<PAGE>
 
ABOUT THE COVER:  THE EMBROIDERED  
PEGASUS  TRADEMARK  INTRODUCING  
THIS ANNUAL REPORT REPRESENTS 
MOBIL AND ITS EMPLOYEES  WORLDWIDE, 
MANY OF WHOM PROUDLY WEAR THE IMAGE
DAILY AS A PATCH ON THEIR CLOTHING.

[Bar Chart - Inside Front Cover]

AVERAGE ANNUAL
         RETURN TO
      SHAREHOLDERS

         Mobil share-price appreciation
            plus reinvested dividends
              % as of year-end 1997

             Mobil     Competitors       S & P 500
 1 Year       22            21               33
 5 Year       22            21               20
10 Year       19            17               18


TABLE OF
   CONTENTS

Letter to Shareholders  1
Mobil At a Glance  4
People  6
Performance  8
   Alliances improve results, prospects
   Convenience at the pump builds brand loyalty
Growth  10
   Hibernia beats schedule,  surpasses estimates Expanding in the Caspian region
   Building on our leadership in LNG Growing reserves,  production in a world of
   opportunities  Lubricating  oils:  pushing to be first  Staying  ahead of the
   curve in chemicals
Environment  16

FINANCIAL
     SECTION

Management Discussion
   and Analysis  19
Consolidated Financial
   Statements  33
Notes to Financial Statements  40
Reports of Management and
   Independent Auditors  54
Supplementary Information  55

Shareholder Information  64
Directors and Officers  65

<TABLE>
<CAPTION>

  FINANCIAL
     HIGHLIGHTS
                                                                       1996        1997     %Change
 ..........................................................................................................
<S>                                                                <C>              <C>              <C>
   Net income (millions)                                           $  2,964         $  3,272          10
     Per common share(1) (based on average shares outstanding)         3.69             4.10          11
     Per common share-assuming dilution(1)                             3.62             4.01          11
 ..........................................................................................................
   Return on average shareholders' equity                            16.0 %            17.0%          --
   Return on average capital employed                                  12.7%           13.4%          --
   Income per dollar of revenue(2)                                      3.6(cent)       5.0(cent)     39
   Petroleum earnings per gallon sold                                   4.5(cent)       5.1(cent)     13
 ..........................................................................................................
   Revenues(2)  (millions)                                         $ 81,503         $ 65,906         (19)
   Total assets, year-end(2) (millions)                              46,408           43,559          (6)
   Investment spending (millions)                                     7,019            5,306         (24)
   Shareholders' equity, year-end (millions)                         19,072           19,461           2
     Per common share(1)  (based on shares outstanding at year-end)   23.81            24.41           3
 ..........................................................................................................
   Common shares outstanding, year-end(1)  (thousands)              787,589          783,364          (1)
   Shareholders of common stock, year-end                           185,600          186,200          --
   Number of employees, year-end                                     43,000           42,700          (1)
 ..........................................................................................................
<FN>
(1) Shares outstanding and per-share amounts reflect the two-for-one stock split in 1997.
(2) Reflects the impact of equity accounting for alliances implemented in 1997.
</FN>
</TABLE>
<PAGE>
 
                                    LETTER
                                       TO SHAREHOLDERS

RAISING OUR TARGETS
I'm pleased to report that Mobil's 1997 operating  profits reached $3.4 billion,
up 11% from 1996. It was the third  straight year of record  operating  results,
and most of the increase  stemmed from self-help.  We raised  volumes,  improved
performance,  benefited from expense  initiatives  and business  alliances,  and
strengthened our relationships with valued customers and partners.  Our upstream
and U.S. downstream segments achieved records, and chemical earnings improved as
well.
     Our total return to  shareholders  reached 22% in 1997 and has averaged 22%
over the past five years.  While our 1997  results  were middle of the pack,  we
outperformed the average return of our competitors and the Standard & Poor's 500
over five years.  During 1997, Mobil split the stock  two-for-one and raised the
dividend.  Then, early in 1998, we announced another dividend increase,  of 7.5%
annualized. This is the 11th straight year of higher dividend payments.
     Mobil's  debt-to-capitalization  ratio stood at 25% at year-end 1997.  That
means we have the flexibility to invest in profitable opportunities that fit our
core businesses. If the debt-to-capitalization ratio stays much below our target
in the 30% range, we'll consider  additional stock buybacks.  Over the last five
years we've reduced our common shares outstanding by about 2%.

GOALS POINT THE WAY
In early  1997,  it was clear that we had reached - almost two years early - the
goals we had set in 1994. While our achievement was significant, we didn't stack
up as well as we would have liked in relation to our competitors.
     So our new  five-year  goals  contain as a  centerpiece  the  objective  of
generating  returns to shareholders that are in the first quartile of comparable
energy companies. In order to reach that objective, we've set new targets, using
1996 as the base year:  a 10% per year  increase in  operating  earnings,  which
would bring us to $5 billion in 2001; a 14% average  return on capital  employed
over the period; and, assuming constant market multiples,  a $100 stock price by
2001.
     To support our  targets,  we  established  goals for our  operating  units,
including:  increasing  oil and gas  production  by an  average of at least 4% a
year,  replacing  more than 110% of the  reserves  produced  over the  five-year
period, growing our trade sales volumes in fuels and lubricants by an average of
4% to 5% a year, and increasing by 7% a year our chemical sales volumes.  We can
only  achieve the  business  results we seek by having  great  people,  so we're
conscientiously  trying  to  build  a  more  inclusive  workplace  culture  that
leverages our diverse talent worldwide. At the same time we've set objectives to
continually improve our environmental, health and safety performance.
     We did well  against  our  operating  goals in 1997.  Worldwide  production
increased  4%, on trend with our  five-year  goal;  and we had a banner  year in
reserve  replacement,  reaching 146%.  Worldwide  product trade sales were about
flat,  although  volumes  outside Europe  increased some 4%. In
<PAGE>
 
LETTER
   TO SHAREHOLDERS

Europe,  despite lower volumes,  our earnings  benefited  greatly because of our
downstream  alliance with BP. Overall chemical volumes grew 14%, in part because
of a new aromatics complex in Beaumont, Texas.
     Despite our good start,  getting all the way to where we want to be in 2001
won't be easy.  We're  in a very  competitive  industry  with  modest  projected
worldwide  demand growth.  We can't count on industry prices and margins to help
us achieve our goals,  so we rely on self-help - the  components  necessary  for
success: people, performance, growth.

PEOPLE GET US THERE
It's our people who formulate  the  strategies,  attain the goals,  and plan for
tomorrow.  Our  workforce is talented,  diverse and  committed to making Mobil a
great global  company.  Throughout the Mobil  organization  we are  implementing
programs to align  employee  interests  more  closely with those of the business
unit, the company and the  shareholder.  We're beginning to see the results of a
wide range of global  initiatives  we've  undertaken to ensure that we are fully
developing  the  talents  and  skills of our  people  and  providing  inclusive,
high-performance work environments in which they can thrive.

PERFORMANCE IMPROVES DRAMATICALLY
On performance, our focus centers on becoming ever more efficient and delivering
real value to our  customers.  Efforts by Mobil people  everywhere  are yielding
improvements.  In U.S. Marketing & Refining,  which was lagging competitively in
the early 1990s,  operating  performance and innovative  marketing programs like
the Speedpass(TM) system and On The Run(R) convenience stores helped spur a 51%
increase in operating  earnings to record  levels.  Upstream in the U.S.,  after
years of declines, we ended 1997 with fourth-quarter production about level with
the same period in 1996.
     Over the  five-year  period ended in 1996,  Mobil's  worldwide  initiatives
resulted  in more than $3 billion in pretax  expense  savings.  With 1996 as the
base,  programs  now in place are  expected  to yield  another  $900  million in
annualized pretax expense reductions and profit improvements.
     We are already  seeing the results of our strategic  alliances,  especially
those with BP in the European  downstream and Shell in the California  upstream.
Meanwhile,  we are  continuing to sell assets that are noncore to Mobil or worth
more to someone  else.  We've sold some of the fields that were  included in our
acquisition  of Ampolex.  The roughly  $370  million we received  represented  a
significant premium over our original valuation of those assets. Overall, during
the last 10 years,  Mobil asset sales generated more than $11 billion,  which we
redeployed into attractive growth opportunities.
     An area in which we are deeply committed to substantial  improvement is the
environment,  health and safety. We have established challenging five-year goals
for worker safety, spills and major incidents, and will publish our progress. We
recognize  that  success in this area is critical for the company and all of our
stakeholders,  and our ultimate goal is to eliminate accidents and environmental
incidents.

GROWTH TARGETS RAISED
We project 1998  investment  spending of $5.9  billion,  up from $5.3 billion in
1997. We believe that the best  opportunities  are in exploration and producing,
and the primary  sources of  upstream  growth for us over the next few years are
likely to be West Africa,  Eastern Canada, the Caspian region, Qatar's liquefied
natural gas projects, South America, Norway, Australia and Papua New Guinea.
     Eastern Canada, where we have a dominant position,  provided much good news
for us in 1997.  The Hibernia oil field offshore  Newfoundland  came on stream a
month  early and  estimates  for both 
<PAGE>
 
NEW EXPLORATION AND ACQUISITIONS COULD RAISE
OUR PRODUCTION BEYOND OUR CURRENT GOALS

reserves  and peak  production  have been  increased.  The nearby Terra Nova oil
field and the Sable Gas Project off the coast of Nova Scotia received regulatory
approvals  in 1997.  Elsewhere,  we made  important  discoveries  in  Australia,
Equatorial  Guinea  and Norway  and  progressed  our  growing  relationships  in
Azerbaijan, Kazakhstan, Nigeria, Peru, Qatar, Turkmenistan and Venezuela.
     In 1994 we targeted  production growth of 2% a year. We've since raised the
goal  twice to at least 4%. I like the  trend,  especially  since the  target is
based on existing  opportunities  and  recognizes  reasonable  decline  rates in
existing fields.  While we may sell some assets,  new exploration  successes and
acquisitions could raise our production further.
     In marketing and refining,  market entries into growth regions will help us
meet our  goals.  In  lubricants,  we have built two  state-of-the-art  blending
plants in China,  reentered  the South  African  market  and are  expanding  our
presence  throughout  Latin  America.  In fuels,  we are entering the  liquefied
petroleum  gas business in China and India,  entering  markets in Venezuela  and
Mexico, and strengthening our position in Africa and Eastern Europe.
     The  Asia-Pacific  region has long been an  important  source of growth for
Mobil.  Recent economic  turmoil there has slowed growth,  but we believe it's a
good place to do  business  over the long term,  especially  for a company  like
Mobil with good assets and a strong competitive position.  While our initiatives
will increase efficiency and improve profitability,  we're maintaining a prudent
level of investment  spending geared toward  maintaining the  competitiveness of
our assets. And we're on the lookout for opportunities that may develop.
     In the chemical business, we expect solid returns even though aromatics and
olefins are entering the down part of their business cycles.  Over the next five
years we believe we can increase our  earnings and generate  average  returns of
13% to 15% by  investing  in  projects  where we have a  competitive  advantage.
Construction  has begun on an expansion  that will more than double the capacity
of our joint- venture  petrochemicals  complex in Yanbu, Saudi Arabia, and we're
planning a grass-roots joint-venture petrochemicals plant in Jose, Venezuela.

EXECUTIVE CHANGES
Early in 1998 the board  elected  Eugene A. Renna  Mobil's  President  and Chief
Operating Officer. A director since 1986, Gene combines a great understanding of
our competitive  industry with a deep respect for Mobil's unique  qualities.  He
has shown the kind of leadership that creates success.  Effective April 1, 1998,
Mobil's  operating units will be organized into seven business groups  reporting
to Gene. I am personally delighted with Gene's selection and with our leadership
team.
     In  September  1997 Mobil saw the close of a  remarkable  career as Paul J.
Hoenmans, a board member and executive vice president, retired after 43 years of
service. His legacy will be remembered, as he helped develop the generation that
will lead us to tomorrow's growth.

A FUTURE THAT'S BRIGHT
While this industry has challenges, I'm confident that we'll reach our goals. We
value our people, and we've seen what we can achieve when we have a clear vision
of where we want to be and the energy to make it  happen.  Now we are aiming for
the next  level.  The  opportunities  we seize  today will lead to more  growth,
greater value and a better  future for our  shareholders,  partners,  customers,
communities and employees in the decades to come.


/S/LUCIO A. NOTO
   Lucio A. Noto
   Chairman and Chief Executive Officer
<PAGE>
 
MOBIL CORPORATION

[Pegasus Art - Page 4]
                             
Mobil is a global  energy  company  with a proud  history,  dating back over 130
years. With revenues of $65.9 billion and operating earnings of $3.4 billion, we
do business in about 140 countries, on every continent.  Our investment spending
has averaged $4.9 billion a year over the last five years,  and we have budgeted
$5.9 billion for 1998. Our overriding  five-year goal is to generate  returns to
shareholders  that put us among the first  quartile of major  international  oil
companies.

MOBIL
  AT A GLANCE

EXPLORATION & PRODUCING

Mobil  produces  oil  or gas in 20  countries  and  explores  in 34.  Our  daily
production of 1.75 million barrels of oil or its equivalent in natural gas makes
us the third largest among international majors, while our total proved reserves
equal 7.2 billion barrels of oil equivalent. We project that our production will
increase by an average of over 4% a year and that we will more than replace that
production with new reserves.
<PAGE>
 
MARKETING & REFINING

WE ARE THIRD LARGEST  among major oil companies in sales of petroleum  products,
marketing to customers in over 125  nations.  Our primary  product  supply comes
from  25  refineries,  which  process  crude  oil  into  fuels,  lubricants  and
petrochemical  feedstocks.  Over 15,000 Mobil-branded retail outlets participate
in our fuels  marketing  network.  With  lubricant  sales of more than 2 million
gallons a day, we are pursuing the goal of becoming the world's #1 lube company.
We have  long been an  acknowledged  leader in  premium  lubricants,  especially
synthetics like Mobil 1(R) motor oil.

CHEMICAL

MOBIL   CHEMICAL  IS  AN   INTEGRATED   manufacturer   and   marketer  of  basic
petrochemicals,  selected specialty chemicals,  catalysts and flexible packaging
films.  We operate 29  facilities  in 11  countries  and market in over 100. Our
petrochemicals  are used to produce a wide  range of  derivative  chemicals  and
industrial and consumer products. Our specialty chemicals business produces base
stocks for world-class  synthetic  lubricants as well as additives for fuels and
lubricants.  Our goal is to grow our  businesses  profitably  and deliver strong
financial results even during industry downturns.

WE HAVE the size,  the strength,  the scope,  the agility and the  experience to
meet any challenge the energy business can present. We have the energy to make a
difference,  and our continued success rests on three pillars,  which we examine
on the pages that follow:
     PEOPLE  - a  global  workforce  that's  diverse,  talented  and  committed.
PERFORMANCE-  constant  attention  to  getting  the most out of our asset  base.
GROWTH-a commitment to seizing and developing the best opportunities.
     Our technical  skills,  our financial  strengths,  our experience  managing
major  projects,  and  our  dedication  to  environmental  leadership  and  good
corporate   citizenship   make  Mobil  a  partner  of  choice  for  all  of  our
stakeholders.

                                                  MOBIL(R)   The energy
                                                   to make a difference.
<PAGE>
 
PEOPLE

TO BEAT THE  COMPETITION in today's global  marketplace,  a company needs astute
strategies.  But strategies alone won't distinguish one company from the pack. A
great  company  depends on great  people to execute the  strategies.  That means
having the right  people in the right  places at the right  times with the right
sets of skills - in work  environments  that  encourage  employees to contribute
their fullest.
     It isn't  something  to leave to chance.  "In 1997 Mobil  initiated  a more
rigorous  approach to our people resource  strategies,"  said Bob Amrhein,  vice
president,  Human  Resources.  "We want to  ensure  that we  manage  our  people
resources at least as  conscientiously  as we do our other business assets.  Our
business  units  worldwide are addressing  human resource  issues as an integral
part of their operating strategies."
     In 1997 Mobil established people development councils in regions around the
world. The councils share common goals for staffing and people development.
     Maury Devine, general manager of Mobil Exploration Norway, heads the People
Development Council for Europe,  which aims to develop skills for all employees.
"One of our most  important  missions is to  facilitate  training  and job moves
across functions and from country to country," she explained. "We also work with
the business units to develop the strategies  and people  initiatives  that will
<PAGE>
 
give us a competitive edge in Europe."
     Mobil Oil Australia's  general  manager,  P.C. Tan, leads the  Asia-Pacific
development  council.  "You  can't  find a better  training  ground  than in our
international  affiliates,"  he said.  "In this  region we have a superb  mix of
businesses, of mature and high-growth markets, and of a variety of cultures. For
example,  we have an  Australian  heading up Mobil  Sekiyu in Japan and a Briton
leading  Mobil Oil New Zealand.  I'm a Singaporean  in charge of the  Australian
affiliate."

BUSINESS UNITS AROUND THE 
WORLD MADE PROGRESS ON 
PROMOTING INCLUSION

     As part of the special effort to develop  people to their fullest,  Mobil's
Global  Leadership  Development  Council guides the progress of several  hundred
talented employees from Mobil's worldwide operations to ensure that they receive
the right mix of business exposures.
     Another step is to realize every employee's potential, and that means fully
developing  the  talents  and  skills of  individuals  throughout  the  company.
Business  units  around the world took  further  steps in 1997  toward  building
inclusive,  high-performance working environments.  Their efforts,  supported by
the Office of Global Inclusion and Diversity,  aim to fully tap the rich ethnic,
cultural and  geographic  diversity of their  locations and the worldwide  Mobil
organization.
     "Barriers  that interfere with our getting the best from every employee are
also barriers to improving the company's  performance,  and we'll do our best to
remove them," said Bob Swanson,  Mobil's  executive  vice president who oversees
the inclusion and diversity initiatives.
     Mobil has also focused on aligning employees' performance with the goals of
their business units and the  corporation as a whole.  The company has supported
this strategy with balanced score cards and changes in pay and benefits.
     Mobil has adopted variable pay in the United States,  giving every salaried
employee  a  stake  in his or her  group  as  well  as  individual  performance.
Affiliates around the world are adopting similar pay philosophies as appropriate
for their local cultures.  In addition,  Mobil employees worldwide received a 3%
bonus in 1997 to  recognize  their  success in meeting the  company's  financial
goals nearly two years early.
     Another  essential  element  in  meeting  Mobil's  business  goals  is  the
company's technological excellence.  "Technology is fundamental in improving our
earnings,  and technology is people," said Mike Ramage,Mobil's  chief technology
officer. "We will continue to need high-quality  scientists and engineers in the
regions where we are investing."  Ramage is developing a framework for technical
career development worldwide.
     Mobil recognizes that meeting earnings goals means meeting people goals. It
has the commitment in place to do both.
<PAGE>
 
PERFORMANCE


ALLIANCES IMPROVE
RESULTS, PROSPECTS
Mobil is reaping the rewards of recent alliances that strengthen the company and
improve returns. Exam- ples are the Mobil and British Petroleum (BP) alliance to
manufacture  and  market  fuels and  lubricants  in Europe,  and the  California
upstream joint venture between Mobil and CalResources LLC, an affiliate of Shell
Oil Company.
     "The joint venture in Europe progressed full steam ahead in 1997, its first
full year," said Hal Cramer,  operating officer for Europe and Central Asia. "By
the end of 1998 we expect to be realizing  nearly all the anticipated  benefits,
worth more than $100 million a year to Mobil's bottom line."

THE VENTURE IS A PLATFORM
TO GROW IN KEY MARKETS IN 
EASTERN EUROPE AND RUSSIA

     With affiliates in 25 countries and revenues of $20 billion,  "there was no
template to follow in aligning  our  operations.  Nothing on this scale had ever
been attempted,  but our people made it work," Cramer added. The joint marketing
approach makes the alliance Europe's lubes leader and puts Mobil and BP on a par
with Shell for the largest fuels market share in Europe. Just as important,  the
venture  is a  platform  for future  growth in key  emerging  markets in Eastern
Europe and Russia.
     In June 1997 Mobil completed its agreement with CalResources to combine the
companies'  exploration  and  producing  operations  in  California  into  a new
company,  Aera Energy.  The proximity and scope of the combined  operations give
Aera the  opportunity  to realize a pretax benefit of about $1 per barrel of oil
produced.  Mike Yeager,  president  and general  manager of Mobil  Exploration &
Producing U.S., said the venture "allows us to maintain top-quartile performance
in the California  upstream business and fits our ongoing strategy of developing
advantaged regional businesses that create platforms for growth."
<PAGE>
 
IN THE EUROPEAN JOINT VENTURE,
9,000 BP-BRANDED SERVICE STATIONS
PROVIDE HIGHLY VISIBLE OUTLETS 
FOR MOBIL LUBRICANTS.

REFINERY MONITORING
It's like giving a refinery a stress  test.  Using  sensors  much like those for
electrocardiograms, refinery operators can monitor - in real time- 
THE TECHNOLOGY EDGE:
the health of key equipment,  stopping  problems  before they happen,  extending
equipment life and making the plant a safer place to work.  the low-cost  system
was piloted at Mobil's refineries in Joliet, Illinois, and Beaumont, Texas.

CONVENIENCE AT THE PUMP BUILDS LOYALTY
"Our  customers  are looking  for the fastest and easiest way to buy  gasoline,"
said Brian Baker,  operating  officer for North  American  Marketing & Refining.
"The Speedpass(TM) system delivers it. We have introduced the biggest marketing
innovation of 1997, and our customers clearly appreciate it."
     Unveiled  nationwide  in the  U.S.  in  the  spring,  the  state-of-the-art
technology  enables  motorists to use a miniature  transponder  to make gasoline
purchases  at  participating  Mobil  stations.  This  innovative  device has won
acclaim from such publications as USA Today, Credit Card Marketing and Fortune.
     One version of the  Speedpass  system goes on the  customer's  key ring and
gets waved at the fuel dispenser to activate the pump. The motorist then selects
the grade, pumps the gasoline and drives off.
     In its first seven  months,  more than a million  were  activated,  and the
Speedpass system was taken to another level - a car-tag transponder that adheres
to the vehicle's rear windshield.
     Either way, the customer is pumping  gasoline within seconds of arriving at
the station. "Speedpass enables motorists to fill up and drive away without ever
having to dig out their  wallets and hunt up a credit  card,"  said  Baker.  "It
draws drivers in - and gets them out in record time."
     U.S. motorists interested in the Speedpass system can call 1-800-459-2266.
<PAGE>
 
GROWTH

HIBERNIA BEATS SCHEDULE, SURPASSES ESTIMATES
An era began on November 17, 1997. On that day, a month ahead of schedule and at
rates  well in  excess  of  estimates,  oil  began  flowing  from  the  Hibernia
production platform on the Grand Banks off the coast of Newfoundland.
     "It was a solid  beginning  for the  field  and the birth of an oil and gas
producing  industry for Eastern  Canada,  where Mobil has been a participant  in
virtually all the significant  discoveries," said Harvey Smith, president of the
Hibernia  Management  and  Development  Company,  in which Mobil holds 33%,  the
largest interest.
     The Hibernia producing platform represents an engineering milestone. "While
it's in the same family as the giant concrete structures Mobil engineered in the
North Sea, this platform is the first ever designed  specifically  to resist the
impact of  icebergs,"  explained Lou Allstadt,  operating  officer,  Mobil North
American Exploration & Producing.
     Mobil  holds a 22%  interest  in the Terra  Nova  field,  also in the Grand
Banks; a 51% interest in the Sable Gas Project off the coast of Nova Scotia; and
a share of the Maritimes and Northeast  Pipeline,  which will transport the gas.
From a base of zero in 1996,  Mobil's Eastern Canadian  production  should reach
135,000  barrels a day of oil or its  equivalent  in natural gas by 2002.  Mobil
also holds interests in much of the exploration acreage around these projects.
<PAGE>
 
EXPANDING IN THE CASPIAN REGION
Among the global energy companies,  Mobil has over the last four years developed
an enviable network of ventures and growing relationships in the Caspian region.
"We are  committed  to  building a strong,  integrated  business  in the Caspian
region,  founded  on a deep  understanding  of the  region  and warm,  long-term
relations  with  its  people,"  according  to  Richard  Beazley,  regional  vice
president, New Exploration & Producing Ventures.
     In November  1997 the  company's  burgeoning  association  with  Kazakhstan
progressed a significant step with the signing of a production sharing agreement
between the Kazakhstani  government and eight major oil companies,  clearing the
way for  exploratory  drilling to begin in 1998.  "We're a 14% partner,  and the
only U.S.-based company, in the consortium," said Carl Burnett, president, Mobil
Oil Kazakhstan Inc., in Almaty.  "Our four-year  seismic study has confirmed the
world-class potential of the North Caspian Sea."
     Mobil is involved in three other exploration, production and transportation
projects in Kazakhstan:
     o The giant  Tengiz oil field  (Mobil  share  25%).  Eventually,  crude oil
production  could reach 800,000 barrels a day, with  significant  additional gas
and natural gas liquids.
     o The Caspian  Pipeline  Consortium,  which is planning to build a 900-mile
pipeline from the Tengiz field to the Russian Black Sea.
     o The Tulpar Munai onshore exploration joint venture (Mobil share 25%).
     Elsewhere  in the  region  in 1997,  Mobil  and the  Azerbaijan  state  oil
company,  Socar, signed an agreement for Mobil to explore the Oguz concession in
the Azeri sector of the Caspian Sea; while in  Turkmenistan,  Mobil and Monument
Oil  and  Gas  p.l.c.  entered  into a  production-sharing  agreement  with  the
government covering the Nebit Dag license.

