Document 6RdvJ5EpGGd9R5m64BLX7Z9nR

Mobil Annual Report 1987 Oj 33 01 M I On the cover: Mobil people at work worldwide. Their energy and imagination are assets common to all our businesses: integrated petroleum, chemicals, mining and minerals, retailing and real estate. r , . - c_r-. --.X. Annual meeting .,, The annuai meeting of stockholders will be heidonThursdag'May12^C,;' at 10 a.m. in The Pointe at South Mountain; Phoenix, Annina 85044t ' .*. General information CX- Stockholders with general questions orcommeBtemay writetber Secretary, Room 9w0006, Mobil Corporationf-lSG'East42wiStreet, New York, New York 10017-5666 or telephone-212f883^2*2:^ Analyst and investor ingatrier Security analysts and investors: company may contact Fred Haipern,, Corporation, 150 East 42nd Street; or telephone 212-883-478L Stockholder records Inquiries relating to stockholder recoh.,i ownership and change ofaddressshould becBreStaftoTheCftase Manhattan Bank, N.A., Stockholder RelatiOnaSpartnTffifeP0,Box;v^' 311, Bowling GreeaStatiotnNwYoricNew'-YorK^MSPfc^Sftoct' holders may call our toll-free telephone number; 800j3&9291. -r Automatic dbridond idwxlaiit Mobil offers stockholders an automatic dividend reinvestmentplaivtcr' enable them to increase their hoidingsin Mobilstock at a minimum . cost. Mobil pays all service fees and commissioes when stockholders, automatically reinvest dividends to buy more stock. Onceenrolled, stockholders can make additionalinvestments ofup-to $3,0Wla month. For further information, please write to-The ChaseManhattan Bank, N.A., Dividend ReinvestmentServices, RO. Box283;Bowling Green Station. New York, New Ybrk 10274. Ticker symbol The New York Stock Exchange ticker symbol for Mobil is MOB. AO 3 i f\ -i 44 Ov 'V 03769? Major photograpnv -O I9B8 Dwx Durr Photoon oaije 61 bv Bill H O '.$68 MooiiCorp L \ summary of Mobil's recent performance Revenues tmillions)........................................................ \`et income!> (millions)................................................ Per share tbased on average shares outstanding) Return on average shareholders' equity........... Return on average capital employed................. income per dollar of revenue.............................. Petroleum earnings per gallon sold................... Total assets, year-end (millions)............................... Capital expenditures, exploration. and other outlays (millions)................................... Shareholders' equity, year-end (millions).............. Per share <based on shares outstanding at year-end)......................................... dumber of shares outstanding, year-end (thousands).......................................... Number of shareholders, year-end.................... 1987 156,716 1.258 3.06 7.9% 7.7% 2.2c 3.3c $41,140 2,942 16,783 40.80 411,359 246,800 1986 $49,865 1,407 3.45 9.6% 8.3% 2.8c 4.7C $39,412 3,003 15.239 37.28 408.732 260.800 1985 $60,609 1.040 2.55 7.5% 7.0% 1.7c 4.9c $41,752 3.513 14.089 34.50 408.351 268.600 l< income for included the S150 million iosson sale ot Container Corporation ot America. Incomefor 1985 included (he $508 million provision 'or restructuring of Montgonn rv Ward LETTER TO SHAREHOLDERS 2 UPSTREAM 4 DOWNSTREAM 8 CHEMICAL 12 OTHER CORPORATE OPERATIONS 15 FINANCIAL REVIEW 20 FIVE-YEAR FINANCIAL SUMMARY 21 OPERATING HIGHLIGHTS 22 FINANCIAL COMMENTARY 24 CONSOLIDATED FINANCIAL STATEMENTS 28 INCOME 28 CHANGES IN SHAREHOLDERS' EQUITY 28 BALANCE SHEET 29 CHANGES IN FINANCIAL POSITION 30 DISTRIBUTION OF EARNINGS AND ASSETS 31 NOTES TO FINANCIAL STATEMENTS 34 REPORT OF MANAGEMENT 43 REPORT OF CERTIFIED PUBLIC ACCOUNTANTS 43 SUPPLEMENTARY INFORMATION 44 OIL AND GAS PRODUCING DISCLOSURES 44 OTHER RESOURCES DISCLOSURES 51 DIRECTORS, OFFICERS AND COMMITTEES 52 037698 Nineteen eighty-seven was a year of mixed results. On the plus side, Mobii increased hydrocarbon production and sales of both petroieum and chemical products. Operating efficiencies were further improved. Earnings increased in our "upstream" businessexploration and producing -.E&P). Mobil Chemical had record earnings for the second year in a row. So did Montgomery Ward. On the minus side, earn ings declined sharply in the "downstream" business--petro leum refining, marketing, sup ply and transportation. Also, the U.S. 1986 Tax Reform Act reduced Mobil's 1987 earnings. These factors more than offset gains elsewhere. Overall, earnings fell to $1,258 million. This was a drop of $149 million--$299 million excluding the 1986 .oss on the sale of Container Corporation. A year ago, we predicted iownstream earnings would oe below the high levels of 1986. But the decline was -teeper than expected. Why? Basically, industry pred ict prices didn't keep up with ne recovery in crude prices; this was particularly true in Europe, where both crude and oroduct inventories were too arge. While the downstream iid well in Asia and Africa and vnile U.S. results improved in he second half of 1987, Euro pean earnings were depressed or the entire year. The probem in Europe was industry wide. and competitors gener;ily didn't fare any better than vlobii. Conditions should herefore improve, but we're tot sure how quickly. Let's turn now:.. the mod news: Even though we weren't T though earnings were down, we had lofs of good news-- especially in our exploration and producing and chemicals business happy with downstream earn ings. our competitive position is good--and getting better. We continue to upgrade our ren iter tee to mar.utactnre mcd^emiuqi.gaiO!ir.e and lubricant;. We completed protects .:t ->ur Beaumont. Texas, and Pau:sbnp>. New Jersey, refineries and at the Woerth refinery m Germany. A major project is under way at Torrance. California, and we are planning investments in severai other renr.ercs. !:t ntarxe'ing M'-niA sa.e= <i signer-margin ore- mium products again grew faster than industry's. This should continue, due to both the high quality of our prod ucts and our successful pro gram to modernize service stations. We're less than half way through this moderni zation. so we expect more gains in the future. "Upstream" earnings surged by 69"'>. In part, this was because of higher crude prices. But it was also because we increased production and cut costs. Earnings per barrel produced remained among the highest of major international companies--and continue to improve. And we remain among the industry leaders in reserve replacement--and in finding and developing new reserves for the lowest costs. These strong results reflect efforts to get the most out of existing assets. For example, improving per formance from existing fields through "reservoir manage ment" will continue to add both reserves and production at very low cost. We also sell reserves where our investments don't earn an adequate return, and buy properties with high potential in areas where we're strong. Finally, in 1987. we con solidated our E&P organiza tions in the U.S. and Canada to cut costs and manpower and increase efficiency. Our natural gas business was a particular success story. U.S. production was up 20"A helped by a new gas marketing organization. Overseas production increased 16 ">. as additional capacity in Indonesia con tributed to our fine resuits. Also, while the price of natural gas was depressed in both North America and Europe in the early part of 1987. es improved toward yearAs they continue to rove. Mobil's earnings will ent more than most com es' since Mobil is strong in :ral gas, partly because -operties we got in the nsition of Superior Oil. We also made progress year in building for the fu. Our wildcat drilling had xtraordinarily high suc= ratio, and we're pleased i new acreage acquired in th America. Europe, Looking ahead, we see more good things from Mobil Chemical: In January 1988 we purchased a petrochemical plant in Texas, adding 50% to our U.S. capacity for ethylene. Our researchers continue to develop new and improved products to meet the needs of our customers. Montgomery Ward's specialty-store strategy is pay ing off. Its 1987 earnings of $130 million were the best ever, surpassing its 1986 nings Hunts oi dollars/ 1987 1986 iroleum Upstream.............................. Downstream........................ lemical............................... irporate and other........... t financing expense........ 1,401 202 300 (180) (595) 827 1.299 140 (228) (587) obi l before Montgomery Ward........... mtgomerv W'ard.............. come before special Provision............. ecial Provision................ 1,128 130 1,258 -- 1,451 106 1.557 (150)'1" t Income............................ 1.258 1.407 ..nss mi sale ot Container Corporation nr .4 merica i n 1986. Change 574 (1.097) 160 48 (8) (323) 24 (299) 150 (149) :ca and Asia. This acreage, ig with our already large iurce base, provides strong jortunities for the future. 1 Last year's report called oil Chemical a company n great promise--and that ' an understatement. Our icated plastic and spety products had record ;s. Tighter petrochemical ustry supply/demand and trading of our product mix sted earnings for polyvlene and polystyrene. Our -venture petrochemical nt in Saudi Arabia became ncome contributor. Mobil enucal more than doubled earnings--and the previous .r was itself a record. record. Also. Montgomery Ward improved its financial flexibility and gained a higher credit rating from Moody's In vestors Service, while paying its first dividend to Mobil since 1979. We expect further im provements as Montgomery Ward continues converting existing stores to the specialtystore strategy and opening new ones. Investing in our future Now let's review some other efforts to improve results: In 1987 we sold another $640 million worth of assets that don't fit our long-term future. This was less than in preceding years since we'd already disposed of so much. The largest item in 1987 was the sale of our leasehold on Mobil's headquarters in New York, which will cover the cost of relocating to our new corporate headquarters in Fairfax. Virginia. This relo cation will ensure lower operating costs and greater organizational efficiency. We also continued to re duce debt, cutting S642 mil lion in 1987. That brought the debt-to-capitalization ratio down to 34%--way below the 49% three years ago and near the 33% we had before buying Superior in 1984. Headcount continued to shrink as we further improved our organizational structure and productivity. Mobil put about $3 billion into capital and exploration programs in 1987--about the same as in 1986. In 1988 spending will probably in crease slightly. Its important to emphasize that Mobil has a large inventory of investment opportunities that will be profitable even if crude oil prices don't increase above $18 in real terms--a conser vative assumption. We'll con tinue to balance investments between programs that give immediate benefits, such as reservoir management and service station upgrading, and those that give us the strategic strength to continue growth through the 1990s. Our goal is to be the best possible. And we think we're making real progress. This, however, doesn't mean we're satisfied with recent earnings or rates of return, or with how much we've been able to improve the value of your investment. While we can't do anything^j^i^t^e^idustry environment. I want you to know that your board recog nizes the need to improve financial results and intends to do so. Mobil's people Last year marked the depar ture from our board of William P. Tavoulareas, president of Mobil from 1969 to 1984: Alan Greenspan, who left Mobil's board upon becoming chair man of the Federal Reserve Board: and Anthony J. F. O'Reilly. Herbert Schmertz. vice president, Public Affairs, and Governor William W. Scranton have announced their 1988 retirements. Mobil is today a stronger company because of their contributions, and they will all be missed. Joining our board were James E. Olson, chairman and chief executive officer of AT&T, and Robert G. Weeks, president of Mobil Chemical. I welcome them. As you look through this report, you'll see some of the people of Mobil. That's delib erate, because Mobil people deserve recognition for the imaginative ways they've found to improve performance during difficult times. They have done a good job. Finally, a word to new employees. When we recruited you, we were looking for the best. You are here because you have demonstrated excellence and give the promise of more. We are glad to have you with us. You've joined a vital indus try--and a company well positioned for the promising years ahead. Allen E. Murray - Mi u ^.Xpstream, we bounced back from 1986, with higher earnings, new discoveries, more promising acreage and rising natural gas sales "Upstream"--exploration and producing (E&P)--had an excel lent year. Earnings soared to $1,401 million, up 69% from the very depressed level of 1986. Higher crude oil prices and our own improved opera tions fueled the recovery, which remained strong despite lower natural gas prices in North America and Europe. Mobil's earnings per barrel of oil and gas pro duced remained one of the best among the major oil companies. Production of equity oil and gas--where Mobil has an ownership interest--increased 6% on an oil-equivalent basis. Oil was down a bit, mostly because Nigeria's production was squeezed by tighter OPEC quotas. Also. U.S. production declined slightly. But natural gas output was up 20% in the U.S.--bolstered by our expanded marketing efforts-- and was 18% higher world wide. Most of the increase overseas came from Indonesia, where the sixth production train has added 1.7 million tons a year of liquefied natural gas (LNG) capacity from the Arun field. We made considerable progress on projects that will bring on new capacity in 1988. The first phase of the Edop field development in Nigeria went on stream late in 1987 and will build to about 20,000 barrels a day. And construc tion nearing completion at Arun will add 1.6 million tons a year of liquefied petroleum gas for sale to Japan beginning in 1988. We replaced 95% of our U.S. oil and gas production in 1987 with new proved reserves, holding our domestic proved reserves essentially flat. World wide. our reserve replacement was down because we delayed development of several large overseas discoveries until we feel more confident about prices. Once development plans are firm, these hydro carbons will be added to our inventory of proved reserves. Overall, our fine results were consistent with our strat egies. which we spelled out in last year's report: Strategy: Explore for fields with larger potential Exploration efforts once again were successful in 1987. We found hydrocarbons in over 40% of the wildcat wells we drilled--an exceptional suc cess rate. There were discov eries in nearly all of our major operating areas: the U.S.. Canada, the North Sea. Europe, West Africa and Indonesia. Among the most significant were: Discovery of the wholly owned Camelot field in the U.K.'s southern North Sea gas basin. And over the past two years, Mobil has participated in the discovery of a number of fields adjacent to the Beryl and Northwest Hutton fields in the U.K. The Ness field near our Beryl field was the first of these to be brought on stream. Capitalizing on subsea pro duction technology and the Beryl facilities already in place, production began in August 1987. at 10,000 barrels of oil a day, just 16 months after the field's discovery--a record for the North Sea. Offshore Norway, two significant discoveries--gas/ condensate in the Haltenbanken area and an oil and gas discovery in the North Sea. In Nigeria, two large oil field discoveries, as indicated by test rates of up to 6,000 barrels of oil a day. Offshore in the Gulf of Mexico, three fields--Ewing Bank blocks 915 and 944 and South Timbalier block 260. In 1987 we also acquired a substantial amount of prom ising acreage--including 48 blocks in the Gulf of Mexico, five in the U.K. North Sea and seven in the Norwegian Bar ents Sea. We also acquired new acreage in Indonesia. And we established a land position in Zambia. Several of these acquisi tions. such as those in deep water in the Gulf of Mexico, the Norwegian Barents Sea and .4/ aiderfields such as Salt Creek field in West Texas, a program of new water-injection wells is help ing to increase production. This and other techniques are part of a worldwide reservoir manage ment effort that has added dramatically to our reserves. 037701 [1401 827 onshore Africa, are consistent with our increased emphasis on frontier piavs that give us the chance of finding larger fields. Strategy: intensify the application of technology This strategy pays oft both short and long term. In the short term. Mobil has signifi cantly increased reserves and production in some fields through "reservoir manage ment"--a modern teamwork effort to analyze how best to increase the recoverable reserves, production and profits of these fields. One major success story is the Salt Creek field in West Texas, where the proved reserves of a field discovered in 1950 have been increased by 30ao through the efforts of our reservoir management teams. World wide. Mobil's large resource base gives us the potential to continue improving results through the application of new technology. For the longer range, we believe our technological strengths give us an edge on the competition in assessing exploration acreage. We're emphasizing new technologies to help develop our substantial heavy oil reserves in the U.S. and Canada. We'll aiso stress enhanced oil recovery tech niques such as injecting car bon dioxide into our older oil fields to increase production and recoverable reserves. Mobil owns a 4-P'o share in one of the largest and lowestcost sources of carbon dioxide in the U.5.--reserves that will add to our future profits. Strategy: Expand natural gas marketing This strategy has really paid off for us since we restruc tured ->ur U.S. cas-market'.ng organization so we could sell gas to the consumer and local distribution companies rather than just to pipeline trans mission companies. Last year we increased sales volumes by 20,!'o. whiie industry was about flat. Overseas, we're also cap italizing on our strong position in natural gas. We're nego tiating contracts to commit our reserves recently discov ered in the North Sea. In Indonesia, we benefited from increased saies of LNG from the Aran field to Pacific Rim countries. Strategy: Continue to -t:rove efficiency rur redoubled efforts t'ink several directions in 1987: W~ combined three U.S. affiliates T.r a -mete Dnihs-ba-ed WizSBic T-'p .V-t: .A: .v; -Iiau ,' Ho\u:->n. Mopii jnika -r-it:rir ji.t {<//. >: v;< HmKjn S-J-'H 'r-spf owr. j '<r. ;.vc > : ..!! r .cT:: .Ifoe.u P.'jiv : Dadas : 'or Mobiis :cnridividc E&P :<--jm:<-^t-s:tDpi>r: rpa>::- '-r , .hb. E&P ! :a::rn onsah- headquarters and -nt.-oiuiate': >ur Canadian operations in Calgary, We aiso restructured our techneiocy-support group in Dmlas to facilitate t::e use and 'ransfer ot technology around the world. These step.' improve communication and productivity and reduce headcount. Over the past two years the E*P workforce has been reduced by 22 "w We are aiso improving our efficiency by consolidating our North American producingoperations. We're selling assets that are small or iso lated and buying assets with high potential in areas where we're already a major partic ipant--thus reducing overhead. During 1987 we sold an inter est in 499 fields and increased our position in 27 others. This strategy improves our profit ability and cash fiow. And focuses manpower on the fields where we have the great est potential. We expect to do even better in 1988. Abovtm: \k oii drzihns - "g: < aboard the senusubmersihh ir.ihng r'4. Treasure 5e m:. - . :h,-arm -or h-.dr-'aro-n, n :hi H-liynbanken ir-' i rr. /; ' V t" ! !' : : r??: ......... >'r-.; : :r Future prospects Our capital and exploration in vestment programs continue to balance short-term goais against long-term strategic- objectives. During the next few years, we expect our in vestment program to enabie us to continue increasing hydro carbon production. And with a resource base that's much larger than our proved re serves, we have already recog nized many good investment opportunities that w>i! sustain production over the longer term. F:nai!y. a word on people: We've beefed up our .-earen m -event months for excellent graduates. We're a mgr- e-.r. growing .'Deration, and 'hrse -lew m.ert' -v.:'. be me *> -xur .r. inc ru7_r~ T ' / 1/ f fe outperformed most downstream competitors in a tough year for industry--and we're building for better times ahead Sen-ice nations with the new Pegasus21 design, nitper/ormnig xptctath-ns m the i are note upgrading the Moinl network a^ruiii . ^ \ .* > J; -- Earnings "downstream"-- marketing and refining <M&R), supply and trans portation--fell 84 > from the high levels of 1986 to $202 million. Here's why: First, you'll recall that :n 1986 crude oil prices fell taster than product prices. This boosted downstream profit margins. But in 1987 the opposite occurred: Crude prices rose more rapidly than product prices, thus squeezing profit margins. Also, industry was hurt by surplus product inventories carried over into 1987. Finally, refineries world wide overproduced from readily available crude sup plies. All in all, these factors depressed margins in 1987. particularly in Europe and. at least for the first half of the year, in the U.S. However. t'.$. M&R earnings improved to $104 million in the second half from $19 million in the first half. Mobil performed better than most in a year when industry-wide M&R profits were way down. Worldwide, our operating profits were above the industry average, i: the U.S., we have been closm. the gap between Mobil and our major competitors over the past few years, and in 19e our profitability was above average for this same group companies. Internationally. Mobil remains one of the top competitors in terms of earnings per barrel of promt sold. Mobil is a top pertbrme: ;n the Far East and Pacific as well as in many European countries. But we're stu'.r.m satisfied with the profit* .r. some of our European affiliates and we have mecm program* to improve >u: re*u.t*. Tile tact mat we .:: n*" er man many other company is encouraging for rr.e future. Thesecomparisons suggest that Mooii :s competitive witn the best :n'iur mdustry. Yet being competitive today doesn't mean, we can relax. After all. our competitors ar*.aiso righting to increase tin :r profits. So here's what we're doing to get even better: More efficient refineries In last year's annual report wv said. "!n refining, a great .lea. of attention has been focused in recent years on closing un competitive facilities. Today' job is to concentrate on mak ing our remaining rerinene- even more efficient and profitable." Lets review how we're coming along. !n 1987. based on our analysis, rive of Mobil's world wide refineries were the best or competitive with the best. their geographic area. In rive- other refineries, we took step in 1987 to bring our com petitive position closer to tr.e top. At Torrance. California, major product-upgrading am is well under way. which wii! make that refinery equal to or better than any on the West Coast. At Beaumont. Texas, we initiated two projects that wiil produce substamiaiiv more Super Cnieaded gas oline. Also at Beaumont and. Pauisboro. Xcw jersey, w- com pieted pr< rec: s: hai turn out tra >re '.uor.cant- w it: no increase m crude input. Similarly, r. Woerth. Ger- ma'nv.'new.investments --ur i'v,.rr rueL--- irv: .iur.'