ML20054L930

Annual Financial Rept 1981

ML20054L930
Person / Time
Site:	General Atomics
Issue date:	02/25/1982
From:	Jun Lee, Walker E CHEVRON U.S.A., INC. (FORMERLY GULF OIL CORP.)
To:
Shared Package
ML20054L918	List: ML20054L917 ML20054L930 ML20054L940
References
NUDOCS 8207090074
Download: ML20054L930 (64)

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lost sight of in the abstractions.ef the debate on'enesty i

V thattheenergyindustryIspartof thewegggofWe,,

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sometimss it is fleeting,!as when a trein yrfA3ts tisrosigh the?

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' g - % Phstographs in this report are Inteneled.as.$anundumanyeig.

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Highlights

@cntants Contents Letter to Shareholders.

2 Financial Highlights Minions of Doles <s Exploration & Production.

5 1980 g

Refining & Marketing 11 j

' Total Revenues...............

830,401.

$28,808 -

$19,805 astern Hemisphere Refining & Marketing.

13 r

Gulf Canada.

15 g

Chemicals.

19 United States..............

-ess.

750 478 Mineral Resources 21 Worldwide.................

1,231

' 1,407

~ 740 Other Activities 23 Funds Provided from Operations.

2,005~

2,955.

1,614 Financial Review.

25 Capital and Exploration ~

Financial Statements & Notes 33 Report of Independent Accountants 45 Expenditures Supplemental Oil & Gas Information 46 United States.............

3,071 1,951 2,215 Supplemental Other Minerals Information 51 Worldwide.................

4,325 3,001 3,013 Inflation Accounting 52 T;tal Assets.................

20,429 18,638 14,195 Five-Year Statistical Summary 54 Officers & Operating Divisions 59 Return on Average Shareholders' Equity.........

12.5 %

15.3 %

10.4 %

R; turn on Average Financial and Operating Highlights Employed Capital............

9.9%

12.3 %

8.8 %

The Financial and Operating Highlights as shown on this page and the tables contained in each Per-Share Data business segment wnte-up present data for 1981, Net income................

S 6.37-

$ 7.21

$ 3.80 1980 and 1977. The 1977 figures are provided to add Cash Dividends.........

2.65 2.37 1.85 perspective to Gulf's performance over the past ye rs.

au andal st temmts on

. Shar; holders' Equity..........

53.00 49.37 37.58 pages 33-35 provide two-or three-year compari.

sons. depending upon Securities and Exchange Operating Highlights Commission reporting requirements. Additional Net Crude Oil and Natural Gas data for the period 1977 1981 can be found on Liquids

[i pages 32 and 54-58.

(daily average barrels)

United States Production.....345,000 364,000 402,000 Annual MeeUng Foreign Production.........

270,000 280,000 307,000 The Annual Meeting of Shareholders will be held Term Purchases..........

427,000 580,000 1,439,000 on May 11,1982, at Heinz Hall. Pittsburgh. Pennsyl.

Worldwide............... 1,042,000 1,224,000 2,148,000 vania. A formal notice c! the meeting and proxy material have been included with your Annual Net N:tural Gas Produced Report mailing.

(thousand cubic feet per day)

United States......... 1,605,000 1.808,000 1,865,000 Worldwide............... 1,007,000 2,032,000 2,167,000 Cover Crude Oil Processed The Orange Disc and Gulf's quality service are a (daily average barrels) central part of historic Ligonier. Pennsylvania, in the United States.............

649,000 749,000 874.000 rolling hills east of Pittsburgh. Gulf is the second Worldwide......

...... ' t,133,000 : 1,385,000 1,766.000 largest marketer of gasoline in a 28-state area in the East and South. (Photograph by Cennis R; fined Products Sold Hardng. GuW (daily average barrels)

United States............ 601,000 737,000 851.000 f

Worldwide.............. 1,1M,000 1,346,000 1,669,000 Form 10-K information Coal Mined Copies of the Company's Annual Report on Form i

i (thousands of tons).......

11,000

< 9,700 8,500 jo.K. to be filed with the Securities and Exchange Ur:nium Produced Commission, will be available upon request to: Vice 1

(thousands of pounds)..

2,070

' 3,150 2,630 President, Financial Relations. Gulf Oil Corporation.

P.O. Box 1166, Pittsburgh. Pennsylvania 15230.

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l Disturbing crosscurrents in the world economic fuel substitution have been greater than most and energy environment affected Gulf Oil Corpo-Net income economists had predicted.

ration's performance throughout 1981-and will A look at U.S. gasoline trends is illustrative. At shape its course in the years ahead.

the beginning of 1981, Gulf's average wholesale Although the energy-producing segments of um price was S1 a gallon. Despite an increase in oil our business achieved record earnings, the seg-prices by the Organization of Petroleum Export-ments which are closest to the consumer-ing Countries (OPEC) in early January and de-refining, marketing and chemicals-experienced 12m control of domestic crude oil prices at the end of operating losses in both the United States and that month, Gulf and other refiners were unable Europe. Overall, Gulf's net income declined 12 to pass on all of these higher costs at the gaso-percent from 1980's record level, to $1.2 billion, 92 line pump. After falling steadily since 1978, in-or $6.37 per share. Of greater concern, our re-dustry gasoline sales dropped another 4.5 per-turn on shareholders' equity slipped to 12.5 per-cent in 1981 and competition was intense. To cent from 15.3 percent.

E maintain market share, we were forced to reduce l Nevertheless, significant steps were taken to prices-by a total of 15 cents a gallon since i benefit our shareholders. Namely, we:

March 1981. As of the date of this letter,13 3*

o Increased the dividend for the eighth con-months after decontrol, Gulf's average whole-i secutive year to an annual rate of $2.80 per sale price was again just under $1 a gallon.

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share.

The laws of economics have also worked in o Initiated a stock repurchase program under 7,

78 19 80 81 the broader arena of international oil prices.

which 10 million shares were bought during the While free-world oil demand declined 10 percent second half of 1981 and an additional 10 million between 1979 and 1981, OPEC production fell will be acquired in 1982. In view of declining by 26 percent. The cutbacks were most severe stock prices, we feel that these purchases repre-in those countries, such as Nigeria, that had sent an excellent investment for our continuing Earnings Per Share maintained the highest prices. Faced with falling shareholders, giv,ng each a proportionately g,

revenues, OPEC realigned prices in October. In i

larger share of assets and future earnings.

early 1982, however, these " official" prices were o Purchased two large and profitable coal again coming under pressure as North Sea pro-properties, which double our coal reserves and W

ducers, Iran, Mexico and others shaved prices to increase our annual production.

maintain sales volumes. U.S. oil prices have o invested a record S4.3 billion in capital and been reduced by $4 to SS a barrel since early W

exploration projects, with nearly three-fourths 1981.

being spent in the U.S.

Petroleum demand is expected to continue to These achievements must be viewed against a decline in 1982. Only a substantial improvement rapidly changing world energy picture. In two in the economy coupled with low oil prices is short years, the petroleum industry has gone likely to produce any growth in demand over the from a seller's market to a buyer's market.

next several years. Barring a major disruption in 3

Shortages and spiraling prices have given way to supplies or an enforceable agreement by OPEC surpluses and price cutting. This is not surprising to limit oil production, the next few years could considering the shcck waves caused by two be characterized by excess world producing ca-,

g foreign-induced oil crises and more than a ten-pability, surplus refining and marketing capacity I

fold increase in oil prices during the 1970s.

and increasing competitive pressures throughout However, the duration of the current recession the industry.

I and the extent of consumer conservation and 77 78 79 80 e1 Although this environment is beyond our con-2

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Y The Corpor ate trol, We believe that we have the ability, as well closed in 1981 and our Italian refinery was idled senior Executive as the responsibility, to resoond in a way that is in early 1982. As we reduce capacity, we do beneficial to our shareholders We will supple-more than reduce costs. We bnng our crude oil Chair an and hie E xecutive Officer ment traditional sources of earnings growth--

feedstock position into better balance, lessen James E. Lee, namely higher volumes and nsing pnces-with the Company's dependence on foreign crude Executive non-traditional ways to enhance shareholder supplies and free up substantial inventones and Value-such as our stock repurchase program working capital A selective divestment strategy Ha dH amm r and the sale of certain assets We will tailcr the is also being followed by our chemical opera-and Melvin J. HiH.

and President and size of our operations to fit the most profitable tions.

Chief Operatin9 markets and will strive to improve productivity While we pursue these operational strategies, OHicer Ed ard B throughout the Gulf organization Gulf's strong financial position will be main-We have established four major strategic goals tained We expect earnings and cash flow to fi-that balance Gulf's near-term and longer term nance most of our capital program. In addition, needs Our first pnonty will be to replace a we will seek to retain a high credit rating and the greater percentage of the hydrocarbons we pro-flexitslity to raise substantial sums on short no-duce in the U S Second, we will work to rebuild tice. This will enable us to take advantage of Gulf's profitability in refining, marketing and opportunities. such as acquisitions, that may pro-chemicals Our third goal is to maintain our vide the quickest way to build our reserve base.

strong financial position And fourth, we will posi-In looking to the future, we acknowledge with tion Gulf fur the future with the alternate energy gratitude the many past contnbutions by Jerry resources. the technical skills and the manage-McAfee, who retired as chairman and chief exec-ment depth necessary for financial growth utive on December 1 after 36 years of service.

Since the foundation of the Company is its We are pleased that he will continue to serve Cn Ctpital &

substantial domestic reserves of oil and natural the Board of Directors With the dedication of Explsretion gas. our pnmary focus over the next several Gulf's employees, we are confident that we can P("

f years will be on adding to those reserve levels meet our goals on behalf of our shareholders.

through new discovenes Extensive geological data indicates that there are vast undiscovered Respectf ully submitted.

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quantities of oil ard gas in the U S -perhaps as I

much as has been produced to date. The great-est potential lies in the frontier areas such as

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offshore California and Alaska that will be com-ing up for lease within the next few years We continue to believe that newly discovered oil and James E. Lee

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gas in the U S will be the most profitable and Chairmar' of the Board i

most secure in the world Therefore, even with

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no increase in pnces over the next few years, we believe that the potential returns justify our pres-

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To prosper in refining. marketing and chemi-cais today. operations must be stre@nlined. mar-Edward B Walker. Ill keting skills enhanced and costs tightly con-President trolled To that end, two small U S refinenes and

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T ExpInrmtian G Produstien 3-In 1981. operating earnings for Gulf Oil Exploration and Production Company increased 33 percent to $1.8 bil-lion, witn over three-fourths generated in the United 3

States The pnncipal contnbuting factors were higher crude oil and natural gas pnces. which also spurred record exploration and dnlling activity. With greater y

y incentives and higher cash flow. Gulf increased capital

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's by 35 percent to 52.4 bilhon. and !ike earnings. over g

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In 1982 the search for new reserves and the devel-N three. fourths was spent in the U.S.

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opment of previous discovenes will require a similar i

level of investment as greater attention is placed in

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from increased production and reserve additions

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pursuing this goal. the Company expects to benefit

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Effective January 28. 1981, the federal govern.nent

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hf ted pnce controls from domestic crude oil for the first

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fore, immediately rose. Gulf's crude oil pnces aver-averaged only 60 percent of world levels the year be-

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.. ',,p f n -[. S - y -i 3 aged $34 57 per barrel in 1981. $13 54 more than in

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1980 Although the federal crude oil excise tax took

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over s7 of that increase. the Company s net reanzation

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h db billion in 1981 A revision in the law, under which the r

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beneficial effect on the Company's earnings. Last year. 6 percent of Gulf's production was classified as

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..Mk i newly discovered. While 72 percent was "old" oil.

.. g*. h ~ k $[ih which is taxed at 70 percent By 1986, newly discov-

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i dunng 1981 to 5154 per thousand cubic feet. Existing f

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.g to be decontrolled However. without full decontrol,

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' ? "9 pnces will remain well below their crude oil equivalent fp,., i-values.

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Gulf's net crude oil production averaged 275,000

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barrea a day. a dechne dunng 1981 of 7 percent. Pn-

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x per day In part this resulted from a 13-percent curtail-

.g ment in contracted purchases by Texas Eastern f.

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Transmission to an average of 565 milhon cubic feet a

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day More moderate production decimes in both oil

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Good fishing is Gulf participated in dnikng 289 exploratory wells in 5

?'hb-often found near the U S dunng the year of which 163 were successful

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production platforms.

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-74 as gas wells and 89 as oil wells. The Company t

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,,f West Delta Block 27 also shared in completing 995 development wells. In

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total. Guif participated in 46 more wells than in 1980 y,

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Despite this increase in dnlhng activity, production L

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continued to outpace reserve additions Dunng 1981.

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Guit's proved U S reserves of crude oil and natural

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gas hquids dechned 6 percent to 865 milhon barrels.

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and natural gas reserves dechned 8 percent to 4 2 "g.

tn1 hon cubic feet (See page 47 for additional reserve

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1. thin the c.on tinenta! US Gulf ma,ntained an County Gulf has 250.000 net acres in the Basin, with a undeveloped iease in sentory of nearty 14 mdhon 10-percent interest in a well which was being dnlled at acres which it is evaluating on a five-year schedu'e year-end,n Mecosta County Three deep-wddcat tests utthzing farm-outs and joint operations in se!ected are planned for 1982 areas The Gulf of Mexico. Where the Company has been Dunng the year the Company entered into a joint operating for 27 years. accounts for 25 percent of the operation with Pennzod to explore 350.000 net Gulf Company's domestic od and gas production Dunng acres in Wyoming. Idaho. Utah and Montana in the 1981. Gulf acquired an interest in 20 tracts for 5227 promising Rocky Mountain Ove at Bert To earn a mahon and dnlied 46 exploration wells and 26 devel-25 percent interest Pennzod wm r " tse 75 percent opment wells At year-end. the Company had 58 fields of the exploration costs-+stimatW e 567 mdhon-on production. 4 fields scheduled to come on stream over a four year penod in 1982 and 4 discovenes awaiting development The Elsewhere in the Overthrust Belt. Guit participated Company plans to onl 24 exploratory wells in the Gulf in one discovery in 1981. and at year-end was working of Mexico in 1982 to acquire a 15 percent interes* in a gas-processing Dunng the year production began offshore Louisi-plant being constructed in the Whitney Canyon-Carter ana at South Pass Block 78 where the Company has a Creek field in Wyoming When completed in 1984. the one-third interest Net production from the first plat-plant wdl have dady processing capacity of 350 mdhon form amounts to almost 41 mdhon cubic feet of natural cubic feet of res;due gas.10.000 barrels of conden-gas and 1.275 barrels of oil a day A second platform sate 35 600 barrels of natural gas hquids. and 2 500 should be on production in the spnng whde dnihng I tons of sulfur continues frem a third l

n the Wdhston Basin. Gulf shared in 27 successful At the 100-percent Gulf-owned South Timbaker l

addcats including the discovery of a new field the Block 195 field. production began from four wells at I

Lone Butte 10 mdes north of the Little Knife held in the rate of 40 n dhon cubic feet of gas and 150 barrels l l

North Dakota Since its d:scovery by Gulf in 1977. the of condensate per day Initial gas and condensate pro-Littte Knife f teld has produced more than 16 5 mdhon duction also began from the 40-percent Gulf-owned barrels of od An expansion of the Little Knife gas plant Sabine Pass Block 13. and completion work is under this spnng is expected to increase the Company s cur-way on 50-percent-owned Block 11 with production rent dady net production in the Basin to 12.500 barrels expected in the third quarter of 1982 A 24-well dnihng por day The joint operation initiated in 1980 with platform is being designed for use in Main Fass Block Conoco to emplore 1 mahon Gutt acres in the Wilkston 77-78. where an important gas discovery. with premis-Basin resulted in 3 discovenes from 14 wddcats-all ing shows of od. was made in 1981 Gulf owns a 40-dnlled at no cost to the Company These efforts wdl percent operating interest in the ! ease help offset tho rapid dechne rate in production from Offshore Cahfornia. where 1981 production aver-the Basin's shanow wells aged 3.150 barrels of od and nearly 1 mdhon cubic feet Elsewhere a 100-percent Gulf wddcat on the 10.000-of gas per day. Gulf plans to dnli on two blocks off the acre Marquez prospect in East Texas resulted in a coast of Santa Mana. which it acquired in May 1981 for signif> Cant deep-gas d!sCovery en Aptd 1981 In the $37 milhon Morrow Trend of Southeastern New Mexico Gulf par-Dunng 1981 seven tracts were acquired in the Mid-tiCipated in 13 wddCatS. 7 of Which were discovenes and South Atlantic And, in early 1982, Gulf was The Michigan Basin received Considerable interest in awarded an interest in 13 tracts at the first sale of 1981 foHowing the discovery o' 9as in Missaukee National Petroleum Reserve acreage in Alaska.

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The Company is actwely developing enhanced re-Warron Petroisum Company comry processes to produce the reserves of on that Tulsa-based Warren Petroleum Company is the largest car,not he recovered by conventional techniques This marketer of gas liquids in the U S. with 11 percent can be a' much as two thirds of the oil in a field Gulf of the market Outside sales increased by 5 percent estimates that 500 mJlion to 1 bdhon barrels of add'-

dunng the year to 137.00C barrels pa day, and produc-tional hydrocarbon reserves are potentially recover tion-including plant proa ssing-increased 4 oercent abie from its f.ekts by enhanced recovery operations to 71.000 barrels per day The industry as a wnole is At the end of 1981 Gulf was involved in 57 en.

contracong hanted recovery proiects. including the world's deep-Warren currently operates 39 processing plants ana 1 est firefood project 11.500 feet ~n Musissippi, sev-has an equity interest in ancther 36 In 1982, the Com-I eral cyr A steam processes in Cahfornia. a surfactant pany plans to build four new facilities and expand l flood in OHanoma and carbon dioxide injection tests three others With the rr.odern Warrengas import Ter-in North Dakota and Texas E nhanced recovery pro-minal on the Houston Ship Channel, the Company duc tion averaged 5 000 barrels per day in 1981 and is also continues to be well-positioned to handle the expected to double this year expected growth in imports.

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International the Nigenan government oil company. 5 ngs operated Overseas. Gulf's net crude oil production rose shghtly throughout 1981. dnihng 11 wildcat and 13 develop-m curtailments in Nigena dunng much of the third quar-to 17T000 barrels per uay despite production ment wells A four-ng dnihng program is planned for 1982 ter More important. the Company increased crude oil Gulf has a 49-percent share of operations in Angola, and natural gas hquids reserves by 11 percent to 837 where construction continued in 1981 on an estimated milhon barrels Both production and reserves are ex-

$200-million gas-reinjection project financed, in part, Dected to increase through the 1980s by the U S. Export-Import Bank. By 1983 the tacihty is y

West Afnca is Guit's most important source of for-expected to recover 2.800 barrels per day of gas eign crude In 1981, net production from N! gena, An-liquids and reinject 32 milhon cubic feet per day of dry gola. Zaire and Gabon averaged 139.000 barrels per gas into the reservoir to increase oil recovery rates.

day. 20.000 barrels per day less than in 1980 However.

Gulf plans to operate three dnihng ogs in Angola this Gulf significantly increased its term purchases from year to develop several recent discovenes.

Nigena dunng the fourth quarter, and foi the year, they In Zaire, the Company's concession agreement with averaged 141.000 barrels per day, compared with the government was renegotiated at year-end. Al-119.000 in 1980 Net production in 19E.? should in-though taxes increased, the terms provKle a reason-crease by mor, than 40 percent to about 200.000 bar-able basis for continuation of the Company's develop-reis per day as the result of previous development ment of hydrocarbon reserves. The Company partici-activity and improved economics pated in three wildcat wells in Cameroon dunng 1981 ej in Nigena. where Gulf has a 40-percent interest with two of which resulted in gas condensate discovenes.

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in which Gulf has an mterest increased nearly three-to further test Gulf's 1980 gas and condensate dis-1 -

fold in 1981 to 35.000 bweis per day Full-year produc-covery on Norwegian Block 35/8 A third wellis sched-2.-

tion from the Murchesan field (Gulf interest 27 9 per-uled to be dnlied in 1982. In all, Gulf participated in 38 conf) w4 the instaliation of a s acond platform at North Sea wells dunng 1981 and is scheduled to par-Statt ord (5 3 percent) wea the poncipal factors With ticipate in 39 wells in 1982.

t the Dunlin (9 8 percent) and Thistle (12 percent)

Elsewhere in Europe, the Company has exploration p'

tields in full production, and the Hutton field (20 per-programs under way in Ireland, Italy, Germany and the 2 g wnn scheduled to come on stream in 1984, Gulf's Netherlands Off the Dutch coast, Gulf has a 21- ' l total not production from the North See should reach percent interest in a small gas-development program, apprnnmately 65.000 barrels per day by 1985 which is scheduled to begin marketing gas to the Further exploration dnlling dunng the year extended mainland by 1984 Gulf also has a 21-percent interest a large gas and condensate discovery made in 1980 in a 760,000-acre permit in Tunisia on which five wells on United Kngdom Block 16/26 into two adjoining were dnlled dunng 1981.

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blocks Gulf s interest is approximately 30 percent in Indonesia, Gulf is continuing to evaluate the Development is dependent on better gas pnces and 6-milkon-acre Natuna Block A concession in the South r

construction of a gas gathenng system Geophysical China Sea, where three wildcat wells were onlled dur-work will be conducted in 1982 on the five blocks Gulf ing 1981. A farm-out is being negotiated this year to

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has been awarded dunng the seventh round of U.K.

facilitate continued exploration of this large 100-leasing percent Gulf tract. In the Lidang Block B area, Gulf's 17 5-percent share of production increased to about

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A Gulf wildcat 1980. The Company's plans for 1982 include further drills on the edge exploration around a major gas discovery completed

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in the Middle East, the Company has a 35-percent g,.,

operating interest in a 3.3 milhon-acre concession in

( 'q Escravos Terminal in Nigeria stores Oman on which an onshore gas discove'y was made crude oil awaiting in 1981. Also, in late 1981, the Company spudded a export.

well on its 37 5-percent concession offshore Ras-Al-b Khaimah, one of the United Arab Emirates. Further

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.X e 4,.(4.:gg g.- K h. . Wp -W - - ig#,y..i .g;.c ; l ..$w.;, o,. j.g RGfining & Merkotina l g. 'd 9 i f7 E; I Gulf Refining and Marketing Company is targeting its I f. growth toward the important transportation fuels mar- '3 ( '.. 34 ket in the United States. Dunng the 1980s, demand for these products is expected to grow as a percent of total petroleum usage, even though total petroleum demand dechnes. Transportation fuels also provide the greatest value added-and the greatest potential for profit. 1981 was a poor year for the U S. refining and mar-keting industry. Gulf posted a loss of $48 million against operating earnings of $443 million a year ear-lier. For the second year in a row, the industry expen-enced reduced product demand brought on by the recession, increased conservation and fuel substitu-A ' = s. .~ tion. Decontrol of domestic crude oil pnces in January increased feedstock costs at a time when consumer s t resistance to nsing oil pnces was mounting. % c { Dunng the first eight months of the year, Gulf was y s particularly disadvantaged by its dependence on an uncompetitively pnced foreign crude oil slate, pnmanly 3 ' {( 4 from Nigena. When the higher costs could not be passed on at the gasohne pump, the Company was y s forced to reduce selling pnces---and sustain operating losses--to maintain market share. In the final quarter '\\ ) r.. d' (, ' e ' :,. of the year, excess world crude oil supphes and falling 4 demand forced OPEC to reahgn pnces, and Nigena i'W reduced the price of,ts oil to once again be competi- ,qa I tive with the official pnces of otner crudes. 4 . /, p." ;,, .' 'v market, Gulf is pursuing a three-pronged strategy de-4 To prosper in today's vastly changed petroleum ' ~' ( - - $ [, '. / '-. signed to: first, increase market share for gasohne and y. yt transportation distillates in key areas; second, permit 4 u - :. - >4 . -d" the processing of more readily available sour crude ' MMhD

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f oils; and third, sustain a refinery utikzation rate higher , m.t .7y.yW than the industry as a whole. In addition, lower product 6 ( ;.% : g,; - -j k; 1, ( ' demands and tighter controls are expected to permit '7. sizable withdrawals of crude oil and product invento- .M 4 '.[,, nes in 1982, thereby reducing carrying costs and im-proving earnings and cash flow. Marketing s .- s, Gulf, with an 8-pe' cent share, is the second largest +', + ' ;/ w g' marketer of gasohne in a 28-state area in the East and

M~ T South. This area encompasses 70 percent of the U S.

a population and over 60 percent of the nation's petro- ,f 'f y A,". e '- ' leum demand {. Gulf has launched a major program to increase its 4 e ' market share in those areas where it a! ready holds a ~,, e . T' competitive edge. Pnmanly, this will rqean investing in j the strong metropohtan areas where the Company has l

1. .i

~^ .. a a good logistics base. Gulf intends to expand selec- ~ a tively where its competitors pull back, withdraw from areas of weakness, and serve its rural customers ke i through an expanded obber, or wholesale, network. l ,[ - Retail operations are being upgraded through a ma-t 9 3 =- 1 tor station rebuild and modernszation program, includ-j Ing new pumps and color schemes. Brand loyalty is being reinforced by offenng supenor products, such as ' i ' +< m A Gulf tanker enters Gulf's high-octane Super Unleaded gasohne and Auto Boston Harbor ~ ~ carrying refined Diesel, which are gaining increased consumer recog-1 products to the nation. and through renewed emphasis on dealer train-7 Chelsea Terminal. ing and customer services , j e, ~....