BASIN MODELING
Mobil has  developed a  proprietary  software  package  that reduces the risk in
looking for oil and gas beneath the earth's surface. Called

THE TECHNOLOGY EDGE:

Sextant, the package  incorporates  complex mathematical  algorithms that permit
our scientists to look at the dynamics of petroleum  accumulations from millions
of years in the past to the present day.  This  dynamic  view  provides a better
understanding of the risks and rewards in exploration acreage, so we can improve
the odds as we search for petroleum resources around the globe.
<PAGE>
 
GROWTH

BUILDING ON OUR LEADERSHIP IN LNG
One of the largest  liquefied  natural gas (LNG)  operators in the world,  Mobil
continues to build on its  leadership  position in this  growing  segment of the
global gas industry.
     "We helped  pioneer the LNG  industry in the 1970s when we and our partner,
Pertamina,  developed the Arun gas field and  associated  liquefaction  plant in
Indonesia,"  recalled John Simpson,  operating  officer for LNG and  Independent
Power  Projects.  The Arun field now  supplies 11 million  tons of LNG a year to
Japan and Korea.
     "Much of the  growth we see for us in LNG will  come  from two  grass-roots
projects with the Qatar General Petroleum  Company," Simpson said. Qatar's North
field, with at least 380 trillion cubic feet of reserves,  is the foundation for
both projects: Qatargas (Mobil share 10%) and RasGas (Mobil share 25%).
     The first Qatargas  shipment arrived in Japan early in 1997, and eventually
the  venture  will  supply  more  than six  million  tons of LNG a year to eight
Japanese gas and electric utilities.  RasGas is at an earlier stage. During 1997
Mobil reached a 25-year agreement with Korea Gas Corporation  doubling its sales
agreement to 4.8 million tons a year, with shipments scheduled to begin in 1999.
RasGas LNG sales are expected to grow to at least 10 million tons a year. 
<PAGE>
 
CONSTRUCTION  PROCEEDS ON THE RASGAS                   FAMILIAR AREAS, NEW
LIQUEFACTION PLANT IN QATAR. SHIPMENTS ARE             ONES OFFER POTENTIAL 
EXPECTED TO BEGIN IN 1999.                             BEYOND YEAR 2000


GROWING RESERVES, PRODUCTION IN A WORLD OF OPPORTUNITIES
"We go where the  opportunities  are,"  according  to Bill  Scoggins,  operating
officer,  New Exploration & Producing Ventures,  "and we are finding them in all
corners of the globe.  We're  confident  that our  projects in areas old and new
will enable  Mobil to continue  to build its  reserve  base and fuel  production
growth beyond the turn of the century."
     West Africa is a region of continuing  opportunity for Mobil. Mobil's share
of Nigerian  production is expected to reach 370,000  barrels a day early in the
next century.  Production is growing in Equatorial  Guinea as well, and Mobil is
expanding the pace of deepwater exploration in West Africa.
     South America is expected to become a key source of reserves and production
growth.  "In the Southern Cone, where gas demand is growing,  Peru's Camisea gas
field (Mobil share 42.5%) holds exciting  potential for us," stated Ann Pickard,
regional vice  president,  New Exploration & Producing  Ventures.  "We expect to
initiate  project  development  in 1998." Also in the Southern  Cone,  Mobil has
built a  position  in two of the three key gas  basins of  Argentina,  where the
company's  share of production  should reach 40,000  barrels of oil equivalent a
day by 2002.
     In Venzuela  Mobil holds 41.7% interest in a joint venture to develop heavy
oil from the Cerro Negro field. Mobil, highly experienced in heavy oil, operates
the field.  Most of the crude will be processed  at the  refinery in  Chalmette,
Louisiana,  now co-owned by Mobil and an affiliate of the  Venezuelan  state oil
company. With production from the field expected to start in 1999, Mobil's share
should grow to 50,000 barrels a day by 2001.
     Also in Venezuela  Mobil has a 50% interest in the La Ceiba block,  where a
promising discovery was made before Mobil's purchase in 1996, and a 25% interest
in the Quiamare block.
     Norway - another  familiar  area on  Mobil's  map -  continues  to  provide
growth. Mobil's strong position in the North Sea, as well as Aasgard development
and discoveries of the Kristin/Lavrans fields in the Haltenbanken area, will add
more than 60,000 barrels a day in production of oil or its equivalent by 2002.
     As   exploration   progresses   around   the   globe,   successes   in  the
Australia/Papua  New Guinea area are giving Mobil  another  platform for growth.

FLOATING LNG PLANTS
Making  LNG today  means  transporting  gas to  expensive  onshore  liquefaction
plants, where it's processed and shipped. The high capital cost means

THE TECHNOLOGY EDGE:

that large customers, able to make long-term commitments,  must be lined up well
in advance of their  need.  Now we've  invented a way to liquefy  the gas at sea
near the producing field, potentially eliminating the onshore plant. Smaller gas
fields  can  potentially  become  commercially  viable.  On the  receiving  end,
regasificiation  plants using the same  floating  concept have the  potential to
expand LNG's market to smaller customers.
<PAGE>
 
GROWTH

LUBRICATING OIL:
PUSHING TO BE FIRST
Lubricants have always been a strength for Mobil.  Now the company is driving to
become #1 worldwide and outpace the industry with 5%-a-year growth in lube sales
over the next five years. One element of the strategy is to expand in developing
markets in such growth areas as Asia, Latin America, Africa and Eastern Europe.
     In China, Mobil is the largest importer of finished  lubricating oil on the
mainland.   "We've   invested   about  $90   million   in  China  to  build  two
state-of-the-art  blending  plants to service the growing  demand for lubricants
more  efficiently,"  said Steve Pryor,  operating  officer for the  Asia-Pacific
region.
     A key  source  of  supply  for  Mobil  in the  region  is its  refinery  in
Singapore.  During 1997 the company  completed a $230  million  plant there that
uses hydrocracking technology to produce the most competitive base stocks in the
region.
     Another  element  of the  lubricant  growth  strategy  is to  build  on the
company's  strong  relationships  with equipment  manufacturers  and enhance the
value of Mobil's lube brands. Top teams in CART, NASCAR, Formula 1 and GT racing
have  selected  Mobil  1(R)  as  their  lubricant  of  choice,  and  it is the
recommended oil and factory fill for  AMG/Mercedes-Benz,  Corvette,  Porsche and
Viper.

STAYING AHEAD OF THE CURVE IN CHEMICALS
Mobil has begun  construction of a major expansion of its  joint-venture  Yanpet
petrochemical  complex in Yanbu,  Saudi Arabia,  and is progressing  plans for a
grass-roots complex at Jose, Venezuela.
     "The  chemicals  business  is  competitive  and  cyclical,  but that  means
opportunities  for a company  with  Mobil's  staying  power,"  said Ray McGowan,
operating  officer  for  Mobil  Chemical.  "We  have  identified  projects  with
profitable growth potential for us,  particularly in the olefins,  aromatics and
oriented-polypropylene segments."
     Called  Yanpet II, the $2.5  billion  Saudi  expansion,  to be completed in
2000,  will more than double the capacity of the complex Mobil owns jointly with
Saudi  Basic  Industries  Corporation  and will  increase  by almost 50% Mobil's
worldwide  capacity to make olefins  derivatives.  The $2.2  billion  complex in
Venezuela  will  be  built  in  partnership  with  Pequiven,  the  petrochemical
affiliate of Venezuela's state-owned oil company, PDVSA. Detailed engineering is
to begin in 1998, with plant start-up in 2002.
<PAGE>
 
     "The Saudi and Venezuelan  complexes will be two of the lowest-cost olefins
facilities  in the world,"  McGowan  said.  Meanwhile,  Mobil is  expanding  and
modernizing its U.S.  olefins and polyethylene  plants to reduce costs,  improve
competitiveness  and meet demand  growth.  The company  increased  capacity  and
reduced  feedstock costs at its Houston,  Texas,  olefins plant and in 1998 will
expand ethylene and polyethylene capacity at its plants in Beaumont, Texas.
     In the  aromatics  business,  Mobil  nearly  doubled its global  paraxylene
capacity with two new units - one in Chalmette,  Louisiana, that began operating
in late 1996 and another in Beaumont that came on stream in 1997.  These are the
first units using MTPX (Mobil  Toluene to  Paraxylene)  technology.  In chemical
specialties,  last year Mobil doubled its capacity to make  synthetic  lubricant
base stocks at Beaumont.

PARAXYLENE COST ADVANTAGE
Mobil's  proprietary  technology  MTPX  (Mobil  Toluene  to  Paraxylene)  is the
lowest-cost process for making paraxylene, which goes into the build-

THE TECHNOLOGY EDGE:

ing blocks for polyester  fibers and plastic  films and bottles.  The key is our
catalyst  that  can  select  just the  right  molecules  to  interact  with.  It
significantly  reduces the cost of secondary processing steps in the manufacture
of paraxylene.
<PAGE>
 
ENVIRONMENT

IN  1956,   when  Mobil   established  its  first  formal  policies  to  control
environmental and health hazards, the company was clearly ahead of the pack. The
environment  had not yet become headline news.  Mobil has steadily  strengthened
its  commitment  over the years by  adopting  environmental,  health  and safety
management systems to implement its policies and improve  performance.  In 1996,
Mobil adopted a new comprehensive  policy,  followed by public reporting in 1997
and a commitment to long-term goals in early 1998.
     "Setting goals gives us a standard  internally,  and publicly reporting our
progress reinforces our  accountability,"  said Bill Dalgetty,  general manager,
Environmental,  Health & Safety (EHS).  These goals call for the  elimination of
fatalities and major fires and  explosions,  and a substantial  im-provement  in
worker safety and reduction in spills.
     In 1997 Mobil's  businesses made significant  progress toward the EHS goals
by reducing  lost-time  injuries by 23% and spills by 8% over 1996  levels.  Our
worldwide refineries had no major fires, and many of our businesses and projects
achieved   injury-free  records  in  1997.  For  example,   the  RasGas  onshore
construction team in Qatar worked more than 10 million hours without a lost-time
injury.
     Mobil is recognized around the world as an industry  pacesetter in shipping
safety.  "We had not a single  significant spill in 1996 and 1997," said Gerhard
Kurz, president, Mobil Shipping & Transportation Company. In 1997 Mobil launched
the American Progress,  the first double-hull vessel built in a U.S. shipyard to
U.S. government standards that will become mandatory in 2015.
     In  1998  Mobil  began  monitoring  its  worldwide  air  emissions,   water
discharges,  waste  generation and energy use as the first step in setting goals
for  reducing  their  impact at company  facilities.  "Over the last three years
we've reduced carbon emissions by more than a million tons worldwide,"  Dalgetty
said.
     Employing modern technology,  Mobil cut the energy used to process a barrel
of oil at its  refineries,  and  eliminated  both gas flaring from 
<PAGE>
 
many offshore  operations and methane emission leaks from natural gas production
and distribution  systems.  Mobil Producing Nigeria (MPN), for example, has made
great  strides to date,  and "we're  committed  to  eliminating  all  flaring of
natural gas by 2001," said Paul Caldwell, MPN general manager.
     Reducing flaring is one action that has an impact on global climate change.
In addition to curbing  emissions,  improving  energy  efficiency and conducting
applied  research,  Mobil  sponsors  a  wide  range  of  scientific  studies  at
universities and other institutions, and is increasing its research funding.
     More  information  on Mobil's EHS  initiatives  and the EHS  performance of
people throughout the company's businesses is available in The People Behind the
Commitment:  Mobil's  Environmental,  Health and Safety Performance Report 1997,
which will be  available  in May 1998 from Mobil's  Publications  Department  at
1-800-293-5796 or on Mobil's web site, www.mobil.com.
<PAGE>
 
FINANCIAL
    SECTION


1997 HIGHLIGHTS


o  OPERATING  EARNINGS OF $3.4  BILLION  IMPROVED BY OVER $300  MILLION,  DRIVEN
   PRIMARILY BY SELF-HELP  INITIATIVES.  THIS IS THE THIRD  CONSECUTIVE  YEAR OF
   RECORD EARNINGS.

o E&P  OPERATING  EARNINGS OF $2.1 BILLION  TOPPED LAST YEAR'S  RECORD  DESPITE
   LOWER  CRUDE  OIL  PRICES.  WORLDWIDE  PRODUCTION  WAS UP 4% AND NET  RESERVE
   REPLACEMENT WAS 146% OF PRODUCTION.

o M&R OPERATING  EARNINGS OF $1.3 BILLION  IMPROVED FROM LAST YEAR,  REFLECTING
   RECORD U.S. PROFITS, DRIVEN BY HIGHER MARGINS AND EXCELLENT PERFORMANCE,  AND
   BENEFITS FROM MOBIL'S ALLIANCE WITH BP IN EUROPE.

o CHEMICAL  INCOME GREW DUE TO HIGHER  VOLUMES IN ALL SECTORS OF THE  BUSINESS,
   HIGHER POLYETHYLENE MARGINS AND IMPROVED PLANT PERFORMANCE.

FINANCIAL


<TABLE>
<CAPTION>
KEY FINANCIAL INDICATORS
(In millions, except per-share and ratio amounts)     1993         1994           1995         1996         1997
------------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>            <C>          <C>          <C>     
Operating Earnings(1)                             $  2,224     $  2,231(2)    $  2,846     $  3,097     $  3,430
Special Items                                         (140)        (472)          (470)        (133)        (158)
------------------------------------------------------------------------------------------------------------------
Income, Excluding the Effect of Change in
  Accounting Principle                            $  2,084     $  1,759(2)    $  2,376     $  2,964     $  3,272
Per common share(3)                                   2.54         2.14           2.93         3.69         4.10
Per common share-assuming dilution(3)                 2.53         2.12           2.88         3.62         4.01
Common Stock Dividends Per Share(3)                   1.63         1.70           1.81         1.96         2.12
------------------------------------------------------------------------------------------------------------------
Capital and Exploration Expenditures              $  3,656     $  3,825       $  4,268     $  6,361     $  4,689
Cash Investments in Equity Companies                    31          102            257          658          617
Total Investment Spending                         $  3,687     $  3,927       $  4,525     $  7,019     $  5,306
Debt-to-Capitalization Ratio                            32%          31%            27%          29%          25%
Total Debt                                        $  8,027     $  7,727       $  6,756     $  7,875     $  6,664
------------------------------------------------------------------------------------------------------------------
Shareholders' Equity                              $ 17,237     $ 17,146       $ 17,951     $ 19,072     $ 19,461
Per common share(3)                                  21.37        21.30          22.35        23.81        24.41
------------------------------------------------------------------------------------------------------------------
<FN>
(1) Operating earnings exclude the effects of special items and change in accounting principle.
(2) Excludes unfavorable effect of change in Inventory lower of cost or market policy in 1994 ($680 million).
(3) Per-share amounts for all years reflect the two-for-one stock split in 1997.
</FN>
</TABLE>
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


OUTLOOK
WHILE  CONSIDERING THE COMPANY'S PLANS AND GOALS, THE READER MAY FIND IT HELPFUL
TO KEEP IN MIND  MOBIL'S  OUTLOOK FOR THE  PETROLEUM  AND  CHEMICAL  INDUSTRIES.
ALTHOUGH MOBIL CANNOT BE CERTAIN THIS VIEW WILL PROVE ACCURATE,  DESCRIBED BELOW
ARE BOTH KNOWN AND ANTICIPATED  TRENDS RELEVANT TO PLANNING THE COMPANY'S FUTURE
OPERATIONS.

    Overall,  the energy  industry  will remain  highly  competitive,  and large
capital  investments  to support  profitable  future  operations and growth will
continue to be required.  These investments will, because of the availability of
opportunities,  be predominantly in international areas. Due to the size of such
investments,  and the time often needed to complete  them,  a long-term  view is
required.
    Oil and natural  gas will  continue  to satisfy  much of the world's  energy
needs well into the 21st century.  Over the long term, the company believes that
the prices of these commodities, and related profitability,  will continue to be
volatile,  influenced by market  forces,  political and economic  uncertainties,
host country regulations and new production sources. During the first two months
of 1998,  crude oil and natural gas prices declined  significantly  from average
1997 levels,  in part due to recent economic  difficulties  in the  Asia-Pacific
region which will, in the near term, continue to affect worldwide  supply/demand
balances.  The company believes that these prices will trend upward over time as
demand  increases.  Additionally,  Mobil remains convinced that the Asia-Pacific
region will be a growth area for the future,  and the company  will  continue to
focus on making the operations of its existing facilities more efficient.
    Mobil  believes  the  industry  will  continue to grow in the  international
upstream sector where investment opportunities to find and develop resources are
abundant. Many countries, previously off-limits to the oil industry, are opening
up to companies  like Mobil who are  recognized  for the financial and technical
strengths  they  provide.  Mobil will look to these areas to  contribute  to its
program to replace its hydrocarbon reserves and to provide continuing production
and earnings growth.
    The marketing and refining industry will continue to face competitive market
pressures,  and margins will remain volatile.  Worldwide downstream margins have
generally  weakened  somewhat  in the first two  months  of 1998  compared  with
average  1997  levels.  Over the long term,  worldwide  downstream  margins  are
expected to improve as demand growth outpaces capacity additions.  Additionally,
more downstream alliances are possible.  Continuing  environmental  expenditures
will also be required  worldwide,  including  expenditures  in the U.S.  for the
introduction  of reformulated  gasolines by the end of the decade.  Mobil's U.S.
refining  system is generally well  positioned to meet these  requirements  with
only modest investments needed.
    The worldwide  petrochemical  business continues to be cyclical. In the near
term, both  polyethylene  and paraxylene  margins are expected to continue under
pressure as new capacity  streams,  but they are expected to  strengthen  longer
term in response to demand growth.
    Mobil's  overall  investment  program will continue to reflect a strategy to
assess and manage  political,  economic and  geologic  risks.  This  strategy is
achieved through a geographically  diverse  portfolio of existing assets and new
projects. It also employs the use of limited recourse financing,  staged project
development, joint ventures and cash exposure management.

INVESTMENT PROGRAM
Mobil's  planned 1998  investment  program,  including  capital and  exploration
expenditures  and cash  investments  in equity  companies,  totals $5.9 billion.
Spending  continues to be directed to international  projects  (International --
75%; U.S. -- 25%), where opportunities to find and develop resources are greater
and product demand growth is projected to be higher.  The 1998 spending  program
is also consistent with the company's  strategy to grow the upstream sector as a
percentage of its overall asset base.  Almost  two-thirds of the program will be
allocated to the upstream business.  Mobil will continue to monitor its business
environment and remain flexible to adjust its plans as attractive  opportunities
arise    or    economic    and    political    conditions    change.     Mobil's
debt-to-capitalization ratio declined from 29% to 25% in 1997, reflecting strong
earnings,  the  continuing  sale of noncore assets and reduced  working  capital
requirements,  partly offset by the impact of share repurchases. The strong cash
flow generation and low debt-to-capitaliza-

[Bar Chart - Page 19]

NET INCOME
(Millions of dollars)
97             3,272
96             2,964
95             2,376
94             1,759*
93             2,084

*Excludes cumulative effect of
 change in accounting principle.

MOBIL'S INCOME CONTINUED 
TO RISE, REFLECTING VOLUME  
GROWTH,  BENEFITS  FROM
ALLIANCES AND IMPROVED PERFORMANCE.

Graphs, charts and associated  
captions on pages 18-53 are not a 
part of the Consolidated Financial
Statements and Notes thereto.
<PAGE>
 
MANAGEMENT
   DISCUSSION AND ANALYSIS


INVESTMENT PROGRAM (concluded)
tion ratio provides the flexibility to take advantage of attractive investment
opportunities, to increase dividends to shareholders and/or to buy back shares
of common stock.

RESTRUCTURINGS
During 1997, Mobil and The British Petroleum  Company p.l.c. (BP)  substantially
completed  implementation  of their  alliance,  which  combines  the  companies'
European operations in the refining and marketing of fuels and lubricants.  When
fully  completed  in 1998,  this  alliance  will  result in the  elimination  of
approximately 2,700 positions from the combined work forces of the two companies
(about 1,000 Mobil positions),  the  rationalization  of certain fuels marketing
assets and the closure of surplus  facilities.  During 1996, Mobil established a
restructuring  provision of $184 million ($145 million after tax), primarily for
separation  costs related to work-force  reductions and for  facilities  closure
costs. As of December 31, 1997,  cumulative  charges against the reserve totaled
$137 million  ($112  million  after tax,  including  cash charges of $86 million
pretax,  $73 million  after tax).  Additionally,  $81 million ($69 million after
tax) of one-time  charges  were  incurred in 1997,  primarily  for  reimaging of
retail  outlets and for systems  implementation.  An additional $59 million ($41
million after tax) is expected to be spent in 1998 to complete the reimaging and
systems  implementation  program.  Projected  annualized  benefits for Mobil are
expected to reach at least $170 million pretax by the end of 1998.
    Additionally,  in 1997,  Mobil  and BP  announced  that the  alliance  would
implement a major  restructuring of its lubricant base oil refining  businesses.
This program is aimed at reducing  surplus base oil capacity and  improving  the
competitiveness  of the  alliance's  asset  base.  The  program,  expected to be
completed by the end of 1999,  will result in the  elimination of  approximately
460  positions  and in  write-downs  and  closure of certain  facilities.  Mobil
recorded  restructuring  reserves in 1997 of $86 million ($82 million after tax)
mainly for employee  severance costs  associated with work-force  reductions and
for write-downs and closure of certain facilities.  Cash outlays associated with
the restructuring will be made throughout 1998 and will be essentially  complete
by mid year 1999. Projected annualized benefits are $50 million pretax, of which
Mobil's share is about $25 million.
    Mobil also commenced a major restructuring program of its Japanese marketing
business  during 1997 in response to the  deregulated  business  environment  in
Japan.  The company has  established  performance  improvement  targets aimed at
expense  reduction  and revenue  enhancement.  This  program  will result in the
elimination of approximately  300 positions and the  rationalization  of certain
assets and should be  essentially  complete by  year-end  1998.  In 1997,  Mobil
recorded  restructuring  reserves  of $126  million  ($61  million  after  tax),
primarily for separation costs related to work-force reductions and for disposal
of certain  facilities.  Cash outlays related to the restructuring  will be made
throughout 1998. Projected annualized benefits from this program are expected to
be approximately $170 million pretax.
    In addition,  Mobil has initiated a cost reduction and asset rationalization
program in its marketing  operations  in Australia.  This program will result in
the   elimination   of   approximately   100   positions   and  the  closure  of
under-performing  service stations during 1998. Other  initiatives to reduce the
cost structure of the Australian marketing operations will be implemented during
1998 and 1999.  In the fourth  quarter  of 1997,  Mobil  recorded  restructuring
reserves of $46 million  pretax and after tax,  primarily  for costs  associated
with closing  service  stations and for  separation  costs related to work-force
reductions. Cash outlays will be made during 1998. Projected annualized benefits
are about $40 million pretax and are expected to be fully achieved by the end of
1999.
    During 1995 and 1996, Mobil  implemented five major  restructuring  programs
affecting  worldwide  staff  support  services,  U.S.  upstream  and  downstream
businesses,  and European refining and lubricant blending operations.  These and
other smaller  programs  resulted in the closure of certain  facilities  and the
elimination  of about 7,000  positions,  approximately  half in 1995 and half in
1996. During 1995 and 1996, the company  established  restructuring  reserves of
$922 million ($911 million in 1995 and $11 million in 1996),  primarily to cover
the cost of employee  separation benefits and the closure of certain facilities.
Of this amount, $682 million represented cash expenditures and the remainder was
for noncash  write-downs.  These programs were  implemented  over the past three
years and were complete as of December 31, 1997.
    See Note 2 to  Financial  Statements  on pages 41-43 for further  details of
these restructurings.

[Bar Chart - Page 20]

TOTAL RETURN TO SHAREHOLDERS
(Per $100 invested on December 31, 1992)
              MOBIL     S $ P 500
97             275        251
96             226        188
95             200        153
94             145        112
93             131        110

MOBIL SHARE PRICE APPRECIATION 
PLUS REINVESTED DIVIDENDS RETURNED 
22.4%  ANNUALLY, ON AVERAGE, OVER THE
LAST FIVE YEARS--2.2 PERCENTAGE POINTS ABOVE THE S&P 500.
<PAGE>
 
MANAGEMENT
   DISCUSSION AND ANALYSIS


FINANCIAL RESULTS
A DISCUSSION AND ANALYSIS OF  CONSOLIDATED  FINANCIAL AND OPERATING  PERFORMANCE
APPEARS ON THIS PAGE. MOBIL'S BUSINESS SEGMENTS ARE SEPARATELY REVIEWED ON PAGES
22-27. WHILE READING THESE DISCUSSIONS,  THE READER MAY FIND IT HELPFUL TO REFER
TO PAGES 32-53 FOR THE CONSOLIDATED FINANCIAL STATEMENTS AND COMMENTARY,  AND TO
PAGES 55-63 FOR SUPPLEMENTARY INFORMATION.

<TABLE>
<CAPTION>
CONSOLIDATED RESULTS
----------------------------------------------------------------------------------------
Net Income (In millions, except per-share amounts)    1995          1996         1997
----------------------------------------------------------------------------------------
<S>                                                 <C>          <C>          <C>   
Petroleum Operations
  Exploration & Producing                            $ 845        $2,109       $2,212
  Marketing & Refining                                 673           913        1,025
----------------------------------------------------------------------------------------
Total Petroleum                                      1,518         3,022        3,237
Chemical                                             1,164           306          403
----------------------------------------------------------------------------------------
Segment Earnings                                     2,682         3,328        3,640
Corporate and Financing                               (306)         (364)        (368)
----------------------------------------------------------------------------------------
Net Income                                          $2,376        $2,964       $3,272
  Per common share(1)                               $ 2.93        $ 3.69       $ 4.10
  Per common share-assuming dilution(1)             $ 2.88        $ 3.62       $ 4.01
----------------------------------------------------------------------------------------
<FN>
(1) Per-share amounts for all years reflect the two-for-one stock split in 1997.
</FN>
</TABLE>

MOBIL'S GOAL FOR THE PERIOD  1997-2001 IS TO ATTAIN  FIRST-QUARTILE  PERFORMANCE
BASED ON TOTAL RETURN TO SHAREHOLDERS VERSUS OTHER MAJOR OIL COMPANIES.
    CONSOLIDATED  NET INCOME of $3,272  million in 1997 was $308 million  higher
than 1996. Charges for special items reduced net income in 1997 by $158 million,
as  restructuring-related  provisions,  litigation  charges and a one-time  cash
award for employee  performance  to recognize  early  achievement of prior goals
were  partly  offset  by gains  on the  sale of  noncore  assets  and  favorable
inventory  adjustments.  This year's earnings  reflected strong volume growth in
the upstream  business,  higher volumes in Chemical and improved  performance by
all business segments.  Benefits from the Mobil-BP downstream alliance in Europe
also contributed  significantly to the improved  results.  Overall for the year,
industry  factors were slightly  favorable as higher  integrated  margins in the
U.S. and Europe,  higher natural gas prices and higher polyethylene margins were
largely  offset  by lower  crude  oil  prices  and  weaker  margins  in parts of
Asia-Pacific.  Expense  reductions from initiatives were offset by inflation and
by higher expenses for business development in new venture areas.
    Consolidated  net income in 1996 of $2,964  million was $588 million  higher
than 1995. The improvement primarily reflected favorable industry  fundamentals,
a lower level of  restructuring-related  special charges in 1996 and the effects
of higher sales volumes,  partly offset by increased  refinery  downtime and the
absence  of  income  from  businesses  divested  in 1995.  A gain on the sale of
Mobil's  plastics  business  in 1995 was  largely  offset by FAS 121  impairment
charges.