>- MOBIL INTERNATIONAL synthetic L'JBE sales inillions of gallons) INDUSTRIAL AUTO 1983 84 85 86 87 U37707 headcount 30%. There are also plans to further improve all of our refineries. For instance, at Pemref in Saudi Arabia, we're now planning investments that will add 17.000 barrels a day of higher-quality gasoline and increase gasoline octane levels. We're also proceeding with the Saudi government in a new joint-venture lube refinery, Luberef II. At Coryton, England, we've begun building a new catalytic reformer to increase our ability to make unleaded gasoline. In addition, we've announced engineering for a new hydrocracker at Jurong, Singapore, that will make the refinery much more efficient and increase yields of gasoline and high-quality distillate to serve the growing Far East market. And in the U.S.. major upgrades and improvements are projected for the Paulsboro and Beau mont refineries. Although we consider our refining network to be better than most in the industry, it's not as good as it's going to be. Our strategic market We continued our worldwide program of closing low-vol ume, inefficient service sta tions and of expanding with state-of-the-art service sta tions in markets where we can be at the top of competition. Last year, in the U.S., as part of our program to increase efficiency, we com pleted withdrawal from gas oline marketing in all or parts of seven states. This brings to 20 the number of states from which we've wholly or par tially withdrawn since 1981. Mobil is now concentrated in 32 key markets in 16 states thata^UjUj: for 85 '! of our gaisolfae sales, and we continue to acquire welllocated properties that will make us even stronger in those strategic areas. In 1987 Mobil's U.S. auto motive gasoline sales grew at more than twice the rate of industry--the third year in a row in which we've increased market share. Since 1984 our gasoline market share in the U.S. has grown from 5.6% to 7%. Overseas sales growth of gasoline also outpaced indus try. And worldwide, in areas where we market, we have an impressive 10% share of the profitable lubricants business. We plan to get even bet ter as we continue to convert our service stations to the attractive and efficient Pegasus 21 design, which has boosted volumes wherever it's been introduced. Helped by the strong performance of these modernized locations, we're among the industry leaders in the U.S. Our aver age volume in stations where we have an investment interest has grown from 800,000 gal lons a year in 1984 to almost 1.4 million gallons in 1987. Overseas, Mobil is among the top competitors in many countries, especially in the profitable smaller European and Pacific Rim countries where we expect to see real growth in demand. Our ongoing service station upgrading program is only 40% complete in the U.S. and even less in some overseas markets, so there's plenty of room to grow. Also helping to set us apart from the competition are innovative products--for instance, our premium gas olines with detergent additives that clean port fuel injectors. In 1987 U.S. sales of Super Unleaded Plus were up 27``<i. much better than the indus try's 14% gain. In Japan, our premium gasoline sales doubled after midyear when we introduced "Mobil F-l" K> octane unleaded premium gasoline. In Europe, where diesel fuel makes up onequarter of our service station sales, our diesel detergent additive helped boost volume.bv 15%. And internationally sales of our industry-leading Mobil 1 synthetic lubricant increased a phenomenal 30" . while industry lubricant sales have generally been fiat. The success of Mobil 1 was reflected in the Mobil-spon sored Williams racing team, which won the Formula One team championship and finished one and two in the Grand Prix Drivers Championship. Our newest synthetic lubricant now on the market. Mobil AV 1 for aviation piston engines, was developed in our research laboratories--and first used in the Voyager air craft that flew around the world non-stop without refue ing. The Mobil AV 1 lubricant has been recommended exciu sively for Teledyne Conti nental's new engine series based on the Voyager engine. We're also using Mobil's cata lyst technology to produce high-quality mineral oils to meet the increasingly severe performance standards of today's high-technology auto mobile engines. We lead the industry in the acceptance of bank debit cards for gasoline purchases the U.S. and in many of our European and Far Eastern markets. During 1987 we introduced a premium credit plus-debit card--the Mobil "Plus "card--m the U.S. It offers cardholders more benefits than similar plans of other oil companies. In Europe, Mobil has introduced a Diesel Club that's attractive to operators of truck fleets. Credit cards is sued to customers may be used :n any of 15 countries and billed in the currency of their choice, making it easier for in ternational carriers--and good business for us. More flexible supply With oii-market volatility per sisting in 1987. Mobil has con tinued to emphasize flexibiiitv in the supply of crude oil and petroleum products whiie maintaining tight control aver inventories. We've adapted our -efiner.es to process .i .vide range if feeds; :eks. and _pgracea our terminals to vxce- dite the movement of crudes and products through the sys tem. Our worldwide trading and sales operation has made us more competitive in the marketplace through timely and economic purchases and sales. And our marine fleet operated with no vesseis in iayup and at costs among the lowest in the industry. By en tering into low-cost charters for international trading, we've added flexibility to our medium- to long-term cov erage. in the L'.S.. we've ad justed our fleet of large barges m the Northeast to be more flexible and reduce overall supply costs. -.jyzk'mq m-zmS r. .ast years reccr we sate we vere optimistic about the long term. even though we were concerned about market con ditions in 1987. And though 1987 did prove disappointing downstream, we see that the industry is already beginning to turn around. In fact, in the second half of the year our business picked up--and should continue to do well--in the U.S. and most areas over seas. The turnaround may take longer in Europe where there is still too much refinery capacity. 3ut even there, the long-term outlook for our industry can provide oppor tunities for efficient compa nies. Meanwhiie. we're making good progress m ensuring that we become one ;f the most orofitabie and em-;-r.t refiners and marketers :r. t.oe business. Sew computerized control system like this one at our jumnq refinery in Singapore provide quick-changeflexibilityfor our refineries around the world. m.. .4n engineer at New York's Macedon Technical Center testing a base sheet for a new . oriented polypropylene (OPP) product. Since 1982. Mobil's OPP sales doubled, strengthening our position as world leader. '/ V i*T r -i < tr n CL_CHEMICAL soared--and we strengthened our lead in plastics and synthetic lubes while launching more products Mobil Chemical had a record year in 1987. Earnings of S300 million were more than double the 1986 level, which was itself a record. All divisions contributed to this outstanding result. But our U.S. and Saudi petrochemi cal operations recorded the sharpest improvements. With out question, the whole pet rochemical industry benefited from the tighter supply/de mand balance. For Mobil, the higher margins and operating rates meant record profits. But an improved market is only part of the story. The larger share of our success is due to our own initiatives that in just a few years have grown from start-up into highly profitable and rapidly expand ing enterprises. More petrochemical rapacity How are we growing? In petro chemicals. we added 50% to our capacity for ethylene and 70% to our capacity for pro pylene when we bought an existing plant in Houston. The Saudi Arabian com plex had another year of full operation and was well above design capacity. With stronger prices for its products m all of its international markets, this venture became consis tently profitable in 1987. First in films Our fabricated plastic prod ucts set records last year: Volume was up 5% and oper ating income grew 12% to $111 million. We continued to solidify our position as the world's largest producer of oriented polypropylene (OPP) film. In the past two years, we've introduced new packaging for coffee, microwaveable prod ucts and snack foods as the latest applications for this ver satile film. To keep pace with rapidly growing demand, we've continued to squeeze more production from our six manufacturing plants in North America and Europe. And expansions are under way in Stratford. Connecticut; Brindisi. Italy, and Virton, Belgium. Also planned for mid-1989 is a plant expansion in Belleville. Canada. We're also the world's leader in the pallet-wrap stretch film that is used to pro tect a variety of loads during storage, handling and ship ment. Saies of this product have grown by more than 20% in each of the past five years. With. 1987 growth of 8%, we continue to be the largest supplier of plastic packaging to supermarkets. We pioneere-: the plastic grocery sacks that now account for about 40% of supermarket take-home bags. And we continue to lead indus try, increasing our sales by 26% in 1987. We're excited about our entry into the oriented poly styrene (OPS) market. Our new see-through containers add to the sales appeal of a wide variety of products now available in supermarkets and fast-food establishments. Since the fourth quarter of 1987, our OPS production has benefited from the start-up of a major plant addition. Sales of our Hefty6 draw string bag, Cinch Sak. rose by 22%. Building on this suc cess, we're increasing capacity and introducing a new "Super Cinch" drawstring in 1988 as part of our strategy of provid ing improved products in response to consumer needs. We are encouraged by market tests of our new line of Lustra'" premium gift wrap made from our proprietary OPPalyte7" film. Consumers have been enthusiastic, and we're sold out of this product. Synthetic lube rapacity grows Mobil Chemical already is the world's leading manufacturer of synthetic lubricants. And by 1989 we'll add more than 60""' to our capacity with a new synthetic base stock plant at Gravenchon in France. The base stocks are used in formu lating premium automotive and industrial synthetic lubricants, including Mobil 1. Growth of our chemicalspecialties business was also spurred by record demand for our fuel additives, sales of which increased 19 85 86 87 ,3 `iD,,S"< "-'tills 983 B 84 B 85 .0 Our pioneering work with ceoiite catalyses continues to pay off. The catalysts are used for upgrading fuei products and for various chemical process es. Last year, for the first time, our ZSM-5 crystals were used to cut down on nitrogen oxide emissions in stationary inter nal combustion engines. And efforts are under way to extend their use to power plants. Our long-term outlook All signs point to another good year for Mobil Chemical in 1983: Added to a favorable industry outlook is our strong market position in fabricated plastics, our low-cost petro chemical operations and strong new-product development. The iong-term outlook is also encouraging. Petro chemical operating rates are high, and market growth should stay even with--or sur pass--capacity additions. This means we should continue to experience attractive margins. In plastics fabrication, we expect more high growth because our products, such as our OPP films, have the super ior properties, attractiveness and lower cost that should enable them to keep on replacing traditional materi als. As a result, our plastics businesses should continue to outpace the growth rate of the gross national product. Demand for our catalysts and synthetic iubricants should be boosted by increas ing octane requirements for gasoline and the lubricant requirements of higher-per formance engines. In shor:. we're very opti mistic that `he structural fac tors that made 1987 -ucr, a good year for Mobil Chemical -v.il continue to heip u? m the vears aheae. In Yanou. Saudi Araoia. the Yanpet petrochemical complex mined total capacity qy without <umificani additional :nie<tmerit Thu is a Mobil joint:enure with .iauc: Basic industries J Z"-Jr*/'* ' w Y Ye applied technology to the bottom line..,scored a record year in retailing...and achieved new successes in other operations At the Dallas Research Lab. a geologist studies core sanipus .cell lot's front Siberia's Osn hdi: which Mobil is about to develop. Core analysis ts used to deternr. the characteristics or a hydrocar reservoir. leading fe<hnoiagy leads to profits M' a- map. ever, what -ets m cimany .spar: from the ''Pc':': ip a- r.<>i<.j'-. in sa S. 'Vr* 'he f',JP' >- ''.A P 'Pe rig:Pt P- ' -y- !' 1 tPe :.:ste-r WYCTr'c -ttePCtp- each area, '.ve've reporreci how R<iE successes enriched our bottom .ine again test year. There's more: In L'.S. patents received, we outperformed all our >ii- mdustry competitors for '.he nftr. straight year. In exploration. R&E teCPPOiogV Cites Us : strategic .dvantage by -how-pg wnere t-> h'k for hvdr-carb- md r tr ' ' V : -' T.` r. 'A.'iir.Dir. .Vtr 'r ic'-r-.->: . new proprietary seismic tech nique that's a step beyond conventional procedures. We use it to identify which under ground geological features contain petroleum--and which don't. This lets us concentrate r. our best prospects. Weve aiso at the forefront -ff production rescuren. V-mg icvanced -upercomputer-. ur 'Cieitti sts find wav-: ge- ized image anaiysis, we -earn more about reservoir rocks and then use Mobii-deveiopt-c mathematical simulators to test different production schemes and predict the m->_ efficient approach. Ar.c we're a leader m in novative production meth ods--like oxygen nreffouding. This advanced technology uses an underground nr-- ' sweep through tr.c re -or. me force oil toward or .on -;. ! j -- vi f-fi- .5 tion wells. Older technology pumped down air to feed the fire. But we've developed spe cial. safe techniques to use aimost-pure oxygen, reducing the amount of pumping required and lowering costs. Our first field test, in South Texas, increased oil recovery by more than 50 V We've applied artificialintelligence computer concepts to develop a well-planning and early-warning monitoring sys tem that gives instant advice to our drillers so they can avoid potentially expensive problems during drilling. And our engineers, who have the benefit of more than 14 years on North Sea megaprojects, have stream lined design technology and cut costs. For example, we replaced a crude-loading tower for $50 million less than the original. Zeoiite catalysts are. like silicon chips, the key element in a sophisticated, lucrative technology. The Mobil-patented ZSM-5 catalyst has a wide range of uses in the manufac ture of fuels, lubricants and petrochemicals. Last year the number of Mobil and licensed units using ZSM-5 technology grew to more than 50. One of our new catalysts boosts gas oline octane, and we're getting it ready for commercial appli cation. And we continued to improve catalyst-manufactur ing efficiency at our Mobil Chemical plant in Texas. We're also applying ad vanced technology at Long Island's Brookhaven National Laboratories, where we're using the worlds brightest source of X-rays to study catalysts. The molecular changes we observe may lead us to the catalysts of the next decade--and beyond. Aside from our unques tioned leadership in synthetic lubricants, we've added to our advantage in mineral-oil lubri cants. Our researchers have developed more new prod ucts--automotive, marine, industrial--that work better against siudge. wear and intense heat. And our propri etary technology for additives has made possible a new gen eration of mineral-oil greases, the most versatile and durable in industry. Last year's successes evolved from our steady com mitment to R&E. We've built-- and are still building--our technological advantage, using the best formula around: the best pe'-pie plus long-term commitment to technical excellence. Kr.c 'hat trans lates into orofit. In another Dallas Lab activity, a technician tests ways tofracture : a rock sample. Fracturing is a ; hydraulic process that cracks reservoir rock so oil and gas can ` flow morefreely. Montgomery Ward hits new highs Montgomery Ward, Mobil's retailing subsidiary, had its best year ever in 1987: Earn ings increased by 23" from the previous year's record. The retaiier earned an upgraded creoit rating ana paid Mobil -is first dividend since 11*79. The man t ,, re structure the company into m -ndependen:. nr ntabie .-"pe^'jity--re rrt,r.:cr a- -w;! under way. Resuits are in line with Montgomery Ward's specialr. store strategy introduced two years ago. This strategy mean discontinuing unprofitable merchandise iines and focus ing on aggressive retailing of those lines in which the com pany could compete with the best: apparei. home furnish ings. electronics and appli ances. and automotive parts and service. In each of these four categories. Montgomery Ward now otters consumers a better value on a select group of name-brand items...items like Michelin and Bridgestontires. Sealv mattresses. May tag and GE appliances. La-Z Boy recliners. Smith Corona typewriters. Champion bat teries and NAPA auto parts. In many of these brand-name items, Montgomery Ward ha? become the nation's leading retailer. Helping to build the company's market share are aggressive advertising and a strong commitment to cus tomer service. The company has focusits specialty-store retailing strategy on key metropolitai markets where it can benefit from economies of scale. In 1987 the Sacramento. Phoe nix. Las Vegas. Orlando and Norfolk markets were con verted into specialty stores. Several major markets, inch ing Chicago, are scheduled: conversion in 1988. Mont gomery Ward is also filling: market voids with new star.' alone stores that sell just <>r. specialty merchandise cate gory. The specialty categnr have new names: Electric Avenue. Home Ideas. Aat-> Express ana Gold ' N I-err.The Apparel Store. Where -tore- haw :rjseo space. M'.'.tg' ir.vrv A I\ Ward leases it to other re tailers whose merchandise complements its own. In some cases, the renovated space ;s used to accommodate galleries of specialty shops, called "Side Trips." Elsewhere, mer chandisers like Toy- 'R' IT ;om :n a cooperative venture with Montgomery Ware and lease otherwise anprontablc space inside a tuil-lme Montgomery Ward store. Also under way are changes in Montgomery Wards distribution network that wii! result in fewer, more efficiently located centers. In the ixtst two years. Mmitgorr.erv Ward has iubstantkdiv "eatice't ciitriuut: m -ti. Ar.b bv I'Aso -vhe" M< lit- c m.-r- Wa---- .<. vnmr- ` ne'e -vi'I he an Cl- Strong brand-name identifica tion is a key ingredient in Montgomery Ward's specialtystore strategy. At this Auto Express store in Virginia Beach, the emphasis is on Micheiin and Bridgestone tires--tnd Mnbii lubricants. tionai savings that wii! provide the company with verv com petitive distribution costs. Pomt-of-saie cash regis ters are being repiaced by a state-of-the-art computerized system that wili improve cus tomer service and siash oper ating : `>ets. The new Xi.xdorf r.acm.r.es have alreacv be-r. m.itailed in more than j;|> 'etlet- 3" T.e etc 'f A1-'"', "t..-ittire ret,!i: uef.w rk w.l nave A Nixdorf equipment. These dramatic changes have paid oit in the pubiic per ception of Montgomery Ward --and on the bottom line. Now. with an upgraded credit rating from Moody's Investors Service. Montgomery Ward's rinanoial performance con tinues to look more promising. The upgrading, said Moody's, "recognizes the company's status as a major retailer, its imoroved returns unc the expectation that this per formance will continue." More safety firsts Safety is basic to our busmcii --t-t.>uremp.oyees. cuit-'m.eri. nr- cu-. ti. w ` * -.`-- .r i"r-r.v-.r'-r.r.'eitt-- me vv r-. e re '.'- U.r.c ".`."r- Safety applies worldwide, hi Yanbu. Satnii Arabia, firefighters stage ajull-M'aie drill at Pentret export refinery. Moods wins icnturc with Petwnun. `.lit Saudi national >/ -ompanv. : ' `fit t !5 '* 0 and protecting workers with a new computer system at our Environmental Affairs and Health Science Laboratory m New Jersey. It's a worldwide source for product safety and heaitn information, one of the most comprehensive in the in dustry. We use it to develop raster, more detailed data for customers. Last year it helped us create new business and expand our market share in automotive and industrial lubricants. In a first for any U.S. company. Mobil Chemical had everyone jtitsfaeikr.cs awarded the honor if Star :ert:nc3t:on :n the Occtinat:> nai Safetv and Health Acministrations mugnest cr- cram. Mobil Cheiruo;: '- 2 1 a.ar.tr ..r.d Ac- :..: tree ne~r.vn:ilf -' S-.-r- -r men industry sites. Mobil Chem ical's injury am- -ccident rates were83'Nlov tan the man ufacturing inc..rtry s most re cent national average. This cut costs, raised productivity and reminded communities that we're committed to piant safety. Improved outlook for Mining & Minerals Last year, the Mining & Minerals group posted a small protit and a promising rate of improvement that's expected to continue. The phosphate fertilizer business strength- 3P.G 3 record. Phosphate :'er:;hzcr sorre'-vha:, rncr 2 r >n _u 01 *. v W'e accuired a phosohate : C< mine : .'---r' er ::: r. me... mere ir ,r ..v w:r mrer mines and over 135 million tons of reserves. In a court-approved clement of a lawsuit, the St of Florida acknowledged ot ownership of lands near ou phosphate mining operath and withdrew damage c!a>: against us for past mining this area. In return. we agr to convey to the state wet:, for preservation and cert:, reclaimed lands for a publ: park. Mobil's Wyoming mine. Cabalio Rojo, has -ut the top productivity rates the L'.S. So despite soft pvur coai oroffts improved, ume increased >ver 5* * 19S6. to m.i >re ".nan 6 :r.'