new Shearwater-Elgin Area Line (SEAL) pipeline. First liquids and natural gas deliveries are planned for 2000. Production is expected to be 62 MMCFD of natural gas and 13 TBD (Mobil share) of NGL by the end of 2001. The extension of the Mobil-operated Scottish Area Gas Evacuation (SAGE) onshore processing terminal at St. Fergus was completed, providing processing capacity for the Britannia field. A new export record for the terminal of 1.7 billion cubic feet a day (BCFD) of natural gas was set following the Britannia field start-up. -4- Significant developments - continued The Interconnector Pipeline linking the natural gas transmission systems of the U.K. and the European continent opened in October 1998. Mobil arranged capacity in a pan-European transportation fairway enabling customers to be served from Germany to Ireland. In addition, Mobil Gas Marketing (MGM) and Mobil Europe Gas Inc. (MEGAS) entered into trades with third parties to optimize Mobil's position across the Interconnector. In 1998, Mobil produced 455 MMCFD of natural gas and 3 TBD of crude oil, totaling 86 TBDOE from Germany. Natural gas sales in Germany set a record high of 583 MMCFD, including imports from the Netherlands and Norway. Germany added 303 BCF of proved natural gas reserves, replacing 183% of natural gas production. This was the result of a successful appraisal drilling program as well as continued improvement in reservoir performance. Nine wells were completed in 1998, with an additional five drilling at year-end. Mobil produced 104 MMCFD of natural gas in the Netherlands during 1998. Natural gas production increased 73% as a result of the full year contribution of the Anjum field (Mobil share, 20%), which came on stream in late 1997. Two natural gas discoveries (Ezumazijl and M/9-F) were made on the North Friesland Concession (Mobil share, 20%) in 1998. The larger Ezumazijl discovery will be tied back to the Anjum processing train and commence production in early 1999. As a result of the Ezumazijl discovery and re-evaluation of other onshore Anjum area fields, Mobil added 52 BCF of proved reserves thereby replacing 137% of production in the Netherlands. Mobil produced 73 TBD of liquids and 44 MMCFD of natural gas in Norway during 1998, primarily from two of Europe's largest fields, Statfjord and Oseberg, and a growing contribution from the Njord field. The Statfjord North Flank will supplement production at Statfjord with about 45 TBD (Mobil share, 5 TBD). Sygna, a satellite development located north of Statfjord, will add a further 17 TBD (Mobil share, 3 TBD). Oseberg East is scheduled for production start-up in early 1999, followed by Oseberg South in 2000. Mobil's share of production from these fields will be about 9 TBDOE. Development of natural gas reserves at Oseberg is also progressing with gas injection starting in 1999 and production anticipated in 2000. Mobil's share of production will initially be 10 MMCFD, increasing to about 40 MMCFD by 2012. First production from the Njord field (Mobil share, 20%) began in September 1997. Production exceeded the planned plateau level of 67 TBD (Mobil share, 13 TBD) in late 1998. The Halten Terrace, an emerging core area, includes Aasgard, the new Haltenbanken South and Skarv developments along with the Njord field, which reached plateau production in 1998. Aasgard liquids production is scheduled for second quarter 1999 with natural gas production due in the fourth quarter of 2000. The Haltenbanken South project will develop two of the four largest Norwegian discoveries of the last ten years, Kristin (1997) and Lavrans (1995), with the potential inclusion of two earlier discoveries. Start-up of this natural gas condensate project is planned for 2004, with peak production of 270 TBDOE (Mobil share, 30 TBDOE) in 2006. Subject to appraisal drilling results, the Skarv field, Mobil's fourth significant discovery in the past four years is expected to begin production in 2004 with estimated peak production of 140 TBDOE in 2009 (Mobil share, 20 TBDOE). -5- Significant developments - continued The development plan for Fram (Mobil share, 25%) is being expanded to possibly include other resources in the Greater Sogn area. Start-up is expected in the 2003-2004 time frame. Asia-Pacific In 1998, Mobil's share of production from Indonesia averaged 1,354 MMCFD of natural gas, 25 TBD of condensate, and 12 TBD of liquefied petroleum gas (LPG). Under Production Sharing Contracts (PSC's) with Pertamina, the state oil and gas company, Mobil has interests in 11 blocks comprising 6.99 million acres. One of these blocks includes the Arun field, Indonesia's largest producing natural gas field, discovered in 1971. Mobil's share of production in Arun decreased versus 1997 due to the contractual change in Mobil/Pertamina interests consistent with moving into the extension period of the PSC. Pase field production began in January 1998 with three high-rate wells to supplement gas deliveries to the Arun LNG plant. Pase well production rates are substantially higher than initially expected. Each well is capable of producing in excess of 100 MMCFD. Development activities in the North Sumatra Offshore (NSO) "A" continue with first production scheduled for July 1999. In addition, South Lhok Sukon - B1 is scheduled for a 1999 start-up. Outside of North Sumatra, Mobil's interests include 50% in the Makassar Strait PSC (offshore East Kalimantan) and a pending assignment of a 30% interest in the adjacent Rapak PSC. Mobil made significant discoveries in the Merah Besar and Seno prospect areas of Makassar in 1998. A Plan of Development for the West Seno field is being formulated for submission to the Government of Indonesia in 1999. An aggressive drilling program will continue in early 1999 to evaluate several prospects on the Rapak PSC and the northern portion of the Makassar Strait PSC. Mobil's average production in Australia decreased from 44 TBDOE to 39 TBDOE in 1998 due to natural field declines and the disposal of natural gas assets in late 1997. Much of Australia's production comes from two offshore fields, Wandoo (Mobil share, 60% and operator) and Griffin (Mobil share, 35%), located on the North West Shelf. Wandoo achieved average oil production of 28 TBDOE. The Griffin field came back on line in early March after repairs to equipment on the Griffin Venturer floating production, storage, and off-loading vessel (FPSO) were completed. Full production was restored in April at an average rate of 49 TBDOE (Mobil share, 17 TBDOE). In 1998, two additional appraisal wells were drilled in the Gorgon gas field, (Mobil share, 14.3%). Market conditions in Asia have delayed achieving a sales contract for Gorgon LNG. Two 1997 oil discoveries were appraised with wells on the Pitcairn (Mobil share, 33.4%) and Woollybutt oil fields (Mobil share, 20%). Exploration drilling in the acreage acquired from Ampolex discovered a major new natural gas resource at the John Brookes-1 well location (Mobil share, 35% and operator). A production license was awarded to Mobil and its partner, Phillips Oil Company Australia, to cover the 1997 Athena natural gas-condensate discovery. The Athena field in the Carnarvon Basin is an extension of the giant Perseus natural gas field discovered by the North West Shelf joint venture in the early 1990s. -6- Significant developments - continued Mobil's production in Papua New Guinea was maintained during 1998 as new oil production from Gobe Main (Mobil share, 14.5%) and SE Gobe (Mobil share, 10%) came on line. The Gobe field, Papua New Guinea's second commercial oil field, was brought on stream in March and produced an average of 20 TBD for the remainder of 1998 (Mobil share, 2 TBD). Development drilling will continue into 1999 with a peak rate of 45 TBD expected in September, 1999 (Mobil share, 5 TBD). The Moran field was appraised with the 5X well. This well was immediately tied in to the extended well test for the Moran field, increasing gross production to 15 TBD at year-end (Mobil share, 2 TBD). The average rate throughout 1998 was almost 10 TBD (Mobil share, 1 TBD). Studies are now under way to evaluate future development plans. Other In 1998, Canada produced 71 TBD of liquids and 440 MMCFD of natural gas for total production of 151 TBDOE, up about 25% from 1997. Most of the increase came from Hibernia's contribution of 22 TBD. Mobil has a 33.1% share in the Hibernia oil field located 195 miles southeast of St. John's, Newfoundland. In 1998, Hibernia continued its drilling program, completing three producing and four water and natural gas injection wells needed to support reservoir pressure. At year end, one producing well and one injection well were still in the process of being drilled. Production is expected to increase to 135 TBD (Mobil share, 45 TBD) in 1999. Mobil holds a 50.8% working interest in the Sable Offshore Energy Project (SOEP), a natural gas development project comprised of six natural gas fields, located 125 miles off the coast of Nova Scotia. SOEP began development drilling in June 1998. First production is expected in late 1999 with facilities in place to deliver natural gas at about 510 MMCFD (Mobil share, 260 MMCFD) plus 10 TBD (Mobil share) of liquids. Natural gas from SOEP will be transported to the Canadian Maritimes and the northeast U.S. via the Maritimes and Northeast Pipeline (Mobil share, 12.5%) with a pipeline capacity of 900 MMCFD. The U.S. portion of the pipeline received F.E.R.C. approval in July 1998. Construction has begun in both the U.S. and Canada and is on track to be completed coincident with first natural gas production from SOEP. The Terra Nova project (Mobil share, 22%), located 25 miles southeast of Hibernia, received the necessary regulatory approvals and partner sanction in 1998. Construction is well underway with the start of hull and module fabrication. At year end, the project was 37% complete. The FPSO system is set to sail from Korea to Newfoundland in 1999. First production is targeted for 2001 with a peak production rate of 115 TBD (Mobil share, 25 TBD). In September, Mobil was awarded six new oil and natural gas exploration licenses on the Grand Banks, offshore Newfoundland, Canada. The licenses, totaling more than one million acres, bring Mobil's exploration holdings offshore Grand Banks to 2.2 million gross acres (550,000 net acres). Mobil holds between 30% and 50% interest in each of the six new licenses. Two licenses are located in a new exploration area on the eastern edge of Canadian waters known as the Flemish Pass Basin. The remaining four licenses are located within the Jeanne d'Arc Basin, where the majority of offshore production and development is currently concentrated. Mobil has a 40% interest in a joint venture with the Nigerian National Petroleum Corporation (NNPC), on behalf of which it operates five Oil Mining Leases (OML 67-70 -7- Significant developments - continued and 104) covering about 800,000 acres in shallow water offshore southeastern Nigeria in the Niger delta. Mobil also operates two deepwater blocks under Production Sharing Contracts with 50% working interest: OPL 221, a 565,000 acre block in the southeast, and OPL 215, a 641,800 acre block in the western Niger delta. Equity production in Nigeria in 1998 was 248 TBD, 2% less than 1997 due to a pipeline break early in the year, somewhat minimized by new production from the Oso-NGL project. Additionally, OPEC production restrictions, resulting from prevailing soft crude prices, limited planned production growth. Proved reserves replacement was 180% resulting primarily from appraisal/development drilling in the joint venture acreage. The Oso-NGL project (Mobil share, 51%) began production in August and averaged about 5 TBD of natural gas liquids for 1998. This is expected to increase to 50 TBD (100% basis) in early 1999. Extracted liquids are transported via the 42-mile pipeline to the Bonny River Terminal for further processing. Although there continues to be political uncertainty as the transition to civilian rule progresses, to date there has been minimal impact upon Mobil's Nigerian operations. However, management continues to monitor the situation. Also, in common with other oil companies operating in Nigeria, Mobil's joint venture with NNPC has encountered delays in receiving cash from NNPC to meet joint venture expenditures. Production in Equatorial Guinea averaged 80 TBD (Mobil share, 50 TBD) in 1998, 35% more than in 1997 due to additional field development. Reserve replacement was 417%. In addition to ongoing exploration drilling in Block B, Mobil and its partner are increasing the production capacity at Zafiro field from its current design level of 80 TBD to about 120 TBD in 2002. In March 1998, Mobil agreed to a revised Production Sharing Contract with the government of Equatorial Guinea. Under the new agreement, Mobil's working interest changed from 75% to 71.25%, with partner, Ocean Energy, holding 23.75% and the government of Equatorial Guinea holding the remainder. Mobil, a subsidiary of Petroleos de Venezuela, S.A. (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. In 1998, project financing was obtained, major work contracts were awarded (i.e., drilling, field facilities, pipelines, upgrader), and construction of the major facilities began. Production startup is expected in late 1999 at 60 TBD (Mobil share, 41.67%). Upon startup, crude production will be partially upgraded in Venezuela with final processing of most of the crude at the refinery located in Chalmette, Louisiana, now owned by a partnership between Mobil and an affiliate of PDVSA. In Qatar, the Qatargas project (Mobil share, 10%) streamed the third liquefaction train in March. In 1998, Qatargas delivered 66 LNG cargoes (about 3.6 million metric tons) to buyers in Japan, Spain and Turkey. Qatargas will ultimately deliver 6 million metric tons annually (MMTA) of LNG to Japan. Peak production volumes are expected to be 1,200 MMCFD of natural gas and 40 TBD of condensate (Mobil share, 26 TBDOE). A short-term sale with Enagas of Spain was extended to include 11 additional cargoes (three delivered in 1998 and eight for 1999 delivery). Additionally, Qatargas became one of the only producers to market LNG in the -8- Significant developments - continued established markets of Europe, the Far East, and the U.S., with U.S. sales scheduled for delivery in 1999. Mobil has an interest in Ras Laffan Liquefied Natural Gas Company Ltd. (RasGas), which is constructing a multi-train LNG facility. Completion and hand-over of the first train offshore facilities occurred in November, one month ahead of schedule. Startup of the first train onshore is expected in early 1999. RasGas' existing sales contract with Korea Gas Corporation (KOGAS)for 4.8 MMTA of LNG will support the production of 960 MMCFD of gas and 32 TBD of condensate (Mobil share, 52 TBDOE). Mobil currently has a 26.5% interest in the first two trains of RasGas. This interest will decrease to 25% when a Korean consortium led by KOGAS exercises its option to acquire an equity interest in the project. Mobil and RasGas marked a major milestone with the signing of a Heads of Agreement with Petronet (India) for the long-term supply of 7.5 MMTA of LNG into Dahej and Cochin on India's west coast, beginning in 2002. In addition to the LNG supply, Mobil and RasGas may participate in the downstream (import terminal) development in India. In another India tender, the winning consortium, led by CMS Energy Corporation (CMS), will develop new gas-fired power facilities at Ennore, Tamil Nadu in southeast India. The Tamil Nadu project will require 1.8 MMTA of LNG in 2003, building to 2.5 MMTA with pipeline sales. A Memorandum of Understanding signed by RasGas in 1998 with the CMS consortium offers RasGas exclusive rights to supply natural gas to the consortium subject to negotiation of acceptable terms and conditions. Mobil signed a Heads of Agreement with Qatar General Petroleum Corporation detailing fiscal terms under which Mobil will progress the Enhanced Gas Utilization (EGU) project in Qatar. This project is expected to deliver over 1 BCFD of natural gas to domestic and regional industries, as well as producing 40 TBD of condensate and 15 TBD of LPG (Mobil share, 85 TBDOE), beginning as early as 2002. New Exploration & Producing Ventures South America - ------------- - - Peru: Mobil was a partner with Shell (operator) in three license blocks, collectively known as Camisea. Terms of the Camisea license agreement required a commitment in mid-1998 to develop the field with first production by 2002. In mid-July, it was announced that Shell and Mobil were unable to resolve various challenges to move the project forward within the timeframe stipulated by the government; therefore, they could not commit to the second phase of the Camisea project and the license expired. Mobil has a 42.5% interest in the Shell-operated Pagoreni license in Block 75, near Camisea. Mobil and Shell plan to continue with the exploration program on Block 75 in 1999 and will seek an extension to the current exploration period. Additionally, Mobil holds an interest in the Tambopata Block 78 in the Madre de Dios Basin (Mobil share, 33.4%). Currently the Candamo 1X exploration well is being drilled, with results expected in the second quarter of 1999. After evaluating the results from the Candamo 1X well, Mobil and its partners, Esso and Elf, will decide whether to enter the next period of the license. -9- Significant developments - continued Europe - ------ - - Italy: Mobil, ENI (Agip), Enterprise and Fina signed an agreement to jointly purchase Lasmo's holdings in Italy. The holdings comprise Lasmo's interest in seven blocks, in five of which Mobil already holds a position. Primary amongst the blocks are Gorgoglione and Tempa d"Emma concessions which overlie the Tempa Rossa heavy-oil field. The terms of the acquisition will give each of the four owners a 25% interest in the unified development of the Tempa Rossa field. The agreement was finalized in early 1999. Africa - ------ - - Sao Tome and Principe: Mobil and Sao Tome and Principe National Petroleum Co. signed a Technical Assistance Agreement to evaluate the hydrocarbon potential of offshore acreage of the Democratic Republic of Sao Tome and Principe, an island state located south of Nigeria and Equatorial Guinea in West Africa. Mobil is to complete an 18-month technical evaluation including seismic acquisition and interpretation of 22 deepwater blocks covering 12 million acres. Mobil will then have an exclusive option to negotiate a production sharing contract on the acreage. Commonwealth of Independent States (Caspian Region) - --------------------------------------------------- - - Kazakhstan: In the Tengiz oil field (Mobil share, 25%), located on the eastern shore of the Caspian Sea, the facility expansion and an upgrading of the crude processing plant were completed in the fourth quarter of 1998 which increased crude oil production to 210 TBD (Mobil share, 52 TBD). A new processing train is expected to boost production to 240 TBD by mid-year 2000. Mobil is a 7.5% partner in the Caspian Pipeline Consortium (CPC), which is developing a dedicated 900-mile crude export pipeline system from Tengiz via Russia to the Black Sea port of Novorossyisk. In 1998, the governments of Russia and Kazakhstan approved investment and construction feasibility studies. CPC awarded contracts for the supply of pipe, and construction is scheduled to begin in early 1999, with the pipeline projected to stream in late 2001. The initial capacity is estimated at 560 TBD with a staged expansion increasing capacity to approximately 1.4 million of barrels daily (MMBD) by 2010. The Production Sharing Agreement (PSA) for exploration, development, and production of 11 blocks in Kazakhstan's sector of the Caspian Sea became effective in 1998 (Mobil share, 14.3%). The Offshore Kazakhstan International Operating Company (OKIOC) acts as operator on behalf of the participants in the PSA. Pre-drill operations continued throughout 1998 with drilling of the first exploratory well scheduled for mid-1999. In 1998, Mobil, Chevron, Royal Dutch/Shell and KazakhOil, signed an agreement with the Republic of Kazakhstan to carry out a feasibility study for oil and natural gas transportation systems from Kazakhstan to western markets. The first phase of the study is expected to take a year with an estimated cost of $8-10 million. - - Turkmenistan: Mobil has a 40% interest in the onshore western Turkmenistan Nebitdag license area, which includes the Burun field. By the end of 1998, Burun was producing more than 14 TBD (Mobil share, 6 TBD) and production is projected to increase to 20 TBD (Mobil share, 8 TBD) in 1999. In 1998, Mobil signed a PSA covering the 4,500 square kilometer area of Garashsyzlyk or "Independence" which lies adjacent to Nebitdag and includes most of Turkmenistan's onshore producing oil fields. The PSA enables Mobil to explore for -10- Significant developments - continued oil outside the boundaries of existing producing fields and also in deeper areas below major fields such as Barsagelmes and Koturtepe. Mobil's partners are Monument Oil and Gas plc. and Turkmenneft, the producing association of Turkmenistan. The appraisal program is due to start in 1999. - - Azerbaijan: Mobil holds a 50% interest and operatorship of the offshore 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 Azerbaijan's sector of the Caspian Sea, is adjacent to the Neft Dashlary and Guneshli oil fields. Technical work was pursued in 1998 to determine an optimum drilling location. The Joint Operating Agreement (JOA) between Mobil and SOCAR was signed in August 1998. Drilling activities are expected to commence in early 2001. -11- Significant developments - continued Reserves Mobil is required to report reserve estimates to the U.S. Department of Energy. During 1998 Mobil filed proved reserve estimates covering the year 1997 under forms EIA-23, Annual Survey of Domestic Oil and Gas Reserves, and EIA-28, Financial Reporting System. EIA-23 is filed on the basis of 100% volumes for domestic Mobil-operated fields which differs from the Securities and Exchange Commission (S.E.C.) reporting basis. The latter requires disclosure on a net working interest basis for both domestic and international reserves. As such, volumes differ by more than 5%. The EIA-28 estimates, which are filed on the same basis as the S.E.C. requirements, are essentially the same as the reserve data filed with the S.E.C. - -------------------------------------------------------------------------------- Wells in Process of Being Drilled Total at December 31, 1998 Gross Net - -------------------------------------------------------------------------------- United States ................................ 22 5 International ................................ 47 20 -- -- Worldwide ................................... 69 25 == == - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Improved Recovery Projects Being Installed In Operation at December 31, 1998 Gross Net Gross Net - -------------------------------------------------------------------------------- United States .................. 8 -- 192 44 International .................. 5 1 73 37 --- --- --- --- Worldwide ..................... 13 1 265 81 === === === === - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ------- International -------- Productive Wells at Asia- Other World- Mult. December 31, 1998 U.S. Europe Pacific Areas Total wide Compl.(a) - -------------------------------------------------------------------------------- Oil: Gross ...... 9,832 846 570 1,766 3,182 13,014 520 Net ........ 1,747 229 90 989 1,308 3,055 249 Gas: Gross ...... 6,123 477 88 1,004 1,569 7,692 531 Net ........ 2,953 131 88 291 510 3,463 350 (a) Multiple completions included in geographic totals. - -------------------------------------------------------------------------------- -12- Significant developments -- continued - -------------------------------------------------------------------------------- Net Exploratory and ------- International -------- Development Wells Asia- Other World- Drilled U.S. Europe Pacific Areas Total wide - -------------------------------------------------------------------------------- 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 1998 Exploratory wells Productive ................... 17 1 15 21 37 54 Dry .......................... 13 3 11 11 25 38 Development wells Productive ................... 80 13 14 79 106 186 Dry .......................... -- 2 2 10 14 14 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Oil and Gas Acreage at December 31, 1998 Undeveloped Acreage Developed Acreage (Thousands of acres) Gross Net Gross Net - -------------------------------------------------------------------------------- United States .................. 4,327 2,670 3,907 2,577 Europe ......................... 18,465 5,339 1,593 562 Asia-Pacific ................... 48,327 17,374 1,264 188 Other .......................... 65,364 29,259 3,527 1,533 ------- ------- ------- ------- Total International .......... 132,156 51,972 6,384 2,283 ------- ------- ------- ------- Worldwide ...................... 136,483 54,642 10,291 4,860 ======= ======= ======= ======= - -------------------------------------------------------------------------------- -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 1996, 1997 and 1998. 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 5,519 cubic feet of gas per barrel. 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 1996 1997 1998 - --------------------------------------------------------------------------------------- Revenues Crude oil (per barrel) ......................... $ 17.40 $ 17.27 $ 11.78 NGL (per barrel) ............................... $ 13.16 $ 11.96 $ 8.26 Natural gas (per thousand cubic feet) .......... $ 2.17 $ 2.38 $ 1.98 Average dollars per barrel of oil equivalent Revenues ....................................... $ 13.48 $ 14.13 $ 10.75 Production (lifting) costs ..................... (5.08) (5.13) (5.55) Exploration expenses ........................... (.41) (.53) (1.07) Depreciation, depletion and amortization ....... (3.46) (3.08) (5.10) Other operating revenues/(expenses) ............ 1.43 .73 .27 Income tax expense ............................. (1.99) (2.09) .21 -------- -------- -------- Results of operations for producing activities ... $ 3.97 $ 4.03 $ (.49) ======== ======== ======== Mobil's share of equity companies ................ -- 5.26 1.72 ======== ======== ======== Total ............................................ $ 4.00 $ 4.20 $ 0.07 ======== ======== ======== Above results include the following special items: Asset impairment ............................... (.37) -- (.98) Litigation ..................................... -- (.07) (.18) Asset sales .................................... .65 .32 -- Restructuring provisions ....................... (.04) -- -- Employee performance award ..................... -- (.02) -- - --------------------------------------------------------------------------------------- EUROPE 1996 1997 1998 - --------------------------------------------------------------------------------------- Revenues Crude oil (per barrel) ......................... $ 20.85 $ 19.32 $ 12.73 NGL (per barrel) ............................... $ 17.47 $ 18.09 $ 11.04 Natural gas (per thousand cubic feet) .......... $ 2.78 $ 2.78 $ 2.40 Average dollars per barrel of oil equivalent Revenues ....................................... $ 17.62 $ 16.34 $ 13.10 Production (lifting) costs ..................... (5.44) (4.81) (4.95) Exploration expenses ........................... (1.17) (.97) (.94) Depreciation, depletion and amortization ....... (3.49) (3.19) (3.46) Other operating revenues/(expenses) ............ .71 .95 2.33 Income tax expense ............................. (4.73) (4.45) (2.22) -------- -------- -------- Results of operations for producing activities ... $ 3.50 $ 3.87 $ 3.86 ======== ======== ======== Mobil's share of equity companies ................ $ 4.04 $ 7.93 -- ======== ======== ======== Total ............................................ $ 3.50 $ 3.90 $ 3.83 ======== ======== ======== Above results include the following special items: Asset sales .................................... -- -- .42 Employee performance award ..................... -- (.01) --
-14-
- --------------------------------------------------------------------------------------- ASIA-PACIFIC 1996 1997 1998 - --------------------------------------------------------------------------------------- Revenues Crude oil (per barrel) ......................... $ 20.92 $ 19.78 $ 12.94 NGL (per barrel) ............................... $ 18.19 $ 19.77 $ 13.78 Natural gas (per thousand cubic feet) .......... $ 2.50 $ 2.51 $ 2.35 Average dollars per barrel of oil equivalent Revenues ....................................... $ 15.18 $ 14.98 $ 10.58 Production (lifting) costs ..................... (2.01) (2.04) (1.94) Exploration expenses ........................... (1.09) (.60) (.76) Depreciation, depletion and amortization ....... (2.12) (2.36) (2.74) Other operating revenues/(expenses) ............ .04 .18 (.26) Income tax expense ............................. (6.11) (5.84) (3.09) -------- -------- -------- Results of operations for producing activities ... $ 3.89 $ 4.32 $ 1.79 ======== ======== ======== Mobil's share of equity companies ................ * * $ * ======== ======== ======== Total ............................................ $ 3.87 $ 4.30 $ 1.79 ======== ======== ======== Above results include the following special items: Asset impairment ................................ -- -- (.45) Asset sales ..................................... (.15) .29 -- Restructuring provisions ........................ (.03) -- -- Employee performance award ...................... -- (.01) -- - --------------------------------------------------------------------------------------- OTHER AREAS 1996 1997 1998 - --------------------------------------------------------------------------------------- Revenues Crude oil (per barrel) ......................... $ 20.67 $ 18.57 $ 12.02 NGL (per barrel) ............................... $ 16.54 $ 16.05 $ 9.41 Natural gas (per thousand cubic feet) .......... $ .89 $ 1.22 $ 1.24 Average dollars per barrel of oil equivalent Revenues ....................................... $ 17.03 $ 15.94 $ 10.95 Production (lifting) costs ..................... (5.46) (5.29) (4.89) Exploration expenses ........................... (.95) (1.28) (1.73) Depreciation, depletion and amortization ....... (1.41) (2.14) (2.85) Other operating revenues/(expenses) ............ 1.48 (.27) (.54) Income tax expense ............................. (8.43) (5.22) (1.47) -------- -------- -------- Results of operations for producing activities ... $ 2.26 $ 1.74 $ (.53) ======== ======== ======== Mobil's share of equity companies ................ $ 2.02 $ 2.52 $ .15 ======== ======== ======== Total ............................................ $ 2.23 $ 1.88 $ (.40) ======== ======== ======== Above results include the following special items: Asset impairment ................................ -- -- (.83) Asset sales ..................................... .22 -- -- Employee performance award ...................... -- (.01) -- - --------------------------------------------------------------------------------------- WORLDWIDE 1996 1997 1998 - --------------------------------------------------------------------------------------- Revenues Crude oil (per barrel) ......................... $ 19.76 $ 18.59 $ 12.22 NGL (per barrel) ............................... $ 15.48 $ 15.21 $ 9.86 Natural gas (per thousand cubic feet) .......... $ 2.29 $ 2.62 $ 2.12 Average dollars per barrel of oil equivalent Revenues ....................................... $ 15.61 $ 15.36 $ 11.34 Production (lifting) costs ..................... (4.50) (4.35) (4.39) Exploration expenses ........................... (.87) (.86) (1.18) Depreciation, depletion and amortization ....... (2.70) (2.68) (3.46) Other operating revenues/(expenses) ............ .94 .38 .38 Income tax expense ............................. (5.01) (4.41) (1.64) -------- -------- -------- Results of operations for producing activities ... $ 3.47 $ 3.44 $ 1.05 ======== ======== ======== Mobil's share of equity companies ................ $ 2.26 $ 3.63 $ .93 ======== ======== ======== Total ............................................ $ 3.42 $ 3.46 $ 1.03 ======== ======== ======== Above results include special items, net ......... .08 .12 (.58)
* Not meaningful due to the exploratory nature of related activities. -15- PETROLEUM OPERATIONS -- DOWNSTREAM Refining Mobil's primary product supply comes from 23 refineries. Mobil's share of crude oil refinery capacity was 2,177 TBD, about 36% of which was located in the United States. Worldwide utilization of Mobil's refining capacity averaged 94% in 1996, 1997, and 1998. Significant developments in 1998 in Mobil's refining operations included the following: - - In September, the refinery in Paulsboro, New Jersey was sold to Valero Energy Corporation. Mobil signed 10-year agreements to buy fuels and lubricant base stocks from Valero, with an option to extend those agreements. - - At Llandarcy, South Wales, Mobil and The British Petroleum p.l.c. (BP) completed the previously announced closing of a stand-alone lubes refinery. - - In Barbados, as agreed with the local government, Mobil closed its refinery, completing the company's withdrawal from the Barbados market. Marketing - -------------------------------------------------------------------------------- Petroleum Sales Volumes By Product (TBD) 1996 1997 1998 - -------------------------------------------------------------------------------- Automotive gasolines .......................... 1,317 1,304 1,363 Jet fuels ..................................... 273 297 319 Distillates ................................... 1,026 983 950 Other products ................................ 729 759 808 ----- ----- ----- Total* ........................................ 3,345 3,343 3,440 ===== ===== ===== *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. In Latin America, Mobil entered the Venezuelan fuels business, supplementing the growing fuels businesses in Colombia, Peru and Ecuador. -16- Tankers At December 31, 1998, Mobil owned 19 ocean-going tankers with an aggregate of 2,760 thousand deadweight tons (DWT). An additional 16 tankers, aggregating 1,111 DWT, were under term charter, including Mobil's very large crude carriers (VLCCs), RAVEN and EAGLE. In January 1999, a new double hulled VLCC, OSPREY, was delivered to the Mobil fleet. Her sister ship, ALREHAB, will be delivered in June 1999. Both vessels are owned by Samoco L.L.C., a joint venture company in which Mobil holds a 50% interest. In addition, two double hulled Aframax tankers with a combined capacity of 160 DWT are to join the fleet in October and December of 1999. They are owned by QM Tanker. Mobil holds a 50% interest in this company as well. A new joint venture company, MARCARE Shipping Co., LLC, was established in 1998 by Mobil and two new partners, Onassis and Goulandris, both premier companies in the industry. MARCARE, equally owned by the three partners, has contracted for two more new VLCCs for use by Mobil. These are scheduled for delivery in 2000 and will be the fifth and sixth new double-hull VLCCs to enter Mobil's service. Pipelines At December 31, 1998, Mobil's U.S. pipeline system, including partly-owned facilities, consisted of 12,581 miles of crude oil, natural gas liquids, natural gas, and carbon dioxide trunk and gathering lines, and 8,251 miles of product lines. Also at that date, Mobil's pipeline system outside the U.S., including partly-owned facilities, consisted of 10,562 miles of crude oil, natural gas liquids, and natural gas trunk and gathering lines, and 2,878 miles of product lines. CHEMICAL OPERATIONS Mobil Chemical, with manufacturing operations in 10 countries, is a large producer of petrochemicals, packaging films and specialty chemical products. - -------------------------------------------------------------------------------- Mobil Chemical Facilities United Inter- World- at December 31, 1998 States national wide - -------------------------------------------------------------------------------- Petrochemicals (a) ............................ 6 7 13 OPP Films ..................................... 3 4 7 Chemical Specialties .......................... 3 2 5 Research and Development ...................... 3 -- 3 -- -- -- Total Chemical facilities .................... 15 13 28 == == == (a) Includes one partly-owned facility in the U.S. and six in International. - -------------------------------------------------------------------------------- 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. -17- Chemical Operations -- continued Significant developments in 1998 in Mobil's chemical operations included the following: - - Mobil Yanbu Petrochemical Company and Saudi Basic Industries Corporation are expected to complete by mid-2000 a major expansion of their 50-50 joint venture petrochemicals complex in Yanbu, Saudi Arabia. This expansion will include a second ethylene production facility and facilities to produce additional polyethylene, ethylene glycol and polypropylene. - - Mobil and Pequiven, the Venezuelan state-owned petrochemical company, are engaged in Phase I engineering studies to develop 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 scheduled for completion with start-up planned for early 1999. - - Mobil and Hoechst AG decided not to proceed with the proposed joint venture to combine their oriented polypropylene (OPP) flexible films business. 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 $206 million in 1996, $234 million in 1997, and $204 million in 1998. -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 U.S. 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. Most 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. The relief normally sought in the proceedings is the payment by the potentially responsible parties of the costs of removing hazardous substances from, and remediating, the sites in question. 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. On December 9, 1998, the Environmental Protection Agency of South Australia issued an Information and Summons to Mobil Refining Australia Pty LTD alleging the violation of two sections of the Environment Protection Act, 1993 of South Australia by reason of a discharge of a gas, ethyl mercapatan, into the environment. The maximum penalty for an offense for a body corporate is (Australian) $250,000. The matter described in the preceding paragraph is not of material importance in relation to Mobil's accounts and is described in compliance with S.E.C. 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 financial condition and results of operations. 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. -19-
- -------------------------------------------------------------------------------------------------------- Executive Officers of the Registrant - -------------------------------------------------------------------------------------------------------- Name (Age) Position(s) Held During Past Five Years Years Held - ----------------- -------------------------------------------------------------- --------------- Louis W. Executive Vice President, Mobil Oil Corporation, Allstadt (55) responsible for the Americas Exploration and Producing Business...............................................1998-Present Operating Officer, North American Exploration and Producing, Mobil Oil Corporation.................................1996-1998 Vice President, Supply, Trading & Transportation, Marketing & Refining Division, Mobil Corporation.................1995-1996 Chairman and President, Mobil Sekiyu Kabushiki Kaisha............................................................1992-1995 Robert F. Vice President, Human Resources....................................1996-Present Amrhein (56) Manager, Human Resources, Mobil Business Resources Corporation............................................1995-1996 Manager, Employee Relations, Exploration and Producing Division, Mobil Oil Corporation........................1992-1995 Walter R. Treasurer..........................................................1995-Present Arnheim (54) Vice President, Planning and Economics.............................1991-1995 Brian R. Executive Vice President, Mobil Oil Corporation, Baker (54) responsible for the North American Marketing & Refining Business................................................1998-Present Chief Operating Officer, North American Marketing & Refining and Executive Vice President, Mobil Oil Corporation......................................................1996-1998 Vice President and General Manager, East Fuels Business & Supply, Marketing & Refining Division, Mobil Oil Corporation............................................1994-1996 Harold R. Executive Vice President, Chief Financial Officer..................1998-Present Cramer (48) President, Mobil Europe and Central Asia Limited...................1996-1998 President, Mobil Europe Limited....................................1996-1996 President, Mobil South, Inc........................................1993-1996 Steven L. Controller, Principal Accounting Officer...........................1998-Present Davis (45) Assistant Treasurer, Chevron Corporation...........................1997-1998 Comptroller, Chevron Products Company..............................1996-1997 Vice President - Finance, Chevron International Oil Company......................................................1991-1996 Thomas C. Executive Vice President, Mobil Oil Corporation, DeLoach, Jr. responsible for the Global Midstream Business.....................1998-Present (51) Senior Vice President, Chief Financial Officer.....................1994-1998 Samuel H. Senior Vice President..............................................1998-Present Gillespie III Vice President.....................................................1996-1998 (56) General Counsel....................................................1995-Present Associate General Counsel..........................................1994-1995 - --------------------------------------------------------------------------------------------------------
-20-
- ------------------------------------------------------------------------------------------------------- Executive Officers of the Registrant (concluded) - ------------------------------------------------------------------------------------------------------- Name (Age) Position(s) Held During Past Five Years Years Held - -------------------- ---------------------------------------------------------------- --------------- Aldis V. Vice President, Planning and Economics.............................1995-Present Liventals (56) Vice President, Middle East and Marine Transportation Marketing and Refining Division, Mobil Oil Corporation......................................................1993-1995 Raymond J. Executive Vice President, Mobil Oil Corporation, McGowan (60) responsible for the Global Chemicals Business....................1998-Present Vice President & General Manager, Petrochemicals, Mobil Chemical Company...........................................1994-1998 Lucio A. Chairman of the Board and Chief Executive Officer..................1994-Present Noto (60) President and Chief Operating Officer..............................1993-1998 Stephen D. Executive Vice President, Mobil Oil Corporation, Pryor (49) responsible for the International Marketing and Refining Business................................................1998-Present President, Mobil Asia Pacific Pty. Ltd.............................1996-1997 Vice President and General Manager, Plastics, Mobil Chemical Company.................................................1994-1995 Michael P. Executive Vice President, Mobil Oil Corporation, Ramage (55) responsible for the Global Technology Business...................1998-Present Chief Technology Officer...........................................1995-Present President, Mobil Technology Company................................1995-Present Vice President, Engineering, Mobil Technology Company..........................................................1994-1995 Eugene A. President and Chief Operating Officer..............................1998-Present Renna (54) Executive Vice President, responsible for the North America Marketing and Refining, Europe/Former Soviet Union, South America and Supply, Trading and Transportation Business Groups................................1996-1998 Executive Vice President, Marketing and Refining Division, Mobil Oil Corporation..................................1986-1996 M.W.(Bill) Executive Vice President, Mobil Oil Corporation, Scoggins (51) responsible for the International Exploration and Producing Business...............................................1998-Present Operating Officer, E&P Ventures/Global Exploration, Mobil Oil Corporation............................................1997-1998 Operating Officer, Africa and Middle East, Mobil Oil Corporation......................................................1996-1997 President, Mobil Oil Indonesia Inc.................................1994-1996 - -------------------------------------------------------------------------------------------------------