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Jet fuel, which constitutes a small but profitable seg-s i ment of the Company's sales, is being expanded at high-growth airports. Lubncating oils, which are Gulf's '*?,' highest margin prcducts, are being promoted in new y s y.- ',. s markets, such as the industnal market in Cahfornia .,g- ". (.s - Refined product sales averaged 691.000 barrels per day in 1981. 6 percent below 1980, in a market which . s, 4 .( n t, y

dochned at about the same rate. Distillate sales fell 14 percent as the Company withdrew from some mar-40WMW ginal heating oil contracts in New England, but Gulf's g 3-percent dochne in gasoline sales was more moder-ate than the industry's 4 5-percent dechne. ?W

1 W

19F7 In Puerto Rico, where the Company has a 15-

, g ggi g percent share of branded gasoline sales, volumes in-creased 12 percent despito an overall dochne in the N. .O gasohne market.

M e a,etsl ; a,7st '

1 hen Agesen........ Refining Capssipeninnes. Atef us:

mj in order to improve the Company's refinery utikzation rato at a timo of dochning demand for refined prod-

@&MWW ucts, Gulf took several steps to reduce system size in 1981. The small Toledo, Ohio, and Venice, Louisiana, M: 1E EE refinenes were closed and a crude-oil-processing train CnadtM PiO00000il was idled at Philadelphia. With the planned saio of the - (910ugendthWieb

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.1,344 - Santa Fo Spnngs refinery in Cahfornia in 1982, refining ' per day).. capacity will be reduced by 9 percent from year-end U,8,CrudginWQft 1980 to 865,000 barrels per day. h(9teugendIbench -g, y-l4 g; Gulf's remaining refining system consists of three largo, modernized refinenes with deep-water transpor-W Sold

+

tation-at Philadelphia; Port Arthur, Texas; and Alk-ance, Louisiana-and smaller refinenes on the Ohio River at Cincinnati and in Puerto Rico. Dunng 1981, the MEFI) M ~ E1 1 Company processed 649,000 barrels of crude oil por M day,100,000 less than in 1980, and its refinenes oper- ?(Monscilbanels). ated at 72 percent of capacity, compared with 79 per-Cndle........;. ' are

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4 Ss i cent in 1980. With lower demand, imports were re-Relined Pygducts ;p }W ' j 72l 73: 7 duced by 26 percent to 246,000 barrels per day, 'hheU.S endhopeancperadensM. representing 38 percent of Gulf's crude slate, the s lowest in six years. A key component of the Company's strategy is to s (Left) Projects under enhance its capabihty to refine sour and heavy crude way at Gulf's Port oils A 5225-milhon project under way at Port Arthur will - - Arthur, Texas, refinery increase Gulf's sour-crudo-processing capacity to 30 willincrease capacity to process sour cruce percent in 1984 from 20 percent prvsently. Another T k i,-y; quality lubricating oils, $100.milhon project under way at Port Arthur will en-f and manufacture high-able the Company to maintain its production of 13,000 -[6~ ,f.y g

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barrels per day of high-quakty lubncating oils while ii t ge utikzing lower grade feedstocks. i c,, 4 It reflected in this h,w,..,4#ig ., - modern service ~. } i,

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new pumps and color Gulf's tanker fleet continued to be reduced in 1981 as s f [.. lower crude oil demand and loading hmitations at for- ..._,1 A schemes. Yellow pumps eign ports reduced the need for large-sized vessels. At 3 - i., ' +. ~. . ', c.% - - alert motorists that - C ' " ' ' t] ~ the station carries year-end, the Company had arranged to exchange its diesel fuel. 'F>'_" two U.S. flag very large crude carners to Arco for three. + ..'k# %.e g.- 150,000-deadweight-ton vessels, which are best suited l ' for its West Afncan trade. A' year-end, the Company owned, leased or long-d,.* i, f,.,,, "p tum chartered 36 ships totahng 3.9 milhon deadweight g dcadweight tons from 1980. i.J - # to.is, a reduction of 17 vessels and 1.8 milhon.. ' ' = . --e s- ( c Q; l c s 1.? l $ ' 'l I 9 y. ,,r? W t g j g g[ P* *

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Ecatsrn Hsminphsro 1981 was a difficult year for European refining and

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Okh09 marketing companies that did not have access to hea vily discounted Saudi Arabian crude Gulf Oil Company-International was at a severe competitive disadvantage dunny most of the year in addition. per-formance suffered from the industrywide prebiems of United Kingdom Belgium Holland and Italy-where continuing soft markets. declining volumes and the market share ranges up to 5 percent-and in Den-strengthening dollar on world money markets Losses mark, Luxemboorg, Sweden and Switzerland, where were incurred as the local curre,cies the Company Gulf has 6 to 10 percent of the market. The Company received from the sale of its refined products were withdrew from Northern Sweden and Northeastern worth less than the dollars it paid to purchase crude England during 1980/1981 without significant effect on o,I However operating losses were more than offset its market demand With earlier withdrawals from by the sale of 8 milhon barrels of inventones, resulting France, Spain and Norway, Gulf has reduced its Euro-in earnings of 547 million for the year In 1960. earnings pean workforce and divested assets valued at one-of 546 milhon also included inventory gains third of its total assets, since 1977, with gross pro-Refined product sales declined 9 percent to 197.000 ceeds of more than $200 milkon barrels per day but crude oil processed at the Com-At Pembroke-Milford Haven, Wales, a 65,000-barrel-pany's four refinenes was reduced 26 percent Dunng per-day fluid cata!ytic cracking unit will be completed most of the year. the Company was able to buy refined in the second quarter of 1982. By upgrading heavy fuel products on the spc' market cheaper than it could oil into gasoline, Gulf's gasoline yield will increase to purchase and refine crude oil 28 percent from 22 percent last year, and future prof-Over the balance of this decade petroleum demand 'tabikty should improve Gulf has a 35-percent interest in Europe is expected to dechne by 1 'o 2 percent per with Texaco in this $950-milhon project. year Most of the dechne will b( concentrated in the in 1981. Gulf refinenes operated at 46 pecent of heavier ond-use products such as heavy fuel oil and capacity, compared with 62 percent a year earker. heating distillates which are being fcpl&_ced by natural Early in 1982, the Company suspended processing at gas and coal In contrast. demand for transportation its Milan, Italy, refinery. With further system reductions fuels. where Gulf is concentrating its e fforts. is ex-pianned in 1982, refinery capacity will be pared more peced to increase about 1 to 2 percent per year than 40 percent from 1981, and the utikzation rate To accommodatt changing market patterns and to should increase to about 80 percent. The industry is improve earnings Guif is concentrating its marketing expected to operate at 60 percent of capacity. As Gulf A pastoral setting surrounds the in enclaves of strength and is streamhning operations cuts its capacity deeper than any of its competitors, Milford Haven in order to be a minimum-cost operator in Europe additional inventory reductions will be possible and refinery in Wales. The Company s main marketing areas are in the operating profit margins should improve significantly. 6 t h 1 x h 9 -;p u,f gg , n ~ ^Y $f M. - ~ - - R n. ( f%D V ~ .?- ~ J '

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y:km ew. b X QNMy - Ib ,k g w. &Ui C N db MM a - w u %, m,a - a.c %f% ..hI%a% p @ h O k @ N ' * ' ,N "[* gM h.hMk h E]2,,!& aQ j . M%q z M&g ;M~/.M,,S.$w%y%.9( gg ,,,,, b C. -;f .?.s - L:. i.. : %Cyd ..i W yk 4; - f. hhd.ty[Q< h Gulf Canada Limited-Gulf's 60-percent-owned sub-Dd V,"y&cW/M M&hftt[O g wr@@ Qwc. 47 sidiary and one of Canada's largest oil companies-is (Q J ALqen a hy C Mdh an aggressive and successful competitor in the Cana-W Q g l g [jkJhk{Od.#.h@

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dian energy industry with strategically located acre-k Mif 'ST[M@M$ dW$dd Q age, significant discovenes and ma;or development h%QM[ projects throughout the country. However, dunng 1981, hNk$$h;dh N %[Mgby-hi @d N$p[MWTA6 MW Gulf Canada's seventy-fifth War in business, progress %* NMg$MM b T' was set back snarply as a result of Canada's National h,hhMh[$E',))k?N$$h*3 0 D4h Energy Program (NEP), announced in October 1980. The stated objectives of the NEP are to increase N y hjy Canadian ownership of the country's oil and gas in- . D N- [d(g% o.4

M$g ? O dustry, achieve oil self-sufficiency in Canada by the gh Md[MWM PY. 7.

end of the decade, increase the federal government's R U M L.- h h@h, hb f'., 4 W,- share of petroleum revenues and stimu' e explora- ?5 1 g g -j J tion in frontier areas. The program includes a contin-

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'3.i uation of government-set pnces for crude oil and %%k$," A M' natural gas, stiff taxes on production and the right of the federal government to take a 25-percent interest in C any discovery on federally controlled frontier lands. The NEP also announced the phase-out of depletion [.g~-j allowance tax credits on frontier exploration and intro-duced a graduated grant system of exploration incen-tives which heavily favors Canadian-controlled com-panies with at least 50-percent Canadian ownersh!p. As a result of the sharp reduction in cash flows for all companies under the NEP and the prejudicial' measures applied against the multinationals, industry exploration activity in Canada dechned significantly g e' dunng 1981.

1. Y' Gulf Canada's earnings dechned to $236 milhon

'E,.' r.- ' ~. i: 9.h ?. ' '3,: g(. .? : ($299 milhon in Canadian dollars) from the record s 1 / qi y #W *, p. $306 milhon ($380 million Canadian) in 1980. Gulf's i .9 xQf .,q c..... y w share amounted to $145 milhon, compared with $189 3,2

1. 4d9"k[ 'M. * '

% ' ', S milhon a year ago. A 50-percent increase in the Petro-s leum and Gas Revenue Tax (PGRT) to 12 percent and ,g .V ' 'J,, o M gg". @v [ ,y 7 f y ", '.I the new Incremental Oil Royalty Tax, both of which pt . f <.'9 .p' q, became effective January 1,1982, will further penahze g! y.g{.,9-A.,]1,..,, s. .y 1982 efforts. Capital and exploration expenditures in-( .,x. creased 35 percent dunng 1981 to $662 milhon, al-(.* w,. - p@- ~ though, because of the NEP, this was about $200 mil-4-(i 7: -- s K- ,1 = v.

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~. - Energy Resources 4. - g. 7 ' ' '.. J3 Operating earnings from the Company's exploration .l +q,' 4oJ~ ~ N 7 "l.I ,. ' '.V and production subsidiary, Gulf Canada Resources --[^ 4 f-( :+ ?,- + ;-,..- - g.,.,.- Inc., deckned to $186 milhon in 1981 from $290 milhon 7. 4 in 1980 This 36-percent drop resulted mainly from n .f : ) ( [ - . ~- .c 7, higher taxes, including the new PGRT of $59 milhon ~ f, n - _ 'p * ,r],, Net crude oil and natural gas hquids production de-and the ehmination of frontier depletion allowances. k '3; t .) =,L. ' ~ ~,, ; '" D chned 12 percent to 93,000 barrels a day, mainly due to %it( g., l -o, ~ - 4 y. iower refinery demands and a production cutback in- {.,;- 2-statuted by the Alberta government dunng revenue-n shanng negotiations with the federal government. e 3 s,. ,, y Natural gas production dechned 5 percent to 212 mil- .+- hon cubic feet per day due to reduced demand.

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.s- .7 j c( A driltship op ates The Company is active in Canada's four most prom-j., - -p,, for Gulf Canada ising frontier areas-in the Beaufort Sea, in the Arctic ,.,...p - -,.; -s' t M ~ , g d' sQ

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5 in the frozen, barren Islands. along the Labrador Shelf, and on the Grand r Beaufort Sea Banks. east of Newfoundlana. In 1981 Gulf Canada launched a $570-milhon project .p . :., I '..y }, '.h'), -the largest s.ngle investment in its history-to de-y; -.y *,, a - .,c 'x a-velop a new generation of dnihng equipment for use in i; } - - p# j ' t ;. ' -r....=, the Beaufort Sea. north of the Arctic Circle. The sys-tem will consist of two massive and unique dnikng ,.i... .. ? ,s 7 ~ l. g, . bI. g I'.- units-a Mobile Arctic Caisson, for use in water depths of 70 to 130 feet, and a Conical Dnihng Unit, a large circular barge with a special ice-deflecting hull to doll l ~v +- in deeper waters. The Conical Unit is scheduled for k 15 m,. - g - y t.

completion in 1983, with the Mobile Caisson slated to Late in the year, Gulf Canada formed a joint partici-go into service the following year. Supporting the dnll-pation agreement with Alberta Energy Company ing operations will be base facilities, two powerful ice-(AEC) to explore almost 900,000 Gulf Canada acres in breahers and two ice-breaking supply vessels. The Western Canada. By providing 75 percent of the funds system will greatly extend the present short dnlling for a $110-million exploration program over the three season in the Arctic. years, AEC will earn a 30-percent interest in the lands. Dnlling the many prospects on the 1.5-million Beau-Natural gas was discovered in 17 of 37 exploratory fort Sea acres operated by Gulf Canada is expected to wells drilled in Alberta and Brit:sh Columbia in 1981. heep these innovatrve new dnlling uruts occupied Most of the discoveries were in areas near gas-throughoet the 1980s. In addition, Gulf Canada is par-processing plants with access to available markets. In ticipating in exploratW on 600,000 acres in the Beau-the foothills area of west central Alberta, two sizable fort Sea which are opi uted by others. gas discoveries were logged near the $210-million Dunng 1981, Gua ca.,ada was involved in six Beau-Hanlan-Robb gas-processing piant, which will start up fort Sea locations. Ponial testing of the Kopancar 1983. With a 37-percent interest, Gulf Canada will step-out well and the Koakoak discovery indicated the operate this plant which will have a capacity to pro-presence of major oil reserves. Gulf Canada has a cess 300 million cubic feet of raw gas per day. 25-percent interest in both these structures, as well as in recent years, Gulf Canada has established a ma-a 29-percent interest at issungnak, where a second jor reserve position in the conventional heavy oil areas well tested deeper formations and added to estimated of west central Saskatchewan. Of 111 wildcat wells oil and gas reservos. drilled in 1981,41 found oil and 10 gas. As a member of East of the 1980 Tarsiut oil discovery, in which Gulf the Saskatchewan Heavy Oil Project, Gulf Canada Canada has a 56-percent interest, a defineation well also is earning a one-third interest in 500,000 acres of was begun late in the year from a dredged island. Gulf Canada's interest in this well will be 40.5 percent after farming out a portion to a Canadian-controlled com-pany. Such arrangements not only help to defray the 2 dnlling cost but work toward the government's require-i ment of 50-percent Canadian ownership before a pro-duction permit will be granted on frontier lands. An-other artificial island will be completed in the summer of 1982 for a well to be dnlled on the Uviluk structure. One of the most exciting exploration areas in 1981 was the Arctic Islands, previously considered to be a gas-prone area. Oil was discovered northeast of the 1979 Whitefish gas discovery, at Cisco and Skate; and a third well, MacLean, flowed gas and condensate. In 1982, the Arctic Islands Exploration Group, of which Gulf Canada is a member, will drill delineation wells on the Whitefish and Cisco structures as well as wildcats on two other features. In exploration on the Labrador Shelf, oil was recov-ered for the first time-at the North Leif well-- confirming Gulf Canada's belief in the oil-bearing po-tential of the Shelf. Two major gas discoveries were also confirmed farther north. Gulf Canada has a 22-percent interest in the Labrador Agreement Group. On the Grand Banks, east of Newfoundland, Gulf (Above) The Canada and its partners completed three wells on the Tarsiut well, dntled Hibemia structure, in which Gulf Canada has a 25-from an artificial percent interest. The results added confidence to the island,was a major Company's estimate of 1.8 billion barrels of recover, oildiscovert n i the Beaufort Sea. able light crude oilin this field. Southeast of Hibernia, the Hebron well flowed oil ffra disc ~ e from formations equivalent to oil-bearing zones at Hi-tast year in the m bernia. On a separate structure northeast of Hibernia, Arctic Islands. Y' a the South Tempest well also flowed oil. Additional drill-ing will be required to assess these promising struc-p tures. Exploratory dnlling was under way at year-end - 3; on two new structures: West Flying Foam,25 miles ', ~ % y ,N *4 *$ north of Hibemia; and Nautilus, six miles northeast of Hibemia. Gulf Canada and its partners are proceeding with an ". l preliminary engineering designs from which cost esti- !N mates can be made for Hibernia oil-production sys-L ?__ tems. It is estimated that the earliest production could f-begin is 1988. M: % #C ' y in the conventional oil areas of Western Canada, ,s Gulf Canada is stepping up its search for "new" oil in ~, 'N ~M.DD e , *s 4 order to take advantage of the recently established New Oil Reference Price, which is closely related to NU* the world pnce. The search for new oil in Alberta re-F%' sulted in two oil discovenes and significant land acqui- <.II. sitions in oil-prone areas. [ ( ' my. ' uh %w h 16 w

provincial lands on which 120 wells were producing at Gulf Crn:d3 FinInci;l Summary year-end. Millions of Dollars cis opt n o conver a 1 ml ons ruc io loan to Gulf Canada into an equity interest in the 1981 1980 1977 Syncrude oil sands project. Gulf Canada will record a Revenues $4,975 $4,266 $2.865 small capital gain on the transaction, while its share in Operating Profit 554 604 267 the project is roduced to 9 percent from 13.4 percent. Total Assets 3,336 2,757 2,222 The Company,s share of Syncrude production in 1981 Capital and was 9.300 barrels por day Exploration Refined Products Expenditures 662 490 479 I Operating earnings for Gulf Canada Products Com-pany, Gulf Canada's refining, marketing and chemical Gulf Canada Operations Summary subsidiary, rose 17 percent to $368 million in 1981. 1980 1977 Higher ref;ned product pnces more than offset a Net Production of 7-percent decline in sales volumes for the Company's Crude Oil and pnncipal refined products. The cyclical downturn in refining and marketing, Natura! Gas tiquids which has plaguud United States and European oper-(thousand barrels ations for two years, only began in Canada in 1981 as per day) 93 106 86 the federal government started moving crude oil Net Production of pnces to world levels Thus, little growth is anticipated Natural Gas in the foreseeable future. In the eastern provinces, (million cubic feet i where the government is urging homeowners and in-per day) 212 224 302 dustry to switch from petroleum-based heating fuels s and residual oil to other fuels, natural gas. and elec-e incity, substantial excess refining capacity exists. Gulf Canada is fortunate to have developed a 20 Natural Gas Liquids percent share of the healthier Western Canada mar. (millions of barrels) 210 224 296 l ket, compared with around 11 percent in the eastern Net Reserves of provinces. To ensure its competitive presence, the Natural Gas i Company is consolidating its retail outlets and distri-(billions of bution centers, tightening down on inventories through cubic feet) 1,731 1,788 2,100 improved logistics, and emphasizing growth markets identified Coal such as diesel and jet fuels and specialty products Resources such as lubncants (left) A drilling rig (millionsof tons) 614 539 off the coast of Since the 1979 start-up of Canada's only hydrogen-Crude Oil Processed treated lubncating oils plant at the Clarkson, Ontario, Newfoundland I refinery, Gulf Canada has increased its share of the (thousand barrels extends the t Canadian lubncants market from 12 to 19 percent, and per day). 274 290 339 Hibernia discovery. now is that country's second largest supplier. A project Refined Products Sold (Below) The Edmonton, Alberta, to increase the annual output capability of this plant (thousand barrels i i was completed in 1981 at a cost of $30 million. per day) 261 270 286 , an ed to rocess The Company is in the midst of a $200-million proj-synthetic crude. ect at its Edmonton, Alberta, refinery to expand capac-m ..,_,y ity by 55 percent to 125,000 barrels a day. Scheduled + ~ ': - e' (. j for completion in 1983, the new facility will process u synthetic crude from oil sands plants and heavy-oil ( l ~:pC " fila' g, b f upgraders The plant's y: eld will be well-suited to the Western Canada demand for light fuels-mainly gaso-f 'r W -r line and diesel fuel E in Eastern Canada, where surplus residual fuel oilis the most senous problem, Gulf Canada is leading an l. I 1-industry group studying the economic feasibility of %Y l constructing a 45,000-barrel-a-day upgrader at Mon-n 0 troal to turn heavy oil into lighter fuels which are more i in demand A decision on this $1.5-billion project is id, _. expected to be made by the middle of 1982. E ' - Dunng the year, the healthiest part of Gulf Canada's ! chemicals business was the aromatics group, includ-f ing phenol and the nylon intermediate cyclohexano. In the first three quarters of 1981, demand for chemicals was close to plant capacity, and earnings were satis-factory. In the fourth quarter, however, the general global decline in chemical activity affected all Cana-O.. dian producers, including Petromont, the Montreal- *j j 7 ~ 1, based ethylene-producing consortium, in which Gulf f, c ;- Canada will own a one-third interest. The Company has announced plans to construct an W T '-4 aromatics recovery plant at Edmonton The proposed p g3Q. / *Ml3 world scale plant would produce up to 60 million gallons of benzene annually. [j[ 8$p % 17