.L - n.s a 'mar. nesses, Mobil's Texas uranium operations were soid. as was a portion of our shaie holdings. More growth for Mobil Land Reporting another good year, our land-development busi ness earned $27 million from ongoing operations, a 13% increase from 1986. We made another $3 million in non recurring profits from bulk sales of acreage. Mobil Land Development Corp. has 19 properties in eight states. Two-thirds are underdevelopment, mostly in high-growth suburban areas of cities like Atlanta, Phoenix. Los Angeies, San Francisco and Washington. D.C. Our projects, which range from strictly residential to fully integrated residential/ commercial, contain over 20.000 dwelling units and 10 million square feet of commer cial space. We continued to enhance the value of raw land we ac quired within the past 10 years. We developed land-use master plans, obtained zoning and development permits, built in frastructure and prepared land parcels for sale to builders. As partners in an Arling ton. Virginia, commercial complex, we began construc tion on the second of three office towers there. We also worked on pre development of a town center for our Reston. Virginia, pro ject. We acquired over 3,700 acres there in 1978. feieni for tomorrow We re continuing our broadbased program to recruit, develop and retain the employees who will assure our success m he years ahead. Although our 1987 hiring engineering, geoscience, finance and others. As family demographics change, so do employee needs. We conducted a major study on dual careers and relocation to make sure our policies work for our employees and keep us competitive. Our senior-management development program for women and minorities earned a leadership award from the national womens organization, Catalyst. We were cited for our "pioneering and visionary" response to a recognized need. With these and other ini tiatives, we're driving hard to develop and make use of each employee's full potential. Communicating with quality Again last year, we took an ac tive role as a leading corporate citizen. We contributed to the na tional debate on issues that affect our shareholders, our industry and our country. We communicated with govern ment and other opinion lead ers through our advocacy ad vertisements in the op-ed sections of major newspapers. We sought to sway opinions-- or at least provoke debate--on vital issues such as trade, taxes and the environment. We also took our con cerns to Capitol Hill, where we met with lawmakers and their staffs to discuss such issues as the trade bill and the Arctic National Wildlife Refuge. In support of our busi ness efforts, our cultural and community programs helped strengthen relations with the governments and people of countries where we operate. For example, a Mobil-spon sored photographic exhibition toured Hong Kong, Shanghai and Beijing--giving us access to government leaders in China, one of our expanding markets. We continued our spon sorship of Masterpiece Theatre. Winner of 22 Emmys. this series has earned us crit ical acclaim, customers and < shareholders over its 17 sea-' sons on oubiic television. Mobil-sponsored track and field events--like this one in Scandinavia--are tied in with product marketing. 03771d rp JLhis section inciudes the five-year financial summary (see facing page), a financial commentary (pages 24-27)/ and the consoli dated financial statements (pages 28-42) > J -u/ -- .4 sophisticated Htammc communications network links worldwide nnancial inihrmation : > iicadau artcrs ace turning departments :n Sew York. The section aiso includes [he reports of management ana of the certified public accountants (page 43). and supplemen tary information on oil and gas oper ations and on Mobil's other resources pages 44-51). The following comments refer to selected items on the facing page. 5 The price of Mobii stock at year-enu 1987 was only slightly beiow year-end 1986. despite the market upheaval last October. B Dividends were maintained at 82.20 a share. Revenues increased 86.9 billion reflecting increases in crude oil prices, hydrocarbon production, and petroleum and chemical product sales. Montgomery Ward revenues also increased. 6 Mobil's net income before Mont gomery Ward decreased 8323 million despite higher Exploration and Produc ing resuits and record Chemical profits. The overall decline reflected very com petitive refining and marketing condi tions, especially in Europe. Montgomery Ward's net income was at a record level. Net income as a percent of share holders' equity and capital employed declined because of lower earnings and an increase in shareholders' equity. Funds available from operations remained at a strong 84.0 billion. Addi tional funds were available from asset sales. Capital and Exploration expenditure of 82.9 billion were essentially flat with 1986. The largest portion of these expenditures continued to be directed Exploration and Producing. H Balance sheet improved with debt down and shareholders' equity up. Share holders' equity increased to 840.80sharv B Mobii's debt-to-capitalization ratio before Montgomery Ward was 32'' > at year-end 1987. down from 36 at yearend 1986. For total Mobil Corporation, the ratio was 34 ' at year-end 1987. compared with 38at year-er.d 1986. FIN'AN'CT'A'E REVIEW Five-year financial summary 5 tn millions except 'or per-\hare amounts/ Year-End Market Price per Share .................................................. Cash Dividends......................................................... ............................. As percent of net income........................................................................ Per share................................................................................................. Revenues................................................................................................. Net Income............................... .............................................................. ....................... Per share `based on average shares outstanding).............................................. ! Segment Earnings ' U.S. Petroleum Exploration and Producing............................................................................... ................... Refining and Marketing..................................................................................... ................... Total.................................................................................................................. ................... Foreign Petroleum Exploration and Producing............................................................................... ................... Refining and Marketing..................................................................................... ................... Total................................................................................................................... ................... Total Petroleum..................................................................................................... ................... Chemical................................................................................................................ ................... Corporate and Other............................................................................................. ................... Net Financing Expense......................................................................................... ................... Mobil before Montgomery Ward........................................................................... ................... Montgomery Ward................................................................................................. ................... Income before Special Provisions......................................................................... ................... Provision for Montgomery Ward Restructuring................................................... Loss on Sale of Container Corporation................................................................. Net Income............................................................................................................ ................... Net Income as Percent of-- Average shareholders' equity................................................................................. ................... Average capital employed ".................................................................................. ................... Revenues................................................................................................................ ................... Funds Available from Operations...................................................................... ................... Capital Expenditures, Exploration, and Other Outlays 7'.......................... ................... Balance Sheet Position at Year-End Current assets............................................................................................................................ Net properties, plants, and equipment.................................................................. ................... Total assets............................................................................................................ ................... Current liabilities.................................................................................................. ................... Long-term debt and capital lease obligations....................................................... .................... Shareholders'equity............................................................................................. ................... Per share................................................................................................................................ Debt-to-Capitalization Ratio Mobil before Montgomery Ward........................................................................... ................... Total Mobil............................................................................................................. ................... 1987 3 9'A 903 72% 2.20 s 1,258 3.06 S 361 123 484 1.040 79 1,119 1,603 300 (180) (595) 1,128 130 1.258 S 1.258 7.9% 7.7% 2.2% S 3.974 S 2,942 $11,410 24,946 41,140 10.897 7.399 $16,783 S 40.80 32% 34% 1986 s 40% $ 898 64% 3 2.20 $49,865 3 1.407 ! S 3.45 1985 $ 30'-i s 898 86% s 2.20 $60,609 3 1.040 ' 3 2.55 1984 3 27 m 3 896 71 "i $ 2.20 $60,474 3 1.268 $ 3.11 S (24) 365 341 $ 716 157 373 $ 795 (4) 791 851 934 1.785 2.126 140 (228) (587) 1.451 106 1.557 -- (150) $ 1.407 1.082 176 1.258 2.131 53 (26) (652) 1.506 42 1.548 (508) -- S 1,040 952 38 990 1,781 34 (138) (462) 1.215 53 1.268 -- -- $ 1,268 9.6% 8.3% 2.8% $ 3,771 $ 3,003 7.5% 7.0% 1.7% S 4.095 S 3.513 9.2% 7.9% 2.1% $ 3,727 $ 3.600 $10,869 24,304 39.412 10,432 8.247 $15,239 $ 37.28 $12,530 25,408 41,752 12.383 9.745 $14,089 $ 34.50 $12,383 25.530 41.351 11.961 11.492 S13.624 $ 33.42 36% 38% 43% 44% 47% 49% 1983 $ 28 $ 812 54 $ 2.1)0 $58,998 $ 1.503 $ 3.70 $ 673 170 343 340 234 1.07a 1.917 22 (166 (310 1.463 40 1.503 -- -- $ 1.503 10.3% 9.3% 2.5 $ 3.724 $ 3.771 $11,890 19.373 35.072 10.313 5.490 $13,952 $ 34.30 31'1*33"*. j ;l> Income ror l'J86 included the S150 million loss on sale ofContainer Corporation ot America. Income for VJ85 included theS508 million provision inr restructuring <>r Montgomerv Warn i `2i Set income plus income appkcaole to minority interestsplus interest expense net oftax divided by the sum ofaverage shareholders'equity, minority interests, debt, ana capital lease 1 obligations. ' '3/ Includes capital expenditures ot majority-owned companies; excludes major acquisitions. 037718 fn n i * X c\ -Z <J J FINANCIAL REVIEW Operating Highlights Net Undeveloped Oil and Gas Acreage <millions m acres/ United States....................................................................................................................... Canada ................................................................................................................................. Europe................................................................................................................................ Other Foreign Areas.......................................................................................................... Worldwide....................................................................................................................... Net Wells Capable of Producing United States--Oil.............................................................................................................. --Gas............................................................................................................ Foreign --Oil.............................................................................................................. --Gas............................................................................................................ Worldwide...... ................................................................................................................ Net Crude Oil and NGL Reserves (millions ofbarrels) United States....................................................................................................................... Canada ................................................................................................................................. Europe................................................................................................................................. Other Fullv Consolidated Foreign Areas........................................................................... Mobil's Share of Reserves of Investees Accounted for on the Equity Method................. Worldwide....................................................................................................................... Net Natural Gas Reserves ibillions ofcubicfeet) United States....................................................................................................................... Canada and Other Western Hemisphere........................................................................... Europe................................................................................................................................. Other Fully Consolidated Foreign Areas........................................................................... Mobil's Share of Reserves of Investees Accounted for on the Equity Method................. Worldwide....................................................................................................................... Net Crude Oil and NGL Production tthousands ofbarrels daily) United States....................................................................................................................... Canada ................................................................................................................................ Europe................................................................................................................................ Other Fully Consolidated Foreign Aifeas........................................................................... Mobil's Share of Production of Investees Accounted for on the Equity Method................ Worldwide....................................................................................................................... Net Natural Gas Production (millionsofcubicfeet daily) United States....................................................................................................................... Canada and Other Western Hemisphere........................................................................... Europe................................................................................................................................ Indonesia............................................................................................................................. Mobil's Share of Production of Investees Accounted for on the Equity Method................ Worldwide....................................................................................................................... 1987 7.1 6.2 23.5 44.4 16,316 4,033 3,202 1,118 24,669 1,024 287 391 695 556 2,953 7,741 2,425 3,301 6,820 200 20.487 338 84 146 106 35 709 1,799 362 1,256 40 4,052 1986 7.8 9.6 6.6 20.7 44.7 17,256 4,365 3.281 1.096 25,998 1,014 306 431 709 558 3.018 7,855 2,600 2.737 7,287 219 20,698 342 81 152 124 28 727 1.498 356 462 1.072 46 3.434 1985 8.6 12.9 6.6 30.7 58.8 17.617 4,336 3.207 1.069 26.229 1.036 312 472 546 537 2.903 7,600 2.864 2.649 7.574 147 20.834 352 83 138 176 23 772 1,653 412 381 971 39 3.456 1984 9.1 15.5 7.2 26.7 58.5 16.249 4,101 3.085 1.046 24.481 1.040 329 507 557 534 2.967 8.084 3,301 2,619 7.777 143 21.924 335 73 120 121 26 675 1.702 292 341 905 45 3,285 1983 8.7 11.8 7.1 34.2 61.8 14,317 3.369 2.317 460 20.463 855 232 490 571 437 2.585 6,275 1,896 2,157 7.999 154 18.481 304 59 >8 `4 16 591 1.282 199 237 640 69 2.427 037719 r' 1 /. R O 6 ?'?*} ............FIPTANCTAL REVIEW yvrnwTr. Operating Highlights (continued) Petroleum Product Sales > thousands or barrels daily) United States....................................................................................................................... Europe................................................. ................................................................... Far East and Australasia...................................................................................................... Other Foreign..................................................................................................................... Worldwide....................................................................................................................... Petroleum Product Sales < millions at dollars/ United States....................................................................................................................... Europe................................................................................................................................. Far East and Australasia.................................................................................................... Other Foreign..................................................................................................................... Worldwide....................................................................................................................... Refinery Runs for Mobil < thousands ofbarrels daily) United States........................................................................................................................ Europe.................................................................................................................................. Far East and Australasia..................................................................................................... Other Foreign....................................................................................................................... Worldwide........................................................................................................................ Miles of Pipeline L including partly owned:year-end) United States........................................................................................................................ Foreign.................................................................................................................................. Worldwide........................................................................................................................ Chemical Sales by Product Category tmillions ofdollars) Plastics.................................................................................................................................. Petrochemicals..................................................................................................................... Other..................................................................................................................................... Net Sales to Trade............................................................................................................ Montgomery Ward Number of Retail Stores <rear-endi...................................................................................... Retail Selling Space (million squarefeet:year-end)........ ,........................................................ Sales 1 millionsof dollars)......................................................... .,................................... Sales per Square Foot of Retail Selling Space ithousands ofdollars/.................................... Sales per Employee' >thousands 0/ dollars/......................................................................... income as a Percent of Sales............................................................................................... Number of Employees 1year-end1 Petroleum--U.S..................................................................................................................... --Foreign............................................................................................................. Chemical --U.S..................................................................................................................... --Foreign............................................................................................................. Other.-................................................................................................................................... Montgomery Ward............................................................................................................... Total.................................................................................................................................. Number of Shares Outstanding (thousands ofshares;vear-end)......................................... Number of Shareholders (sear-end).................................................................................... ll) Includes carbon dioxide line in United States. '2) Excludes salesfrom catalog and other operations. '3) Excludes the 1385 provision for restructuring. 1987 1986 1985 1984 1983 865 720 465 312 2,362 841 721 448 264 2.274 789 670 429 266 2.154 708 641 443 232 2.024 699 649 456 230 2.034 S 8.397 11,317 6,184 4,303 S30.201 5 7,118 10.441 5,752 3.164 $26,475 $ 9.748 11.669 6.290 3,883 $31,590 S 8.920 11.252 6.764 3.934 330.870 S 3.996 12.466 7.138 4.465 533.065 645 403 330 185 1,563 643 457 308 137 1.545 647 496 331 116 1,590 636 515 386 83 1.620 618 542 383 51 1.594 26,337 11,099 37,436 27,597 11,195 38.792 28,044 11.116 39.160 28.168 10.674 38.342 28.013 9.362 37.375 $ 1,514 1,239 25 S 2,778 $ 1.274 990 26 S 2,290 $ 1.184 932 45 $ 2.161 5 1.139 879 227 S 2.245 3 1.017 736 231 3 1.984 316 24.0 $ 4,639 $ 192 $ 89 2.8% 295 23.7 $ 4.383 S 181 S 78 2.4% 316 25.6 S 4.757 S 169 S 70 367 29.6 .3 5.048 S 167 S 69 .3% 375 31.1 3 4.725 3 150 3 65 .7% 24,700 29,500 9,000 1,600 3,500 52,300 120,600 411,359 246,800 25,200 31,900 9,000 1.500 3.500 56.300 127.400 408.732 260.800 26,300 34.000 9.500 1.400 23.800 71.200 166.200 408.351 268.600 28.100 34.600 9.400 1.800 28.500 78,300 180.700 407.704 270.400 26.000 34.700 10.800 1.700 28.200 78.500 179.90U 406.318 271.500 03?720 j . ***** - - f` \ -i a w. rn i* r E-Ki., commentary 1987 compared with 1986 Consolidated Earnings and Per-Share Results Mobil's 1987 earnings totaled 81,258 million, or 83.06 per share. This was $149 million lower than the 1986 earn ings of $1,407 million, or $3.45 per share, which included a $150 million loss on the sale of Container Corporation of America. Adjusting 1986 earnings to exclude the Container Corporation of America loss, earnings decreased $299 million. Revenues increased from $49.9 billion in 1986 to $56.7 billion in 1987. Revenues were higher for all segments: in U.S. and Foreign Petroleum oper ations, primarily attributable to higher petroleum product prices and higher sales volumes: in Chemical operations, due to higher petrochemical and plastics prices and volumes; and in the Montgomery Ward segment, reflecting higher sales volumes. Costs and expenses increased for all segments. Segment Earnings Earnings from Petroleum operations totaled $1,603 million in 1987,25% below 1986 earnings of $2,126 million from this segment, in spite of strong Exploration and Producing results. Petroleum Operations--U.S. Earnings from U.S. Petroleum opera tions totaled $484 million in 1987, an increase of $143 million, or 42%, from 1986. Exploration and Producing results improved, primarily reflecting an 18% increase in crude oil prices, higher natu ral gas production, favorable natural gas contract settlements, favorable adjustment of excise tax accruals, and reduced exploration expense, partly offset by lower natural gas prices. 