-21- PART II The information required by Items 5 through 7A is incorporated herein by reference to Mobil's 1998 Annual Report to Shareholders. The charts, graphs and associated captions appearing on pages 14 through 37 of Mobil's 1998 Annual Report to Shareholders are not incorporated into this Annual Report on Form 10-K. Below is an index to the incorporated information. 1998 Annual Report To Shareholders Item Description Page(s) - ---- ---------------------------------------------------- -------------- 5. Market for Registrant's Common Stock and Related Stockholder Matters .............................. 29 6. Selected Financial Data ............................ 63 7. Management's Discussion and Analysis of Results of Operations and Financial Condition ............... 14-30,32,34 7A. Quantitative and Qualitative Disclosures About Market Risk ...................................... 22,23 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 1998 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, 1999, and the position(s) each of them has held during the past five years, are provided on pages 20 and 21 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 27, 1999, which will be filed with the S.E.C. within 120 days after December 31, 1998. -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 26, 1999, and Supplementary Information appearing in Mobil's 1998 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 1998 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 of Mobil's 1998 Annual Report to Shareholders are not incorporated into this Annual Report on Form 10-K. Financial Statement Schedules: Page(s) ----------------------------- 1998 Annual 1998 Annual Report on Report to Form 10-K Shareholders --------- ------------ (a)1. Financial Statements Consolidated Statement of Income .............. -- 31 Consolidated Statement of Changes in Shareholders' Equity ......................... -- 31 Consolidated Balance Sheet .................... -- 33 Consolidated Statement of Cash Flows .......... -- 35 Segment and Geographic Information ............ -- 36,37 Notes to Financial Statements ................. -- 38-52 Report of Ernst & Young LLP, Independent Auditors ..................................... -- 53 Supplementary Information ..................... -- 29,54-59 (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. (a)3. Exhibits An index to exhibits filed as part of this Annual Report on Form 10-K is included on pages 27 and 28. -23- (b) Reports on Form 8-K. Date of 8-K Description of 8-K - ----------------- ------------------------------------------------------------ November 27, 1998 Submitted a copy of the Mobil Corporation News Release dated November 27, 1998 confirming Exxon and Mobil discussions concerning a possible combination transaction. December 2, 1998 Submitted a copy of the following exhibits relating to a possible combination transaction with Exxon: - Agreement and Plan of Merger, dated as of December 1, 1998, among Mobil, Exxon and Merger Subsidiary; - Stock Option Agreement, dated as of December 1, 1998, between Mobil and Exxon; and - Mobil and Exxon Joint Press Release dated December 1,1998, confirming that Exxon and Mobil have signed a definitive agreement to merge the two companies. January 27, 1999 Submitted a copy of the Mobil Corporation News Release dated January 27, 1999 reporting estimated earnings for the fourth quarter and full year of 1998. -24- (c) Supplemental Financial Information. FINANCIAL STATEMENT SCHEDULE - -------------------------------------------------------------------------------- MOBIL CORPORATION SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 1996, 1997 and 1998 (Millions of dollars) - -------------------------------------------------------------------------------- Balance Balance Beginning End of Description of Period Additions Deductions Period - ----------------------------- --------- --------- ---------- ------- 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 Reserves related to restructuring .. 533 222 387 368 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 Reserves related to restructuring .. 368 272 340 300 For the year ended December 31, 1998: Reserves deducted in the balance sheet from the assets to which they apply: For doubtful accounts (a) ...... $147 $105 $113 $139 For investments and long-term receivables ........ 50 6 -- 56 For deferred tax assets (b) .... 627 101 120 608 Reserves related to restructuring .. 300 50 181 169 (a) Deductions include accounts written off. (b) Deductions reflect net utilization of tax credit carryforwards and 1998 also reflects write-off of tax loss carryforwards. - -------------------------------------------------------------------------------- -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/ Steven L. Davis ----------------------------- (Steven L. Davis, Controller, Principal Accounting Officer) Date: March 31, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on March 31, 1999 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) Harold R. Cramer* Principal Financial Officer - ------------------------- (Harold R. Cramer) Steven L. Davis* Controller, Principal Accounting Officer - ------------------------- (Steven L. Davis) 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* Iain D. T. Vallance* *By /s/ Gordon G. Garney -------------------------------------- (Gordon G. Garney, Attorney-in-fact) Date: March 31, 1999 -26- EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA - ------------------------------------------ ----------------------------------- 2.1 Agreement and Plan of Merger dated Incorporated by reference to as of December 1, 1998 among Mobil Exhibit 2.1 filed on Form 8-K filed Corporation, Exxon Corporation and December 2, 1998. Lion Acquisition Subsidiary Corporation. 2.2 Stock Option Agreement dated as of Incorporated by reference to December 1, 1998 between Exxon Exhibit 2.2 filed on Form 8-K filed Corporation and Mobil Corporation. December 2, 1998. 3(i).1 Certificate of Incorporation Mobil Incorporated by reference to Corporation, as amended, in effect Exhibit of 3(i).1 filed on Form May 20, 1997. 8-K, July 11, 1997. 3(i).2 Certificate of Designation, Incorporated by reference to Preferences and Rights of Series A Exhibit 3-a(ii) to the Registration Junior Participating Preferred Statement on Form S-3 (S.E.C. File Stock of Mobil Corporation dated No. 33-32651), filed under Form SE April 25, 1986. dated December 14, 1989. 3(i).3 Certificate of Designation, Incorporated by reference to Preferences and Rights of Series B Exhibit 3(i).2 filed on Form 8-K, ESOP Convertible Preferred Stock of July 11, 1997. Mobil Corporation, as amended, in effect May 20, 1997. 3(ii).4 By-laws of Mobil Corporation, as Incorporated by reference to amended to June 14, 1995. Exhibit 3.4 filed on Form 8-K date 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 and Stock Option Plan. Exhibit 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 and Stock Option Plan. Exhibit 15 to the Registration Statement on Form S-8 (S.E.C. File No. 33-5797) filed May 20, 1986. 10.4 Mobil Oil Corporation's Executive Life Insurance Program Electronic -27- EXHIBIT INDEX - Concluded EXHIBIT SUBMISSION MEDIA - ----------------------------------------- -------------------------------- 10.5 Supplemental Employees Savings Electronic Plan of Mobil Oil Corporation 12. Computation of Ratio of Earnings Electronic to Fixed Charges. (Page 29) 13. Mobil Corporation 1998 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 26, 1999. (Page 33) 24.1 Power of attorney dated as of Electronic February 26, 1999, 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 26, 1999, authorizing signature by officers pursuant to power of attorney. 27. Financial Data Schedule. Electronic -28- EX-10.4 2 EXHIBIT 10.4 - -------------------------------------------------------------------------------- Exhibit 10.4 - -------------------------------------------------------------------------------- EXECUTIVE LIFE INSURANCE PLAN OF MOBIL OIL CORPORATION Effective July 24, 1998 1. Purpose. The purpose of this Plan is, as part of a total compensation and ------- benefits package that is designed to attract and retain key employees, to provide a means of assisting senior executives to obtain improved life insurance coverage and to provide a cost effective estate building and estate planning vehicle for senior executives. 2. Definitions. The following definitions apply to this Plan. ----------- "Actively at Work" describes a person who is working full time in his or her customary place of employment and performing all the duties and responsibilities of his or her regular occupation (or who is away from work on vacation or other approved paid leave) and who has not been absent from work due to illness or medical treatment for a period of more than five consecutive working days in the most recent three months. "Change in Control" has the meaning set forth in the Mobil Corporation Employee Severance Plan adopted September 25, 1998, as amended from time to time, or any successor thereto. "Collateral Assignment" means a Limited Collateral Assignment of Life Insurance Policy substantially in the form attached hereto as Exhibit B, approved by the Company from time to time. "Company" means Mobil Oil Corporation. "Early Retirement" means termination of employment with the Company or its affiliates after attaining age 50 and after completing 10 years of vesting service under the Retirement Plan of Mobil Oil Corporation, but prior to attaining age 55. "Employee" means a person who meets the eligibility requirements of Section 3. "Insurance Agreement" means an Executive Life Insurance Agreement, substantially in the form attached as Exhibit A, approved by the Company from time to time. "Insurer" means the Metropolitan Life Insurance Company. "Owner" means the natural person or trust who or which owns a Policy hereunder and enters into (or subsequently is assigned the rights and obligations under) an Insurance Agreement and a Collateral Assignment with respect to such Policy. "Plan" means this Executive Life Insurance Plan. "Policy" means a policy of insurance on the life of an Employee, issued by the Insurer, conforming to the Insurance Agreement. "Retirement" means (a) termination of employment with the Company or its affiliates after attaining age 55 and completing 10 years of vesting service under the Retirement Plan of Mobil Oil Corporation or (b) Early Retirement with prior Company consent. 3. Eligibility. Any regular, U.S. payroll employee of Mobil Corporation or any ----------- of its direct or indirect subsidiaries in a position evaluated by the Company as Salary Group 25 or above who is eligible to participate in the Mobil Oil Corporation program of U.S. benefit plans shall be eligible to participate in the Plan, provided that such person is actively at work on the date of enrollment and provided further that such person is resident in the U.S. or a country in which the Insurer can lawfully issue a Policy. Any person who meets the preceding requirements immediately prior to termination of employment shall continue to participate, except as provided Section 12 of the applicable Insurance Agreement; provided that any Employee whose termination of employment constitutes an Early Retirement may, in the discretion of the Company, continue to participate in the Plan as if he or she had qualified for Retirement. 4. Enrollment. An Employee may enroll in the Plan within the first 120 days of ---------- eligibility without submitting proof of good health or other evidence of insurability. An Employee who ceases to participate in the Plan because he or she has ceased to meet the employment requirement for eligibility may re-enroll in the Plan within 120 days after again becoming eligible to participate without submitting proof of good health or other evidence of insurability. An Employee who wishes to enroll in the Plan after the first 120 days of eligibility, or who wishes to re-enroll other than as provided in the previous sentence, will be required to provide evidence of good health or other evidence of insurability satisfactory to the Insurer. The Insurer may require a physical examination by a physician of its choice, which examination shall be at no cost to the Employee. To enroll (or re-enroll), the Employee (or Owner) must (a) agree to make any required contributions; (b) submit an application to the Insurer for a Policy; and (c) sign a Collateral Assignment and an Insurance Agreement. In addition, an Employee required to provide proof of good health or other evidence of insurability cannot be enrolled unless and until the Insurer accepts such proof or evidence, which acceptance may be subject to such conditions as the Insurer may impose. 5. Contributions. The Owner shall be required, as a condition of receiving any ------------- benefits under this Plan, to make contributions toward the cost of the Policy. The required contributions for all Employees, up until the date they attain age 65, shall be $0.15 per month per $1000 of coverage. In addition, in the case of any Employee who enrolls later than 120 days after the date of first eligibility for enrollment (or re-enrollment, as applicable) and who consequently is required by the Insurer to pay a higher cost of insurance than the cost that would have applied if the Employee had enrolled (or re-enrolled) during the first 120 days of eligibility, the Owner shall be required to pay the increased cost of insurance each year. 6. Benefits. The benefits shall be as set forth in the applicable Insurance -------- Agreement attached as an Exhibit hereto, and subject to the following special rules: The amount of additional payments to fully fund the Policies pursuant to Section 13 of the applicable Insurance Agreement shall be determined on the basis of the Insurer's mortality assumptions that would apply in the case of an Employee who enrolled (or re-enrolled) within the first 120 days of eligibility and shall be based on an assumed investment return for the Policy of 7.5% net of expenses. The Employee (or Owner) shall fill in the number of years over which such additional payments are made in Section 13 of the applicable Insurance Agreement. Subsequent changes to such number of payments may be made at such times and on such terms and conditions as provided in rules promulgated by the Vice President, Human Resources. In any case in which a period has not been elected, initially or within the time permitted for any change, a period of three years shall be deemed to have been elected. 7. Loss of Benefits. Employee will cease to be eligible for participation in the ---------------- Plan for the reasons set forth in Section 12 of the applicable Insurance Agreement, except that clause (c) of such Section 12 shall not apply in the case of a Retirement as defined above. When an Employee ceases to participate in the Plan prior to age 65, the cash surrender value of the Policy shall be paid to the Company, and the Company shall make no further payments in respect of the Policy. The Owner may apply to the Insurer to continue the Policy at the Owner's expense. 8. General Provisions; Administration; Claims and Appeals. The general ------------------------------------------------------ provisions of the Plan and provisions relating to administration, claims and appeals are set forth in the Insurance Agreements and are incorporated herein by reference. 9. Amendment or Termination. The Company shall have the right to amend or ------------------------ terminate the Plan at any time, subject to the limitations set forth in the Insurance Agreement; provided that upon the occurrence of a Change in Control, notwithstanding anything to the contrary in the Insurance Agreement, the Company shall cease to have any right to amend or terminate the Plan or take any action (other than termination of the Employee for "cause" as defined in the Mobil Corporation Employee Severance Plan) that would in any way impair the benefit under the Plan to or in respect of any Employee then covered by a Policy without the consent of the Employee or other Owner, as applicable. EXHIBIT A EXECUTIVE LIFE INSURANCE AGREEMENT THIS AGREEMENT made and entered into this ______ day of ___________, 1998, effective _________ ___ , 1998, by and among Mobil Oil Corporation, a New York corporation (the "Corporation"), ________________________ (the "Employee"), and __________________________, Trustee, or successor trustee of the ___________________ Irrevocable Insurance Trust U / A _____________ ___, 19__ (the "Owner"). WHEREAS, the Employee is a valued employee of the Corporation (or an affiliate of the Corporation) whom the Corporation wishes to assist with obtaining personal life insurance protection; and WHEREAS, the Corporation agrees to participate in such program; NOW, THEREFORE, the parties named above agree as follows: 1. The Policy. The Owner will contemporaneously purchase with the execution of this Agreement a policy of insurance (the "Policy") on the life of the Employee (the "Insured"), issued by the Metropolitan Life Insurance Company (the "Insurer"). The parties to this Agreement shall take all necessary actions to cause the Policy to conform to the provisions of this Agreement. The parties to this Agreement also agree that the Policy shall be subject to the terms and conditions of this Agreement and the collateral assignment referred to in Section 2 of this Agreement. 2. Collateral Assignment. Concurrently with the execution of this Agreement, the Owner and the Corporation shall execute a "Limited Collateral Assignment of Split-Dollar Life Insurance Policy" (the "Assignment") as security for the repayment of the Corporation's Premium Payments (as defined in Section 10 of this Agreement). No provisions of this Agreement shall be inconsistent with the rights of the parties under the Assignment, and the parties to this Agreement agree to take all actions necessary to cause this Agreement to conform to the provisions of such Assignment. 3. Ownership of Policy. Except as otherwise provided in this Agreement and the Assignment: (a) The Owner shall retain and may exercise all incidents and rights of ownership with respect to the Policy. (b) The Corporation shall not have any right to borrow against the cash surrender value of the Policy to any extent, and the Corporation shall not possess any "incidents of ownership" in the Policy as that term is defined in Section 2042 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder as they may from time to time be amended or supplemented. The Corporation shall have no right to take any action that would cause the Policy to lapse or terminate. (c) Subject to the limitations set forth elsewhere in this Agreement and except as otherwise provided in this Agreement, the sole right of the Corporation under this Agreement shall be the right to be repaid its Premium Payments (as defined in Section 10 of this Agreement). Except as otherwise provided in this Agreement, the Corporation shall neither have nor exercise any right which could in any way defeat or impair the Owner's right to receive the cash surrender value or the death proceeds of the Policy in excess of the Corporation's Premium Payments (as defined in Section 10 of this Agreement). 4. Limitations on Owner's Rights in the Policy. Except as otherwise provided in this Agreement and the Assignment: (a) The Owner shall take no action with respect to the Policy which would in any way compromise or jeopardize the Corporation's right to be repaid its Premium Payments (as defined in Section 10 of this Agreement). The Owner shall have no right to borrow against the cash surrender value of the Policy prior to the date the Insured attains age sixty-five (65) and any such borrowing shall be limited to that portion of the cash surrender value of the Policy which is not subject to the Assignment. (b) The Owner shall have the sole right to surrender or cancel the Policy and receive the full cash surrender value of the Policy directly from the Insurer, provided, however, that (i) this Agreement and the Assignment shall terminate upon any such surrender or cancellation of the Policy after the Insured's attainment of age sixty-five (65) and the Corporation shall have no further obligations with respect to the Policy, and (ii) upon any such surrender or cancellation of the Policy prior to the Insured's attainment of age sixty-five (65), the Corporation shall have the unqualified right to receive from the Owner the entire cash surrender value of the Policy and this Agreement and the Assignment shall terminate immediately and the Corporation shall have no further obligations with respect to the Policy. Immediately upon receipt of the cash surrender value of the Policy from the Insurer in the event of such a surrender or cancellation of the Policy prior to the Insured's attainment of age sixty-five (65), the Owner shall pay to the Corporation such cash surrender value to which it is entitled. The Insurer may be directed in writing by the Owner to draw a check payable to the Corporation in an amount equal to such cash surrender value. (c) The Owner shall have the right to partially surrender the Policy after the Insured has attained age sixty-five (65) and prior to the termination of this Agreement provided, however, that any such partial surrender shall be made no more frequently than once during any twelve month period and the amount of cash surrender value under the Policy immediately after such partial surrender shall not be less than fifty-percent (50%) of the Policy's cash surrender value immediately prior to such partial surrender. (d) The Corporation shall have the sole right under the Policy to provide investment instructions to the Insurer with respect to the Policy prior to the Insured's attainment of age sixty-five (65). The Owner shall have the sole right under the Policy to provide investment instructions to the Insurer with respect to the Policy on or after the date the Insured attains age sixty-five (65). 5. Safeguarding the Policy. The Corporation shall be responsible for holding and safeguarding the Policy. 6. Change of Beneficiary. The Owner shall execute and forward promptly to the Insurer such change in beneficiary designation forms and supporting documents, as may from time to time be required by the Insurer, to facilitate the exercise of any rights of the parties hereto, and the Corporation shall forward any supporting documents required by the Insurer to complete the change of Beneficiary; provided, however, that the Owner and the Corporation shall not be required to execute any documents or take any action that would impair their respective interests under the Policy. 7. Policy Dividends. Any dividend declared on the Policy shall be applied to purchase paid-up additional insurance on the life of the Insured. The parties hereto agree that the dividend election provisions of the Policy shall conform to the provisions of this Section 7. 8. Schedule of Policy Benefits. The total death benefit of the Policy in effect prior to the termination of this Agreement and the Assignment shall be the sum of (a) the aggregate of all premium payments and other amounts paid by the Corporation to the Insurer with respect to the Policy prior to the date the Insured attained age sixty-five (65) (less any such amounts paid by the Owner pursuant to Section 9 of this Agreement), and (b) the "Benefit Amount" determined in accordance with the Schedule of Insurance attached hereto as Attachment A. 9. Payment of Premiums. The Owner shall pay a monthly premium equal to fifteen cents ($0.15) per $1,000 of the Policy's face amount in effect for such month which is attributable to the "Benefit Amount" described in paragraph (b) of Section 8. The Owner's obligation to pay such monthly premium shall terminate effective with the first month immediately following the month in which the Insured attains age sixty-five (65). Either the Owner or Employee, on behalf of the Owner, shall pay such required premium to the Corporation prior to the premium due date or such other date as may be specified by the Corporation. The Corporation shall pay the balance of the annual premium required to maintain the Policy in full force and effect until the date or dates this Agreement terminates pursuant to Sections 11 or 12, plus any additional premium the Corporation may decide, in its sole discretion, to pay to the Policy. The Corporation shall remit to Insurer each premium due in accordance with the mode of premium payment as provided in the Policy on or before the applicable due date and within any grace period allowed by the Policy. The Corporation shall annually furnish to the Employee a statement of the amount of income reportable by the Employee for federal and state income tax purposes, if any, as a result of its payment of any portion of the premium and the resulting insurance protection provided to the Policy's beneficiaries. 10. Repayment of the Corporation. Subject to the limitations set forth elsewhere in this Agreement, the Corporation's "Premium Payments" shall constitute an obligation of the Owner to the Corporation. The Corporation's Premium Payments shall be determined as follows: (a) In the event the Insured dies prior to the termination of this Agreement, the Corporation's Premium Payments shall be the aggregate of all premiums and other amounts paid to the Insurer by the Corporation with respect to the Policy prior to the date the Insured attained age sixty-five (65) (less any amounts paid by the Owner pursuant to Section 9 of this Agreement). (b) In the event this Agreement is terminated during the Insured's lifetime in accordance with Section 12 and the Insured has not attained age sixty-five (65) at the time of such termination, the Corporation's Premium Payment shall be the entire cash surrender value of the Policy. If the Policy at any time contains a disability waiver of premium provision or waiver of monthly deduction, any waived amounts shall be considered for all purposes of this Agreement as having been paid by the Owner. 11. Death Proceeds. Upon the death of the Insured, the Corporation and the Owner shall cooperate to take whatever action is necessary to collect the death benefit provided under the Policy; when such benefit has been collected and paid as provided herein, this Agreement shall thereupon terminate. Upon the death of the Insured, the Corporation shall have the unqualified right to receive a portion of such death benefit equal to its outstanding Premium Payments. The balance of the death benefit provided under the Policy, if any, shall be paid directly to the other beneficiary or beneficiaries of the Policy as designated by the Owner, in the manner and in the amount or amounts provided in the beneficiary designation provision of the Policy. No amount shall be paid from such death benefit to any beneficiary until the full amount due the Corporation hereunder has been paid. The parties hereto agree that the beneficiary designation provision of the Policy shall conform to the provisions hereof. Any interest due on the death benefit under the terms of the Policy shall be divided between the Corporation and the beneficiary or beneficiaries designated by the Owner in the same proportions as their respective shares of the death benefit (as determined under this Section 11) bears to the total death benefit, excluding such interest. Any refund of unearned premiums on the death of the Insured under the Policy provisions shall belong to the beneficiary or beneficiaries designated by the Owner. Notwithstanding any provision of this Agreement to the contrary, in the event no death benefit is payable under the Policy upon the death of the Insured and in lieu thereof the Insurer refunds all or any part of the premiums paid for the Policy, the Corporation and the Owner shall have the unqualified right to share such premiums based on their respective cumulative contributions thereto. 12. Termination of the Agreement During the Insured's Lifetime. This Agreement shall terminate during the Insured's lifetime, without notice, upon the occurrence of any of the following events: (a) the total cessation of the Corporation's business, (b) bankruptcy, receivership, or dissolution of the Corporation, (c) the date the Insured voluntarily terminates employment with the Corporation or any of its affiliates prior to the date the Insured attains age fifty-five (55) and completes ten (10) years of vesting service as determined under the provisions of the Retirement Plan of Mobil Oil Corporation (or any successor plan), (d) the date the Insured is terminated "for cause" attributable to gross, willful or intentional misconduct which the Corporation determines, in its sole discretion, to be harmful to the Corporation or any of its affiliates, (e) the date the Corporation is repaid its total Premium Payments (as defined in Section 10), (f) failure of the Owner to timely pay to the Corporation the Owner's portion of the premium, if any, due hereunder, (g) the complete surrender or cancellation of the Policy by the Owner, or (h) a partial surrender of the Policy by the Owner after the Insured has attained age sixty-five (65) that exceeds the limitations on such partial surrenders described in paragraph (c) of Section 4. Upon any such termination of the Agreement prior to the Insured's attainment of age sixty-five (65), the Owner shall, within 30 days of the date of such termination, repay to the Corporation its outstanding Premium Payments. Notwithstanding the forgoing and subject to Section 16, the Owner or Corporation may terminate this Agreement, while no premium under this Policy is overdue, by providing written notice to the other parties hereto. Such termination shall be effective as of the date of such notice. 13. Additional Payments to Policy By Corporation After Insured Attains Age Sixty-five (65). In the event the Insured has attained age sixty-five (65) and this Agreement has not been terminated pursuant to Section 12, the Corporation shall make additional payments to the Policy. These additional payments shall be made in substantially equal annual installments over ____ years and the first such annual payment shall commence no later than the last day of the month following the month the Insured attains age sixty-five (65). The total amount of the additional payments described in this Section 13 by the Corporation shall be the amount necessary to fully fund the Policy for the remainder of the Insured's lifetime based on such assumptions as may be deemed appropriate from time to time by the Corporation. 14. Release of Collateral Assignment During the Insured's Lifetime. In the event this Agreement terminates during the lifetime of the Insured pursuant to Section 12, the Corporation shall totally and completely release its Assignment of the Policy by executing and delivering to the Insurer an appropriate instrument of release immediately upon the receipt of the Corporation's Premium Payments, if any, from the Owner and the Corporation shall have no further rights or obligations with respect to the Policy. If this Agreement has not terminated prior to the date the Insured attains age sixty-five (65), the Corporation shall release its Assignment with respect to the cash surrender value of the Policy on such date (including any amounts subsequently credited under the Policy by the Insurer which are attributable to such released cash surrender value). The Corporation shall totally and completely release its Assignment of the Policy on the date the last additional payment described in Section 13 is made to the Policy and this Agreement and the Assignment shall completely terminate and the Corporation shall have no further obligations or rights with respect to this Policy. The Corporation shall release its Assignment under this Section 14 by executing and delivering to the Insurer an appropriate instrument of release. 15. Named Fiduciary, Claims Procedure, and Administration (a) Designation of Named Fiduciary. The Corporation is hereby designated as ------------------------------ the named fiduciary under this Agreement. Subject to the procedures set out in paragraph (b) through (e) of this Section, the named fiduciary shall have the authority to control and manage the operation and administration of this Agreement, and it shall be responsible for establishing and carrying out a funding policy and method consistent with the objectives of this Agreement. (b) Claim. If the Owner or any beneficiary believes that any person is ----- being denied a benefit to which such person is entitled under this Agreement, such person (hereinafter referred to as a "Claimant") may file a written request for such benefit with the Corporation, setting forth his or her claim. The request must be addressed to the Vice-President, Human Resources of the Corporation at its then principal place of business. (c) Claim Decision. Upon receipt of a claim, the Corporation shall advise -------------- the Claimant that a reply will be forthcoming within thirty (30) days and shall deliver such reply within such period. The Corporation may, however, extend the reply period for an additional thirty (30) days for reasonable cause. If the claim is denied in whole or in part, the Corporation shall adopt a written opinion, using language calculated to be understood by the Claimant, setting forth: (i) The specific reason or reasons for such denial; (ii) The specific reference to pertinent provisions of this Agreement and/or the Assignment on which such denial is based; (iii) A description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation why such material or such information is necessary; (iv) Appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and (v) The time limits for requesting a review under Paragraph (d) of this Section and for review under Paragraph (e) of this Section. (d) Request for Review. Within sixty (60) days after the receipt by the ------------------ Claimant of the written opinion described in Paragraph (c) of this Section, the Claimant may request in writing that the Vice-President, Human Resources of the Corporation review the determination of the Corporation. Such request must be addressed to the Vice-President, Human Resources of the Corporation, at its then principal place of business. The Claimant or his or her duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Corporation. If the Claimant does not request a review of the Corporation's determination by the Vice-President, Human Resources, of the Corporation within such sixty (60) day period, he shall be barred and estopped from challenging the Corporation's determination. (e) Review of Decision. Within thirty (30) days after the Vice-President, ------------------ Human Resources' receipt of a request for review under Paragraph (d) of this Section, he will review the Corporation's determination. After considering all materials presented by the Claimant, the Vice-President, Human Resources will render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of this Agreement on which the decision is based. If special circumstances require that the thirty (30) day time period be extended, the Vice-President, Human Resources will so notify the Claimant and will render the decision as soon as possible, but not later than sixty (60) days after receipt of the request for review. 16. Amendment of Agreement. This Agreement may be altered, amended, or modified, including the addition of any extra Policy provisions, only by a written agreement signed by the parties hereto, or their successors or assigns. This Agreement may be terminated at any time in accordance with the provisions of Section 12, provided, however, that the Corporation may not terminate this Agreement after the Insured has attained age sixty-five (65). 17. Controlling Law. The laws of the Commonwealth of Virginia shall govern this Agreement. 18. Liability of Insurer. The Insurer is not a party to this Agreement. With respect to any policy of insurance held in accordance with this Agreement, the Insurer shall have no liability except as set forth in the Policy. The Insurer shall not be bound to inquire into to or take notice of any of the covenants herein contained as to policies of life insurance or as to the application of the proceeds of such policies. No provision of this Agreement, nor of any modification or amendment hereof, shall in any way be construed as enlarging, changing, varying, or in any other way affecting the obligations of the Insurer as expressly provided in the Policy, except insofar as this Agreement or any modification or amendment hereto are made a part of the Policy by the Assignment and which is filed with the Insurer. The Insurer shall be fully discharged from its obligations under the Policy by payment of the Policy death benefits to the beneficiary or beneficiaries named in the Policy, subject to the terms and conditions of the Policy. 19. Binding Agreement. This Agreement sets forth the entire agreement between the parties concerning the subject matter thereof, and it shall bind all parties, their representatives, successors, and assigns (including, in the case of the Corporation, any successor or assignees by merger, consolidation, purchase or otherwise) and any Policy beneficiary. 20. Notice. Any notice, consent, or demand required or permitted to be given under the provisions of this Agreement shall be in writing, and any such notice shall be signed by the party giving or making such notice. If such notice, consent, or demand is mailed to a party hereto, it shall be sent by United States certified mail, postage prepaid, addressed to such party's last known address as shown on the records of the Corporation. The date of such mailing shall be deemed to be the date of notice, consent or demand. 21. Right of Discharge Reserved. Nothing contained in this Agreement or the Assignment shall be construed to be a contract of employment for any term of years, nor as conferring upon the Insured any legal right to be retained in the employ of the Corporation or any affiliate, or to give any Employee, or to the spouse, beneficiary or estate of any such Employee, or to any other person, any right or share in the Policy except as expressly provided in this Agreement or Assignment. The Insured shall remain subject to discharge and change in employment duties to the same extent as if this Agreement had never been entered into and may be treated without regard to the effect such treatment may have on such Insured (or the Owner or any beneficiary under the Policy). 22. Taxes. The Corporation does not warrant or guarantee and assumes no obligation or responsibility with respect to the federal, state or local income, estate, inheritance, gift or other tax obligations of the Insured or Owner as a result of this Agreement or the Assignment. Any tax required to be withheld in connection with this Agreement, as determined by the Corporation, shall be deducted from any amounts payable by the Corporation to the Insured or from any amounts payable pursuant to this Agreement. 23. Headings. All Section and Paragraph headings contained in this Agreement are intended for convenience and reference purposes only and are not entitled to, nor should they be accorded, substantive effect. IN WITNESS WHEREOF, the parties have executed this Agreement the date first herein above written. CORPORATION: Mobil Oil Corporation Attest: By: ------------------------------- By: Title: ------------------------ ----------------------------- Secretary INSURED: - ---------------------------- ------------------------------------ Unofficial Witness OWNER: - ---------------------------- ------------------------------------ Unofficial Witness Attachment A SCHEDULE OF INSURANCE --------------------- - -------------------------------------------------------------------------------- Attained Age as of January 1* Benefit Amount for Calendar Year - -------------------------------------------------------------------------------- Age 50 or younger 4.00 x pay Age 51 3.80 x pay Age 52 3.60 x pay Age 53 3.40 x pay Age 54 3.20 x pay Age 55 3.00 x pay Age 56 2.80 x pay Age 57 2.60 x pay Age 58 2.40 x pay Age 59 2.20 x pay Age 60 or older 2.00 x pay "Pay" shall mean, for any calendar year following the calendar year in which this Agreement becomes effective, the sum of (a) the Insured's annual rate of base pay in effect as of January 1 of such calendar year, (b) the target short-term incentive award under the 1995 Mobil Incentive Compensation and Stock Ownership Plan (or any successor plan) for the Insured's Salary Group for the calendar year, and (c) the lump sum individual pay adjustment, if any, awarded to the Insured in the immediately preceding calendar year; provided, however, that for the calendar year in which this Agreement is first effective, "pay" shall mean the sum of (x) the Insured's annual rate of base pay in effect on the date this Agreement becomes effective, (y) the target short-term incentive award under the 1995 Mobil Incentive Compensation and Stock Ownership Plan (or any successor plan) for the Insured's Salary Group for such calendar year, and (z) the lump sum individual pay adjustment, if any, awarded to the Insured in such calendar year or, if the Agreement is effective prior to the date such lump sum individual pay adjustment is awarded for such calendar year, the lump sum individual pay adjustment, if any, awarded to the Insured in the immediately preceding calendar year. Notwithstanding the "Benefit Amount" specified in the above schedule, the Insured's "Benefit Amount" for any year shall be subject to, and limited by, such terms and conditions, including underwriting requirements, as the Insurer may require from time to time. - ----------------------------- * The Insured's age for the first calendar year this Agreement is effective shall be the Insured's attained age on the date this Agreement is effective. EXHIBIT B LIMITED COLLATERAL ASSIGNMENT OF LIFE INSURANCE POLICY BETWEEN __________________________ AND MOBIL OIL CORPORATION METROPOLITAN LIFE INSURANCE COMPANY POLICY NO. ______________ This agreement, hereinafter referred to as the "Assignment," is made, this ___ day of ______________ , 1998, effective as of ______________ , 1998, by and between __________________ _____________________________ (the "Owner"), and Mobil Oil Corporation, a New York corporation (the "Corporation"), its successors and assigns. 1. The Policy. The subject of this Assignment is a certain life insurance ---------- policy, Policy No. _______ a copy of which is attached as Exhibit "A", issued by Metropolitan Life Insurance Company (the "Insurer"), and any increased, substituted, supplemental, or additional insurance as may from time to time be issued in respect of such policy (said policy and any such additional insurance hereinafter referred to as the "Policy"), insuring the life of the Owner who currently resides in ______________________________. 2. The Executive Life Insurance Agreement. The Policy is subject to the -------------------------------------- "Executive Life Insurance Agreement" (the "Agreement"), dated ___________, 1998 by and between the Corporation and the Owner. The Agreement was entered into to assist the Owner with obtaining personal life insurance protection. Such Agreement is hereby incorporated into and made a part of this Assignment, and no provision of the Agreement shall be construed to be inconsistent with any provision of this Assignment. 3. The Assignment. This Assignment is made, and the Policy is held, as -------------- collateral security for the repayment of the Corporation's Premium Payments (as defined under Section 10 of the Agreement) with respect to the Policy. Nothing in this Assignment or in the Agreement shall be construed as an assignment to the Corporation of any rights in the Policy other than those specifically enumerated in such Assignment or Agreement. The Owner hereby assigns, transfers, and sets over to the Corporation the following specific, limited rights in the Policy, and the Corporation's rights in the Policy shall be limited to these specific, limited rights and such other rights as may be specifically set forth in this Assignment or the Agreement: (a) The right to recover from the net death proceeds of the Policy upon the death of the Owner the aggregate of all premiums and other amounts paid to the Insurer by the Corporation with respect to the Policy prior to the date the Owner attained age sixty-five (65); (b) The right to recover from the Policy the entire cash surrender value of the Policy in the event the Agreement is terminated prior to the date the Owner attains age sixty-five (65); and (c) The right to provide investment instructions to the Insurer with respect to the Policy prior to the date the Owner attains age sixty-five (65). 4. Release of Assignment. --------------------- (a) The Assignment shall terminate completely on the date the Corporation is paid its Premium Payments in accordance with the Agreement on account of the death of the Owner prior to termination of the Agreement or the termination of the Agreement prior to the date the Owner attained age sixty-five (65). (b) The Assignment shall also terminate with respect to the Policy's cash surrender value on the date the Owner attains age sixty-five (65) (including any amounts subsequently credited under the Policy by the Insurer which are attributable to such released cash surrender value), provided, however, that the Assignment shall not be completely released with respect to the Policy until such date as may be provided in this Section 4. (c) The Assignment shall terminate completely with respect to the Policy immediately following the date the last such additional annual payment is made to the Policy by the Corporation in accordance with Section 13 of the Agreement and the Corporation shall have no further obligations or rights with respect to the Policy. (d) The Corporation shall release its Assignment under this Section 4 by executing and delivering to the Insurer an appropriate instrument of release. 5. Limitation on the Corporation's Rights and Obligations. ------------------------------------------------------ (a) The Corporation shall not have any right to borrow against the cash surrender value of the Policy to any extent, and it shall have no right or power to obtain loans or advances on the Policy or cancel or surrender the Policy. Notwithstanding any provision of this Assignment or of the Agreement, the Corporation does not possess, and by this Assignment and by the terms of the Agreement shall not be deemed to have acquired, any "incidents of ownership" in the Policy as that term is defined in Section 2042 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations issued thereunder, as they may be from time to time amended or supplemented. The Corporation is strictly prohibited from surrendering the Policy for cancellation, assigning its rights to any person other than to the Owner or to some other person as the Owner may direct or to an assignee of options or rights of the Owner under the Agreement pursuant such assignee's exercise thereof, or taking any action which would endanger the payment of the Policy proceeds in excess of its Premium Payments (as defined in Section 10 of the Agreement). (b) The Corporation shall not have, and by this Assignment or by the terms of the Agreement shall not be deemed to have acquired, any obligation to pay any premium due from time to time on the Policy, the principal of or interest on any loans or advances on the Policy, or any other charges on the Policy. 