--------------------------------------------------------------------------------
OPERATING EARNINGS (In millions)            1995          1996          1997
--------------------------------------------------------------------------------
Operating Earnings                         $2,846        $3,097       $3,430
Memo:Special Items(1)                        (470)         (133)        (158)
--------------------------------------------------------------------------------
(1)  Special items represent the earnings  effects from events or  circumstances
     not attributable to Mobil's current operations and are more fully described
     in the business segment charts that follow.

    OPERATING  EARNINGS in 1997 were $3,430 million,  a third consecutive annual
record.  Mobil's  continued  earnings  growth  reflected  higher  volumes in the
upstream and chemical businesses,  contributions from recently formed alliances,
improved  performance  and  overall  favorable  industry  fundamentals.  Expense
reductions  from  initiatives  were offset by inflation and higher  expenses for
growth in new venture areas.

[Bar Chart - Page 21]

ANNUAL DIVIDENDS
(Per share of common stock, in dollars)*
97             2.12
96             1.96
95             1.81
94             1.70
93             1.63
92             1.60
91             1.56
90             1.41
89             1.28
88             1.18
87             1.10

*Per-share amounts for all year reflect
 the two-for-one stock split in 1997.
                                                  
DIVIDEND PAYMENTS
INCREASED FOR THE TENTH
CONSECUTIVE YEAR.
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


PETROLEUM OPERATIONS
UPSTREAM-EXPLORATION & PRODUCING

--------------------------------------------------------------------------------
EXPLORATION & PRODUCING SEGMENT FINANCIAL INDICATORS
--------------------------------------------------------------------------------
(In millions)                               1995          1996          1997
--------------------------------------------------------------------------------
U.S. Income (Loss)                       $  (107)      $   737       $   697
International Income                         952         1,372         1,515
--------------------------------------------------------------------------------
Total Upstream Net Income                $   845       $ 2,109       $ 2,212
--------------------------------------------------------------------------------
Revenues(1)                              $11,081       $12,841       $11,840
Assets                                   $14,393       $18,279       $18,840
Capital Expenditures                     $ 2,247       $ 3,914       $ 2,888
Exploration Expenses                         427           512           499
Cash Investments in Equity Companies         213           520           277
--------------------------------------------------------------------------------
Total Investment Spending                $ 2,887       $ 4,946       $ 3,664
--------------------------------------------------------------------------------
(1) Includes intersegment revenues.

MOBIL'S PRIMARY UPSTREAM GOALS ARE TO GROW EARNINGS BY INCREASING  PRODUCTION BY
AN AVERAGE OF AT LEAST 4% PER YEAR OVER THE LONG TERM; TO REPLACE MORE THAN 110%
OF  PRODUCTION  WITH NEW  RESERVES;  AND TO  AVERAGE  A 17%  RETURN  ON  CAPITAL
EMPLOYED, WHILE ENHANCING THE CORE ASSET BASE.
    Performance  in 1997  demonstrated  strong  progress  toward  achieving  the
company's  goals of  long-term  growth in  production,  reserves  and  earnings.
Worldwide  production  increased 4%, new reserve additions replaced 146% of this
higher production, and operating earnings increased by 4%.
    In 1997, Mobil produced 927,000 barrels per day of liquids and 4,556 million
cubic feet per day of natural gas. Worldwide production increased the equivalent
of 68,000  barrels  per day from 1996 due to growth  programs in West Africa and
Qatar  and  the   full-year   impact  of  the  1996  Tengiz  field  and  Ampolex
acquisitions,  offset  somewhat by natural field declines and  prior-year  asset
sales in the United  States,  and lower liquids  production  in Indonesia  (Arun
field).
    In Nigeria and  Equatorial  Guinea,  continued  investment  increased  total
upstream production by about 73,000 barrels per day during the year.  Production
from the Hibernia field,  off Eastern  Canada,  came on stream in November 1997,
and by year-end the field was  producing  about  70,000  barrels per day (23,000
barrels per day, Mobil share).  Additional  equity interests in producing fields
and increased contract commitments contributed to strong volume performance from
the United Kingdom, South America and Kazakhstan.
    Mobil  replaced 146% of its  production  with new reserves,  compared with a
133%  replacement  rate in 1996. The reserve base is now 7.2 billion  barrels of
oil equivalent with the most  significant  contributions  coming from the Tengiz
field in Kazakhstan  and the North field in Qatar.  Efforts to replace  reserves
continue through exploration activities, participation in new producing ventures
and acquisitions.
    In 1997,  Mobil  drilled 36 wildcat  exploration  wells,  resulting  in nine
discoveries  including  Mobil's  second  major  find in Norway in the last three
years,  success  on Ampolex  acreage  in  Australia  and Papua New  Guinea,  and
continued  success  in  Equatorial  Guinea.  New  acreage  acquisitions  in  the
Americas,  Northern  Europe,  Africa,  the Caspian area and Southeast  Asia also
strengthened the company's  portfolio.  Exploration  activities are conducted in
nine focus areas around the world.
    Investment  spending in 1997 was $3.7 billion,  down $1.3 billion from 1996,
which  included  the  acquisitions  of Ampolex and a 25% equity  interest in the
joint venture that owns the Tengiz field.  Planned investment  spending for 1998
is $3.9 billion and continues to be focused in international areas.
    Revenues  decreased   primarily  due  to  the  full-year  impact  of  equity
accounting  for  Mobil's  gas  marketing  alliance  with  Duke  Power  (formerly
PanEnergy)  and the absence of revenues  from Mobil's  heavy-oil  alliance  with
Shell in California which commenced  operations in mid-1997.  In 1996,  revenues
were up 16% from 1995,  primarily  due to the  effects  of higher  crude oil and
natural gas prices and higher international  volumes.  Revenues include sales to
other segments of the company,  which are eliminated in  consolidated  financial
reports.

[Bar Charts - Page 22]

UPSTREAM EARNINGS
(Millions of dollars)
                          97        96        95
Operating Earning       2,138     2,059     1,397
Net Income              2,212     2,109       845

UPSTREAM OPERATING EARNINGS 
EXCEEDED LAST YEAR'S RECORD,
DRIVEN BY VOLUME INCREASES.


NET PRODUCTION
(Thousands of barrels daily
of oil equivalent)
International & U.S.    1,753     1,685     1,636


MOBIL'S 4% VOLUME GROWTH IN 
1997 WAS IN THE TOP TIER OF 
ITS COMPETITOR  GROUP.
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


PETROLEUM OPERATIONS (continued)
    UPSTREAM net income of $2,212  million was $103 million higher than in 1996.
Operating earnings of $2,138 million (U.S.,$660 million;  International,  $1,478
million;  refer to tables below) increased $79 million,  or 4%, as the effect of
higher  liquids  production in  international  areas was partly offset by higher
expenses for new business development and lower production in the United States.
The effects of higher natural gas prices,  primarily in North  America,  largely
offset lower worldwide crude oil prices.
    In 1996,  net income of $2,109  million  was $1,264  million  higher than in
1995.  Operating earnings of $2,059 million increased $662 million due to higher
worldwide crude oil and natural gas prices,  lower operating  expenses and lower
capital recovery charges.
    Average  worldwide  crude oil prices in 1997 declined about $1.50 per barrel
from 1996 (see graph at right),  reflecting  increased  supplies,  slower demand
growth in Asia and milder  weather.  Mobil's  U.S.  average  natural  gas prices
increased about $.20 per thousand cubic feet due to the benefits of stronger gas
prices in the  mid-continent  region and in the West,  where  Mobil has a strong
presence.

--------------------------------------------------------------------------------
U.S. EXPLORATION & PRODUCING EARNINGS
--------------------------------------------------------------------------------
(In millions)                                     1995       1996        1997
--------------------------------------------------------------------------------
U.S. Income (Loss)                               $(107)     $ 737       $ 697
Special Items in Income
  Asset sales                                      (22)       119          53
  Litigation                                        --         --         (12)
  Employee performance award                        --         --          (4)
  Asset impairment                                (366)       (69)         --
  Restructuring provisions                         (51)        (7)         --
--------------------------------------------------------------------------------
Operating Earnings (Excludes Special Items)      $ 332      $ 694       $ 660
--------------------------------------------------------------------------------

    U.S.  UPSTREAM  operating  earnings of $660 million in 1997 were $34 million
lower than 1996,  reflecting the effects of lower  production  volumes and lower
crude oil prices.  The lower volumes were mainly due to natural  field  declines
and the carry-over  effect of 1996 asset sales,  partly offset by the effects of
new capital  programs.  Earnings  benefited  from higher  natural gas prices and
lower operating expenses.
    Operating  earnings of $694  million in 1996 were $362  million  higher than
1995, mainly due to higher prices for crude oil and natural gas. Lower producing
expenses and decreased  capital  recovery  charges largely offset the impacts of
lower production volumes that resulted primarily from natural field declines and
asset  disposals.  Opportunity  losses on  forward  hydrocarbon  sales  slightly
lessened the favorable impact of the higher prices.

--------------------------------------------------------------------------------
INTERNATIONAL EXPLORATION & PRODUCING EARNINGS
--------------------------------------------------------------------------------
(In millions)                                  1995       1996           1997
--------------------------------------------------------------------------------
International Income                          $ 952    $ 1,372         $1,515
Special Items in Income
  Asset sales                                    23         12             41
  Employee performance award                     --         --             (4)
  Restructuring provisions                      (41)        (5)            --
  Asset impairment                             (121)        --             --
  Tax rate changes and other items               26         --             --
--------------------------------------------------------------------------------
Operating Earnings (Excludes Special Items) $ 1,065    $ 1,365         $1,478
--------------------------------------------------------------------------------

    International  Upstream  operating  earnings  of  $1,478  million  were $113
million higher than 1996,  principally  due to the effects of higher  production
levels and higher natural gas prices in Canada, partly offset by lower crude oil
prices and higher  expenses for future growth in new venture  areas.  Production
increased 10% in 1997,  mainly from growth in Nigeria,  Equatorial  Guinea,  the
United Kingdom, Kazakhstan, South America and Qatar.
    Operating  earnings of $1,365  million in 1996 were $300 million higher than
1995,  mainly  due to  higher  crude  oil  and  natural  gas  prices.  Increased
production  volumes also  contributed  to higher  earnings.  These  factors were
slightly offset by higher exploration expenses.

[Bar Charts - Page 23]

CRUDE OIL AVERAGE SPOT
MARKET PRICES
(Dollars per barrel)
                               97        96        95
Brent                        19.09     20.67     17.02
West Texas Intermediate      20.61     22.16     18.42

CRUDE OIL PRICES REMAINED  
VOLATILE IN 1997, DROPPING 
AN AVERAGE OF ABOUT $1.50 PER BARREL.


NATURAL GAS AVERAGE
SALES PRICES
(Dollars per thousand cubic feet)
                               97        96        95
International                 2.72      2.66      2.47
U.S.                          2.38      2.17      1.41

HIGHER WORLDWIDE NATURAL 
GAS PRICES LARGELY OFFSET 
THE EFFECTS OF LOWER CRUDE OIL PRICES.
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


PETROLEUM OPERATIONS (continued)

DOWNSTREAM-MARKETING & REFINING
--------------------------------------------------------------------------------
MARKETING & REFINING SEGMENT FINANCIAL INDICATORS
--------------------------------------------------------------------------------
(In millions)                               1995         1996          1997
--------------------------------------------------------------------------------
U.S. Income                              $   226      $   407       $   542
International Income                         447          506           483
--------------------------------------------------------------------------------
Total Downstream Net Income              $   673      $   913       $ 1,025
--------------------------------------------------------------------------------
Revenues(1)                              $62,362      $70,796       $55,871
--------------------------------------------------------------------------------
Assets                                   $22,463      $23,592       $20,284
Capital Expenditures                     $ 1,292      $ 1,554       $   928
Cash Investments in Equity Companies          41          131           340
--------------------------------------------------------------------------------
Total Investment Spending                $ 1,333      $ 1,685       $ 1,268
--------------------------------------------------------------------------------
(1) Includes intersegment revenues.

MOBIL'S PRIMARY  DOWNSTREAM  GOAL IS TO RAISE THE RETURN ON CAPITAL  EMPLOYED TO
12% BY  GROWING  SALES OF FUELS AND LUBES BY 4% TO 5% PER  YEAR,  CONTINUING  TO
IMPROVE  THE  PERFORMANCE  OF  CORE  ASSETS,  AND  PURSUING   ATTRACTIVE  GROWTH
OPPORTUNITIES.
    In  the  U.S.,  major   initiatives  in  1997  included  the  completion  of
construction  of  over  seventy  On The  Run(R)  convenience  stores  and  the
successful  rollout of the Speedpass(TM) program.  In addition, Mobil and a U.S.
subsidiary  of Petroleos de  Venezuela,  S.A.,  formed a jointly  owned  limited
liability  company to own and operate the Chalmette  refinery.  A portion of the
crude oil processed into petroleum products for the U.S. market at the Chalmette
refinery will be heavy oil from Venezuela.
    During  1997,  the  Mobil-BP   alliance  in  Europe  was  implemented   with
substantially all country partnerships  established by year-end, and the initial
benefits  contributing to improved earnings.  In addition,  following a strategy
study to address lubes base stock refining  overcapacity in Europe, Mobil and BP
announced the closure of BP's  stand-alone  lubes refinery at Llandarcy in South
Wales and a streamlining program at the other European lubes refineries.
    In the  Asia-Pacific  region,  a new 23 thousand  barrels  daily (TBD) fluid
catalytic  cracking  (FCC)  complex  was  streamed  at the  Altona  refinery  in
Australia,  increasing  yields of gasoline and distillate . Additionally,  Mobil
initiated a cost reduction and asset  rationalization  program in its Australian
marketing operations.  At the Jurong refinery in Singapore, a new lubricant base
stock manufacturing unit with a capacity of 8 TBD was completed and streamed. In
Japan, a new 25 TBD vacuum residual  hydrocracker  was  successfully  brought on
stream at Tonen's Kawasaki refinery. This unit upgrades low-value residual fuels
to  higher-value  distillates.  Also, in an effort to improve  profitability  in
Japan,  initiatives  were  implemented to enhance  revenue and reduce  expenses,
including the  elimination of  approximately  300 positions by year-end 1998. In
China, a lube oil blend plant was completed in Taicang near Shanghai.
    In Africa,  Mobil  successfully  integrated  Exxon's  marketing  business in
Kenya,  acquired in late 1996,  and  initiated a re-entry into the South African
lubes business.
    In Latin  America,  the company  continued  to grow in the fuels  markets in
Colombia, Peru and Ecuador. This growth will be supplemented by the fuels market
entry in  Venezuela,  which is currently  under way. In addition,  Mobil's lubes
business  continued to grow  throughout the region.  In Barbados,  Mobil reached
agreement  with the local  government  to close  its  refinery,  completing  the
withdrawal  from  the  Barbados  market  following  the  sale  of the  company's
marketing assets in 1996.
    Investment  spending  totaled $1.3  billion in 1997,  about 30% in the U.S.,
including  spending  for  construction  related to On The  Run(R)  convenience
stores. The remainder was mostly for expansion projects in international  areas.
Planned spending for 1998 is $1.5 billion,  up 18% from 1997, with approximately
35% in the U.S. and 65% in international areas.
    Downstream  revenues decreased 21% in 1997 versus 1996 due to the effects of
equity  accounting  for the Mobil-BP  European  alliance,  partly  offset by the
effects of higher sales  volumes  elsewhere.  Revenues  increased in 1996 versus
1995 due to higher product trade sales volumes and prices.

[Bar Charts - Page 24]

DOWNSTREAM EARNINGS
(Millions of dollars)
                             97       96       95
Operating Earnings         1,312    1,051    1,135
Net Income                 1,025      913      673

OPERATING EARNINGS IN 1997
INCREASED  PRIMARILY DUE TO IMPROVED  
PERFORMANCE,  HIGHER  MARGINS AND BENEFITS
FROM THE MOBIL-BP ALLIANCE.


REFINERY RUNS FOR MOBIL
(Thousands of barrels daily)
                               97        96        95
International & U.S.         2,191     2,142     2,121

REFINERY RUNS CONTINUED TO 
TREND UPWARD, PRIMARILY REFLECTING 
IMPROVED OPERATING PERFORMANCE IN THE UNITED STATES.
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


PETROLEUM OPERATIONS (concluded)
     DOWNSTREAM  net income of $1,025  million in 1997 was $112  million  higher
than 1996. Excluding special items,  operating earnings of $1,312 million (U.S.,
$562 million, International, $750 million; refer to tables below) increased $261
million. Higher product trade sales volumes outside of Europe, benefits from the
Mobil-BP European alliance and strong performance contributed to higher earnings
in 1997.  Additionally,  improved integrated margins in the U.S. and Europe more
than offset lower margins in parts of Asia-Pacific.
    Net  income in 1996 was $913  million,  $240  million  higher  than in 1995.
Excluding  special items,  operating  earnings of $1,051  million  decreased $84
million from 1995. Lower margins in some of Mobil's key markets more than offset
the  benefits  from  cost  savings  and  growth  initiatives,  including  higher
worldwide product sales volumes.

--------------------------------------------------------------------------------
U.S. MARKETING & REFINING EARNINGS
--------------------------------------------------------------------------------
(In millions)                                1995           1996         1997
--------------------------------------------------------------------------------
U.S. Income                                  $226           $407         $542
Special Items in Income
  Asset Impairment                             --            --           (18)
  Employee performance award                   --            --           (10)
  LIFO/other inventory adjustments             --            35             8
  Restructuring provisions                   (104)           --            --
--------------------------------------------------------------------------------
Operating Earnings (Excludes Special Items)  $330          $372          $562
--------------------------------------------------------------------------------

    U.S.  Downstream  operating earnings were $562 million in 1997, $190 million
higher than 1996.  Results in 1997  benefited from higher product sales volumes,
excellent  refinery  performance and higher integrated  margins.  Initiatives in
marketing  such as  Speedpass(TM)  and On The  Run(R)  contributed  to growth in
retail automotive gasoline sales, which were up almost 3%. Wider spreads between
heavy and  light  crudes  also  helped  results  due to the  refineries'  strong
capability to process heavy crudes.
    In 1996,  operating  earnings of $372 million  were $42 million  higher than
1995.  Results  benefited  from higher  margins and  continued  growth in retail
automotive  gasoline sales.  Partly  offsetting  these  favorable  factors was a
higher level of refinery downtime.

--------------------------------------------------------------------------------
INTERNATIONAL MARKETING & REFINING EARNINGS
--------------------------------------------------------------------------------
(In millions)                                  1995         1996          1997
--------------------------------------------------------------------------------
International Income                           $447         $506          $483
Special Items in Income
  Restructuring provisions                     (316)        (154)         (258)
  Employee performance award                     --           --           (21)
  LIFO/other inventory adjustments              (13)           8            12
  Other                                         (29)         (27)           --
--------------------------------------------------------------------------------
Operating Earnings (Excludes Special Items)    $805         $679          $750

--------------------------------------------------------------------------------

    International  Downstream  operating earnings were $750 million, $71 million
higher than in 1996. In Europe, results improved significantly, primarily due to
benefits from the Mobil-BP alliance and stronger integrated margins. These gains
were partly offset by lower margins in parts of Asia-Pacific.
    Operating  earnings of $679 million in 1996 were $126 million  lower than in
1995, primarily due to lower marketing margins in Europe and Asia-Pacific. Lower
paraxylene  margins at Mobil's  Singapore  refinery,  where  earnings are shared
between  Marketing & Refining  and  Chemical,  and a higher  level of  scheduled
refinery  downtime  also reduced  earnings.  These factors were partly offset by
improved refining margins in Singapore and higher product sales volumes.

[Bar Charts - Page 25]

DOWNSTREAM PETROLEUM PRODUCT 
SALES VOLUMES*
(Thousands of barrels daily)
                              97         96         95
International & U.S.        3,343      3,345      3,222

*  Includes supply sales.

WORLDWIDE SALES VOLUMES WERE
ESSENTIALLY FLAT IN 1997 AS LOWER 
VOLUMES IN EUROPE WERE OFFSET BY INCREASES IN OTHER AREAS.

DOWNSTREAM PETROLEUM PRODUCT
SALES REVENUES
(Millions of dollars)
                              97         96         95
International & U.S.       35,962     49,228     43,725

HIGHER SALES REVENUES IN ENCLAVES
OUTSIDE OF EUROPE WERE MORE THAN 
OFFSET BY THE EFFECTS OF EQUITY
ACCOUNTING FOR THE MOBIL-BP EUROPEAN ALLIANCE.
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


CHEMICAL
--------------------------------------------------------------------------------
CHEMICAL SEGMENT FINANCIAL INDICATORS
--------------------------------------------------------------------------------
(In millions)                             1995          1996           1997
--------------------------------------------------------------------------------
Petrochemicals Income                        $  544       $  167         $  214
Other Income                                    135          139            141
Asset Sales, net of Restructuring Provisions    485          --              48
--------------------------------------------------------------------------------
Total Chemical Net Income                    $1,164       $  306         $  403
--------------------------------------------------------------------------------
Revenues(1)                                  $6,390       $3,280         $3,533
Assets                                       $3,212       $2,987         $3,111
--------------------------------------------------------------------------------
Capital Expenditures                         $  220       $  339         $  323
Cash Investments in Equity Companies             --            7             --
--------------------------------------------------------------------------------
Total Investment Spending                    $  220       $  346         $  323
--------------------------------------------------------------------------------
(1) Includes intersegment revenues.

CHEMICAL'S GOALS ARE TO GROW VOLUMES AN AVERAGE OF 7% PER YEAR AND TO ACHIEVE AN
AVERAGE RETURN ON CAPITAL EMPLOYED IN THE 13%-15% RANGE, LONG TERM.
    After a series of asset sales  totaling about $1.6 billion in the past three
years,   Chemical  is  now  comprised  of  three   strategic   business   units:
petrochemicals,  chemical  specialties and oriented  polypropylene  (OPP) films.
Petrochemicals  is the largest  segment,  representing  about 90% of  Chemical's
sales  volumes,  with major product  lines of  polyethylene  resin,  paraxylene,
benzene, propylene and ethylene glycol.
    Chemical is pursuing a long-term  strategy of growing through  competitively
advantaged  projects in its leader businesses by actively  progressing two major
petrochemical  expansion projects in geographically  diverse areas as well as by
investing in significant  de-bottlenecking or cost-effective  expansion projects
in its North American  facilities.  Mobil Yanbu Petrochemical  Company and Saudi
Basic  Industries  Corp.  have begun an  expansion  that will double the current
capacity of their Yanpet olefins  complex in Yanbu,  Saudi Arabia.  The partners
recently  completed a $2.3 billion  commercial  bank financing for this project.
Plant  start-up is scheduled for mid-2000.  Mobil and Pequiven,  the  Venezuelan
state-owned  petrochemical  company,  have continued studying the feasibility of
developing a new olefins complex in Jose, Venezuela.  The proposed site is at an
existing  petrochemicals  facility,  with  access  to  low-cost  feedstocks  and
opportunities  to achieve  substantial  synergies  with the current  operations.
Mobil, in conjunction  with the Singapore  Economic  Development  Board, is also
considering a world-scale  ethylene plant near Mobil's  existing Jurong refining
and petrochemicals complex.
    A  modernization  and  expansion of Mobil's  Beaumont  olefins plant is well
under way, with  completion  scheduled later in 1998. This project will increase
ethylene  capacity by 45%,  improve  operating  flexibility  to process the most
economically  attractive feedstocks and lower energy consumption by 35%. Mobil's
Houston  olefins plant  expansion was completed in 1997, and doubled the plant's
ability to process  low-cost  refinery  gas  feedstocks,  thereby  reducing  the
plant's  cash  cost to  produce  ethylene  by more  than a  penny  a  pound.  To
effectively utilize the incremental  ethylene output from these two projects,  a
low-cost  de-bottleneck of the Beaumont  low-pressure  polyethylene plant is now
under construction.
    In the aromatics business, Mobil completed two major expansions, one in late
1996 and one in 1997.  The  paraxylene  capacity of the  Chalmette  refinery was
doubled  to 380  million  pounds,  of which  Mobil has a 50%  interest.  The new
Beaumont aromatics plant was streamed in mid year with a capacity of 670 million
pounds of  paraxylene  and 625 million  pounds of benzene.  These two  projects,
which both utilize  Mobil's  newest and most  economical  toluene to  paraxylene
(MTPX) technology,  raise Mobil's worldwide  paraxylene  capacity to 1.7 billion
pounds.
    Chemical's investment spending in 1997 was $323 million,  slightly below the
1996  level of $346  million.  Planned  investment  spending  for 1998 is in the
$400-$450  million range,  mainly to support  continued  worldwide  productivity
improvements and capacity expansions, notably the Yanpet project.

[Bar Charts - Page 26]

CHEMICAL EARNINGS
(Millions of dollars)
                           97       96       95
Operating Earnings        350      306      679
Net Income                403      306    1,164

HIGHER OPERATING EARNINGS IN 
1997 REFLECTED STRONGER SALES
VOLUMES AND POLYETHYLENE MARGINS, 
AS WELL AS IMPROVED PLANT OPERATING RELIABILITY.


CHEMICAL NET SALES TO TRADE
(Millions of dollars)
                             97        96         95
Petrochemicals & Other     2,994     2,846      4,948

SALES REVENUES INCREASED IN 
1997 DUE TO HIGHER VOLUMES AND 
POLYETHYLENE  PRICES, PARTLY 
OFFSET BY LOWER PARAXYLENE PRICES.
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


CHEMICAL (concluded)
     CHEMICAL income of $403 million included $53 million of income from special
items  including  a gain on the sale of a  substantial  portion of the  European
stretch film business and a favorable patent  litigation  settlement,  partially
offset by a charge for the  employee  performance  award.  There were no special
items in Chemical's 1996 income.