1462 in milltonsi 1987 1986 Change L'.S. Petroleum Exploration and Producing........ S Refining and ; Marketing........ 361 S (24) 5 385 123 365 (242) , Total L'.S................... 484 341 143 Foreign Petroleum Exploration and Producing.......... Refining and Marketing........ 1.040 79 851 189 934 (855) Total Foreign............. 1.119 1.785 (666) Total Petroleum........ Chemical................... Corporate and Other.................... Net Financing Expense................ 1.603 300 (180) |595) 2.126 140 (228) (587) (523) 160 48 (8) Mobil before Montgomery Ward Montgomery Ward 1.128 130 1.451 106 (323) 24 Income Before Special Provision.............. j Loss on sale of ! Container ' Corporation of America........ 1.258 -- 1,557 (150) (299) 150 Net Income...... ...... SI.258 $1,407 8(149) Refining and Marketing income de creased, reflecting lower margins, as crude price increases outpaced increases in product prices. This margin decrease was mitigated by higher trade sales vol umes, primarily a 5% increase in auto gasoline. Results in 1986 benefited $83 million from favorable adjustments to Alaskan crude purchase provisions. Petroleum Operations--Foreign Earnings from Foreign Petroleum oper ations totaled $1,119 million in 1987, a decrease of $666 million, or 37%, from 1986. Exploration and Producing earn ings increased, reflecting higher crude oil prices (up 27%). favorable tax effects, and lower exploration expense. Results in 1986 included a $187 million gain on the sale of Angolan assets. RennmsraMkJifeckaqjng results de clined. duercwbwer m'aVgins. primarily in Europe and Japan. Margins were un usually strong in 1986. as product prices declined much more slowly than crude costs. In 1987 worldwide margins, par ticularly in Europe, were squeezed by high industry inventory levels and com petitive pressures. The results also included a $140 million provision for the excess of book inventory values over market values in local currencies. This excess arose primarily because the cost of replacing inventories on a local cur rency basis was significantly lower in 1987 as foreign currencies strengthened versus the U.S. dollar. Chemical Earnings from worldwide Chemical operations were $300 million in 1987, $160 million, or 114%. higher than the previous best performance set in 1986. Petrochemical results increased signifi cantly due to higher polyethylene and polystyrene margins. The Plastics busi nesses also improved, due to increased volumes and margins for oriented poly propylene films. Corporate and Other Corporate and Other includes results of Real Estate operations. Mining and Minerals, Corporate Administration, and other corporate items, as well as Container Corporation of Americas operating results prior to the third quarter 1986 sale. Corporate and Other expense decreased $48 million. Despite un favorable tax effects resulting primarily from a lower tax rate, expense was lower because 1986 results included a $35 mulion provision for organizational restruc turing and a $39 million writedown of certain alternative energy properties. A 1987 provision of $98 million for the estimated cost of relocating headquar ters personnel to Fairfax, Virginia, was essentially offset by a $92 million gain o: the sale of the New York office building. Net Financing Expense The expense increase of $8 million occurred because the favorable effect of lower borrowing balances was more than offset by decreased U.S. tax relief under the new U.S. tax law. Montgomery Ward Montgomery Ward reported record earnings of .$130 million, a $24 mil lion increase from their 1986 outstanding performance. The improvement came from the core merchandising business where the specialty store strategy con tinued to strengthen margins and im prove operating efficiency. The core merchandising improvement was partly offset by adverse insurance develop ments and the effect of the 1986 receivable sale on 1987 earnings. Taxes Overall, the 1986 Tax Reform Act affected 1987 results unfavorably by approximately $100 million. The loss of benefits from investment tax credits and the unfavorable impact of the new sourc ing rules were only partially offset by the reduced tax rate. Further details on segment and geographic earnings appear on pages 31 through 33. Discussion of Financial Condition Funds available from operations after dividends were $3,071 million in 1987. These funds were sufficient to fund capi tal expenditures of $2,341 million. The remaining funds available, and those generated by asset sales, were used to pay down debt and improve financial flexibility. At year-end 1987 debt and capital lease obligations of Mobil and its sub sidiaries totaled $8,647 million, a decrease of $642 million from the yearend 1986 level. s!n millions! 1987 Current: Notes ana loans pavable........... SI.016 Long-term debt and capital lease obliga tions maturing within one vear................ 232 Long-term: Long-term debt.. 7,064 Capital lease obligations...... 335 Total debt and capital lease obligations...... $8,647 1986 8 800 242 7.885 362 89.289 Change 8 216 (10) (821) (27) 8(642) For Mobil excluding the debt of Montgomery Ward, the percentage of debt plus capital lease obligations to capitalization was 32% at year-end 1987. down from 36% at year-end 1986. For total Mobil, the percentage of debt plus capital lease obligations to capitalization was 34% at year-end 1987, down from 38% at year-end 1986. At year-end 1987 Mobil's unspent balance of total appropriations for capital expenditures was $2.7 billion, the same as at year-end 1986. Mobil is not con tractually committed to spend all of these amounts but generally expects to do so principally from internally gener ated funds. Whenever external financing is needed, Mobil and its subsidiary compa nies have access to multiple capital markets, including significant unused lines of bank credit. Mobil generally has each of its major subsidiaries finance its own operations. Mobil has $1.6 billion long-term revolving credit agreements with vari ous banks, which have not been utilized. A total of $.5 billion of borrowings due within one year was classified as long term debt. In 1987 there was an increase of $355 million in earnings retained in the business and a $1,116 million favorable effect on the cumulative foreign ex change translation adjustment account due to the weakening of the U.S. dollar. The net change in shareholders' equity was an increase of $1,544 million in 1987. 037722 At year-end 1987 Mobil had exist ing effective "shelf" registrations on fiii with the Securities and Exchange Com mission that would permit the sale of $1.5 billion of debt securities to be offered pursuant to Rule 415 of the Sea rities Act of 1933, under which Mobil issued $500 million of 8As% five-year notes on February 3.1988. , Credit > Ratings Moody's i Mobil Corp.......... I Mobil Oil............. j Montgomery Ward.................. Aa3 Aa3 Baa2 Standa &. Pooi AAAA- BBB- During 1987 Moody's increased its rati; on the senior debt of Montgomery Ware from Baa3 to Baa2 in recognition of im proved performance. Moody's also raise its rating on the senior long-term debt > Mobil Corporation from A1 to Aa3. citn Mobil's 1986 sale of Container Corpora don of America and Montgomery Ward strong recovery in profitability. Both Mobil and Montgomery Ware sell certain accounts receivable to domestic financing subsidiaries. See Note 4, "Investments and Long-Term Receivables," for further details on the financing subsidiaries. The effects of pending accounting changes are discussed in Note 1. "MauAccounting Policies." Capital Expenditures, Exploration and Other Outlays Mobil's worldwide capital expenditures exploration, and other outlays totaled $2,942 million in 1987. a decrease of 2" from 1986. Outlays in the United State: were $1,855 million--or 63% of the worldwide total. In Exploration and Producing (E&P), 1987 outlays were $1,602 millic compared with $1,854 million in 1986. Outlays for E&P operations in the United States in 1987 were $923 millio compared with $1,080 million in 1986. Other than in E&P, capital expend tures for Petroleum Operations were $205 i, , m**il-lion haigher than in 1986. t' 1 `5 01463 FINANCIAL R Capital Expenditures/ Exploration, and Other Outlays (In millions) U.S. Capita) expenditures Petroleum Operations Exploration and Producing --lease bonuses......................................... ........ S 50 --other....................................................... 653 Refining.......................................................... ........ 274 Marketing..................................................... 256 Marine............................................................ ...... .... Pipelines........................................................ ........ 14 Other............................................................. 18 Chemical............................................................ ........ 109 Corporate and Other......................................... 30 Mobil before Montgomerv Ward....................... ...... Montgomery Ward............................................ " 1" ` ' Total capital expenditures.................................... ........ 1,404 141 1,545 Exploration expenses............................................ ........ Other outlays Capital expenditures of majority-owned unconsolidated companies............................ ........ 220 90 Total capital expenditures, exploration, and other outlays............................................... ........ $1,855 1987 Foreign S 15 373 107 268 6 -- 14 12 1 796 -- 796 291 $1,087 Total 1986 Total S 65 1,026 381 524 6 14 32 121 31 2,200 141 2,341 511 S 46 1.271 212 489 5 14 32 115 104 2.288 108 2.396 537 90 70 S2.942 $3,003 Dividends In 1987 and 1986 Mobil's per-share divi dend was $.55 in each quarter for a total of $2.20 for each year. Common Stock In 1987 and 1986 the high and low sales prices of Mobil's common stock, by quar ter, were as follows: Quarter First ............... Second........... Third............. Fourth........... 1987 1986 High Low High Low 50 M 52% 51 40'/. 45 45% 32 32% 31% 39% 40% 26V. 27% 29 355/s Year-end prices per share: December 31,1987 ................. $39 Va December 31, 1986 ................. $40'/s The principal market for the trading of Mobil's common stock is the New York Stock Exchange. The stock symbol is "MOB." 037723 IL.i.1 commentary 1986 compared with 1985 Consolidated Earnings and Per-Share Results Mobil's 1986 earnings totaled $1,407 million, or $3.45 per share, after recog nizing a $150 million loss on the sale of Container Corporation of America. This was $367 million higher than the 1985 earnings of $1,040 million, or $2.55 per share, which included a $508 million provision for the restructuring of Mont gomery Ward. Excluding the special pro visions for Container Corporation of America in 1986 and Montgomery Ward in 1985, earnings improved $9 million, from $3.79 per share to $3.82 per share. Revenues dropped from $60.6 billion in 1985 to $49.9 billion in 1986. Increases in Chemical revenues partly offset decreases in U.S. and Foreign Petroleum operations that were primar ily attributable to lower worldwide petroleum prices, in the Montgomery Ward segment mainly due to the dis continuance of discount business and catalog operations, and from the sale of Container Corporation of America. Costs and expenses were lower for all segments except Chemical. Segment Earnings Earnings from Petroleum operations to taled $2,126 million in 1986, essentially unchanged from 1985 earnings of $2,131 million from this segment. Operating results for 1986 and prior periods for the Container Corporation of America are included in Corporate and Other. (In millionsf U.S. Petroleum Exploration and Producing........ Refining and Marketing...... Total U.S.................. Foreign Petroleum Exploration and Producing........ Refining and Marketing...... Total Foreign........... Total Petroleum...... Chemical................. Corporate and Other.................. Net Financing Expense.............. 1986 1985 Change S (24)$ 716 5(740) 365 341 157 208 873 (532) 851 1,082 (231) 934 1,785 2,126 140 176 1.258 2,131 53 758 527 (5) 87 (228) (26) 1202) (587) (652) 65 Mobil before Montgomery Ward Montgomery Ward 1,451 106 1.506 42 (55) 64 Income Before Special Provisions........... Provision for Montgomery Ward Restructuring.... 1,557 1.548 (508) 9 508 Loss on sale of Container Corporation of America.............. (150) (150) Net Income............ 51,407 S1.040 $367 Petroleum Operations--U.S. Earnings from U.S. Petroleum opera tions totaled $341 million in 1986. a decrease of $532 million, or 61"/r>. from 1985. "1464 fn Exploration and Producing earn ings decreased, reflecting much lower crude oil price levels and lower prices and demand for natural gas. This decline was partly offset by lower exploration expense. Earnings in 1986 were also unfavorably affected by a $100 million provision for accelerated amortization of exploration and producing assets. Re fining and Marketing earnings improved due to stronger product margins, an 8% increase in autogasoline sales, and favor able adjustments of $83 million to the Alaskan crude purchase provisions in the second quarter of 1986. Petroleum Operations--Foreign Earnings from Foreign Petroleum opera tions totaled $1,785 million in 1986. an increase of $527 million, or 42%. from 1985. Exploration and Producing earn ings in 1986, which included a $187 mil lion gain on the sale of Angolan assets, decreased due to lower crude oil and natural gas prices, partly offset by lower exploration expense and higher natural gas production. Foreign Refining and Marketing earnings increased significantly because of the relative strength of product prices compared with crude oil costs and because of stronger foreign currencies. Results for 1985 included a $50 million provision for the closure of a French refinery and a $53 million provision for certain uneconomic marine transpor tation charters and vessels. Chemical Earnings from worldwide Chemical operations were $140 million in 1986. an increase of $87 million, or 164%. from 1985. due to substantial improvements in petrochemical and plastics margins and volumes in the U.S. and overseas. Corporate and Other Corporate and Other includes operating results of Container Corporation of America prior to its sale in 1986. Real Estate operations. Mining and Minerals, Corporate Administration, and other Corporate items. Corporate and Other expense in creased $202 million because of unusual items: 1986 results included a restruc turing provision of $35 million and a $39 million writedown of certain alternative energy properties, while 1985 results benefited from gains on the sale of W.F. Hall Printing Company and certain Colorado real estate. Net Financing Expense The expense decrease of $65 million reflected principally the reduction of debt balances and lower interest rates, partly offset by lower capitalized interest due to reduced spending for major projects. Montgomery Ward Montgomery Ward's 1986 earnings were $106 million, compared with $42 million earned in 1985. excluding the provision for restructuring discussed below. Sig nificantly higher retail earnings in 1986, attributable to stronger margins and improved operating efficiencies, and the discontinuance of the unprofitable Jefferson Ward and catalog operations in 1985 were the primary bases for the improvement. Special Provisions The sale of Container Corporation of America, completed September 30, 1986. resulted in a loss of $150 million. In 1985 a special charge of $508 million after tax was made for Montgomery Ward restructuring. This provision cov ered the sale of the Jefferson Ward group, the discontinuance of catalog operations, and the restructuring of retail operations. Discussion of Financial Condition Funds available from operations after dividends were $2,873 million in 1986. These funds were sufficient to fund capi tal expenditures of $2,396 million. The remaining funds available, and those generated by asset sales, were ust^to pay down debt and improve financial' flexibility. At year-end 1986 debt and capital lease obligations of Mobil and its subsidiaries totaled $9,289 million, a de crease of $1,854 million from the year- 037724 end 1985 level. The sale of Container Corporation of America generated $1.1 billion of the reduction. `In millions) 1986 1985 Changt Current: Notes and loans payable........... S 800 Long-term debt and capital lease obliga tions maturing within one year................ 242 Long-term: Long-term debt.. 7,885 Capita] lease obligations...... 362 $ 750 648 9.328 417 $ 5< i40` (1.441 :5; Total debt and capital lease obligations...... S9.289 ill.143- 5(1.35- For Mobil excluding the debt of Montgomery Ward, the percentage of debt plus capital lease obligations to cap italization was 36% at year-end 1986. down from 43% at year-end 1985. For total Mobil, the percentage of debt plus capital lease obligations to capitalization was 38% at year-end 1986, down from 44% at year-end 1985. At year-end 1986 Mobil's unspent balance of total appropriations for capita expenditures was $2.7 billion, compared with $3.1 billion at year-end 1985. Mobil had $3.1 billion long-term revolving credit agreements with variou: banks, which were not utilized. A total ot $3.0 billion of borrowings due within one year was classified as long-term debt. There was an increase in 1986 of $509 million in earnings retained in the business and a $636 million favorable effect on the cumulative foreign ex change translation adjustment account due to the weakening of the U.S. dollar. The net change in shareholders' equity was an increase of $1,150 million in 1986 r\ -i a q r: uJL'iOO Consolidated Statement of Income Year Ended December 31 >!n millions except tor per-share amoumsi Revenues Sales and services (including excise and state gasoline taxes: 1987-54.460:1986--53.840:1985--53.498).................. ............ Total Revenues........................................................................................................................................ ..................... Costs and Expenses Crude oil. products, merchandise, and operating supplies and expenses.................................................................. ............ Exploration expenses................................................................................................................................................... Selling and general expenses....................................................................................................................................... Depreciation, depletion, and amortization.................................................................................................................. ............ Provision for Montgomery Ward restructuring............................................................................................................ ............. ............ Income taxes.......................................................................................................... ...................................................... ............ Total Costs and Expenses.......................................................................................................................................... Net Income.................................................................................................................................................................................. Net Income Per Share................................................................................................................................................... ........... 1987 1,033 33,653 2.546 1,103 10,818 1,774 S 1,258 S3.06 1986 $48,706 1.159 49.865 28.592 537 4.766 2.471 1.204 9,302 1.586 48.458 $ 1.407 $3.45 198 $59.45. 1.15 60.60 38.1070 5,01 2.38 /. 1.41 7.90 3.26 59.56 S 1.04 $2.5 Consolidated Statement of Changes in Shareholders7 Equity Year Ended December 31 (In millions) Common Stock -- Beginning of Year............................................................................................................ ............................ End of Year, after issuance of shares............................................................................... Capital Surplus--Beginning of Year............................................................................................................ ............................ End of Year, after issuance of shares............................................................................... ............................ Earnings Retained in the Business--Beginning of Year........................................................................ ............................ Net income....................................................................................................................... Cash dividends paid......................................................................................................... ............................ End of Year....................................................................................................................... ............................ Cumulative Foreign Exchange Translation Adjustment--Beginning of Year.................................. ............................ End of Year, after adjustments for the year..................................................................... ............................ Common Stock Held in Treasury, at Cost--Beginning of Year............................................................... ............................ End of Year, after purchases during the year................................................................. ............................ Total Shareholders' Equity............... ......................................................................... .............................. ............................ 1987 S 860 S 923 S 998 $15,048 (903) $15,403 S (1.090) $ 26 S (502) $ (510) $16,783 1986 $ 858 $ 860 $ 900 S 923 $14,539 1.407 (898) $15,048 S(1.726) S( 1.090) S (482) S (502) $15,239 198 $ 85 $ 85 $ 38 $ 9( $14.39 1.04 (89 $14.5. $(2.o: $(1.71 S (4> $ (48 $14.08 037726 ru I .1 466 See Notes to Financial Statements on pages 34 to 42. ocf Consolidated Balance Sheet ; December 31 In millions, \ Assets ! Current Assets i Cash ........................................................................................... ' Marketable securities, at cost (approximating market)........... Accounts and notes receivable.................................................. . Inventories................................................................................ 1 Prepaid taxes and other current assets..................................... I Total Current Assets................................................................ I Investments and Long-Term Receivables j Net Properties. Plants, and Equipment.. j Deferred Charges and Other Assets........ I Total................................................................. Liabilities and Shareholders' Equity Current Liabilities Notes and loans payable............................................................................ Accounts payable and accrued liabilities................................................... Income, excise, state gasoline, and other taxes payable.......................... Long-term debt and capital lease obligations maturing within one year. Total Current Liabilities. Long-Term Debt.................................................................................................................................. Capital Lease Obligations................................................................................................................. Reserves for Employee Benefits...................................................................................................... Deferred Credits and Other Noncurrent Obligations................................. ............................... Accrued Restoration and Removal Costs...................................................................................... Deferred Income Taxes...................................................................................................................... Minority Interest in Subsidiary Companies................................................................................. Shareholders' Equity Preferred stock..................................................................................................................................... Common stock: shares issued 432,786.167 and 429,984,265. respectively....................................... Capital surplus.................................................................................................................................... Earnings retained in the business...................................................................................................... Cumulative foreign exchange translation adjustment........................................................................ Common stock held in treasury, at cost: 21,427,400 shares in 1987 and 21.252.400 shares in 1986. Total Shareholders' Equity.............................................................................. ...................................................................... ...................................................................... Mobil follows the 'successful efforts" method or accountingfor its oil and gas exploration and producing operations. 1987 S 392 780 4.485 5,264 489 11,410 4,055 24.946 729 $41,140 1,016 7,090 2,559 232 10,897 7,064 335 498 1,716 516 3.298 33 866 998 15,403 26 (510) 16,783 $41,140 198 $ 34 1.24 3.94 4.55 78 10.86 3.7! 24.30 52 $39,41 80 6,86 2.52 10.4.'. 7.38 36 40 1.62 49 2.94 3 86 92 15.04 (1.09 <50 15.23 $39.41 037726 See Notes to Financial Statements on pages 34 to 42. O -J ' n v r i mm FINANCIAL Consolidated Statement of Changes in Financial Position Year Ended December 31 'In millions) Sources of Funds Operations Net income......................................................................................... Depreciation, depletion, and amortization........................................ Deferred income taxes....................................................................... Dividends less than equity in income of unconsolidated companies. Provision for Montgomery Ward restructuring................................. Loss on sale of Container Corporation of America.......................... Funds available from operations............................................................................................... Book value of properties, plants, and equipment sold.............................................................. ................................................... Other, net.................................................................................................................................... Funds Available Before Financing.................................................................................... ................................................... Application of Funds Cash dividends to shareholders.............................................. Capital expenditures............................................................... Other applications Increase (decrease) in-- Accounts and notes receivable........................................ inventories....................................................................... Prepaid taxes and other current assets.......................... investments and long-term receivables......................... Decrease (increase) in-- Accounts payable and accrued liabilities......................... Income, excise, state gasoline, and other taxes payable. Foreign exchange translation effects on working capital, debt, and other items, net.................................................... Application of Funds Before Financing.. Increase in Funds Before Financing . Total Financing Increases in long-term debt.................................... Decreases in long-term debt.................................. Decrease in capital lease obligations...................... Increase (decrease) in notes and loans payable..... (Decrease) increase in long-term debt and capital lease obligations maturing within one year....... Purchase of common stock for treasury................. Issuance or sale of common stock.......................... Total Financing Decrease....................................................................................................................................................... (Decrease) Increase in Cash and Marketable Securities.................................................... ........................................... 1987 S 1,258 2,546 194 (24) 351 4,073 903 2,341 536 709 (294) 318 (222) (37) (340) 3,914 159 2,319 (3,140) (27) 216 (10) (8) 81 (569) S (410) 1986 $ 1.407 2,471 (73) (184) 150 3,771 1.332 (45) 5,058 898 2,396 (981) (347) (369) 336 1.471 124 (355) 3.173 1.885 2.215 (3.658) (55) 50 (406) (20) 25 (1.849) S 36 1985 3 1.040 2.388 26 (134. 775 4.095 522 105 4,722 898 2.725 5 (IS 380 (319 (415 68 (67 3,260 1.462 2,563 (4.297 (21 (513 310 12 (1.951 $ (489 See Notes to Financial Statements on pages 34 to 42. C O S O LIB A T E D FINANCIAL STATE ME NTS! Distribution of Earnings and Assets Segments/ Year Ended December 31.1987 Revenues Nonaffiliated................................................................ Intersegment.............................................................. Total Revenues............................................................ Pretax operating profit................................................... Income taxes.................................................................. Segment Earnings..................................................... Corporate and other (net of income taxes).................... Net financing expense (net of income taxes).................. Net Income................................................................... Capital expenditures'''................................................... Depreciation, depletion, and amortization1"'.................. At December 31.1987 Total Segment Assets............................................... Corporate and all other assets....................................... Total Assets................................................................. Petroleum Operations U.S. Foreign S14.082 206 S14.288 S 1.026 (542) S 484 $33,804 1,242 $35,046 $ 2,556 (1.437) $ 1.119 S 1.265 S 1.472 S14.422 S 783 S 827 $19,175 Chemical Montgomery Adjustments and Ward Eliminations Ti $2,926 164 $3,090 $ 433 (133) $ 300 $ 121 S 115 $2,316 $5,342 $5,342 $ 218 (88) $ 130 $ 141 S 93 $3,491 $ 562 (1.612) $(1,050) s-- $-- s*$ -- .$ (124) 356.7 $56.7 $ 4.L (2.1 $ 2.t 1,1 (5 $ 1.2 $ 2.3 $ 2.5 $39.2 1.8 $41.) SegmentsPetroleum Opersilons U.S. Foreign Year Ended December 31,1986 Revenues Nonaffiliated................................................................ Intersegment............................................................... $11,794 291 $29,200 888 Total Revenues............................................................ $12,085 $30,088 Pretax operating profit................................................... Income taxes.................................................................. $ 786 (445) $ 3,363 (1.578) Segment Earnings..................................................... $ 341 $ 1.785 Corporate and other (net of income taxes).................... Net financing expense (net of income taxes).................. Loss on sale of Container Corporation of America (net of income taxes)............................... Net Income.................................................................. Capital expenditures'''................................................... Depreciation, depletion, and amortization'"'................. $ 1.263 $ 1.311 $ 806 $ 827 At December 31,1986 Total Segment Assets.............................................. $14,443 $16,887 Corporate and all other assets...................................... Total Assets................................................................ Chemical Mt.nnom.ry Mnsnmmsind Ward Eliminations Tc $2,391 162 $2,553 $ 205 (65) $ 140 $ 115 $ 117 $2,103 $5,065 $5,065 $ 198 (92) $ 106 $ 108 S 90 $3,828 S 1,415 (1,341) $ 74 $ s-- s-- s$ (214) $49.8 $49.8 $ 4.5 (2.1 $ 2.3 (2 (5 (1 $ 1.4 $ 2.3 $ 2.4 337.0 2.3 $39.4 037728 See notes and commentary on page 32. ,'> i . r> c i o "ii !.> - u1 ^ 1-a 1 "j n... imiiij i, .i im j i "'""I CONSOLIDATED FrfTANCrAL STATEMENTS Distribution of Earnings and Assets (Continued) Segments l, [ Year Ended December 31,1985 Revenues Nonaffiliated............................................................... Intersegment............................................................... Total Revenues........................................................... Pretax operating profit.................................................... Income taxes.................................................................. Segment Earnings..................................................... Corporate and other (net of income taxes)..................... Net financing expense met of income taxes)................. Montgomery Ward restructuring provision (net of income taxes).................................................. Net Income................................................................... Capital expenditures '.................................................... Depreciation, depletion, and amortization ................ At December 31, 1985 Total Segment Assets............................................... Corporate and all other assets....................................... Total Assets................................................................ ! (IJ Total includescapttal expenditures tor corporate and all other assets. (2J Total includes depreciation on corporate and all other assets. Petroleum Operation^ U.S. Foreign S15.666 386 S16.052 $ 1.684 (811) S 873 $33,892 1,694 $35,586 $ 4.441 (3.183) $ 1.258 $ 1.418 $ 1.218 S15.353 $ 753 $ 742 $17,565 Chemical $2,266 191 $2,457 $ 31 (28) $ 53 $ 118 $ 114 $2,045 Montgomery Adjustments and Ward Eliminations Total $6,073 $6,073 $ 78 (36) $ 42 $ 183 $ 111 $3,587 $ 2.712 (2.271) $ 441 $-- $ S$-- $ (99) $60,609 $60,609 $ 6.284 (4,05$j $ 2.226 (26' 652 <50$ $ 1.040 $ 2.725 $ 2.388 $38,451 3.301 $41,752 Significant investments in companies owned 50% or less are accounted for on the equity method. The corporations share of the net income of such compa nies is included in "Revenues." Intersegment and intergeographic revenues are at estimated market prices. Income taxes are allocated to seg ments and geographic areas on the basis of operating results. "Corporate and other" includes Container Corporation of America operations (sold in 1986), Real Estate operations, W. E Hall (sold in 1985), Mining and Minerals, Corporate Admin istration. and other corporate items. "Net financing expense" includes all net interest expense except for Montgomery Ward, which retains its own financing. 03^29 01470 asv'TE') Distribution of Earnings and Assets Geographic /,, m,//.,,/ Year Ended December 31,1987 Revenues N'onafiiiiated............................................................... Intergeographic.......................................................... Total Revenues............................................................ Geographic Earnings............................................... Corporate and other (net of income taxes).................... Net financing expense (net of income taxes)................. Net Income.................................................................... At December 31,1987 Total Geographic Assets.......................................... Corporate and all other assets....................................... Total Assets................................................................. Year Ended December 31,1986 Revenues Nonaffiliated............................................................... Intergeographic.......................................................... Total Revenues............................................................ Geographic Earnings............................................... Corporate and other (net of income taxes)..................... Net financing expense (net of income taxes)................. Loss on sale of Container Corporation of America (net of income taxes)............................... Net Income.................................................................... At December 31, 1986 Total Geographic Assets.......................................... Corporate and all other assets....................................... Total Assets................................................................. Year Ended December 31,1985 Revenues Nonaffiliated............................................................... Intergeographic.......................................................... Total Revenues........................................................... Geographic Earnings............................................... . Corporate and other (net of income taxes) | Net financing expense met of income taxes).................... i Montgomery Ward restructuring provision (net of income taxes)..................................................... Net Income......................................................... At December 31.1985 Total Geographic Assets................................ ............. Corporate and all other assets............................ Total Assets ...................................................... L'.S. $21,491 116 $21,607 $ 795 $19,268 818.528 189 818,717 8 514 819.652 823.408 186 823.594 8 942 $20,374 Canada 8 882 400 31.282 8 91 83.073 8 904 338 81.242 8 34 82.919 81.325 647 81.972 8 143 $3,883 Foreign Other Total .Adjustments and Eliminations Tr $33,781 ll1 $34,558 8 1.147 $17,037 $34,663 1.177 835.840 8 1.238 $20,110 S 562 (1.293) fc. (731) 8-- 8 (98) $56.7 856.7 8 2.0 u *5 8 1.2. 839.2: l.3< $41.1- 829.018 474 $29,492 8 1.824 814.662 829.922 812 830.734 8 1,858 $17,581 $ 1.415 (1,001) $ 414 $-- 8 (186) 849.it S49.Sr $ 2.37 (2^ <58 (15 8 1.41 $37."i 2.36 839.41 833.164 913 834.077 8 1.141 $34,489 1.560 836.049 8 1.284 $ 2.712 G.746) 8 966 $ --- 814.542 $18,425 $ (348) 1? T r> r\ . * *. ' '1 $60.6u S60.608 2.22' '65. ' 5m $ 1.04* $38.43: 3.30 5 $41.73. 037730 See commentarv on oaie 32. 7VM 0 1 Major Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of domestic and foreign subsidiaries more than 50% owned, except for those engaged in real estate operations and financial services. Real estate and financial services sub sidiaries, including Mobil Oil Credit Cor poration (Mobil Credit) and Montgomery Ward Credit Corporation (Montgomery Ward Credit), are accounted for on the equity method. The pretax income of these subsidiaries is included in "Inter est, dividends, and other revenue," and related taxes are included in "Income taxes." Significant investments in com panies owned 50% or less are also accounted for on the equity method. Investments in other companies in which Mobil owns less than a majority interest are stated at cost less applicable reserves. Intercompany transactions are eliminated. Inventories Substantially all inventories are valued at cost under the last-in, first-out (LIFO) method. Certain inventories, primarily materials and supplies, are valued gener ally at average cost. At the balance sheet date, inventories are stated at the lower of cost or market. Oil and Gas Accounting Method Mobil follows the successful efforts method of accounting prescribed by FAS 19, Financial Accounting and Reporting by Oil and Gas Producing Companies. Exploration and Mineral Rights (Leases) Direct acquisition costs of unproved min eral rights (leases) are capitalized and then amortized in the manner stated below. Payments made in lieu of drilling on nonproducing leaseholds are charged to expense currently. Geological, Geophysical, and Intangible Drilling Costs Geological and geophysical costs are charged to expense as incurred. Intan gible drilling costs of all development wells and of exploratory wells that result in additions to proved reserves are capitalized. Depreciation, Depletion, and Amortization Annual charges to income for depreci ation and the estimated cost for restora tion and removal of major producing facilities are computed on a straight-line basis over the useful lives of the various classes of properties or, where appro priate for producing properties, on a unit-of-production basis by individual fields. 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 (leases) are assessed periodically on a property-by-property basis to determine whether their values have been im paired; where impairment is indicated, a loss is recognized. Capitalized acquisi tion costs of unproved mineral rights (leases) whose costs are not individually significant are amortized over the ex pected holding period. When a mineral right is surrendered, any unamortized cost is charged to expense. When a prop erty is determined to contain proved re serves, the mineral right then becomes subject to depletion on a unit-of-produc tion basis. When assets that are part of a com posite group are retired, sold, abandoned, or otherwise disposed of, the cost is charged against accumulated deprecia tion. depletion, and amortization, but in those cases where reserves are accumu lated for specific properties, gains or losses on disposal are included in income currently. Maintenance and Repairs Maintenance and routine repairs are charged against income as incurred. Major repairs are capitalized, and any replaced assets are retired. U.S. Investment Tax Credits U.S. investment tax credits are accounted for under the "flow through" method. Under this method these credits reduce income tax expense in the year they arise. Foreign Currency Translation Mobil follows the provisions of FAS 52, Foreign Currency Translation. The local currency of the country of operation is used as the functional currency for pur poses of translating the local currency asset and liability accounts of most foreign operations at current exchange rates. The resulting translation adjust ments are accumulated as a separate component of Shareholders' Equity. For other foreign operations, principally exploration and producing operations in Indonesia and Nigeria, and for operations in highly inflationary economies, the U.S. dollar is the functional currency. Gains and losses resulting from trans lating asset and liability accounts that are denominated in currencies other than the functional currency are included in income. OH ?\ ] *7i 9 a W0TES TO FINANCIAL STATEME.E'BfT& Pending Accounting Changes Late in 1987. the Financial Accounting Standards Board (FASB) issued two significant financial accounting standards. FAS 94. Consolidation of All Majority-owned Subsidiaries, requires the consolidation of all majority-owned subsidiaries unless control is temporary or does not rest with the majority owner. For Mobil, this means the consolidation of the unconsolidated subsidiaries dis closed in Note 4, "Investments and Long-Term Receivables." While Mobil's consolidated net income will not be affected by the adoption of FAS 94, Mobil's reported assets and liabilities will increase substantially from their previously reported amounts. This stan dard becomes effective for financial statements for fiscal years ending after December 15.1988. Restatement of comparative financial statements for earlier years is required. FAS 96. Accounting for Income Taxes, requires that deferred tax assets and liabilities be adjusted whenever tax rates or other provisions of income tax laws change, which is not the case under the existing accounting standard. For Mobil, a new provision in FAS 96, appli cable to business combinations effected prior to the year the standard is first adopted, requires the recording of de ferred taxes for any difference between the remaining balances of the assets and liabilities of an acquired enterprise and their tax bases. This standard is required to be effective for financial statements for fiscal years beginning after Decem ber 15.1988. although earlier adoption is permissible. When Mobil adopts the new standard, Mobil will show, based on pre liminary estimates, a material increase in "Deferred income taxes" with a corresponding decrease in "Earnings retained in the business." This is strictly an accounting change, with no effect on Mobil's cash flow or on Mobil's actual income tax liabilities. Segment and Geographic Data Details on segment and geographic earnings and assets appear on pages 31 through 33. 