6. Retention of Ownership by Owner. ------------------------------- (a) Except as specifically provided in this Assignment and in the Agreement, the Owner shall retain and possess all other incidents of ownership in the Policy not explicitly assigned under the previous provisions of this Assignment to the Corporation, including, but not limited to: (i) The sole and exclusive right to cancel or surrender the Policy for its cash surrender value, if any; (ii) The right to designate and change the beneficiary of the death proceeds on the Policy (other than designation of the Corporation as a beneficiary with respect to its recovery of its Premium Payments as described in Section 10 of the Agreement); (iii) The right to elect and exercise any optional mode of settlement permitted by the Policy; (iv) The right to borrow against the cash value of the Policy or to obtain loans or advances on the Policy after the Owner has attained age sixty-five (65); (v) The sole right to exercise all non-forfeiture rights permitted by the terms of the Policy or allowed by the Insurer and to receive all benefits and advantages derived therefrom; (vi) The sole right to assign the Policy; and (vii) The right to collect from the Insurer that portion of the net proceeds of the Policy when it becomes a claim by death or maturity when proceeds are not payable to the Corporation under the Agreement. (b) Notwithstanding the preceding provisions of paragraph (a), all rights retained by the Owner shall be subject to the terms and conditions of the Agreement, and no action by the Owner shall reduce or interfere with the rights of the Corporation under this Assignment or under the Agreement. 7. Repayment Events. The Corporation shall have the right to be repaid to the ---------------- extent of its Premium Payments (as defined in Section 10 of the Agreement) upon the death of the Owner prior to the termination of the Agreement or upon the happening of any of the following events (the "Repayment Events") which occur prior to the Owner's attainment of age sixty-five (65): (a) The lapse, cancellation, or surrender of the Policy by the Owner or its assignee; (b) The total cessation of the Corporation's business; (c) Bankruptcy, receivership, or dissolution of the Corporation; (d) The Owner's voluntary termination of employment with the Corporation or any of its affiliates prior to attainment of age fifty-five (55) and completion of ten (10) years of vesting service as determined under the provisions of the Retirement Plan of Mobil Oil Corporation (or any successor plan); (e) Termination of the Owner's employment with the Corporation "for cause" attributable to gross, willful or intentional misconduct which the Corporation determines, in its sole discretion, to be harmful to the Corporation or any of its affiliates; or (f) The failure of the Owner to timely pay to the Corporation the Owner's portion of the premium, if any, due hereunder. 8. Satisfaction of the Corporation. ------------------------------- (a) The Corporation agrees that upon the death of the Owner prior to termination of the Agreement or upon the happening of a Repayment Event (as described in Section 7 of this Assignment), the balance of any sums received from the Insurer after satisfaction of the Corporation's Premium Payments (as defined in Section 10 of the Agreement) shall belong to the Owner or any assignee if the Owner is then living, or, upon the death of the Owner, to the beneficiary designated by the Owner under the Policy. (b) Notwithstanding any provisions of this Assignment or of the Agreement to the contrary, upon the termination of the Agreement and the repayment to the Corporation of its Premium Payments (as defined in Section 10 of the Agreement), if any, the Corporation shall be obligated to release all its specific rights in the Policy transferred by this Assignment, or make a reassignment of such interest to the Owner or to the Owner's successors or assigns, without unreasonable delay. The Corporation shall have no further rights or obligations with respect to the Policy (or that portion of the Policy subject to any such Assignment) upon such release or reassignment. 9. Insurer Provisions. ------------------ (a) The Insurer is not a party to this Assignment or to the Agreement. (b) The Insurer shall have no duty or obligation to inquire into or investigate the reason, validity, or accuracy of the Corporation's request to exercise any of its rights granted to it under Section 3 of this Assignment, or whether the Owner has notice of any such exercise. The Insurer may treat any such request by the Corporation as an affirmation that the request conforms to and is not inconsistent with the provisions of this Assignment and with the Agreement, and it is thereby authorized to act upon such requests. (c) The Insurer shall be under no obligation to monitor the obligation of the Corporation to pay amounts received from the Insurer, if any, in excess of the Corporation's Premium Payments (as defined in Section 10 of the Agreement). Likewise, the Insurer shall be under no obligation to monitor the obligation of the Owner, or the other beneficiary or beneficiaries designated by the Owner, to pay to the Corporation from any amounts received from the Insurer its Premium Payments (as defined in Section 10 of the Agreement). The Insurer shall have no obligation or liability to any person or entity if the Corporation or the Owner (or the other beneficiary or beneficiaries designated by the Owner) fail to pay such amounts as are required under this Assignment. (d) The Insurer shall be fully protected in recognizing a request by the Owner to exercise any right of ownership retained (including, but not limited to, the rights retained under Section 6 of this Assignment), explicitly or otherwise, by the Owner under this Assignment or under the Agreement, whether or not the Corporation has notice of such request (other than a change of beneficiary designation form which purports to alter the Corporation's designation as a beneficiary with respect to its recovery of its Premium Payments which requires the written consent of the Vice-President, Human Resources of the Corporation). 10. Effective Date. This Assignment shall be effective on the later of -------------- (a) the date of execution of this Assignment or (b) the date of issuance of the Policy. 11. Headings. All Section headings contained in this instrument are -------- intended only for convenience and reference purposes, and they are not entitled to, nor should they be accorded, substantive effect. IN WITNESS WHEREOF, this Assignment is hereby executed the day and year first above written. OWNER: - ---------------------------- ----------------------------- Unofficial Witness (Name) CORPORATION: Mobil Oil Corporation By: --------------------------- Attest: By: Title: ------------------------- ------------------------ Secretary EX-10.5 3 EXHIBIT 10.5 - -------------------------------------------------------------------------------- Exhibit 10.5 - -------------------------------------------------------------------------------- Table of Contents ----------------- PART I - GENERAL PROVISIONS Page ---- Article I - Purpose ...................................................... 2 Article II - Definitions ................................................. 2 Article III - Eligibility ................................................ 6 Article IV - Method of Payment of Benefits ............................... 6 Article V - Designation of Beneficiaries ................................. 9 Article VI - Authorities ................................................. 10 Article VII - Rights of Participants ..................................... 12 Article VIII - Administration of the Program ............................. 12 Article IX - Non-Duplication of Benefits ................................. 13 Article X - Participating Affiliates ..................................... 14 PART II - SUPPLEMENTAL RETIREMENT BENEFIT PLAN OF MOBIL OIL CORPORATION Article I - Purpose ...................................................... 15 Article II - Eligibility ................................................. 15 Article III - Amount of Benefits ......................................... 15 PART III - SUPPLEMENTAL SAVINGS BENEFIT PLAN OF MOBIL OIL CORPORATION Article I - Purpose ...................................................... 18 Article II - Eligibility ................................................. 18 Article III - Amount of Benefits ......................................... 18 PART IV - RETIREMENT BENEFIT ENHANCEMENT PLAN OF MOBIL OIL CORPORATION Article I - Purpose ...................................................... 22 Article II - Eligibility ................................................. 22 Article III - Amount of Benefits ......................................... 22 PART V - RETIREMENT BENEFIT EQUALIZATION PLAN OF MOBIL OIL CORPORATION Article I - Purpose ...................................................... 24 Article II - Eligibility ................................................. 24 Article III - Amount of Benefits ......................................... 24 PART I GENERAL PROVISIONS Article I - Purpose ------------------- 1.1 The purpose of this Program is to provide for the payment of benefits to certain participants in the Retirement Plan of Mobil Oil Corporation and the Employees Savings Plan of Mobil Oil Corporation. 1.2 This Program is comprised of multiple Parts, Part I - General Provisions, Part II - the Supplemental Retirement Benefit Plan, Part III - the Supplemental Savings Benefit Plan, Part IV - the Retirement Benefit Enhancement Plan, and Part V - the Retirement Benefit Equalization Plan. As set forth herein, the Program constitutes an amendment and restatement as of January 1, 1998, of the Supplemental Benefit Plan established by Mobil Oil Corporation effective January 1, 1976 and amended and restated from time to time. 1.3 Eligibility for benefits and the amount of such benefits under this Program and each of its Parts shall be determined by Mobil Oil Corporation in accordance with the provisions of each of its separate Parts. 1.4 This Program and each of its Parts is intended to constitute an unfunded "excess benefit plan" (as defined in Section 3(36) of ERISA). To the extent that any benefit for any Participant does not qualify for such status, this Program and each of its Parts is intended to constitute an unfunded plan maintained by Mobil Oil Corporation primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees (as defined in Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA). Article II - Definitions ------------------------ When used in this Program or any of its Parts, the following defined terms shall have the following meanings: 2.1 "Affiliated Company" shall mean any corporation described in Article II (a) of the Retirement Plan or Section 1.3 of the Savings Plan. 2 2.2 "Base Pay" shall mean Base Pay as defined in the Savings Plan as in effect from time to time, but excluding the amounts of any short-term incentive awards under the Incentive Plan. 2.3 "Beneficiary" shall mean the beneficiary or beneficiaries designated by a Participant in accordance with Article V of Part I herein to receive the benefits, if any, payable under any Part of this Program upon such Participant's death. 2.4 "Change in Control" shall mean a Change in Control as defined in the Mobil Corporation Employee Severance Plan. 2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 2.6 "Current Benefit" shall mean the benefit determined under the Retirement Plan's benefit formula, including any applicable Limitation on Benefits or Limitation on Compensation, which a person would be eligible to receive if he or she were to terminate employment on a specified date and elect to receive a benefit at the earliest date permitted under the provisions of the Retirement Plan. 2.7 "Company" shall mean Mobil Oil Corporation. 2.8 "Director or Officer" shall mean a director or officer of Mobil Corporation, as defined in Rule 16a-l(f) under the Securities Exchange Act of 1934. 2.9 "Eligible Above Base Pay" shall mean, for purposes of determining the Supplemental Savings Benefit for any Participant, any short term incentive award (whether paid or deferred) under the Incentive Plan; provided that the amount of any such award included as Eligible Above Base Pay shall not exceed 50% of the Participant's Base Pay. 2.10 "Eligibility Threshold Amount" shall mean $450,000 as adjusted from time to time by the Company to reflect changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers for the period commencing June 30, 1985. 2.11 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.12 "ESOP" shall mean the Leveraged Employee Stock Ownership Plan established under the Savings Plan. 2.13 "Executive Committee" shall mean the Executive Committee of the Board of Directors of the Company. 3 2.14 "Incentive Plan" shall mean the 1995 Mobil Incentive Compensation and Stock Ownership Plan and any predecessor or successor plan. 2.15 "Limitation on Benefits" shall mean the limitation on the "annual benefit" payable to Participants under the Retirement Plan in accordance with Section 415 of the Code. 2.16 "Limitation on Compensation" shall mean the limitation on the annual compensation of each Participant resulting from the exclusion from benefit calculations under the Retirement Plan and the Savings Plan of (i) compensation deferred pursuant to the Incentive Plan; and (ii) compensation in excess of the amount that can be included pursuant to Section 401(a)(17) of the Code. 2.17 "Limitation on Contributions" shall mean the limitation on the aggregate amount of "annual additions" which can be made to Participants' accounts under the Savings Plan in accordance with Section 415 of the Code. 2.18 "LTFI units" shall mean notional units of the Long-Term Fixed Income option under the Savings Plan. 2.19 "Participant" shall mean a person who is eligible to participate in any or all of the Plans set forth in Parts II, III, IV, or V in the manner described therein. 2.20 "Participating Affiliate" shall mean any Affiliated Company which meets the requirements set forth in Section 10.1(a) of this Part I. 2.21 "Participating Employee" shall have the meaning as set forth in Article II(q) of the Retirement Plan. 2.22 "Potential Retirement Benefit" shall mean a hypothetical benefit calculated according to the Retirement Plan but without taking into account (as otherwise required under the Retirement Plan) any applicable Limitation on Benefits or Limitation on Compensation. 2.23 "Predecessor Plan Participant" shall mean a person who terminated employment with the Company on a date prior to January 1, 1998, and with respect to whom a benefit is payable under the provisions of the Supplemental Benefit Plan in effect on the date his or her employment was terminated. 2.24 "Prorated Benefit" shall mean that portion of the Participant's life annuity determined pursuant to the Retirement Plan which is equal to a fraction, the numerator of which is the number of years and partial years of accredited service determined for such Participant in 4 the relevant period, and the denominator of which is the total number of years and partial years of accredited service determined for such Participant. 2.25 "Retirement Date" shall mean the date upon which a participant in the Retirement Plan becomes eligible to receive benefits thereunder, by attainment of the requisite age and service requirements and separation from employment or retirement, provided that the Retirement Date for Participants who separated from service from the Company and are described in the following clauses shall not occur prior to separation from the successor employers referred to in such clauses: (a) A Plastics Participant, as defined in Appendix J of the Retirement Plan (i) who separated from service under the Retirement Plan as of the Effective Date, as defined in Appendix J of the Retirement Plan and (ii) who was employed by Tenneco as of the Effective Date; (b) A Participant whose employment terminated as a result of the sale of the Nichols, Florida operations and who was employed, on the effective date of such sale, by Agrifos; (c) A Participant whose employment terminated as a result of the joint venture between Mobil Natural Gas, Inc. and PanEnergy and who transferred directly from the Company to PanEnergy; (d) Any other Participant who transfers from the Company to a successor employer in connection with a divestiture, joint venture, merger or similar transaction, to the extent that any Board resolutions of the Company or purchase and sale agreements or other formal documents approving or implementing the transaction call for a delayed Retirement Date hereunder. 2.26 "Retirement Plan" shall mean the Retirement Plan of Mobil Oil Corporation, as it may be amended and restated from time to time. 2.27 "Salary Group Cut-Off" shall be Salary Group 22, as determined by the Company, or such other salary group that is selected by the Vice President - Human Resources, upon advice of Counsel, to be consistent with the purposes of this Program. 2.28 "Savings Plan" shall mean the Employees Savings Plan of Mobil Oil Corporation, as it may be amended and restated from time to time. 5 2.29 "Supplemental Benefit Plan" shall mean the Supplemental Benefit Plan established by Mobil Oil Corporation effective January 1, 1976, as amended on various dates through December 31, 1997. 2.30 "Supplemental Retirement Benefit" shall mean a benefit determined in accordance with the provisions of Article III of Part II. 2.31 "Supplemental Savings Benefit" shall mean a benefit determined in accordance with the provisions of Article III of Part III. Article III - Eligibility ------------------------- 3.1 A participant in the Retirement Plan or the Savings Plan, who satisfies the separate eligibility criteria set forth in Parts II, III, IV, or V herein shall be a Participant in this Program. 3.2 A Predecessor Plan Participant shall be a Participant in this Program, except that the provisions of Article IV of this Part and Parts II, III, IV, and V herein shall have no effect with respect to such a Participant. The amount and form of the benefit payable to such a Participant shall be determined in accordance with the provisions of the Supplemental Benefit Plan in effect on the date such Participant terminated employment with the Company. 3.3 An employee who is eligible to be a Participant pursuant to the provisions of any Part of this Program shall receive the benefit, if any, to which he becomes eligible pursuant to the provisions of that Part. Article IV - Method of Payment of Benefits ------------------------------------------ 4.1 Method of Payment of Benefits - At or Above Salary Group Cut-Off. For a ----------------------------------------------------------------- Participant who, as of the date of termination of employment, is employed in a salary group at or above the Salary Group Cut-Off, any benefits provided under this Program shall be payable as follows: (a) The total benefit payable under Parts II and III, as applicable, of this Program to or on account of a Participant shall be paid in equal monthly installments for a period of years and months which shall be the greater of 10 years or one-half the Participant's life expectancy, determined pursuant to the appropriate single-life annuity tables promulgated in Treasury Regulations under Sec. 72 of the Code as in effect on the effective date hereof. 6 (b) The amount of a Participant's monthly installments shall be determined as the sum of: (i) 1.7 times the monthly annuity (if any) determined under Section 3.2 of Part II; plus (ii) the amount of monthly installments for the period defined in paragraph (a), above, that would be equivalent to the sum of the lump sum amounts (if any) determined under Article III of Part III and Article III of Part V (other than such amounts paid immediately pursuant to Section 4.4(b) of this Part I), using interest on unpaid balances accruing from the last day of the month following the Participant's Retirement Date at a rate equal to the average yield to maturity for U.S. Treasury securities with ten year maturities for the six month period ending with the second month preceding the Participant's Retirement Date, increased by 100 basis points (1%). (c) Notwithstanding the foregoing, if the total monthly benefit payable under paragraph (b), above, is less than $1,000, the equivalent value of such total monthly benefit (computed on the basis of the interest rate specified in paragraph (b), above) shall be paid in a single sum. 4.2 Method of Payment of Benefits - Below Salary Group Cut-Off. For a ----------------------------------------------------------- Participant who, as of the date of termination of employment, is employed in a salary group below the Salary Group Cut-Off, the benefits provided under this Program shall be payable as follows: (a) The total benefits payable under any applicable Parts of this Program to or on account of a Participant shall be paid as a lump sum. The amount of a Participant's benefit shall be the sum of the lump sum amounts (if any) determined under Section 3.1 of Part II and under Parts III, IV, and V. (b) Notwithstanding the foregoing, if the total lump sum benefit payable under paragraph (a), above, expressed as an equivalent monthly benefit, using the interest rate specified in Section 4.1(b), above, and the payment period specified in Section 4.1(a), above, would be $2,500 or more, then the benefit shall be paid in the form of such equivalent monthly benefit. 4.3 Change in Interest Rate. The Company may, in its sole discretion, change ------------------------ the interest rate set forth in Section 4.1(b) of this Article IV, except that any reduction in such rate shall be effective only with respect to a Participant whose Retirement Date is later than the date of such change. 4.4 Time of Payment. ---------------- (a) Termination of employment at or after age 50. Except as provided in this Section 4.4(a), lump sum payments pursuant to this Article IV shall be made, and 7 installment payments pursuant to this Article IV shall commence, as of the last day of the month following the Participant's Retirement Date. If a Participant is entitled to severance benefits under any severance plan of the company, the commencement of benefit payments hereunder shall be deferred until the first month after the last month of the period for which such severance benefits are payable; provided that if the period for which severance benefits are payable ends after August 1 of any year, any lump sum payment hereunder shall be deferred until the first month of the next calendar year. If payment of any lump sum, or commencement of any annuity, is deferred pursuant to the foregoing sentence, the lump sum or annuity amount shall be increased by applying the interest rate set forth in Section 4.1(b) to the number of months of such deferral. (b) Termination of employment before age 50. If a Participant terminates employment prior to age 50, the Supplemental Savings Benefit shall be payable immediately in a lump sum. The balance of any payments shall be paid in a lump sum, or shall begin to be paid as an annuity, as applicable, on the last day of the month following the Participant's Retirement Date. 4.5 Death of Participant or Beneficiary. ------------------------------------ (a) If the Participant dies after attaining age 50 but before commencing or receiving the entire amount of the benefits payable hereunder, the balance of such benefits shall be paid to his or her Beneficiary or Beneficiaries designated in accordance with the provisions of Article V herein in the same manner as such payments would have been made to the Participant. If no beneficiary is designated, or no beneficiary survives, the balance of any benefits payable hereunder shall be payable immediately to the Participant's estate in a lump sum. (b) If the Participant dies before attaining age 50, the amount of the benefits that would have been payable hereunder if the Participant's employment had terminated on the date of his or her death shall be payable immediately to the Beneficiary (or if no Beneficiary is designated or survives, to the Participant's estate) in an equivalent lump sum payment, using such actuarial assumptions as the Company in its sole discretion shall select. (c) If a Beneficiary who has begun receiving benefits hereunder pursuant to paragraph (a), above, dies before receiving the balance of all amounts that would have been payable to the Participant, the balance of such payments shall be made to any contingent beneficiary designated in accordance with the provisions of Article V herein, or, if no contingent beneficiary is designated or survives, to the Beneficiary's estate in a lump sum. 8 Article V - Designation of Beneficiaries ---------------------------------------- 5.1 A designation of a Beneficiary to receive benefits upon the death of a Participant shall be made in accordance with the following rules: (a) A Participant may, by written instrument signed by the Participant and delivered to the Company, name one or more persons as the Beneficiaries entitled to receive the amount, if any, payable under this Program upon his or her death. A Beneficiary designation shall also contain such other information as the Company may require. In the case of a Participant residing in a community property state, such Participant may not designate a Beneficiary other than his or her spouse to receive the benefits, if any, payable under his Plan, unless such spouse has consented in writing to such designation. (b) A designation of Beneficiary shall be effective upon receipt by the Company of the written instrument signed by the Participant. Such designation shall remain effective until either of the following events occur: (i) it is revoked or changed by the Participant or (ii) the designated Beneficiary dies before the Participant. A designation of Beneficiary may be changed or revoked by duly filing a new designation with the Company naming another person Beneficiary with respect to the same amount. The last such designation received by the Company shall be controlling; provided, however, that no designation, or change or revocation thereof shall be effective unless received prior to the Participant's death. (c) In the event of a dispute among Beneficiary claims, the Company may retain the amount in question, without liability for any interest thereon, until the rights thereto are determined, or may pay such amount to an appropriate court, and such payment shall discharge the Company's obligation to any person, trust or estate claiming an interest in such amount. (d) Acceptance of a designation of Beneficiary by the Company shall not constitute or be interpreted to be evidence of an acknowledgment that any person is a Participant under any of the provisions of this Program. Article VI - Authorities ------------------------ 6.2 Program Not a Contract of Employment. This Program is not an employment ------------------------------------- contract and neither the Program nor any action taken hereunder shall be construed as modifying the terms of any employee's or any Participant's employment, as giving to a Participant 9 the right to be retained in the employ of the Company or any Affiliated Company, or as inducing any employee to continue in the employ of the Company or any Affiliated Company. The Company or any Affiliated Company may terminate the Participant's employment as freely and with the same effect as if this Program were not in existence. 6.3 Binding Nature. This Program shall be binding upon and inure to the benefit --------------- of the Company and its successors and assigns and the Participant, his or her Beneficiaries and his or her estate. Nothing in this Program shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to another corporation which assumes this Program and all obligations of the Company hereunder . Upon such a consolidation, merger, or transfer of assets and assumption, the term "Company" shall refer to such other corporation; and this Program shall continue in full force and effect. 6.4 Non-Funded Nature. This Program shall be an unfunded plan and all payments ------------------ hereunder shall be made out of general assets of the Company and no special or separate fund shall be established nor other segregation of assets made to create plan assets or to cause this Program to be a funded plan. The Company may, at its sole discretion, place assets in a trust that may be used to meet all or a portion of the Company's obligations hereunder, and any right of a Participant or Beneficiary to any benefit payments under this Program is reduced by identifiable payments from either the Company or the trustee of any such trust. The assets of any such trust shall be available to the Company's general creditors (or, as to Participants who are employees of a Participating Affiliate, the Participating Affiliate's general creditors) in the event of the Company's (or Participating Affiliate's) insolvency or bankruptcy. The rights of any Participant under this Program are the rights of unsecured general creditors of the Company (or Participating Affiliate). 6.5 Non-Assignability. No interest under this Program shall be subject in any ------------------ manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind, nor in any manner be subject to the debts or liabilities of any person and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, shall be void. 6.6 Determination of Benefit. Except as expressly provided herein, whenever ------------------------- under this Program it is necessary to determine whether one benefit is less than, equal to, or larger than another, or to determine the equivalent actuarial value of any benefit, whether or not such benefits are provided under this Program, such determination shall be made by the Company using mortality, interest, and other assumptions normally used at the time in determining actuarial equivalence under the Retirement Plan. 10 6.7 Withholding Taxes. The Company or its designated agent may withhold from ----------------- any benefits payable under this Program all Federal, State, City or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 6.8 Payment of Benefits to Minors or Incompetents. In the event that the --------------------------------------------- Company shall find that a Participant, a spouse, or a designated Beneficiary is unable to care for his or her affairs because of age, lack of capacity, illness or accident, the Company may direct that any benefit payment due him or her, unless claim shall have been made therefore by a duly appointed legal representative, shall be paid to the spouse, a child, a parent, or other relative, or to a person with whom he or she resides, or any of them, in such manner and proportion as the Company may deem proper and any such payment so made shall be a complete discharge of the liabilities of the Company therefor. 6.9 Amendment and Termination. Prior to a Change in Control, this Program may ------------------------- be amended, modified, suspended, or terminated, in whole or in part, by action of the Company at any time, but such action shall not (i) reduce the present value of any benefit which would otherwise be determined to be payable under Article III of Part II by an amount which is greater than the amount of the increase, if any, in the present value of the Participant's Current Benefit which occurs after the date of such action; (ii) reduce the amount of any Supplemental Savings Benefit credited to or for the account of a Participant under Article III of Part III for a period prior to the date of such action, or reduce any guaranteed notional earnings rate with respect to any amounts credited to the account of a Participant under such Article III to a rate lower than that in effect at the time the amounts were so credited; (iii) reduce any benefit determined under Article III of Part IV for a Participant whose Retirement Date is prior to the date of such action; (iv) reduce any benefit determined under Article III of Part V for a Participant whose Retirement Date is prior to the date of such action; (v) reduce the notional interest rate described in Section 4.1 of this Part, except with respect to a Participant whose Retirement Date is later than the date of such change; or (vi) reduce the benefit payable to a Predecessor Plan Participant under the provisions of the Supplemental Benefit Plan in effect on the date such Predecessor Plan Participant terminated employment with the Company. After a Change in Control, this program may not be amended, modified, suspended or terminated. 6.10 Effective Date. The Program, as herein set forth, was amended and restated -------------- effective as of January 1, 1998. Article VII - Rights of Participants ------------------------------------ 11 7.1 Annual Statement. The Company shall provide an annual statement to each ---------------- person who is a Participant in this Program. Such statement will describe the benefits for which the Participant is or may become eligible and any relevant provisions of this Program affecting the receipt of such benefits. 7.2 Costs of Collection. The Company, in its sole discretion, may provide that ------------------- if it should become necessary for a Participant to secure legal counsel to collect Program benefits, including benefits which the Company has acknowledged in a writing to the Participant as accrued under this Program, the Company will reimburse the Participant for the cost of such counsel as well as any other cost of collection. 7.3 Vested Rights. A Participant shall be vested in benefits under the various ------------- components of the Program to the same extent as he or she is vested in benefits under the Retirement Plan or the Savings Plan, as applicable. Article VIII - Administration of the Program -------------------------------------------- 8.1 General Administration ---------------------- (a) The operation and administration of the Program shall be controlled and managed by the Company, acting through the Vice President - Human Resources and the Treasurer. (b) The Company shall, from time to time, establish guidelines with respect to the control and management of this Program and with respect to the claims review and appeal procedure under this Program. (c) In the exercise of their duties hereunder, the Vice President - Human Resources and the Treasurer may designate any other person or persons to carry out their functions and responsibilities. (d) All decisions, actions or interpretations by the Company shall be final, conclusive and binding on all parties. 8.2 Legal Interpretation. The text of this Program shall control, and the -------------------- headings to the Parts, Articles, and Sections are for reference purposes only and do not limit or extend the meaning of any of the Program's provisions. The Program shall be governed by and constructed in accordance with the laws of the State of New York. Any interpretation of the Program by the General Counsel of the Company shall be conclusive as between the 12 Company and its employees and retired or former employees and may be relied upon by Participants and all other parties in interest. 8.3 Records. The records of the Company and Affiliated Companies shall be ------- conclusive in respect of all matters involved in the administration of this Program, the determination of eligibility of Participants, and the calculation of benefits. Article IX - Non-Duplication of Benefits ---------------------------------------- 9.1 (a) If a Participant shall participate in another "excess benefit plan" of the Company or any Affiliated Company, benefits payable under such other excess benefit plan, to the extent attributable to the Limitation on Benefits (affecting the Retirement Plan), the Limitation on Contributions (affecting the Savings Plan), or the Limitation on Compensation (affecting both the Retirement Plan and the Savings Plan) which are the subject of the Program, shall reduce the Benefits otherwise payable under this Program. The decision of the Company as to duplication of benefits otherwise payable under this Program shall be final. For this purpose, if such other plan has as its purpose the intent to recompense its eligible participants for amounts affected by the Limitation on Benefits, the Limitation on Contributions, or the Limitation on Compensation, it will be deemed an excess benefit plan regardless of the terminology employed. (b) If the Limitation on Benefits or the Limitation on Compensation is changed after the Participant's Retirement Date with the effect of increasing the amount of benefit paid to or on account of a Participant under the Retirement Plan, the amount of any unpaid Supplemental Retirement Benefit determined under Article III of Part II may, in the Company's sole discretion, be reduced commensurate with the increase in the Retirement Plan benefit. Article X - Participating Affiliates ------------------------------------ 10.1 Participation in Program ------------------------ (a) Any Affiliated Company may become a Participating Affiliate with the consent of the Company upon the following conditions: (i) such Affiliated Company shall make, execute and deliver such instrument as the Company deems advisable; and 13 (ii) such Affiliated Company shall designate the Company as its agent for purposes of this Program. (b) Any such Participating Affiliate may by action of its Board of Directors withdraw from participation, provided that no such withdrawal shall adversely affect rights accrued to the date of withdrawal under this Program, as determined by the Company. 10.2 Effect of Participation. Each Affiliated Company which with the consent of ----------------------- the Company complies with Section 10. 1 (a) shall be deemed to have adopted this Program and each of its Parts for the benefit of its employees who participate in the Retirement Plan and the Savings Plan. 14 PART II SUPPLEMENTAL RETIREMENT BENEFIT PLAN OF MOBIL OIL CORPORATION Article I - Purpose ------------------- 1.1 The purpose of the Supplemental Retirement Benefit Plan (hereafter in this Part II, the "Plan") is to provide its Participants benefits which would have been payable from the tax-exempt trust under the Retirement Plan but for the Limitation on Benefits and the Limitation on Compensation. Article II - Eligibility ------------------------ 2.1 A Participating Employee in the Retirement Plan shall be a Participant in the Plan in any year in which his or her Potential Retirement Benefit (if he or she terminated employment and elected to receive retirement benefits at the earliest possible Retirement Date) is greater than his or her Current Benefit at such date. Such a Participant shall receive or have paid for his or her account a Supplemental Retirement Benefit in an amount determined under Article III of this Part. Article III - Amount of Benefit ------------------------------- 3.1 Supplemental Retirement Benefit - Below Salary Group Cut-Off. The benefits ------------------------------------------------------------ described in this Section 3.1 apply only to Participants who are, at the date of termination of employment, employed in a Salary Group below the Salary Group Cut-Off: (a) The principal amount of the Supplemental Retirement Benefit payable to a Participant who retires under the terms of the Retirement Plan shall be a lump sum amount equal to the difference, as of the Participant's Retirement Date, between (i) the amount of the lump sum benefit which would have been payable to or on account of the Participant under the Retirement Plan without regard to the Limitation on Benefits and without regard to the Limitation on Compensation and (ii) the amount of the lump sum benefit actually payable to or on account of the Participant under the Retirement Plan. (b) The principal amount of the Supplemental Retirement Benefit payable to a Participant who terminates employment with a vested right under the Retirement Plan 15 shall be a lump sum amount equal to the difference, as of the first date the Participant could elect to receive benefits, between (i) the amount of the lump sum benefit which would have been payable to or on account of the Participant under the Retirement Plan without regard to the Limitation on Benefits and without regard to the Limitation on Compensation and (ii) the amount of the lump sum benefit actually payable to or on account of the Participant under the Retirement Plan. (c) The principal amount of the Supplemental Retirement Benefit payable for the account of a Participant who dies before the commencement of his or her benefits under the Retirement Plan shall be a lump sum amount equal to the difference, as of the date of the Participant's death, between (i) the amount of the lump sum benefit which would have been payable for his or her account under the Retirement Plan without regard to the Limitation on Benefits and without regard to the Limitation on Compensation and (ii) the amount of the lump sum benefit actually payable for his or her account under the Retirement Plan. 3.2 Supplemental Retirement Benefit - At or Above Salary Group Limit. The ---------------------------------------------------------------- benefits described in this Section 3.2 apply only to Participants who are, at the date of termination of employment, employed in a Salary Group at or above the Salary Group Cut-Off: (a) The annual annuity amount of the Supplemental Retirement Benefit payable to a Participant who retires under the terms of the Retirement Plan shall be an annual amount equal to the difference, as of the Participant's Retirement Date, between (i) the amount of the straight life annuity benefit which would have been payable to or on account of the Participant under the Retirement Plan without regard to the Limitation on Benefits and without regard to the Limitation on Compensation and (ii) the amount of the straight life annuity equivalent of the benefit actually payable to or on account of the Participant under the Retirement Plan. (b) The annual annuity amount of the Supplemental Retirement Benefit payable to a Participant who terminates employment with a vested right under the Retirement Plan shall be an annual amount equal to the difference, as of the first date the Participant could elect to receive benefits, between (i) the amount of the straight life annuity benefit which would have been payable to or on account of the Participant under the Retirement Plan without regard to the Limitation on Benefits and without regard to the Limitation on Compensation and (ii) the amount of the straight life annuity equivalent of the benefit actually payable to or on account of the Participant under the Retirement Plan. (c) The annual annuity amount of the Supplemental Retirement Benefit payable for the account of a Participant who dies after attaining age 50 but before the 16 commencement of his or her benefits under the Retirement Plan shall be an annual amount equal to the difference, as of the date of the Participant's death, between (i) the amount of the straight life annuity benefit (based on the participant's age at death) which would have been payable for his or her account under the Retirement Plan without regard to the Limitation on Benefits and without regard to the Limitation on Compensation and (ii) the straight life annuity benefit actually payable for his or her account under the Retirement Plan. (d) The amount of the Supplemental Retirement Benefit payable for the account of a Participant who dies before attaining age 50 shall be an annual amount equal to the difference, as of the date the Participant would have attained age 50, between (i) the amount of the straight life annuity which would have been payable for his or her account under the Retirement Plan had he or she retired on that date without regard to the Limitation on Benefits and without regard to the Limitation on Compensation and (ii) straight life annuity which would have been payable for his or her account under the Retirement Plan had he or she retired on that date after application of the Limitation on Benefits and the Limitation on Compensation. (e) The amount of the benefit actually payable under the Retirement Plan, for purposes of paragraphs (a), (b) (c) and (d), above, shall be the straight life annuity of equivalent value (using the Retirement Plan's mortality and interest rate factors applicable to retirement lump sums) to the lump sum actually payable from the Retirement Plan, or, if the Retirement Plan benefits are paid in any form other than a lump sum, the straight life annuity of equivalent value to the benefit actually payable using the Retirement Plan's applicable mortality and interest rate factors. 3.3 Determination of Amounts. The principal amount or annuity amount of the ------------------------ benefit, if any, payable to or for the account of a Participant under this Article 3 shall be determined by the Company by the application of such assumptions, methods and procedures as the Company, in its sole discretion shall determine to be consistent with Section 6.6 of Part I of this Program. 17 PART III SUPPLEMENTAL SAVINGS BENEFIT PLAN OF MOBIL OIL CORPORATION Article I - Purpose ------------------- 1.1 The purpose of this Supplemental Savings Benefit Plan (hereafter in this Part III, the "Plan"), is to provide its Participants benefits which would have been payable from the tax-exempt trust under the Savings Plan but for the limitations imposed by the Limitation on Contributions and the Limitation on Compensation and to provide additional deferred compensation for a select group of management or highly compensated employees. Article II - Eligibility ------------------------ 2.1 A Participant in the Savings Plan whose employer-corporation contributions (exclusive of such person's own contributions to the 401(k) Account) are reduced under the Savings Plan as a result of the Limitation on Contributions or as a result of the Limitation on Compensation shall be a Participant in the Plan. In addition, a Participant in the Savings Plan who is excluded from eligibility for the 2% (or 3%, as applicable) employer-corporation contribution to the 401(k) Account or who is excluded from eligibility for Savings Plan contributions in respect of short-term incentive awards under the Incentive Plan because he or she is employed in a salary group at or above the Salary Group Cut-Off shall be a Participant in the Plan. A Supplemental Savings Benefit shall be payable to or for the account of a Participant in an amount determined under Article III of this Part. Article III - Amount of Benefits -------------------------------- 3.1 Supplemental Savings Benefit ---------------------------- (a) If the contributions to a Participant's ESOP account under the Savings Plan are reduced in any year because of the Limitation on Contributions, the Limitation on Compensation, or a combination thereof, a principal amount equal to such reduction shall be credited hereunder in favor of the affected Participant. 