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,,_,e c _vgm m .m- --- .( [%N$kh' k i i )I ( pe have required large new investments with high associ-b pdly I 1 ated nsk to forward-integrate from Gulf's present nar-iy row base. 1 '2 3 4 Plastics j e e <!t h .J Plastics represents an increasingly large part of Gulf's k C j, chemical operations, accounting for almost one-quarter of 1981 sales. At year-end 1981, the Company I _ j.l had installed capacity in the U.S. to produce almost 2 billion pounds per year of low and high-density poly-ethylene, polypropylene and polystyrene. Almost half of Gulf's plastics production goes to the packaging industry to be made into film, coatings and molded products-such as bread wrappers, bags and (Oppositepage) A As the worldwide recession continued through 1981, milk bottles. About 15 percent is sold for consumer carload of low-density operating results of Gulf Oil Chemicals Company de-and institutional uses-housewares, food service and po!yethylene pellets Clined for the second year in a row. The Company lost toys. Exports account for another 15 percent. winds its way to a plant $59 million, compared with operating earnings of $55 Markets for plastics were extremely competitive in n ak ma ashin on million in 1980 and the near-record earnings of $235 1981, although demand held up better than for million in 19 9 monstration plant for Gulf's petrochemicals. Sales were approximately 1.5 billion Thermal Regenerative Commodity chemicals is a cyciical business, and the pounds in both 1981 and 1980, but prices declined Cracking process for turnaround expected in 1981 did not occur. Instead. slightly while raw material costs rose by more than 10 manuf acturing ethylene Spiraling interest rates senously depressed the hous-percent. was completed at ing and automotive markets, which traditionally ac-Cedar Dayou, Texas. count for 25 to 30 percent of commodity chemicals Specialty and Industrial Chemicals sales. The Company's petrochemical plants in the Specialty and industrial chemicals contnbuted about United States operated at only 60 percent of capacity, one-third of Gulf's chemical sales in 1981. While spe-and plastics operations had about a 75-percent utiliza-c alty chemicals historically have been less cyclical tion rate. Despite nsing costs, fierce competition held than commodity chemicals, this sector of the industry down prices. also felt the effects of the slowdown in the economy in For 1982, Gulf's performance will depend on the 1981. timing and extent of an economic recovery Since little In addition to Gulf's traditional businesses in new capacity has been added by the industry in the explosives, adhesives and carbon products, the acqui-past few years, supply / demand balances should im-sition of Kewanee Industries in 1977 added The prove as the economy does Harshaw Chemical Company and Millmaster Onyx In order to improve future performance, the Com-Group, which have a broad range of product lines in-pany will redirect its focus in 1982 by withdrawing from cluding inorganic chemicals, metal finishing chemi-the troubled European market and selling some of cats, catalysts, crystals, surfactants, inks and building its profitable specialty chemicals businesses that do materials. This adds up to a specialty chemicals busi-not fit Gulf's strategic objectives. ness made up of a large number of relatively small As the eleventh largest U.S. chemical producer, the businesses, most unrelated to each other, to the Com-Company had sales of $2.4 billion in 1981 and assets pany's commodity chemicals segments, or to Gulf's of $1.7 billion, accounting for 8 percent of both Gulf's hydrocarbon feedstocks. total revenues and total assets. About 80 percent of Therefore, the Company intends to de-emphasize these assets are in the U.S.,10 percent in Europe and its specia;ty operations in 1982 and inm its product the balance in Asia and Latin America. In 1981, chemi-lines to those that relate most closely to Gulf's basic cats utilized almost $1 billion in Gulf-produced hydro-hydrocarbon strengths. carbon feedstocks. Chemicals Financial Summary Petrochemicals The Company's oldest and historically strongest busi-Millions of Dollars ness segment is petrochemicals, which in 1981 ac-1981 1980 1977 counted for nearly half of Gulf's chemical revenues. Gulf was one of the first to manufacture and sell ethyl-Revenues 82,412 $2,439 $1,130 ene--a basic chemical building block. Gulf's four U.S. Operating (Loss) ethylene plants have excellent feedstock flexibility. Profit. (59) 55 60 Benzene is Gulf's other major petrochemical building Total Assets 1,701 1,487 1,289 block. All of the Company's benzene production is Capital Expenditures. 108 77 172 used internally to manufacture styrene, cumene and cyclohexano, while about 55 percent of ethylene out-Chemicals Operations Summary put was used internally last year to produce polyethyl-Millions of Dollars ene and alpha olefins 1981 1980 1977 With soft demand in 1981, outside petrochemical sales fell by 21 percent in the U S. to 2.5 billion pounds Revenues from the depressed levels of 1980. Petrochemicals $1,067 $1,146 $644 in Europe, where the Company has only a small Plastics 544 546 230 presence, Gulf has announced plans to shut down its Specialties and petrochemical facilities at Europoort in the Nether-Other 801 747 256 lands and at Milford Haven Wales. To remain would 19

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Minsrati Ramurcoa Although abundant od supphes and the prospect for N[t flat oil pnces forced a slowdown in the nation's alter. M@ nate energy development plans in 1981. this did not

1. gf' alter the fundamental fact that the world's supply of

$7 u petroleum is hmited Thus. Gulf Mineral Resources k% N* Co 's objective to develop a premier position in coal M [9* and alternate energy remains a viat le one which is expected to make a vital contribution o Gulf's future g c However. Operating profits from these efforts de- .Y N C*T chned to $17 milhon in 1981 from 563 milhon in 1980 as M.,1Q lower Canadian uranium earnings offset increased ' *Qpid. coal profits in the Jnited States ^ N

?.I

,L Capital expenditures increased to $545 mdkon from N a, 5109 milhon in 1980 Over 80 percent of the 1981 ?.wY / w spending was envested in two major coal acquisitions. _ [ 's .^ r g, f.. - 4.. which doubled Gulf's coal resource base to 2 bdl.on

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27" tons and increased productive capacity by 50 percent i .... - -~,.,'.,. T '% to 16 mdhon tons a year .7'i 1 mp, ((' ?*" g,. N. + ';~ Coal ,y[p qM ).' .a -t '('.. The Pittsburg & Midway Coal Mining Co ( P&M ). J t y,, Gulf's ccal subsidiary, ontered 1982 among the na-p., Q-e , h[ _, f, 2

• y,? ; [w ^ / g tion's 10 largest coal producers, up from sevcnteenth

~ .t' a year earher At the same time. It maintained its posi-A y u. , g, $,). m. tion as one of the most orofitable coal companies. as y.. ,3 ',. -...y i, ^ c perating earnings tr, creased for the eighth Consecu- .U i 't. tive year despite a generally depressed coal market q. -,N, 3 4 ,..a In mid-1981. Gulf and P&M acquired The Kemmerer y A'!,.' J.- Coal Company of Wyoming for $331 rnihon and en. 4- ~ tered into a $120-mdhon loint venture with Repubhc .~ - C A I' .M..$y.. Steel to own and operate Repubbc s North River coal [ d.h E. -]- properties in Alabama P&M will invest an additional -+==m> f ;. yM -wy(;f I.. A ~ North River operations Q.5L 5% M k 'E7Jf^- ' Il' v ,.s $35 milhon over the next five years to expand the ~ / -hyif Y.~ Kemme.er is one of the oldest coal companies in Dj-? g4 D ~ the West, with annual production of almost 5 milhon + "ydr T K t f Mfh5 y./,

• -M

[3 tons and reserves of 500 milhon tons Most of the t 4f g .1 4 hMb A ;,,.. JQ ' [3 production comes from a 450-acre open pit mine on 6 97mgy~ the eastern edge of the Rocky Mountains in South-y ggg;g%. yp J *[-fhf":~+r',- . ' 4 (. _ - ,f.. western Wyoming it is the largest mine of its kind in gfQw . 3 .r. ' N4- %p, =... the U S Kemmerer also has a half interest in an un-A derground mine in Utah and 93.000 net acres of owned q. -?' - -.) and leased land in three states which contain coal, . - 7,. - - .c.lM W. O pl [. . ( l natural gas and mineralinterests ~2 2gf A g4 ' '. C..... The North River properties near Tuscaloosa. Ala- 'M32$W :14DI bama. include a highly mechanized underground mine f.,WM p/j f f. ~,' Mg* i With a longwall f ace producing 15 mdhon tons of coal a year. a smaller surface mine and 83.000 acres con-y k[#9[ p 'e, /p< y.A-taining in excess of 250 mahon tons of recoverable ~ reserves Access to the port of Mobde also gives the (k['p 2 properties export potential L.<f i ' $- Dunng 1981. P&M mined and sold 118 mdhon tons h;T GJ

• 7 of coal 80 percent of it in the West. compared with 9 7

[ mdhon tons in 1980 The Company's five mines in Ken- ' N." Q[ M' I krvSA The McKinley oun aM Kansas wm aHON h N g 'ndustrywide 75-day United M>ne Workers' s'rike in fM Mk / coal mine. 4Ny),i ('d .,4 i Gulf s largest. January 1982. an underground mine in Western ken-

• * ' P s is located on tucky was permanently closed due to weak market c

s ^O~~$ M Nav alo land in conditions caused by restnct,ons on the use of high- \\ AT New Mexico. sulfur coal AH of P&M's production is steam coai with about 85 percent sold to ut!hties under long. term sales con-tracts with once-escalation clauses Most of the Com-

jdv, pany s reserves are rn the Wost and are low sulfur (More detad on reserves.s avadable on page 51 of this report )

P&M spent 521 mdhon in 1981 to restore 2 0no acres of previouMy minod land to pastures forests and wnd s b hie refuges t .x .. Y na

1. 1. Mc.f

Uranium ments to suppiy uranium to u.S. utikties over the next Gulf produced 2 milhon pounds of uranen dunng several years The Company intends to meet these --%Qg[h-p[3 <_; 1981 three-fourths of it in Canada This was 1 milhon commitments pnmanly from planned production and ) pounds less than in 1980 Production will dechne fur. inventones i ther in 1982 as the ore body at the small Manano Lake mine in New Mexico e depleted and as the Com-Synthetic Fuels pany's 51-percent-owned Rabbit Lake mine in Sas-Economic analysis dunng 1981 indicated that open pit katChewan moves ento lower grade ore mining and surface retorting offer significant advan-The near term outlMk for the uranium business tages for the development of the high-quahty Rn continues to be bleak Uranium pnces dechned dunng Blanco Oil Shale Company tract that Gulf is develop-1981, utihties held sizable inventones, and further de-ing with Standard Oil Company (Indiana) in Coloradn lays were encountered in the construction of nuclear This remains so, although the test burn of an alternate l power plants. Furthermore, profitabikty in Canada was underground technology, the modified in situ process, adversely affected by higher provincial royalties. was a technical success with a high-yield recovery However, with nearly 200 milkon pounds of recover-In mid-year, construction began on a 5-ton-per-day i able uranium in North Amenca, the Company is we!!- pilot surface retort using the Lurgi technology at Gulf's positioned to be a major producer when the uranium Harmarville research center near Pittsburgh. The pilot i market recovers plant, which will be in operation by 1983, will provide Limited production began ir 1981 at the deep Mt. essential technical data needed for the design of an Taylor mine in New Mexico. and addrtional production is on-site retort. However, plans to construct a demon-l plann9d for 1982 But in view of the depressed market, stration-or commercial-sized retort in Colorado have investments, production and development plans have been delayed been scaled back from previously anticipated levels. Plans to construct a demonstration plant for Gulf's

L Development of the high-grade Colkns Bay ore body in Solvent Refined Coal technology were cance;ed by Ncrthern Saskatchewan is proceedino at a pace con-the U.S Department of Energy in July. Wh

le the Com-l trohed by government approvais and hcensing pany remains confident in its coal hquefaction technol-l As the result of vanous htigat on settlements (see ogy. Gulf could not shoulder the high cost of this non-1 page 39 of this report). Gulf has certain require-commercial project on its own.

Evaluation work is under way for the possible acqui-(Right) E xploration r. a - ...( J - .7 m sition of bitumen-type tar sands and minable sands I*

4. N [,, ' j g

).. continues at the from depleted oil fields in Cahfornia. Texas and Utah. p k.p, g s Both offer extensive resource bases for the future high-grade Collins 3 Bay uranium site ,e , BMow) The nation's .>], < ~,[ N-'- 3.., in Saskatchewan. ,,. 0.,, s '*,1 extraction of hquid nydrocarbons ,4 3 largest open pit coal -. : a - -..{ l.. -,, gg 7g +.,. I ?L~ 4 Exploration efforts continued. with over 30 prospects mine at Kemmerer,

• p

- *^ U'? 'W. dnlled in 1981 to evaluate high-grade metals deposits. g( b f 7 M 5, Wyoming, was ac-f l quired by Gulf in 1981.

• .-a i The Company is concentrating on precious metals

.- such as gold and silver; ferro-alloys such as molybde-U., , lf h 7 ^ v. num, tungsten and tin; and base metals such as cop-gr per, lead and zinc. Preliminary feasibikty studies were l N# m t + 1 v. , q, 4 /

f. '[=

, l*' j. .[ - ' conducted on properties in Montana and Nevada dur-ing the year j - s. c 1 c n I &?k'fA#4 $?Y_ NOaf ?.W ( ff ? s% 35 A '3 ~- , * "4' ' %g). g pfp'. m,- ? a ~j w- ,~., m ~ .M % m-wkQ*[ Q & Q l 2 3*. mag, - ? b 0 ' NY" y@2 LQ/ W- ) A 31 'O "~p %r--- J -.6 e wea

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$n3 ] eV - 3 L ] M. a M"K. m d 4 M E ntes: sasse: .w ei ' ine!MJ T J~J W ~ .,,, ~n,5l1 I, 4 'b' iN h _pkM MI .Nj ~ WWWWhsgouseh ' f ~ i <- dn ' W essmefpoundsh K f Q@Y

Trading Othsr Activitim Gulf Oil Trading Company was reorganized in Decem-ber 1981, with an increased focus on international crude oil and refined product trading in the third-party market The Company also will act as agent for other Gulf elements in making crude and product sales, ex-g 9 g changes and outside purchases. This business has and producing countnes. An ele /enth ng costing $50 performed well in past years and is anticipated to con-tnbute substantial earnings over the next few years

• 'U'0", will be completed in 1983. Last year was Keydnl s tenth consecutive year of earnings growth with httle capitalinvestments with operating earnings of approximately $70 milhon.

Utikzing a strategically placed network of two do_ mestic and seven international offices, Gulf Oil Trad-ing will take advantage of the Company's worldwide Insurance presence, international logistics system and trading Insco Limited, Gulf's Bermuda-based insurance com-expenenc6 Although Gulf ten.poranly suspended its pany, reported an 8-percent increase in net underwnt-third narty crude sales in 1980 as Kuwait and other ing premiums to nearly $100 milhon in 1981. The com-OPEC oroducers cut back supphes. the Company pany continues to diversify its bJsiness nsks and maintained good relationsh.ps w th its former custom. denves about 60 percent of its business from the in-ers and.s curmntly tustabbshing sales contracts. surance of non-Gulf properties. At year-end, sotal Refined product trading volumes in 1982 are ex. assets were $280 milhon, and insco's return cn capital pected to increase frcm tne 1981 level of 75,000 bar. emp;oyed was one of the highest ir the Gulf system. els per day Third-party crude oil sales could double tneir 1981 volume of 80,000 carrels per day. These Research basinesses have the potential for sizabie growth over in 1981. Gulf's worldwide research and development the next several years exps,nditures tGttled $191 nalbon, 43 percert higher thar in '980. Gulf Science and Techno!ogy Company Offshore Driuing Services is Guif s pnnciosi researen arm. with laboratones near Keydnl, Gulf's wholly own6d international offshore Pittsburgh and Rotterdam The Company's activities dolling company, has grown steadily since ts forma-are concentrated in five majcr areas: advanced explo-tion in 1971 The Company ranks as a medium-sized ration technologies, enhanced oil recovery, heavy oil contractor in the offshore dnihng business, t;ut is the processing, shale oil extraction and upgrading, and only company of its kind owned by a major oil com-synthetic fuels research. pany Keydni operates 10 of the largest world-class The detection of oil and natural gas in complex envi-Gulf's research center is located on a bluff above the Allegheny River at Harmarville, Pennsylvania. . 7 Y 4 y [ " e sli fr' +

ronments, such as the deep offshore and in frontier J '. p.3 ; y W/.?. e areas, was the focus of much research actsvity dunng 4 the year. Significant advances were made in the use of /.- [%(' - - j three dimensional seismology, which is expected to - - ' ~~ ,s prove valuable in pinpointing prospective locations for .N OgQ. both exploratory and development dnikng. _g y-Two quite different field projects for enhanced oil recovery were successfully tested in 1981. One, at the

p..

4'. j- [ c ew Glenn Pool field in Oklahoma, used a surfactant chem- =.'? tip m*'. blowout preventer. ical flooding method; the other, at the Little Knife field g S pj in North Dakcta, used carbon dioxide flooding. These sophisticated technologies have the potential for %l ?I N ' ..( hioher efficiency than current enhanced recovery v methods. For instance, in the Little Knife project, a h? .h '" 0'.'.[^ 95-percent oil displacement rate was achieved. k pI J' .f. P In work with Gulf's joint-venture Rio Blanco Oil Shale Company, construction began on a pilot plant to extract oil from shale, descnbed on page 22. In addi-at approximately S3 milhon, to the State Fish and tion, a proposed processing scheme to upgrade raw Game Commission. A gift of $700,000 was contnbuted shale oil to a synthetic crude til was accepted by Rio to help estabhsh the Jchn E. Gray Institute of Beau-Blanco for use in a future commercial plant. mont, Texas, which will focus the capabilities of busi-Ir work on other synthetic fuels, successful pilot-ness, labor, government and education on Gulf Coast scale research was conducted on the conversion of regional problems. synthesis gas to fuels, and on the underground gasifi-Foreign chantable and educational contnbutions, cation of coal Synthesis gas is a mixture of carbon primanly in Canada, tota'ed 53 million in 1981. monoxide and hydrogen, and offers a means of con-An annual report of all charitable and educatsnal serting coal to a wide vanety of clean liquid fuels. activities will be available to shareholders upon re-quest after July 1. Gulf has sponsored the National Geographic Nuclear Specials on public television since 1975. Now in its Gulf and Scallop Nuclear Inc. are realigning their joint-seventh season, this senes of documentary programs venture partnership in General Atomic Company, to be ee m awa$ m N pam, W W g retroactive to January 1,1982, placing essentially all of awads, an Oscar nonnaNn, and N cm the Company's resaarch and commercial activities un-eted George Foster Peabody Award for ' unsurpassed der Gulf. The partnership retains its previous com-excellence in documentanes." As sole underwnter of mitments including its share of the Allied-General Nu-the specials, Gulf contnbuted 54 million to finance the clear Services spent-fuel reprocessing plant. Scallop production and promotion of the four specials shown will receive undeveloped land at the General Atomic in the 1980-1981 season. headquarters in San Diego. General Atomic's revenues for research and com-E4ual Opportunity mercial activities totaled about $137 million in 1981. Federal contracts, utikties and other governments Gulf is committed to providing equal employment op-funded 586 milhon in research and development work portunity. At the end of 1981, women accounted for covenng a number of advanced energy projects with more than 20 percent of Gulf's workforce compared long-range potential. General Atomic is involved in the with 18 percent in 1977, while minonties accounted for largest fusion program at a pnvate facility in the U.S. ver 17 percent compared with less than 14 percent in and has a leading role in the development of High 1977. Furthermore, in the managenal and professional Temperature Gas-cooled Reactors. ranks, 50 percent more women and minorities were employed at year-end 1981 than five years earlier. g Through its voluntary Minonty Purchasing Program, the Company has increased its purchases from minor-Gull and the Gulf Oil Foundation continued to increase sty and women suppliers by over 500 percent since their contnbutions to a wide vanety of chantable and 1977, going well beyond the mandated goals and educational institutions in 1981, donating approxi-timetables. mately $19 mdhon in the U.S., pnmanly in cash and land Cash contnbutions totaled 59 milhon, compared with $7 milhon in 1980. Approximately SS milhon was Employees at Year-End donated to educational institutions for scholarsh?ps, 1981 1980 1977 faculty support, research and academic programs in Petroleum science, engineenng and business. Another 53 milhon Exploration & was given to cultural, community service, medical. Production...... 10,000.9,300 7,500 youth and minonty programs to enhance the quabty of Refining & Marketing. 23,200 24,400 27,200 hfe in communities where Gulf employees hve; and $1 Chemicals.. 10,400 10,900 10,500 milkon went to United Way organizations across the Mineral Resources.... 3,200 2,900 2,300 country. These amounts include $1 milhon contnbuted Technical & Support,, 10,900 11,400 11,900 to match employee gif ts on a two-for-one basis. Gulf also made several significant one-time contri-54,500 58,900 59'400 butions. In West Virginia, land and options on 1.200 United States...... 34,900 36,700 35.500 acres valued at 56 milhon were given to the Monongaba County Development Authonty. The land H'700 Ul900 W had been acquired for a coal-hquefacton demonstra-Europe 4 600 4l800 5 g g 6,900 5700 6,900 tion project which was discont;nued dunng 1981. In Cherokee County, Kansas, Gulf contnbuted 8,200 58,500 58,900 59.400 acres of previously mined and reclaimed land, valued 24

Financial R:: view g N.G-.~mn A u A; waiwi.nu n.% For the past three years, Gulf's eamings have dent on substantial quantities of higher quality, been at a high plateau. Eamings surged in 1979 but higher cost, crudes. These were primarily as a result of tightened oil supplies during the supplied by Nigeria, where the government fixed Iranian crisis. But since then, countervailing the price at $40 a barrel-among the highest in forces have held back sustainable increases in the world-until October 1981. Unable to recover operating earnings. Evon benefits from the de-the cost difference at the gasoline pump, Gulf's control of crude oil prices in the United States in U.S. refining and marketing system suffered early 1981 were offset by losses in refining and losses during the fourth quarter of 1980 and first marketing operations. quarter of 1981, while its European operations in 1981, Gulf earned $1.2 b,llion, or $6.37 per were in the red-before "last-in, first-out" share, a 12-percent decline from record 1980 (LIFO) inventory gair-s-for most of 1980 and eamings of $1.4 billion, or $7.21 per share, and 6 1981. percent below 1979's $1.3 billion, or S6.78 per in response, Gulf significantly reduced its share. liftings in Nigeria in the third quarter of 1981. A Revenues over the period rose mainly as a realignment ir. OPEC p.icts it' the foudh quarter result of inflation and reached $30.5 bil' ion in and a reduction in Nigeria's official price to 1981, up 6 percent from 1980 and 16 percent S36.50 a barrel returned a competitive balance to ahead of 1979 revenues of $26.2 billion. the industry at year-end. With increased capital expenditures, the Com-Even with a marked reduction in the amount of menh IPe tem Reumi pany's return on average shareholders' equity foreign crude oil available to the Company, Guif's dropped to 12.5 percent last year from 16.3 per-payments for purchased crude oil and products knehmeen fo% cent two years earlier. Returns on average em-rose almost $1.2 billion over the past three years 18 ployed capital, which includes all funds borrowed to $16 0 billion in 1981. These purchases repre-and invested in the business, slipped to 9.9 per-sented more than 50 percent of total revenues in is cent in 1981 from 13.0 percent in 1979, and profits each ye v. on each dollar's sales fell to 4.4 cents from 5.5 The Company's total tax bill also has in-cents. creased sharply to $5.9 billion in 1981, or 19 per-g Gulf's worldwide energy-producing operations cent of total revenues, from S4.3 billion, or 1, have contributed increasingly greater propor-percent of revenues, two years earlier. The U.S. 9 ~ tions of total operating earnings-59 percent in crude oil excise tax alone cost Gulf $1.1 billion in 1979,70 percent in 1980 and 85 percent last year. 1981, compared with $350 million in 1980. 6 With flat prices and rising costs anticipated in Nevertheless, the incentives of higher profits 1982, these earnings may have peaked tempo-from newly discovered oil and gas have encour-rarily in both actual dollars and as a percent of aged the Company to substantially increase cap-3 tota! net income. ital and exploration expenditures. The S4.3 billion Refining, marketing and chemical operations, invested in new projects in 1981 was 44 percent 77 78 79 80 m which did well in the supply-short environment of higher than in 1980 and 72 percent above 1979 1979 and early 1980, have been under severe spending. U.S. expenditures of $3.1 billion in 1981 Tctal Taxes pressure since the second half of 1980. Conser-exceeded total worldwide expenditures the year ws c4 ceam vation, energy substitution and weak economies before. The exploration portion, which was 6 in the U.S. and Western Europe have eroded charged against income, amounted to $750 mil-m volumes and profit margins. lion in 1981,5609 million in 1980 and $412 million The so-called "Aramco advantage" has been in 1979. a significant f actor in Gulf's competitive earnings Several non-recurring items have affected performance. As free-world oil demand fell 10 earnings in recent years. The Company reduced l percent to 46.5 million barrels per day in 1981 the levels of inventories valued on a LIFO basis, 'y from its peak of 51.8 million in 1979, Saudi Arabia adding $194 million to after-tax profits in 1981, maintained a high level of production, averaging $96 million in 1980, and $14 million in 1979. A over 40 percent of OPEC's total output, while $100-million after-tax gain was also recorded in m holding its price at a comparatively low $32 a 1980 on the sale of 10 million shares of Gulf Can-barrel. Companies with access to this oil, basi-ada Limited stock. cally the four Aramco partners: Exxon, Texaco, Foreign-currency gains of $44 million in 1981 ex ~ Mobil and Standard of California, had a distinct compared with a $15-million loss in 1980. Cur-competitive advantage over companies like Gulf rency translation had little effect on 1979 profits. which did not have Saudi crude. A geographic discussion of earnings, by oper-Gulf's refineries during this period were depen-ating segment, follows.