2 Accounts and Notes Receivable Accounts and notes receivable include amounts receivable from companies accounted for on the equity method of $407 million and $454 million at Decem ber 31.1987 and 1986, respectively. During 1987,1986. and 1985 inven tories valued under the LIFO method were partially liquidated. This resulted a decrease in net income of $4 million in 1987, a decrease of $33 million in 198 and an increase of $34 million in 1985. ! Inventories at December 31: fin millions/ 1987 Crude oil and petroleum products...... Chemical products............. Other, including materials and supplies................... Montgomery Ward............. $3,612 333 545 774 Total.................................. $5,264 19* $2.9$ 31 DO '5 $4.55 4 Investments and Long-Term Receivables At December 31,1987 and 1986, Invest ments and Long-Term Receivables included $1,399 million and $1,359 million, respectively, of investments in unconsolidated subsidiaries. 3 Inventories Inventories valued at cost under the LIFO method represented about 82% of Mobil's worldwide inventories at Decem ber 31,1987 and 1986. For those inven tories valued under the LIFO method, the value of the inventory based upon current cost approximated the stated value of the inventory on the LIFO basis at December 31,1987 and 1986. 037732 - , J*t *+ $ / ni A i / j NOTES TO FINANCIAL STATEMENTS^-^ Unconsolidated Finance Subsidiaries Mobil Credit operates Mobil Oil's credit card business, purchases accounts receivable from Mobil Oil, and issues short-term debt that neither Mobil nor its affiliated companies guarantee. Mobil's investment in Mobil Credit was $228 million at December 31.1987 and 1986. Montgomery Ward Credit purchases customer accounts receivable from Montgomery Ward and issues short- and long-term debt, none of which Mobil or its affiliated companies guaran tee. Mobil's investment in Montgomery Ward Credit was $701 million at Decern ber 31,1987 and S700 million at Decern ber 31.1986. IIn millionsi Short-term notes payable and commercial paper. Current portion of long-term debt....................... Long-term debt..................................................... Other liabilities..................................................... Met assets.............................................................. Interest expense...... Income before taxes . Met income.............. 1987 SI.099 697 __ 174 228 Mobil Credit 1986 S875 578 __ 69 228 1985 SI.129 846 _ _ 31 252 S 179 47 28 17 S184 48 33 17 S 211 66 45 25 Montgomery Ward Credit 1987 1986 1985 S2.683 926 97 738 221 701 S2.519 472 121 843 383 700 52.597 602 115 973 200 707 S 205 135 68 41 S 238 156 80 43 S 407 268 137 74 Affiliated Coatpanies and Unconsolidated Subsidiaries Summary financial information for affiliated companies (owned 50% or less), excluding Aramco, and for unconsolidated subsidiaries, excluding the finance subsidiaries shown above, accounted for on the equity method is shown below. Undistributed earnings of the affiliated companies accounted for on the equity method included in "Earnings retained in the business" were $678 million at December 31, 1987. Dividends received from these companies were $116 million in 1987. $107 million in 1986, and $80 million in 1985. (In millions; Affiliated Companies Current assets........................................................ ........................ Moncurrent assets................................................... ........................ Current liabilities..................................................... ........................ Long-term debt........................................................ ........................ Other liabilities....................................................... ........................ Met assets.............................................................. ........................ 1987 Total Mobil Share S 7,582 9,931 5,240 3.946 1,620 6.707 82,345 3,421 1,689 1.491 468 2,118 Gross revenues....................................................... ........................ Income before taxes............................................... ........................ Met income............................................................. ........................ 816,138 1,045 636 85,159 281 192 Unconsolidated Subsidiaries Current assets........................................................ Moncurrent assets.................................................. Current liabilities.................................................... ........................ ! Long-term debt....................................................... ........................ Other liabilities....................................................... ........................ Met assets............................................................... 222 200 328 S 158 1,057 222 195 328 470 Gross revenues....................................................... ........................ S 442 Income before taxes............................................... ........................ 64 Met income............................................................. ........................ 41 8 442 64 41 1986 Total Mobil Share S 5.935 9.267 4,154 4,392 1.457 5.199 $14,071 1,674 345 $1,817 3,281 1,277 1.647 466 1.708 S4.332 511 241 $ 326 892 308 183 296 431 $ 507 S 323 891 307 180 296 431 5 507 82 38 1985 Total Moot. Share S 5.421 8,217 4,238 4.693 1,220 3.487 516.543 829 363 $1,688 3.059 1.326 1.765 386 1.270 $5,538 205 34 S 260 936 382 236 192 386 5 550 190 119 $ 26C 931 380 235 192 384 $ 55< 190 119 01474 m -r3 03^733 ffOTES TO FINANCIAL STATEMENTS 5 Properties, Plants, and Equipment i Properties, plants, and i equipment, at cost, ` at December 31: (In millions) 1987 Petroleum...................,. 339,563 Chemical................... 1.931 Corporate and other ., 656 Montgomery Ward.. 1.483 Total ............................. 43.633 Less accumulated depreciation, depletion, and amortization......... .. (18,687) .Vet properties. planes, and equipment................ $24,946 1986 336,643 1.805 796 1.384 40,628 (16,324) 324.304 Interest capitalized was $17 million in 1987, $61 million in 1986. and $120 million in 1985. Maintenance and repairs charged to income were $1,148 million in 1987, $1,216 million in 1986, and $1,269 million in 1985. 6 Leases Mobil leases real estate, service stations, tankers, and other equipment through noncancelable capital and oper ating leases. Net rent expense charged to earn ings was $690 million in 1987, $755 mil lion in 1986, and $700 million in 1985, tfter deducting rentals from subleases of $87 million in 1987, $75 million in 1986, and $59 million in 1985. Contingent lease rentals for operating and capital leases were included in net rent expense is incurred and were $54 million in 1987 and $57 million in 1986 and in 1985. These contingent lease 'entals are determined generally by volumetric measurement or sales reve nue. 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. Capital leases included in Net Prop erties, Plants, and Equipment were $368 million at December 31,1987, and $350 million at December 31, 1986. Future minimum lease payments under noncancelable leases at December 31.1987: (In millions) Operating Leases 1988............................ 1989 ............................ 1990............................ 1991............................ 1992 ............................ Later years................. 3 305 248 202 154 114 581 Future minimum lease payments........ 31.604 Less --executory costs ... --interest................. Capital lease obligations................ Capital Lease Obligations 3 93 92 73 67 62 320 707 (41) (274) 3392 Future minimum lease payments have not been reduced by future minimum sublease rentals of $213 million under operating leases and $22 million under capital leases. 7 Notes and Loans Payable Motes and loans payable at December 31: lln millions) 1987 Banks........................... $ 808 Others......................... 208 1 Total............................ $1,016 1986 S689 111 3800 At December 31.1987, Mobil Oil and Mobil Credit had $610 million of unused lines of credit for short-term financing. Of these, $568 million sup ported commercial paper borrowing arrangements of Mobil Credit. S560 million of which may also be used byMobil Oil. 8 Accounts Payable and Accrued Liabilities | Accounts payable and accrued liabilities at December 31: (In millions) 1987 Accounts payable: Trade and other....... Equity companies... Accrued liabilities...... $3,919 572 2.599 Total............................ . $7,090 1986 33.582 469 2.817 36.868 037734 9 Taxes Total taxes, year ended December 31: > In millionsj Excise and state gasoline.................................... ...... Import duties ''.................................................... ...... Propertv, production, pavroll. and other............. Total other than income taxes............................ U.S. SI.430 -- 431 1,861 1987 Foreign S 3,030 5,738 189 8,957 Total S 4.460 5,738 620 10,818 U.S. 51.306 - 554 1.360 1986 Foreign Total $2,534 4.676 232 $ 3.340 4,676 786 7.442 9.302 Income taxes: U.S. state and local income taxes........................ U.S. federal and foreign income taxes--current.................................... --deferred.................................. 64 96 201 - 1,420 (7) 64 1.516 194 66 171 (310) - 1.422 237 66 1.593 (73) Total income taxes............................................... Total taxes............................................................ ...... 361 1,413 1.774 S2.222 S10.370 $12,592 (73) SI.787 1.659 1.586 $9,101 $10,888 <7/ Excludes L\S. duties of$59 mtilton m 1987.S45 million in 1986. and$47 million m 1985 reported in cost ot merchandise. U.S. $1,194 - 961 2.155 1985 Foreign Tot $2,304 3.167 277 $ 3.49 3.16 1.22 5.748 7.9' 36 _ (68) (32) $2,123 -5 3.207 94 3.20 - 3.301 3.26 $9,049 $11.17 Income from U.S. operations before in come taxes was $1,551 million in 1987, $978 million in 1986, and $1,031 million in 1985. Income from foreign operations before income taxes for the same three years was $2,682 million, $3,438 mil lion, and $4,478 million, respectively. The (loss) from Corporate and Other and Financing before income taxes for the same three years was ($1,201) million. ($1,423) million, and ($1,200) million, respectively. The table below reconciles the difference between the worldwide income tax provision and the application of the U.S. statutory income tax rate. Income taxes year ended December 31: (In mtllionst Theoretical tax at U.S. rate................... Foreign taxes in excess of U.S. statutory rate............................ Investment tax credit............................. State and local income taxes................. Purchase accounting amortization related to the acquisition of Superior...................... Other items, net.................................... Total....................................................... 1987 Amount % $1,213 40.0 591 (15) 38 19.5 (.5) 1.3 1986 Amount % $1,377 46.0 180 6.0 (57) (1.9) 36 1.2 1985 Amount % $1,982 46.0 1,058 24.6 (116) (2.7) 19 .4 157 5.2 (210) (7.0) $1,774 58.5 144 4.8 (94) (3.1) $1,586 53.0 121 2.8 205 4.8 $3,269 75.9 Deferred tax expense applicable to major timing differences, year ended December 31: tin millions) Book depreciation (higher)/lower than tax depreciation......................... Timing differences applicable to receivables and inventories........... Intangible drilling costs....................... Nonproducing properties...................... Investment tax credit............................ Provision for restructuring.................. Other items, net.................................... Total...................................................... 1987 $ (50) (53) (51) 53 80 38 177 $194 ------------ sr 1986 $127 (87) 36 (78) (64) 73 (80) $(73) 1'i . 1985 $212 (155) 56 159 (116) <227) 97 $ 26 Deferred income taxes Taxable income as defined in the tax law of various countries is frequently differ ent from pretax income as defined by generally accepted accounting princi ples. Some of the differences are perma nent, whereas others reflect differences in timing and give rise to accruals of deferred tax. Mobil does not provide deferred taxes for taxes that could resul from the remittance of undistributed earnings since it is Mobil's intention gen erally to continue reinvesting these earnings indefinitely. If such amounts were remitted, foreign tax credits avail able under present law would reduce the amount of U.S. taxes payable. Mobil's share of the undistributed earnings of consolidated subsidiaries ar. companies accounted for on the equity method, which could be subject to additional income taxes if remitted, was approximately $2,800 million at December 31.1987. 01476 037735 10 Long-Term Debt ; Long-term debt at December 31: tin millions/ Mobil Corporation ~V>% notes due 1992............................................................... 7'/<% notes due 1991................................................................ 7%% notes due 1991.............................................................. 7s/s% notes due 1993................................................................ 8'/< % notes due 1992................................................................ 8'/:% debentures due 2001...................................................... 8s/s% notes due 1994................................................................ 8.70% notes due 1991.............................................................. 8-lyl% notes .............................................................................. 814% notes due 1990................................................................ 8% % notes due 1991................................................................ 9%% debentures due 1999 ..................................................... 10`/% notes due 1990.............................................................. 10%% notes.............................................................................. 11% notes due 1992.................................................................. 13.765% debentures due 2004 ................................................ 14%% notes due 1991............................................................... 14.40% debentures due 2004 .................................................. Debt due within one vear classified as long-term (7.6%)........ Other (8%%) due 1989-2014.................................................... Foreign currencies (ll'/a%) due 1990 ...................................... Original issue discount....................................................... Mobil Oil and consolidated subsidiaries 4`A% debentures due 1993....................................................... 7'A % notes due 1997................................................................ 7%% debentures due 2001....................................................... 8'/i% debentures due 1992....................................................... 8.45% debentures due 2005..................................................... Debt due within one year classified as long-term (8%%) ...... Industrial revenue bonds (6s/a%) due 1991-2014...................... Other (8% %) due 1990-2050 .................................................. Foreign currencies (7%%) due 1989-2014.............................. Montgomery Ward and consolidated subsidiaries 9%% debentures due 2000....................................................... Other (9%%) due 1989-2020 .................................................. : *At par Callable Within Five Years 1987 .............. S 200 .............. 100 .............. ................ 1988 ................. .............. .............. 200 604 200 .............. 200 ................ 1988 ................. .............. .............. 38 200 .............. ................ 1989*.................. .............. ................ 1988*................. .............. .............. .............. .............. 100 1,100 94 900 266 123 .............. (14) $4,965 ................ 1988 .................. ................ ................ 1988 .................. .............. ................ 1988 .................. .............. .............. ................ 1988 .................. .............. .............. .............. .............. .............. 61 195 73 750 110 250 279 63 52 1,833 .............. .............. 48 218 266 $7,064 1986 S100 100 95 - 604 - 100 - 38 200 200 100 1.100 94 900 1.553 122 59 (15) $5,350 61 200 73 110 1.400 279 78 47 2.248 60 227 287 $7,885 The percentages shown in parentheses $1.5 billion of debt securities to be in the table are weighted average interest offered pursuant to Rule 415 of the rates at December 31,1987. Securities Act of 1933, under which The approximate amounts of long Mobil issued $500 million of 8%% five- term debt that become due during the year notes on February 3,1988. years 1988 through 1992 are: 1988-- Mobil and Mobil Oil have $1.6 bil $175 million, 1989--$554 million. lion long-term revolving credit agree 1990--$579 million, 1991--$826 million, ments with various banks, which have and 1992--$1,393 million. Future not been utilized. A total of $.5 billion of sinking fund requirements of $392 Mobil and Mobil Oil borrowings due million may be satisfied by debentures within one year has been classified as currently held in the treasury. long-term debt. The unused $1.6 billion At year-end 1987 Mobil had v.< of the revolving credit agreements is ing effective "shelf" registrations oitfile \ 3 subject to annual commitment fees of .06 with the Securities and Exchange Com of 1%. Interest on borrowings under the mission that would permit the sale of agreements is based on the London Interbank Offered Rate, the Dom'''--1-' Certificate of Deposit Rate, or a specified Prime Rate, as selected from time to time by Mobil. Montgomery Ward and Mont gomery Ward Credit Corporation have entered into multi-year revolving credit agreements with various banks totaling $1,124 million, none of which was out standing at December 31,1987. The unused revolving credit facilities are subject to commitment fees of Vs of 1% on $864 million, which is avaiiable to either Montgomery Ward or Montgomery Ward Credit and .175 of 1% on $260 million, which is available to only Montgomery Ward Credit. 11 Employee Benefits Employee benefits that Mobil provides in the United States are contributory and noncontributory medical and dental plans, pension plans, group life insur ance, savings plans, employee stock ownership plans, disability plans for sick ness and accidents, and termination plans. Mobil's international affiliates also provide various pension and other employee benefit plans. The estimated costs of the domestic and international benefit plans are either funded or accrued currently. The majority of full-time U.S. em ployees are covered by contributory and noncontributory pension plans. These plans are primarily final average and career average plans. Mobil's funding for these plans is based on the projected unit credit actuarial cost method. Mobil's overseas 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 in come for pension plans was $123 million in 1987, $105 million in 1986. and $190 million in 1985. In 1985 Mobil adopted the projected unit credit actuarial cost method for major domestic pension plans, which had the effect of increasing 1985 net income by approximately $12 million ($.03 per share). In 1986 Mobil adopted the provi sions of FAS 87, Employers' Accounting for Pensions, for its principal domestic plan, which had the effect of increasing 1986 net income by approximately $36 million ($.09 per share). The components of 1987 net pen sion expense for Mobil's domestic plans (including Montgomery Ward's plans) were as follows (in millions): Benefits earned during year.................. Interest accrued on benefits earned in prior years.......................... Actual earnings on assets...................... Net amortization and deferral............... Net pension expense............................. $ 102 207 (118) (158) S 33 Pension expense for 1987 was based on an assumed average discount rate of 814 %, an assumed average rate of in crease in future compensation levels of 5% %, and an expected average rate of return on plan assets of 8*/2%. The actuarial value of accumulated benefits is not calculated for Mobil's for eign pension plans. For foreign plans, the value of plan assets exceeded the actu arial computed value of vested benefits as of year-end 1987 and 1986. Mobil and many of its subsidiaries provide certain post-retirement health care and life insurance benefits for most of their retirees, if they are working for the company when they become eligible for retirement. These post-retirement benefits and similar benefits for active employees are provided through pro grams where the costs are based on the benefits paid during the year. The total expense in 1987 for post-retirement benefits only was $30 million. Prior to 1987, the cost of post-retirement benefits was not separable from the cosof similar benefits for active employees. In 1986 these costs totaled $170 million for 37,000 retirees and 95,000 active err. ployees. In 1985 these costs totaled $19 million for 43,000 retirees and 112,000 active employees. The funded status of Mobil's domestic plans (including Montgomery Ward's plans) and the amounts recognized in the consolidated balance sheet were as follows (in millions): At December 31: Actuarial present value of accumulated benefit obligation Vested.............................................................................. .................................. Nonvested....................................................................... .................................. Total........................................................................................................................... Additional amounts related to projected pay increases................................................... .................................. Projected benefit obligation.................................................... .................................. Plan assets at fair value, primarily in equity and fixed income securities............................................................................ .................................. Plan assets in excess of projected benefit obligation............................................... .................................. Consisting of: Unrecognized net asset at date of initial application of FAS 87....................................... ................ ................. Unrecognized prior service cost..................................................................... .................................. Unrecognized net loss since initial application of FAS 87........................................... .................................. Accrued pension cost......................................................... .................................. Rates used in determining the actuarial present value of the projected benefit obligation: Discount rate................................................................... .................................. Rate of increase in future compensation levels........................................................................... .................................. 