18 (b) Effective February 1, 1990, if a Participant is ineligible to receive the 2% employer-corporation contribution to the 401(k) Account under the Savings Plan because he or she is employed in a salary group at or above the Salary Group Cut-Off, a principal amount shall be credited hereunder in favor of the affected Participant. The principal amount credited hereunder shall be: (i) 2% of such Participant's Base Pay (plus, after January 1, 1998, 2% of the Participant's Eligible Above Base Pay); plus (ii) an additional 1% of Base Pay (plus, after January 1, 1998, 1% of Eligible Above Base Pay) in the case of an employee described in the preceding sentence who satisfies the requirements of Section 3.1.2 of the Savings Plan; plus (iii) in the case of a Director or Officer who waives participation in the ESOP, any amount that would have been credited under such ESOP. (c) Effective January 1, 1998, if a Participant is ineligible to receive ESOP contributions under the Savings Plan in respect of amounts paid under the Incentive Plan, a principal amount shall be credited hereunder in favor of the affected Participant in the amount of 4% of Eligible Above Base Pay. (d) Effective January 1, 1999, the principal amounts referred to in clause (i) of paragraph (b), above, shall no longer be credited. Effective January 1, 1999, the percentage referred to in paragraph (c) above shall be 6%, rather than 4%. (e) Principal amounts credited in favor of a Participant for a year shall be expressed in notional shares (and fractions thereof) of Mobil common stock. Such principal amounts shall accrue notional dividends (dividend equivalents) at the rates and times that dividends are paid on actual shares of Mobil common stock. Dividend equivalents credited in favor of a Participant shall be converted into additional notional shares (and fractions of shares) of common stock and shall accrue dividend equivalents as provided in the preceding sentence. (f) Amounts credited in favor of a Participant as LTFI units pursuant to Predecessor Plan provisions or investment change elections as provided in Section 3.2 shall be credited with notional earnings equal to the amount of earnings which would have been allocable to the such principal amounts had they been invested (and earnings reinvested) in LTFI units for the period until the date as of which benefits are payable or, if applicable, the date of an investment change to notional Mobil common stock. 19 (g) Notwithstanding any election made by a participant who is a Director or Officer pursuant to this Section 3.1(g) as in effect prior to August 15, 1996, all new principal amounts credited in favor of an Officer or Director on or after August 15, 1996, shall be expressed in notional shares of Mobil common stock as provided in Section 3.1(e) above. (h) No Supplemental Savings Benefit shall be provided in recognition of the effect of any reduction in the Participant's own permissible after-tax allotments or contributions to the Savings Account under the Savings Plan attributable to the Limitation on Contributions or the Limitation on Compensation nor for any reduction or limitation on the Participant's own contributions to the 401(k) Account under the Savings Plan. 3.2 Investment Changes ------------------ (a) Once per year Participants who are age 55 years or older may elect, at such time and in such manner as shall be determined by the Company, to have a portion of the amount credited to the Participant in the form of notional Mobil common stock credited instead in the form of LTFI units as provided in Section 3.1(f) of this Part. The price of Mobil common stock for purposes of this conversion shall be the price in effect under the Savings Plan for instructions to sell received at the time the election hereunder is received by the Company. The number of shares of notional Mobil common stock that can be converted to LTFI units in any one year is 25% of the total number of notional shares ever credited to the Participant (including any previously converted) minus the total number of shares previously converted. For a Participant whose age is 60 years or older, the preceding sentence shall be applied by substituting "50%" for "25%." (b) Once per year Participants shall have an opportunity, at such times and in such manner as determined by the Company, to elect to have amounts credited in LTFI units credited in notional shares of Mobil common stock, which shall accrue notional dividend equivalents as provided in Section 3.1(e). For purposes of conversions into notional Mobil common stock credits, the price in effect under the Savings Plan for instructions to purchase received at the time any election hereunder is received by the Company shall apply. 3.3 Benefit Amount at Retirement. The amount of a Participant's Supplemental ---------------------------- Savings Benefit shall, at all times, be equal to (i) the sum of the annual principal amounts described in subsection (a), (b), (c) and (d) of Section 3.1 and (ii) the aggregate amount of the notional earnings credited in favor of the Participant as provided in subsections (e), (f), and (g) of Section 3.1. Any amounts credited to the account of a Participant in the form of notional shares of Mobil common stock shall be converted to cash amounts as of 20 the Participant's Retirement Date. For purposes of this conversion, the price of notional Mobil common stock shall be the average of the prices used for purchases in the Savings Plan for the most recent consecutive six monthly periods ending before the Participant's Retirement Date. 3.4 Crediting of Interest. Any principal amounts credited to the account of a --------------------- Participant under this Part III as of a Participant's Retirement Date shall be credited with interest at the rate specified in Section 4.1(b) of Part I from the Retirement Date to the last day of the month following the Participant's Retirement Date. 21 PART IV RETIREMENT BENEFIT ENHANCEMENT PLAN OF MOBIL OIL CORPORATION Article I - Purpose ------------------- 1.1 The purpose of this Retirement Benefit Enhancement Plan (hereafter in this Part IV, the "Plan") is to provide its Participants with a reasonable level of retirement benefits. Article II - Eligibility ------------------------ 2.1 A Participant in the Retirement Plan who is employed in a salary group below the Salary Group Cut-Off shall be a Participant in this Plan, if the lump sum value of the Potential Retirement Benefit, calculated using the assumptions described in Section 3.1(a)(i) of this Plan is equal to or greater than the Eligibility Threshold Amount. Article III - Amount of Benefit ------------------------------- 3.1 Retirement Enhancement Benefit ------------------------------ (a) The amount of the Retirement Enhancement Benefit payable under this Plan shall be an amount equal to the difference, if any, between (i) the amount of the lump sum value of the benefit which would have been payable to or for the account of the Participant under the Retirement Plan without regard to any applicable Limitation on Benefits or Limitation on Compensation, determined by using an interest rate of 5% and Mobil Blended Unisex Mortality for the Prorated Benefit attributable to periods of accredited service prior to February 1, 1985; 9 1/2% and Mobil Blended Unisex Mortality for the Prorated Benefit attributable to periods of accredited service after February 1, 1985, but prior to June 1, 1986; and the applicable interest rate and mortality basis as provided in the Retirement Plan for the Prorated Benefit attributable to periods of accredited service after June 1, 1986, and (ii) the amount of the lump sum value of the benefit payable to or for the account of such Participant under the Retirement Plan determined under the relevant provisions of such Plan, without regard to any applicable Limitation on Benefits or Limitation on Compensation. 22 (b) The determination of the amount of the benefit, if any, payable to or for the account of a Participant under this Section shall be made by the Company as of the earlier of the Participant's Retirement Date or the date benefits are first paid for his or her account under the death benefit provisions of the Retirement Plan and otherwise by the application of such assumptions, methods and procedures as the Company, in its sole discretion, shall determine to be consistent with Section 6.6 of Part I of this Program. 23 PART V RETIREMENT BENEFIT EQUALIZATION PLAN OF MOBIL OIL CORPORATION Article I - Purpose ------------------- 1.1 This Retirement Benefit Equalization Plan (hereafter in this Part V, the "Plan") was established by Mobil Oil Corporation effective as of June 28, 1985. In order to retain the services of key employees of outstanding abilities and to motivate such employees to exert their best efforts, Mobil Oil Corporation has adopted a policy designed to provide such employees with a reasonable level of after-tax retirement benefits. The purpose of the Plan is to enable Mobil Oil Corporation to carry out such policy with respect to certain key employees designated as Participants. Article II - Eligibility ------------------------ 2.1 A Participant in the Supplemental Retirement Benefit, Supplemental Savings Benefit, or Retirement Benefit Enhancement Plans set forth in Parts II, III and IV of this Program who was born prior to January 1, 1936, shall be a Participant in this Plan, and shall receive a Retirement Equalization Benefit determined under Article III of this Plan. Article III - Amount of Benefits -------------------------------- 3.1 Retirement Equalization Benefit ------------------------------- (a) If an amount is payable to or for the account of a Participant pursuant to: (i) Section 3.1 of Part II, the Supplemental Retirement Benefit Plan (applicable only to Participants employed in salary groups below the Salary Group Cut-Off); (ii) Part III, the Supplemental Savings Benefit Plan; or (iii) Part IV, the Retirement Benefit Enhancement Plan (applicable only to Participants employed in salary groups below the Salary Group Cut-Off), 24 a Retirement Equalization Benefit shall be paid under this Plan in favor of such Participant in respect of such amounts. (b) For a Participant who becomes eligible to receive a Retirement Equalization Benefit by reason of attaining his or her Retirement Date in 1998 or later, the amount of Retirement Equalization Benefit to be paid shall be determined by multiplying each of the amounts referred to in paragraph (a), above, by the appropriate factors as set forth in the "Table for 1988" which is designated "Appendix A" to this Part. (c) The Company may, at its sole discretion, alter or amend the method used to determine the amount of any Retirement Equalization Benefit or increase, decrease or reduce to zero, the factors set forth in Appendix A by adoption of an additional table or tables, except that any such change shall have effect only with respect to Participants who first become eligible to receive or have paid on their account a benefit under this Part by reason of attaining their Retirement Dates or the occurrence of their death on a date which is later than the date of such change. (d) The determination of the benefit, if any, payable to or for the account of a Participant under this Section shall be made by the Company as of the Participant's Retirement Date or date of death. 25 Table 1 1999 - 2001 TAX EQUALIZATION FACTOR TABLE 39.6% FEDERAL TAX RATE (Supplemental Plan Installment Payments of more than or equal to $250,000 per year) Year of Retirement ----------------------------------------------------------------------------- Year of Entry 1999 2000 2001 ----------------------------------------------------------------------------- 1945 22.2 21.8 21.4 1946 21.9 21.5 21.1 1947 21.5 21.1 20.7 1948 21.1 20.7 20.3 1949 20.7 20.3 19.9 ----------------------------------------------------------------------------- 1950 20.3 19.9 19.5 1951 19.8 19.4 19.0 1952 19.4 19.0 18.6 1953 18.9 18.5 18.1 1954 18.4 18.0 17.6 ----------------------------------------------------------------------------- 1955 17.9 17.5 17.1 1956 17.3 16.9 16.6 1957 16.8 16.4 16.0 1958 16.2 15.8 15.4 1959 15.5 15.1 14.8 ----------------------------------------------------------------------------- 1960 14.9 14.5 14.1 1961 14.2 13.8 13.5 1962 13.4 13.1 12.7 1963 12.7 12.3 12.0 1964 11.8 11.5 11.2 ----------------------------------------------------------------------------- 1965 11.0 10.6 10.4 1966 10.0 9.7 9.5 1967 9.1 8.8 8.5 1968 8.0 7.8 7.5 1969 6.9 6.7 6.5 ----------------------------------------------------------------------------- 1970 5.7 5.5 5.3 1971 4.4 4.3 4.1 1972 3.1 3.0 2.9 1973 1.6 1.5 1.5 1974 0.0 0.0 0.0 ----------------------------------------------------------------------------- 26 Assumptions: o 39.6% Federal tax rate o 20% tax rate on long term capital gains (grandfathered for lump sum pension distributions). o 5.7% hypothetical state tax rate and Federal conformity with respect to capital gains treatment. o Federal deduction for state tax is limited by 1991 tax law (to the lesser of 20% of the state tax rate or the state tax rate minus 3%). 27 EX-12 4 EXHIBIT 12 - -------------------------------------------------------------------------------- Exhibit 12 MOBIL CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (In millions, except for ratio amount) - --------------------------------------------------------------------------------
Year Ended December 31, -------------------------------------------------- 1994 1995 1996 1997 1998 ------- ------- ------- ------- ------- Income Before Change in Accounting Principle ........... $ 1,759 $ 2,376 $ 2,964 $ 3,272 $ 1,704 Add: Income taxes ................... 1,919 2,015 3,147 3,093 1,356 Portion of rents representative of interest factor ........... 340 368 376 346 317 Interest and amortization of debt discount expense ..... 461 467 455 428 451 Earnings less (greater) than dividends from equity affiliates ............ (40) (51) 153 (59) 329 ------- ------- ------- ------- ------- Income as Adjusted ............... $ 4,439 $ 5,175 $ 7,095 $ 7,080 $ 4,157 ======= ======= ======= ======= ======= Fixed Charges: Interest and amortization of debt discount expense ..... $ 461 $ 467 $ 455 $ 428 $ 451 Capitalized interest ........... 37 47 78 101 74 Portion of rents representative of interest factor ........... 340 368 376 346 317 ------- ------- ------- ------- ------- Total Fixed Charges .............. $ 838 $ 882 $ 909 $ 875 $ 842 ======= ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 5.3 5.9 7.8 8.1 4.9 ======= ======= ======= ======= =======
For the years ended December 31, 1994, 1995, 1996, 1997, and 1998, Fixed Charges exclude $37 million, $28 million, $24 million, $29 million and $25 million, respectively, of interest expense attributable to debt issued by the Mobil Oil Corporation Employee Stock Ownership Plan Trust and guaranteed by Mobil. - -------------------------------------------------------------------------------- Mobil - 29 - EX-13 5 EXHIBIT 13 Five-year cumulative total return [BAR GRAPH APPEARS HERE] Mobil 262 S&P 500 293 Industry Group 244 Assumes $100 invested on December 31, 1993, in Mobil common stock, S&P 500 Index, and a composite index, weighted by market capitalization each year, of the following seven petroleum companies: Exxon Corporation, Chevron Corporation, Royal Dutch Petroleum Company/"Shell" Transport and Trading Company p.l.c., Atlantic Richfield Company, British Petroleum Company p.l.c. and Texaco Inc. Total return assumes reinvestment of dividends. Financial highlights 1997 1998 %Change - -------------------------------------------------------------------------------- Net income (millions) $ 3,272 $ 1,704 (48) Per common share (based on average shares outstanding) 4.10 2.12 (48) Per common share assuming dilution 4.01 2.10 (48) (based on average shares outstanding) - -------------------------------------------------------------------------------- Return on average shareholders' equity 17.0% 9.0% (47) Return on average capital employed 13.4% 7.7% (43) Income per dollar of revenue 5.0 cents 3.2 cents (36) Petroleum earnings per gallon sold 5.1 cents 2.6 cents (49) - -------------------------------------------------------------------------------- Revenues (millions) $ 65,906 $ 53,531 (19) Total assets, year-end (millions) 43,559 42,754 (2) Investment spending (millions) 5,306 5,500 4 Shareholders' equity, year-end (millions) 19,461 18,370 (6) Per common share (based on shares outstanding at year-end) 24.41 23.31 (5) - -------------------------------------------------------------------------------- Common shares outstanding, year-end (thousands) 783,364 780,533 0 Shareholders of common stock, year-end 186,200 178,700 (4) Number of employees, year-end 42,700 41,500 (3) - -------------------------------------------------------------------------------- Table of contents Letter to Shareholders 1 Mobil at a Glance 4 The Year in Review 5 FINANCIAL SECTION Highlights 13 Management Discussion and Analysis 14 Consolidated Financial Statements 31 Notes to Financial Statements 38 Reports of Management and Independent Auditors 53 Supplementary Information 54 Shareholder Information 64 Directors and Officers 65 - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- [PICTURES OF LUCIO A. NOTO & EUGENE A. RENNA APPEARS HERE] Dear shareholder: In a difficult year for the oil industry, Mobil's employees worked hard to reduce costs, increase trade sales and improve performance. Their success at self-help in 1998 offset about $500 million of the $1.4 billion impact of the deterioration in industry fundamentals. With sharply lower crude oil and natural gas prices and generally lower product margins, especially in Asia, 1998 wasn't nearly as bad an operating year as it might have been. After three straight years of setting records, Mobil's operating profits for 1998 declined 31 percent to just under $2.4 billion. We fared considerably better than most of our competitors, largely because of Mobil's strengths in marketing and refining and because of our self-help programs. Crude oil prices were about $6.50 per barrel lower in 1998 than in 1997, and natural gas prices fell about $.50 per thousand cubic feet. The weak prices stemmed from higher overall OPEC production, a mild winter in the Northern Hemisphere and the severity of Asia's economic crisis, which limited worldwide energy and petrochemical demand growth. Upstream (exploration and producing) operating earnings fell 53 percent to $1 billion, primarily because of lower oil and natural gas prices as well as slightly lower volumes and higher exploration expenses. Chemical profits declined 46 percent to $190 million because of lower polyethylene and paraxylene margins. On the other hand, our downstream (marketing and refining) operating earnings set an all-time record of $1.4 billion, an 8 percent increase over 1997. It was the second consecutive year of record U.S. Marketing and Refining earnings, and even in Asia's slumping markets, our downstream earnings improved slightly. How we helped ourselves There were other bright spots as well: . Upstream, we replaced 165 percent of the oil and gas reserves we used -- our best year in reserve replacement since 1984. Proved reserves increased to 7.6 billion barrels of oil equivalent, and total resources increased to 28 billion barrels. We increased production in some key growth areas, including the Tengiz field in Kazakhstan, the Hibernia field offshore Eastern Canada and Equatorial Guinea's Zafiro field. . Behind our good downstream performance was an increase in trade sales of 4 percent worldwide, including an increase in U.S. gasoline sales of 5 percent; the benefits of our joint venture with British Petroleum in Europe, leading to record earnings there; the progress of our initiatives in Asia Pacific; and excellent refinery performance worldwide. . Our business units identified, and committed to, an additional $500 million of initiatives to reduce costs and increase revenue versus a 1996 base. This is on top of the $900 million we committed to in 1997. To date, we have delivered about half of these $1.4 billion pretax benefits. . Our company-wide unit operating costs declined more than 4 percent in 1998 to $4.53 per barrel of oil equivalent. . We increased our dividend for the 11th consecutive year in 1998. Our year-end debt-to-capitalization ratio of 29 percent, while up, remained at a level we're comfortable with. Merger announcement The biggest news of the year was our agreement to a merger transaction with Exxon. If approved, the combined company, to be called Exxon Mobil Corporation, will have its headquarters in Irving, Texas. It will be organized functionally, with worldwide downstream headquarters in Fairfax, Virginia, and worldwide upstream and chemical headquarters in Houston, Texas. Mobil 1 We are limited in what we can say about the proposed merger at this time, but we'd like to make it clear that we believe this is in the best interest of our shareholders. It is not size that drives this combination, but the desire to bring together two outstanding organizations with a demonstrated track record of achievements -- organizations that share common values, that employ compatible strategies, and that together should be able to achieve more than either could alone. Areas for upstream expansion Among Mobil's strengths is the solid portfolio of growth opportunities our people have developed in areas relatively new to us as well as those where we have had a long history of operating successfully. The East Coast of Canada is quickly becoming a new upstream core area for us. The Hibernia field grew to about 100,000 barrels a day (Mobil's share, 33.1 percent) in the fourth quarter of 1998, the end of its first full year of production. Development continued in the Sable Offshore Energy Project, while additional sales contracts were signed for its natural gas. We expect production to begin there in November 1999. And development began on the Terra Nova oil field. In the Caspian region, our relationships in Kazakhstan, Turkmenistan and Azerbaijan are progressing. Mobil's share of oil and natural gas production from the Tengiz field in Kazakhstan reached 52,000 barrels of oil equivalent a day, and the Caspian Pipeline Consortium received permits to begin construction. Along with our partners, we exported our first barrel of crude oil from Turkmenistan. In West Africa, OPEC quotas constrained our crude oil production in Nigeria, but the good news is that the Oso gas liquids project began exporting and will contribute to increased Nigerian production in 1999. At the same time, we're expanding production in Equatorial Guinea and continuing to explore offshore in both countries. Our worldwide LNG business is a major strength for Mobil. In Qatar, Mobil is beginning the third year of LNG exports from the Qatargas project and will begin exporting from the RasGas project later in 1999. We succeeded in securing sole negotiating rights for the sale of 7.5 million metric tons of LNG a year to an Indian consortium, which when finalized would bring contracted sales volumes from RasGas to 12.3 million tons a year. In Indonesia, Mobil has been an LNG industry pioneer since the 1970s, and new fields are coming on stream to supplement declining production from the Arun field. Elsewhere in Indonesia, we experienced a series of exploration successes as we celebrated the 100th anniversary of doing business there. We made other discoveries during 1998 in Australia, Italy, Equatorial Guinea, the deepwater Gulf of Mexico, Norway, Peru and Venezuela. In Venezuela, our Cerro Negro heavy oil project obtained $900 million in limited recourse funding and is progressing on schedule. In the U.S., Mobil swapped some Gulf of Mexico shelf assets with Arco for that company's long-lived properties in California. As a result, we were able to increase our equity interest in the Aera joint venture with Shell from 41.4 percent to 48.2 percent while increasing reserves and cutting costs. Progress downstream Our downstream strengths have been providing us with some buffer against declining oil prices. We owe our marketing success in part to innovative programs like the Speedpass(TM) quick-payment system and On The Run(R) convenience stores in North America. We have already mentioned that we are pleased with the progress we have made with our Asia Pacific initiatives. Despite the economic downturn in Asia, I consider our 2 Mobil solid position in the region to be a long-term plus. Mobil's refineries around the world are in good shape. While we have rationalized part of our refining network, a sizable portion of the lost capacity has been offset through low-cost debottlenecking projects at some remaining facilities. Although the chemical industry is in a down part of the business cycle, we are proceeding with the expansion of our Saudi joint-venture petrochemical complex, and our joint venture to build a petrochemicals plant in Venezuela is currently in the first phase of engineering. We are also modernizing and expanding our Beaumont, Texas, olefins plant and have completed a similar project in Houston. Capital spending With the current depressed industry conditions, we are prudently scaling back nonessential investments. Mobil announced a projected investment program of $4.8 billion in 1999, down about 13 percent from 1998's investment spending. We are proceeding with a capital program that strikes a balance between projects that provide short-term earnings and cash flow, and those that underpin long-term growth. While our investment spending has slowed on some projects, few exploration or producing opportunities have been eliminated. We remain flexible about our spending plans and will revise them if crude oil prices fail to improve or if attractive investment opportunities develop. Regarding our Environmental, Health and Safety (EHS) goals, Mobil had mixed results in 1998. Both a pipeline rupture offshore Nigeria, which prevented us from making progress on reducing the volume of oil spills, and our 24 worldwide employee and contractor fatalities were simply unacceptable. While the rate of injuries and illnesses declined 30 percent, we are not satisfied with our overall EHS performance and have instituted programs to prevent a recurrence. Board retirements Mobil Executive Vice President and Director Robert O. Swanson retired on August 1, 1998, after 40 years of distinguished service with Mobil. His leadership abilities, exceptional judgment and astute management insight will be remembered with gratitude. On May 1, 1999, two of our nonemployee directors -- Lewis M. Branscomb and Allen E. Jacobson -- will step down from the board after reaching retirement age. Dr. Branscomb served the board for 21 years and Mr. Jacobson for 11. We'd like to thank them both for their dedication to Mobil and for their wise counsel. A name to carry forward While 1998 was a challenging year, we believe that we have acted prudently to improve efficiency and enhance shareholder value. Over the last 10 years, Mobil has led the industry with its total return to shareholders, which was comparable to the Standard & Poor's 500. Our five-year total return, while trailing the S&P 500, exceeded the average of our competitors. As we write this, we can't say exactly what lies ahead, but we know that Mobil has a proud history. Mobil people have reached across geographic and cultural barriers time and again to meet every sort of challenge the energy business can present. The talent and commitment of Mobil's diverse work force around the globe has given our company a tradition to be proud of. The firm foundation that our employees have built enabled us to carry forward even in these most-challenging times . /s/ Lucio A. Noto Chairman and Chief Executive Officer /s/ Eugene A. Renna President and Chief Operating Officer Mobil 3 - -------------------------------------------------------------------------------- Mobil at a Glance - -------------------------------------------------------------------------------- Mobil Corporation With a history dating back to 1866, Mobil's energy and petrochemicals businesses reach into some 140 countries. For 1998, revenues were $53.5 billion and operating income was almost $2.4 billion. Our investment spending reached $5.5 billion. Upstream We produce oil and natural gas in 20 countries and have exploration activities in 34. During 1998 we produced 1.71 million barrels a day of oil equivalent and replaced 165 percent of what we produced with new proved reserves. New projects enhance our strong liquefied natural gas position. Downstream Our network of 23 refineries around the globe processes crude oil into fuels, lubricants and petrochemical feedstocks. We sell 3.4 million barrels of refined products a day in about 100 nations, in part through our more than 15,000 Mobil-branded service stations. Chemical Mobil Chemical manufactures and markets basic petrochemicals, additives and synthetics, catalysts and flexible packaging films. We operate 28 facilities and market in more than 100 countries, with sales of more than four million tons in 1998. Technology Through the partnership of Mobil Technology Company and the business units, technology is embedded in every segment and every location of Mobil's operations. Technology has reduced costs and created new products and growth opportunities. 4 Mobil - -------------------------------------------------------------------------------- The Year in Review - -------------------------------------------------------------------------------- Partnerships, expansions, realignments and a turbulent business environment made 1998 a year of change for Mobil -- a year in which we advanced our competitive strategies. An organizational realignment created seven business units grouped functionally. At the same time, we entered into or advanced a number of cooperative ventures around the world and made progress on major projects. Then, as the year's end approached, we announced a merger agreement with Exxon Corporation. Pending approvals, the combined Exxon Mobil organization should be able to achieve more than either company could achieve alone. On the pages that follow, we review key events of the year, following a month-by-month timeline. Mobil 5 - -------------------------------------------------------------------------------- The Year in Review - -------------------------------------------------------------------------------- Jan Mobil increased its quarterly dividend by an annualized 7.5 percent after announcing that its 1997 operating earnings reached a record $3.43 billion. Mobil signed an exclusive five-year lubricant supply agreement with Chrysler Europe. By year-end 1998, Mobil's downstream joint venture with BP in Europe had initiatives in place to achieve its anticipated benefits. The company and American Forests announced a partnership in support of the Global ReLeaf 2000 campaign. With a $500,000 donation, Mobil agreed to sponsor the planting of 500,000 trees in four Global ReLeaf Forests in the United States in 1998. [PICTURE OF PLANTING A TREE IN FLORIDA APPEARS HERE] Feb The month was one of change within the Mobil organization. Following the election of Eugene A. Renna as president and chief operating officer of Mobil, effective March 1, a new structure was announced. The company's operations were organized into seven major business groups and a strengthened global shared services department. Off the east coast of Canada, Mobil and its partners agreed to start development of the Terra Nova oil field, which lies two miles below the ocean floor in 300 feet of water on the Grand Banks of Newfoundland. Mobil's share in Terra Nova, its third project offshore Eastern Canada, is 22 percent. Meanwhile, on the NASCAR Winston Cup auto racing circuit, the Penske-Kranefuss Racing Ford Taurus selected Mobil 1(R) fully synthetic motor oil as its sponsor. And, when the Formula One season ended, a car using Mobil products and its driver won their respective world championships. The performance advantages of Mobil 1 lubricants were recognized again the following month when the American Chemical Society named as Heroes of Technology a team of current and former Mobil Technology Company researchers who worked on the development of the synthetic oil. [PICTURE OF WEST MCLAREN MERCEDES FORMULA ONE RACE CAR APPEARS HERE] 6 Mobil Mar Mobil Corporation and Ford Motor Company entered into a broad-based strategic alliance to speed the development and integration of breakthrough fuel and vehicle technologies. Mobil Chairman and CEO Lucio A. Noto said the alliance "offers great potential to develop new hydrocarbon-based fuels and power sources which could be of significant benefit to both the traveling public and the environment." A milestone was reached when Mobil and its partners exported their first cargo of crude oil from Turkmenistan. Another landmark was reached when Mobil became the first foreign energy company to open service stations in Venezuela. By the end of the year, Mobil had more than 60 strategic sites averaging more than four million gallons of volume a year in key Venezuelan markets. In the United States, the Environmental Protection Agency named Mobil its Energy Star Buildings Partner of the Year for its voluntary installation of energy-efficient lighting and other emission-reducing technologies in the company's facilities. Among other awards Mobil won during the year, the Department of Minerals and Energy of Western Australia honored the company with its Golden Gecko Award for Environmental Excellence. [PICTURE OF MOBIL RESEARCH ON FUEL TECHNOLOGY APPEARS HERE] [PICTURE OF DOUBLE-HULL TANKER PROVIDES ADDED SAFETY APPEARS HERE] Apr Mobil established a series of aggressive Environmental, Health and Safety goals, along with related data-gathering practices, for its global operations. The goals, running through 2003, focus on eliminating fatalities and greatly reducing injuries, fires, explosions and oil spills. The company expanded its internal reporting requirements so that it could collect worldwide data on its air emissions, water discharges, waste generation and energy use. At year's end, Mobil's volume spilled increased, primarily because of a pipeline rupture offshore Nigeria. The days-away-from-work injury and illness rate for employees and contractors declined 30 percent, but fires and explosions increased. And employee and contractor work-related fatalities increased to 24, leading to a major road safety program, among other initiatives. Mobil Sekiyu in Japan led the Mobil organization in safety. 7 - -------------------------------------------------------------------------------- The Year in Review - -------------------------------------------------------------------------------- [PICTURE OF SINGLE POINT MOORING SYSTEMS & MODEL OF OFFSHORE REGASIFICATION APPEARS HERE] May Mobil introduced a new technology for the offshore regasification and storage of liquefied natural gas (LNG). The new Mobil Shipboard Regasification Terminal (SRT), with a lower capital cost than onshore facilities, offers the potential to advance LNG deliveries to emerging markets or those in environmentally sensitive areas. SRT expands the LNG market by making it practical to sell LNG to customers who need smaller quantities. Plans were unveiled to build a 65-million-gallon-a-year plant to make cyclohexane -- used in the manufacture of nylon -- at Mobil's petrochemicals complex in Beaumont, Texas. The complex is scheduled to begin operation in the third quarter of 1999. Meanwhile, the first phase of engineering began for the planned petrochemical facility in Jose, Venezuela. The project is a joint venture between Mobil and Pequiven, Venezuela's state-owned petrochemicals company, to manufacture ethylene and convert it into polyethylenes and ethylene glycols. Jun The Cerro Negro heavy oil project in Venezuela obtained $900 million in limited recourse funding, one-third through banks and the rest in the form of bonds. The joint venture among Mobil (41.67 percent), Petroleos de Venezuela S.A. (41.67 percent) and Veba Oel (16.66 percent) is expected to begin production in late 1999 and reach 120,000 barrels a day in 2001 after construction of a facility to upgrade the extra-heavy crude into a synthetic oil. In Bangladesh, the government approved a joint venture between Mobil and Jamuna to sell lubricants and liquefied petroleum gas (LPG), while in Vietnam an agreement was completed with Mitsui/Unique Gas for another lubricants-and-LPG joint venture. Mobil introduced three grades of Mobil 1(R) fully synthetic motor oils formulated to meet manufacturers' viscosity specifications for four-stroke and two-stroke motorcycles. In a strategic alliance with MCI Worldcom Inc., Mobil expanded its Mobil GO Card nationwide in the United States. The prepaid card can be used to purchase food and fuel at Mobil stations as well as long-distance telephone service. Offered in $25, $50 and $100 denominations, the card can be "recharged" by phone when its value is depleted. [PICTURE OF THE CERRO NEGRO HEAVY OIL PROJECT APPEARS HERE] 8 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [PICTURE OF USING A MOBIL SPEEDPASS(TM) TRANSPONDER APPEARS HERE] Jul Mobil experienced a series of exploration successes in Indonesia. Two exploratory wells confirmed and expanded an oil and natural gas discovery made in 1997 in the Greater Merah Besar area offshore East Kalimantan. A few weeks later, the West Seno-2 well, 13 miles to the northeast, came in as another oil and gas discovery. Both discoveries were made under a production-sharing contract in which Mobil owns a 50 percent interest. During 1998, Mobil celebrated 100 years of doing business in Indonesia, 30 years as a production-sharing contractor, 20 years as a producer of liquefied natural gas (from the Arun field in North Sumatra) and 10 years as a producer of liquefied petroleum gas. Before year's end, the company completed initial development of the Pase-A gas field, a satellite to the Arun field. Mobil had other exploration successes during the year in Norway, Italy and Venezuela and expanded its acreage in the U.K. North Sea, the deepwater Gulf of Mexico and offshore Eastern Canada. While celebrating its first year back in South Africa, Mobil signed lubricant marketing agreements with black-empowerment partners Exel Petroleum and the Bafokeng nation. In the United States, Mobil announced a major expansion of its Speedpass(TM) system, which allows customers to buy gasoline without opening wallets or purses for credit cards or cash. The number of service stations equipped with Speedpass(TM) reached 3,300, in all of Mobil's major U.S. marketing areas. By year's end, more than two million enrolled motorists had the miniature transponders for their key chains or rear windows that enable them to drive in, fuel up and drive off in record time. [PICTURE OF THE CERRO NEGRO HEAVY OIL PROJECT APPEARS HERE] 9 - -------------------------------------------------------------------------------- The Year in Review - -------------------------------------------------------------------------------- [PICTURE OF WORKERS INSTALL RISER FOR OSO DRILLING APPEAR HERE] Aug In West Africa, the Oso natural gas liquids project in Nigeria exported its first cargo. Within a few weeks, production reached 25,000 barrels a day. Meanwhile, Mobil announced that it planned to increase crude oil production in Equatorial Guinea. Later in the year, Mobil signed an agreement to evaluate the potential of acreage offshore the Democratic Republic of Sao Tome and Principe, an island state further south in West Africa. Mobil reached an agreement with Atlantic Richfield Company (Arco) to exchange its interest in some producing and non-producing properties on the Gulf of Mexico shelf for Arco's California long-lived assets there. When the exchange was completed in November, the newly acquired California properties were turned over to Aera Energy LLC, an alliance between Mobil and Shell, boosting Mobil's equity interest in Aera from 41.4 percent to 48.2 percent. Mobil and Texaco signed agreements with two Russian companies to participate in exploration and producing projects on Sakhalin Island, in the far-eastern region of Russia. Sep To reduce costs and improve performance, Mobil and Arco British Ltd. agreed to combine the offshore operations of 15 gas fields in the U.K.'s southern North Sea under a single management company. Later in the fall, production began from the Malory gas field, which is in the covered area, and the Nevis North oil and gas field, which is not. Also, off the northwest coast of Australia, Mobil made another discovery of natural gas and condensate. Mobil, the operator, has a 35 percent interest in the well, called John Brookes-1. Elsewhere in the area, Mobil had recently made the Woolybutt and Pitcairn oil discoveries and the Athena gas and condensate discovery, while nearby in Papua New Guinea it made the Moran discovery. RasGas, a joint venture of Qatar General Petroleum Corporation and Mobil, was the successful bidder in an LNG tender sponsored by the Indian consortium Petronet LNG Ltd. By the end of the year, Petronet, RasGas and Mobil had signed principles of agreement covering the sale and purchase of 7.5 million tons of LNG annually for 25 years. The three companies also intend to be partners in developing LNG receiving terminals in the Indian cities of Dahej and Cochin. Along with a previous agreement to supply Korea Gas Corporation, the Petronet sales would bring the contracted volume of the RasGas LNG venture to 12.3 million tons a year. [A PICTURE OF CONSTRUCTION OF ONSHORE RASGAS FACILITIES APPEARS HERE] 10 Mobil [PICTURE OF MODEL OF "SUPER SPONGE" MOLECULE APPEARS HERE] Oct With the signing of new agreements, contracts for the sale of Mobil's share of natural gas from the Sable Offshore Energy Project (SOEP) reached more than 97 million cubic feet a day. That represents about 40 percent of Mobil's share of SOEP's expected initial production. Mobil holds a 50.8 percent working interest in SOEP, off the coast of Nova Scotia. Delivery of gas to customers in Eastern Canada and the Northeastern U.S. is expected to begin in late 1999. Further north, in Canada's Grand Banks, the Hibernia crude oil field averaged about 100,000 barrels a day of production in the fourth quarter. Mobil's share in Hibernia is 33.1 percent. Researchers from Mobil Technology Company and the U.S. Department of Energy developed a new material that can serve as a microscopic "super sponge" to soak up specific toxic metals and make contaminated water fit for drinking in seconds. The new material is so porous that the internal surface area of two teaspoons of it equals the size of a football field. The Mobil and government researchers began work on scaling up the formulation for commercialization. Venezuelan author Ana Teresa Torres won the 1998 Mobil Pegasus Prize for Literature for her novel, Dona Ines contra el olvido (Dona Ines Against Forgetfulness). The prize carries with it $15,000, a gold medallion, translation and publication of her book in English, and travel to promote the English edition. Since its inception in 1977, the prize, whose winners are chosen by an independent jury of experts, has been awarded in 13 countries where Mobil conducts business. In Texas, Mobil and Tetco Texas Holding Company, an existing Mobil distributor, formed a limited partnership (Mobil share, 48.5 percent) to operate a Mobil-branded distributorship called Tetco Stores LP. [PICTURE OF CONSTRUCTION OF ONSHORE RASGAS FACILITIES APPEARS HERE] Mobil 11 - -------------------------------------------------------------------------------- The Year in Review - -------------------------------------------------------------------------------- Nov The Caspian Pipeline Consortium, in which Mobil holds a 7.5 percent interest, received approvals from Kazakhstan and Russia and made the decision to begin construction in 1999. Before the end of 1998, Mobil was selected by the government of Kazakhstan as one of the international energy companies to work with Kazakhoil on a feasibility study for another project -- a potential trans-Caspian oil and gas transportation system. Mobil called the new study the next logical step to determine the commercial viability of additional transportation systems. Meanwhile, production from Kazakhstan's Tengiz field reached 210,000 barrels a day, more than double the 1996 level. Mobil owns 25 percent of the joint venture that operates the field. Expanding its role in the marketing of oriented polypropylene (OPP), the flexible packaging film, Mobil entered into an agreement with Hungary's largest chemical company. The agreement calls for Mobil to supply technical assistance to Tiszai Vegyi Kombinat Rt. (TVK) for construction of a new OPP line, with Mobil and TVK marketing the film under their own names through their existing channels. [PICTURE OF MOBIL OPP PLANT IN SHAWNEE, OKLAHOMA APPEARS HERE] Dec At year's end, nearly 10,000 workers were on site at the Yanpet petrochemical expansion project in Yanbu, Saudi Arabia. During the year, the project completed a number of heavy equipment lifts, including the heaviest onshore lift ever made in the Middle East. Mobil and Qatar General Petroleum Corporation signed principles of agreement for development of an Enhanced Gas Utilization Project. The project would deliver up to 1.25 billion cubic feet a day of natural gas from Qatar's North Field for power, petrochemical and other industrial customers in the region. Exxon and Mobil announced that they had reached an agreement to merge. Exxon shareholders would own about 70 percent and Mobil shareholders about 30 percent of the merged company, which would be renamed Exxon Mobil Corporation. Its headquarters would be in Irving, Texas, with worldwide downstream headquarters in Fairfax, Virginia, and worldwide upstream and chemical headquarters in Houston, Texas. L. R. Raymond would be chairman, chief executive officer and president of Exxon Mobil, and L. A. Noto would be vice chairman of the board. The merger is subject to shareholder and regulatory approval, as well as other customary conditions. [PICTURE OF EXXON'S LEE RAYMOND AND MOBIL'S LOU NOTO APPEARS HERE] 12 Mobil - -------------------------------------------------------------------------------- Financial Section - -------------------------------------------------------------------------------- Highlights . Operating earnings declined 31% to $2.4 billion, an indication of the tough business conditions in the oil and gas industry. . E&P operating earnings of $1.0 billion were adversely impacted by significantly lower worldwide crude oil and natural gas prices. Worldwide reserve replacement was 165% of production. . M&R operating earnings of $1.4 billion were the highest ever, reflecting record U.S. performance for the second straight year, benefits from Mobil's alliance with BP in Europe and business initiatives in Asia-Pacific. . Chemical operating earnings of $0.2 billion were depressed due to weak margins for petrochemicals.