--------------------------------------------------------------------------------
CHEMICAL EARNINGS
--------------------------------------------------------------------------------
(In millions)                                  1995        1996           1997
--------------------------------------------------------------------------------
Chemical Income                              $1,164      $  306         $  403
Special Items in Income
  Asset sales                                   501          --             48
  Litigation                                     --          --             10
  Employee performance award                     --          --             (5)
  Restructuring provisions                      (16)         --             --
--------------------------------------------------------------------------------
Operating Earnings (Excludes Special Items)  $  679      $  306         $  350
--------------------------------------------------------------------------------

    Chemical operating  earnings,  excluding special items, were $350 million in
1997,  up 14% from the prior  year,  largely as a result of an increase in sales
volumes,  improved plant operating  reliability and higher polyethylene margins.
These earnings improved Chemical's return on average capital employed to 15%, up
from 13% last year. While most industry  fundamentals for Chemical's  businesses
were  favorable in 1997,  aromatics  margins  were weaker as capacity  additions
outstripped demand growth.
    Operating  earnings  of $306  million  in  1996  reflected  lower  worldwide
petrochemical  margins and were $373 million lower than the record 1995 earnings
of $679 million, when margins for integrated polyethylene resins were strong and
Asia-Pacific paraxylene margins set record highs as demand was strong and supply
was tight.
    Trade  sales  revenues  (see  graph  on  page  26) of $3.0  billion  in 1997
increased  5% from the prior year  primarily  due to the 14%  increase  in sales
volumes.  Substantially  all of the  decrease  in trade  sales in 1996 from 1995
resulted from the divestiture of businesses.

CORPORATE AND FINANCING
--------------------------------------------------------------------------------
CORPORATE AND FINANCING EXPENSE
--------------------------------------------------------------------------------
(In millions)                                  1995        1996           1997
--------------------------------------------------------------------------------
Corporate and Financing Expense             $ (306)     $ (364)         $ (368)
Special Items included:
  Asset sales                                   74          30              39
  Litigation                                    71          --             (31)
  Employee performance award                    --          --              (6)
  Staff redesign implementation                 --         (75)             --
  Restructuring provisions                     (62)         --              --
  Environmental provision                      (24)         --              --
--------------------------------------------------------------------------------
Operating Expense (Excludes Special Items)  $ (365)     $ (319)         $ (370)
--------------------------------------------------------------------------------

CORPORATE AND FINANCING expense was $368 million in 1997,  essentially unchanged
from 1996.  This category  includes the results from Real Estate  operations and
Mining and Minerals  (substantially  all of these businesses were sold in 1996),
corporate  administrative  expenses,  net  financing  expense  and other  items.
Excluding  special  items from both periods,  Corporate and Financing  operating
expense of $370  million was $51 million  higher than 1996,  primarily  due to a
number  of  one-time  charges  in 1997 that  were  only  partly  offset by lower
interest  expense due to lower  average  net debt  balances  and lower  interest
rates.
    Excluding special items,  Corporate and Financing  operating expense of $319
million in 1996 was $46 million  lower than in 1995,  primarily  reflecting  the
effects of higher capitalized interest for major projects in Canada, Nigeria and
Qatar, and certain other favorable, nonrecurring items.
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


RISK MANAGEMENT
Because Mobil operates in the worldwide oil and gas markets and has  significant
financing  requirements,  it has  exposure to  fluctuations  in interest  rates,
foreign  currency  exchange rates and hydrocarbon  prices,  which can affect the
cost of operating,  investing and financing. In order to manage these exposures,
management has established  defined benchmarks for hedging in order to achieve a
desired risk profile for the  environment  in which Mobil  operates and finances
its assets. The management-defined  benchmarks are periodically reviewed and are
subject to change. 
DEBT-RELATED INSTRUMENTS
     Mobil has fixed and  floating  rate U.S. and foreign  currency  denominated
debt. Mobil's benchmark for interest rate risk is 100% floating rate. Mobil uses
interest  rate  swaps,  cross-currency  interest  rate swaps,  futures,  forward
exchange  contracts and option contracts to manage its debt portfolio toward the
established  benchmark.  These  instruments  have the  effect  of  changing  the
interest  rate and currency of the  original  borrowings  with the  objective of
minimizing  Mobil's  borrowing  costs. At December 31, 1997, Mobil was primarily
exposed to U.S. dollar LIBOR.
NONDEBT-RELATED FOREIGN CURRENCY EXCHANGE RATE INSTRUMENTS
    Mobil has foreign  currency  exchange rate risk because it operates in about
140 countries.  Mobil's  benchmark is to fully hedge identified net exposures to
foreign  currency  exchange rate risk resulting from  transactions in currencies
that are not the  functional  currency  of the  affected  affiliate.  Mobil  has
entered into forward  exchange  contracts and currency option contracts to hedge
U.S. dollar payables for purchases of hydrocarbons, firm commitments for capital
projects, cash returns from net investments in foreign affiliates to be remitted
within the coming year, and certain local currency  taxes. At December 31, 1997,
the primary  currencies  under  management  include the Japanese  yen,  Canadian
dollar and Australian dollar. 
COMMODITY INSTRUMENTS
    Mobil  balances  its  overall  crude oil and  petroleum  product  supply and
demand,  and  manages  its  current  and  future  price  risk by  entering  into
hydrocarbon  futures,  forwards,  swaps and options in various markets.  Mobil's
benchmark for  hydrocarbons  is the  prevailing  market  price.  To achieve this
benchmark,   Mobil  manages  its  hydrocarbon  price  exposure  associated  with
fixed-priced  commodity  purchases and sales, and inventory  positions that vary
from management's  defined sustainable  inventory levels,  primarily through the
use of strategies that qualify as hedges.  However,  certain  strategies  manage
risk at a macro  level and do not  qualify as hedges.  Mobil may take  commodity
positions based on its views or expectations of specific  hydrocarbon  prices or
price  differentials  between commodity types.  Mobil does not hedge oil and gas
reserves. At December 31, 1997, Mobil was exposed to the general price levels of
broadly traded oil and gas commodities. 
VALUE AT RISK
    In its risk management  activities,  Mobil uses a number of tools to measure
and manage risk,  including  value-at-risk  models.  Mobil measures its value at
risk using  statistical  techniques that project expected changes in values from
market   movements  on  financial  and  commodity   exposures   that  vary  from
management's defined benchmarks.  These benchmarks are established by management
and  represent  the  desired  risk  profile of the  environment  in which  Mobil
operates. Value at risk is defined as the maximum potential gain or loss in fair
value from a one-day market movement using  historical  statistical  models that
would  cover  99.7% of all such  movements  over the last three  years  measured
against the  benchmarks.  Value at risk includes those  exposures that are being
managed.  The  value at risk of  options  is  determined  by using  the  forward
equivalent of the underlying  exposure.  The  value-at-risk  amounts as measured
against the above  management-defined  benchmarks  were $7 million for  interest
rate risk, $1 million for foreign  currency  exchange rate risk,  and $8 million
for commodity price risk (including trading contracts) at December 31, 1997. The
value-at-risk  analysis  of  commodity  price  risk  includes  managed  physical
commodities  as well as hedging and trading  derivatives  because  Mobil manages
this risk on a combined basis.
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


YEAR 2000 ISSUE
Many existing  computer  programs will be unable to properly  recognize dates in
the year 2000 and beyond.  During 1997, Mobil conducted a company-wide  study of
its  systems  and  operations,  including  systems  being  developed  to improve
business functionality, to identify those of its computer hardware, software and
process control systems that do not properly  recognize dates after December 31,
1999, and those that are linked to third parties' systems.  Based on this study,
Mobil commenced a major project to ensure that well in advance of the year 2000,
all of Mobil's  systems that are critical to the company's  operations  properly
recognize  such dates.  The project is  utilizing  both  internal  and  external
resources  to  reprogram  or  replace,  and test,  affected  computer  hardware,
software  and  process  control  systems  to  ensure  that  they are  year  2000
compliant.  Mobil has also  initiated  communications  with third  parties whose
computer systems'  functionality  could impact Mobil. These  communications will
facilitate coordination of year 2000 conversions and will, additionally,  permit
Mobil to determine the extent to which the company may be vulnerable to failures
of third parties to address their own year 2000 issues.
    The costs of Mobil's year 2000 compliance  effort are being funded with cash
flows from operations.  Some of these costs relate solely to the modification of
existing  systems,  while others are for new systems which will improve business
functionality.  In total,  these  costs  are not  expected  to be  substantially
different  from the  normal,  recurring  costs  that are  incurred  for  systems
development  and  implementation,  in part due to the  reallocation  of internal
resources and the deferral of other projects.  As a result,  these costs are not
expected  to have a  material  adverse  effect on  Mobil's  overall  results  of
operations or cash flows.
    The assessment of the costs of Mobil's year 2000 compliance  effort, and the
timetable for Mobil's planned completion of its own year 2000 modifications, are
management's   best   estimates.   These  estimates  were  based  upon  numerous
assumptions  as to future  events,  including  assumptions  as to the  continued
availability  of certain  resources,  in particular  personnel with expertise in
this  area,  and as to the  ability  of such  personnel  to  locate  and  either
re-program or replace,  and test, all affected computer  hardware,  software and
process control systems in accordance with Mobil's planned  schedule.  There can
be no guarantee  that these  estimates will prove  accurate,  and actual results
could differ from those estimated if these assumptions  prove inaccurate.  Based
upon  progress to date,  however,  Mobil  believes  that it is unlikely that the
foregoing factors will cause actual results to differ  significantly  from those
estimated.  As to the systems of the third  parties  that are linked to Mobil's,
there can be no guarantee  that those of such systems that are not now year 2000
compliant will be timely converted to year 2000 compliance.  Additionally, there
can be no  guarantee  that third  parties of business  importance  to Mobil will
successfully  and  timely  reprogram  or  replace,  and  test,  all of their own
computer hardware,  software and process control systems. While the failure of a
single  third party to timely  achieve  year 2000  compliance  should not have a
material adverse effect on Mobil's results of operations in a particular period,
the failure of several key third parties to achieve such  compliance  could have
such an  effect.  Mobil  is  developing  contingency  plans  to  alter  business
relationships  in the event  certain  third  parties  fail to  become  year 2000
compliant.
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


OVER THE PAST THREE YEARS  
MOBIL HAS SPENT $2.2 BILLION 
TO SAFEGUARD THE ENVIRONMENT.

ENVIRONMENTAL MATTERS
--------------------------------------------------------------------------------
ENVIRONMENTAL EXPENDITURES                  U.S.              INTERNATIONAL
--------------------------------------------------------------------------------
(In millions)                      1995    1996   1997     1995   1996    1997
--------------------------------------------------------------------------------
Capital                            $172   $149    $105     $135   $108    $105
Protection and Compliance
  Ongoing operations               238     212     213      184    171     128
  Remediation                       67      46      46       24     27      28
--------------------------------------------------------------------------------
Total Environmental Expenditures  $477    $407    $364     $343   $306    $261
--------------------------------------------------------------------------------

MOBIL'S  COMMITMENT AND PRACTICE IS TO CONDUCT ITS OPERATIONS  WITH FULL CONCERN
FOR SAFEGUARDING THE ENVIRONMENT,  EMPLOYEES, CUSTOMERS AND THE PUBLIC--WHEREVER
IT OPERATES.  The company  accomplishes  this through clear,  visible  corporate
policies,  innovative technologies,  sharing best practices,  extensive training
and constant  attention to environmental  matters in its day-to-day  operations.
Environmental  expenditures  are a significant  cost of doing business,  and the
U.S.   and  other   countries   continue  to  impose   stringent   environmental
requirements.   While  these  costs  reflect  a  downward  trend,  environmental
operating  performance  has  been  improving.   Although  Mobil  cannot  predict
accurately  how  environmental  expenditures  will affect future  operations and
earnings,  it expects to continue to incur substantial costs. Mobil believes its
costs will not vary significantly from those of its competitors.
    CAPITAL EXPENDITURES are additions or modifications to plants and facilities
to limit,  monitor and control emissions and waste generation and to manufacture
newly  formulated  products.   The  majority  of  U.S.   environmental   capital
expenditures have been made to comply with federal and state clean air and water
regulations as well as waste-management requirements. As required in 1995, Mobil
began selling  clean-burning  reformulated  gasoline in those metropolitan areas
designated  by the  Environmental  Protection  Agency (EPA) where Mobil  markets
gasoline products. Additional emission reductions are mandated by the year 2000.
    Internationally,  capital  expenditures  were  made  in  large  part to help
protect ground and surface water and to reduce air emissions.  Worldwide capital
expenditures for  environmental  matters in 1998 are expected to remain near the
1997 expenditure level.
    PROTECTION  AND  COMPLIANCE   EXPENDITURES   are  Mobil's   recurring  costs
associated with managing hazardous substances, emissions and waste generation in
ongoing operations,  and the costs to remediate identified  contamination.  U.S.
remediation  expenditures reflect corrective action taken in prior years to meet
compliance requirements, the use of improved remediation technology and resource
utilization,  and a  continuing  government/industry  trend  toward  utilizing a
risk-based corrective action approach to remediating subsurface contamination.
    Like many other companies, Mobil periodically receives notices from the EPA,
or  equivalent  state  agencies,  that it has been  designated  as a potentially
responsible party (PRP) for remediation of  hazardous-waste  sites. The majority
of these sites are still under  investigation  by the EPA or the state  agencies
concerned. All PRPs are jointly and severally liable under the federal Superfund
law;  however,  since the early  1980s,  Mobil has been  successful  in  sharing
cleanup  costs with other  financially  sound  companies.  At December 31, 1997,
Mobil had been  successful in resolving its  involvement in 175 of the 276 sites
where it had been  named a PRP.  The number of PRP sites  does not  represent  a
relevant  measure of liability as each company's  involvement in a site can vary
substantially.
    Mobil  believes it has provided  adequate  reserves for known  environmental
obligations.  However, Mobil may be subject to future environmental  remediation
liabilities relating to assets previously sold, closed facilities,  requirements
not yet identified or the sale or disposition of operating facilities. While the
amounts  could be  material  to Mobil's  earnings  in the  periods in which such
liabilities arise, the extent of such future remediation  requirements and costs
is not subject to  reasonable  estimation.  Based on Mobil's long  experience in
managing  environmental  matters in its businesses,  it does not anticipate that
the  aggregate  level of future  remediation  costs will  increase  above recent
levels so as to  materially  and  adversely  affect its  consolidated  financial
position or liquidity.  See also Note 12 to Financial  Statements on page 49 for
further discussion of environmental liabilities.
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (unaudited)
                                                                       1996                            
                                            ---------------------------------------------------------
                                               First     Second       Third      Fourth        Full  
(In millions, except per-share amounts)      Quarter    Quarter     Quarter     Quarter        Year  
-----------------------------------------------------------------------------------------------------
<S>                                         <C>        <C>         <C>         <C>         <C>       
REVENUES
  Sales and services                        $ 18,528   $ 19,262    $ 19,852    $ 22,723    $ 80,365  
    Income from equity affiliates                 85        106          84           4         279  
    Income from asset sales,
       interest and other                         87        152         390         230         859  
-----------------------------------------------------------------------------------------------------
Total Revenues                                18,700     19,520      20,326      22,957      81,503  
-----------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
  Crude oil, products and operating
supplies and expenses                         10,671     11,228      11,788      13,803      47,490  
  Exploration expenses                            76         72         143         221         512  
  Selling and general expenses                 1,126      1,239       1,176       1,646       5,187  
  Depreciation, depletion
        and amortization                         655        603         645         822       2,725  
  Interest and debt discount expense             116         97         119         123         455  
                                                                                                     
  Taxes other than income taxes                4,534      4,693       4,850       4,946      19,023  
  Income taxes                                   786        805         836         720       3,147  
-----------------------------------------------------------------------------------------------------
Total Costs and Expenses                      17,964     18,737      19,557      22,281      78,539  
-----------------------------------------------------------------------------------------------------
NET INCOME                                  $    736   $    783    $    769    $    676    $  2,964  
    Per common share(1)                     $    .92   $    .98    $    .96    $    .84    $   3.69  
    Per common share-assuming dilution(1)   $    .90   $    .95    $    .94    $    .83    $   3.62  
-----------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE(1)               $    .46   $    .50    $    .50    $    .50    $   1.96  
-----------------------------------------------------------------------------------------------------
SPECIAL ITEMS INCLUDED IN NET INCOME
Restructuring provisions                    $   --     $   --      $   --      $   (166)   $   (166) 
Asset sales gains/(losses)                      --         --           129          41         170  
Employee performance award                      --         --          --          --          --    
Litigation                                      --         --          --          --          --    
LIFO/other inventory adjustments                --         --          --            43          43  
Asset impairment                                --         --          --           (69)        (69) 
Staff redesign project implementation           --          (31)        (28)        (16)        (75) 
Other                                           --         --          --           (36)        (36) 
-----------------------------------------------------------------------------------------------------
Total Special Items                             --          (31)        101        (203)       (133) 
-----------------------------------------------------------------------------------------------------
OPERATING EARNINGS(2)                       $    736   $    814    $    668    $    879    $  3,097  
-----------------------------------------------------------------------------------------------------
Sales Price per Common Share(1) (3)
  High                                      $59 1/16   $60 1/16    $59 15/16   $62 15/16   $62 15/16 
  Low                                       $53 3/4    $54 5/16    $53  7/8    $56  5/8    $53  3/4  
-----------------------------------------------------------------------------------------------------
<FN>
(1) Per-share amounts for all periods reflect the two-for-one stock split in 1997.
(2) Excludes special items.
(3) The principal market for trading of Mobil's common stock is the New York Stock Exchange. The
    stock symbol is "MOB." The reported prices represent a composite of transactions on the New York
    Stock Exchange, the Chicago, Pacific, Philadelphia, Boston and Cincinnati regional exchanges and the over-the-counter market.
</FN>
</TABLE>

<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (unaudited)(continued)
                                                                      1997
                                          -----------------------------------------------------------
                                               FIRST      SECOND      THIRD       FOURTH       FULL
(In millions, except per-share amounts)      QUARTER     QUARTER    QUARTER      QUARTER       YEAR
-----------------------------------------------------------------------------------------------------
<S>                                        <C>         <C>         <C>         <C>         <C>     
REVENUES
  Sales and services                       $ 15,935    $ 16,372    $ 15,950    $ 16,070    $ 64,327
    Income from equity affiliates               102         167         143         284         696
    Income from asset sales,
       interest and other                       149         210         304         220         883
-----------------------------------------------------------------------------------------------------
Total Revenues                               16,186      16,749      16,397      16,574      65,906
-----------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
  Crude oil, products and operating
supplies and expenses                        10,468      10,531      10,159      10,039      41,197
  Exploration expenses                           75          82         105         237         499
  Selling and general expenses                  806       1,136       1,057       1,358       4,357
  Depreciation, depletion
        and amortization                        643         615         590         706       2,554
  Interest and debt discount expense             98          91         142          97         428
  Taxes other than income taxes               2,406       2,706       2,682       2,712      10,506
  Income taxes                                  864         738         770         721       3,093
-----------------------------------------------------------------------------------------------------
Total Costs and Expenses                     15,360      15,899      15,505      15,870      62,634
-----------------------------------------------------------------------------------------------------
NET INCOME                                 $    826    $    850    $    892    $    704    $  3,272
    Per common share(1)                    $   1.03    $   1.06    $   1.12    $    .88    $   4.10
    Per common share-assuming dilution(1)  $   1.01    $   1.04    $   1.09    $    .86    $   4.01
-----------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE(1)              $    .53    $    .53    $    .53    $    .53    $   2.12
-----------------------------------------------------------------------------------------------------
SPECIAL ITEMS INCLUDED IN NET INCOME
Restructuring provisions                   $    (18)   $    (20)   $    (72)   $   (148)   $   (258)
Asset sales gains/(losses)                       --          --         140          41         181
Employee performance award                       --          --         (50)         --         (50)
Litigation                                       --          --         (33)         --         (33)
LIFO/other inventory adjustments                 --          --          --          20          20
Asset impairment                                 --          --          --         (18)        (18)
Staff redesign project implementation            --          --          --          --          --
Other                                            --          --          --          --          --
-----------------------------------------------------------------------------------------------------
Total Special Items                             (18)        (20)        (15)       (105)       (158)
-----------------------------------------------------------------------------------------------------
OPERATING EARNINGS(2)                      $    844    $    870    $    907    $    809    $  3,430
-----------------------------------------------------------------------------------------------------
Sales Price per Common Share(1) (3)
  High                                     $68         $72 1/4     $78         $77  1/2    $     78
  Low                                      $60 5/8     $60         $69 5/8     $66 7/16    $     60
-----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


COMMENTARY ON CONSOLIDATED STATEMENT OF INCOME
REVENUES from Sales and Services  decreased  $16,038 million from 1996 primarily
due to the effects of equity  accounting  for the Mobil-BP  European  downstream
alliance,  equity accounting for gas marketing  activities in the United States,
lower crude oil prices and currency translation effects. Partly offsetting these
decreases were the effects of higher sales volumes and higher average  worldwide
natural gas prices.  The increase in 1996 from 1995 resulted  mainly from higher
crude oil,  natural gas and petroleum  product prices,  and higher product sales
volumes.
    Income from Equity Affiliates  increased in 1997 due to significantly higher
income  from equity  investments,  mainly in Europe,  Kazakhstan  and the United
States.  Income from Asset Sales, Interest and Other decreased in 1996 from 1995
primarily reflecting the gain on sale of the Plastics Division in 1995.
    Total COSTS AND EXPENSES  decreased by $15,905  million from 1996 mainly due
to the effects of equity  accounting  for the Mobil-BP  European  downstream and
Mobil-Shell  California upstream  alliances.  The increase in 1996 from 1995 was
primarily due to higher costs for crude oil and products,  higher volume-related
expenses and new growth programs, partially offset by benefits from initiatives.
    Crude Oil,  Products and Operating  Supplies and Expenses  decreased  $6,293
million  in 1997,  primarily  due to the  effects of equity  accounting  for the
Mobil-BP and Mobil-Shell alliances and lower average costs for crude oil, partly
offset by higher  volume-related  expenses  and  increased  spending  for growth
programs  in new  venture  areas.  The  increase  in 1996  from  1995 was due to
increased  worldwide  crude oil and  product-related  costs and higher  volumes,
partly  offset by the effects of divested  businesses.  Included in this expense
category  are research  costs of $252 million in 1995,  $206 million in 1996 and
$234 million in 1997.
    Exploration  Expenses were somewhat lower in 1997 primarily due to a smaller
planned  program  this year.  Expenses  in 1996  increased  from 1995  primarily
reflecting higher dry drilling expenses and Ampolex's exploration activities.
    Selling and General  Expenses  decreased  $830 million  primarily due to the
effects of equity  accounting for the Mobil-BP  alliance and expense  reductions
associated  with  cost-savings  initiatives,   partly  offset  by  restructuring
reserves and the employee  performance award. The decrease in 1996 from 1995 was
mainly due to a lower level of restructuring charges in 1996, expense reductions
resulting  from  prior-year  restructuring  programs,  and  the  effects  of the
divestiture of various chemical businesses.
    Depreciation,  Depletion and  Amortization  Expenses were somewhat  lower in
1997  as  decreases  resulting  from  equity  accounting  for the  Mobil-BP  and
Mobil-Shell  alliances  were  largely  offset  by the  effects  of  last  year's
acquisition  of Ampolex and other capital  spending.  Expenses in 1996 decreased
from 1995 largely due to the effects of adopting  FAS 121 in the fourth  quarter
of 1995 and the absence of 1995 restructuring-related asset write-downs.
     Taxes Other than Income Taxes decreased $8,517 million in 1997 from 1996 as
the effects of equity  accounting  for the  alliances  were partly offset by the
effects of higher  sales  volumes.  In 1996,  Taxes Other than Income Taxes were
essentially  unchanged  from 1995 as the effects of higher product sales volumes
were  offset by the  absence of import  duties on crude oil  resulting  from the
closure of the Woerth refinery in Germany.
    Income Taxes decreased  slightly as the effects of higher pretax income were
more than  offset by mix  changes  in the  sources  of  earnings.  Income  Taxes
increased  in 1996  versus  1995,  mainly  due to higher  pretax  income and mix
changes in the sources of earnings.

COMMENTARY ON CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Total  SHAREHOLDERS'  EQUITY  rose $389  million in 1997 due to an  increase  of
$1,553 million in Earnings  Retained in the Business.  Largely  offsetting  this
increase  was a net  charge  to  the  Cumulative  Foreign  Exchange  Translation
Adjustment  account  reflecting a  strengthening  U.S.  dollar relative to local
currencies in certain countries in which the company has significant operations.
Also,  the cost of Common  Stock Held in the  Treasury  increased  as  7,458,400
shares were purchased in the open market to offset the dilutive effects of stock
options  and  reduce  the  number  of  shares  outstanding.  Return  on  Average
Shareholders'  Equity increased from 13.5% in 1995 to 16.0% in 1996 and to 17.0%
in 1997.
    Common stock  dividends  paid were $1.8125 per share,  $1.9625 per share and
$2.12 per share in 1995, 1996 and 1997, respectively.  Per-share amounts reflect
the two-for-one stock split in 1997.

[Bar Chart - Page 32]

RETURN ON AVERAGE
SHAREHOLDERS' EQUITY
(In percent)
97            17.0
96            16.0
95            13.5

RETURN ON AVERAGE 
SHAREHOLDERS' EQUITY IMPROVED
AGAIN, IN LINE WITH THIS YEAR'S
HIGHER EARNINGS.
<PAGE>
 
CONSOLIDATED
    FINANCIAL STATEMENTS


CONSOLIDATED STATEMENT OF INCOME

Year ended December 31 (In millions, except per-share amounts)
                                                  1995      1996      1997
--------------------------------------------------------------------------------
REVENUES
  Sales and services(1)                        $73,413   $80,365   $64,327
  Income from equity affiliates                    397       279       696
  Income from asset sales,
    interest and other                           1,560       859       883
--------------------------------------------------------------------------------
Total Revenues                                  75,370    81,503    65,906
--------------------------------------------------------------------------------
COSTS AND EXPENSES
  Crude oil, products and operating supplies
        and expenses                            41,630    47,490    41,197
  Exploration expenses                             427       512       499
  Selling and general expenses                   5,688     5,187     4,357
  Depreciation, depletion and amortization       3,748     2,725     2,554
  Interest and debt discount expense               467       455       428
  Taxes other than income taxes(1)              19,019    19,023    10,506
  Income taxes                                   2,015     3,147     3,093
--------------------------------------------------------------------------------
Total Costs and Expenses                        72,994    78,539    62,634
--------------------------------------------------------------------------------
NET INCOME                                     $ 2,376   $ 2,964   $ 3,272
  Per common share(2)                          $  2.93   $  3.69   $  4.10
  Per common share--assuming dilution(2)       $  2.88   $  3.62   $  4.01
--------------------------------------------------------------------------------
(1) Includes excise and state gasoline taxes: 1995-$8,646 million;  1996-$9,236
    million; 1997-$5,928 million.
(2) Per-share amounts for all years reflect the two-for-one stock split in 1997.