1987 $1,921 164 2,085 409 2,494 2,717 $ 223 $ 600 (159) (130) (88) 9% 53/4% 19 $2.0< 21. 2.2; 4, 2.6' 2.8' S2 S6 (i (i- 5:.- 037737 m i?S wmmt* 40' fn im 12 Stock Option Plans Under the 1986 Mobil Incentive Compen sation and Stock Option Plan approved by shareholders, options may be granted to key employees to purchase a maximum of 10,000,000 shares of common stock. No additional options may be granted under earlier plans. "Nonqualified" options and "Incentive Stock Options," having a maximum life of 10 years, are granted at 100% of the fair market value of Mobil stock at the time of the award and may be exercised for stock or, in some cases, relinquished for stock appreciation rights (SARs) in annual installments after the first year. The stock appreciation rights permit the holder to receive stock, cash, or a combi nation thereof equal to the amount which the fair market value at the time of relinquishment exceeds the option price. Under the 1986 Plan there wen 6,176,450 shares available for optior December 31,1987. | Stock option transactions: ! , January 1, 1987--shares under option: j Options granted at 84931 ............................................................................. | Options expired or canceled.......................................................................... j Options relinquished for stock appreciation rights at prices ranging from ; $14.77 to $36.38.......................................................................................... ,f O.p..t.i.o..n..s exer-cis- ed...a..t..p..r.i.c..e..s...r.a..n. ging fr..o.m...$..1..4...7..7...to -$3- 6--.-3--8--.-..-.-.-..-.-.-.-.-..-.-.-.-..-.-.-.-.... i December 31.1987--shares under option: j Years j of Average OptionPrice | Grant Per Share j 1974-1977 $- I 1979-1981 33.01 | 1981-1985 28.78 , 19S6-198739.39 1 Options exercisable at December 31.1987 .................................................. I At an average price of..................................................................................... . During 1986 options were exercised or relinquished at prices ranging from I 8U.77 to 836.28.......................................................................................... : During 1985 options were exercised or relinquished at prices ranging from $14.77 to $30.00........................................................................................... 1986 Plan 1.961.100 1.883.150 (24.700) 1981 Plan 8.192.371 1979 Plan 1.749.538 (6,500) (1.370) (15.500) (442.314) (108.131) (197.354) (1,838,409) (434.502) 3,606,696 1.457.789 $29.10 5.905.148 5.905.148 528./ 8 1,205,535 1,205,535 $33.0! 4,000 849,012 195,41' 363,018 189.06 13 Commitments and Contingent Liabilities Substantial commitments are made in the normal course of business for the purchase of crude oil and the acquisition or construction of properties, plants, and equipment (including tankers for time charter to Mobil). Mobil has guaranteed approximately S285 million of the obligations of others, excluding certain cross-guarantees (about S277 million), primarily foreign customs duties, made with other re sponsible companies in the ordinary course of business. In addition, Mobil has guaranteed specified revenues from crude oil, product, and carbon dioxide shipments under agreements with pipe line 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 has provided in its accounts for items and issues not yet based on management's be Mobil and its subsidia engaged in various litigati number of unresolved clai While the amounts claimi tial and the ultimate liabi of such litigation and clai determined at this time, opinion that such liabilit not provided for througt otherwise, is not likely importance in relation t9il-'' * i 09*7738 - -A 014 7' 14 Capital Stock At December 31,1987, 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 pre ferred stock purchase rights; none were issued or outstanding. At December 31,1987. 600,000,000 shares of $2.00 par value common stock were authorized and 432,786,167 shares were issued, including 21,427,400 held in the treasury. There were 411,358,767 shares outstanding at year-end. Net increase (decrease) in shares of common stock outstanding, year ended December 31: 1987 Exercise of stock options and SARs.................................................................. ........................................................... 2,707,045 Purchase of common stock for treasury............................................................ ........................................................... (175,000) Incentive compensation awards.......................................................................... ........................................................... 94,948 Purchase of Marcor fractional shares................................................................ ........................................................... (91) Conversion of Marcor debentures...................................................................... Net increase....................................................................................................... ........................................................... 2,626,902 1986 1,039.127 (687,500) 21,054 (109) 8,111 380.683 1985 621,905 - 24.921 (115 379 647.088 15 Foreign Currency Translation Cumulative translation adjustments at December 31: (In millions) Properties, plants, and equipment, net............................................................................... ............................................ Deferred income taxes......................................................................................................... ........................................... Working capital, debt, and other items, net......................................................................... ............................................ ............................................ 1987 $ 35 (83) 74 $ 26 1986 $(1,153) 329 (266) $(1,090) 1985 $(1,534 429 (621 $(1,726 Foreign exchange transaction gains of $108 million in 1987, $181 million in 1986, and $205 million in 1985 were credited to income. 16 Quarterly Financial Data Quarterly financial data: (In millions except per-share amounts) Revenues 1987..................................................................................... 1986....................................................................................... Quarter ---------------------------------------------------------------------------------------------- ------------------------ First Second Third Fourth $12,753 $ 13,877 $13,566 $ 12,176 $14,464 $ 11,314 $15,933 $ '12.498 Income taxes 1987..................................................................................... 1986....................................................................................... Net income 1987"'................................................................................ 1986'2"'".............................................................................. Net income per share 1987'"................................................................................ 1986'2"2'.............................................................................. $ 455 $ 692 $ 252 $ 440 $ .62 $ 1.08 $ 420 $ 408 $ 304 $ 582 $ .74 $ 1.42 $ 481 $ 305 $ 319 $ 182 $ .77 $ .45 $ 418 $ 181 S 383 $ 203 $ .93 $ .50 (1) Set income m the fourth quarter of1987 included a S140 million provision for the excess ofbook inventory vaiues over market values in locai currencies. The effect ofthis provision was partly offset bya$30 million favorable adjustment ofU.S. excise tax accruals and a S62 million favorable adjustment offoreign tax reserves. In addition, thefourth quarter included a S92 million gam on the sale ofthe Sew York office buildingand a S98 million provision forheadquarters relocation costs. (2) Set income included a$S7 million LIFO inventory drawdown charge in thefirst quarter of1986. a S187 million gain on sale ofMobil's interests in Angola and $83 million offavorableadjustmentsto Alaskan crude purchase provisions in the second quarter of1986. and a $150 million loss on sale ofContainer Corporation ofAmerica in the third quarter of1986. (3) Set income includedfinancial benefits of$24 million in thefourth quarter of1986. resultingfrom reductions m LIFO inventories. Thefourth quarter of 1986 also included the unfavorable effect ofa $100 million provision for accelerated amortization ofexploration and producing assets, offset in partby afinancial benefit of$36 million, resultingfrom adoption ofFAS 87. Employers'Accountingfor Pensions, for Mobil's principal domestic pension plan. Year $56,716 S 49.865 $ 1.774 S 1.586 $ 1,258 S 1,407 $ 3.06 S 3.45 037739 The management of Mobil Corporation has the responsibility for preparing the accompanying financial statements and for their integrity and objectivity. The statements were prepared in conformity with generally accepted accounting prin ciples applied on a consistent basis. Such financial statements are necessarily based in part on best estimates and judgments. Mobil maintains a system of internal accounting controls and a program of internal auditing designed to provide reasonable assurance that Mobil's assets are protected and that transactions are executed in accordance with established authorizations and are recorded properly. The Audit Committee of the Board of Directors, composed solely of direc tors who are not officers or employees, meets regularly with Mobil's financial management and counsel, with Mobil's General Auditor, and with the indepen dent public accountants engaged byMobil Corporation and its principal sub sidiaries. These meetings include discussion of internal accounting con trols and the quality of financial report ing. The independent public accountants and the General Auditor have free and independent access to the Audit Com mittee to discuss the results of their audits or any other matters relating to Mobil's financial affairs. The accompanying consolidated financial statements have been examinee by Arthur Young & Company, indepen dent certified public accountants, whose appointment was approved by the share holders. Arthur Young & Company's report follows. Allen E. Murray s Chairman, President, and Chief Executive Officer 0. T^uncfavt. James Q. Riordan Vice Chairman and ChiefFinancial Officer We have examined the accompanying consolidated balance sheet of Mobil Corporation at December 31,1987 and 1986, and the related consolidated state ments of income, changes in share holders' equity and changes in financial position for each of the three years in the period ended December 31.1987. Our examinations were made in accordance with generally accepted auditing stan dards and, accordingly, included such tests of the accounting records and such other auditing procedures as we consid ered necessary in the circumstances. The consolidated financial statements of Marcor Inc. and Montgomery Ward & Co., Incorporated, consolidated sub sidiaries, and Container Corporation of America, a consolidated subsidiary at December 31, 1985, have been examined by other independent public accountants, and we were furnished with their reports thereon. The assets of these consoli dated subsidiaries represent approxi mately 9% of the consolidated totals for both 1987 and 1986 and revenues repre sent approximately 10%, 10%, and 13% of the consolidated totals for the years ended December 31,1987,1986, and 1985. In our opinion, based upon our examinations and the reports of other independent public accountants, the statements mentioned above present fairly the consolidated financial position of Mobil Corporation at December 31. 1987 and 1986. and the consolidated results of operations and changes in financial position for each of the three years in the period ended December 31, 1987, in conformity with generally ac cepted accounting principles applied on a consistent basis during the period. New York, New York March l, 1988 037740 O 1 / c. 1 U^ Supplementary oil and gas producing disclosures The accompanying tables set forth infor mation concerning Mobil's oil and gas producing activities at December 31, 1987,1986, and 1985. and for the years then ended. The tables are prepared in accordance with FAS 69. Disclosures about Oil and Gas Producing Activities, Tables I and 2 represent Mobil's estimated net equity in worldwide net proved reserves. Net proved reserves represent estimated recoverable vol umes, excluding royalties and interests owned by others. The production and reserve numbers exclude NGL volumes received under natural gas processing contracts and Mobil's royalty interest production and reserve volumes. All reserve estimates are subject to future revision. In the past, some of these revisions have been significant. Table 3 presents gross capitalized costs related to oil and gas producing activities and related accumulated de preciation, depletion, and amortization at December 31,1987 and 1986. Capital ized 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 sets forth certain costs in curred, both capitalized and expensed, in oil and gas producing activities. Costs reported include the 1987,1986, and 1985 outlays for assets described in Table 3. capitalized costs, plus the 1987, 1986, and 1985 costs charged to expense for such items as geological and geo physical outlays, and expenses to carry and retain undeveloped properties. Exploration and development costs in clude depreciation of support equipment and facilities used in those activities rather than the expenditures to acquire support equipment and facilities. Table 5 summarizes Mobil's results of operations for producing activities for the years ended December 31. 1987, 1986, and 1985. Revenues include sales to unaffiliated parties and sales or trans fers (essentially at third-party sales prices) to Mobil's other operations. Only the revenues reported for the U.S. and Canada are net of royalty interests of others. Production (lifting) costs and ex ploration expenses are determined as defined by the FASB. Tables b and 7 set forth a so-called standardized measure of discounted future net cash flows relating to proved oil and gas reserves, and quantify the causes of the changes in the standard ized measure of the cash flows relating to those reserves. Since the estimates reflect proved reserves only, they exclude any revenues that could result from probable reserves, which could become proved reserves in 1988 or later years. For these calculations, year-end o and gas prices were applied to estimatefuture production of net proved oil and gas reserves at each year-end. less est: mated future expenditures (based on current costs) to be incurred in develop ing and producing these proved reservt The continuance of existing economic conditions and tax rates was assumed. In accordance with FASB requirement the calculations do not reflect future changes in prices, costs, or tax rates, which may have a significant effect on future results. The data in Tables 6 and 7 are not intended to replace the historical costbased financial data included in the audited financial statements because, as the FASB recognizes, such data are not representative of either the fair market value or the present value of future cash flows. Cautionary Note: Many ofthe FASB-mandated data in this section (Supplementary Oil and Gas Pro ducing Disclosures) represent estimates, assumptions, and computations that are. ject to constant change as thefuture unfoL Mobil cautions investors and analysts, tin fore, that the data are ofquestionable utth. for decision making. L/l A. C lO Ao- U3T741 SUPPLE MENTARY INFORMATION Table 1 Estimated Quantities of Net Proved Crude OH and Natural Gas Liquids Reserves ^unaudited) United States I Millions nfbanrlsi Crude NGL Year Ended December 31,1987 Net proved reserves --beginning of year.......................................... --revisions of previous estimates.................... --improved recovery....................................... --purchases (sales) of minerals in place......... --extensions, discoveries, and other additions --production..................................................... 837 20 93 (3) 17 (96) 177 4 (10) (1) 2 (16) Net proved reserves --endofyear...................................................................................... 868 156 Net proved developed reserves --beginning of vear............................................................................. --endofyear...................................................................................... Mobil's share of net proved reserves of investees accounted for on the equity method.......................................................................... Quantities under special arrangements in which the company acts as producer --quantities received during the year................................................. --estimated future quantities............................................................ 692 712 - -- -- 172 150 -- -- Year Ended December 31,1986 Net proved reserves --beginning of vear............................................................................. --revisions of previous estimates....................................................... --improved recovery.......................................................................... --purchases (sales) of minerals in place............................................ --extensions, discoveries, and other additions................................. --production........................................................................................ 853 15 46 (1) 21 (97) 183 6 3 2 (17) Net proved reserves --end of year....................................................................................... 837 177 Net proved developed reserves --beginning of year............................................................................. --end of vear....................................................................................... Mobil's share of net proved reserves of investees accounted for on the equitv method.......................................................................... Quantities under special arrangements in which the company acts as producer --quantities received during the vear................................................. --estimated future quantities............................................................ 721 692 _ -- 168 172 _ -- _______________________ ______________________________ Canada Europe Other Crude N'GL Crude NGL Crude NGL 224 -- 6 (1) 2 (21) 210 219 205 82 403 --3 (2) 8 --1 (3) (50) 77 365 82 260 75 211 5 28 347 362 (1) 9 - ---- ---- 1 16 -- (2) (21) (18) 26 351 344 16 205 15 228 -- 550 361 344 1 ------ ------ --7 ~~ " ~ 231 12 4 (23) 224 227 219 _ 81 439 1 39 6 (3) (51) 82 403 81 260 82 260 _6 33 370 176 (2) 11 (1) 205 (11) (1) 3 (2) (26) (18) 28 347 362 12 224 175 16 205 361 _ 551 1 32 ------ ---- -- Total 2,460 35 95 (5) 39 (227) 2,397 2.007 1,940 556 7 ~ 2.366 31 277 (13) 36 (237) 2.460 1,868 2,007 558 32 -- - I i 037742 See Cautionary Note on page 44. nm r\ 4 j r o U i^ 3O Table 1 (Continued) Estimated Quantities of Net Proved Crude Oil and Natural Gas Liquids Reserves f unaudited) (Millions of barrels) Year Ended December 31.1985 Net proved reserves --beginning of year.......................................................................... --revisions of previous estimates.................................................... --improved recovery...................................................................... --purchases (sales) of minerals in place......................................... --extensions, discoveries, and other additions.............................. --production.................................................................................... Net proved reserves --end of year................................................................................... Net proved developed reserves --beginning of year......................................................................... --end of year................................................................................... Mobil's share of net proved reserves of investees accounted for on the equity method...................................................................... Quantities under special arrangements in which the company acts as producer --quantities received during the year............................................. --estimated future quantities.......................................................... United States Crude NGL 832 24 79 -- 17 (99) 853 727 721 - 208 (7) 1 -- 2 (21) 183 189 168 - - Canada Crude NGL 244 (10) 18 -- 3 (24) 231 239 227 - 85 (1) - -- (3) 81 84 81 - --- Foreign Europe Crude NGL 474 12 -- -- (47) 439 208 260 6 33 1 -- -- (1) 33 11 12 - "-- -- Other Crude NGL 370 23 -- 3 (26) 370 225 224 531 187 (2) 6 -- -- (15) 176 185 175 - 16 -- Total 2.433 27 117 -- 25 (236) 2.366 1.868 1.868 537 16 -- C\ 48- See Cautionary Note on page 44. 037743 IffflEMEjfTARY INFORMATION Table 2 Estimated Quantities of Net Proved Natural Gas Reserves <unaudited1 .Billions ofcubic "set) Year Ended December 31.1987 Net proved reserves --beginning of year.................................................................................................................. --revisions of previous estimates............................................................................................. --improved recovery............................................................................................................... --purchases (sales) of minerals in place.................................................................................. --extensions, discoveries, and other additions....................................................................... --production.............................................................................................................................. Net proved reserves --end of vear............................................................................................................................. Net proved developed reserves --beginning of vear................................................................................................................... --end of year............................................................................................................................. Mobil's share of net proved reserves of investees accounted for on the equity method.............. ...... Year Ended December 31,1986 Net proved reserves --beginning of vear................................................................................................................... --revisions of previous estimates.............................................................................................. --improved recovery................................................................................................................ --purchases (sales) of minerals in place................................................................................... --extensions, discoveries, and other additions........................................................................ --production............................................................................................................................... Net proved reserves --end of year............................................................................................................................. Net proved developed reserves --beginning of vear................................................................................................................... --end of year............................................................................................................................. Mobil's share of net proved reserves of investees accounted for on the equity method.............. ------ Year Ended December 31,1985 Net proved reserves --beginning of year...................................................................................... --revisions of previous estimates................................................................ ................................... --improved recovery................................................................................... ................................... --purchases (sales) of minerals in place..................................................... ................................... --extensions, discoveries, and other additions.......................................... ................................... --production................................................................................................. ................................... Net proved reserves --end of year............................................................................................................................. Net proved developed reserves --beginning of year.................................................................................................................... --end ofyear............................................................................................................................. Mobil's share of net proved reserves of investees accounted for on the equity method.............. ----- United States 277 187 (610) 6.719 6.493 (1) (558) 7,855 6,814 6,719 -- (69) 40 6 162 (623) 7.600 7.414 6.814 -- Canada Foreign Europe 2.597 (63) 8 (120) 2,422 2,498 2,234 - 2,737 400 (5) 402 (233) 3.301 2.289 2.399 63 2.845 (117) 3 3 (137) ; 2,649 101 (10) -- 183 (186) 2,597 2,737 2.657 2.498 -- 2.149 2,289 64 3,242 (298) 20 24 (143) 2.845 2.934 2.657 -- 2,619 51 17 -- 126 (164) 2.649 1.756 2.149 56 Other To 7.290 (1) - (466) 6.823 7.290 6.823 137 20.4 6 5! 11.41 20.21 18.75 17.9' 2( 7.593 20 82 (12) -- (393) 7,290 7.581 7.290 155 20. 51 u (i 4; (1.27 20.47 19,20 18,79 21 7.836 145 -- -- -- (388) 7,593 7.739 7,581 91 21.78 (17 7 31 (1.31 20.68 19.84 19,20 14 037744 See Cautionary Note on page 44. Sf & C CT .. ^ t/ i 17 EWTAR? INF&RMATIQK Table 3 Capitalized Costs Related to Oil and Gas Producing Activities / unaudiifdj In millions/ At December 31. Capitalized costs Unproved properties.......................................................................................................................................................................................... Proved properties, wells, plants, and other equipment..................................................................................................................................... Total capitalized costs........................................................................................................................................................................................... ' Accumulated depreciation, depletion, and amortization..................................................................................................................................... ' Mobil's share ot net capital costs of investees accounted for on the equity method................................................................................................................................................................... 1987 S 1.303 25,977 $27,280 $11,188 $ 168 1986 $ 1.731 24,284 S26.015 8 9.690 $ 156 Table 4 Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development Activities < hi millions) Year Ended December 31.1987 Property acquisition costs.......................................................................... Exploration costs........................................................................................ ....................................... Development costs...................................................................................... Total expenditures...................................................................................... Mobil's share of investees' costs of property acquisition, exploration, and development............................................ ........................... Year Ended December 31,1986 Property acquisition costs.......................................................................... ....................................... Exploration costs........................................................................................ ....................................... Development costs....................................................................................... ....................................... Total expenditures....................................................................................... ....................................... Mobil's share of investees' cost of property acquisition, exploration, and development............................................ ................. :.................... Year Ended December 31,1985 Property acquisition costs.......................................................................... Exploration costs........................................................................................ Development costs....................................................................................... ....................................... Total expenditures....................................................................................... ....................................... Mobil's share of investees' cost of property acquisition, exploration, and development............................................ ....................................... United States 167 S 62 282 710 $1,054 - 816 $1,413 - Canada $ 15 62 82 $159 - S5 90 71 $166 - $ 14 90 99 $203 - Foreign Europe s-- 208 202 $410 $ 14 s237 211 $448 $ 14 s-- 186 216 $402 $ 11 Other Total 3-- 102 37 $139 $ 27 $ 80 539 378 $1,497 $ 41 $1 82 49 $132 S 35 $ 68 691 1.041 $1,300 $ 49 $152 91 $243 $ 37 $ 107 932 1.222 $2,261 $ 48 45'u- Cl 037745 SIT FF L E M EN TART INFORpiATIGN Table 5 Results of Operations for Oil and Gas Producing Activities i unaudited) In muttons) Year Ended December 31.1987 Revenues--Trade sales................................................................................. --Intercompany sales..................................................................... ........... Production (lifting) costs.............................................................................. ........... Exploration expenses.................................................................................... ........... Depreciation, depletion, and amortization.................................................... ........... Other operating revenues and (expenses)..................................................... ........... income tax expense...................................................................................... ........... Results of ooerations for producing activities............................................... ........... Mobil's share of results of operations for producing activities of investees accounted for on the equitv method.......................................... Year Ended December 31.1986 Revenues--Trade sales................................................................................. --Intercompany sales..................................................................... ........... Production (lifting) costs.............................................................................. ........... Exploration expenses.................................................................................... Depreciation, depletion, and amortization.................................................... ........... Other operating revenues and (expenses)..................................................... ........... income tax expense...................................................................................... ........... Results of operations for producing activities............................................... ........... Mobil's share of results of operations for producing activities of investees accounted for on the equitv method.......................................... Year Ended December 31.1985 Revenues--Trade sales.................................................................................. ........... --intercompany sales..................................................................... ........... Production (lifting) costs............................................................................... ........... Exploration expenses..................................................................................... Depreciation, depletion, and amortization.................................................... ........... s)ther operating revenues and (expenses)..................................................... ........... income tax expense...................................................................................... ........... Results of operations for producing activities............................................... ........... Mobil's share of results of operations for producing activities of investees accounted for on the equitv method.......................................... United States 1.661 (1.045) (219) (1.275) 279 (452) 8 386 1.442 (1.096) (1.158) 31 (148) 8 (26) S 1.334 2.738 (1.731) (992) 4 (742) S 746 ________________ Canada Europe 5 396 218 (215) (53) (149) 44 (156) 8 85 - 8 994 690 (674) (163) (322) 76 (197) S 404 81 8 355 186 (244) (64) (156) 61 (95) S 43 - 8 986 548 (629) (167) (270) 105 (305) 8 268 S1 8 494 480 (337) (83) (145) 86 (356) $ 139 -- 81.353 840 (747) (138) t203) 66 (839) 8 332 8 17 Other 8 1.034 721 (359) (84) (84) 83 (818) 8 493 8 12 8 699 820 (387) (86) (129) 316 (732) $ 501 8 13 8 1.296 1.800 (622) (144) (97) 73 (1.734) 8 572 3 29 Total S 3.861 3.290 (2,293) (519) (1.830) 482 (1.623) 8 1.368 8 13 8 3.191 2.996 (2.356) (565) (1,713) 513 (1.280) 8 786 $u 8 4.977 5.858 (3.437) (730) (1.437) 229 (3.671) 8 1.789 8 46 037746 Table 6 Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves mnaudiudi (In millions1 At December 31,1987 Future cash inflows........................................................................................ Future production costs.............................................................................. Future development costs........................................................................... Future income tax expenses........................................................................ Future net cash flows................................................................................... 10% annual discount for estimated timing of cash flows........................... Standardized measure of discounted future net cash flows...................... Mobil's share of standardized measure of discounted future net cash flows of investees accounted for on the equity method..................... At December 31.1986 Future cash inflows........................................................................................ Future production costs.............................................................................. Future development costs............................................................................. Future income tax expenses.......................................................................... Future net cash flows..................................................................................... 10% annual discount for estimated timing of cash flows.............................. Standardized measure of discounted future net cash flows........................... Mobil's share of standardized measure of discounted future net cash flows of investees accounted for on the equity method................ At December 31,1985 Future cash inflows........................................................................................ Future production costs................................................................................ Future development costs............................................................................. Future income tax expenses.......................................................................... Future net cash flows..................................................................................... 10% annual discount for estimated timing of cash flows.............................. Standardized measure of discounted future net cash flows........................... Mobil's share of standardized measure of discounted future net cash flows of investees accounted for on the equity method..................... United States S 27,401 (9,079) (828) (4,639) 12,855 (5,915) $ 6,940 -- $ 24,920 (10.308) (924) (3.397) 10,291 (4.488) $ 5,803 -- $ 40.661 (14.656) (1.818) (9.355) 14,832 (6,544) $ 8,288 -- Canada Foreign Europe Other Total S 7,280 (3,029) (36) (2.122) 2.093 (990) 8 1.103 __ S 15.209 (5.334) (856) (5.049) 3.970 (1.509) $ 2.461 $ 32 S 24.227 (3,466) (733) (12.531) 7.497 (3.255) $ 4.242 s 208 s 74.117 (20.908 (2.453 (24.341 26.415 (11,669 s 14.746 $ 240 $ 7.729 (3.021) (55) (2,126) 2,527 (1.242) $ 1,285 -- $ 14.074 (4.360) (863) (5,321) 3,530 (1,215) $ 2,315 $ 53 s 23.881 (3.931) (847) (12.370) 6,733 (3.100) s 3,633 $ 195 s 70.604 (21,620 (2.689 (23.214 23.081 (10.045 s 13.036 s 248 $12,710 (2.871) (74) (5,132) 4,633 (2.532) $ 2,101 -- $ 24,660 (6,371) (926) (10.653) 6,710 (3,029) $ 3,681 $ 83 $ 40,223 (3,746) (984) (22.830) 12.663 (6,423) $ 6.240 $ 286 $ 118,254 (27.644 (3,802 (47,970 38.838 (18,528 $ 20.310 $ 369 Table 7 Changes in Standardized Measure of Disrounted Future Net Cash Flows tunamuudi (In millions/ Year Ended December 31, Beginning of year............................................................................................ Changes resulting from: Sales and transfers of production, net of production costs.......................... Net changes in prices, and development and production costs.................. Net change in income taxes........................................................................ Extensions, discoveries, additions, and purchases less related costs........ Development costs incurred during the period........................................... Revisions of previous quantity estimates.................................................... Accretion of discount................................................................................... Other............................................................................................................. End of year........................................................................................................ ---------- a * r-r O-n----------------------- cee Cautionary Note on page 44. 1987 $13,284 (4,858) 1.625 (324) 719 878 1,125 2,545 (8) $14,986 sK ES 037747 1986 $20,679 (3.831) (23.146) 12.047 424 1.041 1,888 4,303 (121) $13,284 1985 521,236 (7.398 (1.479 613 590 1.219 1.281 4,515 102 S20.679 Bf'liR"Sift'd IfsV OF F 1c ERS AND COMMITTEES I Directors</Mobil Corp.. seated at table, ram er't: James Q. Riordan. Richard F. Tucker. Alien E. Murray. B-ouna them, from left: Robert C-. Scnwartz. Paul i. Hoenmans. Herbert Sciimcrlz. Eleanor 8. Sheldon. Waiter E. Mac Donald. Lee L. Morgan. William J. Kennedy [If. Jexe! S. Lafontant. Samuel C. Johnson. Wiliam W Scranton. JamesE. Olson, Lewis M. 8ransr,,mh. Walter A. Both. Eugene A. Senna. Robert G. Weeks. SUPPLEMENTARY INFORMATION Other resources disclosures (unaudited} The table presents selected statistics for Mobil's mineral ore and carbon dioxide operations. Reserves represent estimated recov erable volumes, excluding royalties and interests owned by others. All reserve estimates are subject to future revision. Future production of these resour ces is subject to many factors, including government regulations and market con ditions. Market prices for these resour ces may be subject to wide fluctuations during the production periods. Mineral ore and carbon dioxide resources 1987 Coal (thousands oftons} Proved and probable reserves at end of year111........................................................ Production............................................................................................................... Purchased (sold) in place........................................................................................ ........................................................ (330,000) Phosphate Rock (thousandsoftons} Proved and probable reserves at end of year........................................................... Production............................................................................................................... Purchased (sold) in place....................................................................................... , Carbon Dioxide (millions ofcubicfeet} Proved reserves at end of year............................................................................... .........................................................4,324,000 Production............................................................................................................... (l) Reductions in 1987and 1986 resulted mostlyfrom abandoning certain uneconomic interests. 1986 2,968,000 3,990 132.000 2.100 200 4,380.000 76,000 1985 4.227,000 4,655 (212,000) 133.000 3.100 100 4.499.000 49.000 037748 1 *Q( Mobil Corporation Directors Waiter A. Bork Viet? President Mobil Oil Corporation Lewis M. Branscomb Director. Science. Technology and Public Policy. John F. Kennedy School or'Government. Harvard University PaulJ. Hoenmans Executive Vice President. Mobil Oil Corporation Samuel C. Johnson Chairman and ChiefExecutive Officer. S.C. Johnson & Son. Inc. William J. Kennedy HI Chairman. President and Chief Executive Officer, Sorth Carolina Mutual Lie Insurance Company Jewel S. Lafontant Senior Partner. Vedder. Price. Kaufman & Kammholz Walter E. Mac Donald Executive Vice President. Mobil Oil Corporation Lee L. Morgan Former Chairman and ChiefExecutive Officer. Caterpillar Inc. Allen E. Murray Chairman ofthe Board. President, and ChiefExecutive Officer James E. Olson Chairman and ChiefExecutive Officer, AT&T Eugene A. Renna Executive Vice President, Mobil Oil Corporation James Q. Riordan Vice Chairman and Clue/ Financial (Officer Herbert Schmertz 1'irr President Robert G. Schwartz Chairman ofthe Board. Metropolitan Lite Insurance Company William W. Scranton Former Governor ofPennsylvania Eleanor B, Sheldon Former President. Social Science Research Council Richard F. Tucker Vice Chairman and President. Mobii Oil Corporation Robert G. Weeks Vice President Officers Alien E. Murray Chairman or the Board. President, and Chief Executive Officer Richard F. Tucker Vice Chairman James Q. Riordan Vice Chairman Rex D. Adams Vice President Andrew L. Gaboriault Vice President Lucio A. Noto Vice President Herbert Schmertz Vice President Robert G. Weeks Vice President Dede T. Bartlett Secretary J. Edward Fowler General Counsel R. Hartwell Gardner Treasurer Philip W. Matos Controller Committees Audit Committee: Dr. Branscomb. Chairman: Mrs. Lafontant, Mr. Morgan. Mr. Olson, Mr. Schwartz. Dr. Sheldon. Compensation and Management Incentive Committee: Mr. Morgan. Chairman: Mr. Johnson, Mr. Kennedy, Mr. Olson. Mr. Schwartz. Executive Committee: Mr. Murray. Chairman: Mr. Tucker. Vice Chairman: Mr. Bork, Mr. Hoenmans. Mr. Mac Donaid. Mr. Renna. Mr. Riordan. Mr. Schmertz. Mr. Weeks. Sominating Committee: Gov. Scranton. Chairman: Dr. Branscomb. Mr. Kennedy, Mr. Morgan. Mr. Murray. Mr. Tucker. Public Issues Committee: Mrs. Lafontant. Chairman: Mr. Johnson. Mr. Kennedy, Mr. Murray, Gov. Scranton. Dr. Sheldpij^Jvfi^Tucker. i '\ \ i 037750 Mobil Oil Corporation Directors Walter A. Bork Vice President PaulJ. Hoenmans Executive Vice President Walter E. Mac Donald Executive Vice President Allen E. Murray Chairman ofthe Board Lucio A. Xoto Vice President Eugene A. Renna Executive Vice President James Q. Riordan Executive Vice President Herbert Schmertz Vice President Richard F. Tucker President Robert G. Weeks Vice President Montgomery Ward Bernard F. Brennan President Transfer Agents The Chase Manhattan Bank N.A. 1 New York Plaza New York. New York 10081 The Canada Trust Company 110 Yonge at Adelaide Toronto. Ontario MC5 1T4. Canada The Canada Trust Company 505 Third Street. S.W. Calgary. Alberta T2P 3Y8, Canada Regis- irs The C.'u=e Manhattan Bank. N.A. New York, New York Montreal Trust Company Toronto, Ontario. Canada Montreal Trust Company Calgary. Alberta. Canada Auditors Arthur Young & Company277 Park Avenue New York. New York 10172 An important part of the domestic and foreign operations covered by this report is carried on by operating divisions, subsidiaries, and affiliates conducting their respective businesses under the direction 3nd 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 ail such divisions, subsidiaries, and affiliates collectively, and sometimes for one or more of them. Additional information relating to Mobil is contained in a separate report. Financial and Operating Statistics 1987. and in its annual report on Form 10-K filed with the Securities and Exchange Commission. Information dealing with various Mobii benefit plans for employees is contained in plan descriptions, annual reports, and other materials regularly furnished to employees under the Employee Re tirement Income Security Act of 1974. A statement of charitable contributions made by Mobil Foundation. Inc., is prepared annually. For copies of any of the foregoing, shareholders may write to the Secretary, Room 9w0006. Mobil Corporation. 150 East 42na Street. New York. New York 10017-5666 or telephone 212-383-4242. 01431 Mobil Corporation 350 Ea*t 42nd Sireei New York. New Yore 20017-5666 U37751 DlM'M'^Ttk'S','-'Cii'iPFlCiKS AND COMMITTEES i* W> ' tf Directors ofMobil Cor?., seated .it tabic, from left: James Q. Riordan. Richard F. Tucker. Allen E. Murray. Behind them, from left: Robert G. Schuarts, Paui I. Hoenmans. Herbert Schmertz. Eleanor B. Sheidan. Waiter E. Mac Donald. Lee L. Morgan. William J. Kennedy HI. Jewel S. Ljmntant. Samuel C. Johnson. Wuhan: W. Scranton. JaniesE. Olson. LeiciM. Bran^c-onc. Waiter A. Bnrk. Eugene A. Rama. Robert G. Weeks. 52' V