Key Financial Indicators (In millions, except per-share and ratio amounts) 1994 1995 1996 1997 1998 - ------------------------------------------------------------------------------------------------------------------- Operating Earnings(1) $ 2,231(2) $ 2,846 $ 3,097 $ 3,430 $ 2,366 Special Items (472) (470) (133) (158) (662) - ------------------------------------------------------------------------------------------------------------------- Income, Excluding the Effect of Change in Accounting Principle $ 1,759(2) $ 2,376 $ 2,964 $ 3,272 $ 1,704 Per common share 2.14(2) 2.93 3.69 4.10 2.12 Per common share-assuming dilution 2.12(2) 2.88 3.62 4.01 2.10 Common Stock Dividends Per Share 1.70 1.81 1.96 2.12 2.28 - ------------------------------------------------------------------------------------------------------------------- Capital and Exploration Expenditures $ 3,825 $ 4,268 $ 6,361 $ 4,689 $ 4,747 Cash Investments in Equity Companies 102 257 658 617 753 - ------------------------------------------------------------------------------------------------------------------- Total Investment Spending $ 3,927 $ 4,525 $ 7,019 $ 5,306 $ 5,500 - ------------------------------------------------------------------------------------------------------------------- Debt-to-Capitalization Ratio 31% 27% 29% 25% 29% Total Debt $ 7,727 $ 6,756 $ 7,875 $ 6,664 $ 7,701 - ------------------------------------------------------------------------------------------------------------------- Shareholders' Equity $ 17,146 $ 17,951 $ 19,072 $ 19,461 $ 18,370 Per common share 21.30 22.35 23.81 24.41 23.31 - -------------------------------------------------------------------------------------------------------------------
(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). Mobil 13 - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Net Income (Millions of dollars) [BAR CHART APPEARS HERE] 1998 1,704 1997 3,272 1996 2,964 1995 2,376 1994 1,759* *Excludes cumulative effect of change in accounting principle. Mobil's income fell 48%, reflecting the impact of deteriorating industry fundamentals across most of its businesses. Graphs, charts and associated captions on pages 13-52 are not a part of the Consolidated Financial Statements and Notes thereto. Outlook Although Mobil cannot be certain that its outlook for the petroleum and chemical industries will prove accurate, described below are both known and anticipated trends relevant to that outlook. Overall, the energy industry will remain highly competitive, and significant capital investments to support operations and profitable growth will continue to be required. These investments will be predominantly in international areas because of the availability of opportunities. 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 1998, crude oil prices declined significantly from average 1997 levels, in part due to limited demand growth associated with the economic difficulties in the Asia-Pacific region and a warmer than normal winter, and in part due to increased worldwide production. In the near term, barring additional sustained production cutbacks by producing countries, supply is expected to continue to exceed demand, resulting in continuing pressure on prices and further industry restructuring and consolidation. Mobil remains convinced that the Asia-Pacific region will be a growth area for the future. Mobil believes that, over the long term, 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, have opened up in the last few years to companies like Mobil who are recognized for their financial and technical strengths. Mobil will look to these areas to contribute to its program of replacing its hydrocarbon reserves and providing production and earnings growth. The marketing and refining industry will continue to face competitive market pressures, and margins will remain volatile. Downstream margins in the Asia-Pacific region weakened considerably in 1998 compared with average 1997 levels. Over the long term, worldwide downstream margins are expected to improve gradually as demand growth outpaces capacity additions. Due to the competitive environment, more downstream alliances are possible. Continuing environmental expenditures will also be required worldwide. The worldwide petrochemical business continues to be cyclical. In the near term, both polyethylene and paraxylene margins are expected to remain under pressure as new capacity is placed on stream, but they are expected to gradually strengthen over the long term in response to demand growth. Mobil's overall investment program (see page 34) has been scaled back as a result of depressed industry conditions. It 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 projects that will continue to require additional capital to fully develop. It also employs the use of limited recourse financing, staged project development, joint ventures and cash exposure management. Exxon Mobil merger On December 1, 1998, Mobil entered into a definitive agreement with Exxon Corporation to merge the two companies. Under the terms of the agreement, each share of Mobil common stock will be converted into 1.32015 shares of Exxon common stock, and Exxon will change its name to Exxon Mobil Corporation. As a result of the merger, existing Mobil shareholders will own about 30 percent of the new company, while existing Exxon shareholders will own about 70 percent. The merger is subject to shareholder and regulatory approval, as well as other customary conditions. 14 Mobil - -------------------------------------------------------------------------------- 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 16-21. While reading these discussions, the reader may find it helpful to refer to pages 30-52 for the Consolidated Financial Statements and commentary, and to pages 54-63 for Supplementary Information. Consolidated Results
Net Income (In millions, except per-share amounts) 1996 1997 1998 - ---------------------------------------------------------------------------------- Petroleum Operations Exploration & Producing $ 2,109 $ 2,212 $ 644 Marketing & Refining 913 1,025 1,016 - ---------------------------------------------------------------------------------- Total Petroleum 3,022 3,237 1,660 Chemical 306 403 181 - ---------------------------------------------------------------------------------- Segment Earnings 3,328 3,640 1,841 Corporate and Financing (364) (368) (137) - ---------------------------------------------------------------------------------- Net Income $ 2,964 $ 3,272 $ 1,704 Per common share $ 3.69 $ 4.10 $ 2.12 Per common share-assuming dilution $ 3.62 $ 4.01 $ 2.10 - ----------------------------------------------------------------------------------
Mobil's earnings per share growth based on operating earnings attained first quartile performance versus other major oil companies in 1998, a year in which industry fundamentals deteriorated. Consolidated Earnings (In millions) 1996 1997 1998 - -------------------------------------------------------------------------------- Net Income $ 2,964 $ 3,272 $ 1,704 Less: Special Items(1) (133) (158) (662) - -------------------------------------------------------------------------------- Operating Earnings $ 3,097 $ 3,430 $ 2,366 - -------------------------------------------------------------------------------- (1) Special items represent the earnings effects from events or circumstances not attributable to Mobil's ongoing operations. These special items are identified in the business segment tables that follow. In 1998, Net Income of $1,704 million was $1,568 million lower than in 1997 as higher net special charges and the unfavorable impact to operating earnings of significantly lower industry prices and margins more than offset benefits from self-help programs. Due to the poor industry fundamentals, net special charges for 1998 totaled $662 million, mainly for the impairment of upstream properties and the impact of lower prices on inventories. Restructuring-related provisions and other net unfavorable items essentially offset the benefit resulting from the settlement of prior years' tax disputes. Net special charges in 1997 totaled $158 million, $504 million lower than 1998. The charges in 1997 were mainly for restructuring-related provisions, litigation charges and a one-time performance award to employees, partly offset by gains on the sale of non-core assets and favorable inventory adjustments. In 1997, net income of $3,272 million was $308 million higher than in 1996, primarily due to higher operating earnings slightly offset by higher charges for special items. Charges for special items totaling $158 million were $25 million higher than in 1996 and included charges for restructuring, partly offset by gains on asset sales. In 1998, Operating Earnings were $2,366 million, $1,064 million lower than in 1997. Industry factors were significantly unfavorable as lower worldwide crude oil and natural gas prices, lower downstream margins in the U.S., Asia-Pacific and the Middle East and lower polyethylene and paraxylene margins more than offset higher downstream margins in Europe. Lower upstream production volumes and higher exploration expenses also hurt operating earnings. These unfavorable factors were mitigated by self-help benefits, including strong volume growth in the downstream, improved performance in lubes, certain tax benefits, reduced refinery downtime, benefits from the Mobil-BP alliance in Europe and business initiatives in Asia-Pacific. In 1997, operating earnings were $3,430 million, up $333 million from 1996. The improvement primarily reflected strong volume growth in the upstream business, higher volumes in Chemical, improved performance by all business segments and higher industry margins in the U.S. downstream and the polyethylene businesses. Annual Dividends (Per share of common stock, in dollars) [BAR CHART APPEARS HERE] 1998 2.28 1997 2.12 1996 1.96 1995 1.81 1994 1.70 1993 1.63 1992 1.60 1991 1.56 1990 1.41 1989 1.28 1988 1.18 Dividend payments increased for the eleventh consecutive year. Mobil 15 - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Upstream Earnings (Millions of dollars) [BAR CHART APPEARS HERE] Operating Net Earnings Income 1998 1,005 644 1997 2,138 2,212 1996 2,059 2,109 Lower worldwide prices, higher exploration expenses, lower production and asset writedowns contributed to lower earnings. Net Production (Thousands of barrels daily of oil equivalent) [BAR CHART APPEARS HERE] 1998 1,713 1997 1,753 1996 1,685 Natural field declines, OPEC constraints and a rationalized capital program offset growth in Canada, Equatorial Guinea and Kazakhstan. Petroleum Operations Upstream-Exploration & Producing Exploration & Producing Segment Financial Indicators - -------------------------------------------------------------------------------- (In millions) 1996 1997 1998 - -------------------------------------------------------------------------------- U.S. Income $ 737 $ 697 $ 11 International Income 1,372 1,515 633 - -------------------------------------------------------------------------------- Total Upstream Net Income $ 2,109 $ 2,212 $ 644 - -------------------------------------------------------------------------------- Revenues(1) $12,841 $11,840 $ 8,643 - -------------------------------------------------------------------------------- Assets $17,880 $18,468 $19,671 - -------------------------------------------------------------------------------- Capital Expenditures $ 3,914 $ 2,888 $ 2,925 Exploration Expenses 512 499 643 Cash Investments in Equity Companies 520 277 384 - -------------------------------------------------------------------------------- Total Investment Spending $ 4,946 $ 3,664 $ 3,952 - -------------------------------------------------------------------------------- (1) Includes intersegment revenues. Lower crude oil and natural gas prices adversely affected exploration and producing income. Worldwide reserve replacement was 165% of production. With crude oil prices at their lowest level in over 15 years, lower natural gas prices, a drop of 2% in production, higher exploration expenses, and significant asset impairment charges, income decreased significantly. In 1998, Mobil produced 935,000 barrels per day of liquids and 4,296 million cubic feet per day of natural gas. Worldwide production decreased the equivalent of 40,000 barrels of oil per day from 1997 due to natural field declines in the United States and Europe, lower Indonesian volumes (Arun field), limitations on production and operational problems in Nigeria and the effects of prior year asset sales in various locations. New production from Canada, West Africa, Kazakhstan and Turkmenistan somewhat moderated the overall production decrease. At year end, the Hibernia field, off Eastern Canada, which came on stream in late 1997, was producing about 100,000 barrels per day (Mobil share, 33.1 percent). While OPEC quota restrictions curtailed the production growth planned for Nigeria, production from Equatorial Guinea increased 35% from 1997 levels. Mobil replaced 165% of its production with new reserve additions, compared with a 146% replacement rate in 1997, with the most significant contribution coming from the Cerro Negro heavy oil project in Venezuela. The proved reserve base is now 7.6 billion barrels of oil equivalent. Mobil's focus for reserve replacement continues to be exploration activities, participation in new producing ventures and acquisitions. In 1998, 46 wildcat exploration wells were drilled, resulting in 10 discoveries. There were successes in Indonesia, Norway, deepwater Gulf of Mexico, Peru and Italy. New acreage acquisitions and opportunities in the U.S., Canada, Italy, and West Africa (Sao Tome and Principe) also strengthened the company's portfolio. In the U.S., Mobil added 98 blocks to its prospect inventory in the deepwater Gulf of Mexico. Mobil was awarded six licenses on the Grand Banks, offshore Newfoundland, Canada. This brings Mobil's holdings in the area to 550,000 net acres. The 1999 acquisition of Lasmo's holdings in Italy will allow Mobil and its partners to progress development plans of the Tempa Rossa field. Depending on the technical evaluation of the deepwater blocks in Sao Tome and Principe, Mobil may earn an exclusive option to negotiate a production sharing agreement for the area. Investment spending in 1998 was $4.0 billion, up $0.3 billion from 1997. In 1997, investment spending was down $1.3 billion from 1996, which included the acquisition of Ampolex and a 25% equity interest in the joint venture that owns the Tengiz field. Planned investment spending for 1999 is $3.6 billion and continues to be focused in international areas on strategic growth opportunities. Several of the countries where Mobil has investments are subject to political and economic uncertainties. Revenues decreased primarily due to the significantly lower crude oil and natural gas prices reflecting the worldwide excess of supply over demand. In 1997, revenues decreased from 1996 primarily due to the full-year impact of equity 16 Mobil - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Petroleum Operations (continued) accounting for Mobil's gas marketing alliance with Duke Energy and Aera Energy, the alliance with Shell in California. Upstream net income of $644 million was $1,568 million lower than in 1997 including $387 million for asset impairments recorded in accordance with Mobil's policy described on page 38. Operating earnings of $1,005 million (U.S.,$196 million; International, $809 million; refer to tables that follow) decreased $1,133 million, mainly due to the lower prices worldwide for crude oil and natural gas, decreased production volumes and higher exploration expenses. Average worldwide crude oil prices in 1998 declined about $6.50 per barrel from 1997 (see graph at right), reflecting increased supplies and slower demand growth due to warmer weather and the economic downturn in Asia. International natural gas prices also decreased as they tend to follow the movement of crude oil prices. Mobil's U.S. average natural gas prices decreased about $0.40 per thousand cubic feet as a result of low prices for competing fuel oil in the industrial and commercial markets and lower demand in the residential market due to milder winter weather. In 1997, net income of $2,212 million was $103 million higher than in 1996. Operating earnings of $2,138 million increased $79 million as the effect of increased liquids production in international areas was partly offset by higher expenses for new business development and the effect of lower production in the United States. The effects of higher natural gas prices, primarily in North America, largely offset the impact of lower worldwide crude oil prices. U.S. Exploration & Producing Earnings (In millions) 1996 1997 1998 - -------------------------------------------------------------------------------- U.S. Income $ 737 $ 697 $ 11 Special Items in Income Asset impairment (69) -- (156) Federal royalty settlement -- -- (29) Asset sales gains 119 53 -- Litigation -- (12) -- Employee performance award -- (4) -- Restructuring provisions (7) -- -- - -------------------------------------------------------------------------------- Operating Earnings (Excludes Special Items) $ 694 $ 660 $ 196 - -------------------------------------------------------------------------------- U.S. Upstream operating earnings of $196 million in 1998 were $464 million lower than in 1997, mainly due to lower prices for crude oil and natural gas, the effects of lower production volumes due to natural field declines and prior year asset sales, and higher exploration expenses. In 1997, operating earnings of $660 million were $34 million lower than in 1996, reflecting the effects of lower production volumes and lower crude oil prices. The impact of lower volumes, due to natural field declines and the carry-over effect of 1996 asset sales, was partly offset by benefits from new capital programs. Earnings benefited from higher natural gas prices and lower operating expenses. International Exploration & Producing Earnings (In millions) 1996 1997 1998 - -------------------------------------------------------------------------------- International Income $ 1,372 $ 1,515 $ 633 Special Items in Income Asset impairment -- -- (231) Asset sales gains 12 41 55 Employee performance award -- (4) -- Restructuring provisions (5) -- -- - -------------------------------------------------------------------------------- Operating Earnings (Excludes Special Items) $ 1,365 $ 1,478 $ 809 - -------------------------------------------------------------------------------- International Upstream operating earnings of $809 million were $669 million lower than in 1997, mainly due to lower crude oil and natural gas prices. Volumes were down slightly as reductions due to OPEC production constraints mainly in Nigeria, natural field declines in Europe and the anticipated declines in Indonesian volumes more than offset the effect of new crude production in Canada, Equatorial Guinea, Kazakhstan, and Turkmenistan. Although exploration expenses were higher, favorable currency impacts, certain tax benefits and the sale of an independent power project in the United Kingdom reduced its effect. In 1997, operating earnings of $1,478 million were $113 million higher than in 1996, principally due to the effects of higher production and higher natural gas prices in Canada, partly offset by the impact of lower crude oil prices and higher expenses in new venture areas. Crude Oil Average Sales Prices (Dollars per barrel) [BAR CHART APPEARS HERE] U.S. International 1998 10.48 12.29 1997 16.59 18.94 1996 17.40 20.81 Crude oil prices remained volatile in 1998, dropping about $6.50 per barrel. Natural Gas Average Sales Prices (Dollars per thousand cubic feet) [BAR CHART APPEARS HERE] International U.S. 1998 2.17 1.98 1997 2.72 2.38 1996 2.66 2.17 Lower worldwide natural gas prices compounded the effects of lower crude oil prices. Mobil 17 - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Petroleum Operations (continued) Downstream-Marketing & Refining Downstream Earnings (Millions of dollars) [BAR CHART APPEARS HERE] 1998 1997 1996 Net Income 1,016 1,025 913 Operating Earnings 1,420 1,312 1,051 Operating earnings in 1998 increased primarily due to improved performance, benefits from the Mobil-BP alliance, and initiatives in Asia-Pacific. Refinery Runs for Mobil (Thousands of barrels daily) [BAR CHART APPEARS HERE] 1998 1997 1996 International & 2,135 2,191 2,142 U.S. Lower U.S. runs reflected divestitures. International runs were higher due to improved efficiency. Marketing & Refining Segment Financial Indicators - ----------------------------------------------------------------------------- (In millions) 1996 1997 1998 - ----------------------------------------------------------------------------- U.S. Income $ 407 $ 542 $ 574 International Income 506 483 442 - ----------------------------------------------------------------------------- Total Downstream Net Income $ 913 $ 1,025 $ 1,016 - ----------------------------------------------------------------------------- Revenues(1) $70,796 $55,871 $45,233 - ----------------------------------------------------------------------------- Assets $23,520 $20,212 $18,532 - ----------------------------------------------------------------------------- Capital Expenditures $ 1,554 $ 928 $ 721 Cash Investments in Equity Companies 131 340 268 - ----------------------------------------------------------------------------- Total Investment Spending $ 1,685 $ 1,268 $ 989 - ----------------------------------------------------------------------------- (1) Includes intersegment revenues. In 1998, major initiatives resulted in strong Downstream earnings performance, despite difficult industry conditions in certain markets where Mobil operates. In the U.S., record income was attained for the second straight year. In International, operating earnings in 1998 were the second highest on record. These earnings performances were achieved as an increase in worldwide trade sales, benefits from initiatives and improved lube earnings more than offset slightly lower U.S. industry margins and lower margins in Asia-Pacific and at the Yanbu, Saudi Arabia, joint venture refinery. In the U.S., major initiatives in 1998 included the completion of construction of sixty On The Run(R) convenience stores and the expansion of the successful rollout of the Speedpass(TM) program into all of Mobil's major markets. By year's end, some 2.1 million motorists had the miniature Speedpass(TM) transponders. During 1998, the implementation of the Mobil-British Petroleum (BP) alliance in Europe was completed and initiatives were fully in place to achieve targeted annual benefits of about $500 million pretax (Mobil share, about $170 million). These initiatives included sale of the retail fuels assets in Belgium and Hungary. In addition, as part of a separate initiative to restructure the lubricant base oil refining business and achieve additional annual benefits of about $50 million pretax (Mobil share, $25 million) by mid-year 1999, the stand-alone lubes refinery at Llandarcy in South Wales was closed. In the Asia-Pacific region several major cost reduction initiatives were implemented, including completion of a restructuring in Japan, which included the elimination of approximately 300 positions, and a cost reduction and asset rationalization program in the Australian marketing operations. In 1998, Mobil announced the realignment of its fuels and lubes operations in Australia and New Zealand. In Africa, Mobil continued to build on a strong competitive position by progressing the market entry in Kenya and the 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 and entered the fuels market in Venezuela, while Mobil's lubes business continued to grow throughout the region. In addition, an initiative was launched late in the year to realign the fuels and lubes operations in the region. Investment spending totaled $1.0 billion in 1998, about 40% in the U.S., including spending for construction related to On The Run(R) convenience stores. The remainder was mainly for asset base protection in international areas. Planned spending for 1999 is $0.8 billion, down $0.2 billion from 1998, and is about equally divided between U.S. and International. Downstream revenues decreased 19% in 1998 versus 1997 due to lower petroleum product prices partly offset by the effects of higher sales volumes. Revenues decreased 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. 18 Mobil - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Petroleum Operations (continued) Downstream net income of $1,016 million in 1998 was $9 million lower than in 1997. Excluding special items, operating earnings of $1,420 million (U.S. $566 million and International $854 million; refer to tables that follow) increased $108 million, despite lower overall margins. Higher product trade sales volumes, benefits from the Mobil-BP European alliance, strong refinery performance and business initiatives contributed to the higher operating earnings in 1998. Net income of $1,025 million in 1997 was $112 million higher than in 1996. Excluding special items, operating earnings of $1,312 million increased $261 million. Higher product trade sales volumes outside of Europe, benefits from the Mobil-BP European alliance and strong refinery 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. U.S. Marketing & Refining Earnings (In millions) 1996 1997 1998 - ----------------------------------------------------------------------------- U.S. Income $ 407 $ 542 $ 574 Special Items in Income LIFO/other inventory adjustments 35 8 8 Asset impairment -- (18) -- Employee performance award -- (10) -- - ----------------------------------------------------------------------------- Operating Earnings (Excludes Special items) $ 372 $ 562 $ 566 - ----------------------------------------------------------------------------- U.S. Downstream operating earnings were $566 million in 1998, $4 million higher than in 1997. The unfavorable impact of lower industry margins was offset by higher product sales volumes and excellent refinery performance. Initiatives in marketing such as Speedpass(TM) and On The Run(R) contributed to growth in retail automotive gasoline sales, which were up more than 5%. In 1997, operating earnings of $562 million were $190 million higher than in 1996. Results benefited from excellent refinery performance, higher integrated margins and higher product sales volumes, in particular in retail automotive gasoline sales which were up almost 3%. International Marketing & Refining Earnings (In millions) 1996 1997 1998 - --------------------------------------------------------------------------- International Income $ 506 $ 483 $ 442 Special Items in Income Lower of cost or market provisions -- -- (261) BP alliance implementation costs -- (69) (93) Restructuring provisions (154) (189) (41) LIFO/other inventory adjustments 8 12 (17) Employee performance award -- (21) -- Other (27) -- -- - --------------------------------------------------------------------------- Operating Earnings (Excludes Special items) $ 679 $ 750 $ 854 - --------------------------------------------------------------------------- International Downstream operating earnings were $854 million in 1998, $104 million higher than in 1997. Europe reported record results, up significantly due to benefits from the Mobil-BP alliance and stronger integrated margins. Earnings were up somewhat in Asia-Pacific, as self-help programs across the region fully offset the unfavorable impact of lower integrated margins. Africa also generated record earnings as a result of growth initiatives. International downstream earnings were also helped by higher product sales volumes in South America, but were hurt by lower margins at Mobil's Yanbu, Saudi Arabia joint venture refinery. Operating earnings of $750 million in 1997 were $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 significantly lower margins in parts of Asia-Pacific. Downstream Petroleum Products Sales Volumes* (Thousands of barrels daily) [BAR CHART APPEARS HERE] 1998 1997 1996 International & U.S. 3,440 3,343 3,345 - ------------------- *Includes supply sales. Worldwide sales volumes increased by 3% led by the U.S., Africa and Latin America. Mobil 19 - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Chemical Earnings (Millions of dollars) [BAR GRAPH APPEARS HERE] 1998 1997 1996 Net Income 181 403 306 Operating Earnings 190 350 306 Significantly lower operating earnings in 1998 reflected weaker industry polyethylene and aromatics margins. Chemical Chemical Segment Financial Indicators - ----------------------------------------------------------------------------- (In millions) 1996 1997 1998 - ----------------------------------------------------------------------------- Petrochemicals Income $ 167 $ 214 $ 41 Chemical Specialties and OPP Films 139 189 140 - ----------------------------------------------------------------------------- Total Chemical Net Income $ 306 $ 403 $ 181 - ----------------------------------------------------------------------------- Revenues(1) $3,280 $3,533 $2,818 - ----------------------------------------------------------------------------- Assets $2,966 $3,088 $3,337 - ----------------------------------------------------------------------------- Capital Expenditures $ 339 $ 323 $ 267 Cash Investments in Equity Companies 7 -- 101 - ----------------------------------------------------------------------------- Total Investment Spending $ 346 $ 323 $ 368 - ----------------------------------------------------------------------------- (1) Includes intersegment revenues Chemical income declined significantly reflecting lower polyethylene and paraxylene margins. However, this unfavorable impact was mitigated somewhat by record income in the chemical specialties business. Chemical is comprised of: petrochemicals, chemical specialties and oriented polypropylene (OPP) films. Petrochemicals is the largest segment with major product lines of polyethylene resin, paraxylene, benzene, propylene and ethylene glycol. Chemical is progressing two major international petrochemical projects. Mobil Yanbu Petrochemical Company and Saudi Basic Industries Corporation expect to complete by mid-2000 a major expansion that will double the current capacity of their Yanpet olefins complex in Yanbu, Saudi Arabia. Mobil and Pequiven, the Venezuelan state-owned petrochemical company, are engaged in Phase 1 engineering studies to develop construction cost bid specification packages and marketing and distribution feasibility studies for a proposed new olefins complex in Jose, Venezuela. The proposed site is at an existing petrochemicals facility, giving it access to low-cost feedstocks and opportunities to achieve substantial synergies with the current operations. A modernization and expansion of Mobil's Beaumont olefins plant is nearing completion with start-up slated for early 1999. This project will increase ethylene capacity by 45%, improve operating flexibility to process the most economically attractive feedstocks and lower energy consumption by 35%. To utilize effectively the incremental ethylene output from this project and from the recently expanded Houston, Texas, olefins plant, a low-cost de-bottleneck of the Beaumont low-pressure polyethylene plant was completed in late 1998, resulting in a 10% increase in polyethylene capacity. The plant's capacity is now 2 billion pounds of polyethylene resin. Chemical's investment spending in 1998 was $368 million, slightly higher than the 1997 level of $323 million due to the ramp-up of the Yanpet expansion project. Planned investment spending for 1999 is approximately $300 million, mainly to support continued worldwide productivity improvements and capacity expansions, notably the Yanpet project. Chemical 1998 net income of $181 million included a $9 million writedown of petrochemical inventory values to reflect their lower market value. Chemical's 1997 income included $53 million from special items consisting of 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. Chemical Earnings (In millions) 1996 1997 1998 - ---------------------------------------------------------------------------- Chemical Income $ 306 $ 403 $ 181 Special Items in Income Lower of cost or market provisions -- -- (9) Asset sales gains -- 48 -- Litigation -- 10 -- Employee performance award -- (5) -- - ---------------------------------------------------------------------------- Operating Earnings (Excludes Special Items) $ 306 $ 350 $ 190 - ---------------------------------------------------------------------------- 20 Mobil - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Chemical (concluded) Chemical operating earnings were $190 million in 1998, down 46% from the prior year, largely due to significantly weaker global polyethylene and paraxylene margins. Volumes improved by 4%, which was less than the 14% increase in 1997, as no major new capacity was streamed until late in the year. While most industry fundamentals for Chemical's petrochemical and OPP film businesses were unfavorable in 1998, the effects of these factors were partially offset by an especially strong result in the chemical specialties business unit. Operating earnings of $350 million in 1997, an increase of $44 million or 14% from 1996, reflected stronger polyethylene margins, increased sales volumes, and improved plant operating reliability. Trade sales revenues of $2.4 billion in 1998 decreased 19% from the prior year primarily due to a similar percentage decrease in U.S. polyethylene prices. The 5% gain in 1997 trade revenues over 1996 was fueled by a 14% increase in sales volumes, somewhat offset by lower aromatics prices. Corporate and Financing Corporate and Financing Expense (In millions) 1996 1997 1998 - ---------------------------------------------------------------------------- Corporate and Financing Expense $(364) $(368) $(137) Special Items included: Settlement of prior years' tax disputes -- -- 137 Exxon Mobil merger - related costs -- -- (25) Asset sales gains 30 39 -- Litigation -- (31) -- Employee performance award -- (6) -- Staff redesign implementation (75) -- -- - ---------------------------------------------------------------------------- Operating Expense (Excludes Special Items) $(319) $(370) $(249) - ---------------------------------------------------------------------------- Corporate and Financing net expense was $137 million in 1998. This category includes corporate administrative expenses, net financing expense, and other items. Excluding special items from both periods, Corporate and Financing operating expense of $249 million was $121 million lower than in 1997, primarily due to the timing of expenses and other one-time items. Excluding special items, Corporate and Financing operating expense of $370 million in 1997 was $51 million higher than in 1996, primarily due to a number of one-time charges that were only partially offset by lower interest expense due to lower average net debt balances and lower interest rates. The staff redesign implementation costs in 1996 were expensed as incurred and related primarily to relocation expenditures, facility modifications and consultant fees. Restructurings In 1998, Mobil implemented new restructuring programs in Australia and New Zealand, and in Latin America, to integrate regional fuels and lubes operations. These programs will result in the elimination of approximately 500 positions as well as asset write-downs in Australia and New Zealand. Mobil recorded a provision of $50 million ($41 million after tax) in Selling and general expenses and Depreciation, depletion and amortization for these programs. In 1999, cash outlays of $36 million will be made for employee separation benefits and exit costs. The remainder represents noncash costs for the closure of facilities with net book values of $19 million. These assets will be closed in 1999. The results of operations of these assets are not material. Also, since the depreciable assets were written down to zero, there is no further depreciation expense to be recorded. Projected annualized benefits are about $40 million after tax and are expected to be fully achieved by the end of 2000 due primarily to employee and contractor cost savings as well as marketing effectiveness improvements. The balance in the reserve at December 31, 1998 was $36 million. Also during 1998, Mobil and BP completed the implementation of their alliance, which combined the companies' European operations in the refining and marketing of fuels and lubricants. This alliance, with targeted annualized benefits of $170 million pretax (Mobil share) through manpower reductions, higher volumes, supply and logistics improvements and system efficiencies, resulted 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 workforce reductions, Mobil 21 - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Restructurings (concluded) facilities closure costs and asset writedowns. Of this amount, $126 million represented cash expenditures in 1996, 1997 and 1998 and the remainder was for noncash costs. Implementation of this program began in late 1996 and was essentially complete as of December 31, 1998. The amounts remaining in the reserve at December 31, 1996, 1997 and 1998 were $123 million, $47 million and $7 million, respectively, and the reductions were due to cash outlays and noncash reclassifications. Additionally, in 1997, Mobil and BP announced that the alliance would implement a major restructuring of its lubricant base oil refining business. This program will result in the elimination of approximately 460 Mobil positions and in write-downs and closure of certain facilities and will be completed by the end of 1999. Mobil recorded reserves in 1997 of $86 million ($82 million after tax) mainly for employee severance costs associated with workforce reductions and for write-downs and closure of certain facilities. Cash outlays are expected to be $66 million of which $31 million was spent during 1998. Non-cash costs are expected to be $20 million. Projected annualized benefits are expected to reach $50 million pretax, of which Mobil's share is about $25 million, primarily through manpower reductions. The amounts remaining in the reserve at December 31, 1997 and 1998 were $66 million and $35 million, respectively. The reductions were due to cash outlays and noncash reclassifications. The above provisions were recorded in Income from equity affiliates and Selling and general expenses. In addition to restructuring charges for the Mobil-BP alliance, Mobil incurred one-time implementation charges in 1997 and 1998 of $69 million after tax and $93 million after tax, respectively, primarily for the reimaging of retail outlets and for systems implementation. During 1997, Mobil commenced two major cost savings initiatives in Asia-Pacific--one in Japan in response to the deregulated business environment and the other in Australia. These programs resulted in the elimination of approximately 400 positions and the rationalization of certain assets. In 1997, Mobil recorded reserves of $172 million ($107 million after tax) primarily for separation costs related to workforce reductions and for closure of certain facilities. The provisions have been recorded in Selling and general expenses, Crude oil, products and operating supplies, and expenses, Income from asset sales, interest and other and Depreciation, depletion and amortization. Cash outlays are expected to be $113 million of which $8 million and $59 million were made in 1997 and 1998, respectively. The remainder will be paid in 1999. Non-cash costs are expected to be $59 million. Projected annualized savings from these initiatives are expected to approximate $210 million pretax and are expected to be fully realized by the end of 1999. These savings will come from manpower reductions, lower transportation expenses and volume growth. The amounts remaining in the reserves at December 31, 1997 and 1998 were $137 million and $50 million, respectively. The reductions were due to cash outlays and noncash reclassifications. Accounting Standards In June 1998, Financial Accounting Standard (FAS) 133, Accounting for Derivative Instruments and Hedging Activities, was issued. Adoption of this standard is required in the first quarter of 2000. FAS 133 requires that all derivatives be recognized as either assets or liabilities and measured at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge of risk exposure. Mobil is currently reviewing the expected impact of FAS 133, which will depend on the derivatives outstanding when the standard is adopted and is not expected to be significant. 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 22 Mobil - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Risk Management (concluded) for interest rate risk is 100% floating rate. Mobil's benchmark is to fully hedge exposures to foreign currency rate risk resulting from debt instruments denominated in a currency other than the functional currency of the borrower or lender. 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/or currency of the original borrowings with the objective of minimizing Mobil's borrowing costs. At December 31, 1998, 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, 1998, the primary currencies under management include the Canadian dollar and Norwegian kroner. 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, 1998, 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 $4 million for interest rate risk and $8 million for commodity price risk (including trading contracts) at December 31, 1998. The foreign currency exchange rate risk was essentially zero. The average, high and low value at risk during 1998 was: Year ended December 31, 1998 (In millions) Average High Low - --------------------------------------------------------------------------- Interest rate risk $ 5 $ 9 $ 1 Foreign currency exchange rate risk 1 4 0 Commodity price risk 10 13 6 - --------------------------------------------------------------------------- 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. Mobil 23 - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Year 2000 Project Mobil is engaged in a company-wide effort (Project) to address the issues that are likely to arise if computer programs and embedded computer chips are unable to properly recognize dates in and after the year 2000. The Project is focused on three main areas: the information technology (IT) systems in Mobil's computers and computer software, including those that are linked to the systems of third parties; the non-IT systems embedded in equipment that controls or monitors Mobil's operating assets; and Mobil's business relationships with third parties (referred to herein as external agents). The thrust of the Project is to address those of Mobil's IT systems, non-IT systems and relationships with external agents which Mobil judges to be materially important to Mobil. These systems or relationships, referred to herein as materially important, are those whose failure for year 2000 reasons would likely: put the safety of individuals at risk; lead to damage to property or the environment; put in jeopardy the value of Mobil's name or intellectual property; or trigger a significant adverse consequence to Mobil's financial performance or condition. Project work dealing with IT systems and Project work dealing with non-IT systems has the following three phases: (1) inventory and assessment: inventorying all of Mobil's systems (including those that are linked to third parties), identifying those of Mobil's systems that are not year 2000 compliant, and making judgments as to which of Mobil's systems (both compliant and non-compliant) would likely be materially important; (2) strategy and planning: developing strategies and plans for (a) remediating, upgrading or replacing all non-compliant systems (except those whose failure would, in Mobil's judgment, have an insignificant impact on Mobil's operations) and (b) testing all systems judged to be materially important, and estimating the costs of implementing these strategies and executing these plans; and (3) execution: implementing the strategies and executing the plans. Project work dealing with relationships with external agents has the following three phases: (1) inventory and assessment: inventorying Mobil's relationships with external agents and making judgments as to which of those relationships would likely be materially important; (2) communication and evaluation: sending letters and questionnaires to those external agents whose relationships are judged to be materially important to elicit information about the plans and actions of those external agents to achieve timely year 2000 readiness, and evaluating the information so obtained; and (3) follow up: contacting external agents with whom Mobil has already communicated to obtain further assurance that such external agents will achieve timely year 2000 readiness. Additional Project work, discussed below, involves identifying scenarios involving failures for year 2000 reasons of materially important IT and non-IT systems or materially important relationships with external agents and developing contingency plans for mitigating the impact of such failures. The inventory and assessment and the strategy and planning phases of the work dealing with IT systems are complete. The execution phase of this work involves both application and infrastructure repair and systems upgrades and replacements. Application and infrastructure repair involves: the remediation and testing of non-compliant code; the remediation, replacement and testing of computing infrastructure and telecommunications devices; and the upgrading and testing of end user applications. The application and infrastructure repair work, which is being performed by both Mobil personnel and third parties specializing in resolving year 2000 issues, is expected to be completed by June 30, 1999, and Mobil estimates that approximately 91% of the projects comprising this work had been completed as of December 31, 1998. The systems upgrade and replacement work consists of the implementation of a major integrated enterprise software system in North America (which would have been implemented regardless of year 2000 considerations) and numerous other systems. All of this work is expected to be essentially completed by June 30, 1999. Based on calculations that reflect successful attainment of milestones, Mobil estimates that approximately 77% of the major integrated enterprise software system implementation project had been completed as of December 31, 1998. Mobil estimates that approximately 63% of the projects comprising the work to upgrade and replace other systems had been completed as of December 31, 1998. The inventory and assessment phase of the work dealing with non-IT systems is essentially complete. The strategy and planning phase of this work is expected to be completed by March 31, 24 Mobil - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Year 2000 Project (continued) 1999, and Mobil estimates that it was approximately 95% complete as of December 31,1998. The execution phase of this work, much of which is being performed by the vendors of the products involved, is expected to be completed by June 30, 1999, and Mobil estimates that approximately 26% of the projects comprising this work had been completed as of December 31, 1998. This brought the percentage of year 2000 compliant non-IT systems in Mobil's inventory of materially important non-IT systems to approximately 70% as of that date. The inventory and assessment phase of the work dealing with relationships with external agents is essentially complete. The communication and evaluation phase of this work is expected to be completed by March 31, 1999, and Mobil estimates that approximately 68% of the suppliers whose relationships Mobil judges to be materially important had been contacted and had responded as of December 31, 1998. The follow-up phase of this work will be undertaken on a continuous, ongoing basis through the end of 1999. Cost The costs associated with the Project (all on a pre-tax basis) are being spent over a three-year period. There are two categories of these costs: (1) costs that are being incurred solely to achieve year 2000 compliance and (2) costs that are being incurred to install new systems that improve business functionality and in many cases concurrently provide year 2000 compliance. Mobil estimates that the costs to be incurred solely to achieve year 2000 compliance will total approximately $185 million, of which the costs of dealing with IT systems are expected to be about $168 million and the costs of dealing with non-IT systems are expected to be about $17 million (the costs of dealing with relationships with external agents are expected to be minimal). As of December 31, 1998, about $121 million of the total costs estimated to be incurred solely to achieve year 2000 compliance had been expended. Mobil estimates that the costs to be incurred for new systems that improve business functionality and in many cases concurrently provide year 2000 compliance will total approximately $280 million, and as of December 31, 1998, about $206 million of these costs had been expended, of which $73 million was expensed as incurred and approximately $133 million was capitalized. All Project costs are being funded with cash flows from operations. The $185 million which Mobil estimates will be expended solely to achieve year 2000 compliance represents less than 15% of Mobil's estimated total IT budget for the period covered by the Project. This entire amount is being expensed as it is incurred. Of the $280 million which Mobil estimates will be expended on new systems that improve business functionality and in many cases concurrently provide year 2000 compliance, approximately $105 million is being expensed as it is incurred and approximately $175 million is being capitalized. As a result of the Project, certain IT projects to improve business functionality have been reprioritized and accelerated while other such IT projects have been deferred. As a consequence, expenditures during the period covered by the Project on IT systems that will improve business functionality will actually be greater than the expenditures that would have been made on such systems had there been no Project. Accordingly, the deferral of IT work due to the Project will not have a material adverse effect on Mobil's results of operations or financial condition. Risks and Contingency Plans The failure or failures for year 2000 reasons of materially important systems or relationships with external agents could have a material adverse effect on Mobil's results of operations, liquidity and/or financial condition. For example, if, for year 2000 reasons, a utility company were to be unable to supply electricity to a Mobil refinery for an extended period, the refinery would have to be shut down for that period, which could result in substantial losses of production, sales and income. Mobil believes that the Project work described above dealing with materially important IT systems and non-IT systems will, when completed, serve to reduce very substantially the risk that such systems will fail for year 2000 reasons. Mobil has no way of ensuring, however, that external agents whose relationships with Mobil are judged to be materially important (e.g., utilities, telecommunications providers and transportation providers) will be timely year 2000 compliant. The failure or failures of systems for year 2000 reasons could also give rise to liability to third parties. Mobil has not yet attempted to assess the potential for such liability, and hence Mobil 25 - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Year 2000 Project (concluded) cannot say whether such liability presents a material risk independent of the risk that such failure or failures could have a material adverse effect on Mobil's results of operations, liquidity and/or financial condition. To minimize the risks associated with the year 2000 issue referred to in the second preceding paragraph, Mobil has begun work (1) to identify scenarios involving possible failures for year 2000 reasons of materially important systems and relationships with external agents and (2) to develop contingency plans for mitigating the impact of these scenarios. Mobil operates a portfolio of diverse businesses which have facilities and operations throughout the world and are managed regionally. Mobil believes that the most reasonably likely worst case scenarios, should they occur, will be encountered at facilities or operations located in one or more of these regions. Accordingly, a risk-based contingency planning process has been developed for execution by each business unit in its unique operating environment, focusing on its business-specific risks. Contingency planning project leaders were trained in the process during the first six weeks of 1999. The business units will develop and implement contingency plans with a target completion date of September 30, 1999. Mobil also plans to adapt its existing crisis response model to encompass failures for year 2000 reasons of materially important systems or relationships with external agents. The work described in the preceding paragraph will be focused on risks, scenarios and contingency plans involving materially important systems and relationships with external agents. There are, however, an almost infinite number of additional risks which are simply not assessable and for which, therefore, contingency plans cannot be developed. These are the risks of failure for year 2000 reasons of one or more systems or relationships with external agents which, individually, Mobil does not judge to be materially important but whose failure could trigger a cascade of other failures for year 2000 reasons, the combination of which could be materially important or could prevent Mobil from implementing contingency plans it has developed. Such a combination of failures could also have a material adverse effect on Mobil's results of operations, liquidity and/or financial condition. Forward-Looking Statements Relating to the Year 2000 The foregoing discussion about the year 2000 issue includes a number of forward-looking statements, which are based on Mobil's best assumptions and estimates as of the date hereof. These include, without limitation, statements concerning: Mobil's estimated timetables for completing the not-yet-completed phases of the Project work; Mobil's estimates of the percentages of the work that remains to be performed to complete such phases; Mobil's estimated timetable for identifying scenarios involving possible failures for year 2000 reasons of materially important systems and relationships with external agents and the development and implementation of contingency plans for mitigating the impacts of these scenarios; and Mobil's estimates of the costs of (1) completing the not-yet-completed phases of the Project and (2) identifying possible year 2000 failure scenarios and developing and implementing contingency plans for mitigating the impacts of these. Actual results could differ materially from the estimates expressed in such forward-looking statements, due to a number of factors. These factors, which are not necessarily all the key factors that could cause such differences, include the following: Mobil's failure to judge accurately which of Mobil's systems and relationships with external agents are materially important; Mobil's inability to obtain and retain the staff and third-party assistance necessary to complete the not-yet-completed phases of the Project in accordance with Mobil's estimated timetables; the inability of such staff and third parties (1) to locate and correct all non-year 2000 compliant computer code in materially important systems and test such corrected code and (2) to install and test upgrades or new systems containing year 2000-compliant computer code, all in accordance with Mobil's estimated timetables; unforeseen costs of completing Project work; Mobil's inability or failure to identify significant year 2000 issues not now contemplated; and the failure of external agents to achieve timely year 2000 readiness. 