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

Year ended December 31 (In millions)                     1995        1996        1997
----------------------------------------------------------------------------------------
<S>                                                  <C>         <C>         <C>     
PREFERRED STOCK (ESOP-related)
  -Beginning of year                                 $    745    $    722    $    686
  -End of year, after redemptions                    $    722    $    686    $    665
----------------------------------------------------------------------------------------
UNEARNED EMPLOYEE COMPENSATION (ESOP-related)
  -Beginning of year                                 $   (472)   $   (411)   $   (365)
  -End of year, after amortization                   $   (411)   $   (365)   $   (329)
----------------------------------------------------------------------------------------
COMMON STOCK AT PAR
  -Beginning of year                                 $    885    $    888    $    891
  -End of year, after issuance of shares             $    888    $    891    $    894
----------------------------------------------------------------------------------------
CAPITAL SURPLUS
  -Beginning of year                                 $  1,325    $  1,396    $  1,468
  -End of year, after issuance of common shares      $  1,396    $  1,468    $  1,549
----------------------------------------------------------------------------------------
EARNINGS RETAINED IN THE BUSINESS
  -Beginning of year                                 $ 16,859    $ 17,745    $ 19,108
  -Net income                                           2,376       2,964       3,272
  -Common stock dividends                              (1,434)     (1,547)     (1,667)
    -Preferred stock dividends (ESOP-related)             (56)        (54)        (52)
----------------------------------------------------------------------------------------
  -End of year                                       $ 17,745    $ 19,108    $ 20,661
----------------------------------------------------------------------------------------
CUMULATIVE FOREIGN EXCHANGE TRANSLATION ADJUSTMENT
  -Beginning of year                                 $   (123)   $    (27)   $    (73)
  -End of year, after adjustments                    $    (27)   $    (73)   $   (821)
----------------------------------------------------------------------------------------
COMMON STOCK HELD IN TREASURY, AT COST
  -Beginning of year                                 $ (2,073)   $ (2,362)   $ (2,643)
  -End of year, after purchases                      $ (2,362)   $ (2,643)   $ (3,158)
----------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY                           $ 17,951    $ 19,072    $ 19,461
----------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements on pages 40-53.
</FN>
</TABLE>
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


COMMENTARY ON CONSOLIDATED BALANCE SHEET
Total CURRENT  ASSETS  decreased  $3,173  million,  primarily  reflecting  lower
Accounts and Notes Receivable and lower Inventories.
    Cash and Cash  Equivalents  increased  $12 million from 1996.  The movements
that contributed to this increase are presented in the Consolidated Statement of
Cash Flows on page 37.
    Accounts and Notes Receivable  decreased mainly due to the effects of equity
accounting for the Mobil-BP European  downstream  alliance,  lower crude oil and
international  natural gas prices,  the sale of certain  receivables  associated
with the company's credit card operations and currency translation effects.
     Inventories  were  lower in 1997  primarily  due to the  effects  of equity
accounting for the Mobil-BP and Chalmette alliances, and currency translation.
    Investments  and Long-term  Receivables  increased  $3,401 million to $8,479
million,  mainly  reflecting  Mobil's  investment  in  the  European  downstream
alliance  with BP, the  California  upstream  alliance  with  Shell and  Mobil's
alliance at the Chalmette refinery.
    Net  Properties,  Plants and Equipment  decreased  $2,923 million to $24,556
million as capital  expenditures  were more than offset by the effects of equity
accounting  for the  alliances,  asset  sales,  depreciation  and the effects of
currency translation.
    Total CURRENT  LIABILITIES of $12,421 million  decreased $2,827 million from
year-end  1996.  Short-term  Debt declined $431 million due to strong  earnings,
continued  sale of noncore  assets and  reduced  working  capital  requirements.
Accounts Payable decreased $1,517 million primarily due to the effects of equity
accounting for the Mobil-BP  alliance,  decreases in crude oil and international
gas  prices  from  year-end  1996  and  currency  translation  effects.  Accrued
Liabilities  decreased mainly due to the effects of the Mobil-BP  alliance and a
payment related to Mobil's pipeline  investment in Kazakhstan,  partly offset by
reserves  for  restructurings  in Japan.  Additionally,  Income,  Excise,  State
Gasoline and Other Taxes Payable were lower, primarily reflecting the effects of
equity accounting for the Mobil-BP alliance and currency translation.
    At year-end 1997, the total DEBT of Mobil and its consolidated  subsidiaries
was $6,664  million,  a decrease  of $1,211  million  from the prior  year.  The
reduction from 1996 reflects lower debt levels  resulting from strong  earnings,
the continued sale of noncore assets,  reduced working capital  requirements and
currency effects, partly offset by the impact of net share repurchases.  Mobil's
year-end debt-to-capitalization ratio was 25%, down from 29% at year-end 1996.
    Mobil continues to have ready access to global financial markets,  providing
flexibility to take advantage of growth  opportunities  and low borrowing costs.
At year-end 1997, Mobil had effective shelf registration statements on file with
the  Securities  and Exchange  Commission  (SEC) that would permit the offer and
sale of an aggregate of $1,815 million of debt  securities  pursuant to Rule 415
of the  Securities  Act of  1933.  Also in  place  were a  Euro-Medium-Term-Note
program to facilitate the offering and sale outside the U.S. of an additional $2
billion of debt  securities  in 1998 or later years and a facility  allowing the
issuance in Japan of bonds having a principal amount of 30 billion Japanese yen.
    Accrued  Restoration,  Removal and  Environmental  Costs declined due to the
effects of equity  accounting  for Mobil's  California  heavy-oil  alliance with
Shell and the sale of certain properties in the Gulf of Mexico.
    In October 1997,  Mobil  contributed  assets with an aggregate fair value of
$622  million to Mobil Oil & Gas  Associates  LLC for an  interest  of 67%.  The
remaining 33 percent was purchased by an unrelated  investor.  The net result of
this transaction was to increase  Minority  Interest in Subsidiary  Companies by
$300 million.
    Total SHAREHOLDERS' EQUITY rose $389 million (see Commentary on Consolidated
Statement of Changes in Shareholders' Equity on page 32).

[Bar Charts - Page 34]

TOTAL DEBT
(Millions of dollars)
                               97        96        95
International & U.S.         6,664     7,875     6,756

DEBT DECREASED SIGNIFICANTLY  
DUE TO THIS YEAR'S STRONG 
EARNINGS AND CONTINUED ASSET SALES.


RETURN ON AVERAGE
CAPITAL EMPLOYED
(In percent)
97                    13.4
96                    12.7
95                    10.9

RETURN ON AVERAGE CAPITAL
EMPLOYED  CONTINUED TO RISE,  
REFLECTING MOBIL'S FOCUS
ON GROWTH AND STRENGTHENING ITS ASSET BASE.
<PAGE>
 
CONSOLIDATED
    FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET

At December 31 (In millions)                                           1996        1997
--------------------------------------------------------------------------------------------
<S>                                                                <C>         <C>     
ASSETS
Current Assets
  Cash and cash equivalents                                        $    808    $    820
  Accounts and notes receivable                                       8,192       5,952
  Inventories                                                         3,017       2,156
  Prepaid expenses and other current assets                             627         623
  Deferred income taxes                                                 251         171
--------------------------------------------------------------------------------------------
Total Current Assets                                                 12,895       9,722
--------------------------------------------------------------------------------------------
Investments and Long-term Receivables                                 5,078       8,479
Net Properties, Plants and Equipment                                 27,479      24,556
Deferred Charges and Other Assets                                       956         802
--------------------------------------------------------------------------------------------
TOTAL ASSETS                                                       $ 46,408    $ 43,559
--------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
  Short-term debt                                                  $  3,425    $  2,994
  Accounts payable                                                    5,935       4,418
  Accrued liabilities                                                 2,968       2,794
  Income, excise, state gasoline and other taxes payable              2,615       1,906
  Deferred income taxes                                                 305         309
--------------------------------------------------------------------------------------------
Total Current Liabilities                                            15,248      12,421
--------------------------------------------------------------------------------------------
Long-term Debt                                                        4,450       3,670
Reserves for Employee Benefits                                        1,681       1,745
Accrued Restoration, Removal and Environmental Costs                  1,240       1,072
Deferred Credits and Other Noncurrent Obligations                     1,255       1,274
Deferred Income Taxes                                                 3,416       3,535
Minority Interest in Subsidiary Companies                                46         381
--------------------------------------------------------------------------------------------
Total Liabilities                                                    27,336      24,098
--------------------------------------------------------------------------------------------
Shareholders' Equity(1)
  Preferred stock (ESOP-related)--shares issued and outstanding:
   1996-176,336; 1997-171,093                                           686         665
  Unearned employee compensation (ESOP-related)                        (365)       (329)
  Common stock--shares issued:
      1996-891,075,610; 1997-894,308,872                                891         894
  Capital surplus                                                     1,468       1,549
  Earnings retained in the business                                  19,108      20,661
  Cumulative foreign exchange translation adjustment                    (73)       (821)
  Common stock held in treasury, at cost--shares:
      1996-103,486,700; 1997-110,945,100                             (2,643)     (3,158)
--------------------------------------------------------------------------------------------
Total Shareholders' Equity                                           19,072      19,461
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                         $ 46,408    $ 43,559
--------------------------------------------------------------------------------------------
<FN>
(1) Share  amounts  reflect the  two-for-one  stock split in 1997.  

See Notes to Financial Statements on pages 40-53.
</FN>
</TABLE>
<PAGE>
 
MANAGEMENT
    DISCUSSION AND ANALYSIS


COMMENTARY ON CONSOLIDATED STATEMENT OF CASH FLOWS
The Statement of Cash Flows reports movements in cash balances from year to year
and  summarizes  the cash  provided  and  used  during  the year for  operating,
investing and financing  activities.  The impact of changes in foreign  currency
translation  rates has been removed from the amounts reported in this statement.
Therefore, except for Cash and Cash Equivalents, these amounts do not agree with
the differences that would be derived from the changes in Balance Sheet amounts.
    During 1997,  Net Cash from Operating  Activities  exceeded Net Cash Used in
Investing Activities and Cash Dividends by $863 million.

--------------------------------------------------------------------------------
CASH REQUIREMENTS--OPERATING ACTIVITIES OVER (UNDER) INVESTING(1)
--------------------------------------------------------------------------------
Year ended December 31 (In millions)        1995          1996           1997
--------------------------------------------------------------------------------
Net cash from operating activities       $ 4,988       $ 6,399        $ 6,977
Net cash used in investing activities     (2,462)       (5,200)        (4,395)
Cash dividends                            (1,490)       (1,601)        (1,719)
--------------------------------------------------------------------------------
Excess (shortfall) of cash requirements  $ 1,036       $  (402)       $   863
--------------------------------------------------------------------------------
(1) Prior year data restated to conform with current year presentation.

    NET CASH FROM OPERATING  ACTIVITIES increased by $578 million from 1996. Net
Cash from Operating  Activities is derived by adjusting  reported Net Income for
charges or credits that have no cash effect (primarily  Depreciation,  Depletion
and Amortization,  and Deferred Income Taxes) and cash items reported  elsewhere
in this Statement (primarily Exploration Expenses).
    NET CASH USED IN INVESTING  ACTIVITIES  decreased by $805 million from 1996,
reflecting  last year's higher level of  expenditures  for the  acquisitions  of
Ampolex and an interest in the Tengiz field in  Kazakhstan,  partly  offset by a
lower level of proceeds from asset sales in 1997.
     NET CASH USED IN FINANCING  ACTIVITIES  in 1997 was $2,548  million  versus
$908 million used in financing  activities  in 1996.  The variance  reflects the
absence of  financing  associated  with last  year's two major  acquisitions  of
Ampolex and an interest in the Tengiz field, together with strong operating cash
flow that enabled debt repayment.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
INVESTMENT SPENDING
----------------------------------------------------------------------------------------------
Year ended December 31 (In millions)                            1995     1996       1997
----------------------------------------------------------------------------------------------
<S>                                                           <C>      <C>        <C>    
Petroleum Operations
  Exploration & Producing       -- U.S.                       $  758   $  480     $   427
                                -- International               1,489    3,434(1)    2,461
  Marketing & Refining          -- U.S.                          484      403         357
                                -- International                 808    1,151         571
Chemical                        -- U.S.                          165      301         288
                                -- International                  55       38          35
Corporate and Other                                               82       42          51
----------------------------------------------------------------------------------------------
Total Capital Expenditures                                    $3,841   $5,849      $4,190
----------------------------------------------------------------------------------------------
Exploration Expenses            -- U.S.                           72       76          76
                                -- International                 355      436         423
----------------------------------------------------------------------------------------------
Total Exploration Expenses                                       427      512         499
----------------------------------------------------------------------------------------------
Total Capital Expenditures and Exploration Expenses           $4,268   $6,361      $4,689
----------------------------------------------------------------------------------------------
Cash Investments in Equity Companies                             257      658         617
----------------------------------------------------------------------------------------------
Total Investment Spending                                     $4,525   $7,019      $5,306
----------------------------------------------------------------------------------------------
<FN>
(1) Includes $1,394 million for the acquisition of Ampolex 
</FN>
</TABLE>

    At year-end 1997, the unspent  balance of total  appropriations  for capital
expenditures  was $4.8  billion.  Mobil  has  large  unspent  balances  of total
appropriations  for capital  expenditures at the end of each year.The company is
not contractually  committed to spend all of these  appropriations but generally
expects to do so over the next several years.

[Bar Charts - Page 36]

ASSET SALES PROCEEDS
(Millions of dollars)
97                  1,050
96                  1,759
95                  2,034

MOBIL SELLS ASSETS THAT DO NOT
FIT LONG-TERM STRATEGIES OR ARE
WORTH MORE TO OTHERS. PROCEEDS 
HAVE TOTALED $4.8 BILLION OVER THE PAST THREE YEARS.


INVESTMENT SPENDING
(Millions of dollars)
Capital Expeditures,                          97        96         95
Exploration Expenses & Equity Investment    5,306     7,019      4,525

INVESTMENT SPENDING WAS LOWER 
IN 1997, PRIMARILY REFLECTING 
THE ABSENCE OF THE 1996 ACQUISITIONS OF AMPOLEX AND TENGIZ.
<PAGE>
 
CONSOLIDATED
    FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended December 31 (In millions)                                   1995       1996          1997
-----------------------------------------------------------------------------------------------------
<S>                                                                 <C>        <C>           <C>    
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Income                                                        $ 2,376    $ 2,964       $ 3,272
  Adjustments to reconcile to net cash from operating activities
    Depreciation, depletion and amortization                          3,748      2,725         2,554
    Deferred income taxes                                              (233)       446           404
    Earnings (greater) less than distributions from
            equity affiliates                                           (51)       153           (59)
    Exploration expenses (includes noncash charges:
      1995-$26; 1996-$36; 1997-$30)                                     427        512           499
    Gain on sales of properties, plants and equipment
      and other assets                                               (1,041)      (423)         (389)
    (Increase) decrease in working capital items (detailed below)      (388)      (290)          475
    Other, net(1)                                                       150        312           221
-----------------------------------------------------------------------------------------------------
Net Cash from Operating Activities                                    4,988      6,399         6,977
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital and exploration expenditures                               (4,268)    (4,967)       (4,689)
  Acquisition of Ampolex Limited, net of $47 cash acquired             --       (1,347)         --
  Proceeds from sales of properties, plants and equipment
    and other assets                                                  2,034      1,759         1,050
  Payments attributable to investments and
    long-term receivables                                              (228)      (645)(2)      (756)(2)
-----------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities                                (2,462)    (5,200)       (4,395)
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Cash dividends                                                     (1,490)    (1,601)       (1,719)
  Proceeds from borrowings having original terms
    greater than three months                                         1,739      1,494           923
  Repayments of borrowings having original terms
    greater than three months                                        (1,594)    (1,215)       (1,772)
  (Decrease) increase in other borrowings                              (991)       667           112
  Increase (decrease) in minority interest(1)                            36        (47)          339
  Proceeds from issuance of common stock                                 74         75            84
  Purchase of common stock for treasury                                (289)      (281)         (515)
-----------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities                                (2,515)      (908)       (2,548)
-----------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents(3)         (44)        19           (22)
-----------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                    (33)       310            12
Cash and Cash Equivalents--Beginning of Year                            531        498           808
-----------------------------------------------------------------------------------------------------
CASH AND CASH  EQUIVALENTS--END  OF YEAR                            $   498    $   808       $   820
-----------------------------------------------------------------------------------------------------
<FN>
(1)  Prior year data restated to conform with current year presentation.
(2)  Includes the cash  expenditure  for the  acquisition of a 25% interest in a
     joint venture that owns the Tengiz field.
(3)  Cash  equivalents  are  liquid  investments  convertible  to cash  and have
     original maturities of three months or less.
</FN>
</TABLE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
CHANGES IN WORKING CAPITAL ITEMS Decrease (Increase)
--------------------------------------------------------------------------------------------
<S>                                                        <C>        <C>        <C>    
  Accounts and notes receivable                            $  (994)   $(1,199)   $   834
  Inventories                                                  (66)        91        (17)
  Prepaid expenses and other current assets                    (22)        24        (69)
  Accounts payable                                             477        836       (307)
  Accrued liabilities                                           83        (19)       334
  Income, excise, state gasoline and other taxes payable       134        (23)      (300)
--------------------------------------------------------------------------------------------
(Increase) Decrease in Working Capital Items               $  (388)   $  (290)   $   475
--------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------------------
MEMO ITEMS
--------------------------------------------------------------------------------------------
  Cash income taxes paid                                   $ 2,091    $ 2,416    $ 2,687
  Cash interest paid                                           556        458        528
--------------------------------------------------------------------------------------------
<FN>
See Notes to Financial Statements on pages 40-53.
</FN>
</TABLE>
<PAGE>
 
CONSOLIDATED
    FINANCIAL STATEMENTS


SEGMENT AND GEOGRAPHIC INFORMATION

Year ended December 31 (In millions)             1995        1996        1997
--------------------------------------------------------------------------------
REVENUES BY SEGMENT
  Petroleum Operations
   Exploration & Producing  - Third Party    $  7,028    $  8,055    $  7,381
                            - Intersegment      4,053       4,786       4,459
   Marketing & Refining     - Third Party      61,376      69,931      55,007
                            - Intersegment        986         865         864
  Chemical                  - Third Party       6,155       3,023       3,251
                            - Intersegment        235         257         282
  Corporate and Other                             811         494         267
  Intersegment Elimination                     (5,274)     (5,908)     (5,605)
--------------------------------------------------------------------------------
Total Revenues                               $ 75,370    $ 81,503    $ 65,906
--------------------------------------------------------------------------------
REVENUES BY GEOGRAPHIC AREA
  United States             - Third Party    $ 25,598    $ 27,447    $ 28,563
                            - Intersegment        537         461         533
  Europe                    - Third Party      23,676      25,414       7,684
                            - Intersegment        899       1,478       1,423
  Asia-Pacific              - Third Party      17,160      17,690      17,075
                            - Intersegment        796         675         654
  Other Areas(1)            - Third Party       8,125      10,458      12,317
                            - Intersegment      5,574       5,657       4,002
  Corporate and Other                             811         494         267
  Intergeographic Elimination                  (7,806)     (8,271)     (6,612)
--------------------------------------------------------------------------------
Total Revenues                               $ 75,370    $ 81,503    $ 65,906
--------------------------------------------------------------------------------

At December 31 (In millions)
--------------------------------------------------------------------------------
IDENTIFIABLE ASSETS BY SEGMENT
  Petroleum Operations
   Exploration & Producing                   $ 14,393    $ 18,279    $ 18,840
   Marketing & Refining                        22,463      23,592      20,284
  Chemical                                      3,212       2,987       3,111
  Corporate and Other                           2,510       2,042       1,791
  Adjustments                                    (440)       (492)       (467)
--------------------------------------------------------------------------------
Total Assets                                 $ 42,138    $ 46,408    $ 43,559
--------------------------------------------------------------------------------
IDENTIFIABLE ASSETS BY GEOGRAPHIC AREA
  United States                              $ 14,268    $ 13,726    $ 13,161
  Europe                                        9,920      10,049       8,033
  Asia-Pacific                                  8,778      11,316      10,020
  Other Areas(1)                                7,312       9,965      11,106
  Corporate and Other                           2,510       2,042       1,791
  Adjustments                                    (650)       (690)       (552)
--------------------------------------------------------------------------------
Total Assets                                 $ 42,138    $ 46,408    $ 43,559
--------------------------------------------------------------------------------
(1) Includes principally West Africa, Saudi Arabia, Canada and Kazakhstan.

The  distribution of Mobil's  operations by business segment and geographic area
is presented  above.  Petroleum  Operations  consist of exploration,  producing,
marketing and  refining.  Exploration  & Producing  explores  for,  develops and
produces crude oil and natural gas, and extracts natural gas liquids, sulfur and
carbon  dioxide.  Marketing & Refining is  responsible  for  petroleum  refining
operations  and  the  marketing  of all  refined  petroleum  products.  Chemical
manufactures and sells various petroleum-based chemical products.  Corporate and
Other   includes  the   operations  of  Real  Estate  and  Mining  and  Minerals
(substantially   all  of  these   businesses  were  sold  in  1996),   corporate
administrative expenses and other items.
<PAGE>
 
CONSOLIDATED
    FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
SEGMENT AND GEOGRAPHIC INFORMATION (concluded)

Year ended December 31 (In millions)                     1995       1996       1997
--------------------------------------------------------------------------------------
<S>                                                   <C>        <C>        <C>    
EARNINGS BY SEGMENT
  Pretax Operating Profits
    Petroleum Operations
     Exploration & Producing                          $ 2,410    $ 5,075    $ 4,997
     Marketing & Refining                                 894      1,338      1,569
    Chemical                                            1,551        342        493
--------------------------------------------------------------------------------------
  Total Pretax Operating Profits                        4,855      6,755      7,059
  Income Taxes                                         (2,173)    (3,427)    (3,419)
--------------------------------------------------------------------------------------
  Segment Earnings                                      2,682      3,328      3,640
  Corporate and Financing (Net of income taxes)          (306)      (364)      (368)
--------------------------------------------------------------------------------------
Net Income                                            $ 2,376    $ 2,964    $ 3,272
--------------------------------------------------------------------------------------
EARNINGS BY GEOGRAPHIC AREA (Net of income taxes)
  United States                                       $   827    $ 1,293    $ 1,471
  Europe                                                  323        357        633
  Asia-Pacific                                          1,193      1,096        923
  Other Areas(1)                                          339        582        613
--------------------------------------------------------------------------------------
  Geographic Earnings                                   2,682      3,328      3,640
  Corporate and Financing                                (306)      (364)      (368)
--------------------------------------------------------------------------------------
Net Income                                            $ 2,376    $ 2,964    $ 3,272
--------------------------------------------------------------------------------------
CAPITAL EXPENDITURES BY SEGMENT
  Petroleum Operations
    Exploration & Producing                           $ 2,247    $ 3,914    $ 2,888
    Marketing & Refining                                1,292      1,554        928
  Chemical                                                220        339        323
--------------------------------------------------------------------------------------
  Segment Capital Expenditures                          3,759      5,807      4,139
  Corporate and Other                                      82         42         51
--------------------------------------------------------------------------------------
Total Capital Expenditures                            $ 3,841    $ 5,849    $ 4,190
--------------------------------------------------------------------------------------
DEPRECIATION, DEPLETION AND AMORTIZATION BY SEGMENT
  Petroleum Operations
    Exploration & Producing                           $ 2,230    $ 1,596    $ 1,557
    Marketing & Refining                                1,168        966        835
  Chemical                                                290        126        141
--------------------------------------------------------------------------------------
  Segment Depreciation, Depletion and Amortization      3,688      2,688      2,533
  Corporate and Other                                      60         37         21
--------------------------------------------------------------------------------------
Total Depreciation, Depletion and Amortization        $ 3,748    $ 2,725    $ 2,554
--------------------------------------------------------------------------------------
<FN>
(1) Includes principally West Africa, Saudi Arabia, Canada and Kazakhstan.
</FN>
</TABLE>

    Mobil's  share of the net income of  companies  accounted  for on the equity
method are included in Revenues.  Financial  information on these  affiliates is
presented in Note 5 on page 44.
    Intersegment  and  intergeographic  revenues are sales to other  business or
geographic  segments  within Mobil and are at  estimated  market  prices.  These
intercompany  transactions  are eliminated for  consolidation  purposes.  Income
taxes are allocated to segments and  geographic  areas on the basis of operating
results.