• N M "

25

United Stit:0 th3 d;t rioration of such major marktts as autos and in tha U.S.,1981 n t incomo of 5653 million was nurly housing, th3 industry has be:n plagued by ov;rcap: city $100 million lower than in 1980 and about 580 million below and intense price cutting for the past two years. 1979. Still, U.S. net income amounted to more than 50 Minerals operations doubled their eamings contribution percent of total eamings in each year. to $14 million last year, after incurring a loss of S3 million in Operating earnings (before income taxes and corporate 1979. The main ingredient was rising coal production which items) of $1.4 billion in 1981 from petroleum eroloration reached nearly 12 million tons last year, compared with and production were some $250 million higher than in 1980, approximately 10 million tons in the two prior years. Devel-and nearly double 1979's eamings of $784 million. opment costs for uranium, oil shale and metals exploration The principal factors were higher crude oil and natural continue to be penalties to earnings. gas prices. Phaseo decontrol of oil prices began in mid-Nuclear losses were greatly reduced to $41 million in 1979, and all price controls were removed in January 1981. 1981 from $148 million in 1980 and S84 million in 1979. The As a result, Gulf's crude oil prices averaged just over 1981 loss reflected the write-off of an investment in the $34.50 a barrel last year, compared wit 1521 and $12 in the Company's General Atomic partnership. Losses in 1980 two prior years. However, the crude oil excise tax took $11 and 1979 included settlements of litigation, delivery of ura-a barrel in 1981 and $3.25 in 1980. Under the escalation nium to utilities at below-market costs and provisions for provision of the Natural Gas Policy Act, Gulf's average gas possible future losses on contract uranium sales. prices rose to $1.54 per thousand cubic feet from 83 cents Corporate and financial charges reduced U.S. net in-two years earlier. Eamings were penalized throughout the come by $156 million in 1981, about the sarre as in prior period by the sale of approximately one-third of the Com-years. Increased borrowing at higher interest rates was a pany's natural gas deliveries at low contract prices to factor in 1981, wnile a $25-million payment to Westing-Texas Eastern Trcnsmission. house Electric in connection with the settlement of a pro-Higher prices more than offset continued declines in longed uranium antitrust lawsuit was made in 1980. production. The Company's net production of crude oil and natural gas liquids averaged 345,400 uo.-els per day in Canada 1981, which was 5 percent below 1980's level and 10 per-Canadian net income fell to S129 million in 1981 from S361 cent below 1979. Natural gas production slipped to 1.7 million in 1980, when a $149-million gain (before U.S. in-billion cubic feet per day in 1981 from 1.9 billion in 1979, a come taxes) was recorded on the Gulf Canada stock sale. two-year decline of 11 percent. Much of this was market-Since 1979, when Canadian net income was $201 million, related as major customers reduced their demand. Aver-Gulf has reduced its holdings in Gulf Canada to 60 percent age deliveries of 565 million cubic feet per day requested from 68 percent. by Texas Eastern were 23 percent below 1979. Petroleum exploration and production operating earn-Warren Petroleum Company, Gulf's natural gas liquids ings, which had increased by $41 million in 1980, dropped division, has been a major profit contributor accounting for by $104 million in 1981 to $186 million. Higher wellhead more than 15 percent of U.S. exploration and production prices for crude oil and natural gas benefited 1980 earn-operating earnings over the period. Higher sales volumes, ings, while the 1981 price increases were more than offset better margins and inventory gains benefited 1981. by higher petroleum taxes and increased exploration U.S. refining and marketing operations lost $48 million in costs. Net production of crude oil and natural gas liquids 1981 as a large first-quarter loss, resulting from the Com-declined 17 percent from 1979 to 93,000 barrels per day in pany's uncompetitively high-cost crude oil state, could not 1981. Most of the reduction related to government-te recouped through improved profitability in subsequent mandated cutbacks in Alberta. Natural gas production fell quarters. In 1980, operating profits of $443 million included 24 percent over the three years to 212 million cubic feet a pretax gain of $106 million from LIFO inventory per day due to dampening demand in both the domestic liquidations, while 1979 profits were $354 million. and export markets. Refined product sales peaked in 1979 at 913,500 barrels Canadian refining and marketing operations increased per day. But in 1980, when Gulf's attempt to pass on its earnings by $100 million in 1981 to S343 million. Profits higher crude cost was met by consumer resistance, sales were $251 million ab we the 1979 level. Much of the im-i dropped 19 percent. Even with more competitive pricing in provement was attributable to "first-in, first-out" (FIFO) 1981, volumes fell another 6 percent to 691,000 barrels per inventory-holding gains, which were m% than offset on a day. However, gasoline volumes, which were off by 21 cash-flow basis by higher taxed and inventory- [ percent in 1980, declined only an additional 3 percent in replacement costs. Government price controls on crude 1981. oil have kept refined product prices below the world level. To bring its refinery capacity more in line with demand Gulf Canada's refined product sales had been in the l levels, Gulf shut down its Toledo, Ohio, and Venice, Louisi-270,000-barrel-per-day range for several years. However, ana, refineries in early 1981, resulting in a write-off of $30 with recent price increases and higher taxes, demand be-million, and also idled one crude-processing train at Phila-gan to weaken in the fourth quarter, and full-year 1981 delphia. Industrial Asphalt Company, a Califomia-based sales were 3 percent below 1980 levels. road-materials supplier, was sold in 1981 for a pretax profit Chemical earnings in Canada fell to $25 million in 1981 of $23 million. from $71 million in 1980 and S39 million in 1979. Weaker Gulf's U.S. chemical operations also incurred a 1981 market conditions and higher feedstock costs depressed loss-of S57 million-compared with earnings of $51 mil-1981 results, while 1980 benefited from the sale of the lion in 1980 and a record $208-million profit in 1979. With Varennes, Quebec, ethylene plant to the Petromont Con-26 L

sortium,in which Gulf Canada is p rticipating. form:r liftings of 500,000 barr:Is per day, tnd oth r fortign Minerals operations cirned $3 million in 1981, aft r earn-countri:s also cut back on suppliis. Thus, term purchases ing approximately $60 million in each of the prior two years. of foreign crude oil averaged only 314,000 barrels per day Lower uranium sales, lower prices and higher Saskatche-in 1981, some 160,000 below 1980 and only one-quarter of wan royalties were the principal factors. Prior to 1981, ura-1979's liftings of 1,198,000 barrels per day. To accommo-nium was being sold to Gulf's General Atomic affiliate at date this reduction, Gulf reduced its crude sales to outside market prices significantly above today's depressed level. customers in 1980 and sold its interests in affiliated refining and marketing cperations in Korea and Okinawa. These Eurtpe actions were coupled with currency losses in Korea in 1980 European net income nearly doubled in 1981 to $255 mil-and losses on the sale of obsolete tankers in both 1980 lion, compared with $133 million in 1980 and $125 million in and 1981. However, annual earnings improvements from 1979. offshore drilling services resulted in an increase in other The biggest component of earnings has been North Sea petroleum earnings to $89 million in 1981 from $35 million production, which averaged 35,400 barrels per day in 1981, in 1980. In 1979, extensive third-party crude trading lifted compared with about 13,500 in 1979 and 1980. This other petroleum eamings to $131 million. bocsted explorat;on and production operating earnings to Foreign chemical operations, largely in Asia and South S.291 m;liion last year from $59 million in 1979. America, earned $2 million in the depressed market of Earnings from European refining and marketing opera-1981, after earning $11 million and $17 million in the prior tions of $47 milhon in 1981 were unchanged from the prior two years. Gains on the sale of the two Asian refineries year, but were $95 milhon below 1979 earnings. Actually, added to non-operating profits in 1980. operating fosses were sustained in both 1981 and 1980, but For information conceming the impact of inflation and these were more than offset by LIFO inventory-liquidation changing prices on the Company's operations, see pages gains of $241 million last year and $67 million the year 52 and 53. before. Refined product sales declined by one-third to 197,000 barrels per day between 1979 and 1981. Gulf pro-cessed 187,000 barrels of crude oil per day last year, which was 26 percent below 1980 and only half the level of 1979. Operating Prof!!(Loss) Throughout 1981, the Company was able to purchase mons ot oonarsi some refined products on the spot market more economi-petroleum unerais cally than it could buy and process crude oil. As a result, pgga$">n u the Milford Haven, Wales, refinery was closed for much of p,,,,,,,, 7 Nuclear the year. Due to uneconomic results, processing was other suspended at the Milan, Italy, refinery in early 1982. Oueiincome European chemical operations had small back-to-back losses in 1980 and 1981, after a $10-million profit in 1979. 2700 These operations will be shut down in 1982. f Because the early years of North Sea production are H f::l g shielded from taxes by capital recovery provisions in the Bntish tax law,1981 was the first year that sizable income or petroleum revenue taxes were accrued on these earn-2100 ings. North Sea taxes will become significantly greater in 1982 which will adversely affect earnings. Income taxes in 1979 related primarily to refining and marketing profits l throughout Europe. l 1500 Oth:r Foreign Gulf's not income in other foreign areas of $194 million was 19 percent higher than 1980, but 27 percent lower than 1979 when the Company was engaged in extensive third-party crude oil sales. 900 Exploration and production eamings of $129 million in 1981 were an improvement over 1980 because of foreign-g currency gains in Nigeria. Net crude oil production of 141,000 barrels per day was 12 percent below 1980 due to the suspension in liftings from Nigeria curing part of the 300 third quarter. In 1979, when Gulf held a higher ownership percentage in its Nigerian operations, total foreign crude production averaged 182,000 barrels per day and eamings were $145 million. Over the past two years, Gulf lost more than half of its -300 1977 1978 1979 1MO IM1 foreign crude oil availability. Its purchase arrangements with Kuwait were reduced to 10 percent of the Company's 27

Liquidity, C pit;l Esourc:nnd Expenditura Kingdom. At December 31, 1981, Gulf's shara of ths During 1981, the Company spent a record $4.3 billion on outstanding d:bt of the joint ventura was S215 million. worldwide capital and exploration projects. This aggres-Total expenditures for the expansion, improvement and sive program, which included the acquisition of two coal replacement of properties, business investments and ex-companies, was an increase of 44 percent over the $3 pioration expenses were distributed as follows: billion spent in 1980 and 72 percent over the $2.5 billion Milhons of Dollars spent in 1979. In order to fund this program, outside charged To borrowings, proceeds of $172 million from the sale of as-Income Capitahzed sets, and a significant reduction in working capital were ~~ - -- - ---- --"'~ 1941 1980 1979 1981 1980 1979 required to supplement the $2.9 billion generated from op-Ene y Pr d ton erations. Oil and gas. $347 $254 $186 $1,474 $1.069 $ 860 in 1981, the Company entered the long-term debt mar. Coal 3 2 1 467* 17 38 ket to a greater degree than in recent years, with new o[er ' k N 9 financings amounting to $900 million while debt reductions 362 267 198 1,994 1,151 962 were $436 million. This compared with outside financings of $34 and $292 million in 1980 and 1979, respectively, while Canada debt reductions were $163 and $329 mii! ion. Included in the $,*s"ans ' d 8 1981 financings is $450 million which was drawn down un-Coal a 7 2 an m. 8 9 6 2 4 3 der a new $1-billicn bank credit agreement of which $300 g'gn million was repaid prior to year-end. At year-end 1981, 237 216 146 215 168 103 fong-term debt was $1.9 bdion, up from the year-end 1980 balance of $1.4 b;llion. Europe in addition to the long-term financing, the Company's Oil and gas. 25 41 13 146 125 166 outstanding short term notes and commercial paper in-Other Foreign creased to $578 million at December 31,1981, from $42 O'l and gas. 126 85 55 217 194 105 million at December 31, 1980. Additionally, Gulf approxi-750 609 412 2,572 1,638 1,336 mately doubled its sa:e of receivables to its affiliated do-Other Energy mestic financing subsidiary. (See Note 4 on page 37.) Refining and Primarily as a result of drawing down cash by $379 mil-g jje '"9g s fMs ma lion and increasing short-term borrowings, working capital Trading and declined to $511 million at December 31,1981, compared transportation. 12 40 73 with $1.7 billion and $1.4 billion at year-end 1980 and 1979, Other respectively. Working capital as a percent of employed chemicals 115 82 65 capital dropped to 3 percent at year-end 1981, as com-7;,; vestments 2 2 IN pared with 13 and 12 percent in 1980 and 1979, respec-s750 $609 $412 $3,575 $2.392 $2,101 tively. However, included in working capital are inventones which are significantly undervalued as the Company uses "C'"d** 833' *'"' " ' '

• 9"i*' tion of Kemmerer Coal Company.

the LIFO method of accounting for a significant portion of it is anticipated that these expenditures during 1982 will its inventories. At December 31,1981, the current value of approximate S4.5 billion and over the next five years will these inventories was approximately $3.6 billion in excess exceed $25 billion. of the balance sheet cost. The Company's aggressive capital program over the In 1981, a European joint venture, in which the Company next five years will be funded primarily from operations has a 35-percent operating interest, issued $200 million of (including the liquidation of excess inventories and the 14-percent notes due June 1,1991, to partially finance the sale of certain assets) supplemented by new debt. Given construction of a fluid catalytic cracking unit in the United the Company's financial strength, ample long-term bor-rowing capacity should be available. Funds from Operations At December 31,1981, the Company had available ap-waons of Donars) proximately $6.5 billion in credit agreements and lines of credit from banks. In addition to a partially utilized $1-billion o long-term bank credit agreement, the Company arranged a SS-billion credit facility during 1981 in order to be finan-sc cially ready to act on opportunities which may arise in today's business environment. Gulf Canada Limited has 79 additionallines of credit of $261 million. The Company is also authorized to issue up to 100 mil-re lion shares of preferred stock. While the Company has no present plans to issue any of these shares, the availability [ of this option provides additional financing flexibility to 77 take advantage of opportunities in the future, including W W M M 3T0 potential acquisitions. 28

Capital Stock and Dividends Book Value vs. Stock Price Gulf's common stock is listed on the New York, Midw:st, towars per so.am j London, Toronto and Swiss stock exchanges. The New i York Stock Exchange is the principal market in which the 60 Company's common stock is traded. The net book value at th3 cnd of each year and the price of the Company's stock cnd the shares traded in the U.S. as reported by The W:llStreetJournalwere: 50 Per Share 1981 1980 1979 1978 1977 Mark:t VIlue 0 Hgh 845 % $54% $37% $26% $30% Low. 30 % 31 % 23 22 % 25 % Close. 35 % 43 % 34 % 23 % 26 % Book vtlue 30 Shcreholders' equity..... 53.09 49.37 44.54 39.N 37.58 Shcr strrded . (thousands) 61,045 88.039 61.056 34.634 14.249 Gu!f's stock p. ice declined approximately 19 percent during 1981. During this same period, the Dow Jones In-dustri:1 Average declined 7 percent and the Standard & g Poor's 500 Stock Pnce Index declined 10 percent. The Int:rn:tional Oils ccmponent of the S&P 500 Stock lodex declined 25 percent. In July 1981, the Board of Directors at;thorized a stock 17 78 79 80 si r: purchase program for up to 10 million shcres of common stock. The program was completed in Dc.: ember 1981 at a totti cost of $373 million. Authority to purchase an addi-Quarterly Financial Data tionil 10 million shares was approved by the Board in The Company's unaudited results of operations for each February 1982. quarterly period of 1981,1980 and 1979 are summarized Outrt:rly stock price ranges and dividends were as below. MHions of Donars follows: 1981 1980 Sales and income High Low- - Div. High Low Drv. Ope ating Tax on Net Net income - ir .845 % S34 % S.625 $54% $31% $.5625 1881 h Second. 36 % 30 % .625 44 % 35 % .5625 Third. 41 % 31 % .700 45 % 38 % .6250 First................ S 7,748 - $ 971 8 303: = St.55 Fourth 30 % 32 % .700 52 % 39 % .6250 ]**""* ] Fourth.............. 7,887 000 301 1.00 Dividind payments increased during the year to a cur-Year.............. $3o,025 : $3,323 $1,231 . es.37 rsnt ennual rate of $2.80 per share and have increased c;ch y:ir since 1973. 1980 Qua.cers Gulf's automatic Dividend Reinvestment Plan is avail-Qt $ g7 .$ g $g99 abis to all shareholders. The plan is administered by the Third. 6.527 947 244 1.25 Fourth 7.587 831 304 1.56 Compiny without a service fee, although participants do Year. $28.389 $4.058 $1.407 $7.21 . proportionately share in the brokerage fees, which aver. aged 8 cents per share traded during 1981. During 1981, shIr: holder participation was 57,500 representing 19 per. '8krs $ 5.523 $ 579 $ 249 $1.28 . cent of Gulf's individual shareholder accounts. Individuals Second.. 6.071 731 291 1.49 wishing to take advantage of this plan should write to: Gulf Q, 8Q. y dj Q Oil Corporation, Dividend Reinvestment Plan, P.O. Box Year. $25.893 $3.082 $1.322 $6.78 1166, Pittsburgh, PA 15230. The approximate number of shareholders of record of Gulf's common stock was 302,130 at December 31,1981. Supplemental Financial information Following the financial statements and related footnotes are several supplemental schedules which contain addi-tional information which may be of value to the sharehold-ers. These are Supplemental Oil and Gas Information on pages 46 through 50, Supp' omental Other Minerals Infor-mation on page 51, inflation Accounting on pages 52 and 53, and the Five-Year Statistical Summary on pages 54 through 58. 29

Geographic and Related Business Segment Financial D:ta The Company is prim: lily on integrated petrol:um compiny with second;ry operations in tha chimicile, min:rals and nuclear industries. Petroleum revenues are derived from the production of crude oil, natural gas and natural gas liquids as well as the refining and marketing of gasolines, distillates and residual fuel oils. Petroleum revenues are also obtained from the trading and transportation of crude and products. Chemicals revenues consist of petrochemicals, plastics and a variety of specialty chemicals. Minerals revenues are derived from the sale of coal and uranium. OPERATING PROF /T (LOSS)-Total revenues and related expenses of the business segment and equity income from associated companies. Corporate and financial items include interest income, interest expense and other general corporate expenses. Corporate and financial items are distributed to the geographic areas based on a three-factor formula of external revenues, operating expenses and identifiable assets, except that corporate and financial items related to Gulf Canada are charged directly to Canada. Income taxes are charged directly to the geographic area of the taxing authority. Millions of Dollars UNITED STATES Petroleum- -Exploration and production. S 1,424 $ 1,165 5 784 -Refining and marketing. (48) 443 354 Chemicals (57) 51 208 Mirerals. 14 7 (3) Nuclear. (4i) (148) (84) 1,292 1,518 1,259 Non-operatirg items---Corporate and 'inancial items. (156) (167) (146) -Taxes on income.... (443) (552) (381) - ax on sale of Gulf Canada Limited s'ock (49) United States net income 653 700 732 CANADA Petroleum-Exploration and production. 106 290 249 -Refining and marketing. 343 243 92 Chemicals 25 71 39 Minerals. 3 56 63 557 660 443 Non-operatng items-Gain on sale of Gulf Canada Limited stock 149 -Minonty interest. (95) (116) (72) -Corporate and financialitems (64) (50) (30) -Taxes on income (269) (282) (140) Canada net income 129 361 201 EUROPE Petroleum-Exploration and production. 291 116 59 -Refining and marketing. 47 46 142 Chemicals (4) (7) 10 334 155 211 Non operating items-Corporate and financial items. (22) (23) 9 -Taxes on income. (57) 1 (95) Europe net income. 255 133 125 OTHER FOREIGN Petroleum-Exploration and production

• 129 110 145

--Other" 80 35 131 Chemicals 2 11 17 220 156 293 Non. operating items-Corporate and financial items. (19) 65 (29) -Taxes on income. (7) (58) Other Foreign net income. 194 163 264 Totai net ircome. S 1,231 $ 1.407 $ 1.322 Worldwide operating profit (loss) for each business segment and total non-operating items are as follows: Petroleum-Exploration and production. S 2,030 $ 1,681 $ 1.237 -Othar*

• 431 767 719 2,461 2.448 1,956 Chemicals (34) 126 274 Minerals.

17 63 60 Nuclear. (41) (148) (84) 2,403 2.489 2.206 Non-operating items (1,172) (1.082) (884) Net income $ 1,231 $ 1,407 $ 1,322 Certain amounts for 1980 and 1979 have been reclassified to conform to the presentation adopted in 1981.

• Reduced by income taxes imposed by foreign oil-producing countnes of $1.276, $1,711 and $1,144 million in 1981,1980 and 1979, respectrvely.