26 Mobil - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Environmental Matters Environmental Expenditures U.S. International - -------------------------------------------------------------------------------- (In millions) 1996 1997 1998 1996 1997 1998 - -------------------------------------------------------------------------------- Capital $149 $105 $ 88 $108 $105 $125 Protection and Compliance Ongoing operations 212 213 208 171 128 114 Remediation 46 46 45 27 28 22 - -------------------------------------------------------------------------------- Total Environmental Expenditures $407 $364 $341 $306 $261 $261 - -------------------------------------------------------------------------------- Over the past three years Mobil has spent $1.9 billion to safeguard the environment. 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 a comprehensive corporate policy and management system, 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 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. Mobil sells 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 1999 are expected to remain near the 1998 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. The decline in remediation expenditures reflects the use of improved remediation technology, a more effective use of available resources 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, 1998, Mobil had been successful in resolving its involvement in 180 of the 282 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 11 to Financial Statements on page 46 for further discussion of environmental liabilities. Mobil 27 - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- The Euro On January 1, 1999, eleven European countries established fixed conversion rates between their existing sovereign currencies ("legacy currencies") and adopted the euro as their common legal currency. The euro and the legacy currencies are each legal tender for transactions now. Beginning January 1, 2002, the participating countries will issue euro-denominated bills and coins and by July 1, 2002 each will withdraw its sovereign currency and transactions thereafter will be conducted solely in euros. During 1998, Mobil conducted an assessment of the euro's impact on Mobil's pan-European fuels and lubricants alliance with BP as well as other Mobil business conducted in Europe and/or transacted in legacy currencies. The assessment addressed such issues as providing customer assistance, handling customer transactions in euros and legacy currencies, and modifying systems to support transactions in euros. As a result of the assessment, plans to address the impact of the euro's introduction were developed, including plans for: internal and external communications; training; and systems and process redevelopments based on evolving business practices of customers, vendors, employees, banks and public and government institutions. Steps are now being taken to implement these plans. Based upon Mobil's assessment of the impact of the euro on Mobil and the steps Mobil is taking to deal with this impact, Mobil does not expect that the introduction of the euro will have a significant negative impact on Mobil's operations, results of operation, liquidity and/or financial condition. Mobil estimates that approximately $50 million pretax ($30 million after-tax) will be spent on euro-related conversion processes from 1998 through 2002. These costs are being funded with cash flows from operations and substantially all of them will be expensed as incurred. The foregoing discussion about the euro includes several forward-looking statements, which are based on Mobil's best assumptions and estimates as of the date hereof. These include, without limitation, statements concerning Mobil's expectations as to the impact of the euro on Mobil and Mobil's estimate of the cost of converting to the euro. Actual results, however, could differ materially from those expressed in such forward-looking statements for a number of reasons, including without limitation, the following: changes in the form of, and/or the timetable for or regulatory details relating to the introduction of the euro from what Mobil has assumed; Mobil's inability to implement in a timely manner its plans for dealing with the impact of the euro; and the inability or failure of third parties with whom Mobil has significant euro-based relationships to convert to the euro on a timely basis. Forward-Looking Statements Written materials issued and oral statements made from time to time by Mobil may contain "forward-looking statements." Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and by their use of words such as "goals," "expects," "plans," "believes," "estimates," "forecasts," "projects," "intends" and other words of similar meaning. Such statements are likely to address Mobil's earnings, return on capital employed, capital expenditures, debt-to-capitalization ratio, dividend increases, project implementation, production growth, reserve replacement, sales growth and expense reductions. They are based on management's then-current information, assumptions, plans, expectations, estimates and projections about the petroleum and chemical industries. However, such statements are not guarantees of future performance, and actual results and outcomes may differ materially from what is expressed depending on a variety of factors, many of which are outside Mobil's control. Among the factors that could cause actual outcomes or results to differ materially from what is expressed in these forward-looking statements are changes in the demand for, supply of, and market prices of crude oil, refined products, natural gas and petrochemicals; changes in refining margins and marketing margins; success in partnering, in implementing oil, natural gas and petrochemical projects, and in implementing internal plans; reliability of operating facilities; effects of environmental regulations; success of commercial negotiations; and domestic and international political and economic conditions. 28 Mobil - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Quarterly Financial Data (unaudited)
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/(loss) 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/(Loss) $ 826 $ 850 $ 892 $ 704 $ 3,272 Per common share $ 1.03 $ 1.06 $ 1.12 $ 0.88 $ 4.10 Per common share-assuming dilution $ 1.01 $ 1.04 $ 1.09 $ 0.86 $ 4.01 - ------------------------------------------------------------------------------------------------------ Dividends Per Common Share $ 0.53 $ 0.53 $ 0.53 $ 0.53 $ 2.12 - ------------------------------------------------------------------------------------------------------ Special Items Included in Net Income Asset impairment $ -- $ -- $ -- $ (18) $ (18) Lower of cost or market provisions -- -- -- -- -- Settlement of prior years' tax disputes -- -- -- -- -- BP alliance implementation costs (18) (20) (11) (20) (69) Asset sales gains -- -- 140 41 181 Restructuring provisions -- -- (61) (128) (189) Federal royalty settlement -- -- -- -- -- Exxon Mobil merger-related costs -- -- -- -- -- LIFO/other inventory adjustments -- -- -- 20 20 Employee performance award -- -- (50) -- (50) Litigation -- -- (33) -- (33) - ------------------------------------------------------------------------------------------------------ Total Special Items (18) (20) (15) (105) (158) - ------------------------------------------------------------------------------------------------------ Operating Earnings(1) $ 844 $ 870 $ 907 $ 809 $ 3,430 - ------------------------------------------------------------------------------------------------------ Sales Price per Common Share (2) High $ 68 $ 72 1/4 $ 78 $ 77 1/2 $ 78 Low $ 60 5/8 $ 60 $ 69 5/8 $66 7/16 $ 60 - ------------------------------------------------------------------------------------------------------
1998 ------------------------------------------------------------ First Second Third Fourth Full (In millions, except per-share amounts) Quarter Quarter Quarter Quarter Year - -------------------------------------------------------------------------------------------------------- Revenues Sales and services $ 13,388 $ 13,023 $ 12,878 $ 12,851 $ 52,140 Income/(loss) from equity affiliates 126 55 204 (69) 316 Income from asset sales, interest and other 116 155 404 400 1,075 - -------------------------------------------------------------------------------------------------------- Total Revenues 13,630 13,233 13,486 13,182 53,531 - -------------------------------------------------------------------------------------------------------- Costs and Expenses Crude oil, products and operating supplies and expenses 8,403 8,074 8,261 8,171 32,909 Exploration expenses 74 97 185 287 643 Selling and general expenses 934 939 854 1,028 3,755 Depreciation, depletion and amortization 599 621 633 978 2,831 Interest and debt discount expense 93 30 227 101 451 Taxes other than income taxes 2,293 2,438 2,486 2,665 9,882 Income taxes 529 392 331 104 1,356 - -------------------------------------------------------------------------------------------------------- Total Costs and Expenses 12,925 12,591 12,977 13,334 51,827 - -------------------------------------------------------------------------------------------------------- Net Income/(Loss) $ 705 $ 642 $ 509 $ (152) $ 1,704 Per common share $ 0.88 $ 0.81 $ 0.64 $ (0.21) $ 2.12 Per common share-assuming dilution $ 0.86 $ 0.79 $ 0.63 $ (0.21) $ 2.10 - -------------------------------------------------------------------------------------------------------- Dividends Per Common Share $ 0.57 $ 0.57 $ 0.57 $ 0.57 $ 2.28 - -------------------------------------------------------------------------------------------------------- Special Items Included in Net Income Asset impairment $ -- $ -- $ -- $ (387) $ (387) Lower of cost or market provisions -- -- -- (270) (270) Settlement of prior years' tax disputes -- -- -- 137 137 BP alliance implementation costs (10) (13) (14) (56) (93) Asset sales gains -- -- 55 -- 55 Restructuring provisions -- -- -- (41) (41) Federal royalty settlement -- -- (29) -- (29) Exxon Mobil merger-related costs -- -- -- (25) (25) LIFO/other inventory adjustments -- -- -- (9) (9) Employee performance award -- -- -- -- -- Litigation -- -- -- -- -- - -------------------------------------------------------------------------------------------------------- Total Special Items (10) (13) 12 (651) (662) - -------------------------------------------------------------------------------------------------------- Operating Earnings(1) $ 715 $ 655 $ 497 $ 499 $ 2,366 - -------------------------------------------------------------------------------------------------------- Sales Price per Common Share (2) High $ 83 13/16 $ 82 13/16 $ 80 $ 91 1/4 $ 91 1/4 Low $ 63 3/4 $ 73 7/16 $ 62 7/16 $ 71 $ 62 7/16 - --------------------------------------------------------------------------------------------------------
(1) Excludes special items. (2) 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. Mobil 29 - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Return on Average Shareholders' Equity (In percent) 98 9.0 97 17.0 96 16.0 Return on Average Shareholders' Equity declined with lower earnings, reflecting the impact of a deterioration in industry fundamentals. Commentary on Consolidated Statement of Income. Revenues from Sales and Services decreased $12,187 million in 1998 from 1997 primarily due to the effects of lower average worldwide crude oil, natural gas and petroleum product prices. Partly offsetting these decreases were the effects of higher petroleum sales volumes. The decrease in 1997 from 1996 resulted mainly from the effects of equity accounting for the Mobil-BP European downstream alliance and the gas marketing activities in the U.S., lower crude oil prices and currency translation effects, which were partly offset by higher sales volumes and higher average worldwide natural gas prices. Income from Equity Affiliates decreased in 1998 due to significantly lower crude oil, natural gas and petroleum product prices. The increase in 1997 from 1996 resulted mainly from the affects of the alliances being recorded for the first full year. Total Costs and Expenses decreased by $10,807 million from 1997 mainly due to the lower average petroleum prices, the effects of equity accounting for the alliances and the benefits of initiatives. In 1997, the decrease was mainly due to the effects of equity accounting for the Mobil-BP European downstream and Mobil-Shell California upstream alliances as well as currency translation effects. Crude Oil, Products and Operating Supplies and Expenses decreased $8,288 million in 1998, primarily due to the lower average petroleum prices. The decrease in 1997 from 1996 was 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. Exploration Expenses were higher in 1998 due to exploratory well write-offs, primarily in the U.S. and Latin America. Expenses in 1997 decreased somewhat from 1996 due to a smaller planned program for that year. Selling and General Expenses decreased $602 million primarily due to the effects of initiatives. In 1997, the decrease was primarily due to the effects of equity accounting for the Mobil-BP alliance and cost-savings initiatives, partly offset by restructuring reserves and the employee performance award. Depreciation, Depletion and Amortization Expenses were higher in 1998 mainly as a result of asset impairments of upstream properties, primarily in the U.S., Latin America and Asia-Pacific. Expenses in 1997 decreased from 1996 as the effects from equity accounting for the Mobil-BP and Mobil-Shell alliances were largely offset by the effects of 1996's acquisition of Ampolex and other capital spending. Taxes Other than Income Taxes decreased $624 million in 1998, primarily due to lower import duties and excise and gasoline taxes. In 1997, the decrease of $8,517 million from 1996 reflected the effects of equity accounting for the alliances were partly offset by the effects of higher sales volumes. Income Taxes decreased significantly as the effects of lower pretax income were compounded by mix changes in the sources of earnings. Deferred tax assets related to tax loss carryforwards that were fully reserved were written off in 1998 with no impact on net income. Income Taxes decreased in 1997 versus 1996 as the effects of higher pretax income were more than offset by mix changes in the sources of earnings. Commentary on Consolidated Statement of Changes in Shareholders' Equity Total Shareholders' Equity fell $1,091 million in 1998 primarily due to an increase in Common Stock Held in the Treasury from the purchase of 6,468,900 shares in the open market to offset the dilutive effects of stock options and ongoing market purchases. Also, Unearned Employee Compensation and Benefit Plan Trust increased due to the reclassification of 7,383,110 common shares held by a supplemental benefit plan trust. Return on Average Shareholders' Equity decreased from 17.0% in 1997 to 9.0% in 1998. Common stock dividends paid were $1.9625 per share, $2.12 per share and $2.28 per share in 1996, 1997 and 1998, respectively. 30 Mobil - -------------------------------------------------------------------------------- Consolidated Financial Statements - -------------------------------------------------------------------------------- Consolidated Statement of Income
Year ended December 31 (In millions, except per-share amounts) 1996 1997 1998 - ------------------------------------------------------------------------------------------------------------------------------ Revenues Sales and services(1) $ 80,365 $ 64,327 $ 52,140 Income from equity affiliates 279 696 316 Income from asset sales, interest and other 859 883 1,075 - ------------------------------------------------------------------------------------------------------------------------------ Total Revenues 81,503 65,906 53,531 - ------------------------------------------------------------------------------------------------------------------------------ Costs and Expenses Crude oil, products and operating supplies and expenses 47,490 41,197 32,909 Exploration expenses 512 499 643 Selling and general expenses 5,187 4,357 3,755 Depreciation, depletion and amortization 2,725 2,554 2,831 Interest and debt discount expense 455 428 451 Taxes other than income taxes(1) 19,023 10,506 9,882 Income taxes 3,147 3,093 1,356 - ------------------------------------------------------------------------------------------------------------------------------ Total Costs and Expenses 78,539 62,634 51,827 - ------------------------------------------------------------------------------------------------------------------------------ Net Income $ 2,964 $ 3,272 $ 1,704 Per common share $ 3.69 $ 4.10 $ 2.12 Per common share--assuming dilution $ 3.62 $ 4.01 $ 2.10 - ------------------------------------------------------------------------------------------------------------------------------
(1) Includes excise and state gasoline taxes: 1996-$9,236 million; 1997-$5,928 million; 1998-$5,853 million. Consolidated Statement of Changes in Shareholders' Equity
Year ended December 31 (In millions) 1996 1997 1998 - ------------------------------------------------------------------------------------------------------------------------------ Preferred Stock -Beginning of year $ 722 $ 686 $ 665 -End of year, after redemptions $ 686 $ 665 $ 641 - ------------------------------------------------------------------------------------------------------------------------------ Unearned Employee Compensation and Benefit Plan Trust -Beginning of year $ (411) $ (365) $ (329) -End of year $ (365) $ (329) $ (668) - ------------------------------------------------------------------------------------------------------------------------------ Common Stock at Par -Beginning of year $ 888 $ 891 $ 894 -End of year, after issuance of shares $ 891 $ 894 $ 898 - ------------------------------------------------------------------------------------------------------------------------------ Capital Surplus -Beginning of year $ 1,396 $ 1,468 $ 1,549 -End of year, after issuance of common shares $ 1,468 $ 1,549 $ 1,649 - ------------------------------------------------------------------------------------------------------------------------------ Earnings Retained in the Business -Beginning of year $ 17,745 $ 19,108 $ 20,661 -Net income $ 2,964 2,964 $ 3,272 3,272 $ 1,704 1,704 -Common stock dividends (1,547) (1,667) (1,781) -Preferred stock dividends (ESOP-related) (54) (52) (50) -End of year $ 19,108 $ 20,661 $ 20,534 Accumulated Other Nonowners' Equity -Beginning of year $ (27) $ (73) $ (821) -Cumulative minimum pension liability(2) -- -- (126) -Cumulative foreign currency translation(2) (46) (46) (748) (748) (111) (237) ----- ------ ------ -End of year $ (73) $ (821) $ (1,058) - ------------------------------------------------------------------------------------------------------------------------------ Changes in Nonowners' Equity $ 2,918 $ 2,524 $ 1,467 - ------------------------------------------------------------------------------------------------------------------------------ Common Stock Held in Treasury, at Cost -Beginning of year $ (2,362) $ (2,643) $ (3,158) -End of year, after purchases $ (2,643) $ (3,158) $ (3,626) - ------------------------------------------------------------------------------------------------------------------------------ Total Shareholders' Equity $ 19,072 $ 19,461 $ 18,370 - ------------------------------------------------------------------------------------------------------------------------------
(2) Amounts are net of income tax (expense)/benefit: 1996-$(2) million; 1997-$12 million; 1998-$88 million. See Notes to Financial Statements on pages 38-52. Mobil 31 - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- Total Debt (Millions of dollars) International U.S. 98 7,701 97 6,664 96 7,875 Debt increased, primarily reflecting the impact of weaker business conditions on earnings. Return on Average Capital Employed (In percent) 98 7.7 97 13.4 96 12.7 Return on Average Capital Employed declined for the first time in four years due to the 48% drop in net income. Commentary on Consolidated Balance Sheet Total Current Assets decreased $991 million, primarily reflecting lower Cash, Accounts and notes receivable and Inventories. Cash and cash equivalents decreased $106 million from 1997. The movements that contributed to this decrease are presented in the Consolidated Statement of Cash Flows on page 35. Accounts and notes receivable decreased as a result of reduced revenues caused by lower worldwide crude oil, petroleum product and natural gas prices. Inventories were lower in 1998 also as a result of lower petroleum product prices. Since these prices were below the book value of certain international inventories, it was necessary to write down the inventories to amounts that would be realizable upon future sale. Investments and Long-term Receivables essentially did not change as the reclassification of a benefit plan trust to shareholders' equity as a result of a new accounting requirement was primarily offset by additional equity contributions to several joint ventures. Net Properties, Plants and Equipment increased $171 million to $24,727 million as capital additions were mostly offset by depreciation, the writedown of certain properties to fair value, the contribution of assets into joint ventures and asset sales. Total Current Liabilities of $12,946 million increased $525 million from year-end 1997 primarily from increases in Short-term debt partially offset by decreases in Accounts payable. Short-term debt increased primarily due to a shift in financing from long-term to commercial paper as well as more long-term debt maturing in one year at year-end 1998 than year-end 1997. Accounts payable declined mainly due to the lower crude oil and petroleum product prices in 1998 that also resulted in the lower cost of purchases. At year-end 1998, total Debt of Mobil and its consolidated subsidiaries was $7,701 million, an increase of $1,037 million from the prior year. The addition from 1997 reflects higher debt levels resulting from the impact of weaker business conditions and the need to borrow to offset the lower cash generated from operations. Mobil's year-end debt-to-capitalization ratio was 29%, up from 25% at year-end 1997. Mobil continues to have ready access to global financial markets, providing flexibility to take advantage of investment opportunities and low borrowing costs. At year-end 1998, 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 was a Euro-Medium-Term- Note program to facilitate the offering and sale outside the U.S. of an additional $1.7 billion of debt securities in 1999 or later years. Total Shareholders' Equity fell $1,091 million (see commentary on Consolidated Statement of Changes in Shareholders' Equity on page 30). 32 Mobil - -------------------------------------------------------------------------------- Consolidated Financial Statements - -------------------------------------------------------------------------------- Consolidated Balance Sheet
At December 31 (In millions) 1997 1998 - ----------------------------------------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $ 820 $ 714 Accounts and notes receivable 5,952 5,518 Inventories 2,156 1,911 Prepaid expenses and other current assets 623 520 Deferred income taxes 171 68 - ----------------------------------------------------------------------------------------------------------- Total Current Assets 9,722 8,731 - ----------------------------------------------------------------------------------------------------------- Investments and Long-term Receivables 8,479 8,490 Net Properties, Plants and Equipment 24,556 24,727 Deferred Charges and Other Assets 802 806 - ----------------------------------------------------------------------------------------------------------- Total Assets $ 43,559 $ 42,754 - ----------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current Liabilities Short-term debt $ 2,994 $ 3,982 Accounts payable 4,418 3,707 Accrued liabilities 2,794 2,943 Income, excise, state gasoline and other taxes payable 1,906 1,986 Deferred income taxes 309 328 - ----------------------------------------------------------------------------------------------------------- Total Current Liabilities 12,421 12,946 - ----------------------------------------------------------------------------------------------------------- Long-term Debt 3,670 3,719 Reserves for Employee Benefits 1,745 2,060 Accrued Restoration, Removal and Environmental Costs 1,072 1,011 Deferred Credits and Other Noncurrent Obligations 1,274 1,021 Deferred Income Taxes 3,535 3,254 Minority Interest in Subsidiary Companies 381 373 - ----------------------------------------------------------------------------------------------------------- Total Liabilities 24,098 24,384 - ----------------------------------------------------------------------------------------------------------- Shareholders' Equity Preferred stock--shares issued and outstanding: 1997-171,093; 1998-164,986 665 641 Unearned employee compensation and benefit plan trust (329) (668) Common stock--shares issued: 1997-894,308,872; 1998-897,947,485 894 898 Capital surplus 1,549 1,649 Earnings retained in the business 20,661 20,534 Accumulated other nonowners' equity (821) (1,058) Common stock held in treasury, at cost--shares: 1997-110,945,100; 1998-117,414,000 (3,158) (3,626) - ----------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 19,461 18,370 - ----------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 43,559 $ 42,754 - -----------------------------------------------------------------------------------------------------------
See Notes to Financial Statements on pages 38-52. Mobil 33 - -------------------------------------------------------------------------------- Management Discussion and Analysis - -------------------------------------------------------------------------------- [BAR CHART APPEARS HERE] Asset Sales Proceeds (Millions of dollars) 98 811 97 1,050 96 1,759 Mobil sells assets that do not fit long-term strategies or are worth more to others. Proceeds have totaled $3.6 billion over the past three years. Commentary on Consolidated Statement of Cash Flows The Statement of Cash Flows summarizes the cash provided and used during the year. 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. Net Cash from Operating Activities decreased by $1,492 million from 1997. Net Cash from Operating Activities is derived by adjusting reported Net Income for charges or credits that have no cash effect and cash items reported elsewhere in this Statement. Net Cash Used in Investing Activities was essentially unchanged, reflecting a slightly higher investment program partially offset by lower level of proceeds from asset sales in 1998. Exploration expenses of $512 million, $499 million and $643 million in 1996, 1997 and 1998, respectively, are included in investing activities rather than operating activities. Net Cash Used in Financing Activities in 1998 was $1,168 million versus $2,548 million used in financing activities in 1997. The variance reflects higher debt levels associated with a weaker operating cash flow. Investment Program Mobil's planned 1999 investment program, including capital and exploration expenditures and cash investments in equity companies, totals $4.8 billion. Spending continues to be directed primarily to international projects (International-80%; U.S.-20%), where opportunities to find and develop resources are greater. The 1999 spending program dedicates about three-fourths of the funds to the upstream sector. This program has been scaled back about 13% from the 1998 spending level as a result of the current depressed industry conditions. Mobil will continue to monitor its business environment and remains flexible to adjust its plans if crude oil prices fail to improve from current depressed levels or if attractive opportunities arise. Mobil's debt-to-capitalization ratio of 29% provides the flexibility to weather tough years, to take advantage of attractive investment opportunities and/or to increase dividends to shareholders. At year-end 1998, the unspent balance of total appropriations for capital expenditures was approximately $4.9 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. Asset Impairments A charge of $491 million before tax ($387 million after tax) was recorded to write down certain oil and gas properties to fair value, mainly in the U.S., Latin America and Asia Pacific. These write-downs are the result of the reduction of hydrocarbon reserves, governmental actions and low worldwide prices caused by the near term excess supply of crude oil and petroleum products. The book value of producing properties that are determined to be impaired are written down to fair value based on the net present value of future cash flows. These cash flows are based on prices used for planning purposes escalated for estimated inflation, applied to the future production profiles of proved reserves and discounted at the rate that reflects Mobil's minimum return on projects that are considered for investment. The reserves considered under these tests are all currently producing hydrocarbons. The assumptions related to fair value of properties are reflective of Mobil's opinion that, due to the size of the capital projects and the time often needed to complete them, a long-term view is required. Mobil believes that over this long term, its assets will be recoverable in an environment of continued price volatility, which is influenced by market forces, political and economic uncertainties, host country regulations and new production sources. In this highly competitive market, operating assets are rationalized with a long-term perspective through several strategies including restructurings and joint ventures. If the low prices experienced at year-end 1998 are sustained over a long period of time and cause a revision of the prices that Mobil uses for planning purposes, there could be future charges to income from the further write-down of assets. Operations have not been shut down as a result of short- term price declines nor are significant shutdowns expected in the future since prices would need to decline significantly from current levels to be considered for shut down. 34 Mobil - -------------------------------------------------------------------------------- Consolidated Financial Statements - -------------------------------------------------------------------------------- Consolidated Statement of Cash Flows
Year ended December 31 (In millions) 1996 1997 1998 - ----------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Net Income $ 2,964 $ 3,272 $ 1,704 Adjustments to reconcile to net cash from operating activities Depreciation, depletion and amortization 2,725 2,554 2,831 Deferred income taxes 446 404 (146) Earnings less (greater) than distributions from equity affiliates 153 (59) 329 Exploration expenses (includes noncash charges: 1996-$36; 1997-$30; 1998-$120) 512 499 643 Gain on sales of properties, plants and equipment and other assets (423) (389) (230) (Increase) decrease in working capital items (detailed below) (290) 475 181 Other, net 312 221 173 - ----------------------------------------------------------------------------------------------------------------------------- Net Cash from Operating Activities 6,399 6,977 5,485 - ----------------------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities Capital and exploration expenditures (4,967) (4,689) (4,747) Acquisition of Ampolex Limited, net of $47 cash acquired (1,347) -- -- Proceeds from sales of properties, plants and equipment and other assets 1,759 1,050 811 Payments attributable to investments and long-term receivables (645)(1) (756)(1) (456) - ----------------------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (5,200) (4,395) (4,392) - ----------------------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities Cash dividends (1,601) (1,719) (1,831) Proceeds from borrowings having original terms greater than three months 1,494 923 1,714 Repayments of borrowings having original terms greater than three months (1,215) (1,772) (1,059) Increase in other borrowings 667 112 371 (Decrease) increase in minority interest (47) 339 1 Proceeds from issuance of common stock 75 84 104 Purchase of common stock for treasury (281) (515) (468) - ----------------------------------------------------------------------------------------------------------------------------- Net Cash Used in Financing Activities (908) (2,548) (1,168) - ----------------------------------------------------------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash and Cash Equivalents(2) 19 (22) (31) - ----------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 310 12 (106) Cash and Cash Equivalents--Beginning of Year 498 808 820 - ----------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents--End of Year $ 808 $ 820 $ 714 - -----------------------------------------------------------------------------------------------------------------------------
(1) Includes the cash expenditure for the acquisition of a 25% interest in a joint venture that owns the Tengiz field. (2) Cash equivalents are liquid investments convertible to cash and have original maturities of three months or less. Changes in Working Capital Items (Increase) Decrease - ----------------------------------------------------------------------------------------------------------------------------- Accounts and notes receivable $(1,199) $ 834 $ 508 Inventories 91 (17) 189 Prepaid expenses and other current assets 24 (69) 101 Accounts payable 836 (307) (818) Accrued liabilities (19) 334 134 Income, excise, state gasoline and other taxes payable (23) (300) 67 - ----------------------------------------------------------------------------------------------------------------------------- (Increase) Decrease in Working Capital Items $ (290) $ 475 $ 181 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- Memo Items - ----------------------------------------------------------------------------------------------------------------------------- Cash income taxes paid $ 2,416 $ 2,687 $ 1,845 Cash interest paid 458 528 467 - -----------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements on pages 38-52. Mobil 35 - -------------------------------------------------------------------------------- Consolidated Financial Statements - -------------------------------------------------------------------------------- Segment and Geographic Information
Year ended December 31 (In millions) 1996 1997 1998 - --------------------------------------------------------------------------------------------------- Revenues by Segment Exploration & Producing -- Third Party $ 8,055 $ 7,381 $ 5,744 -- Intersegment 4,786 4,459 2,899 Marketing & Refining -- Third Party 69,931 55,007 44,701 -- Intersegment 865 864 532 Chemical -- Third Party 3,023 3,251 2,512 -- Intersegment 257 282 306 Corporate and Other 494 267 574 Intersegment Elimination (5,908) (5,605) (3,737) - --------------------------------------------------------------------------------------------------- Total Revenues $ 81,503 $ 65,906 $ 53,531 - --------------------------------------------------------------------------------------------------- Income from Equity Investments by Segment Exploration & Producing $ 75 $ 254 $ 89 Marketing & Refining 126 346 185 Chemical 79 96 42 Corporate and Other (1) -- -- - --------------------------------------------------------------------------------------------------- Total Income from Equity Investments $ 279 $ 696 $ 316 - --------------------------------------------------------------------------------------------------- Depreciation, Depletion, and Amortization by Segment Exploration & Producing $ 1,596 $ 1,557 $ 1,886 Marketing & Refining 966 835 776 Chemical 126 141 149 Corporate and Other 37 21 20 - --------------------------------------------------------------------------------------------------- Total Depreciation, Depletion, and Amortization $ 2,725 $ 2,554 $ 2,831 - --------------------------------------------------------------------------------------------------- Income Tax Expense/(Benefit) by Segment Exploration & Producing $ 2,966 $ 2,785 $ 1,007 Marketing & Refining 425 544 478 Chemical 36 90 17 Corporate and Other (280) (326) (146) - --------------------------------------------------------------------------------------------------- Total Income Tax Expense/(Benefit) $ 3,147 $ 3,093 $ 1,356 - --------------------------------------------------------------------------------------------------- Net Income/(Loss) by Segment Exploration & Producing -- U.S. $ 737 $ 697 $ 11 -- International 1,372 1,515 633 Marketing & Refining -- U.S. 407 542 574 -- International 506 483 442 Chemical 306 403 181 Corporate and Other (364) (368) (137) - --------------------------------------------------------------------------------------------------- Total Segment Net Income $ 2,964 $ 3,272 $ 1,704 - ---------------------------------------------------------------------------------------------------
The distribution of Mobil's operations by business segment and geographic area is presented above and on page 37. The business segments are based on products and services and business activities reported to management. 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 corporate administrative expenses and other items. Mobil's share of the net income of companies accounted for on the equity method is included in Revenues. Financial information on these affiliates is presented in Note 4 on pages 40-41. Intersegment revenues are sales to other business segments within Mobil and are at estimated market prices. These intercompany transactions are eliminated for consolidation purposes. Income taxes are allocated to segments on the basis of operating results. 36 Mobil - -------------------------------------------------------------------------------- Consolidated Financial Statements - -------------------------------------------------------------------------------- Segment and Geographic Information (concluded)
Year ended December 31 (In millions) 1996 1997 1998 - ---------------------------------------------------------------------------------------------------------------------- Investment Spending Exploration & Producing -- U.S. $ 480 $ 427 $ 369 -- International 3,434(1) 2,461 2,556 Marketing & Refining -- U.S. 403 357 372 -- International 1,151 571 349 Chemical -- U.S. 301 288 239 -- International 38 35 28 Corporate and Other 42 51 191 - ---------------------------------------------------------------------------------------------------------------------- Total Capital Expenditures $ 5,849 $ 4,190 $ 4,104 - ---------------------------------------------------------------------------------------------------------------------- Exploration Expenses -- U.S. 76 76 127 -- International 436 423 516 - ---------------------------------------------------------------------------------------------------------------------- Total Exploration Expenses 512 499 643 - ---------------------------------------------------------------------------------------------------------------------- Total Capital Expenditures and Exploration Expenses $ 6,361 $ 4,689 $ 4,747 - ---------------------------------------------------------------------------------------------------------------------- Cash Investments in Equity Companies 658 617 753 - ---------------------------------------------------------------------------------------------------------------------- Total Investment Spending(2) $ 7,019 $ 5,306 $ 5,500 - ---------------------------------------------------------------------------------------------------------------------- Investment in Equity Method Affiliates by Segment Exploration & Producing $ 1,448 $ 2,211 $ 2,847 Marketing & Refining 1,471 4,173 3,952 Chemical 502 579 684 Corporate and Other -- -- -- - ---------------------------------------------------------------------------------------------------------------------- Total Investment in Equity Method Affiliates $ 3,421 $ 6,963 $ 7,483 - ---------------------------------------------------------------------------------------------------------------------- Total Assets by Segment Exploration & Producing $17,880 $18,468 $19,671 Marketing & Refining 23,520 20,212 18,532 Chemical 2,966 3,088 3,337 Corporate and Other 2,042 1,791 1,214 - ---------------------------------------------------------------------------------------------------------------------- Total Assets by Segment $46,408 $43,559 $42,754 - ---------------------------------------------------------------------------------------------------------------------- Revenues by Geographic Area United States $27,447 $28,563 $23,807 Europe 25,414 7,684 5,156 Asia-Pacific 17,690 17,075 13,454 Other Areas(3) 10,458 12,317 10,540 Corporate and Other 494 267 574 - ---------------------------------------------------------------------------------------------------------------------- Total Revenues $81,503 $65,906 $53,531 - ---------------------------------------------------------------------------------------------------------------------- Long-Lived Assets by Geographic Areas United States $10,522 $ 9,034 $ 8,165 Europe 5,183 3,415 3,734 Asia-Pacific 6,336 5,714 5,660 Other Areas 5,088 6,065 6,711 Corporate and Other 350 328 457 - ---------------------------------------------------------------------------------------------------------------------- Total Long-Lived Assets $27,479 $24,556 $24,727 - ----------------------------------------------------------------------------------------------------------------------
(1) Includes $1,394 million for the acquisition of Ampolex. (2) For purposes of the Consolidated Statement of Cash Flows, these exploration expenses of $512 million, $499 million and $643 million in 1996, 1997 and 1998, respectively, are included in investing activities rather than operating activities. (3) Includes principally West Africa, Saudi Arabia, Canada and Kazakhstan. [BAR CHART APPEARS HERE] Investment Spending (Millions of dollars) Capital Expenditures, Exploration Expenses & Equity Investment 98 5,500 97 5,306 96 7,019 76% of Mobil's Investment Spending in 1998 was in the international area where greater opportunities exist. Mobil 37 - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 1. Major Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of companies owned more than 50% and controlled by Mobil. 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. Revenues Revenues associated with sales of crude oil, natural gas, petroleum and chemical products and other merchandise are recorded when title passes to the customer. Revenues from the production of natural gas properties in which Mobil has interests with other companies are recognized on the basis of sales to Mobil customers. Differences between these sales and Mobil's share of production are routinely adjusted. These differences are not significant. Inventories Substantially all crude oil and product inventory volumes 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. 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. Costs of exploratory wells are capitalized if oil and gas reserves are found and either classified as proved within a year following completion of drilling or if additional exploration work is underway or planned. Annual evaluations are made to assure that these conditions are met; otherwise, the costs of exploratory wells are charged to expense. 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. Capitalized costs of producing properties are assessed when changes in economic or operating conditions indicate that the carrying amount may not be recoverable. If the book values of the producing properties exceed undiscounted cash flows, then the book values are written down to the net present value of future cash flows. The net present value of future cash flows are based on prices used for planning purposes escalated for estimated inflation, applied to future production profiles of proved reserves, and discounted at the rate that reflects the minimum return on projects that are considered for investments. The future production of proved undeveloped reserves and their related development costs are also factored 38 Mobil - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 1. Major Accounting Policies (continued) into the cash flows. 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. In order to qualify for hedge accounting, the derivative instrument must be designated and effective as a hedge. 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. Under the accrual method, differentials in the swapped amounts are recorded as adjustments of the underlying periodic cash flows that are being hedged. 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. The deferral method is used for futures exchange contracts, forward contracts, commodity swaps and covered options. 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 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 Accumulated Other Nonowners' Equity, net of related taxes. Under both the accrual and deferral method of accounting, gains and losses on closed contracts are deferred 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 and unrealized gains and losses are recognized in income coincidental with the transaction, and the derivative would be redesignated as trading. 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. 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. 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 Accumulated Other Nonowners' Equity 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- Mobil 39 - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 1. Major Accounting Policies (concluded) oriented and for exploration and producing operations in Indonesia, Nigeria, Equatorial Guinea 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. Asset Impairments As a result of lower worldwide crude oil and natural gas prices, a charge of $325 million before tax ($270 million after tax) was recorded in Crude oil, products and operating supplies and expenses to adjust certain inventories to their market value. Also as a result of lower worldwide prices, a charge of $491 million before tax ($387 million after tax) was recorded to write down certain properties to fair value, mainly in the U.S., Latin America and Asia-Pacific. Of this amount, $352 million was recorded in Depreciation, depletion and amortization with the remainder recorded primarily in Crude oil, products and operating supplies and expenses and Exploration expenses. The writedown of producing properties is determined by comparing their book values to their undiscounted future cash flows. Where the book values are greater than these cash flows, the properties are written down to fair value measured by calculating the net present value of the future cash flows in accordance with the policy described on page 38. There were no fixed price forward sales of production at December 31, 1998. In 1998, the price assumptions used to calculate these cash flows in accordance with the policy in Note 1 are higher than the statutorily mandated prices used on page 59, which are unescalated year-end prices. 3. Inventories At December 31, 1998, the worldwide excess of market over book value of inventories valued under the LIFO method was $569 million ($517 million--U.S.; $5 million--Europe; $5 million--Asia-Pacific; and $42 million--Other Areas). At December 31, 1997, the worldwide excess of market over book value of inventories valued under the LIFO method was $1,048 million. 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, are recorded as permanent adjustments to the cost of inventories. Inventories (In millions) At December 31 1997 1998 - -------------------------------------------------------------------------------- Crude oil and petroleum products $1,535 $1,298 Chemical products 253 247 Other, mainly materials and supplies 368 366 - -------------------------------------------------------------------------------- Total $2,156 $1,911 - -------------------------------------------------------------------------------- 4. Summary Financial Information of Unconsolidated Equity Affiliates Summary financial information for affiliated companies accounted for on the equity method is shown in the table on page 41. 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, 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 $814 million at December 31, 1998. Distributions received from these companies were $432 million in 1996, $637 million in 1997 and $645 million in 1998. Accounts and Notes Receivable in the Consolidated Balance Sheet include $271 million and $258 million at December 31, 1997 and 1998, respectively, of amounts due from equity affiliates. Accounts Payable include $468 million and $388 million at December 31, 1997 and 1998, respectively, of amounts due to equity affiliates. 40 Mobil - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 4. Summary Financial Information of Unconsolidated Equity Affiliates (concluded)
Equity method affiliates (In millions) 1996 1997 1998 - ------------------------------------------------------------------------------------------------- Total Mobil Share Total Mobil Share Total Mobil Share - ------------------------------------------------------------------------------------------------- Current assets $ 9,784 $ 3,237 $ 16,281 $ 5,626 $ 18,470 $ 6,049 Noncurrent assets 16,224 5,260 28,271 9,132 30,175 9,693 Current liabilities (9,817) (3,354) (15,580) (5,353) (16,909) (5,531) Long-term debt (4,455) (1,117) (6,193) (1,588) (7,763) (1,854) Other liabilities (2,064) (605) (3,028) (854) (2,234) (874) - ------------------------------------------------------------------------------------------------- Net assets $ 9,672 $ 3,421 $ 19,751 $ 6,963 $ 21,739 $ 7,483 - ------------------------------------------------------------------------------------------------- Gross revenues $ 32,296 $ 10,337 $ 72,725 $ 22,706 $ 65,549 $ 20,225 - ------------------------------------------------------------------------------------------------- Income before taxes $ 1,307 $ 429 $ 2,319 $ 834 $ 931 $ 386 Net income 969 279 1,782 696 693 316 - ------------------------------------------------------------------------------------------------- Capital expenditures $ 2,044 $ 435 $ 3,842 $ 988 $ 2,755 $ 776 - -------------------------------------------------------------------------------------------------
5. Properties, Plants and Equipment Properties, plants and equipment are stated at cost, less accumulated depreciation, depletion and amortization of $25,074 million at December 31, 1997, and $23,954 million at December 31, 1998.