BENEFITS FROM THE 
MOBIL-BP ALLIANCE
CONTRIBUTED TO HIGHER 
EARNINGS IN EUROPE.
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


1. MAJOR ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The  consolidated  financial  statements  include the accounts of all  companies
owned  more  than 50% and  controlled.  Significant  investments  in  affiliated
companies owned 50% or less, or where Mobil does not have control, are accounted
for on the equity basis. Investments in other companies in which Mobil owns less
than  a  majority  interest  are  stated  at  cost  less  applicable   reserves.
Investments  that  represent  direct  interests in the assets,  liabilities  and
operations  of ventures  are  reported as Mobil's  share of each  account in the
venture.   Intercompany  transactions  are  eliminated.  
USE  OF  ESTIMATES 
The  financial  statements,  which are  prepared in  conformity  with  generally
accepted  accounting  principles,  include  amounts that are based,  in part, on
management's best estimates and judgments.
INVENTORIES  
Substantially all crude oil and product inventories are valued at cost under the
last-in,  first-out (LIFO) method.  Other inventories,  primarily  materials and
supplies, are valued generally at average cost.
OIL AND GAS  ACCOUNTING  
Mobil  follows  the  successful  efforts  method of  accounting  for oil and gas
exploration  and producing  activities.  Under this method,  direct  acquisition
costs of unproved mineral rights are capitalized and then amortized as described
below. Payments made in lieu of drilling on nonproducing  leaseholds are charged
to expense currently. Geological and geophysical costs are charged to expense as
incurred. Costs of all development wells and of exploratory wells that result in
additions to proved reserves are capitalized.
DEPRECIATION, DEPLETION AND AMORTIZATION 
Annual charges to income for depreciation are computed on a straight-line basis
over the useful lives of the assets. Costs of producing properties are generally
accumulated by field. Depletion of these costs and amortization of capitalized,
intangible drilling costs are calculated on a unit-of-production basis.
     Capitalized  acquisition  costs of significant  unproved mineral rights are
assessed periodically on a property-by-property basis to determine whether their
values have been impaired;  where impairment is indicated, a loss is recognized.
Capitalized  acquisition  costs of other  unproved  mineral rights are amortized
over the expected  holding  period.  When a mineral  right is  surrendered,  any
unamortized cost is charged to expense. When a property is determined to contain
proved  reserves,  the mineral  right then  becomes  subject to  depletion  on a
unit-of-production  basis.  When assets  that are part of a composite  group are
retired,  sold,  abandoned or otherwise disposed of, the cost is charged against
accumulated  depreciation,  depletion and  amortization.  Where  depreciation is
accumulated  for  specific  assets,  gains or losses on disposal are included in
income  currently.   
RESTORATION,  REMOVAL  AND  ENVIRONMENTAL  LIABILITIES 
The estimated costs of restoration and removal of major producing facilities are
accrued  on a  unit-of-production  basis  over  the  life of the  property.  The
estimated  future costs for known  environmental  remediation  requirements  are
accrued when it is probable that a liability has been incurred and the amount of
remediation   costs  can  be  reasonably   estimated.   These  amounts  are  the
undiscounted,  future estimated costs under existing regulatory requirements and
using existing technology.
DERIVATIVE   FINANCIAL   INSTRUMENTS  
Mobil uses derivative instruments primarily for purposes of hedging its exposure
to  fluctuations  in  interest  rates,   foreign  currency  exchange  rates  and
hydrocarbon  prices.  Gains  and  losses on  hedging  contracts  are  recognized
concurrent  with  the  recognition  of the  economic  impact  of the  underlying
exposures using either the accrual or deferral method of accounting. To a lesser
extent, Mobil uses derivative commodity  instruments,  including swaps, futures,
forwards and options,  for trading  purposes.  Gains and losses on these trading
contracts are recognized immediately in earnings.
     The accrual method is used for interest rate swaps, cross-currency interest
rate swaps and commodity swaps. In order to qualify for the accrual method,  the
derivative  must be  designated  and  effective  as a hedge.  Under the  accrual
method,  differentials in the swapped amounts are recorded as adjustments of the
underlying periodic cash flows that are being hedged. Gains and losses on closed
contracts  are accrued and amortized  over the original  life of the  terminated
contract. In the event the hedged item matures, is sold, or is terminated or the
anticipated transaction is no longer expected to occur, the realized
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


1. MAJOR ACCOUNTING POLICIES (concluded)
DERIVATIVE FINANCIAL INSTRUMENTS (concluded)
and unrealized gains and losses are recognized in income  coincidental  with the
transaction,  and the  derivative  would be  redesignated  as trading.  Interest
differentials  paid or  received  on  interest  rate  swaps  and  cross-currency
interest rate swaps are reported as accrued interest receivable or payable,  and
interest expense is recognized over the life of the contracts using the adjusted
effective yield of the underlying debt. Price  differentials paid or received on
commodity  swaps are accrued and are  recognized  when the price exposure on the
physical  movement  ends and is recorded in Sales and  Services or in Crude Oil,
Products  and  Operating  Supplies  and  Expenses.  Cash  flow  from  derivative
instruments  that qualify for hedge  accounting is included in the same category
for cash flow purposes as the item being hedged.
     The  deferral  method  is used  for  futures  exchange  contracts,  forward
contracts, commodity swaps and covered options. In order to qualify for deferral
accounting, derivatives must be designated and effective as a hedge. Premiums or
discounts  are  amortized  over the life of the contract  for interest  rate and
foreign  exchange  contracts  and are  recognized  when  realized for  commodity
instruments.  Gains and losses  resulting  from  changes in value of  derivative
instruments  are  deferred  and  recognized  in the same period as the gains and
losses of the items  being  hedged.  Gains and  losses on closed  contracts  are
deferred and  recognized  when the underlying  transaction  occurs or the hedged
item is recognized in earnings.  In the event the hedged item matures,  is sold,
or is terminated or the anticipated  transaction is no longer expected to occur,
the  realized  and  unrealized   gains  and  losses  are  recognized  in  income
coincidental  with the transaction,  and the derivative would be redesignated as
trading.  Gains and losses on contracts  related to debt  principal  and current
interest are recorded in interest  expense;  gains and losses  related to future
period interest,  firm commitments and forecasted  transactions are deferred and
are  recognized  in  the  measurement  of  the  future  period  interest,   firm
commitments  or forecasted  transactions;  and gains or losses on contracts that
hedge the foreign currency exchange rate risk of net investments are recorded in
the Cumulative Foreing Exchange Translation  Adjustment account in Shareholders'
Equity,  net of  related  taxes.  Cash flows from  derivative  instruments  that
qualify for hedge  accounting  are  included in the same  category for cash flow
purposes as the item being hedged.
     For options,  the portion of the premium related to time value is amortized
over  the life of the  option,  and  intrinsic  value is  recognized  in  income
concurrent with the underlying item being hedged. In all portfolios, the options
are carried at fair value with gains and losses recognized in earnings.
FOREIGN CURRENCY TRANSLATION
The functional  currency for most foreign operations is the local currency.  The
cumulative effects of translating the balance sheet accounts from the functional
currency  into the U.S.  dollar at current  exchange  rates are  included in the
Cumulative  Foreign  Exchange  Translation  Adjustment  account in Shareholders'
Equity.  The U.S.  dollar is used as the  functional  currency for operations in
highly  inflationary  foreign  economies,  in Singapore  which is  predominantly
export-oriented  and for  exploration  and  producing  operations  in Indonesia,
Nigeria and  Australia.  For all  operations,  gains or losses from  remeasuring
foreign  currency  transactions  into the  functional  currency  are included in
income.
NET INCOME PER SHARE
Net Income per common share is net income less preferred stock dividends divided
by the weighted  average  number of common  shares  outstanding.  Net Income per
common share assuming  dilution  includes the dilutive  effects of stock options
and convertible preferred stock.

2. ALLIANCES AND RESTRUCTURINGS
ALLIANCE WITH SHELL
In 1997,  Mobil  Exploration  and  Producing  U.S.  Inc., a subsidiary  of Mobil
Corporation,  and CalResources LLC, an affiliate of Shell Oil Company,  formed a
joint venture to combine the California  upstream  operations of both companies.
The combined  enterprise  began operating under the name Aera Energy LLC on June
1, 1997. Aera Energy commenced  operations with proved reserves of more than one
billion barrels of oil equivalent and production of  approximately  250 thousand
barrels of oil  equivalent  per day.  Shell has a 58.6%  equity  interest in the
venture,  with  Mobil  owning  the  remaining  41.4%  interest.  The  venture is
accounted for on the equity method.
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


2. ALLIANCES AND RESTRUCTURINGS (continued)
ALLIANCE WITH BP
During  1997  Mobil  substantially  completed  its  alliance  with  The  British
Petroleum Company p.l.c.  (BP),  combining the two companies'  European refining
and marketing operations for fuels and lubricants.  The alliance was implemented
through  separate  operating  businesses for fuels and for lubricants in each of
the countries  where Mobil and BP affiliates  were already  active or where they
might develop future business.  The 43 countries covered by the alliance include
the 15 European Union nations, together with Switzerland, Turkey, Cyprus, all of
the countries of Eastern Europe and Russia west of the Urals.
     In each country,  Mobil has a 30% interest in the fuels  business and a 51%
interest in the lubricants  business.  Employees and management teams of the two
companies  were  realigned so that BP manages and operates the fuels  businesses
and Mobil  manages  and  operates  the  lubricants  businesses.  Commercial  and
financial  strategy for the alliance is coordinated by a committee with an equal
number of representatives from each company. Accounting for the businesses is on
the equity method.
     The implementation of the alliance will result in work-force  reductions of
about 1,000 Mobil employees, the rationalization of certain marketing assets and
the  closure  of surplus  facilities  when  completed  in 1998.  In 1996,  Mobil
recorded restructuring charges of $184 million primarily for employee separation
costs and facilities closure costs. As of December 31, 1997,  cumulative charges
against  the  reserve  totaled  $137  million   (including  $86  million  cash).
Additionally $81million of one-time charges were incurred in 1997, primarily for
reimaging of retail  outlets and for systems  implementation.  An additional $59
million is expected to be spent in 1998 for reimaging and systems implementation
costs.
     Additionally,  in 1997, the alliance commenced a major restructuring of its
lubricant base oil refining  business.  The program is expected to result in the
elimination  of  approximately  460  positions  and  write-downs  and closure of
certain  facilities  and  is  expected  to be  completed  by the  end  of  1999.
Provisions  for this  program  totaled $86 million and were charged to income in
1997.  Cash outlays are expected to total $66  million,  primarily  for employee
separation  benefits.  Noncash costs for facility  write-downs  and closures are
expected to total $20 million.  
ALLIANCE  WITH DUKE POWER  (formerly  PanEnergy)
Mobil  owns a 40%  interest  in Duke  Energy  Trading  and  Marketing  (formerly
PanEnergy), a natural gas marketing venture whereby Mobil processes its U.S. and
Canadian  equity  natural gas with Duke for an initial  period through 2006. The
venture is accounted for on the equity method.
VENEZUELA ALLIANCE
In 1997,  Mobil entered into a joint agreement with a subsidiary of Petroleos de
Venezuela, SA (PDVSA) and an affiliate of Veba AG to produce, transport, upgrade
and sell  extra-heavy  crude oil from the Orinoco  Belt in  Venezuela  (upgraded
crude oil venture).  Under the terms of the agreement Mobil has a 41.7% interest
in the venture.
CHALMETTE  ALLIANCE  
Mobil  and a U.S.  subsidiary  of PDVSA  signed an  agreement  in 1997 to form a
jointly  owned  company,   Chalmette  Refining,  L.L.C.  Mobil  contributed  its
Chalmette  refinery for its interest in the company.  That company will obtain a
portion of the crude oil it requires for  processing  in its  refinery  from the
Venezuela  Alliance  described  directly above.  Mobil uses the equity method of
accounting for Chalmette Refining, L.L.C.
OTHER RESTRUCTURINGS
In 1997, Mobil initiated restructuring programs in Japan and Australia that will
result in the elimination of approximately 300 and 100 positions,  respectively,
as well as the rationalization of certain assets.  Provisions for these programs
totaled $172  million and were  charged to income in 1997 as the  programs  were
announced.  Cash  outlays  are  expected  to total $81  million,  primarily  for
employee separation  benefits.  Noncash costs for facility closures or disposals
are expected to total $91 million.
     During 1995 and 1996, Mobil implemented five major  restructuring  programs
affecting  worldwide  staff  support  services,  U.S.  upstream  and  downstream
businesses,  and European refining and lubricant blending operations,  resulting
in the  elimination  of  about  7,000  positions  and  the  closure  of  certain
facilities.  Provisions  for these and other  smaller  programs  were charged to
income as they were announced
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


2. ALLIANCES AND RESTRUCTURINGS (concluded)
($911 million in 1995 and $11 million in 1996).  Of these amounts,  $682 million
was cash for  employee  separation  benefits  and $240  million  was noncash for
facilities  write-downs.  These  programs were  implemented  over the past three
years and were complete as of December 31, 1997.

3. ACQUISITIONS AND DISPOSITIONS
In  1997,  Mobil  sold a  substantial  portion  of its  European  Stretch  Films
business,   Desert  Mountain  (the  one  remaining  project  from  Mobil's  land
development   business)  and  various  other  noncore  assets,  mainly  upstream
properties in the U.S. and  Australia.  Total  proceeds from asset sales in 1997
were $1,050 million.
     In 1996, Mobil  Exploration and Producing  Australia Pty Ltd, an Australian
subsidiary of Mobil,  acquired Ampolex Limited (Ampolex),  an Australian oil and
natural gas company, for $1,394 million. This acquisition was recorded using the
purchase  accounting method for business  combinations,  with the purchase price
being allocated to the assets  acquired and liabilities  assumed on the basis of
estimated fair value.
     In 1996,  Mobil acquired a 25% equity interest in a joint venture that owns
the Tengiz oil field in the Republic of Kazakhstan. To date, Mobil has paid $746
million and has recorded its  obligation  for the remaining $355 million that is
payable in  installments,  through the year 2000, upon reaching  certain project
milestones. Accounting for the venture is on the equity method.
     In 1995 and 1996  proceeds  from asset  sales  totaled  $2,034  million and
$1,759 million, respectively. In 1995, Mobil Chemical sold its Plastics Division
for $1.27 billion, generating a gain on sale of assets in excess of $500 million
after tax. In 1996, asset sales included the land development business,  certain
chemical  businesses,  Exploration and Producing properties in North America and
other noncore assets.
     Net pretax  gains from asset sales are  included on the line  "Income  from
asset sales,  interest and other" on the  Consolidated  Statement of Income (see
page 33). These sales are part of Mobil's long-term  strategy of redirecting its
investments to its core petroleum and petrochemicals businesses.

4. INVENTORIES
Inventories  valued at cost  under the LIFO  method  represented  58% and 55% of
Mobil's  worldwide  consolidated  inventories,  at  December  31, 1996 and 1997,
respectively.

--------------------------------------------------------------------------------
INVENTORIES (In millions)
--------------------------------------------------------------------------------
At December 31                                   1996                  1997
--------------------------------------------------------------------------------
Crude oil and petroleum products               $2,314                $1,535
Chemical products                                 260                   253
Other, mainly materials and supplies              443                   368
--------------------------------------------------------------------------------
Total                                          $3,017                $2,156
--------------------------------------------------------------------------------

     At December 31,  1996,  the  worldwide  excess of market over book value of
inventories  valued  under the LIFO method was $1,621  million.  At December 31,
1997, the worldwide excess of market over book value of inventories valued under
the LIFO method was $1,048 million ($936 million--U.S.; $28 million--Europe; $47
million--Asia-Pacific; and $37 million--Other Areas).
     The  lower  of cost  or  market  test is  measured,  and  the  results  are
recognized  separately,   on  a  country-by-country  basis,  and  any  resulting
write-downs to market, if required,  would be recorded as permanent  adjustments
to the LIFO cost of inventories.
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


5. SUMMARY  FINANCIAL  INFORMATION OF UNCONSOLIDATED  EQUITY AFFILIATES  
Summary financial information for affiliated companies accounted for on the 
equity method is shown in the table below. Mobil's investment in these companies
is included in Investments and Long-term Receivables. The equity affiliates are
primarily engaged in producing, refining and marketing in Europe, the Middle
East, Kazakhstan, Japan and elsewhere in the Asia-Pacific region, North American
gas marketing, heavy crude oil production and refining in the U.S. and
petrochemical and lubes manufacturing in the Middle East. Also included are
interests in several pipeline ventures.
     Undistributed  earnings  of the  equity  affiliates  included  in  Earnings
Retained in the Business  were $783 million at December 31, 1997.  Distributions
received from these  companies  were $346 million in 1995,  $432 million in 1996
and $637 million in 1997.
     Accounts and Notes  Receivable  in the  Consolidated  Balance Sheet include
$359 million and $271 million at December  31, 1996 and 1997,  respectively,  of
amounts due from equity  affiliates.  Accounts  Payable include $609 million and
$468  million at  December  31, 1996 and 1997,  respectively,  of amounts due to
equity affiliates.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
EQUITY METHOD AFFILIATES (In millions)  1995           1996                   1997(1)
------------------------------------------------------------------------------------------------
                           Total  Mobil Share      Total  Mobil Share      Total  Mobil Share
------------------------------------------------------------------------------------------------
<S>                      <C>         <C>         <C>         <C>         <C>         <C>
Current assets           $  8,345    $  2,678    $  9,784    $  3,237    $ 16,281    $  5,626
Noncurrent assets          12,220       3,735      16,224       5,260      25,526       9,132
Current liabilities        (8,027)     (2,643)     (9,817)     (3,354)    (15,580)     (5,353)
Long-term debt             (2,520)       (758)     (4,455)     (1,117)     (6,193)     (1,588)
Other liabilities          (2,122)       (595)     (2,064)       (605)     (3,028)       (854)
------------------------------------------------------------------------------------------------
Net assets               $  7,896    $  2,417    $  9,672    $  3,421    $ 17,006    $  6,963
------------------------------------------------------------------------------------------------
Gross revenues           $ 31,324    $  9,835    $ 32,296    $ 10,337    $ 72,725    $ 22,706
Income before taxes      $  1,360    $    466    $  1,307    $    429    $  2,319    $    834
Net income                  1,088         397         969         279       1,782         696
------------------------------------------------------------------------------------------------
Capital expenditures     $  1,650    $    337    $  2,044    $    435    $  3,842    $    988
------------------------------------------------------------------------------------------------
<FN>
(1) The increases in 1997 from 1996 reflect the impact of newly formed alliances.
</FN>
</TABLE>

6. PROPERTIES, PLANTS AND EQUIPMENT
Properties,   plants  and  equipment  are  stated  at  cost,  less   accumulated
depreciation,  depletion  and  amortization  of $27,648  million at December 31,
1996, and $25,074 million at December 31, 1997.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Properties, plants and equipment (In millions)      1996                     1997
-----------------------------------------------------------------------------------------
At December 31                                 Net        Gross         Net       Gross
-----------------------------------------------------------------------------------------
<S>                                        <C>          <C>         <C>         <C>
Petroleum Operations
   Exploration & Producing                 $14,000      $30,472     $13,810     $29,672
   Marketing                                 5,213        8,030       4,155       6,225
   Refining                                  5,251       10,545       3,624       7,764
   Other Marketing & Refining Activities     1,003        2,583         899       2,358
Chemical                                     1,662        2,919       1,740       3,077
Corporate and Other                            350          578         328         534
-----------------------------------------------------------------------------------------
Total                                      $27,479      $55,127     $24,556     $49,630
-----------------------------------------------------------------------------------------
</TABLE>

     In the fourth  quarter of 1995,  Mobil adopted FAS 121,  Accounting for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of,
resulting  in a  before-tax,  $774  million  noncash  charge  to  "Depreciation,
depletion  and  amortization"  on the  Consolidated  Statement  of Income  ($487
million  after tax).  The charge  relates to  impairment  of upstream  producing
properties,  primarily in the U.S. and Canada.  The adoption of FAS 121 required
that the company  change to a policy of: (1)  assessing  all  producing  fields,
without regard to the carrying value of a field, on a field-by-field  basis; (2)
using breakeven, based on undiscounted cash flows, for the recognition test, and
(3) measuring impairment based on fair values rather than undiscounted breakeven
values.
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


7. LEASES
Mobil  leases  real  estate,  service  stations,  pipelines,  tankers  and other
equipment through noncancelable capital and operating leases.

--------------------------------------------------------------------------------
RENTAL EXPENSE (In millions)
--------------------------------------------------------------------------------
Year ended December 31                     1995          1996          1997
--------------------------------------------------------------------------------
Minimum rentals                          $1,195        $1,260        $1,093
Contingent rentals                           97            55            81
--------------------------------------------------------------------------------
Total                                     1,292         1,315         1,174
Less: sublease rental income                187           188           137
--------------------------------------------------------------------------------
Net rental expense                       $1,105        $1,127        $1,037
--------------------------------------------------------------------------------

    Contingent  lease rentals for operating  and capital  leases are  determined
generally by volumetric  measurement  or sales revenue.  Some rental  agreements
contain  escalation  provisions that may require  higher,  future rent payments.
Mobil does not expect  that such rent  increases,  if any,  will have a material
effect on future earnings.

--------------------------------------------------------------------------------
FUTURE MINIMUM LEASE PAYMENTS UNDER NONCANCELABLE LEASES (In millions)
--------------------------------------------------------------------------------
At December 31, 1997           Operating Leases   Capital Lease Obligations
--------------------------------------------------------------------------------
1998                                     $  264                        $ 81
1999                                        200                          82
2000                                        156                          21
2001                                        132                          21
2002                                        122                          21
Later years                               1,365                         290
--------------------------------------------------------------------------------
Future minimum lease payments            $2,239                        $516
Less: executory costs                                                     1
interest                                                                180
--------------------------------------------------------------------------------
Total capital lease obligations                                         335
Less: short-term portion of capital lease obligations                    48
--------------------------------------------------------------------------------
Long-term portion of capital lease obligations                         $287
--------------------------------------------------------------------------------

    Future  minimum  lease  payments  have not been  reduced  by future  minimum
sublease rentals of $63 million under operating leases.  Capital leases included
in Net Properties,  Plants and Equipment were $243 million at December 31, 1996,
and $301 million at December 31, 1997.

8. SHORT-TERM DEBT
At December  31,  1997,  Mobil had $645  million of unused  short-term  lines of
credit  supporting  commercial  paper  borrowing  arrangements.  A total of $369
million of these unused lines is subject to annual commitment fees.  Interest on
borrowings under these lines is based on the London Interbank  Offered Rate, the
Domestic Certificate of Deposit Rate or a specified prime rate, as selected from
time to time by Mobil.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
SHORT-TERM DEBT (In millions)                     1996                        1997
-----------------------------------------------------------------------------------------------
At December 31                            Amount  Interest Rate(1)   AMOUNT  INTEREST RATE(1)
-----------------------------------------------------------------------------------------------
<S>                                       <C>           <C>          <C>          <C>     
Notes and loans payable
  Commercial paper                        $1,634        5 7/8%       $1,097       5 7/8%
  Banks and Other                            894        6 5/8%        1,168       7 1/8%
-----------------------------------------------------------------------------------------------
Total notes and loans payable              2,528                      2,265
Long-term debt maturing within one year      897                        729
Total short-term debt                     $3,425                     $2,994
-----------------------------------------------------------------------------------------------
<FN>
(1) Percentages shown in the table are weighted average interest rates at the end of the year.
</FN>
</TABLE>
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


OUR  DEBT-TO-CAPITALIZATION  
RATIO  OF 25%  PROVIDES 
FINANCIAL  FLEXIBILITY  TO
INCREASE INVESTMENT SPENDING, 
TO INCREASE DIVIDENDS AND/OR TO REPURCHASE STOCK.

9. LONG-TERM DEBT
The table below summarizes  Mobil's  consolidated  Long-term Debt. A significant
portion of this debt is issued by subsidiaries and is guaranteed by Mobil.
    At year-end 1997,  Mobil had shelf  registrations  on file with the SEC that
would  permit  the  offer  and  sale  of  $1,815  million  of  debt  securities.
Additionally,  at December 31, 1997, the ESOP Trust had a shelf  registration on
file  with  the SEC  permitting  the  offer  and  sale of $115  million  of debt
securities,  guaranteed by Mobil.  Subsequent to year-end, the ESOP Trust issued
$45 million principal amount of fixed-rate notes, with the proceeds used to fund
a portion of the  scheduled  principal  and  interest  payments on its  existing
indebtedness.  The proceeds of any additional debt securities issued by the ESOP
Trust  would  similarly  be used to refund its  existing  indebtedness.  Also at
year-end 1997, shelf  registrations  allowing the issuance of U.S. $2 billion of
Euro-Medium-Term  Notes  and  bonds  having a  principal  amount  of 30  billion
Japanese yen were in place.
    Long-term  debt that  becomes  due during the next five years is:  1998-$729
million;  1999-$859 million;  2000-$400 million; 2001-$385 million; and 2002-$98
million.