" includes offshore dnfling services, trading, transportation, refining and marketing. 30

REVENUES--Th3 trinsfers of products between the geographic,rrs cnd segments in which the Company oper tes ars made at prices which represent government-regulated values, or prices which the Company believes approximate m rket, whichever is appropriate. Millions of Dollars 1981 1980 1979 sales and other operating revenues by segments Petroleum-Exploraton and production, S 2,640 $ 2,141 $ 1,563 -Refining and marketing. 22,302 20,706 16,709 --Other

• 2,201 2,637 4,898 Chemicals 2,455 2,569 2,437 Minerals.

330 336 286 $30,025 $28,389 $25,893 Intersegment transfers Petroleum-Exploration and production. $ 0,051 $ 9,072 $ 9,582 -O'her *

• 1,200 1,274 1,292 Chemicals 96 99 68 Salen nd other operating revenues by geographic area United States

$18,403 $16,862 $13,666 Canada. 4,530 3,799 2,911 Europe. 4,306 4,736 3,ft97 Other oreign 2,616 3.022 5,299 c $30,025 $28,389 $25,893 Int rgeographic transfers L'nited States S 32 $ 29 $ 85 Canada. 10 17 21 12 10 38 Europe Other Foreign 6,301 7,640 6,871 /DENTIF/ABLE ASSETS-Those assets used in the operations of each geographic area and business segment. Corporate assets consist principally of cash and marketable securities, research facilities and other assets related to the corporate function, UNITED STATES Petroleum--Exploration and production, S 5,903 $ 4,929 $ 4,404 -Refining and marketing. 2,363 2,762 2,500 Chemicals 1,414 1,169 1,113 Minerals. 1,210 622 572 10,900 9,482 8,589 CANADA Petroleum-Exploration and production. 1,206 1,001 867 -Refining and market.ng. 1,922 1,646 1,538 Chemicals OS 70 92 Minerals. 102 94 89 3,390 2.811 2,586 EUROPE PetroleunwExploration and production, 642 543 436 -Refining and marketing. 1,126 1,150 1,159 Chemicals 167 186 194 1,935 1,879 1,789 OTHER FOREIGN Petroleum--Exploration and production, 777 511 326 -Other*

• 1,110 1,282 1,680 Chemicals 117 129 124 2,004 1,922 2,130 10,325 16,094 15,094 Corporate assets 2,104 2,544 2,171 Total assets.

$20,429 $18.638 $17.265 Certain amounts for 1980 and 1979 have been reclassified to conform to the presentation adopted in 1981,

• Includes offshore dnlling services, trading and transportation.
• Includes offshore dnlling services, trading, transportation, refining and marketing.

31

Five-Ye:r Financial Summary 1981 1980 1979 1978 1977 Selected financial data (millions of dollars) Safes and other operating revenues Refined products. S19,670 $18,593 $15,466 $11.014 $10,444 Crude oil and natural gas liquids 5,481 4.943 6,121 5.521 6,197 Natural gas 1,094 929 745 639 610 Chemicals 2,401 2,579 2,433 1,695 1,207 Other 1,299 1,345 1,128 1,023 1,137 Total sales and other operating revenues 30,025 28,389 25.893 19,892 19.595 Net income 1,231 1,407 1,322 785 740 Per. share data Net income 6.37 7.21 6.78 4.03 3.80 Cash dividends. 2.65 2.37 2.06 1.90 1.05 Total assets.. 20,429 18,638 17,265 14,936 14,195 Long-term debt.... Weeghted average shares outstanding (thousands).. 1,064 1,414 1,543 1,577 1,427 193,315 195,169 195,030 194,997 194,950 Financial rallos Short. term ratios Cash and marketable secunties to current liabilities. .24 .35 .32 .26 .28 Current assets to current liabilities. 1.09 1.33 1.28 1.24 1.22 Corrent c'ebt to total debt (including current portion) .27 .09 .06 .12 .17 Capital and long. term ratios Long. term debt to total capaatization .15 .12 .14 .15 .14 Pretax interest co<e age. 15.62 28.95 21.97 14.51 19 66 Return on investment atios !ncome as a percent of average employed capital. 9.90 12.30 13.03 8 77 8.81 Net income as a percent of average sharsholoers' equity 12.49 15.32 16.27 10.51 10.41 Performance ratios

• Net neome as a percent of sales 4.36 5.31 5.53 4.34 4.15 Sales to total assets.

1.38 1.42 1.38 1.21 1.26 Divider *d Iatios Percent of net income. 42 33 30 47 49 Yield on average stock pnce 6.97 5.51 6.82 7.77 6.52 Capital and exploration expenditures (millions of dollars) Plant expenditures. S 3,240 $ 2,390 $ 1.909 $ 1,692 $ 2,084 Businessinvestments. 335 2 192 48 469 Exploration expense 307 284 203 222 222 Dry hole expense. 363 325 209 167 238 4,325 3,001 2,513 2,129 3,013 Product realizations per unit sold (average sales price) Crude oil (dollars per barrel) United States S 34.57 $ 21.03 $ 12.05 $ 8.96 $ 8.17 Canada. 18.31 " 15.46** 11.30 " 10.78 9.65 Europe. 36.94 35.82 20.65 13.81 Other Foreign 35.24 32.66 19.15 12.85 13.12 Natural gas (dollars per thousand cubic feet) United States 1.54 1.16 .83 .69 .65 Canada. Refined products (dollars per barrel)....... 2.06 2.15 1.56 1.39 1.24 United States 43.44 37.40 24.59 17.33 16.60 Canada. 32.10 23.19 18.33 15.98 14.75 Europe. 42.61 41.29 28.68 19.30 17.76 Other Foreign 40.34 35.85 23.40 13.98 13.97 Coal (dollars per ton) 21.09 20.30 17.31 16.43 12.93 Uranium (dollars per pound) United States 32.41 29.93 27.93 25.84 Canada *" 26.52 39 63 33.40 20.50 16.03 W ges, salanes and employee benefits (millions of dollars) $ 1,092 $ 1,697 $ 1,481 $ 1,345 $ 1,134 Employees at year-end 58,500 58.900 57,600 57.800 59,400

• Sales exclude consumer excise taxes.

" Includes synthetic crude, resulting frorn Gulf Canada's interest in Syncrude. '" includes sales to General Atomic Company in 1980 and 1979. 32

Culf OilCorpor tion C':nsolidated Statement of income Millions of Dollars Year Ended December 31 1981 1980 1979 REVENUES Sil:s and other operating revenues (including consumer excise taxes, Note 11) $30,025 $28,389 $25,893 Int: rest income 324 297 188 Equity losses (Note 4) (4) (163) (31) Other net revenues... 116 136 105 149 Cain on sale of Gulf Canada Limited stock 30,461 28,808 26,155 DEDUCTIONS Purchased crude o'.I and products 16,049 15,326 14,871 Texes other than income taxes (Note 11) 3,841 2,978 2,583 Operating expenses 2,881 2,546 2,245 Selling, general and administrative expenses 2,064 1,907 1,682 Depreciation, depletion, amoitization and retirements (Note 5), 1,295 1,152 1,054 Exploration and dry hole expenses 750 609 412 Interest expense (Note 2) 160 111 147 income applicable to minority interests. 98 121 79 27,138 24,750 23,073 INCOME BEFORE TAXES ON INCOME 3,323 4,058 3,082 TAXES ON INCOME (Note 11) United States. 483 601 381 Foreign 1,609 2,050 1,379 2,092 2,651 1,760 NET INCOME $ 1,231 $ 1,407 $ 1,322 NET INCOME PER SHARE $ 6.37 $ 7.21 $ 6.78 Censolidated Statement of Retained Earnings Millions of Dollars Year Ended December 31 1981 1980 1979 RETAINED EARNINGS AT BEGINNING OF YEAR. $ 8,459 $ 7,516 $ 6,596 NET INCOME 1,231 1,407 1,322 CASH DIVIDENDS (513) (464) (402) RETAINED EARNINGS AT END OF YEAR. $ 9,177 $ 8,459 $ 7,516 CASH DIVIDENDS PER SHARE. $ 2.65 $ 2.37 $ 2.06 Certain amounts for 1980 and 1979 have been reclassified to conform to the presentation adopted in 1981. The notes on pages 36 to 45 are an integral part of the financial statements. 33

Gulf OilC:rpor; tion Consolidated Statement of Financial Position Millions of Dollars December 31 1981 1980 ASSETS Current assets Cash and cash equivalents. $ 615 $ 994 Marketab!e securities (at cost which approximates market) 769 785 1,384 1,779 Receivables (less allowances) Customer. 1,895 2,519 Other 743 739 Inventories (Note 3) 2,137 1,713 Prepaid expenses. 131 113 Total current assets 6,290 6,863 Properties (less accumulated depreciation of 59,189 and $8,202 mill;cn) (Note 5). 13,013 10,886 Investments in affiliated and associated companies (Note 4) 498 419 Other assets 628 470 TOTAL ASSETS. $20,429 $18,638 LIABILITIES Current liabilities Accounts payable. $ 2,438 S 2,331 Notes payable and current portion of long-term debt (Notes 8 and 9) 685 132 Accrued United States and foreign income taxes. 493 940 Consumer sales and excise taxes payable 207 196 Other current liabilities. 1,956 1,555 Total current liabilities 5,779 5,154 Long. term debt (Note 9) 1,864 1,414 Deferred income taxes (Note 11) 1,742 1,442 Other long-term liabilities 269 257 Minority interests 791 734 TOTAL LIABILITIES 10,445 9,001 SHAREHOLDERS' EQUITY (Note 10) Preferred stock-authorized 100,000,000 shares, without par value; none issued. Common stock-authorized 300,000,000 shares, without par value; issued 211,910,826 shares stated at. 883 883 Paid-in capital 726 725 Retained earnings 9,177 8,459 l 10,786 10,067 Less 26.631,588 and 16,687,451 shares in treasury, at cost (Note 13) 802 430 TOTAL SHAREHOLDERS' EQUITY 9,984 9,637 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $20,429 $18,638 ( Certain amounts for 1980 have been reclassified to conform to the presentation adopted in 1981. The Company follows the successful efforts method of accounting for its oil and gas exploration and production operations. The notes on pages 36 to 45 are an integral part of the financial statements. 34 i

Culf Oil C:rporation Ccnsolidated Statement of Changes in Financial Position Millions of Dollars Year Ended Decernber 31 1981 1980 1979 FUNDS PROVIDED BY N;t income... $1,231 $1,407 $1,322 Income charges (credits) not affecting funds D:preciation, depletion, amortization and retirements. 1,295 1,152 1,054 Deferred income taxes. 299 349 300 income applicable to minority interests. 98 121 79 (38) (74) 7 Other charges (credits) Funds from operations. 2,885 2,955 2,762 N;w long-term financing 900 34 292 Proceeds from sales of properties and business investments 172 370 376 Reduction of long term receivables and other investments 108 50 91 218 119 Proceeds from reduction of investment in Gulf Canada Limited. 4,065 3,627 3,640 FUNDS USED FOR Properties and business investments 3,2 44 2,392 2,101 Acquisition of Kommerer Coal Company 331 Dividends 513 464 402 Reductions cf long-term debt 436 163 329 Purchase of treasury stock 373 Increase in long-term receivables and other investments 285 256 349 Other-net. 81 60 23 5,263 3,335 3,204 (DECREASE) INCREASE IN WORKING CAPITAL. (1,198) 232 436 CHANGES IN NONCASH WORKING CAPITAL Receivables. (620) 59 525 Inventories. 424 81 300 Prepaid expenses. 18 48 Accounts payable. (107) 532 (484) Notes payable and current porticr' of long-term debt (553) (31) 104 Accrued United States and foreign income taxes. 447 (197) (362) Consumer sales and excise taxes payable. (11) (33) (15) Other current liabilities. (401) (318) (176) (803) 141 (108) (DECREASE) INCREASE IN CASH AND MARKETABLE SECURITIES S(395) $ 151 $ 544 CASH AND MARKETABLE SECURITIES AT END OF YEAR. $1,384 $1,779 $1,628 The notes on pages 36 to 45 are an integral part of the financial staternents. 35

i Notes to Financial Statements of c pitaiized exploration and development expenditures follow the unit-of-production method based on estimated Note 1-Summary of Accounting Policies developed recoverable reserves of individual producing properties. This summary of the major accennting policies of Gulf 4 Oil Corporation and its consolidated subsidiaries is pre-sented to assist the reader in evaluating the Company's rovisions for depreciation and amortization of all other financial statements. The accounting policies employed by the Company are in accordance with generally accepteu roperties are generally determined on the group basis s Nm@hMMMMmWMMmh accounting principles in the United States. In these in-ng economic usefullives of groups of related properties, stances in which more than one generally accepted ac-counting principle can be applied, the Company has Rates are revised when a change in life expectancy be-es aps adopted the accounting principle which it believes most appropriately reflects its financial position and results of Retirements, Maintenance and Repairs operations. The cost of properties retired or otherwise disposed of is eliminated from the property accounts and, after adjust-Exploration and Development Expenditures ment for salvage and dismantling expenses,is charged to Odand Gas accumulated depreciation or depletion. Only gains and In the petroleum industry, the most significant account-losses on extraordinary retirements or retirements involv-ing policy relates to the method of accounting for the ex-ing entire groups of properties are charged or credited to pioration and development of oil and gas reserves. In this income. regard, the Company's capital *ation policy follows the Maintenance and repairs are charged to income, while " successful efforts" concept wNcn requires that all ex-renewals and betterments which extend the economic pioratory drilling and equipment costs be capitalized pend-usefullife of properties are capitalized. ing determination of whether the drilling is successful or unsuccessful. If unsuccessful, exploratory drilling and p g equipment costs are expensed. All other exploratory costs, including geological and geophysical costs and an-The accounts of Gulf Oil Corporation and all subsidiary companies more than 50-percent owned are included in nual delay rentals on undeveloped leases, are charged t M f M em m% W a Mi-income as incurred. All development drilling and equip-g nt costs, whether successful or unsuccessful, are capi-g ated companies) and all other investments 20-to percent owned (associated companies) are accounted for E po on and development expenditures are charged on the equity method. The only s;gnificant majority-owned to income as incurred until a project is determined to be subsidiary is Gulf Canada Limited in which the Company has a 60-percent interest. = economically feasible. Expenditures subsequent to such determination are capitalized and amortized in accordance with the Company's policy. Inventory Valuation Crude oil, petroleum products, chemicals and certain n se inwnWes gensah am vaW at cost ap-Depreciation, Depletion, Amortization and plied on the last-in, first-out (LIFO) basis, which,n the i Retirements aggregate is lower than market value. Inventories of Cana-dian subsidiaries and of certain industrial and specialty ov o s for depreciation, depletion and amortization chemicals generally are valued at the lower of cost applied are calculated on a lease basis in the United States, a field a n, sW WQ basis a maM vah Mah basis in Canada and generally on a country basis in other nals nd supplies are valued at average cost or less de-foreign areas. Depreciation of equipment, amortization of pending on the condition of the items. intangible drilling costs applicable to productive wells and provisions for dismantling costs represent charges per unit of production based on estimated proved develcped oil Translation of Foreign Currency and gas reserves. Producing lease costs are depleted Balances and transactions in foreign currencies have based on estimated proved developed and undeveloped been translated to U.S. dollars as follows: cash, market-oil and gas reserves. Unproved properties are amortized able securities, receivables, current liabilities and long-on a group basis by country at a rate determined after term debt-at current rates; all other assets and liabilities considering historical experience, lease terms and other

• -at historical rates; revenues and expenses (except relevant factors.

those that relate to assets and liabilities translated at h historical rates)-at average monthly rates. Gains or Minerals losses on foreign currency translation are included in re-Provisions for depreciation, depletion and amortization sults of operations in the period incurred. 36

Inc:me Taxes not required for its own use. The Company records these Deferred incoma t".x:s hiv3 been provided for those transictions is purch;se costs and es rev:nues except it:ms of revenue and expense which have been recog-that Gulf Canada nets such crude oil sales revenues nized for financial reporting in different periods than for against crude oil purchase costs, because of the broker-income tax purposes. Investmerit tax credits are ac-age nature of its crude oil transactions. counted for as a reduction of income taxes in the year in which the qualified assets are placed in service. Interest Costs Effective January 1,1980, the Company changed its Pensions niethod of accounting for interest costs to comply with P:nsion costs are determined by outside actuaries. Financial Accounting Standards Board Statement No. 34. Payments are generally made in the year following ac-In accordance with this statement, the Company began cru:1. Prior service costs are amortized and funded over capitalizing interest relating to its major projects. Interest varying periods for the different plans but generally for no costs were charged to income as incurred in 1979. moro than 15 years. Earnings Per Share Crud] Oil Transactions Earnings per share is calculated based upon the daily in addition to its own production, the Company pur-weighted average of the number of shares outstanding chases crude oil from other producers and sells crudo oil during the year. N:t] 2-Other Financial Information Note 4-investments in Affiliated and Associated The followirig data supplements the financial informa-Companies tion presented on pages 33-35. Selected financial data on the Company's investments Millions of Dollars in affiliated and associated companies (excluding the 1981 1980 1979 Company's investment in the nuclear partnership as dis-Reseirch and development expenses. $191 $134 $109 Cussed in Note 7) are as follows: Capitahzed interest Millons of Dollars Consohdated companins. 63 33 December 31 Associated company. 40 20 Affikated Associated Foreign currency transbtion gains (losses). 44 (15) 1 Other assets. 46 49 762 605 N:t] 3-Inventorles 1,3n 769 877 715 Millions of Dollars Current liabihties 953 513 115 93 December 31 Other habilities. 120 55 668 528 1981 1980 1,073 568 783 621

LIFC, Net assets.

238 201 94 94 Petroleum Advances. 41 9 102 103 United siates. $ 410 $ 269 $ 279 $210 $196 $197 Europe. 141 198 Other Foreign. 53 49 $n*,'$,,,,,, The Company's equity in earnings of these companies 73 igg Europe. 13 29 is as follows: Other Foreign. 10 10 Milhons of Dollars Affiliated Associated 1981 1980 1979 1981 1980 1979 troleum (Canada). 631 506 ""'8' Chemicals. 126 121 Earnings (losses) S 33 $ 22 $ 23 $ 4 $ (37) $ 30 n as 1 Dividends received 5 10 $ 10 SJ $_18 $ 25 $ 32 888 676 Averags Cost The Company'S affiliated domestic finance subsidiary Matenals and supphes 544 366 utilizes short-term debt, primarily commercial paper, to fi-Other. 6 8 nance the purchase of customer accounts receivable from 550 374 the Company. The finance subsidiary incurred interest ex- $2,137 $1.713 pense on short-term debt of $61, $41 and $34 million in the years 1981,1980 and 1979, respectively, and had outstand-Quantity decreases in certain LIFO pools increased ing short-term debt of $798 and $369 million at December - earnings by $194, $96 and $14 million, after considering 31,1981 and 1980, respectively. taxes, in 1981,1980 and 1979, respectively. LIFO invento-As of December 31, 1981, the Company was contin-ries were $3.62 and $3.85 billion less than current cost at gently liable for guarantees of debt of affiliated and associ-December 31,1981 and 1980, respectively. ated companies in the amount of $18 million. 37

Note 5-Properties unons ot oonars December 31 Year Gross investment Net Depreciation, Etc. Expenditures at Cost Investment Charged to income Capitaiired 1981 1980_ 1981 1980 1901 1980 1981 1980 United States Petroleum-Exploration and development. S 9,540 $ 8,197 8 4,854 $ 4,103 $ 721 $ 646 81,474 $1,069 -Natural gas liquids. 407 405 263 203 23 17 03 47 -Refining and marketing. 2,944 2.712 1,000 1,462 100 98 377 352 Chemicals. 1,350 1,269 050 821 87 73 90 61 Minerais* 1,120 640 903 523 24 22 510 " 82 Corporate. 441 308 330 193 19 17 154 70 15,927 13.531 0,959 7.305 962 873 2,000 1.681 Ccnada Petroleum-Exploration and development. 1,323 1,120 940 781 55 51 213 164 -Natural gas liquids. 255 217 120 104 14 12 30 21 -Refining and marketing. 1,441 1.284 797 707 77 67 175 94 Chemicals. 50 49 23 21 9 7 7 5 Minerals 04 83 80 62 3 4 2 4 3,161 2.753 1,940 1.675 150 141 435 288 Europe Petroleum--Exploration and cevelopment. 806 551 595 505 55 20 146 125 -Refining and marketing. 706 677 375 371 35 32 42 44 Chemicals. 140 139 62 71 10 9 2 7 1,542 1,367 1,032 947 100 61 190 176 Other Foreign Petroleum-Exploration and development. 790 589 $17 436 34 29 217 194 -Refining and marketing. 55 56 26 39 3 3 1 2 -Trading and transportation. 672 746 393 457 34 42 12 40 Chemicals. 47 46 20 27 4 3 0 9 1,572 1,437 1,074 959 75 77 230 245 $22,202 $19.088 $13,013 $10.886 $1,295 $1.152 83,541 $2.390 Charges to income for maintenance and repairs were $856, $773 and $610 million in 1981,1980 and 1979, respectively. 'For discussion of the Company's investment in the Mt. Taylor uranium mine see page 51. " Includes $321 million from acquisition of Kemmerer Coal Company. N;te 6-Commitments The Company leases ocean tankers, service stations fluid catalytic cracking unit and associated facilities in the and other facilities including office space, tank cars and United Kingdom. Construction costs are being funded as v hicles under operating lease arrangements. These incurred through financing arrangements made by the Icases contain various renewal options, purchase options partnership. Total costs of constructing this unit, expected (principally for service stations) and escalation clauses. to be completed in mid-1982, are estimated at $950 million. The total rental expense of all operating leases (including The subsidiary has agreed to advance 35 percent of any tanker spot charters) in 1981,1980 and 1979 was $386, funds required to complete the unit. $413 and $397 million, respectively, after being reduced by The Company has contractual commitments to certain immaterial sublease rentals. Future minimum rental com-companies in which it has equity interests, including the mitments required under operating leases having initial or partnership described above, to provide minimum shipping remaining noncancelable lease terms in excess of one or processing revenues or advance funds which can be y:ar at December 31,1981 are as follows: applied against future charges. Total payments for normal Miiiions of Donars shipping and processing charges under such arrange-ments for 1981 were $141 million. Approximate maximum 1982. $ 93 1983. 72 obligations under these agreements in the years 1982 1984. 59 through 1986 are $121, $125, $148, $108 and $79 million, 1985. 44 respectively. The present value of all future maximum obli- {e6 gations under these contracts is $820 million. 986. The Company has contractual commitments in the ords-8'96 nary course of business for the acquisition or construction

== of properties and for the purchase of materials, supplies A subsidiary of the Company has an interest in a part-and services. These commitments are not considered sig-norship which is constructing and will own and operate a nificant in relation to the net assets of the Company. 38