Properties, plants and equipment (In millions) 1997 1998 - -------------------------------------------------------------------------------- At December 31 Net Gross Net Gross - -------------------------------------------------------------------------------- Petroleum Operations Exploration & Producing $13,810 $29,672 $14,307 $29,282 Marketing 4,155 6,225 4,147 6,425 Refining 3,624 7,764 3,153 6,888 Other Marketing & Refining Activities 899 2,358 793 2,125 Chemical 1,740 3,077 1,870 3,349 Corporate and Other 328 534 457 612 - -------------------------------------------------------------------------------- Total $24,556 $49,630 $24,727 $48,681 - --------------------------------------------------------------------------------
6. Leases Mobil leases real estate, service stations, pipelines, tankers and other equipment through noncancelable capital and operating leases. 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. Rental expense (In millions) Year ended December 31 1996 1997 1998 - -------------------------------------------------------------------------------- Minimum rentals $1,260 $1,093 $ 993 Contingent rentals 55 81 90 - -------------------------------------------------------------------------------- Total 1,315 1,174 1,083 Less: sublease rental income 188 137 132 - -------------------------------------------------------------------------------- Net rental expense $1,127 $1,037 $ 951 - -------------------------------------------------------------------------------- Mobil 41 - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 6. Leases (concluded) Future minimum lease payments have not been reduced by future minimum sublease rentals of $41 million under operating leases. Capital leases included in Net Properties, Plants and Equipment were $301 million at December 31, 1997, and $248 million at December 31, 1998. Future minimum lease payments under noncancelable leases (In millions) At December 31, 1998 Operating Leases Capital Lease Obligations - -------------------------------------------------------------------------------- 1999 $ 252 $ 85 2000 216 27 2001 173 21 2002 154 22 2003 124 30 Later years 1,330 257 - -------------------------------------------------------------------------------- Future minimum lease payments $2,249 $ 442 - -------------------------------------------------------------------------------- Less: executory costs 1 interest 152 - -------------------------------------------------------------------------------- Total capital lease obligations 289 Less: short-term portion of capital lease obligations 56 - -------------------------------------------------------------------------------- Long-term portion of capital lease obligations $ 233 - -------------------------------------------------------------------------------- 7. Short-term Debt At December 31, 1998, Mobil had $622 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) 1997 1998 - -------------------------------------------------------------------------------------- At December 31 Amount Interest Rate(1) Amount Interest Rate(1) - -------------------------------------------------------------------------------------- Notes and loans payable Commercial paper $1,097 5 7/8% $2,011 5% Banks and Other 1,168 7 1/8% 951 7 1/8% - -------------------------------------------------------------------------------------- Total notes and loans payable 2,265 2,962 - -------------------------------------------------------------------------------------- Long-term debt maturing within one year 729 1,020 - -------------------------------------------------------------------------------------- Total short-term debt $2,994 $ 3,982 - --------------------------------------------------------------------------------------
(1) Percentages shown in the table are weighted average interest rates at the end of the year. 42 Mobil - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 8. 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 1998, 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, 1998, the ESOP Trust had a shelf registration on file with the SEC permitting the offer and sale of $25 million of debt securities, guaranteed by Mobil. A new shelf registration permitting the offer and sale of an additional $475 million of debt securities by the ESOP Trust, guaranteed by Mobil, is expected to be declared effective by the SEC during the first quarter of 1999. The proceeds of any additional debt securities issued by the ESOP Trust would be used to refund its existing indebtedness. Also at year-end 1998, a shelf registration allowing the issuance of U.S. $1.7 billion of Euro-Medium-Term Notes was in place. Long-term debt that becomes due during the next five years is: 1999-$1,020 million; 2000-$365 million; 2001-$386 million; 2002-$136 million, and 2003-$721 million. Long-term debt (In millions) At December 31 1997 1998 - ------------------------------------------------------------------------- 6 3/8% notes due 1998 $ 200 $ -- 7 1/4% notes due 1999(1) 148 148(2) 8 5/8% notes due 2006 250 250 7 5/8% debentures due 2033(1) 216 216(2) 8% debentures due 2032(1) 164 164(2) 8 1/8% Canadian dollar Eurobonds due 1998 111 -- (swapped into 6.8% U.S. $ debt) 3% Swiss franc debentures due 2003 -- 133 (swapped into floating rate U.S. $ debt) 3% Swiss franc debentures due 2003 -- 197 (swapped into floating rate U.S. $ debt) 5% U.S. dollar Eurobonds due 2004 -- 300 (swapped into floating rate) 8 3/8% notes due 2001(1) 180 180(2) 8 5/8% debentures due 2021(1) 250 250 9 5/8% U.K. sterling Eurobonds due 1999 182 182 7.33% debentures due 2009(1) -- 100 7.90% debentures due 2020(1) -- 175 U.S. dollar Euro Medium-Term Notes due 1999 -- 150 (swapped into floating rate Japanese yen) Japanese yen loans due 2003-2005 (2.2%)(1) (3) 347 252 ESOP Trust debentures/notes due 1999-2004 (7.6%)(1)(3) 497 472 Variable rate project financing due 1998 (6.6%)(3) 52 -- Industrial revenue bonds due 2003-2033 (5.6%)(1) (3) 484 477 Other foreign currencies due 1998-2030 (5.8%)(1) (3) 764 565 Other due 1998-2054 (7.1%)(3) 219 239 Capital lease obligations 335 289 - ------------------------------------------------------------------------- Total 4,399 4,739 Less: long-term debt maturing within one year 729 1,020 - ------------------------------------------------------------------------- Total long-term debt $3,670 $3,719 - ------------------------------------------------------------------------- (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, 1998. Mobil 43 - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 9. 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 pages 22 and 23. The notional principal amounts of derivative financial instruments at December 31, are as follows: At December 31 (In millions) 1997 1998 - ----------------------------------------------------------------------- Debt-related instruments $4,444 $4,812 Nondebt-related foreign currency exchange rate instruments 9,706 6,760 Commodity financial instruments requiring cash settlement 2,438 3,869 - ----------------------------------------------------------------------- The fair value of Mobil's debt portfolio was $6,464 million ($6,524 million debt less $60 million derivatives) at December 31, 1997 and $7,622 million ($7,751 million debt less $129 million derivatives) at December 31, 1998. These fair values were greater than the carrying values by $166 million and $210 million at December 31, 1997 and 1998, 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. 10. Taxes
Total taxes (In millions) 1996 1997 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Year ended December 31 U.S. Foreign Total U.S. Foreign Total U.S. Foreign Total - ----------------------------------------------------------------------------------------------------------------------------------- Excise and state gasoline $4,207 $ 5,029 $ 9,236 $4,458 $1,470 $ 5,928 $ 4,712 $ 1,141 $ 5,853 Import duties -- 9,130 9,130 -- 4,027 4,027 -- 3,541 3,541 Property, production, payroll and other 385 272 657 347 204 551 329 159 488 - ----------------------------------------------------------------------------------------------------------------------------------- Total other than income taxes 4,592 14,431 19,023 4,805 5,701(1) 10,506 5,041 4,841 9,882 - ----------------------------------------------------------------------------------------------------------------------------------- Income taxes U.S. state and local 63 -- 63 45 -- 45 26 -- 26 U.S. federal and foreign -current 217 2,421 2,638 208 2,436 2,644 368 1,108 1,476 -deferred 163 283 446 250 154 404 (124) (22) (146) - ----------------------------------------------------------------------------------------------------------------------------------- Total income taxes 443 2,704 3,147 503 2,590 3,093 270 1,086 1,356 - ----------------------------------------------------------------------------------------------------------------------------------- Total taxes $5,035 $17,135 $22,170 $5,308 $8,291 $13,599 $ 5,311 $ 5,927 $ 11,238 - -----------------------------------------------------------------------------------------------------------------------------------
(1) The change from 1996 primarily reflects the impact of equity accounting for Mobil's European downstream alliance with BP. 44 Mobil - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 10. Taxes (concluded) Income from U.S. operations before income taxes was $1,939 million in 1996, $2,187 million in 1997 and $940 in 1998. Income from foreign operations before income taxes for the same three years was $4,816 million, $4,872 million and $2,403 million, respectively. The loss from Corporate and Financing before income taxes for the same three years was $644 million, $694 million and $283 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 $3.8 billion at December 31, 1998. If such dividends were to be remitted, foreign tax credits available under present law would reduce the amount of U.S. taxes payable. Deferred tax assets in the amount of $43 million related to tax loss carryforwards that were fully reserved and cannot be utilized were written off in 1998. Deferred taxes (In millions) At December 31 1997(1) 1998 - ---------------------------------------------------------------------------- Deferred tax liabilities Depreciation, depletion and amortization $4,877 $4,715 Other 406 549 - ---------------------------------------------------------------------------- Total deferred tax liabilities 5,283 5,264 - ---------------------------------------------------------------------------- Deferred tax assets Book reserves 1,544 1,636 Tax credits available for carry-forward (primarily without expiration) 693 722 - ---------------------------------------------------------------------------- Total deferred tax assets 2,237 2,358 - ---------------------------------------------------------------------------- Valuation allowance (627) (608) - ---------------------------------------------------------------------------- Net deferred tax liabilities $3,673 $3,514 - ---------------------------------------------------------------------------- (1) Prior year data reclassified to conform with current year presentation.
Reconciliation of U.S. statutory rate to actual tax rate (In millions) 1996 1997 1998 - ------------------------------------------------------------------------------------------------------------ Year ended December 31 Amount % Amount % Amount % - ------------------------------------------------------------------------------------------------------------ Income before taxes $6,111 100.0 $6,365 100.0 $3,060 100.0 - ------------------------------------------------------------------------------------------------------------ Theoretical tax at U.S. rate 2,139 35.0 2,228 35.0 1,071 35.0 Foreign taxes in excess of U.S. statutory rate 1,108 18.1 1,151 18.1 475 15.5 Other items, net (100) (1.6) (286) (4.5) (190) (6.2) - ------------------------------------------------------------------------------------------------------------ Total income taxes $3,147 51.5 $3,093 48.6 $1,356 44.3 - ------------------------------------------------------------------------------------------------------------
Mobil 45 - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 11. 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, 1997 and 1998, $780 million and $760 million, respectively, had been accrued for restoration and removal costs, mainly related to offshore producing facilities. 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, 1997 and 1998, the accumulated reserve for environmental remediation costs was $372 million and $328 million, respectively. Of these amounts, $80 million and $77 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. 12. Research Expense Research expenses were $206 million in 1996, $234 million in 1997 and $204 million in 1998. 13. Accumulated Other Nonowners' Equity Accumulated Other Nonowners' Equity consists of cumulative minimum pension liability adjustment and cumulative foreign exchange translation adjustment. There were no balances for cumulative minimum pension liability adjustment in 1996 and 1997. The amount in 1998 was an unrecognized loss of $126 million, net of tax. The cumulative foreign exchange translation adjustment is composed of the following: Cumulative foreign exchange translation adjustment (In millions) At December 31 1996 1997 1998 - ------------------------------------------------------------------------------ Properties, plants and equipment, net $ (27) $(940) $(1,076) Deferred income taxes (256) (103) (83) Working capital, debt and other items, net 210 222 227 - ------------------------------------------------------------------------------ Total $ (73) $(821)(1) $ (932) - ------------------------------------------------------------------------------ (1) The change in 1998 from 1997 reflects the strengthening U.S. dollar relative to local currencies in certain countries in which the company has significant operations. Foreign exchange transaction losses of $21 million in 1996, $52 million in 1997 and $53 million in 1998 have been included in income. 14. Restructurings In 1998, Mobil implemented new restructuring programs in Australia and New Zealand, and in Latin America, to integrate regional fuels and lubes operations. These programs will result in the elimination of approximately 500 positions as well as asset write-downs in Australia and New Zealand. Mobil recorded a provision of $50 million ($41 million after tax) in Selling and general expenses and Depreciation, depletion and amortization for these programs. In 1999, cash outlays of $36 million will be made for employee separation benefits and exit costs. The remainder represents noncash costs for the closure of facilities with net book values of $19 million. These assets will be closed in 1999. The results of operations of these assets are not material. Also, since the depreciable assets were written down to zero, there is no further depreciation expense to be recorded. The balance in the reserve at December 31, 1998 was $36 million. Also during 1998, Mobil and BP completed the implementation of their alliance, which combined the companies' European operations in the refining and marketing of fuels and lubricants. This alliance resulted 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 workforce reductions, facilities closure costs and asset write-downs. Of this amount, $126 million represented cash expenditures in 1996, 1997 and 1998 and the remainder was for noncash costs. Implementation of this program began in late 1996 and was essentially complete as of December 31, 1998. The amounts remaining in the reserve at December 31, 1996, 1997 and 1998 were $123 million, $47 million and $7 million, respectively, and the reductions were due to cash outlays and noncash reclassifications. Additionally, in 1997, Mobil and BP announced that the alliance would implement a major restructuring of its lubricant base oil refining business. This program will result in the elimina- 46 Mobil - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 14. Restructurings (concluded) tion of approximately 460 Mobil positions and in write-downs and closure of certain facilities and will be completed by the end of 1999. Mobil recorded reserves in 1997 of $86 million ($82 million after tax) mainly for employee severance costs associated with workforce reductions and for write-downs and closure of certain facilities. Cash outlays are expected to be $66 million of which $31 million was spent during 1998. Noncash costs are expected to be $20 million. The amounts remaining in the reserve at December 31, 1997 and 1998 were $66 million and $35 million, respectively. The reductions were due to cash outlays and noncash reclassifications. The above provisions were recorded in Income from equity affiliates and Selling and general expenses. In addition to restructuring charges for the Mobil-BP alliance, Mobil incurred one-time implementation charges in 1997 and 1998 of $69 million after tax and $93 million after tax, respectively, primarily for the reimaging of retail outlets and for systems implementation. During 1997, Mobil commenced two major cost savings initiatives in Asia- Pacific--one in Japan in response to the deregulated business environment and the other in Australia. These programs resulted in the elimination of approximately 400 positions and the rationalization of certain assets. In 1997, Mobil recorded reserves of $172 million ($107 million after tax) primarily for separation costs related to workforce reductions and for closure of certain facilities. The provisions have been recorded in Selling and general expenses, Crude oil, products and operating supplies, and expenses, Income from asset sales, interest and other and Depreciation, depletion and amortization. Cash outlays are expected to be $113 million of which $8 million and $59 million were made in 1997 and 1998, respectively. The remainder will be paid in 1999. Non- cash costs are expected to be $59 million. The amounts remaining in the reserves at December 31, 1997 and 1998 were $137 million and $50 million, respectively. The reductions were due to cash outlays and noncash reclassifications. The Mobil employee positions eliminated under the 1996 and 1997 programs approximated the workforce reductions included in the original estimates. 15. 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 1996, 1997 and 1998, this excess was $47 million, $21 million and $15 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 1996, 1997 and 1998, total ESOP-related expenses were $49 million, $24 million and $29 million, respectively. Interest incurred on ESOP debt in 1996, 1997 and 1998 was $48 million, $43 million and $38 million, respectively. 16. 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 Mobil 47 - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 16. Employee Benefits (continued) 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 $64 million in 1996, $63 million in 1997 and $63 million in 1998. 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. 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 $242 million in 1996, $189 million in 1997 and $140 million in 1998. 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 on page 49.
Postretirement benefit expense, excluding pensions (In millions) Health Care Life Insurance - ------------------------------------------------------------------------------------------------------------------------------------ Year ended December 31 1996 1997 1998 1996 1997 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Service cost $ 10 $ 8 $ 7 $ 2 $ 1 $ 1 Interest cost 27 31 31 26 24 25 Amortization of unrecognized amounts: Prior service cost (1) (1) (1) -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net periodic benefit cost $ 36 $ 38 $ 37 $ 28 $ 25 $ 26 - ------------------------------------------------------------------------------------------------------------------------------------ Status of postretirement benefit plans (In millions) Health Care Life Insurance - ------------------------------------------------------------------------------------------------------------------------------------ At December 31 1997 1998 1997 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Change in benefit obligations Benefit obligations at beginning of year $ 448 $ 463 $ 354 $ 371 Service and interest cost 39 38 25 26 Benefits paid (31) (33) (21) (26) Plan amendments 7 (4) -- (2) Actuarial losses and other items -- 18 13 24 - ------------------------------------------------------------------------------------------------------------------------------------ Benefit obligations at end of year $ 463 $ 482 $ 371 $ 393 - ------------------------------------------------------------------------------------------------------------------------------------ Book reserves $ 464 $ 468 $ 363 $ 360 - ------------------------------------------------------------------------------------------------------------------------------------ Book reserves greater (less) than accumulated postretirement benefit obligations $ 1 $ (14) $ (8) $ (33) - ------------------------------------------------------------------------------------------------------------------------------------ Consisting of: Unrecognized prior service cost $ 2 $ 5 $ -- $ 2 Unrecognized net (loss) (1) (19) (8) (35) - ------------------------------------------------------------------------------------------------------------------------------------
The discount rate used in determining the postretirement benefit obligation was 7.0% in 1997 and 6.5% in 1998. For measurement purposes, a 7.5% annual rate in the per capita cost of covered health care benefits was assumed for 1999. The rate was assumed to decrease gradually to 5.0% for 2005 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects: (in millions) 1% Increase 1% Decrease - -------------------------------------------------------------------------------- Effect on total service and interest cost components $ 5 $ (4) Effect on postretirement benefit obligations 44 (43) - -------------------------------------------------------------------------------- 48 Mobil - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 16. Employee Benefits (concluded)
Pension expense (In millions) U.S. Plans International Plans - ------------------------------------------------------------------------------------------------------------------------------------ Year ended December 31 1996 1997 1998 1996 1997 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Service cost $ 92 $ 72 $ 81 $ 84 $ 85 $ 83 Interest cost on projected benefit obligations 185 181 188 128 119 120 Expected return on plan assets (240) (238) (264) (77) (78) (79) Amortization of previously unrecognized amounts: Transitional (asset) obligation (30) (30) (30) 8 6 5 Prior service cost 19 21 24 39 11 13 Actuarial (gains) losses (5) (5) (7) 5 6 6 Curtailment and settlement losses -- -- -- 34 39 -- - ------------------------------------------------------------------------------------------------------------------------------------ Net periodic benefit cost (income) after curtailments and settlements $ 21 $ 1 $ (8) $ 221 $ 188 $ 148 - ------------------------------------------------------------------------------------------------------------------------------------ Status of pension plans (In millions) U.S. Plans International Plans - ------------------------------------------------------------------------------------------------------------------------------------ At December 31 1997 1998 1997 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Change in projected benefit obligations Projected benefit obligations at beginning of year $ 2,570 $ 2,751 $ 2,246 $ 2,117 Service and interest cost 253 269 204 203 Benefits paid (225) (304) (207) (164) Plan amendments 26 62 8 28 Curtailments, settlements and special termination benefits -- -- 10 -- Effects of foreign currency exchange rates -- -- (203) 47 Actuarial losses and other items 127 319 59 353 - ------------------------------------------------------------------------------------------------------------------------------------ Projected benefit obligations at end of year $ 2,751 $ 3,097 $ 2,117 $ 2,584 - ------------------------------------------------------------------------------------------------------------------------------------ Change in plan assets Fair value of plan assets at beginning of year $ 2,750 $ 3,007 $ 1,145 $ 1,158 Actual return on plan assets 451 233 147 105 Employer contributions -- -- 60 50 Employee contributions -- -- 10 8 Benefits paid (194) (270) (108) (84) Reclassification of supplemental benefit plan trust -- (580) -- -- Effects of foreign currency exchange rates -- -- (96) (6) - ------------------------------------------------------------------------------------------------------------------------------------ Fair value of plan assets at end of year $ 3,007 $ 2,390 $ 1,158 $ 1,231 Book reserves 146 440 996 1,170 - ------------------------------------------------------------------------------------------------------------------------------------ Fair value of plan assets and book reserves $ 3,153 $ 2,830 $ 2,154 $ 2,401 - ------------------------------------------------------------------------------------------------------------------------------------ Plan assets and book reserves greater (less) than projected benefit obligations $ 402 $ (267) $ 37 $ (183) - ------------------------------------------------------------------------------------------------------------------------------------ Consisting of: Unrecognized transition asset (obligation) $ 120 $ 90 $ (18) $ (14) Unrecognized prior service cost (183) (221) (21) (32) Unrecognized net gain (loss) 282 (266) (137) (458) Pre-funded expenses and intangible assets 183 89 213 142 Accumulated other nonowners' equity -- 41 -- 179 - ------------------------------------------------------------------------------------------------------------------------------------ Plan assets and book reserves greater (less) than projected benefit obligations $ 402 $ (267) $ 37 $ (183) - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average rates used in determining the actuarial present value of the projected benefit obligations (percent) Discount rate 7.0 6.5 6.5 5.1 Rate of increase in future compensation levels 4.0 4.0 5.1 4.2 Expected long-term rate of return on plan assets used in determining current year expense (percent) 9.0 9.5 8.2 8.0 - ------------------------------------------------------------------------------------------------------------------------------------ Memo: assets and book reserves greater than accumulated benefit obligations $ 842 $ 209 $ 392 $ 157 - ------------------------------------------------------------------------------------------------------------------------------------
Pension Plan Assets and Book Reserves exceeded Accumulated Benefit Obligations by $366 million at the end of 1998. Mobil 49 - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 17. Stock-Based Compensation Plans 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, 1998, number of shares outstanding, there were 16,267,543 shares or share units available for option grants and other awards referred to above in 1998. 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 1997.
Stock option transactions 1986 Plan 1991 Plan 1995 Plan - ------------------------------------------------------------------------------------------------------------------------------------ Shares Weighted Shares Weighted Shares Weighted Average Average Average Price Price Price - ------------------------------------------------------------------------------------------------------------------------------------ January 1, 1996-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 - ------------------------------------------------------------------------------------------------------------------------------------ Changes during 1998 Options granted 4,440,200 71.22 Options expired or canceled (1,000) 22.09 (900) 43.03 (126,300) 66.11 Options exercised (1,381,745) 26.48 (1,633,652) 36.23 (635,035) 44.85 SARs exercised (48,582) 31.47 - ------------------------------------------------------------------------------------------------------------------------------------ December 31, 1998-shares under option 1,877,134 $29.57 11,453,138 $35.39 17,502,957 $58.55 Weighted average contractual life (years) 0.91 3.91 7.50 Range of exercise price $22.09-32.13 $30.72-43.03 $43.66-71.22 - ------------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------ Options exercisable at December 31, 1998 1,877,134 $29.57 11,453,138 $35.39 5,480,157 $46.70 - ------------------------------------------------------------------------------------------------------------------------------------
50 Mobil - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 17. Stock-Based Compensation Plans (concluded) 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 $19 million, $29 million and $33 million in 1996, 1997 and 1998, respectively. Fair value is determined using a modified Black-Scholes model. The assumptions used in the model were a dividend yield of 3.2%, a five year zero-coupon risk free interest rate of 5.66%, estimated volatility of 18% and a five year expected option term. 18. Capital Stock At December 31, 1998, 1,200,000,000 shares of $1.00 par value common stock were authorized and 897,947,485 shares were issued, including 117,414,000 shares held in the treasury. At December 31, 1998, 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, 1997 and 1998, respectively, 171,093 and 164,986 shares of Series B ESOP Convertible Preferred Stock were outstanding. During 1997 and 1998, 5,243 and 6,107 of such shares, respectively, were redeemed. Effective May 20, 1997, Mobil increased the authorized shares of common stock from 600,000,000 to 1,200,000,000 and recorded a two-for-one stock split of the Company's issued common stock. 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.