--------------------------------------------------------------------------------
LONG-TERM DEBT (In millions)
--------------------------------------------------------------------------------
At December 31                                                1996     1997
--------------------------------------------------------------------------------
6 1/2% notes due 1997                                       $  148   $   --   
6 3/8 notes due 1998                                           200      200
7 1/4% notes due 1999(1)                                       162      148(2)
8 5/8% notes due 2006                                          250      250
7 5/8% debentures due 2033(1)                                  240      216(2)
8% debentures due 2032(1)                                      250      164(2)
8 1/8% Canadian dollar Eurobonds due 1998                      111      111
    (swapped into 6.8% U.S. $ debt)
8 3/8% notes due 2001(1)                                       200      180(2)
8 5/8% debentures due 2021(1)                                  250      250
9% Canadian dollar Eurobonds due 1997                          110       --
    (swapped into 7.0% U.S. $ debt)
9% European Currency Unit Eurobonds due 1997                   148       --
    (swapped into 7.0% U.S. $ debt)
9 5/8% U.K. sterling Eurobonds due 1999                        187      182
Variable rate notes due 1999 (6.8%)(3)                         110       --
Japanese yen loans due 2003-2005 (2.6%)(1) (3)                 388      347
ESOP Trust debentures/notes due 2000-2004 (8.3%)(1)(3)         525      497
Variable rate project financing due 1998 (6.6%)(3)             105       52
Industrial revenue bonds due 1998-2030 (5.5%)(1)(3)            491      484
Other foreign currencies due 1997-2030 (5.8%)(1)(3)          1,090      764
Other due 1997-2008 (7.0%)(3)                                  135      219
Capital lease obligations                                      247      335
--------------------------------------------------------------------------------
Total                                                        5,347    4,399
Less: long-term debt maturing within one year                  897      729
--------------------------------------------------------------------------------
Total long-term debt                                        $4,450   $3,670
--------------------------------------------------------------------------------
(1) Swapped principally into floating rate debt.
(2) Net of repurchases.
(3) The  percentages  shown in  parentheses  in the table are  weighted  average
interest rates at December 31, 1997.
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Mobil uses  derivative  financial  instruments  to manage risks  resulting  from
fluctuations in underlying  interest rates,  foreign currency exchange rates and
hydrocarbon  prices.  Because Mobil  operates in the  international  oil and gas
markets and has  significant  financing  requirements,  it has exposure to these
risks,  which  can  affect  the  cost of  operating,  investing  and  financing.
Derivative   instruments   creating  essentially  equal  and  offsetting  market
exposures are used to help manage these risks.  Derivative financial instruments
held by Mobil are not leveraged and are principally held for purposes other than
trading.   For  additional   information   regarding   Mobil's  risk  management
activities, please refer to Management's Discussion and Analysis on page 28.
    The  notional  principal  amounts of  derivative  financial  instruments  at
December 31, are as follows:

At December 31 (In millions)                                   1996        1997
--------------------------------------------------------------------------------
Debt-related instruments                                    $ 4,053      $4,444
Nondebt-related foreign currency exchange rate instruments   10,075       9,706
Commodity financial instruments requiring cash settlement     1,404       2,438
--------------------------------------------------------------------------------

    The fair value of Mobil's debt portfolio was $7,825 million  ($7,784 million
debt plus $41  million  derivatives)  at December  31,  1996 and $6,464  million
($6,524 million debt less $60 million  derivatives) at December 31, 1997.  These
fair values  were  greater  than the  carrying  values by $106  million and $166
million at December  31, 1996 and 1997,  respectively.  This change was due to a
small  decrease  in  long-term  interest  rates.  The fair  value  of all  other
financial instruments approximated their carrying value.
    In addition to creating  market risks that offset the risks  associated with
the underlying  business  exposures,  derivative  instruments  also give rise to
credit risk due to possible nonperformance by counter-parties.  However, through
its ongoing  control  procedures,  Mobil  monitors the  creditworthiness  of its
counter-parties  and  its  existing  exposures  to  them  under  the  derivative
instruments.  Any  potential  loss  due to  credit  risk is not  expected  to be
material.
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


11. TAXES

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

TOTAL TAXES (In millions)                     1995                              1996                            1997
------------------------------------------------------------------------------------------------------------------------------------

Year ended December 31             U.S.     Foreign       Total       U.S.    Foreign     Total       U.S.    FOREIGN         TOTAL
------------------------------------------------------------------------------------------------------------------------------------

<S>                            <C>         <C>         <C>        <C>        <C>       <C>        <C>        <C>           <C>     
Excise and state gasoline      $  3,972    $  4,674    $  8,646   $  4,207   $  5,029  $  9,236   $  4,458   $  1,470      $  5,928
Import duties                      --         9,657       9,657       --        9,130     9,130       --        4,027         4,027
Property, production, payroll
  and other                         427         289         716        385        272       657        347        204           551
------------------------------------------------------------------------------------------------------------------------------------

Total other than income taxes     4,399      14,620      19,019      4,592     14,431    19,023      4,805      5,701(1)     10,506
Income taxes
  U.S. state and local              113        --           113         63       --          63         45       --              45
  U.S. federal and foreign
    -current                        336       1,799       2,135        217      2,421     2,638        208      2,436         2,644
    -deferred                      (140)        (93)       (233)       163        283       446        250        154           404
------------------------------------------------------------------------------------------------------------------------------------

Total income taxes                  309       1,706       2,015        443      2,704     3,147        503      2,590         3,093
Total taxes                    $  4,708    $ 16,326    $ 21,034   $  5,035   $ 17,135  $ 22,170   $  5,308   $  8,291      $ 13,599
------------------------------------------------------------------------------------------------------------------------------------

<FN>
(1) The  change  in 1997  from  1996  primarily  reflects  the  impact of equity accounting for Mobil's European downstream 
    alliance with BP.
</FN>
</TABLE>

Income from U.S.  operations  before  income  taxes was $1,261  million in 1995,
$1,939  million  in 1996  and  $2,187  million  in  1997.  Income  from  foreign
operations  before  income  taxes for the same three  years was $3,594  million,
$4,816  million and $4,872  million,  respectively.  The loss from Corporate and
Financing  before income taxes for the same three years was $464  million,  $644
million and $694 million, respectively.
    Deferred income taxes are provided for the temporary differences between the
financial statement and tax bases of Mobil's assets and liabilities,  and relate
primarily  to  depreciation,  intangible  drilling  costs,  and  provisions  for
restoration,  removal and environmental costs, and employee benefits. Mobil does
not provide  deferred taxes for amounts that could result from the remittance of
undistributed  earnings  of foreign  affiliates  since it is  generally  Mobil's
intention to continue reinvesting these earnings indefinitely.  Mobil's share of
the  undistributed  earnings  of  consolidated  subsidiaries  and equity  method
affiliates,  which could be subject to additional income taxes if remitted,  was
approximately  $3.6 billion at December 31, 1997. If such  dividends  were to be
remitted,  foreign  tax credits  available  under  present law would  reduce the
amount of U.S. taxes payable.

--------------------------------------------------------------------------------
DEFERRED TAXES (In millions)
--------------------------------------------------------------------------------
At December 31                                   1996                  1997
--------------------------------------------------------------------------------
Deferred tax liabilities
  Depreciation, depletion and amortization     $4,034                $3,946
  Other                                         1,287                 1,337
--------------------------------------------------------------------------------
Total deferred tax liabilities                  5,321                 5,283
--------------------------------------------------------------------------------
Deferred tax assets
  Book reserves                                 1,442                 1,544
  Tax credits available for carry-forward 
    (primarily without expiration)                827                   693
--------------------------------------------------------------------------------
Total deferred tax assets                       2,269                 2,237
Valuation allowance                              (418)                 (627)
Net deferred tax liabilities                   $3,470                $3,673
--------------------------------------------------------------------------------
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


11. TAXES (concluded)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
RECONCILIATION OF U.S. STATUTORY
  RATE TO ACTUAL TAX RATE (In millions)  1995                1996               1997
--------------------------------------------------------------------------------------------
Year ended December 31          Amount          %   Amount          %   Amount          %
--------------------------------------------------------------------------------------------
<S>                            <C>          <C>    <C>          <C>    <C>          <C>  
Income before taxes            $ 4,391      100.0  $ 6,111      100.0  $ 6,365      100.0
Theoretical tax at U.S. rate     1,537       35.0    2,139       35.0    2,228       35.0
Foreign taxes in excess of
  U.S. statutory rate              611       13.9    1,108       18.1    1,151       18.1
Other items, net                  (133)      (3.0)    (100)      (1.6)    (286)      (4.5)
--------------------------------------------------------------------------------------------
Total income taxes             $ 2,015       45.9  $ 3,147       51.5  $ 3,093       48.6
--------------------------------------------------------------------------------------------
</TABLE>

12. RESTORATION, REMOVAL AND ENVIRONMENTAL LIABILITIES
Exploration  and  producing  properties  must  generally  be  restored  to their
original  condition when the oil or gas reserves are depleted and/or  operations
cease.   At  December  31,  1996  and  1997,  $864  million  and  $780  million,
respectively, had been accrued for restoration and removal costs, mainly related
to offshore  producing  facilities.  The decrease in 1997 from 1996 reflects the
impact of equity accounting for the heavy-oil  alliance with Shell in the United
States.
    Mobil  accrues for its best  estimate of the future  costs  associated  with
known environmental remediation requirements at its service stations,  marketing
terminals,  refineries and plants,  and at certain  Superfund sites. At December
31, 1996 and 1997, the accumulated  reserve for environmental  remediation costs
was $460 million and $372 million,  respectively.  Of these amounts, $84 million
and $80 million were included in current accrued liabilities in the Consolidated
Balance Sheet.  Amounts  accrued with respect to Superfund  waste disposal sites
are  based  on the  company's  best  estimate  of its  portion  of the  costs of
remediating such sites. These amounts are not material.

13. FOREIGN CURRENCY
Foreign  exchange  transaction  gains of $7 million  in 1995,  and losses of $21
million in 1996 and $52 million in 1997, have been included in income.
         The effect of foreign  currency  translation  on Mobil's  balance sheet
accounts is shown below.

--------------------------------------------------------------------------------
CUMULATIVE FOREIGN EXCHANGE TRANSLATION ADJUSTMENT (In millions)
--------------------------------------------------------------------------------
At December 31                                 1995       1996        1997
--------------------------------------------------------------------------------
Properties, plants and equipment, net         $(124)    $  (27)    $  (940)
Deferred income taxes                          (252)      (256)       (103)
Working capital, debt and other items, net      349        210         222
--------------------------------------------------------------------------------
Total                                         $ (27)    $  (73)    $  (821)(1)
--------------------------------------------------------------------------------
(1)  The  change  in 1997 from  1996  reflects  the  strengthening  U.S.  dollar
     relative to local currencies in certain countries, including several in the
     Asia-Pacific region, in which the company has significant operations.

14. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
Mobil  Oil's  Employees  Savings  Plan  includes  an  ESOP  covering  most  U.S.
employees. In 1989 the ESOP Trust borrowed $800 million and used the proceeds to
buy shares of Series B ESOP Convertible  Preferred  Stock.  Each preferred share
has a liquidation  value of $3,887.50,  is convertible into 100 shares of common
stock  and is  entitled  to 100  votes.  Dividends  on the  preferred  stock are
cumulative and payable at an annual rate of $300 per share.  The ESOP Trust uses
the  preferred  dividends  not  allocated  to employees  to make  principal  and
interest payments on the notes. As debt service exceeds the dividends,  Mobil is
required  to fund the  excess.  In 1995,  1996 and  1997,  this  excess  was $50
million,  $47  million  and  $21  million,  respectively.  The  guaranteed  ESOP
borrowing is included in Mobil's debt. The future  compensation  to be earned by
employees is classified in Shareholders'  Equity.  These amounts are reduced and
expense is  recognized as the debt is repaid and shares are earned by employees.
In 1995,  1996 and 1997,  total  ESOP-related  expenses  were $54  million,  $49
million and $24 million,  respectively.  Interest incurred on ESOP debt in 1995,
1996 and 1997 was $54 million, $48 million and $43 million, respectively.  Share
and per-share amounts reflect the two-for-one stock split in 1997.
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


15. EMPLOYEE BENEFITS
Employee  benefits  that  Mobil  provides  in  the  U.S.  are  contributory  and
noncontributory  medical and dental plans,  pension plans, group life insurance,
savings plans, an employee stock ownership plan,  disability  plans for sickness
and accidents,  and termination  plans.  Mobil's  international  affiliates also
provide  various  pension  and  other  employee   benefit  plans.   Mobil  makes
contributions to funded plans and provides book reserves for unfunded plans.
    Mobil also provides  certain  postretirement  health care and life insurance
benefits for most U.S.  retirees,  if they are working for the company when they
become eligible for retirement. Premium costs are shared on a plan-by-plan basis
between  Mobil and the  participants.  Postretirement  health care  benefits are
provided  both before and after  eligibility  for Medicare.  The life  insurance
plans provide for a single  lump-sum  payment to a designated  beneficiary.  The
amount of the lump-sum  payment  varies  depending on employment  date,  age and
years since  retirement.  There is no material  obligation  for Mobil to provide
postretirement  benefits  for  international  retirees  because they are covered
primarily by local government programs.
    The charge to Mobil's  income for U.S.  postretirement  health care and life
insurance  plans was $60 million in 1995, $64 million in 1996 and $63 million in
1997.
     The components of Mobil's net postretirement benefit expense for U.S. plans
and the status of Mobil's  U.S.  postretirement  benefit  plans and the  amounts
recognized in the Consolidated Balance Sheet are detailed below:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
POSTRETIREMENT BENEFIT EXPENSE, EXCLUDING PENSIONS (In millions)      Health Care           Life Insurance
---------------------------------------------------------------------------------------------------------------
Year ended December 31                                            1995    1996    1997    1995   1996   1997
---------------------------------------------------------------------------------------------------------------
<S>                                                               <C>     <C>     <C>     <C>    <C>    <C> 
Benefits earned by employees during the year                      $  8    $ 10    $  8    $  1   $  2   $  1
Interest cost on accumulated postretirement benefit obligations     28      27      31      28     26     24
Amortization of unrecognized amounts                                (5)     (1)     (1)     --     --     --
---------------------------------------------------------------------------------------------------------------
Net postretirement benefit expense                                $ 31    $ 36    $ 38    $ 29   $ 28   $ 25
---------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
STATUS OF POSTRETIREMENT BENEFIT PLANS (In millions)    Health Care        Life Insurance
------------------------------------------------------------------------------------------
At December 31                                         1996     1997       1996    1997
------------------------------------------------------------------------------------------
<S>                                                    <C>      <C>        <C>     <C> 
Actuarial present value of accumulated
 postretirement benefit obligations
  Retirees                                             $315     $328       $302    $317
  Other fully eligible plan participants                 37       46         34      38
  Other active plan participants                         96       89         18      16
------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligations          $448    $463       $354    $371
------------------------------------------------------------------------------------------
Book reserves                                           $457    $464       $359    $363
Book reserves greater (less) than
 accumulated postretirement benefit obligations         $  9    $  1       $  5    $ (8)
------------------------------------------------------------------------------------------
Consisting of:
  Unrecognized prior service costs                      $ 10    $  2       $ --    $ --
  Unrecognized net (loss) gain                            (1)     (1)         5      (8)
------------------------------------------------------------------------------------------
</TABLE>

   At  December  31,  1997,  the health  care cost trend used to  calculate  the
accumulated  postretirement  benefit obligations is 8.0% for 1998 and is assumed
to decrease  gradually  over 7 years to 5.0%.  At December 31, 1996,  the health
care cost trend rate was  assumed to be 9.1% for 1997,  declining  gradually  to
5.5% after 8 years. A 1% increase in the assumed health care cost trend rate for
each year would  increase the 1997 net  postretirement  benefit  expense and the
accumulated  postretirement  benefit  obligation  as of December  31,  1997,  by
approximately $5 million and $47 million, respectively.
   The discount rate used in determining the  postretirement  benefit obligation
was 7.25% in 1996 and 7.0% in 1997.
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


15. EMPLOYEE BENEFITS (concluded)
    The   majority  of   full-time   U.S.   employees   are  covered  by  funded
noncontributory  pension  plans.  These plans are  primarily  final  average pay
plans.  Mobil's  funding for these plans is based on the  projected  unit credit
actuarial cost method.
    Mobil's  international  employees are covered by pension and similar  plans.
Coverage and benefits vary from country to country.  Mobil's funding policy also
varies, in line with local commercial, actuarial and taxation practices.
    The worldwide charge to Mobil's income for pension plans was $192 million in
1995, $208 million in 1996 and $150 million in 1997.
    The  components  of net pension  expense for Mobil's plans and the status of
Mobil's  pension plans and the amounts  recognized in the  Consolidated  Balance
Sheet are detailed below:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
PENSION EXPENSE (In millions)                           U.S. Plans            International Plans
-----------------------------------------------------------------------------------------------------
Year ended December 31                            1995     1996     1997     1995     1996     1997
-----------------------------------------------------------------------------------------------------
<S>                                              <C>      <C>      <C>      <C>      <C>      <C>  
Benefits earned by employees during the year     $  76    $  92    $  72    $  85    $  84    $  85
Interest cost on projected benefit obligations     190      185      181      125      128      119
Actual earnings on assets                         (638)    (334)    (451)    (143)    (101)    (147)
Deferral of actual earnings on assets
   greater than expected returns                   418       94      213       68       24       69
Amortization of unrecognized amounts               (10)     (16)     (14)      21       52       23
-----------------------------------------------------------------------------------------------------
Net pension expense                              $  36    $  21    $   1    $ 156    $ 187    $ 149
-----------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
STATUS OF PENSION PLANS (In millions)                                                    U.S. Plans        International Plans
------------------------------------------------------------------------------------------------------------------------------
At December 31                                                                        1996       1997       1996       1997
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>        <C>        <C>        <C>    
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS
  Vested                                                                           $ 2,026    $ 2,192    $ 1,679    $ 1,658
  Non-vested                                                                           146        119        129        104
------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations                                                      2,172      2,311      1,808      1,762
Additional amounts related to projected pay increases                                  398        440        438        355
------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations                                                      $ 2,570    $ 2,751    $ 2,246    $ 2,117
------------------------------------------------------------------------------------------------------------------------------
ASSETS AND BOOK RESERVES
  Plan assets at fair value, primarily in equity
    and fixed income securities                                                    $ 2,750    $ 3,007    $ 1,145    $ 1,158
  Book reserves                                                                        136        146      1,060        996
------------------------------------------------------------------------------------------------------------------------------
Total assets and book reserves                                                     $ 2,886    $ 3,153    $ 2,205    $ 2,154
------------------------------------------------------------------------------------------------------------------------------
ASSETS AND BOOK RESERVES GREATER (LESS)
  THAN PROJECTED BENEFIT OBLIGATIONS                                               $   316    $   402    $   (41)   $    37
------------------------------------------------------------------------------------------------------------------------------
Consisting of:
  Unrecognized net asset (liability) at date of
    initial application of FAS 87                                                  $   150    $   120    $   (26)   $   (18)
  Unrecognized prior service cost                                                     (178)      (183)       (27)       (21)
  Unrecognized net gain (loss)                                                         192        282       (213)      (137)
  Minimum liability and pre-funded expenses                                            152        183        225        213
------------------------------------------------------------------------------------------------------------------------------
Assets and book reserves greater (less) than
  projected benefit obligations                                                    $   316    $   402    $   (41)   $    37
------------------------------------------------------------------------------------------------------------------------------
WEIGHTED  AVERAGE RATES USED IN DETERMINING  THE ACTUARIAL  PRESENT VALUE OF THE
  PROJECTED BENEFIT OBLIGATIONS (percent)
  Discount rate                                                                       7.25       7.00        6.9        6.5
  Rate of increase in future compensation levels                                      4.00       4.00        5.3        5.1
EXPECTED LONG-TERM RATE OF RETURN ON PLAN ASSETS
  USED IN DETERMINING CURRENT YEAR EXPENSE (percent)                                  9.00       9.00        8.4        8.2
------------------------------------------------------------------------------------------------------------------------------
Memo: assets and book reserves greater than
  accumulated benefit obligations                                                  $   714    $   842    $   397    $   392
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

PENSION PLAN ASSETS 
AND BOOK RESERVES EXCEEDED  
ACCUMULATED  BENEFIT OBLIGATIONS
BY $1,234 MILLION AT THE END OF 1997.
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


16. STOCK-BASED COMPENSATION PLANS (1)
Under the 1995 Mobil Incentive  Compensation and Stock Ownership Plan (the Plan)
approved by  shareholders,  options may be granted to key  employees to purchase
annually a maximum of 0.9% of the total common shares  outstanding at the end of
the year preceding each year of its five-year life (less the number of shares of
restricted  stock granted and the number of equivalent  share units  allotted as
long-term  incentive awards under the Plan),  cumulative from the effective date
of the Plan. No additional  options may be granted  under earlier  plans.  Stock
options have a maximum term of 10 years,  are granted at 100% of the fair market
value of Mobil  common  stock at the time of the award,  and may be exercised to
purchase  stock after vesting  requirements  have been met.  Stock  appreciation
rights (SARs),  where applicable,  permit the holder to receive stock, cash or a
combination  thereof  equal to the amount by which the fair market  value at the
time of relinquishment of the option exceeds the option price.
    Based on the  December 31, 1997,  number of shares  outstanding,  there were
13,739,652  shares or share units  available  for option grants and other awards
referred to above in 1998.  Based on the  December  31,  1996,  number of shares
outstanding,  there were  11,228,348  shares or share units available for option
grants and other awards referred to above in 1997.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
STOCK OPTION TRANSACTIONS                                1986 Plan                 1991 Plan                 1995 Plan
-----------------------------------------------------------------------------------------------------------------------------
                                                      Shares Weighted           Shares Weighted           Shares Weighted
                                                              Average                   Average                   Average
                                                                Price                     Price                     Price
-----------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>        <C>            <C>         <C>           <C>      
January 1, 1995-shares under option           8,953,932     $   26.44  17,720,712     $   35.05
-----------------------------------------------------------------------------------------------------------------------------
Changes during 1995
  Options granted                                                                                 5,368,700         43.67
  Options expired or canceled                                             (52,462)        42.84     (25,800)        43.66
  Options exercised                          (2,001,782)        24.52  (1,068,540)        32.63      (2,440)        43.66
  SARs exercised                               (243,498)        28.48    (218,888)        31.44
-----------------------------------------------------------------------------------------------------------------------------
December 31, 1995-shares under option         6,708,652     $   26.94  16,380,822     $   35.23   5,340,460     $   43.68
Changes during 1996
  Options granted                                                                                 4,475,700         57.50
  Options expired or canceled                    (1,000)        14.39     (44,700)        43.03    (103,500)        51.79
  Options exercised                          (1,793,004)        24.68  (1,431,478)        34.10    (117,820)        43.66
  SARs exercised                                (82,888)        31.32     (56,892)        31.03
-----------------------------------------------------------------------------------------------------------------------------
December 31, 1996-shares under option         4,831,760     $   27.71  14,847,752     $   35.34   9,594,840     $   50.04
Changes during 1997
  Options granted                                                                                 4,679,600         61.83
  Options expired or canceled                                             (34,500)        43.03    (270,200)        58.33
  Options exercised                          (1,555,129)        26.51  (1,579,144)        34.21    (180,148)        46.27
  SARs exercised                                (16,752)        30.78     (97,836)        30.88
-----------------------------------------------------------------------------------------------------------------------------
December 31, 1997-shares under option         3,259,879     $   28.26  13,136,272     $   35.48  13,824,092     $   53.91
  Weighted average contractual life (years)        1.62                      5.05                      7.97
  Range of exercise price                    $22.09-32.13              $30.72-43.03              $43.66-73.16
-----------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1995      6,708,652     $   26.94  13,034,700     $   33.48     368,560     $   43.66
-----------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1996      4,831,760     $   27.71  12,884,752     $   34.16   1,219,540     $   44.37
-----------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1997      3,259,879     $   28.26  13,136,272     $   35.48   2,034,292     $   47.63
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Share  amounts  for all years have been restated to reflect the two-for-one stock split in 1997.
</FN>
</TABLE>

    If  compensation  expense  had been  recorded  using  the fair  value of the
options at the date of grant,  net income would have been reduced by $9 million,
$19 million and $29 million in 1995, 1996 and 1997, respectively.
<PAGE>
 
NOTES
    TO FINANCIAL STATEMENTS


17. CAPITAL STOCK
     At December 31, 1997,  1,200,000,000 shares of $1.00 par value common stock
were authorized and 894,308,872 shares were issued, including 110,945,100 shares
held in the treasury.
    At December 31, 1997,  30,000,000  shares of $1.00 par value preferred stock
were  authorized,  of which  6,000,000  shares of Series A Junior  Participating
Preferred Stock were authorized for issuance upon exercise of certain  preferred
stock purchase  rights (no shares issued or  outstanding)  and 191,062 shares of
Series B ESOP  Convertible  Preferred  Stock were  authorized  for issuance.  At
December 31, 1996 and 1997, respectively, 176,336 and 171,093 shares of Series B
ESOP Convertible  Preferred Stock were outstanding.  During 1996 and 1997, 9,392
and 5,243 of such shares, respectively, were redeemed.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
CHANGES IN SHARES OF COMMON STOCK OUTSTANDING
-------------------------------------------------------------------------------------------------------
Year ended December 31                                            1995            1996            1997
-------------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>             <C>        
Common shares outstanding- beginning of year               791,974,034     789,119,762     787,588,910
Purchase of common stock for treasury                       (5,992,700)     (4,795,400)     (7,458,400)
Exercise of stock options and stock appreciation rights      3,109,890       3,199,632       3,177,748
Incentive compensation awards and restricted stock              28,538          64,916          55,514
-------------------------------------------------------------------------------------------------------
Common shares outstanding- end of year                     789,119,762     787,588,910     783,363,772
-------------------------------------------------------------------------------------------------------
</TABLE>

    At the company's  annual  meeting on May 8, 1997,  shareholders  approved an
increase  in  the  authorized   shares  of  common  stock  from  600,000,000  to
1,200,000,000  and approved a two-for-one  stock split of the  Company's  issued
common  stock,  with a record  date of May 20,  1997.  In  addition,  a  special
distribution of Series B ESOP Convertible Preferred Stock was made, doubling the
number  of  shares  of  that  stock  outstanding,  and  the  liquidation  value,
conversion  price and  dividend  rate of each  share were  halved. All share and
per-share amounts for common stock and Series B ESOP Convertible Preferred Stock
have been restated to reflect the stock split.

18. COMMITMENTS AND CONTINGENT LIABILITIES
Substantial  commitments  are made in the  normal  course  of  business  for the
purchase  of  crude  oil  and  petroleum   products,   and  the  acquisition  or
construction  of properties,  plants and equipment  (including  tankers for time
charter to Mobil).
    Mobil has guaranteed  $150 million of the  obligations of others,  excluding
$432 million of certain cross-guarantees, primarily foreign customs duties, made
with other responsible  companies in the ordinary course of business.  Mobil has
also  indirectly  guaranteed  repayment  of  approximately  $500 million of debt
issued by  companies  in which  Mobil  has an  interest  in the  event  projects
financed with that debt are not completed as specified in the project completion
guarantee agreements.  In addition, Mobil has guaranteed specified revenues from
crude oil,  product and carbon dioxide  shipments under agreements with pipeline
companies in which it holds stock  interests.  If these  companies are unable to
meet certain obligations,  Mobil may be required to advance funds against future
transportation charges. No material loss is anticipated under these guarantees.
    Mobil and its  subsidiaries  are engaged in various  litigations  and have a
number of unresolved  claims pending.  The amounts claimed are substantial,  and
the  ultimate  liability  in respect of such  litigations  and claims  cannot be
determined  at this time.  Mobil has  provided in its  accounts  for these items
based  on  management's  best  judgment.  Mobil  is of  the  opinion  that  such
liability, to the extent not provided for through insurance or otherwise, is not
likely to be of material importance in relation to its accounts.
<PAGE>
 
REPORTS


REPORT OF MANAGEMENT
The management of Mobil  Corporation  has the  responsibility  for preparing the
accompanying  financial statements and for their integrity and objectivity.  The
statements,  which include amounts that are based, in part, on management's best
estimates and judgments,  were prepared in conformity  with  generally  accepted
accounting principles.
    Mobil  maintains a system of internal  accounting  controls and a program of
internal  auditing that we believe  provide us with  reasonable  assurance  that
Mobil's  assets  are  protected  and that  published  financial  statements  are
reliable and free of material misstatement.
    The Audit Committee of the Board of Directors,  composed solely of directors
who are not  officers or  employees,  meets  regularly  with  Mobil's  financial
management and counsel,  with Mobil's General Auditor,  and with the independent
auditors.  These meetings include discussion of internal accounting controls and
the quality of financial  reporting.  The  independent  auditors and the General
Auditor have free and  independent  access to the Audit Committee to discuss the
results of their  audits or any other  matters  relating  to  Mobil's  financial
affairs.
    The  accompanying  consolidated  financial  statements  have been audited by
Ernst & Young LLP, independent  auditors,  whose appointment was approved by the
shareholders. Ernst & Young's audit report follows.