Nota 7-Nuclaar Partnsrchip and Uranium Matters The Company owns a 50-percent interest in General supply contracts for 22 million pounds of uranium at speci-Atomic Company (GAC), a partnership engaged in the fied prices from United Nuclear Corporation. nuclear business. This business presently includes nuclear in March 1979, the Company acquired 100 percent of the research and development activities and a 50-percent in-uranium supply and light water fuel fabrication activities of terest in Allied-General Nuclear Services (AGNS). GAC. In view of the litigation and settlement developments in December 1981, the Company and its partner signed in 1981 affecting the Company's supply of uranium, the a letter of intent to realign the GAC partnership. Under the Company wrote off the $60-million additional investment it terms of the letter which is to be effective January 1,1982 had made in GAC. However, because the Company has when finalized, GAC will make a partial distnbution of its acquired certain quantities of uranium and has been re-assets to the partners. As a result, the Company will be-lieved of certain supply commitments, it also has reduced come the full owner of the ongoing business and programs the estimated loss provision of $46 million which was re-currently being conducted by GAC. The existing partner-corded in 1980. GAC's contracts for delivery of 13 million ship will continue under a new name and be responsible pounds of uranium were transferred to the Company's for the remaining business, including AGNS. minerals resource division in 1981. Total deliveries required The Company's not investment in the GAC partnership, under all the Company's uranium supply contracts ap- , which is accounted for on an equity basis, was as follows: proximate 31 million pounds of uranium to be delivered whons of Dollars between 1982 and 1991. Planned production from the December 31 Company's reserves and withdrawals from existing ura-1981 1980 nium inventories are more than sufficient to satisfy these current assets.. $ so $ 26 commitments. Operating results from these contracts will Investmentsin AGNS. 54 54 depend in large part on market conditions for uranium at $,N,'39 t;me of deliveries. AGNS, a partnership in which GAC has a 50-percent Total assets 96 93 Interest, has a facility at Bamwell, South Carolina, to re-current habihties 7 19 Provisions for futuru tosses. 8 63 Cover uranium and plutonium from the spent fuel of nu-Other habil. ties. 33 59 Clear reactors, which has yet to receive a license to oper-Total habihties. 73 141 ate because of the federal government's position on the Net asset (hab hty) 23 (48) processing of spent nuclear fuel by Commercial facilities. 60 Additionalinvestment. The Company continues to believe that the use of the Net investment. $ 23 $ 12 BamWell facility Will be of important assistance in the ulti-Changes in the Company's investment during the years mate solution of the handling of spent nuclear fuel. The ended December 31,1981,1980 and 1979 were as follows: Company has made no provision for loss on its investment whons of Donars of $54 millionin AGNS. 1981 1980 1979 Net investment January 1 $ 12 $ 56 $(11) operating losses. (es) (102) (53) Note 8-Short Term Debt Provisions for future losses. 45 (46) (31) Additionalinvestments 52 104 151 Short-term notes and commercial paper payable at De-Net investment December 31. $ 23 $ 12 $ 56 cember 31,1981,1980 and 1979 were $578, $42 and $46 million, respectively, and the related weighted average in-The Company's share of losses realized and charged to terest rates were approximately 12.8,19.6 and 13.3 per-the provision for future losses was $10, $10 and $78 million cent, respectively. The average aggregate short term in the years 1981,1980 and 1979, respectively. notes and commercial paper outstanding during 1981,1980 in connection with its nuclear business, GAC entered and 1979 were $286, $48 and $63 million, respectively, and into arrangements for the purchase of uranium to meet its the weighted average interest rates for all such short-term nuclear fuel commitments to utilities. Efforts by certain notes and commercial paper were approximately 16.3,16.4 uranium suppliers to avoid fulfilling their contracts with and 11.8 percent, respectively. The maximum aggregate G AC resulted in extensive litigation with the suppliers and amount outstanding at any month-end was $583 million in gave rise to other controversies with utilities to which GAC 1981, $69 million in 1980 and $86 million in 1979. had committed uranium. At December 31,1981, the Company had available ap-These disputes essentially have been resolved through proximately $500 million in unused lines of credit from litigation and settlements. Under the terms of the banks. These lines are generally without compensating settlements, the Company has purchased uranium from balance requirements or fees and can be withdrawn at the suppliers at revised quantities and prices and has agreed option of the bank after giving notice to the Company. Gulf to do!iver uranium and fuel to utilities at revised quantities Canada has additional lines of $261 million. Borrowings and prices. The Company tnus far has been unsuccessful under any of these lines of credit would generally bear in validating purchase arrangements under two uranium interest at prime commerciallending rates. 39

Not3 9-Long Term Debt Millions of Dollars December 31 1901 1980 Guif OilCorporation United States dollars DraMown under $1-billion credit agreement at 17.7%* 8 150 Vanable/ fired rate debentures due 2009" 250 250 8% % senking fund debentures payable through 1995. 176 190 6%% sinking fund debentures payable through 1993. 150 169 4% to 5 65% notes payable through 1990. 83 94 5% to 9%% bonds payable through 2005. 63 65 7 to 9% debentures payable through 1987. 80 74 5 35*. sinking fund debentures payable 1982 through 1991. 55 60 15% % promissory note payab's 1982* 40 45 Other notes payable through 1999. 20 10 1,065 957 Consolidated subsedianes United States dollars 154% debentures due 2011. 200 15 35 to 16 36% notes payable 1986 through 1991* 175 8%% notes payable 1997 125 125 8% to 20% notes payable 1982 through 1988. 90 61 Other debentures and notes payable through 2008, 121 153 Capital lease obligations payable through 2001. 42 45 Canad:an dollars-54 to 8% % payable 1982 through 1990 134 135 Other currencies. 21 28 1,971 1,504 included in current habilities 107 90 $1,884 $1,414 Approiumate matunties in the years 1983 through 1986 are $87, $107, $94 and $122 milhon, respectively.

• Notes bear interest at vanable rates; interest rates shown are at December 31,1981.

"The interest rate on the debentures at December 31,1981 and 1980 was 13% % and 12h %, respectively. During 1981, the Company arranged a $1-billion long term credit agreement of which $150 million was outstanding at December 31,1981. Additionally, a $5-billion credit facility was established to enable the Company to be financially ready to act on opportunities which may present themselves in today's business environment. Borrowings under the $1-billion and $5-billion facilities would generally bear interest at the prime U.S. commercial lending rate or a Eurodollar based rate. Those facilities require the payment of commitment fees on the unused portion. The $1-billion facility converts in 1986 to a term loan which matures through 1993. The $5-billion facility expires in 1985. Note 10-Capital Stock 1981 1980 1979 Shares Amount (mmions) Shares Amount (millions) Shares Amount (millions) Common stock issued Balance, January 1 and December 31. 211,910,826 $ 083 211,910.826 $ 883 211.910.826 $ 883 Treasury stock Balance, January 1. (16,647,451) $ (430) (16.860,186) $ (434) (16,914,831) $ (435) Stock repurchase program. (10,000,000) (373) Stock option and incentive compensation plans. 55,863 1 172,735 4 54.645 1 Balance, December 31 (26,631,508) $ (802) (16.687.451) $ (430) (16.860,186) $ (434) Pard-in capital Balance, January 1. S 725 $ 723 $ 697 Stock option and incentive compensation plans.. 1 2 Change in ownership of Gulf Canada due to Amalgamated BN, a acquasstion. 26 Balance, December 31 $ 726 $ 725 $ 723 40

Note 11-Taxes Millions of Dollars 1981 1980 1979 1981 1980 1979 1981_ Foreign Total United States 1980 1979 income taves Current $1,793 $2,302 $1,460 $ 276* $ 283* $ 114* $1,517 $2,019 $1.346 Deferred 259 349 300 207 318 267 92 31 J Totalincome tases 2,092 2.651 1.760 443 601 381 1,609 2.050 1,379 Taxes other than income Wellheadtases Crude (,4 escise tan. 1,082 350 1,082 350 Oil and gas severance taxes. 239 172 115 230 155 103 9 17 12 Supplementai petroleum duty (U K.). 67 67 Petroleum and gas revenue tam (Canada) 59 59 Total wellhead taxes. 1,447 522 115 1,312 505 103 135 17 12 Consumer excise. 1,773 1,906 1.983 604 709 878 1,169 1,197 1,105 Ad valorem. 123 111 95 96 84 72 27 27 23 Sales and use 195 138 115 43 24 23 152 114 92 Import duties 114 135 141 8 3 8 106 132 133 Other. 189 166 134 103 126 99 86 40 35 Total taxes other than income. 3,841 2.978 2.583 2,166 1.451 1,183 1,675 1,527 1.400 Total taxes $5,933 $5.629 $4.343 $2,649 $2.052 $1.564 $3,284 $3.577 $2.779

• lncludes Puerto Fhcan taxes of $1, $6 and $10 milhon, respectively.

Deferred taxes relating to significant timing differences have been provided as follows: Millions of Dollars Total United States Foreign 1981 1980 1979 1981 1980 1979 1981 1980 1979 Intangelo drilhng and development costs $124 $255 $129 $103 $234 $115 $ 21 $ 21 $ 14 Depreciation. 130 209 76 64 175 67 62 34 9 Other. 45 (115) 95 36 (91) 85 9 (24) 10 Total deferred income taxes $299 $349 $'i00 $207 $318 $267 8 92 $ 31 $ 33 U.S. pretax earnings totaled $1,114, $1,278 and $955 million for 1981,1980 and 1979, respectively, while foreign pretax earnings were $2,209, S2,780 and $2,127 million for the respective years. Total income tax expense was $2,092, $2,651 and $1,760 million, which equates to effective tax rates of 63,65 and 57 percent, on pretax earnings for 1981,1980 and 1979, respectively. The following schedule reconciles the difference between the U.S. statutory tax rate and the effective rate: 1981 1980 1979 Arnount % of_ Amount % of Amount % of in Pretax in Pretax in Pretax Millions Income Milhons income Milhons income Statutory tax rate $1,529 46 % $1.867 46 % $1,419 46 % Increase (decrease) resulting from Foreigr. taxes at rates in excess of the U.S. tax rate. 624 19 871 21 444 14 investment tax credits. (81) (2) (80) (2) (65) (2) Other 20 (7) - (37) (1) Effective tax rate. $2,092 63 % $2.651 65 % $1,760 57 % in 1980 and 1979, foreign income taxes were reduced by $50 and $49 million, respectively, through the utilization of tax loss carry-forwards. This reduction occurred principally in income taxes applicable to North Sea operations. No deferred taxes have been recognized for the Company's share of the undistributed earnings of certain subsidiaries and joint ventures, which were 52.51 billion at December 31,1981, since ;t is the Company's intention to reinvest such earnings indefinitely. 41

Note 12-Pension Plans The Company has various pension plans covering sub-k:t vdue of the plIns' essets at Dec:mber 31,1981, ex-stantially all of its employees. The provisions for the cost cceded the actuarially computed value of vested benefits. of these pension plans charged to income for the years 1981,1980 and 1979 were $204, $188 and $161 million, respectively. Note 13-Stock Options The Company's principal plan, the Gulf Pension Plan, Under the Company's 1974 and 1968 Stock Option covers the majority of its U.S. employcos. Plans, certain officers and employees of the Company and A compa,Lon of accumulated plan benefits and plan net its subsidiaries have been granted stock options. No fur-assets at market for the Company's defined benefit pen-ther options may be granted under the 1968 Plan. sion plans at December 31,1981 and 1980, is presented Options granted under the plans expire from 5 to 10 below: years after the option date depending on the plan under mons of Donars which the options were granted and whether the options Actuanal Present Net Assets were qualified (as defined in the Internal Revenue Code) V A 3,aje P n g'negs or non-qualified. The 1974 Plan allows the granting of non-p n s qualified stock options with a variable price feature and 1981 Vested Non. Vested Total stock appreciation rights. No options have been granted f Pens Plan $ 914 $ 47 $ 961 $1,386 with the variable price feature. Options with attendant stock apprecia$ J nghts entitle the optionee to surrender benefit pension plans. Its 3 118 149 unexercised options to the Company in exchange for $1.029 $ 50 31.079 $1.535 shares of common stock of the Company and, in some 1980 instances, cash having an aggregate value equal to the UPension Plan $ 956 $ 60 $1.016 $1,324 excess of the fair market value of one share over the other domest c defined option price per share times the number of options surren-benefit pension plans. 104 5 109 129 dered. In 1981, 12,621 shares of common stock were is- $1.060 $ 65 51,125 $1,453 sued in exchange for the surrender of such options. Non-qualified options with stock appreciation rights The assumed rates of retum used in determining the were granted on February 10, June 9 and June 24,1981 at actuarial present value of accumulated plan benefits for an average option price per share of $38.94, $32.94 and the Gulf Pension Plan and other domestic plans were 10.6 $35.00, respectively. The February 10 options generally be-and 8.9 percent in 1981 and 1980, respectively, which rep. came exercisable on February 10,1982. One-half of the resent the year-end projection rates equivalent to the Pen. June 9 and June 24 options generally become exercisable sion Benefit Guaranty Corporation's rate table. In accor. on June 9 and June 24,1982 and the remainder one year dance with Statement No. 35 of the Financial Accounting later. Standards Board, projected salary increases are not taken Changes in options outstanding during 1981 were as into consideration in the calculation of the present value of follows: Number of accumulated plan benefits. Had salary projections been options included, the actuarial present value of vested and non-Options outstanding at January 1,1981 634.250 vested benefits for the Gulf Pension Plan at December 31, options granted 714.850 1981, would have been $1,268 and $96 million, respectively. Less options The Company participated in several multi-employer Erptred. 39.200 pension plans in 1981. Gulf's share of the accumulated

• 7d '

3 e ed for stock appreciation nghts benefits of its multi-employer plans at the end of 1981 is o tions outstanding at December 31,1981 1.236.050 estimated to be $85 million and its share of the related net cssets is estimated at $30 million. The average per-share option price of the options exer. The Company's foreign pension plans are not required cised during 1981 was $28.57 and the average per share to report to governmental agencies pursuant to the Em-option price of options surrendered for stock appreciation ployee Retirement income Security Act of 1974 and do not rights was $22.51. The average option price per share of otherwise determine the actuarial value of accumulated the options outstanding at December 31,1981 was $37.69. benefits or not assets available for benefits as disclosed At December 31, 1981, options covenng 534,400 shares above. The actuarially computed value of vested benefits were exercisable. Treasury shares reserved and available under the pension plan of Gulf Canada exceeded that for granting options were 1,464,600 and 2,141,750 shares at plan's assets by approxiniately $47 million at December December 31,1981 and 1980, respectively. 31,1981. For the Company's other foreign plans, the mar-42

Not)14-Contingent Liabilities A number of st tts had brought cliss action antitrust In July 1978, this litig tion was consolidated for discovery suits tgrinst the Company and a number of other major oil with another suit, which other suit was settled on January comp:nies in federal district courts. The suits, when filed, 29,1981, in the United States District Court for the North-clieged, among other things, that the defendants com-ern District of Illinois, bined and conspired to restrain trade in the exploration, Following a discovery request, the Company and its sub-production, transportation and sale of crude oil and in the sidiary were ordered to produce certain foreign docu-r fining, distribution and marketing of petroleum products ments. Gulf advised the court that it was unable to fully in violation of federal and state antitrust laws. These suits comply with the order because the production of certain se:k trcble damages in unspecified amounts and injunc-documents in the possession of Gulf's Canadian subsidi-tive tsli:f, including divestiture of crude oil exploration and aries was prohibited by Canadian law. As a result, TVA production activities. The actions have been consolidated filed a motion for sanctions in March 1980. Hearings on the for pre-trial proceedings in the U.S. District Court for the matter of sanctions have been completed and the issue is Central District of California. Two states have settled or before the court for decision. TVA has settied with all de-voluntarily dismissed their actions leaving the states of fendants except the Company and its subsidiary. No trial Arizona, California, Florida, Oregon and Washington with date has been set. suits still pending. In July 1980, the court dismissed all TVA has specifically alleged that the Company's in-claims of antitrust violations, other than alleged price fix-volvement with a foreign uranium marketing arrangement ing, and limited recoverable damages to direct purchases or " cartel" had a substantial effect in increasing the price under fixed-quantity, cost-plus contracts predating the al-of uranium, and that TVA may have sustained substantial leged violations. This order together with class certification aamages as a result. The Company denies this allegation. questions is on appeal. Its position is that its Canadian subsidiary was directed by On May 11,1971, a class action complaint was filed in the Canadian government to participate in the foreign ura-the U.S. District Court for the Eastern District of Pennsyl-nium marketing arrangement. The Canadian government vania on behalf of gasoline service station lessee-dealers has submitted several diplomatic notes and " amicus" against 15 oil companies, including the Company. The briefs which the Company has used to support its position. complaint alleges violations of U.S. antitrust laws as a The Company further denies that such involvement had result of so-called interdependent consciously parallel ac-any substantial effect in increasing the price of uranium or tion. Plaintiffs also allege that the defendants unlawfully otherwise constituted a violation of U.S. antitrust laws. tied purchases of gasoline to their respective trademarks Two cases, one purporting to be a class action suit, were in violation of U.S. antitrust laws. The complaint seeks filed on September 2,1981 in the Court of Common Pleas, treblo damages in an unspecified amount and injunctive Cuyahoga County, Ohio by plaintiffs Grady and Hanna relief. The Company has denied the material a!!egations in against a number of companies including U.S. Printing ink, the complaint and asserted affirmativo defenses. The pro-a division of a subsidiary of the Company. The complaints cceding is now in the discovery stage. In 1979, claims allege causative connections between plaintiffs' contract-against 2 of the 15 defendants were settled. No trial date ing various forms of cancer and the printing ink manufac-has been set. tured by defendants. The suits, which are in the early sta-On November 27,1974, a suit was filed in state court in ges, allege compensatory damages in the aggregate of Louisiana by the succession representative of Hubert $28 million and $200 million as punitive damages. A second Burat, who died in 1847. Plaintiff alleges that the title of series of cases were filed on February 1,1982 in the same Hubert Burat and his heirs, which is based on a 1972 con-court by plaintiffs Smith, Marano, Dancik and McConnell firmatory patent, is superior to that of the Company's against U.S. Printing Ink, et al. raising similar allegations lessor, the Board of Levee Commissioners for the Orleans and alleging compensatory damages in the aggregate of Levee District. This suit seeks recovery of a tract of land $60 million and $100 million as punitive damages. on which the Company's Ostrica Terminal is located. The The Company believes that resolution of the items de-complaint also seeks removal of the terminal facilities, an scribed above will not have a material adverse effect on accounting of all revenues derived from the use of the land the Company's consolidated financial position. and $100 million in damages. In 1979, the Company an-The Company is also a party to other proceedings swored denying the material allegations of the complaint brought by governmental authorities pursuant to federal, and asserting affirmative defenses. The court has deter. state or local environmental protection laws or regulations mined the representatives who have standing to prose-which allege violations of such laws and seek injunctive cute the action. relief or civil penalties. The Company does not believe that On November 18,1977, the Tennessee Valley Authority these proceedings are, in the aggregate, material to its (TVA) brought suit against eight companies engaged in operations or net assets and does not foresee any mate-the production or marketing of uranium, including the rial loss or interruption of its operations as a result of any Company and one of its subsidiaries, in the United States alleged violation of environmental laws or regulations. District Court for the Eastem District of Tennessee. The The Company was contingently liable for guarantees of complaint alleges violations of federal antitrust laws and loans payable by others in the amount of $91 million, and seeks treble damages in an unspecified amount, plus in-also for loans payable by affiliated and associated compa-junctive relief. The Company and its subsidiary have de-nies as described in Note 4 ni:d TVA's allegations and have filed affirmative defenses. 43

N;t315--Dep:rtmint cf En:rgy (DOE) scribed in this footnota will not h;va a mat: rill adv:rsa The Company, along with other petroleum companies, eff ct on the Company's consolidated financial position. continues to be subject to dor charges involving complex federal pricing and allocation r% Ntions. Such allegations have raised numerous pricing ano issues leading to Note 16-Gas Sales Contract publication of substantial alleged claims against the petro-The Company has a 1964 contract with Texas Eastern leum companies and have led to a number of court actions Transmission Corporation which provides for delivery of filed by such companies against the DOE regarding the natural gas over a 26-year period or until 4.4 trillion cubic vaiidity and interpretation of the regulations. feet have been delivered. The contract provides for prices The DOE claims against the Company involve approxi-of 19 to 22 cents per thousand cubic feet, which aie signifi-mately $1.2 billion in alleged pricing violations and cost cantly below current market rates. The daily contract de-overcharges. Most of these allegations were made since liveries are 500 million cubic feet (mmcf) with an option for 1979. A substantial part of the amount alleged results from Texas Eastern to take up to 625 mmet per day. While aver-arbitrary extrapolation of amounts from relatively small age deliveries were less than 500 mmcf per day from 1972 audit samples. In addition, the DOE's allegations do not through 1976, the Company has maintained average de-contend that all of the issues have resulted in overcharges liveries in excess of 500 mmcf per day since then. Through to customers. December 31,1981, the Company had delivered 3.1 trillion One of the major issues involves the inclusion of injec-cubic feet under the contract. tion wells in the well count for a property to determine if Orders of the Federal Energy Regulatory Commission the production qualifies as stripper crude oil exempt from (FERC) require the Company to pay refunds to an escrow prico controls. This same issue is involved in a declaratory agent and to pay interest accrued on the refund to Texas judgment suit filed by the Company against the DOE in Eastern for flow through to its customers as a result of the 1978 in the United States District Court in Kansas which Company's alleged failure in earlier years to comply with has been consolidated with similar suits filed by other oil the delivery terms of the contract. The orders granted the companies in that court. Following a trial of this suit, the Company the right to recover the amount of refunds paid court entered judgment in favor of the Company and the to the escrow agent after the Company has delivered an DOE has appealed. Consistent with injunctions issued by amount of gas equivalent to the contract amount less the the court pending resolution of these cases, the Company amount of gas for which it paid refunds. Similar recoveries has deposited in the court's registry the price difference are also permitted as deliveries exceed 625 mmcf per day. for crude sold pursuant to stripper certification and the Although the Company has filed and received FERC ap-controlled price that would otherwise be obtained. The proval of a final refund calculation, several issues remain total amount on deposit, including interest, at December open including the method of calculating interest on the 31, 1981, was approximately $199 million. This amount is refund and whether the Company is entitled to recover the included in other assets in the Company's Consolidated interest ruled non-recoverable in the orders. Pursuant to Statement of Financial Position. the most recent FERC order, the Company has calculated On July 26,1978, the Company and the DOE entered the refund as approximately $93 million including non-into a Consent Order settling all issues involved in the recoverable interest of $48 million. A provision for $48 mil-proposed disallowance by the DOE of approximately $79 lion was charged against earnings in 1981. million in landed costs of foreign crude oils imported into A substantial part of the gas being delivered pursuant to the United States by the Company between October 1973 the Texas Eastern contract is extracted from property in and May 1975 and landed costs of certain crude oil the outer continental shelf leased by the Company from through January 1976. Under the terms of the Consent the U. S. government. Under these leases the Company is Order, which is still not final, the Company is to pay $42 required to pay to the U. S. government a royalty of 16% % million and the DOE is to develop a program to make of the "value" of gas produced. The U. S. Department of distribution of the $42 million to persons who may have the Interior, which administers federal leases, is conduct-been overcharged, ing an inquiry to determir:e whether the "value" of gas The Consent Order is involved in a suit now pending in produced from these leases should continue to be the U.S. District Court for the Eastern District of New York, price at which the Company sells the gas or should also titled Joseph Stortz, et al. v. Gulf Oil Corporation. The suit take into account other factors such as the sales prices of purports to be a class action and alleges violations of other area producers and the statutory ceiling price set by petroleum pricing regulations based upon the same issues the Natural Gas Policy Act. The Company's position is that resolved between the DOE and the Company in the Con-this royalty is properly based soleiy upon the contract sent Order. The complaints ask for damages in the amount price, which at all times has been regulated by the Federal of $74 million, trebled, and that the $42 million subject to government. the Consent Order be paid into court and allowed as a credit against such damages. In addition to the above, the Company is subject to the Note 17-Geographic and Segment Data possibility of additional DOE claims. The Company be-Geographic and related business segment financial lieves that it has substantially complied with these laws data for 1981,1980 and 1979 are presented on pages 30 and regulations and that the resolution of the items de-and 31. 44