Changes in shares of common stock outstanding - ----------------------------------------------------------------------------------------------------- Year ended December 31 1996 1997 1998 - ----------------------------------------------------------------------------------------------------- Common shares outstanding-beginning of year 789,119,762 787,588,910 783,363,772 Purchase of common stock for treasury (4,795,400) (7,458,400) (6,468,900) Exercise of stock options and stock appreciation rights 3,199,632 3,177,748 3,603,113 Incentive compensation awards and restricted stock 64,916 55,514 35,500 - ----------------------------------------------------------------------------------------------------- Common shares outstanding - end of year 787,588,910 783,363,772 780,533,485 - -----------------------------------------------------------------------------------------------------
Mobil 51 - -------------------------------------------------------------------------------- Notes to Financial Statements - -------------------------------------------------------------------------------- 19. Net Income per Share The following table sets forth the computation of basic and diluted earnings per share:
Net income per share - ------------------------------------------------------------------------------------------------------------------------ Millions of dollars except per share amounts; number of shares in thousands 1996 1997 1998 - ------------------------------------------------------------------------------------------------------------------------ Net income $ 2,964 $ 3,272 $ 1,704 Less: dividends on preferred stock 54 52 50 - ------------------------------------------------------------------------------------------------------------------------ Adjusted net income applicable to common shares $ 2,910 $ 3,220 $ 1,654 - ------------------------------------------------------------------------------------------------------------------------ Weighted average number of basic common shares outstanding 788,292 786,294 779,231(1) - ------------------------------------------------------------------------------------------------------------------------ Net income per common share $ 3.69 $ 4.10 $ 2.12 - ------------------------------------------------------------------------------------------------------------------------ Net income $ 2,964 $ 3,272 $ 1,704 Less: additional contribution to ESOP 10 8 6 Less: Stock Appreciation Rights compensation income/(expense) 4 (4) 1 - ------------------------------------------------------------------------------------------------------------------------ Adjusted net income applicable to common shares $ 2,950 $ 3,268 $ 1,697 - ------------------------------------------------------------------------------------------------------------------------ Weighted average number of basic common shares outstanding 788,292 786,294 779,231 Issuable on assumed exercise of stock options 9,418 11,445 11,253 Assumed conversion of preferred stock 18,038 17,318 16,790 - ------------------------------------------------------------------------------------------------------------------------ Total 815,748 815,057 807,274(1) - ------------------------------------------------------------------------------------------------------------------------ Net income per common share--assuming dilution $ 3.62 $ 4.01 $ 2.10 - ------------------------------------------------------------------------------------------------------------------------
(1) Excludes, on a weighted average basis, shares held by the benefit plan trust that are accounted for in a manner similar to treasury stock. 20. 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 $198 million of the obligations of others, excluding $223 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. 52 Mobil - -------------------------------------------------------------------------------- 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 Lucio A. Noto Chairman and Chief Executive Officer /s/ Harold R. Cramer Harold R. Cramer Executive 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, 1997 and 1998, 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, 1998, appearing on pages 31, 33, and 35 through 52. 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, 1997 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Fairfax, Virginia February 26, 1999 Mobil 53 - -------------------------------------------------------------------------------- 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, 1996, 1997 and 1998, 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 Worldwide ----------------------------------------------- ----------------------------------- --------- Asia- Other Asia- Other U.S. Europe Pacific Areas(1) Total U.S. Europe Pacific Areas(1) Reserves at January 1, 1996 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 Revisions (38) (1) 7 226 194 134(4) -- -- (2) 326 Improved recovery 2 12 -- 6 20 85 -- -- -- 105 Purchases -- -- -- -- -- -- -- -- -- -- Sales (2) -- -- (5) (7) (1) (2) -- -- (10) Extensions, discoveries and other additions 13 2 -- 516(5) 531 1 -- -- 21 553 Production (50) (51) (31) (138) (270) (38) -- -- (33) (341) - ------------------------------------------------------------------------------------------------------------------------------------ Reserves at December 31, 1998 464 330 84 2,257 3,135 577 -- -- 1,026 4,738 - ------------------------------------------------------------------------------------------------------------------------------------ Developed Reserves At January 1, 1996 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 At December 31, 1998 437 160 64 1,200 1,861 416 -- -- 616 2,893 - ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes principally West Africa, Canada and Venezuela (Consolidated companies) and Kazakhstan and Abu Dhabi (Equity companies). (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 joint venture with Shell, under the name of Aera Energy LLC, which resulted in an increase in proved reserves and a reduction in nonproved reserves. (4) Revisions include additions attributable to Mobil's increased equity share in Aera Energy LLC. (5) Extensions, discoveries and other additions include 474 million barrels in the Cerro Negro field in Venezuela. Mobil's estimated net proved reserves and changes thereto for the years 1996, 1997 and 1998 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. 54 Mobil - -------------------------------------------------------------------------------- Supplementary Information - -------------------------------------------------------------------------------- Oil and Gas Producing Activities (unaudited)(continued) 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. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based on future conditions. Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery should be included as "proved developed reserves" only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved." 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. Mobil 55 - -------------------------------------------------------------------------------- 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 Worldwide ------------------------------------------------- ------------------------------- --------- Asia- Other Asia- Other U.S. Europe Pacific Areas(1) Total U.S. Europe Pacific Areas(1) Reserves at January 1, 1996 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 Revisions (279) 295 (141) (55) (180) 4 3 -- 1 (172) Improved recovery 2 14 -- 44 60 34 -- -- -- 94 Purchases -- -- -- 8 8 -- -- -- -- 8 Sales (29) -- (4) (24) (57) -- (34) -- -- (91) Extensions, discoveries and other additions 35 78 -- 342 455 2 -- -- 28 485 Production (381) (438) (496) (202) (1,517) (12) (3) -- (36) (1,568) - ------------------------------------------------------------------------------------------------------------------------------------ Reserves at December 31, 1998 3,140 4,214 2,447 2,248 12,049 167 -- -- 3,496 15,712 - ------------------------------------------------------------------------------------------------------------------------------------ Developed Reserves At January 1, 1996 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 At December 31, 1998 2,878 2,905 1,447 1,339 8,569 115 -- -- 1,112 9,796 - ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes principally Canada (Consolidated companies) and Qatar and Kazakhstan (Equity companies). (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 joint venture with Shell, under the name of Aera Energy LLC, 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 1996 1997 1998 1996 1997 1998 1996 1997 1998 - ----------------------------------------------------------------------------------------------------------------- Capitalized costs: Unproved properties(1) $ 197 $ 233 $ 279 $ 58 $ 11 $ 27 $ 955 $ 984 $ 854 Proved properties, wells, plants and other equipment(1) 12,535 10,642 7,999 7,639 7,596 8,367 3,172 3,196 3,685 - ----------------------------------------------------------------------------------------------------------------- Total capitalized costs 12,732 10,875 8,278 7,697 7,607 8,394 4,127 4,180 4,539 Accumulated depreciation, depletion and amortization 8,623 7,640 5,682 4,593 4,536 4,947 1,742 2,021 2,329 - ----------------------------------------------------------------------------------------------------------------- Net capitalized costs 4,109 3,235 2,596 3,104 3,071 3,447 2,385 2,159 2,210 - ----------------------------------------------------------------------------------------------------------------- Net capitalized costs of equity companies -- 656 1,022 34 29 -- 1 -- -- - ----------------------------------------------------------------------------------------------------------------- Total $ 4,109 $ 3,891 $ 3,618 $ 3,138 $ 3,100 $ 3,447 $ 2,386 $ 2,159 $ 2,210 - ----------------------------------------------------------------------------------------------------------------- Other Areas Total At December 31 1996 1997 1998 1996 1997 1998 - -------------------------------------------------------------------------------------- Capitalized costs: Unproved properties(1) $ 324 $ 328 $ 277 $ 1,534 $ 1,556 $ 1,437 Proved properties, wells, plants and other equipment(1) 5,592 6,682 7,794 28,938 28,116 27,845 - -------------------------------------------------------------------------------------- Total capitalized costs 5,916 7,010 8,071 30,472 29,672 29,282 Accumulated depreciation, depletion and amortization 1,514 1,665 2,017 16,472 15,862 14,975 - -------------------------------------------------------------------------------------- Net capitalized costs 4,402 5,345 6,054 14,000 13,810 14,307 - -------------------------------------------------------------------------------------- Net capitalized costs of equity companies 1,558 2,136 2,543 1,593 2,821 3,565 - -------------------------------------------------------------------------------------- Total $ 5,960 $ 7,481 $ 8,597 $15,593 $16,631 $17,872 - --------------------------------------------------------------------------------------
(1) Prior year data reclassified to conform with current year presentation. 56 Mobil - -------------------------------------------------------------------------------- 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, 1996, 1997 and 1998. 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 Worldwide ---------------------------------------------------------- --------- --------- U.S. Europe Asia-Pacific Other Areas Total Year ended December 31, 1996 Property acquisition costs:(1) Unproved properties(2) $ 8 $ 46 $ 926 $ 122 $1,102 $ 611 $1,713 Proved properties(2) 57 -- 789 388 1,234 490 1,724 - ------------------------------------------------------------------------------------------------------------------------------------ Total acquisition 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 acquisition 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 - ------------------------------------------------------------------------------------------------------------------------------------ Year ended December 31, 1998 Property acquisition costs: Unproved properties $ 71 $ 10 $ 3 $ 23 $ 107 $ -- $ 107 Proved properties 20 -- -- -- 20 -- 20 - ------------------------------------------------------------------------------------------------------------------------------------ Total acquisition costs 91 10 3 23 127 -- 127 Exploration costs 161 137 123 310 731 2 733 Development costs 240 760 347 1,016 2,363 464 2,827 - ------------------------------------------------------------------------------------------------------------------------------------ Total expenditures $ 492 $ 907 $ 473 $1,349 $3,221 $ 466 $3,687 - ------------------------------------------------------------------------------------------------------------------------------------
(1) Primarily as a result of recording deferred taxes of $506 million, the total costs allocated to property for the Ampolex acquisition exceed the net purchase price by $690 million ($607 million-Asia-Pacific; and $83 million-Other Areas). (2) Prior year data reclassified to conform with current year presentation. 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. Mobil 57 - -------------------------------------------------------------------------------- Supplementary Information - -------------------------------------------------------------------------------- Oil and Gas Producing Activities (unaudited) (continued) Table 5: Results of Operations for Oil and Gas Producing Activities (In millions)
Equity Consolidated Companies Companies Worldwide --------------------------------------------------------- --------- --------- U.S. Europe Asia-Pacific Other Areas Total Year ended December 31, 1996 Revenues: Trade sales $ 1,027 $ 1,535 $ 1,811 $ 464 $ 4,837 $ 145 $ 4,982 Sales to affiliates 1,458 841 369 1,727 4,395 201 4,596 - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues(1) 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(2) (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 Sales to affiliates 1,049 647 470 2,022 4,188 529 4,717 - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues(1) 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(2) (299) (620) (822) (826) (2,567) (212) (2,779) - ---------------------------------------------------------------------------------------------------------------------------------- Results of operations for producing activities $ 578 $ 539 $ 609 $ 275 $ 2,001 $ 211 $ 2,212 - ---------------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1998 Revenues: Trade sales $ 781 $ 1,207 $ 970 $ 416 $ 3,374 $ 325 $ 3,699 Sales to affiliates 494 499 311 1,497 2,801 508 3,309 - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues(1) 1,275 1,706 1,281 1,913 6,175 833 7,008 Production (lifting) costs (658) (645) (235) (854) (2,392) (309) (2,701) Exploration expenses (127) (122) (92) (302) (643) -- (643) Depreciation, depletion and amortization (605) (451) (332) (498) (1,886) (180) (2,066) Other operating revenues and (expenses) 32 303 (31) (95) 209 (155) 54 Income tax expense(2) 25 (289) (374) (256) (894) (114) (1,008) - ---------------------------------------------------------------------------------------------------------------------------------- Results of operations for producing activities $ (58) $ 502 $ 217 $ (92) $ 569 $ 75 $ 644 - ----------------------------------------------------------------------------------------------------------------------------------
(1) Revenues in this table will not agree with Exploration & Producing Segment Revenues (pages 16 and 36) 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. (2) 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, 1996, 1997 and 1998, 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. 58 Mobil - -------------------------------------------------------------------------------- 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 1997 to 1998 contributed to the lower discounted future net cash flow amount for 1998. 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 Asia-Pacific At December 31 1996 1997 1998 1996 1997 1998 1996 1997 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Future cash inflows $ 33,036 $ 16,598 $ 10,516 $ 19,869 $ 17,963 $ 12,824 $ 14,416 $ 9,728 $ 4,027 Future production costs (8,125) (6,261) (5,216) (4,374) (4,859) (3,969) (2,196) (1,895) (1,634) Future development costs (1,200) (527) (384) (1,202) (1,285) (1,029) (1,030) (700) (255) Future income tax expenses (7,968) (3,121) (1,436) (7,830) (6,025) (3,704) (4,599) (2,766) (637) - ---------------------------------------------------------------------------------------------------------------------------------- Future net cash flows 15,743 6,689 3,480 6,463 5,794 4,122 6,591 4,367 1,501 10% annual discount for estimated timing of cash flows (6,919) (2,897) (1,516) (2,091) (2,078) (1,459) (2,578) (1,498) (387) - ---------------------------------------------------------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows 8,824 3,792 1,964 4,372 3,716 2,663 4,013 2,869 1,114 - ---------------------------------------------------------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows of equity companies -- 1,055 170 35 28 -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Total $ 8,824 $ 4,847 $ 2,134 $ 4,407 $ 3,744 $ 2,663 $ 4,013 $ 2,869 $ 1,114 ================================================================================================================================== Other Areas Total 1996 1997 1998 1996 1997 1998 - ---------------------------------------------------------------------------------------------------- Future cash inflows $ 39,107 $ 29,776 $ 22,814 $ 106,428 $ 74,065 $ 50,181 Future production costs (9,952) (8,715) (9,049) (24,647) (21,730) (19,868) Future development costs (5,006) (3,639) (4,236) (8,438) (6,151) (5,904) Future income tax expenses (15,536) (9,701) (2,773) (35,933) (21,613) (8,550) - ---------------------------------------------------------------------------------------------------- Future net cash flows 8,613 7,721 6,756 37,410 24,571 15,859 10% annual discount for estimated timing of cash flows (3,834) (2,944) (3,329) (15,422) (9,417) (6,691) - ---------------------------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows 4,779 4,777 3,427 21,988 15,154 9,168 - ---------------------------------------------------------------------------------------------------- Standardized measure of discounted future net cash flows of equity companies 1,845 1,585 717 1,880 2,668 887 - ---------------------------------------------------------------------------------------------------- Total $ 6,624 $ 6,362 $ 4,144 $ 23,868 $ 17,822 $ 10,055 ====================================================================================================
Table 7: Changes in Standardized Measure of Discounted Future Net Cash Flows (In millions)
Year ended December 31 1996 1997(1) 1998 - ---------------------------------------------------------------------------------------------------------------------------- Beginning of year $14,082 $23,868 $17,822 Changes resulting from: Sales and transfers of production, net of production costs (6,571) (6,404) (3,783) Net changes in prices and in development and production costs 15,191 (17,358) (16,564) Extensions, discoveries, additions and purchases, less related costs 2,577 1,533 457 Development costs incurred during the period 2,069 2,351 2,363 Revisions of previous quantity estimates 633 672 539 Accretion of discount 2,625 4,277 2,784 Net change in income taxes (8,135) 8,095 8,218 Equity companies 1,397 788 (1,781) - ---------------------------------------------------------------------------------------------------------------------------- End of year $ 23,868 $ 17,822 $ 10,055 ============================================================================================================================
(1) Prior year data reclassified to conform with current year presentation. Mobil 59 - -------------------------------------------------------------------------------- Supplementary Information - -------------------------------------------------------------------------------- Five-Year Operating Highlights (unaudited)
1994 1995 1996 1997 1998 - ---------------------------------------------------------------------------------------------------------------------------- Net Production of Liquids (thousands of barrels daily) (1) Consolidated companies United States 300 282 262 186 136 International Australia 23 20 29 39 38 Canada 57 53 50 49 71 Equatorial Guinea -- -- 8 37 50 Indonesia 77 77 66 46 37 Nigeria 175 157 209 253 248 Norway 95 91 83 79 73 Papua New Guinea -- -- 11 12 11 United Kingdom 70 75 65 75 63 Other countries 10 10 9 13 12 - ---------------------------------------------------------------------------------------------------------------------------- Total International 507 483 530 603 603 - ---------------------------------------------------------------------------------------------------------------------------- Total Consolidated Companies 807 765 792 789 739 - ---------------------------------------------------------------------------------------------------------------------------- Mobil's Share of Production of Equity Companies (2) U.S. (Aera) -- -- -- 58 104 Abu Dhabi 43 41 42 42 44 Kazakhstan -- -- 18 36 45 Other 4 4 2 2 3 - ---------------------------------------------------------------------------------------------------------------------------- Total equity companies 47 45 62 138 196 - ---------------------------------------------------------------------------------------------------------------------------- Worldwide Liquids Production 854 810 854 927 935 - ---------------------------------------------------------------------------------------------------------------------------- Net Production of Natural Gas (millions of cubic feet daily) Consolidated companies United States 1,568 1,439 1,333 1,141 1,043 International Argentina -- -- 30 77 114 Australia 10 12 25 25 5 Canada 461 432 416 397 440 Germany 368 404 463 455 455 Indonesia 1,654 1,542 1,556 1,571 1,354 Netherlands 61 66 53 60 104 Norway 49 51 53 50 44 United Kingdom 470 577 618 668 596 - ---------------------------------------------------------------------------------------------------------------------------- Total International 3,073 3,084 3,214 3,303 3,112 - ---------------------------------------------------------------------------------------------------------------------------- Total Consolidated Companies 4,641 4,523 4,547 4,444 4,155 - ---------------------------------------------------------------------------------------------------------------------------- Mobil's Share of Production of Equity Companies (2) U.S. (Aera) -- -- -- 20 34 Austria 12 13 12 13 9 Indonesia 17 18 -- -- -- Kazakhstan -- -- 24 35 31 Qatar -- -- 4 44 66 Other -- -- -- -- 1 - ---------------------------------------------------------------------------------------------------------------------------- Total equity companies 29 31 40 112 141 - ---------------------------------------------------------------------------------------------------------------------------- Worldwide Natural Gas Production 4,670 4,554 4,587 4,556 4,296 - ---------------------------------------------------------------------------------------------------------------------------- Barrels of oil equivalent (thousands of barrels daily)(3) 847 826 831 826 778 - ---------------------------------------------------------------------------------------------------------------------------- Total Production (thousands of barrels daily of oil equivalent)(3) 1,701 1,636 1,685 1,753 1,713 - ----------------------------------------------------------------------------------------------------------------------------
See footnotes on page 61. 60 Mobil - -------------------------------------------------------------------------------- Supplementary Information - -------------------------------------------------------------------------------- Five-Year Operating Highlights (unaudited) (continued)
1994 1995 1996 1997 1998 - ------------------------------------------------------------------------------------------------------------------------------ Net Reserves of Liquids (millions of barrels) (1) Consolidated companies United States 1,052 986 902 539 464 Europe 401 373 366 368 330 Asia-Pacific 175 103 123 108 84 Other Areas (2) 1,291 1,426 1,538 1,652 2,257 - ------------------------------------------------------------------------------------------------------------------------------ Total Consolidated Companies 2,919 2,888 2,929 2,667 3,135 - ------------------------------------------------------------------------------------------------------------------------------ Mobil's share of reserves of equity companies(2)(3) 525 531 853 1,438 1,603 - ------------------------------------------------------------------------------------------------------------------------------ Worldwide Reserves of Liquids 3,444 3,419 3,782 4,105 4,738 - ------------------------------------------------------------------------------------------------------------------------------ Net Reserves of Natural Gas (billions of cubic feet) Consolidated companies United States 5,055 5,061 4,399 3,792 3,140 Europe 4,251 4,188 4,201 4,265 4,214 Asia-Pacific 5,607 4,896 4,071 3,088 2,447 Other Areas 1,744 1,784 1,974 2,135 2,248 - ------------------------------------------------------------------------------------------------------------------------------ Total Consolidated Companies 16,657 15,929 14,645 13,280 12,049 - ------------------------------------------------------------------------------------------------------------------------------ Mobil's share of reserves of equity companies (2) 1,018 2,039 2,460 3,676 3,663 - ------------------------------------------------------------------------------------------------------------------------------ Worldwide Reserves of Natural Gas 17,675 17,968 17,105 16,956 15,712 - ------------------------------------------------------------------------------------------------------------------------------ Barrels of oil equivalent (millions of barrels)(4) 3,204 3,261 3,099 3,072 2,847 - ------------------------------------------------------------------------------------------------------------------------------ Total Reserves (millions of barrels of oil equivalent)(4) 6,648 6,680 6,881 7,177 7,585 - ------------------------------------------------------------------------------------------------------------------------------ Reserves Replacement Percentage(4) (5) 115% 105% 133% 146% 165% - ------------------------------------------------------------------------------------------------------------------------------ Average U.S. Sales Price/Transfer Value(6) Crude Oil (per barrel) $12.91 $ 14.52 $ 17.40 $16.59(7)(8) $10.48(7) NGL (per barrel) 10.37 9.94 13.16 11.96 8.26 Natural Gas (per thousand cubic feet) 1.72 1.41 2.17 2.38 1.98 - ------------------------------------------------------------------------------------------------------------------------------ Average International Sales Price/ Transfer Value(6) Crude Oil (per barrel) $15.66 $16.94 $20.81 $18.94 $12.29 Natural Gas (per thousand cubic feet) 2.44 2.47 2.66 2.72 2.17 - ------------------------------------------------------------------------------------------------------------------------------
(1) Crude oil and natural gas liquids (NGL). (2) Represents Mobil's share of investees accounted for on the equity method. (3) Includes principally West Africa, Canada and Venezuela (Consolidated companies) and Kazakhstan and Abu Dhabi (Equity companies). (4) Natural gas volumes have been converted to oil equivalent barrels on a BTU basis with 5,516, 5,510, 5,519, 5,519 and 5,519 cubic feet of gas per barrel in 1994, 1995, 1996, 1997 and 1998, respectively. (5) Reserves replacement percentage is calculated by dividing the net adjustments to reserves for the year plus the annual production by the annual production. (6) Transfer values are essentially equal to third-party sales. (7) Includes Mobil stand-alone through May 1997 and Mobil plus its equity interest in the California alliance with Shell (Aera) thereafter. (8) Prior year presentation reclassified to conform with current year presentation. Total Production vs. Reserve Additions (Millions of barrels of oil equivalent) [BAR CHART APPEARS HERE] Total Production vs. Reserve Additions (Million of barrels of oil equivalent) Total Production Reserve Additions 98 625 1,033 97 640 936 96 617 818 95 597 629 94 621 714 For the fifth consecutive year, Mobil added more to its hydrocarbon reserves than it produced. Mobil 61 - -------------------------------------------------------------------------------- Supplementary Information - -------------------------------------------------------------------------------- Refinery Runs vs. Petroleum Product Sales (Thousands of barrels daily) [BAR CHART APPEARS HERE] Refinery Runs for Mobil Petroleum Product Sales 1998 2,135 3,440 1997 2,191 3,343 1996 2,142 3,345 1995 2,121 3,222 1994 2,082 3,075 Refinery runs decreased in 1998, reflecting U.S. divestitures, while product sales were up 3%. Number of Employees (At year-end) [BAR CHART APPEARS HERE] Petroleum Operations, Chemical & Other 1998 41,500 1997 42,700 1996 43,000 1995 50,400 1994 58,500 Reductions in the number of employees due to alliances and other initiatives were partly offset by increases related to new business development. Five-Year Operating Highlights (unaudited) (concluded)
1994 1995 1996 1997 1998 - ------------------------------------------------------------------------------------------------------------------------------ Petroleum Product Sales(1) (thousands of barrels daily) United States 1,172 1,286 1,362 1,435 1,465 Europe(2) 810 807 804 679 677 Asia-Pacific(3) 777 799 800 815 824 Other Areas 316 330 379 414 474 - ------------------------------------------------------------------------------------------------------------------------------ Worldwide 3,075 3,222 3,345 3,343 3,440 - ------------------------------------------------------------------------------------------------------------------------------ Petroleum Product Sales(1) (millions of dollars) United States $10,492 $11,904 $14,254 $14,848 $11,564 Europe 14,395 15,421 17,008 2,900 1,300 Asia-Pacific(3) 11,466 12,426 13,258 12,802 10,595 Other Areas 3,707 3,974 4,708 5,412 5,100 - ------------------------------------------------------------------------------------------------------------------------------ Worldwide $40,060 $43,725 $49,228 $35,962 $28,559 - ------------------------------------------------------------------------------------------------------------------------------ Average United States Product Price (per gallon)(4) 58.4(cent) 60.4(cent) 68.1(cent) 67.5(cent) 51.5(cent) - ------------------------------------------------------------------------------------------------------------------------------ Refinery Runs (thousands of barrels daily) United States 857 895 921 956 872 Europe(2) 440 420 333 371 367 Asia-Pacific(5) 622 657 705 678 725 Other Areas 163 149 183 186 171 - ------------------------------------------------------------------------------------------------------------------------------ Worldwide Runs for Mobil 2,082 2,121 2,142 2,191 2,135 - ------------------------------------------------------------------------------------------------------------------------------ Chemical Sales by Product Category(millions of dollars) Petrochemicals $ 2,088 $ 2,914 $ 1,876 $ 2,151 $ 1,618 Films Products 653 764 766 707 655 Chemical Specialties 101 115 126 136 156 Plastics/Other 1,193 1,155 78 -- -- - ------------------------------------------------------------------------------------------------------------------------------ Net sales to trade $ 4,035 $ 4,948 $ 2,846 $ 2,994 $ 2,429 - ------------------------------------------------------------------------------------------------------------------------------ Number of Employees (year-end) Petroleum Operations-United States 20,300 18,400 13,200 13,200 12,400 -International 25,200 24,300 20,000 19,500 19,300 Chemical -United States 8,100 3,500 2,500 2,600 2,600 -International 1,800 1,600 1,600 1,300 1,400 Other -United States 2,700 2,200 4,400(6) 4,700 4,400 -International 400 400 1,300(6) 1,400 1,400 - ------------------------------------------------------------------------------------------------------------------------------ Total 58,500 50,400 43,000 42,700 41,500 ==============================================================================================================================
(1) Includes supply/other product sales. (2) Includes Mobil's share of the downstream alliance with BP that commenced in late 1996. (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 auto gasoline through over 15,000 Mobil-branded retail outlets in over 50 countries. Mobil's primary product supply comes from 23 refineries. Petroleum product sales (including supply and other sales) have increased 12% based on daily volume since 1994. Mobil operates 28 chemical facilities in 10 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. 62 Mobil - -------------------------------------------------------------------------------- Supplementary Information - -------------------------------------------------------------------------------- Five-Year Financial Summary
(In millions, except for per-share amounts) 1994 1995 1996 1997 1998 - ------------------------------------------------------------------------------------------------------------------------------- Revenues $ 67,383 $ 75,370 $ 81,503 $ 65,906 $ 53,531 - ------------------------------------------------------------------------------------------------------------------------------- Segment Earnings: Petroleum Operations Exploration & Producing -United States $ 125 $ (107) $ 737 $ 697 $ 11 -International 951 952 1,372 1,515 633 - ------------------------------------------------------------------------------------------------------------------------------- Total Exploration & Producing 1,076 845 2,109 2,212 644 - ------------------------------------------------------------------------------------------------------------------------------- Marketing & Refining -United States 241 226 407 542 574 -International 647 447 506 483 442 - ------------------------------------------------------------------------------------------------------------------------------- Total Marketing & Refining 888 673 913 1,025 1,016 - ------------------------------------------------------------------------------------------------------------------------------- Total Petroleum Operations 1,964 1,518 3,022 3,237 1,660 Chemical 102 1,164 306 403 181 - ------------------------------------------------------------------------------------------------------------------------------- Segment Earnings 2,066 2,682 3,328 3,640 1,841 Corporate and Financing (307) (306) (364) (368) (137) - ------------------------------------------------------------------------------------------------------------------------------- Income Before Change in Accounting Principle 1,759 2,376 2,964 3,272 1,704 Cumulative Effect of Change in Accounting Principle (680)(1) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------- Net Income $ 1,079 $ 2,376 $ 2,964 $ 3,272 $ 1,704 - ------------------------------------------------------------------------------------------------------------------------------- Per Common Share Income Before Change in Accounting Principle $ 2.14 $ 2.93 $ 3.69 $ 4.10 $ 2.12 Net Income $ 1.28 $ 2.93 $ 3.69 $ 4.10 $ 2.12 Per Common Share-Assuming Dilution Income Before Change in Accounting Principle $ 2.12 $ 2.88 $ 3.62 $ 4.01 $ 2.10 Net income $ 1.29 $ 2.88 $ 3.62 $ 4.01 $ 2.10 Net Income as Percent of Average shareholders' equity 10.4%(2) 13.5% 16.0% 17.0% 9.0% Average capital employed(3) 8.4%(2) 10.9% 12.7% 13.4% 7.7% Revenues 2.6%(2) 3.2% 3.6% 5.0% 3.2% - ------------------------------------------------------------------------------------------------------------------------------- Investment Spending $ 3,927 $ 4,525 $ 7,019 $ 5,306 $ 5,500 - ------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Position at Year-End Current assets $ 11,181 $ 12,056 $ 12,895 $ 9,722 $ 8,731 Net properties, plants and equipment 25,503 24,850 27,479 24,556 24,727 Total assets 41,542 42,138 46,408 43,559 42,754 Current liabilities 13,418 13,054 15,248 12,421 12,946 Long-term debt 4,714 4,629 4,450 3,670 3,719 Shareholders' equity 17,146 17,951 19,072 19,461 18,370 Per common share(4) $ 21.30 $ 22.35 $ 23.81 $ 24.41 $ 23.31 - ------------------------------------------------------------------------------------------------------------------------------- Debt-to-capitalization Ratio(5) 31% 27% 29% 25% 29% - ------------------------------------------------------------------------------------------------------------------------------- Average Common Shares Outstanding (thousands of shares) 795,910 790,888 788,292 786,294 779,231(6) - ------------------------------------------------------------------------------------------------------------------------------- Average Common Shares Outstanding-- Assuming Dilution (thousands of shares) 820,902 817,705 815,748 815,057 807,274(6) - ------------------------------------------------------------------------------------------------------------------------------- Common Shares Outstanding (thousands of shares, year-end) 791,974 789,120 787,589 783,364 780,533 - ------------------------------------------------------------------------------------------------------------------------------- Shareholders of Common Stock (year-end) 193,900 188,800 185,600 186,200 178,700 - ------------------------------------------------------------------------------------------------------------------------------- Common Stock Dividends $ 1,353 $ 1,434 $ 1,547 $ 1,667 $ 1,781 As percent of net income less preferred dividends 80%(2) 62% 53% 52% 108% Per share $ 1.70 $ 1.81 $ 1.96 $ 2.12 $ 2.28 - ------------------------------------------------------------------------------------------------------------------------------- Year-end Market Price per Common Share $42 1/8 $55 7/8 $61 1/8 $ 72 3/16 $ 87 1/8 - -------------------------------------------------------------------------------------------------------------------------------
(1) Accounting change: LCM in 1994. (2) Excludes cumulative effect of change in LCM policy in 1994 ($680 million). (3) 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. (4) 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. (5) Total debt divided by the sum of total debt, shareholders' equity and minority interests. (6) Average Common Shares Outstanding are used for calculating earnings per share and excludes, on a weighted average basis, shares held by the benefit plan trust that are accounted for in a manner similar to treasury stock. Year-end Market Price per Common Share (Dollars) [BAR CHART APPEARS HERE] 1998 87.13 1996 61.13 1994 42.13 1992 31.56 1990 29.00 1988 22.75 Over the past 10 years, Mobil's stock price has increased at an annualized rate of 14%. Debt-to-Capitalization Ratio (In percent) [BAR CHART APPEARS HERE] 1998 29 1996 29 1994 31 1992 34 1990 30 1988 32 Mobil's Debt-to-Capitalization Ratio increased to 29% in 1998, providing flexibility to invest in growth opportunities and/or increase dividends. Mobil 63 - -------------------------------------------------------------------------------- Shareholder Information - -------------------------------------------------------------------------------- The ticker symbol for Mobil on the New York Stock Exchange is MOB. The 1999 annual meeting for shareholders will be held Thursday, May 27, at 10 a.m. in the Fairmont Hotel in Dallas, Texas. Dividend payments on common stock are paid quarterly following declaration by the Board of Directors. The next four tentative payment dates are: June 10, 1999; September 10, 1999; December 10, 1999, and March 10, 2000. 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. 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. Publications available to shareholders: . Mobil's Annual Report on Form 10-K, filed with the Securities and Exchange Commission. . 1998 Mobil Fact Book, a supplement to the annual report with additional financial and operating data. . Quarterly Earnings Press Releases. . 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, Room 6D1906, 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. 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 64 Mobil - -------------------------------------------------------------------------------- Board of Directors - -------------------------------------------------------------------------------- [PHOTO OF BOARD OF DIRECTORS APPEARS HERE] Fites Branscomb Schwartz Heimbold Vallance Renna Johnson Sanford Jacobson Munro Peters Noto Kaplan 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, Former 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-Meyers 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 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 Harold R. Cramer Executive Vice President and Chief Financial Officer Robert F. Amrhein Vice President Aldis V. Liventals Vice President Samuel H. Gillespie III Senior Vice President and General Counsel Walter R. Arnheim Treasurer Carole J. Yaley Secretary Steven L. Davis Controller Mobil 65 GRAPHIC APPENDIX LIST - 1998 Front Cover - Photograph of head and upper portion of neon Mobil Pegasus logo, in red, fills most of the page. In the upper portion of the page, slightly to the right of Pegasus' head, are the words, "Mobil Annual Report 1998". Inside front cover - One Graph - centered upper portion of page. Words "Five- year cumulative total return" above graph. Graph--Assume $100 invested on December 31, 1993, in Mobil common stock, S&P 500 index, and a composite index, weighted by market capitalization each year, of the following seven petroleum companies: Exxon Corporation, Chevron Corporation, Royal Dutch Petroleum Company "Shell" Transport and Trading Company p.l.c., Atlantic Richfield Company, British Petroleum Company p.l.c. And Texaco Inc. Center of page are words "Financial highlights" appearing above a table of "Financial highlights". Lower center of page are words "Table of contents". Table of contents appears in lower center portion of page. Page 1 - Photo. Top center of page: Lucio A. Noto, Chairman and Chief Executive Officer and Eugene A. Renna, Chief Operating Officer. Upper left side. Enlarged letters, "Dear shareholder:". Lower left side. Enlarged letters, "How we helped ourselves". Lower right side. Enlarged letters, "Merger announcement". Page 2 - Upper left side. Enlarged letters, "Areas for upstream expansion". Middle of page. Enlarged letters, "Among Mobil's strengths is a solid portfolio of growth opportunities." Lower right side. Enlarged letters, "Progress downstream". Page 3 - Middle left-page are enlarged letters, "Capital spending". Lower left-page are enlarged letters, "Board retirements". Upper right-page are enlarged letters, "A name to carry forward". Page 4 - Upper left-page to lower left page are following enlarged letters going down left-hand side of page, "Mobil Corporation", "Upstream", "Downstream", "Chemical", and "Technology". Page 5 - Upper center/right-page to lower center/right-page are enlarged letters, "Partnerships, expansions, realignments and a turbulent business environment made 1998 a year of change for Mobil--a year in which we advanced our competitive strategies. An organizational realignment created seven business units grouped functionally. At the same time, we entered into or advanced a number of cooperative ventures around the world and made progress on major projects. Then, as the year's end approached, we announced a merger agreement with Exxon Corporation. Pending approvals, the combined Exxon Mobil organization should be able to achieve more than either company could achieve alone. On the pages that follow, we review key events of the year, following a month-by-month timeline." Page 6 - Upper left-page are enlarged letters, "Jan". Photo. Upper right: Planting a tree in Florida. Center of page are enlarged letters, "Feb". Photo. Lower left: West McLaren Mercedes Formula One race car. Page 7 - Upper right-page are enlarged letters, "Mar". Photo. Upper right: researchers at Mobil Technology Company's laboratories in Paulsboro, New Jersey. Center of page are enlarged letters, "Apr". Photo. Lower left: double-hull tanker. Page 8 - Upper center-page are enlarged letters, "May". Drawing. Tanker containing LNG regasification plant and single point mooring systems. Lower left page are enlarged letters, "Jun". Photo. Lower right page: oil rig at Cerro Negro heavy oil project. Page 9 - Photo. Upper left-page: Portion of Mobil gasoline pump showing how to use a Mobil Speedpass/TM/ transponder. Center page are enlarged letters, "Jul". Photo (concluded). Lower left page: oil rig at Cerro Negro heavy oil project. Page 10 - Upper left-page are enlarged letters, "Aug". Photo. Upper left page: workers installing riser at Oso project. Middle right-page are enlarged letters, "Sep". Photo. Lower right page: construction workers at onshore RasGas facilities. Page 11 - Drawing. Upper left page: chemical molecule. Upper center-page are enlarged letters, "Oct". Photo (concluded). Lower left page: construction workers at onshore RasGas facilities. Page 12 - Upper left page are enlarged letters, "Nov". Photo. Upper right page: Worker at Mobil OPP plant in Shawnee, Oklahoma. Lower left/center page are enlarged letters, "Dec". Photo. Lower left side: Exxon's CEO Lee Raymond and Mobil's CEO Lou Noto signing documents. Page 13 - Enlarged letters, "Highlights" in center of page. Lower right page are enlarged letters, "Key Financial Indicators" appearing above a table of "Key Financial Indicators". Page 14 - One Bar Graph: Mobil's net income (millions of dollars) for years 1994 through 1998 (excludes the LCM accounting policy change in 1994). Sidebar in lower right-page: "Graphs, charts and associated captions on pages 13-52 are not a part of the Consolidated Financial Statements and Notes thereto." Page 15 - One Bar Graph: Annual dividends per share of common stock (dollars) for years 1988 through 1998. Page 16 - Two Bar Graphs: Top Mobil's Upstream Net Income and Operating Earnings (millions of dollars), for years 1996 through 1998. Bottom Mobil's U.S. and International net production of oil and gas (thousands of barrels daily of oil equivalent) for the years 1996 through 1998. Page 17 - Two Bar Graphs: Top Mobil's U.S. and international crude oil average sales market prices (dollars per barrel) for years 1996 through 1998. Bottom Mobil's U.S. and international average natural gas sales prices (dollars per thousand cubic feet), for years 1996 through 1998. Page 18 - Two Bar Graphs: Top Mobil's Downstream Net Income and Operating Earnings (millions of dollars), for years 1996 through 1998. Bottom Mobil's U.S. and international refinery runs (thousands of barrels daily), for years 1996 through 1998. Page 19 - One Bar Graph: Mobil's U.S. and international Downstream petroleum product sales volumes (thousands of barrels daily) for years 1996 through 1998. Page 20 - One Bar Graph: Mobil's Chemical segment Net Income and Operating Earnings (in millions of dollars) are presented for years 1996 through 1998. Page 27 - One Sidebar: "Over the past three years Mobil has spent $1.9 billion to safeguard the environment." Page 30 - One Bar Graph: Mobil's return on average shareholders' equity (in percent) for years 1996 through 1998. Page 32 - Two Bar Graphs: Top Total Debt of Mobil, U.S. and international (millions of dollars) for years 1996 through 1998. Bottom Mobil's return on average capital employed (in percent) for years 1996 through 1998. Page 34 - One Bar Graph: Proceeds from sales of assets (in millions of dollars) for years 1996 through 1998. Page 37 - One Bar Graph: Mobil's capital expenditures, exploration expenses and equity investments (in millions of dollars) for year 1996 through 1998. Page 49 - One Sidebar: "Pension Plan Assets and Book Reserves exceeded Accumulated Benefit Obligations by $366 million at the end of 1998." Page 61 - One Bar Graph: Mobil's total production vs. reserve additions (millions of barrels of oil equivalent) for years 1994 through 1998. Page 62 - Two Bar Graphs: Top Refinery runs vs. petroleum product sales (thousands of barrels daily) for years 1994 through 1998. Bottom Number of employees (at year-end) for Mobil for years 1994 through 1998, 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 1988, 1990, 1992, 1994, 1996 and 1998. Bottom Mobil's debt-to-capitalization ratio (in percent) for years 1988, 1990, 1992, 1994, 1996 and 1998. Page 64 - Enlarged letters appear in upper center-page, "Shareholder Information". Page 65 - Enlarged letters appear in upper center-page, "Board of Directors". Photo. (Inside Back Cover: Thirteen-member group photo of Mobil's Board of Directors. Back cover - Photograph of the wings of neon Mobil Pegasus in red fills most of the page. Upper left-page above the Pegasus' wings are the words, "Mobil Corporation," the address, the telephone number, and Mobil's internet address. EX-21 6 EXHIBIT 21 - -------------------------------------------------------------------------------- Exhibit 21 MOBIL CORPORATION Subsidiaries of the Registrant - -------------------------------------------------------------------------------- Percentage of Voting Securities Owned by Organized Immediate Level under Laws of Parent - ----- ------------- ---------- 1 Mobil Corporation ............................. Delaware Major Subsidiaries as of December 31, 1998: 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 (Industrial 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.) -30- - -------------------------------------------------------------------------------- Exhibit 21 MOBIL CORPORATION Subsidiaries of the Registrant - -------------------------------------------------------------------------------- Percentage of Voting Securities Owned by Organized Immediate Level under Laws of 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 Columbia S.A. ................... Columbia 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.) -31- - -------------------------------------------------------------------------------- Exhibit 21 MOBIL CORPORATION Subsidiaries of the Registrant - -------------------------------------------------------------------------------- Percentage of Voting Securities Owned by Organized Immediate Level under Laws of 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 and 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 Venezuela .................................. 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.) -32- EX-23 7 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 26, 1999, included in the 1998 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 26, 1999, 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 26, 1999 - -------------------------------------------------------------------------------- -33- EX-24.1 8 EXHIBIT 24.1 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, STEVEN L. DAVIS, 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 1998 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 26th day of February, 1999. NAME AND TITLE /s/ Lucio A. Noto ------------------------------------- Lucio A. Noto, Director, Chairman of the Board, Principal Executive Officer /s/ Harold R. Cramer NAME AND TITLE ------------------------------------- Harold R. Cramer, Executive Vice President, Principal Financial Officer NAME AND TITLE /s/ Steven L. Davis ------------------------------------- Steven L. Davis, Controller, Principal Accounting Officer NAME AND TITLE /s/ Lewis M. Branscomb ------------------------------------- Lewis M. Branscomb, Director NAME AND TITLE /s/ Donald V. Fites ------------------------------------- Donald V. Fites, Director NAME AND TITLE /s/ Charles A. Heimbold, Jr. ------------------------------------- Charles A. Heimbold, Jr., Director NAME AND TITLE /s/ Allen F. Jacobson ------------------------------------- Allen F. Jacobson, Director NAME AND TITLE /s/ Samuel C. Johnson ------------------------------------- Samuel C. Johnson, Director NAME AND TITLE /s/ Helene L. Kaplan ------------------------------------- Helene L. Kaplan, Director NAME AND TITLE /s/ J. Richard Munro ------------------------------------- J. Richard Munro, Director NAME AND TITLE /s/ Aulana L. Peters ------------------------------------- Aulana L. Peters, Director NAME AND TITLE /s/ Eugene A. Renna ------------------------------------- Eugene A. Renna, Director NAME AND TITLE /s/ Charles S. Sanford, Jr. ------------------------------------- Charles S. Sanford, Jr., Director NAME AND TITLE /s/ Robert G. Schwartz ------------------------------------- Robert G. Schwartz, Director NAME AND TITLE /s/ Iain D. T. Vallance ------------------------------------- Iain D. T. Vallance, Director EX-24.2 9 EXHIBIT 24.2 MOBIL CORPORATION BOARD RESOLUTION ********************** Review and Approval of Annual Report on Form 10-K - ------------------- RESOLVED, that the Corporation's 1998 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. EX-27 10 FINANCIAL DATA SCHEDULE
5 EXHIBIT TO BE FILED ELECTRONICALLY. FINAL PUBLISHED HARD COPY WILL NOT CONTAIN THIS EXHIBIT. (NOR WILL THIS PAGE BE LISTED IN THE INDEX OF THIS 10-K). 12-MOS DEC-31-1998 DEC-31-1998 714 0 5,518 0 1,911 8,731 48,681 23,954 42,754 12,946 3,719 0 641 898 16,831 42,754 52,140 53,531 32,909 35,740 10,525 0 451 3,060 1,356 1,704 0 0 0 1,704 2.12 2.10 SALES AND TOTAL REVENUES INCLUDE $5,853 MILLION OF EXCISE AND STATE GASOLINE TAXES
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