Note 18-Nst Ravenuss and Costs Rslating to Oil and Gas Exploration and Production Activitias In response to certain Secunties and Exchange Commission (SEC) and Financial Accounting Standards Board require-ments, the Company is providing the following information with respect to net revenues from oil and gas producing activities and the costs incurred in its oil and gas exploration and production activities. The SEC's definition of oil and gas activities excludes costs and revenues relating to extraction of hydrocarbons from tar sands, oil shale and coal. Costs associated with those operations, as well as certain other costs, are not included in the amounts reflected in this Note. Miltons of Dollars Total United States Canada Europe Other Foreign 1981 1980 1979 1981 1980 1979 1981 1980 1979 1981 1980 1979 1981 1980 1979 Gross revenues donved from proved developed oil and gas reserves Unaffiliated sales $ 1,264 $ 977 $ 637 $ 743 $ 577 $ 438 $ 371 $350 $168 $ 77 $-$-$ 73 $ 50 $ 31 Internal transfers 6,035 4,934 3,352 3,776 " %6 1,610 232 245 356 385 179 100 1,642 1,914 1,286 7,299 5,911 3,989 4,519 2.048 603 595 524 462 179 100 1,715 1,964 1,317 Less lifting costs

• 2,275 1,165 628 1,883 978 484 143 87 67 102 12 6

147 88 71 Not revenues. $ 5,024 $ 4,746 $3,361 $2,636 $2,195 $1,564 $ 460 $_50_8 $457 $360 $167 $ 94 $1,568 $1.876 $1,246 Costs (capitalized and expensod) for Property acquisition. $ 486 $ 437 $ 321 $ 440 $ 363 $ 254 $ 4! $ 62 $ 47 $ - $ 11 $-$ 1$ 1 $ 20 E xploraton 1,035 836 620 661 466 374 208 203 133 53 55 14 113 112 99 Development. 1,119 781 655 720 494 418 85 64 49 118 100 165 196 123 23 Lifting

• 2,275 1,165 628 1,843 978 484 143 87 67 102 1"

6 147 88 71 $ 4,915 $ 3,219 $2,224 $3,704 $2,301 $1,530 $ 481 $416 $296 $273 $178 $185 8 457 $ 324 $ 213 Depreciation, etc. charged to incomo. $ 853 $ 735 $ 630 $ 721 $ 646 $ 553 $ 55 $ 48 $ 39 $ 55 $ 20 $ 20 $ 22 $ 21 $ 18 Capitalized costs at Decemt er 31 for Proved properties. S 9,838 $ 8,571 $8,002 $7,031 $ 721 $701 $630 $516 $ 485 $ 323 Unproved proporties 2,162 1,540 1,547 1,166 460 265 66 35 89 74 12,000 10,111 9,549 8,197 1,181 966 696 551 574 397 Less related accumulated depreciaton, etc. 5,395 4.676 4,695 4,094 466 421 3J 133 115 Net capitalized costs. $ 6,605 5 5.435 $4,854 $4,103 $ 715 $545 $595 $505 $ 441 $ 282

• Lifting costs do not includo depreciation, depleton and amortization of capitalized acquisition, exploration and development costs nor do they include exploraton, selling, general and administrative expenses or U.S. and foreign income taxes. Lifting costs do include wellhead taxes.

Report of Independent Accountants To the Shareholders and Board of Directors of Gulf OilCorporation We have examined the consolidated statemen; of finan-cember 31,1981 and 1980, and the results of their opera-cial position of Gulf Oil Corporation and its consolidated tions and the changes in their financial position for each of subsidiaries at December 31,1981 and 1980, and the re-the three years in the period ended December 31,1981,in lated consolidated statements of income, retained eam-conformity with generally accepted accounting principles ings and changes in financial position for each of the three applied on a consistent basis. years in the period ended December 31,1981. Our exami-nations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing proce-dures as we considered necessary in the circumstances. COOPERS & LYBRAND in our opinion, the aforementioned consolidated finan-600 Grant Street cial statements present fairly the financial position of Gulf Pittsburgh, Pennsylvania 15219 Oil Corporation and its consolidated subsidiaries at De-February 25,1982 45

Suppl:m:ntEl Oil End Goa infzrmstizn Earnings Per Unit of Production The revenues and estimated earnings from the Company's oil and gas exploration and production activities for the years 1981,1980 and 1979 are shown in the following tables. The revenues and lifting costs shown below are determined in accordance with the Secunties and Exchange Commission's definitions. Revenues disclosed for each geographic segment are per barrel except for natural gas which are per thousand cubic feet. Average Sales Price, Operating Costs and Earnings Per Unit of Production (Millions of Dollars) Total Worldwide United States Canada Europe Other Foreign 1981 1980 1979 1981 1980 1979 1981 1980 1979 1981 1980 1979 1981 1980 1979 nevenues from Crude oil . $6,016 $4.796 $3,123 $34.57 $21.03 $12.05 $15.92 $1324 $11.00 $35.70 $35.82 $20.66 $33.28 $33.38 $19.80 Natural gas liquids. 244 ?" 171 21.49 2125 15 81 15.00 12.37 8.88 Natural gas * " 1,035 892 695 1.54 1.16 .83 2.06 2.15 1.56 Total Revenues

• 7,299 5.911 3.9'9 21.51 14.01 8 62 14.54 12.93 10.21 35.70 35.82 20.66 33.28 33.38 19.80 Less costs Lift:ng costs Production 828 643 513 2.72 2.09 1 60 1.82 1.52 1.07 2.66 2.41 120 2.85 1.50 1.07 Wellhead taxes.

1,447 522 115 6.25 223 .43 1.64 .37 24 5.20 Exploration expense 688 561 389 1.65 1.12 .79 4.57 3 94 2.63 1.94 8.14 2.70 2.44 1.45 .83 Depreciaton. etc. 853 735 630 3.43 2.85 2.33 1.33 1.04 .76 4.33 4.01 4.12 .43 .36 27 Other empensee (income)(1). 414 302 187 1.44 .93 .60 1.13 .70 .39 (.46) (2.41) 1.20 1.35 122 26 Operating eamings from production. 3,069 3.148 2,155 6.02 4 79 2.87 4.05 5.36 5.12 22.03 23.67 11.44 26.21 28.85 17.37 Earnings related to oil purchased from for. egn governments 25 96 120 .41 .48 1.63 1.77 Other operating eamings (2). 115 79 47 Total operating earnings 3,209 3.323 2,322 6.02 4.79 2.87 4.05 5.36 5.12 22.03 23 67 11.85 26.00 30 48 19.14 Income taxes United States. 542 453 282 2.54 2.00 1.19 Foreign 1,426 1.837 1.228 2.50 2.30 1.77 4.33 6.62 1.87 24.50 28 85 16.94 Net income. , $1,241 $1.033 $ 812 $ 3.44 $ 2.79 $ 1.68 3 1.47 $ 3 06 $ 3.35 317.70 $17.05 $ 9.98 $ 2.19 $ 163 $ 220 Net annual production Crude oil (millions of barrels)" 188.1 199.1 213.5 100.3 108 6 114.1 23.3 26.6 28.1 12.9 5.0 4.8 51.6 58.9 66.5 Natural gas liquids (millions of barrels) 13.0 13 5 14 4 8.2 82 8.7 4.8 5.3 5.7 Natural gas (billons of cubec feet)"* 646.5 697 6 745 8 569.2 615.7 644.5 -77.3 81.9 101.3

• Natural gas volumes have been converted to crude oil equivalent barrels using a conversion factor of 5.604 and 5.800 thousand cubic feet per barrel for the United States and Canada. respectrvely.

" Excludes Syncrude. '" Natural gas volumes and revenues are after the extracton of the Company's natural gas liquids production. '" includes general and administrative expenses and net revenues, excluding income taxes, relating to royalty oil. Europe's other income for 1980 includes an adjustment to the 1979 U K. Government Royalty and a gain on the sale of an overriding royalty m3 rest in a North Sea field. i2' includes earnings from plant processing of outside natural gas liquids, tar sands and heavy oil operatons and research and headquarter expenses. Other operating eamings are net of income taxes of $97, $69 and $59 millon in 1981,1980 and 1979, respectively. Reserve Data The oil and gas reserve data presented below are unaudited and are based on current estimates made by the Company. In presenting this information, the Company wishes to emphasize that estimates by their very nature are inexact and subject to constant changes and revisions, that estimates of newly discovered reserves are even more imprecise than 1 46

those of producing properties and thit an tccurata determination of reserv:s at a given point in time may not be possibla becruse of the time needad for dev,lopment drilling, testing and other studi s of the rsserv:s. Accordingly, the Company believ:0 that these estimates will change as future information becomes available. In cddition, there have been significant changes in ownership of foreign reserves which have resulted from participation in cnd n;tionalization of producing properties by cartain foreign governments, and the foreign reserves are subject to continuing changes in ownership. Proved reserves are the estimated quantities which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are quantities that can be expected to be recoverable through existing wells with existing equipment and operating methods. Proved undeveloped reserves are those which are expected to be recovered from new wells on undrilled acreage which are virtually certain of production when drilled, or from existing wells where a relativelv major expenditure is required for recompletion. Net reserves are estimated after deduction of royalties and, therefore, represent only that production which is owned by the Company and its subsidiaries. Tha estimates presented include only those reserves considered to be proved. They do not include reserves that may be recov:rable after the expiration of leases and concessions now held by the Company and do not include quantities which may be found by new discoveries, by extensions of the areas in reservoirs presently known to be productive or by improved presducing techniques not yet pilot-tested or installed. Changes in reserves of not crude oil (including condensate and natural gas liquids), stated in millions of barrels, and net rntural gas, stated in billions of cubic feet, during the years ended December 31,1981,1980 and 1979 are as follows: Total Proved Developed and Undeveloped Total Worldwide Unsted States Canada Europe Other Foreign Net Net Net Net Net Net Net Net Net Net Crude Natural Crude Natural Crude Natural Crude Natural Crude Natural Oil Gas Oil Gas Oil Gas Oil Gas Oil Gas Roserves--December 31,1978 2.020 7,820 1.050 5.670 256 2,150 140 574 Additions from dnlling 68 360 38 275 1 85 29 Purchases. 15 16 15 16 Revisions of previous estimates 56 (509) (2) (216) 8 (293) 22 28 Added through improved recovery 12 12 Production. (228) (794) (123) (693) (34) (101) (5) (66) Reserves-December 31,1979 1,943 6,893 978 5,052 243 1,841 157 565 Additions from dnlling 143 250 47 207 1 43 64 31 Revisions of previous estimates 24 (68) 11 (54) 12 (14) (13) 14 Product:on. (212) (744) (116) (662) (32) (82) J) (59) Reserves-December 31,1980 1,898 6,331 920 4,543 224 1,788 203 551 Additions from drilling 135 323 33 259 3 41 4 23 95 Revisions of previous estimates 78 (36) 20 (15) 9 (21) 5 44 /,dded through improved recovery 3 1 2 Production. (202) (692) (109) (615) (28) (77) (13) (52) Reserves-December 31,1981 1,912 5,926 865 4,172 210 1,731 199 , 23 638 Proved Developed Reserves (included above) December 31,1978. 1,643 G,879 1.009 5.439 252 1,440 10 372 December 31,1979. 1,623 6,117 942 4.874 240 1,243 11 430 December 31,1980. 1.577 5,567 878 4,372 221 1,195 45 433 December 31,1981. 1,530 5,142 823 4,020 207 1,122 58 442 In addition to these reserves, the Company has a purchase arrangement with the Nigerian National Petroleum Corpora-tion (NNPC) for 125,000 barrels per day. The contract is continuing beyond its two-year primary term, which ended September 30,1980, and is subject to cancellation by either party on an annual basis. Not proved reserves of synthetic crude oil resulting from Gulf Canada's 13.4-percent interest in the Syncrude Canada Limited project in the Athabasca tar sands were 100,103 and 107 million barrels at December 31,1981,1980 and 1979, rispectively. These reserves are being extracted by mining and processing tar sands and are not included in the above tables. Part of Gulf Canada's interest in this project was financed through a convertible loan from the Government of Alberta who has notified the Company that it will exercise its right under the loan agreement to convert the loan into an equity interest in the project. Accordingly, Gulf Canada's participating interest was reduced to 9 percent effective January 1, 1982, thus reducing its proved reserves to 67 million barrels. The Alberta government's share as holder of royalty rights from the Syncrude project is 50 percent of the net profit, as defined in an agreement between the project participants and the government, with an option to convert to a 7.5-percent gross royalty. On either basis, the Alberta government has the right to take its share in kind. 47

Reserva Recognition Aciounting (RRA) D;ta RRA, adopted by th2 Securities and Exchange Commission (SEC) in 1978, requires companics with significant oil and gas producing activities to disclose estimates of the amount of future net revenues and the related present value of such revenues which might result from the production of proved oil and gas reserves. A Summary Statement of Oil and Gas Producing Activities on the Basis of RRA (" Summary Statement") and a Statement of Changes in Present Value of Estimated Future Net Revenues from Proved Oil and Gas Reserves ("RRA State nent of Changes") are also required to be presented. For purposes of calculating these estimated future net revenues and the related present values, the SEC has mandated the use of current costs and prices and the use of a 10-percent discount factor in the present value calculation. Accord-ingly, the Company's estimated future net revenues for all years at December 31,1981,1980 and 1979 were computed by applying the average selling price (including internal sales) of oil and gas during the month of December of each respective year to the estimated future production of proved oil and gas reserves as of December 31,less estimated future expenditures (based upon the average applicable year's costs) to be incurred in developing and producing proved reserves and assuming continuation of existing economic conditions at each year-end. In the 1981 and 1980 calculations, recognition was given to decontrol of U.S. crude oil prices and the associated crude oil excise tax. These factors were not taken into account in 1979 because the tax had not yet been legislated. The price of domestic natural gas used in these calculations takes into account fixed and determinable price escalations allowed under various gas-pricing regulations and the effect of price restrictions and escalations under certain sales contracts, but no price escalations related to inflation are recognized. While the Company has prepared its calculations in accordance with the requirements of the SEC as described above, the Company wishes to emphasize that, due to the number of assumptions and estimates required in the calculations, the amounts shown are not indicative of the amount of net revenue which the Company expects, or may expect, to receive in future periods. As mentioned under, Reserve Data on page 46, reserve estimates by their very nature are inexact and are subject to constant changes and revisions, and foreign reserves are subject to continuing changes in ownership as evidenced by the significant changes which have occurred due to participation in and nationalization of producing proper-ties by foreign governments. Additionally, future rates of production and the related costs and prices of such production in all geographic areas are unpredictable for numerous reasons including government regulations and are, therefore, subject to significant change. While tho Company's calculations are based on the existing economic conditions at each year-end, such economic conditions have changed and may continue to chLnge significantly. The estimates of future net revenues and the present values thereof are neither indicative of, nor directly related to, the current value of, or the future earnings which may be realized from, the production of proved reserves as these calculations exclude certain additional costs such as depreciation, depletion and amortization, exploration and selling, general and administrative expenses. In view of the imprecisions inherent in the assumptions on which these calculations are based, the SEC has adopted a rule to protect companies which are required to disclose such estimates, provided that the information presented is prepared in good faith in accordance with the established guidelines. The Company emphasizes that while the calculations are based on the Company's understanding of the SEC's guidelines, there are numerous other equally valid assumptions under which these calculations and estimates could be made which would produce significantly different results. The Summary Statement is intended to present the results of oil and gas producing activities on the basis of evaluation I of discoveries, adjusted for the effects of revisions to prior-year estimates and certain other items. The RRA Statement of Changes is intended to present the current value of proved oil and gas reserves. Such statements bear no relationship to statements prepared on a historical cost basis in accordance with generally accepted accounting principles nor do they reflect the Company's anticipated cash flow from its oil and gas exploration, development and production activities. Also, the Company does not believe that the RRA statements realistically reflect the results of those continuing exploration activities nor the ultimate realizable value of existing reserves of oil and gas. The most significant items reflected in the RRA statements result from revisions to prior-year estimates primarily caused by significantly changing prices and the application of the required discounting techniques. The gross present value of additions to estimated proved reserves of $2,924, $3,359 and $1,515 million primarily reflects the 1981,1980 and 1979 reserve additions shown on page 47, valued under the procedures previously described. As a result of significant increases in worldwide crude oil prices in 1980 and 1979, revisions to the pnces used at December 31,1979 and 1978 in the valuation of estimated reserves have increased the value of those reserves by $11,675 and $11,629 million during 1980 and 1979, respectively. In 1981 revisions due to price increases were $1,006; however, those price increases were more than offset by increases in lifting costs, resulting primarily from higher production costs and wellhead taxes. The significant revision to lifting costs in 1980 reflects the initial inclusion of the crude oil excise tax. Other changes in estimates which add $490, $135 and $832 million during 1981,1980 and 1979, respectively, result from net adjustments to estimated reserves and future production schedules and from estimates of future development costs. 48

The caduction for actual costs incurred, including development, explorttion, proved lusehold co:ts tnd impairments of unproved leasohold costs, excludos certain costs which have been deferred pending evaluation. Such deferred costs aggregato $2,162, $1,773 and $1,240 million in 1981,1980 and 1979, respectively, and principally represent property acquisi-tion costs of $1,729, $1,327 and $971 million with recorded valuation allowances of $351, $296 and $238 million, respectively. Additions to the recorded valuation allowance amounted to $134, $105 and $89 million in 1981,1980 and 1979, respectively. Additional deferred costs in 1981,1980 and 1979 included $284, $213 and $107 million, respectively, pertaining to uncompleted exploratory wells, $233 and $162 million in 1980 and 1979, respectively, related to major development projects and $149 million in 1981 pertaining to support facilities. The present value of the future tax liability was calculated by applying current statutory tax rates to estimated future net revenues from proved oil and gas reserves after considering appropriate tax deductions and credits. The provision for incomo taxes represents the change in the present value of the future tax liability between year-end periods adjusted for the current year's actual tax payment. The provision for 1981,1980 and 1979 was $1,135, $5,592 and $9,003 million, respectively.

SUMMARY

STATEMENT OF OIL AND GAS PRODUCING ACTIVITIES ON THE BASIS OF RESERVE RECOGNITION ACCOUNTING (Millions of Dollars) Year Ended December 31 1981 1980* 1979* Additions and Revisions to Estimated Proved Oil and Gas Reserves Present value of additions to estimated proved reserves, gross. $ 2,924 $ 3,359 $ 1,515 Present value of revisions to estimated reserves proved in poor years Changes in prices, net of increases in lifting costs of $3,147, $7242 and $903 million (2,141) 4,433 10,726 Other changes. 490 135 832 Accretion of d:scount 2,730 2262 1,168 4,003 10,189 14241 Deductions for Costs Actual costs incurred, including empairments 1,466 1,327 1,086 Present value of estimated future development and lifting costs 724 1,026 384 2,190 2,353 1,470 Additions and Revisions, Net of Deductions. 1,813 7,836 12,771 Provision for income Taxes United States. 294 563 2,096 Foreign 841 5,029 6.907 1,135 5.592 9,003 Results of Oil and Gas Producing Activities on the Basis of Reserve Recognition Accounting. $ 878 $ 2.244 $ 3,768 STATEMENT OF CHANGES IN PRESENT VALUE OF ESTIMATED FUTURE NET REVENUES FROM PROVED OIL AND GAS RESERVES (Millions of Dollars) Year Ended December 31 1981 1980* 1979* Increases Additions and revisions. $ 4,003 $10,189 $14241 Less related estimated future development and lifting costs. 724 1.026 384 Net additions and revisions. 3,279 9,163 13.857 Purchases of reserves in place. 172 E xpenditures that reduced estimated future development costs 421 257 272 3,700 9,420 14.301 Decreases Sales of oil and gas, including transfers, net of lifting costs of $2.275, $1,165 and $628 million. 5,024 4.746 3.361 NET (DECREASE) INCREASE - (1,324) 4,674 10,940 BALANCE AT BEGINNING OF YEAR 27,293 22.619 11.679 BALANCE AT END OF YEAR 25,969 27293 22,619 INCOME tax LIABILITY 16,511 17,299 13.907 $ 9,458 $ 9,994 $ 8,712

• Restated.

49

l ESTIMATES OF PRESENT VALUE l Milhonsof Dollars 1981 1980 1979 Before After Before After Before After Taz Taz Tax Tax Tax Tax Proved Developod and Undevelopod Reserves Unitod States. $10,006 8 6,929 $10.039 $ 6,594 5 9.362 $ 6.036 Canada. 2,140 901 2,469 1,248 2.221 1,114 ) Europe 2.887 987 3.860 1,488 1,991 908 Other Foreign. 10,837 041 10.925 664 9.045 594 Total. $253 8 9,458 $27,293 $ 9,994 $22.619 $ 8,712 Proved Developed Reserves Uru'ed States. $ 9,735 8 6,734 $ 9.760 $ 6,444 $ 9,031 $ 5.838 Cartida. 1,705 790 2,136 1.082 1.866 947 Europe 1,167 631 1,112 815 178 158 Other Foreign. 7,600 558 8.788 561 7,227 515 Tota'. 320,376 8 8,722 $21.796 $ 8,902 $18.302 $ 7.458 ESTIMATES OF FUTURE NET REVENUES As indicated on page 49, results of the Company's 1981, BASED TCEM 3,D R 1980 and 1979 oil and gas producing activities on the basis E ERVES 19 Manons ot Donars of RRA were $1,813, $7,838 and $12,771 million, respec-Proved Developed and Proved lively, before recognition of,ncome taxes. As reported in 1982 Undeveloped Reserves Developed Reserves Geographic and Related Business Segment financial data United States. $ 1,983 $ 2,076 on page 30, the Company's worldwide operating profit. [, 286 before income taxes, for its exploration and production segment in 1981,1980 and 1979 was $3,306, $3,392 and Other Foregn. 1.661 1.544 on, respecWely. M caWahg NsWeal operab 4.191 4.331 ing profits, revenue was recognized when sales were 1983 made and was reduced by deductions for actual costs United States. 1,869 1.780 incurred and the amortization of capitalized costs. In the $,",*d*f Summary Statement, results were calculated based upon d3 8 Other Foreign. 1.955 1.509 estimates of future value of Current-year discoveries, by s gnificant revisions to prior-year estimates of reserves, 4.641 3.938 prices, costs, production schedules and by certain other '984 items. In the RRA calculations, a discount factor of 10 States. 1 1 89 percent was applied to estimates of future revenues and costs in order to calculate the present values reflected in Europe. 581 230 Other Foregn. 2.027 1.415 the statements. The net present value of estimated future 4,sg 3,453 net revenue, before considering related income tax liabili-All Rernaining Years and 1980, respectively. As reported in Note 18 of Notes to jda $5 Financial Statements on page 45, the Company's net in-Europe. 3.443 669 vestment in exploration and development properties was Other Foreign. 11.399 7.264 $6,605 and $5,435 million for 1981, and 1980, respectively. 30.954 22.743 Since the two methods are based on totally different con-Total. $44.350 $34.465 cepts as to the valuation of reserves and the timing of reporting the results of oil and gas activities, the results reported in the historical financial statements bear no rela-tionship to the RRA statements. l 50 I

Suppl;mantzl Oth r Minarcl3 Infsrmotian Coal The Company's total proven and probable coal reserves, which are located in the United States, are presented in the following table. Proven reserves are the estimated quantities of commercially recoverable reserves that, on the basis of geological, geophysical and engineering data, can be demonstrated with a reasonably high degree of certainty to be . recoverable in the future from known mineral deposits by either primary or improved recovery methods. Probable reserves are the estimated quantities of commercially recoverable reserves that are less well-defined than proven reserves and that may be estimated or indicated to exist on the basis of geological, geophysical and engineering data. Recoverable reserves are obtained by subtracting estimated future losses in mining from the reserves in place. In addition to the proved and , probable reserves, the Company controls additional coal properties which are categorized as identified resources. These . coal reserves are not technically reserves but may become so as a result of additional valuation work, consolidation of leases, or changes in economic or legal conditions. Coal Reserves The increase in proven and probable coal reserves is (Mili.ons of Tons) primarily attributable to the addition of approximately 750 1981 1980 1979 1978 million tons purchased during 1981. The increase in U.S. United states identified resources in 1981 is also due to purchases. Developed recoverable 335 204 227 239 All of the Company's U.S. coal reserves are non-Undeveloped recoverable 816 295 143 318 metallurgical Coals and are suited principally to steam gen-eration. Approximately 36 percent of these recoverable ident e cs 1 59 5 reserves are bituminous Coals having a total sulfur content 2,196 1.078 968-1,008 greater than 1.85 percent by weight while 13 percent are canada sub-bituminous coals having a sulfur content less than.45 Identified rosources 614 539 percent by weight. The remaining 51 percent possess a 2,sm 1.617 968 1.008 sulfur content between.45 and 1.05 percent by weight. Uranium The Company's Canadian proven and probable uranium reserves were approximately 70 million pounds at December 31, 1978 through 1981. These reserve estimates are based on reasonable ore grade-thickness and represent the Company's best estimate of reserves which are expected to be recovered with conventional mining methods. The Company is developing a large U.S. mine (Mt. Taylor) from which limited production was derived in 1981. The market for uranium is characterized by excessive worldwide inventories resulting from continued delays in the construction of nuclear power plants. The future of the Mt. Taylor mine, in which the Company has a substantial investment, is depenoent on revitalization of the nuclear industry and the associated recovery of uranium prices. The Company is currently continuing the development of Mt. Taylor at a reduced level, in anticipation that conditions in the uranium market will improve in future years. It is estimated that approximately 125 million pounds of uranium can be recovered from the Mt. Taylor mine. 51

Inflati2n Accsunting In recent years, inflation has had a significant impact on the usefulness of financial statements prepared using historical costs. In periods of rising prices, the current profit picture may not be indicative of actual economic results due to the increasing costs of replacing existing inventories and operating assets. The supplementary inflation-adjusted financial information which follows was prepared under the constant dollar and current cost accounting methods presenbed in Statement No. 33 of the Financial Accounting Standards Board (FAS No. 33). While the Company does not necessarily agree that these methods are the most appropriate for a multinational petroleum company, the supplementary inflation-adjusted financial information which follows at least provides some insight into the impact of inflation on reported numbers. The constant dollar accounting method measures the effects of general inflation by restating certain historical cost financial information to a common unit of measurement, the average dollar value for the current year, by use of the Consumer Price Index (CPI), Current cost accounting measures the effect of the specific price changes experienced by the Company. Under the theory prescribed by FAS No. 33, the effects of inflation are greatest on property, plant and equipment and inventories. The information presented is based on historical cost net income adjusted for the difference between constant dollar or current cost and historical cost depreciation, depletion and amortization and purchases and operating expenses. Other income and expense items have not been restated because inflation does not affect them as significantly. FAS No. 33 suggested various methods which may be used to calculate current costs. The methods which the Company used in determining the current cost of its inventories and property, plant and equipment are as follows. The current costs of inventories valued on a LIFO basis were calculated by pricing year-end quantities at current market prices. The historical costs of FIFO and average cost inventories approximate current costs and were therefore not adjusted. Property, plant and equipment current costs were calculated by the use of specific indices related to the type, function and geographic location of the assets being measured. No consideration has been given to possible replacement with assets of a different type, at a different location or with improved operating cost efficiencies. Additionally, it should be noted that current cost is not intended to represent the appraised value of the Company's property. When the Company's profits are calculated under the constant dollar and current cost methods, they are significantly lower than profit levels reported in the conventional historical cost financial statements. This reduction in eamings is due to the rising costs of maintaining productive capacity in inflationary periods. Current cost net income is lower than constant dollar not income as the current cost of the Company's operating assets has generally increased over time at a rate higher than that of the cpl. Even though pretax income on a constant dollar and current cost basis is greatly reduced from the historical dollar amount, the provision for income taxes is unchanged, thus increasing the Company's overall effective tax rate. This treatment highlights the " hidden" tax that results from inflation. A condensed income statement for the year ended December 31,1981 and selected balance sheet data at December 31,1981 stated in average 1981 dollars as required by FAS No. 33 are presented below: Millions of Dollars in Average 1981 Dollars Adjusted For Adjusted For As Reported in General Changes in The Pnmary inflation Specific Pnces Statements (Constant Dollar) (Current Cost) Condensed income statement Totalrcvenues. $30,461 $30,461 $30,461 Dedu('es Depreciation, depletion and amortization 1,295 2,084 2,478 Purduses and operating erpenses. 18,930 19.024 19,366 Other deductions. 9,005 9,005 9,005 Net income (loss). $ 1,231 $ 348 $ (388) Net income (loss) per share. $ 6.37 $ 1.80 $ (2.00) Balance sheet Data inventones $ 2.137 $ 2.888 $ 5.571 Property, plant and equipment, net. 13,013 17,613 20,268 Net assets (shareholders' equity) 9,984 15,335 20.673 Increase in current cost of inventory, property, plant and equipment dunng year. $ 3,138 Increase in general pnce level. 2,091 l Excess of increase in current cost over increase in general pnce level. $ 1,047 52

The 1981 constant dollar not income of $348 million reflects an effective tax rate of 86 percent compared with 63 percent on c hi;torical basis (as shown in Note 11 on page 41), The 1981 current cost method income reflects a loss of $388 million compared with profits of $1,231 on a historical basis. This loss reflects both the increase in the current cost of the Comp ny's operating assets and inclusion of historical basis taxes which result in an effective rate of over 100 percent. The $1,047-million increase in current cost over the increase in general price level 'esults from two factors. The inflation rata r:lited to plant construction costs applicable to the Company's operations was generally higher than the rate of chinge in tho 1981 average cpl. This was partially offset by the change in the current cost of inventories as crude oil prices incr:Ised at a lower rate than the cpl. Const nt dollar and current cost net assets represent historical cost shareholders' equity adjusted for the difference between constant dollar or current cost and historical cost net property, plant and equipment and inventories. Th3 following five-year summary compares certain information stated in average 1981 dollars under the constant dollar tnd current cost methods prescribed by FAS No. 33 with the amounts reported in the historical financial statements. Millions of Dollars (Except Per. Share Amounts) 1901 1980 1979 1978 1977 . sales and Cther operating revenues Histoncal.. $30,025 $28,389 $25,893 $'3,892 $19,595 ConstInt dollar. 30,025 31,334 32,444 27,731 29,409 Not income (loss) Histoncal. 1,231 1,407 1,322 Const nt dollar. 348 625 947 Current cost. (308) 170 489 income (loss) per share Histoncal. 6.37 7.21 6.78 Constant dollar. 1.80 3.20 4.86 Current cost. (2.00) .87 2.51 Not assets at December 31 Historcal, 9,904 9,637 ?688 ConstInt dollar. 15,335 15,836 17,975 Currrnt cost...... 20,673 20.670 23,451 Cash dividends declared per share Histoncal. 2.65 2.37 2.06 1.90 1.85 ConstLnt dollar. 2.65 2.62 2.58 2.65 2.78 Market price per share at December 31 Histoncal. 35.38 43.50 34.63 23.38 26.75 Constant dollar. 34.23 45.86 41.03 31.39 39.15 Gain from decline in purchasing power of not amounts owed.. 330 386 516 Excess cf increase in current cost of inventory, property, plant and equipment over increase in general price level 1,047 77 2.293 Average consumer price index for year (1967 = 100) 272.4 246.8 217.4 195.4 181.5

• Information not available prior to 1979.

Tha " gain from decline in purchasing power of net amounts owed" shown above reflects a theoretical gain resulting from the fact that the Company's monetary liabilities, including deferred taxes, exceed monetary assets. Under the theory prnscribcd by FAS No. 33, a net monetary liability position gains value in inflationary periods as less purchasing power is required to meet these obligations. l 53

Fivc-Yccr St:tistical Summcry ,,78 ,977 Net crude oil and natural gas liquids (daily average barrels) Net Producton United States Crude oil Texas 119,800 130,300 132,200 138,600 141,600 Louisiana-offshore. 42,800 43,400 48.600 55,700 61,300 -onshore, 36,000 42,300 50,000 57,300 58,900 Mississippe. 17,900 19,400 17,900 17,400 17,700 California 12,300 12,100 11,800 12,000 12,000 New Mexico. 9,500 10,400 11,300 12,000 11.200 Other 36,500 38,700 40,700 38,100 33.600 274,000 296,600 312,500 331,100 336,300 Natural gas liqueds Equity production. 22,400 22,500 23,700 21,500 16,400 Plant processing. 48,200 45,100 45,900 47,600 49,500 Total Unitod States. 345,400 364,200 382,100 400,200 402,200 Canada Crude oil' 73,200 82.200 83,900 60,000 60,200 Natural gas hquids Equity production. 13,200 14,500 15,600 14,700 16,100 Plant processing. 6,300 8,800 11,700 10,500 9.300 Total Canada. 92,700 105,500 111 200 85.200 85,600 Europe Crude oil North Sea. 35,400 13,600 13,200 2,000 Other 1,200 2,200 2,200 Total Europe 35,400 13,600 14,400 4,200 2,200 Other Foreign Crude oil Nigena 91,000 111,700 129,800 119,900 104,600 Angola 35,400 37,000 40,100 38,000 102,300 Zaire, 8,000 7,900 9,100 8.300 9,400 Gabon 2,700 2,300 1,700 1,900 2,300 Indonesia. 2,000 1,900 1,500 100 Total Other Foreign. 141,300 160,800 182,200 168,200 218.600 Total Net Production 614,000 644,100 689,900 657,800 708,600 Term Purchases Crude oil Nigena 140,000 118,900 135,800 113,800 136,100 Kuwait, 38,900 192,400 550,000 493,700 439,000 Venezuela 38,000 40,800 79,600 72,800 95,500 Other Foreign 95,400 122,500 332,800 381,200 376,700 fran. 100,200 222,000 305,300 313,700 474,600 1,198,400 1 283,500 1,352,600 Natural gas hquids 113,000 105,700 100,300 74,100 86,400 Total Term Purchases 426,700 580,300 1 298,700 1,357,600 1,439,000 Total Net Production and Term Purchases 1,041,500 1224,400 1,988,600 2,015,400 2,147,600

• Includes 9,300,9.600 and 6,800 barrels per day in 1981,1980 and 1979, respectively, of synthetic crude production, resulting from Gulf Canada's interest in Syncrude Canada Limited.

Operatir'g data in the five-year statistical summary includes I A percent of volumes from all consolidated subsidianes and the equity interest in other companies. 54 )

n 1981 1930 1979 1978 1977 Naturd gas Hquids sold (daily average barrels) United States 137,000 130.200 146.300 126.100 123,800 Ctnada. 29,000 29.200 29.200 27,000 28.800 Europe. 5,000 7,800 9.100 9.800 9.000 Other Foreign 400 2,000 3.800 10.500 11.600 TotIl 173,000 169,200 188,400 173,400 173,200 Net natt,ral gas produced * (thousand cubic feet per day) Urvied States Tex s 697,000 738,000 702.200 703,200 807,500 Louisiina--offshore, 501,300 659,100 749,600 705,000 579,900 --onshore 111,400 129.100 149,600 162,400 163,800 New Mexico, 130.100 133,900 142,900 164,400 171,500 Oklahoma 73,900 64.100 67,900 69,100 68,400 Other 80,700 84,100 86,200 78.200 73.800 1,685,000 1,808,300 1.898.400 1,882.300 1,864,900 Ctruda. 211,000 223.800 277.500 270,500 301,800 Total 1,896,000 2,032,100 2.175,900 2,152.800 2,166,700 Natural gas sold * (thousand cubic feet per day) United States interstate Texas Eastern, 544,500 647,300 729.700 693.600 592,400 Other 759,900 760,000 762.000 820,400 893.000 1,324,400 1,407,300 1,491,700 1,514,000 1,485,4uG Intrastate. 448,000 467,800 470,700 474,500 553.100 1,772,400 1.875,100 1,962,400 1,988,500 2,038.500

Canada, 306,700 331,500 398.300 385,500 431,100 Total 2,079,100 2,206,600 2,360,700 2.374,000 2,469,600 Coal mined (thousands of tons)

United States Surface...... 11,000 9,100 9.300 8,000 7,100 Underground, 000 600 700 1.000 1.400 Total 11,800 9,700 10,000 9,000 8,500 I ) Uranium produced (thousands of pounds) l United States 470 540 460 470 60 l Canada. 1,600 2.610 2,740 2,810 2.570 Total 2,070 3,150 3.200 3,280 2,630

• In the U.S natural gas volumes are before extraction of natural gas liquids.

55

Five-Yzr Statistic 1 Summary (Continued) 1981 1980 1979 1978 1977 Oil and gas acreage at Gross Gross Gross Gross ~~ Gross Not Net Net Net Net December 31 (thousands of acres) United States Producing 5,535 2,139 5,210 2,094 4,801 1,927 4,694 1,876 4,999 1,972 Nonproducing. 26,544 13,697 24,948 13,142 22,501 12.376 22,998 12,785 23,211 13,440 32,119 15,896 30,158 15.236 27,302 14,303 27,692 14,661 28,210 15,412 Canada Producing 2,461 1,257 2,104 1,081 2,099 1,102 2,065 1,138 1,948 1,093 Nonproducing, 77,371 24,156 85.389 26,591 89,199 28,525 101,653 25,535 110,364 23,620 79,832 25,413 87,493 27,672 91,298 P9,627 103.718 26,673 112,312 24,713 Europe Producing 122 7 8 3 4 4 2 1 Nonproducing, 4,632 1,402 3,284 925 2,950 756 2,631 738 4,023 1,082 4,754 1,400 3292 928 2,954 760 2.633 739 4,023 1.082 Other Foreign Producing 14,085 2,560 14,091 2,561 24,686 2,603 2,595 1,205 2.595 1,868 Nonproducing. 87,837 59,861 83,055 54,531 94,260 55,874 161,827 86,921 176,221 96,982 101,922 62,421 97,146 57,092 118,946 58,477 164.422 88,126 178,816 98,850 i

Total, 218,627 105,139 218.089 100,928 240,500 103,167 298,465 130,199 323,361 140,057 Wells drilled during the year United States Exploratory wells Od,

89 50 85 57 73 50 50 31 86 60 Gas. 74 33 68 38 79 46 102 73 90 71 Dry 126 88 98 67 108 80 120 67 152 114 Development wells Od, 773 272 756 320 821 307 837 341 895 535 Gas. 168 72 186 72 156 87 150 81 148 91 Dry 54 32 45 22 60 31 67 38 86 55 1,284 547 1,238 576 1297 601 1,326 631 1,457 926 Canada Exploratory wells Od. 117 63 79 41 17 9 4 2 1 1 Gas, 79 35 48 27 24 13 14 7 19 12 Dry 169 84 103 55 84 42 41 21 31 20 Development wells Od. 112 48 96 36 43 11 40 17 38 23 Gas. 11 2 14 1 25 7 55 25 67 40 Dry 13 12 14 7 3 21 17 18 13 501 244 354 167 196 82 175 89 174 109 Europe Exploratory wells Od. 1 3 7 1 Gas. 1 3 1 Dry 1 12 3 1 5 3 13 4 Development wells Od. 17 2 22 2 5 1 23 2 Dry 2 1 18 2 35 5 10 1 33 5 22 5 Other Foreign Exploratory wells Od. 1 14 3 41 12 15 6 7 3 Gas. 7 2 2 1 Dry 37 12 30 9 11 3 15 5 12 5 Development wells Od. 51 8 46 8 45 6 6 4 10 4 Dry 2 1 7 1 1 91 21 104 23 97 21 39 16 29 12 Total, 1,894 814 1,731 771 1,600 705 1.573 741 1,682 1,052 Gross represents the totalin which all or part of the working interest is owned by the Company. Net represents only that part of the working interest applicable to the Company, that is, the sum of all fractional interests. 56 I

R fnngCapacity 12-31-81 1981 1980 1979 1978 1977 Crude oli processed (daily average barrels)* United St:tes Port Arthur, Texas. 335,000 231,100 272,600 309,900 309,800 290,600 Phil:delphia, Pennsylvania, 200 309 142,300 156,000 204.600 206,900 203,100 Allence, Louisiana, 195,900 155,900 188,800 199,300 178,500 197,300 Toledo, Ohio 16,900 23,000 47,300 47,100 44.100 Sant2 Fe Spongs, California. 51,500 37,200 37,600 43,300 43,100 46,200 Cincinnati, Ohio, 43,700 35,900 25,400 44,700 41,800 39,700 San Juan, Puerto Rico. 37,800 26,100 30,100 34,100 33,000 33,400 Venice, Louisiana, 3,900 15,700 14,400 17,600 19,300 870,200 649,300 749,200 897,600 877,800 873,700 C1nada Alberta 93,000 84,500 84,600 86,100 80,500 83,500 Quebec 66,000 65,500 64,500 60,800 64,800 72,100 Ontano, 76,600 63,900 67,800 58,700 63,100 69,700 Nova Scotia. 18,400 56,600 47,200 66,100 Bntish Columbia 46,700 45,600 47,500 47,200 41,900 41,100 S:skatchewan 13,300 3,300 3,100 7,300 3,900 6,300 Processed by others for Gulf 10,000 3,800 1,700 100 295,600 273,600 289.700 318,400 301,400 338,900 Europe Wales. 103,000 22,000 35,700 75,800 72,300 52,400 Nethorlands. 75,500 55,000 61,000 66,500 72,700 66,200 Denmark 85,000 36,200 52,700 77,500 62,800 67,600 Italy. 82,500 47,000 65,400 67,900 59,800 57,900 Equity interest Switzerland (25*4), 16,500 14,600 16,000 14,900 15,500 15,500 France (18%). 29,300 60,200 57,500 Spain (34%) 44,000 41,900 Processed by others for Gulf 11,800 22,500 24,200 17,200 10,900 362,500 106,600 253,300 356,100 404,500 369,900 Other Foreign Taiwan 20,900 13,900 18,200 11,900 11,600 12,400 Ecuador. 6,100 7,200 Equity interest Korea (50%), 56,800 128,300 128,400 111,800 Okinawa (45%) 7,400 25,000 33,000 32,800 Processed by others for Gulf 9,200 10,700 15,700 3,000 18,800 20,900 23,100 93,100 180,900 182,100 183,000 Total 1,549,200 1,132,600 1,385,300 1,753,000 1,765,800 1,765,500 Percent c.f refining capacity utilized United States 72 79 95 92 92 Canada 89 88 82 78 90 Europe. 48 64 83 72 69 Other Foreign. 67 80 89 93 89

• Includes crude oil processed by the Company for its own account and for others, and by others for the Company's account.
• Shut down dunng 1981.

57

Five-Y cr Stati:ticci Summary (Continued) 1981 1980 1979 1978 1977 Refined products sold (daily average barrels) Unitad States Gasoline 409,$00 413.800 520,700 494,600 479,700 Distillate 161,100 187,100 233,300 212,900 230.700 Residual 57,700 59.600 76,800 69,600 69.900 Kerosene... 55,000 59.000 55,000 45.600 42,900 Lubncating o.ls........ 8,200 10,400 11.700 12,700 12,900 Other manufactured oils. 7,700 7,000 16.000 21,300 15,200 691,100 736,900 913,500 856,700 851.300 Canada Gasoline. 113,200 120.800 117,500 115,200 114.400 Distillate 80,100 87.000 86,000 86,600 90,700 Residual 21,800 24.600 33,100 40,400 48,700 kerosene... 5,700 4,300 5,000 3,100 3.000 Lubocating oils....... 3,000 3,600 3.000 2,700 2,500 Other manufactured oils. 35.900 29.500 24.200 23,600 27.100 260,500 269,800 268.800 271.600 286,400 Europe Gasoline 45,200 45,300 54,200 66,900 63,200 Distillate 75,500 80,400 105.200 139,900 133,000 Residual 54,100 64.700 95,700 86.700 87,100 Kerosene... 9,600 10.500 14,700 21,000 18.200 Lubncating oils........ 4,100 4.600 6,000 6.400 6,300 Other manufactured oils. 8,300 11,900 13.300 17,300 17,500 196,800 217,400 289,100 338,200 325.300 Other Foreign Gasohne 1,600 6.000 9,400 9.900 12,500 Distillate 10,800 20.900 39.100 37.100 36,100 Residual 21,700 67,300 125,000 119,500 106.200 Kerosene... 2,800 9,900 14.700 15.600 12,600 Lubncating oils....... 3,500 4,300 4,200 3,900 3,100 Other manufactured oils. 5,000 13,400 20,400 30.700 35.600 45,400 121,800 212.800 216.700 206,100 Total. 1,193,800 1,345,900 1,684,200 1,683.200 1,669.100 United States imports (daily average barrels) Crude al from Nigena. 109,800 170,600 231,800 189.900 234,400 Libya... 36,300 59.300 68,000 55,700 45,200 Venezuela. 28,000 31,400 46,300 39.000 40.300 Angola. 28,000 12.600 8,500 6.300 12,600 Zaire 16,400 10.000 3.800 700 Indonesia 10,400 6.600 6.700 20,200 900 Other. 16,800 41,500 109.900 96.300 72,200 Total. 245,700 332.000 475.000 408.100 405.600 Refined products. 21,600 16,400 22,400 21,100 22.800 Marketing retail outlets United States Dealer operated.. 14,543 15.135 16.239 17,100 17,329 Company operated 734 920 943 973 1,143 15,277 16.055 17,182 18.073 18.472 Canada 2,588 2.716 2,932 3.178 3,759 Europe. 4,023 4.018 3,960 3,998 4.019 Other Foreign. 73 88 101 102 101 T-tal. 21,961 22,877 24,175 25,351 26,351 Tankers owned, leased and long-term chartered Deadweight tons Up to 50,000*,,. 17 23 25 26 29 50,001 to 130,000. 13 21 22 22 27 130.001 to 250,000 5 5 6 4 4 Over 250.000. 4 7 15 16 16 39 56 68 68 76 Thousands of deadweight tons Owned and leased.. 3,407 3.877 5,943 5.590 5,755 Long. term chartered. 564 1,844 2.644 2.815 3.067 3,971 5.721 8,587 8,405 8.822

• Inc'udes three Gulf Canada product tankers.

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