/S/LUCIO A. NOTO                                  /S/THOMAS C. DELOACH, JR.
   LUCIO A. NOTO                                     THOMAS C. DELOACH, JR.
   Chairman and Chief Executive Officer              Senior Vice President and
                                                     Chief Financial Officer


REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
MOBIL CORPORATION
We  have  audited  the  accompanying   consolidated   balance  sheets  of  Mobil
Corporation  as of  December  31, 1996 and 1997,  and the  related  consolidated
statements of income,  changes in shareholders'  equity, and cash flows for each
of the three years in the period ended December 31, 1997, appearing on pages 33,
35, and 37 through 53. These financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.
    We conducted  our audits in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
    In our opinion,  the financial  statements referred to above present fairly,
in  all  material  respects,   the  consolidated  financial  position  of  Mobil
Corporation at December 31, 1996 and 1997, and the  consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1997, in conformity with generally accepted accounting principles.
    As  discussed  in  Note  6 to  the  financial  statements,  in  1995,  Mobil
Corporation  changed its method of accounting  for the  impairment of long-lived
assets.


/S/ERNST & YOUNG L.L.P.
Fairfax, Virginia
February 27, 1998
<PAGE>
 
SUPPLEMENTARY
    INFORMATION


OIL AND GAS PRODUCING ACTIVITIES (unaudited)
THE ACCOMPANYING  TABLES SET FORTH  INFORMATION  CONCERNING  MOBIL'S OIL AND GAS
PRODUCING ACTIVITIES AT DECEMBER 31, 1995, 1996 AND 1997, AND FOR THE YEARS THEN
ENDED, AS REQUIRED BY FINANCIAL  ACCOUNTING STANDARD (FAS) 69, DISCLOSURES ABOUT
OIL AND GAS PRODUCING ACTIVITIES.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

TABLE 1: ESTIMATED QUANTITIES OF NET PROVED OIL AND NATURAL GAS LIQUIDS RESERVES (Millions of barrels)
------------------------------------------------------------------------------------------------------------------------------------

                                             Consolidated Companies                         Equity Companies(1)         Worldwide
                                   ---------------------------------------------     ---------------------------------  ------------

                                                      Asia-     Other                                   Asia-    Other
                                   U.S.    Europe   Pacific     Areas     Total      U.S.    Europe   Pacific    Areas  
------------------------------------------------------------------------------------------------------------------------------------

<S>                               <C>         <C>       <C>     <C>       <C>        <C>         <C>      <C>    <C>        <C>  
RESERVES AT JANUARY 1, 1995       1,052       401       175     1,291     2,919        --         2        7       516      3,444
  Revisions                          (9)      (13)      (37)      105        46        --        --        1        (4)        43
  Improved recovery                  32        20        --        21        73        --        --       --        --         73
  Purchases                          11        24        --         2        37        --        --       --        --         37
  Sales                              (6)       --        --        (4)      (10)       --        --       (7)       --        (17)
  Extensions, discoveries
    and other additions               9         5        --        89       103        --        --       --        32        135
  Production                       (103)      (64)      (35)      (78)     (280)       --        --       (1)      (15)      (296)
------------------------------------------------------------------------------------------------------------------------------------

RESERVES AT DECEMBER 31, 1995       986       373       103     1,426     2,888        --         2        --      529      3,419
  Revisions                          (8)        7         5        69        73        --        --       --         9         82
  Improved recovery                  40         9        --        49        98        --        --       --        --         98
  Purchases                           4        --        54        10        68        --        --       --       336(2)     404
  Sales                             (36)       (6)       --       (31)      (73)       --        --       --        --        (73)
  Extensions, discoveries
    and other additions              12        40        --       113       165        --        --       --        --        165
  Production                        (96)      (57)      (39)      (98)     (290)       --        --       --       (23)      (313)
------------------------------------------------------------------------------------------------------------------------------------

RESERVES AT DECEMBER 31, 1996       902       366       123     1,538     2,929        --         2       --       851      3,782
  Aera joint venture (3)           (314)       --        --        --      (314)      417        --       --        --        103
  Revisions                         (56)       19        30         4        (3)       --        --       --       190        187
  Improved recovery                  92        10        --         4       106        --        --       --        --        106
  Purchases                           1        16        --         1        18        --        --       --        --         18
  Sales                             (20)       (5)       (9)       (3)      (37)       --        --       --        (5)       (42)
  Extensions, discoveries
    and other additions               2        19        --       235       256        --        --       --        34        290
  Production                        (68)      (57)      (36)     (127)     (288)      (21)       --       --       (30)      (339)
------------------------------------------------------------------------------------------------------------------------------------

RESERVES AT DECEMBER 31, 1997       539       368       108     1,652     2,667       396         2        --    1,040      4,105
------------------------------------------------------------------------------------------------------------------------------------

Developed Reserves
   At January 1, 1995               826       215       165       809     2,015        --         2        6       493      2,516
   At December 31, 1995             816       184        93       910     2,003        --         2       --       474      2,479
   At December 31, 1996             759       204        91       967     2,021        --         1       --       666      2,688
   At December 31, 1997             509       180        80     1,035     1,804       268         1       --       633      2,706
------------------------------------------------------------------------------------------------------------------------------------

<FN>
(1)  Amounts  shown for equity  companies  represent  Mobil's share of investees accounted for on the equity method.
(2) Acquisition of a 25% interest in a joint venture that owns the Tengiz field in the  Republic of  Kazakhstan. 
(3) In June 1997,  Mobil  commenced  operations of its  California  heavy-oil alliance with Shell,  which  resulted  in an increase
    in proved  reserves  and a reduction  in nonproved reserves.
</FN>
</TABLE>

Mobil's  estimated net proved  reserves and changes  thereto for the years 1995,
1996 and 1997 are  presented  in Tables 1 and 2. The  estimates  represent  only
those  volumes  considered  to be  proved  reserves  and  include  fields  where
additional investment may be required to recover these reserves.
    Definitions  used in developing  these data are in  accordance  with the SEC
guidelines,  which  state:  "Proved  oil and  gas  reserves  are  the  estimated
quantities of crude oil,  natural gas and natural gas liquids  which  geological
and engineering data demonstrate with reasonable  certainty to be recoverable in
future  years  from known  reservoirs  under  existing  economic  and  operating
conditions,  i.e., prices and costs as of the date the estimate is made." Proved
developed  reserves are recoverable from existing wells with existing  equipment
and operating  methods.  These reserve  estimates are subject to revisions  over
time as more  information  becomes  available.  In the past, some revisions have
been  significant.  The  company's  net proved  reserves  exclude  royalties and
interests  owned by others,  and  natural  gas liquids  volumes  received  under
natural gas processing contracts.
<PAGE>
 
SUPPLEMENTARY
    INFORMATION


OIL AND GAS PRODUCING ACTIVITIES (unaudited) (continued)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

TABLE 2: ESTIMATED QUANTITIES OF NET PROVED NATURAL GAS RESERVES (Billions of cubic feet)
------------------------------------------------------------------------------------------------------------------------------------

                                             Consolidated Companies                         Equity Companies(1)         Worldwide
                                   ---------------------------------------------     ---------------------------------  ------------

                                                     Asia-     Other                                   Asia-     Other
                                U.S.     Europe    Pacific      Areas    Total      U.S.    Europe   Pacific     Areas  
------------------------------------------------------------------------------------------------------------------------------------

<S>                            <C>        <C>        <C>        <C>     <C>          <C>        <C>     <C>     <C>        <C>   
RESERVES AT JANUARY 1, 1995    5,055      4,251      5,607      1,744   16,657        --        33       94        891     17,675
  Revisions                      317        110       (198)        50      279        --         4       --         --        283
  Improved recovery               51         18         --         61      130        --        --       --         --        130
  Purchases                       42         15         --          1       58        --        --       --         --         58
  Sales                          (52)       (42)        --        (19)    (113)       --        --      (88)        --       (201)
  Extensions, discoveries
    and other additions          173        237         54        105      569        --         2       --      1,114      1,685
  Production                    (525)      (401)      (567)      (158)  (1,651)       --        (5)      (6)        --     (1,662)
------------------------------------------------------------------------------------------------------------------------------------

RESERVES AT DECEMBER 31, 1995  5,061      4,188      4,896      1,784   15,929        --        34       --      2,005     17,968
  Revisions                      (43)       (15)      (338)       (42)    (438)       --         3       --        (36)      (471)
  Improved recovery               20         10         --         19       49        --        --       --         --         49
  Purchases                        6         --         92        368      466        --        --       --        467(2)     933
  Sales                         (173)        --         --       (182)    (355)       --        --       --         --       (355)
  Extensions, discoveries
    and other additions           16        452         --        190      658        --         2       --         --        660
  Production                    (488)      (434)      (579)      (163)  (1,664)       --        (5)      --        (10)    (1,679)
------------------------------------------------------------------------------------------------------------------------------------

RESERVES AT DECEMBER 31, 1996  4,399      4,201      4,071      1,974   14,645        --        34       --      2,426     17,105
  Aera joint venture (3)         (34)        --         --         --      (34)      146        --       --         --        112
  Revisions                     (114)       276       (281)        58      (61)       --         3       --        278        220
  Improved recovery               25         13         --         51       89        --        --       --         --         89
  Purchases                        1         67         --         --       68        --        --       --         --         68
  Sales                          (95)        (1)      (119)       (25)    (240)       --        --       --       (126)      (366)
  Extensions, discoveries
    and other additions           26        159         --        250      435        --         2       --        954      1,391
  Production                    (416)      (450)      (583)      (173)  (1,622)       (7)       (5)      --        (29)    (1,663)
------------------------------------------------------------------------------------------------------------------------------------

RESERVES AT DECEMBER 31, 1997  3,792      4,265      3,088      2,135   13,280       139        34       --      3,503     16,956
------------------------------------------------------------------------------------------------------------------------------------

Developed Reserves
   At January 1, 1995          3,902      3,081      3,810      1,223   12,016        --        31       92         --     12,139
   At December 31, 1995        3,923      3,094      3,018      1,212   11,247        --        32       --         --     11,279
   At December 31, 1996        3,826      2,907      2,175      1,138   10,046        --        32       --        856     10,934
   At December 31, 1997        3,368      2,699      1,838      1,273    9,178        77        33       --        834     10,122
------------------------------------------------------------------------------------------------------------------------------------

<FN>
(1) Amounts  shown for equity  companies  represent  Mobil's  share of investees accounted for on the equity method. 
(2) Acquisition of a 25% interest in a joint venture that owns the Tengiz field in the  Republic of  Kazakhstan. 
(3) In June 1997,  Mobil  commenced  operations of its  California  heavy-oil  alliance with Shell, which  resulted  in an increase
    in proved  reserves  and a reduction  in nonproved reserves.
</FN>
</TABLE>


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
TABLE 3: CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES (In millions)
------------------------------------------------------------------------------------------------------------------------------
                                       United States                         Europe                    Asia-Pacific       
At December 31                     1995      1996      1997         1995      1996      1997      1995      1996      1997
------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>       <C>       <C>          <C>       <C>       <C>       <C>       <C>       <C>    
Capitalized costs:
  Unproved properties           $   212   $   197   $   233      $    11   $    58   $    11   $    13   $   273   $   307
  Proved properties, wells,
   plants and other equipment    13,638    12,535    10,642        7,119     7,639     7,596     2,149     3,854     3,873
------------------------------------------------------------------------------------------------------------------------------
Total capitalized costs          13,850    12,732    10,875        7,130     7,697     7,607     2,162     4,127     4,180
Accumulated depreciation,
  depletion and amortization      9,181     8,623     7,640        4,123     4,593     4,536     1,457     1,742     2,021
------------------------------------------------------------------------------------------------------------------------------
Net capitalized costs             4,669     4,109     3,235        3,007     3,104     3,071       705     2,385     2,159
Net capitalized costs of
  equity companies(1)                --        --       656(2)        37        34        29         1         1        --
------------------------------------------------------------------------------------------------------------------------------
Total                           $ 4,669   $ 4,109   $ 3,891      $ 3,044   $ 3,138   $ 3,100   $   706   $ 2,386   $ 2,159
------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents Mobil's share of net capitalized costs of investees accounted for on the equity method.
(2) Reflects the impact of the California heavy-oil alliance with Shell.
</FN>
</TABLE>


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
TABLE 3: CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES (In millions) (continued)
-----------------------------------------------------------------------------------------------------
                                         Other Areas                      Total
At December 31                     1995      1996      1997      1995      1996      1997
-----------------------------------------------------------------------------------------------------
<S>                             <C>       <C>       <C>       <C>       <C>       <C>    
Capitalized costs:
  Unproved properties           $   137   $   324   $   328   $   373   $   852   $   879
  Proved properties, wells,
   plants and other equipment     4,533     5,592     6,682    27,439    29,620    28,793
-----------------------------------------------------------------------------------------------------
Total capitalized costs           4,670     5,916     7,010    27,812    30,472    29,672
Accumulated depreciation,
  depletion and amortization      1,599     1,514     1,665    16,360    16,472    15,862
-----------------------------------------------------------------------------------------------------
Net capitalized costs             3,071     4,402     5,345    11,452    14,000    13,810
Net capitalized costs of
  equity companies(1)               269     1,558     2,136       307     1,593     2,821
-----------------------------------------------------------------------------------------------------
Total                           $ 3,340   $ 5,960   $ 7,481   $11,759   $15,593   $16,631
-----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
 
SUPPLEMENTARY
    INFORMATION


OIL AND GAS PRODUCING ACTIVITIES (unaudited) (continued)
Table 3 (page 56) summarizes the aggregate  amount of capitalized  costs related
to oil  and gas  producing  activities  and  related  accumulated  depreciation,
depletion  and  amortization  at December 31, 1995,  1996 and 1997.  Capitalized
costs  include:  (1) mineral  interests  in  properties;  (2) wells,  plants and
related equipment and facilities;  and (3) support equipment and facilities used
in oil and gas producing activities.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
TABLE 4: COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES (In millions)
----------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Equity
                                                               Consolidated Companies                Companies(1)  Worldwide
                                                 --------------------------------------------------  ------------  ---------------
                                                                        Asia-      Other
                                                   U.S.     Europe    Pacific      Areas      Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>        <C>        <C>        <C>        <C>        <C>        <C>   
YEAR ENDED DECEMBER 31, 1995
Property Acquisition Costs:
  Unproved properties                            $   28     $   --     $   --     $   34     $   62     $   --     $   62
  Proved properties                                   9          4         --         16         29         --         29
----------------------------------------------------------------------------------------------------------------------------------
  Total capitalized costs                            37          4         --         50         91         --         91
  Exploration costs                                 183        177         72        193        625         11        636
  Development costs                                 593        421         78        833      1,925        116      2,041
----------------------------------------------------------------------------------------------------------------------------------
  Total expenditures                             $  813     $  602     $  150     $1,076     $2,641     $  127     $2,768
----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
Property acquisition costs:(2)
  Unproved properties                            $    8     $   46     $  260     $  122     $  436     $  611     $1,047
  Proved properties                                  57         --      1,455        388      1,900        490      2,390
----------------------------------------------------------------------------------------------------------------------------------
  Total capitalized costs                            65         46      1,715        510      2,336      1,101      3,437
  Exploration costs                                 122        192         79        215        608          6        614
  Development costs                                 417        398        273        981      2,069        209      2,278
----------------------------------------------------------------------------------------------------------------------------------
  Total expenditures                             $  604     $  636     $2,067     $1,706     $5,013     $1,316     $6,329
----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
Property acquisition costs:
  Unproved properties                            $   50     $   --     $    6     $   71     $  127     $    5     $  132
  Proved properties                                   5         55          7         52        119          2        121
----------------------------------------------------------------------------------------------------------------------------------
  Total capitalized costs                            55         55         13        123        246          7        253
  Exploration costs                                 111        180         94        251        636          1        637
  Development costs                                 335        547        374      1,095      2,351        478      2,829
----------------------------------------------------------------------------------------------------------------------------------
  Total expenditures                             $  501     $  782     $  481     $1,469     $3,233     $  486     $3,719
----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents  Mobil's share of costs  incurred for companies  accounted for on the  equity  method.  Prior year data  restated  
    to conform  with  current  year presentation.  
(2)  Primarily  as a result of recording  deferred  taxes of $506 million,  the total costs allocated  to property  for the Ampolex
     acquisition exceeded the net purchase price by $690 million ($607 million-Asia-Pacific; and $83 million-Other Areas).
</FN>
</TABLE>

The table  above  sets  forth  certain  costs  incurred,  both  capitalized  and
expensed,  in oil and  gas  producing  activities.  Property  acquisition  costs
represent   costs  incurred  to  purchase  or  lease  oil  and  gas  properties.
Exploration  costs include costs of geological  and  geophysical  activities and
drilling of exploratory wells. Expenditures to drill and equip development wells
and construct production facilities to extract,  treat and store oil and gas are
included in development  costs.  Exploration and development  costs also include
depreciation of support equipment and facilities used in these activities rather
than the acquisition costs for support equipment.
<PAGE>
 
SUPPLEMENTARY
    INFORMATION


OIL AND GAS PRODUCING ACTIVITIES (unaudited)  (continued)


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

TABLE 5: RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES (In millions)(1)
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                                 Equity
                                                                     Consolidated Companies                   Companies(2) Worldwide

                                                          --------------------------------------------------- ------------ ---------

                                                                                  Asia-      Other
                                                             U.S.     Europe    Pacific      Areas      Total
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                       <C>        <C>        <C>        <C>        <C>        <C>        <C>    
YEAR ENDED DECEMBER 31, 1995
Revenues:
  Trade sales                                             $   678    $ 1,357    $ 1,429    $   411    $ 3,875    $    41    $ 3,916
  Intercompany sales                                        1,330        815        339      1,022      3,506        168      3,674
------------------------------------------------------------------------------------------------------------------------------------

  Total revenues(3)                                         2,008      2,172      1,768      1,433      7,381        209      7,590
  Production (lifting) costs                                 (982)      (719)      (239)      (619)    (2,559)       (30)    (2,589)

  Exploration expenses                                        (72)      (128)       (77)      (150)      (427)        (9)      (436)

  Depreciation, depletion and amortization                 (1,161)      (466)      (205)      (398)    (2,230)       (10)    (2,240)

  Other operating revenues and (expenses)                      32        123         (8)       (76)        71         17         88
  Income tax expense(4)                                        68       (551)      (717)      (212)    (1,412)      (156)    (1,568)

------------------------------------------------------------------------------------------------------------------------------------

  Results of operations for producing activities          $  (107)   $   431    $   522    $   (22)   $   824    $    21    $   845
------------------------------------------------------------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 1996
Revenues:
  Trade sales                                             $ 1,027    $ 1,535    $ 1,811    $   464    $ 4,837    $   145    $ 4,982
  Intercompany sales                                        1,458        841        369      1,727      4,395        201      4,596
------------------------------------------------------------------------------------------------------------------------------------

  Total revenues(3)                                         2,485      2,376      2,180      2,191      9,232        346      9,578
  Production (lifting) costs                                 (937)      (734)      (288)      (702)    (2,661)       (49)    (2,710)

  Exploration expenses                                        (76)      (158)      (156)      (122)      (512)        (6)      (518)

  Depreciation, depletion and amortization                   (638)      (471)      (305)      (182)    (1,596)       (16)    (1,612)

  Other operating revenues and (expenses)                     263         96          6          4        369        (21)       348
  Income tax expense(4)                                      (367)      (638)      (878)      (897)    (2,780)      (197)    (2,977)

------------------------------------------------------------------------------------------------------------------------------------

  Results of operations for producing activities          $   730    $   471    $   559    $   292    $ 2,052    $    57    $ 2,109
------------------------------------------------------------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 1997
Revenues:
  Trade sales                                             $   977    $ 1,628    $ 1,641    $   500    $ 4,746    $   332    $ 5,078
  Intercompany sales                                        1,049        647        470      2,022      4,188        529      4,717
------------------------------------------------------------------------------------------------------------------------------------

  Total revenues(3)                                         2,026      2,275      2,111      2,522      8,934        861      9,795
  Production (lifting) costs                                 (736)      (669)      (288)      (837)    (2,530)      (223)    (2,753)

  Exploration expenses                                        (76)      (135)       (85)      (203)      (499)        (2)      (501)

  Depreciation, depletion and amortization                   (441)      (444)      (333)      (339)    (1,557)       (97)    (1,654)

  Other operating revenues and (expenses)                     104        132         26        (42)       220       (116)       104
  Income tax expense(4)                                      (299)      (620)      (822)      (826)    (2,567)      (212)    (2,779)

------------------------------------------------------------------------------------------------------------------------------------

  Results of operations for producing activities          $   578    $   539    $   609    $   275    $ 2,001    $   211    $ 2,212
------------------------------------------------------------------------------------------------------------------------------------

<FN>
(1) Prior year data reclassified to conform with current year presentation.  
(2) Represents  Mobil's share of results of operations  for producing  activities of investees  accounted for on the equity  method.

(3) Revenues in this table will not agree  with  Exploration  &  Producing  Segment  Revenues  (pages 22 and 38) because  revenues
    from  operations  that are ancillary to oil and gas producing activities  have been  classified as Other  Operating  Revenues 
    and Expenses for this  presentation.  
(4) Includes for equity companies, Mobil's income taxes on its share of results of operations.
</FN>
</TABLE>


Mobil's  results of  operations  for  producing  activities  for the years ended
December 31, 1995,  1996 and 1997,  are shown above.  Revenues  include sales to
unaffiliated  parties and sales or transfers  (essentially at third-party  sales
prices) to Mobil's other operations. All revenues reported in this table are net
of royalty  interests  of others.  Production  (lifting)  costs and  exploration
expenses are determined as defined by accounting standards.
<PAGE>
 
SUPPLEMENTARY
    INFORMATION


OIL AND GAS PRODUCING ACTIVITIES (unaudited)  (concluded)

FAS 69  requires  disclosure  with  respect to future net cash flows from future
production  of net  proved,  developed  and  undeveloped  reserves.  Future cash
inflows are computed by applying  year-end prices to estimated future production
of net proved  reserves.  Future price changes are considered only to the extent
they are covered by contractual agreements in existence at year-end. Development
and  production  costs  are  based on  year-end  estimated  future  expenditures
incurred in developing and producing net proved reserves,  assuming continuation
of existing  economic  conditions.  Future  income  taxes are  calculated  using
year-end  statutory  tax rates.  Discounted  future net cash flows are  computed
using a discount factor of 10%.
    The  standardized  measure data are not  intended to replace the  historical
cost-based financial data included in the audited financial statements. As such,
many of the data disclosed in this section represent estimates,  assumptions and
computations  that are subject to continual  change as the future  unfolds.  For
example,  a significant  decrease in year-end crude oil prices from 1996 to 1997
contributed  to the  lower  discounted  future  net cash flow  amount  for 1997.
Accordingly,  Mobil  cautions  investors  and  analysts  that  the  data  are of
questionable utility for decision making.
    Tables 6 and 7 below set forth the standardized measure of discounted future
net cash flows relating to proved oil and gas reserves,  and quantify the causes
of the changes in the  standardized  measure of the cash flows relating to those
reserves.  Since the  estimates  reflect  proved  reserves  only,  they  exclude
revenues that could result from unproved  reserves that could become  productive
in later years.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
TABLE 6: STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES (In millions)
---------------------------------------------------------------------------------------------------------------------------
                                       United States                                Europe              
At December 31                1995         1996         1997            1995         1996         1997 
---------------------------------------------------------------------------------------------------------------------------
<S>                      <C>          <C>          <C>             <C>          <C>          <C>       
Future cash inflows      $  23,763    $  33,036    $  16,598       $  16,064    $  19,869    $  17,963 
Future production
  costs                     (9,312)      (8,125)      (6,261)         (4,822)      (4,374)      (4,859)
Future development
  costs                     (1,644)      (1,200)        (527)         (1,203)      (1,202)      (1,285)
Future income
  tax expenses              (3,928)      (7,968)      (3,121)         (5,156)      (7,830)      (6,025)
---------------------------------------------------------------------------------------------------------------------------
Future net cash flows        8,879       15,743        6,689           4,883        6,463        5,794 
10% annual discount
  for estimated timing
  of cash flows             (3,928)      (6,919)      (2,897)         (1,534)      (2,091)      (2,078)
---------------------------------------------------------------------------------------------------------------------------
Standardized measure
  of discounted future
  net cash flows             4,951        8,824        3,792           3,349        4,372        3,716 
---------------------------------------------------------------------------------------------------------------------------
Standardized measure
  of discounted future
  net cash flows of
  equity companies(1)           --           --        1,055(2)           23           35           28 
---------------------------------------------------------------------------------------------------------------------------
Total                    $   4,951    $   8,824    $   4,847       $   3,372    $   4,407    $   3,744 
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

TABLE 6: STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES (In millions) (continued)
------------------------------------------------------------------------------------------------------------------------------------

                                       Asia-Pacific                       Other Areas                            Total

At December 31                1995        1996        1997        1995        1996        1997       1995         1996        1997
------------------------------------------------------------------------------------------------------------------------------------

<S>                      <C>         <C>         <C>         <C>         <C>         <C>        <C>          <C>         <C>      
Future cash inflows      $  11,565   $  14,416   $   9,728   $  24,543   $  39,107   $  29,776  $  75,935    $ 106,428   $  74,065
Future production
  costs                     (2,026)     (2,196)     (1,895)     (8,589)     (9,952)     (8,715)   (24,749)     (24,647)    (21,730)
Future development
  costs                       (764)     (1,030)       (700)     (1,866)     (5,006)     (3,639)    (5,477)      (8,438)     (6,151)
Future income
  tax expenses              (3,951)     (4,599)     (2,766)     (9,344)    (15,536)     (9,701)   (22,379)     (35,933)    (21,613)
------------------------------------------------------------------------------------------------------------------------------------

Future net cash flows        4,824       6,591       4,367       4,744       8,613       7,721     23,330       37,410      24,571
10% annual discount
  for estimated timing
  of cash flows             (2,017)     (2,578)     (1,498)     (2,252)     (3,834)     (2,944)    (9,731)     (15,422)     (9,417)
------------------------------------------------------------------------------------------------------------------------------------

Standardized measure
  of discounted future
  net cash flows             2,807       4,013       2,869       2,492       4,779       4,777     13,599       21,988      15,154
------------------------------------------------------------------------------------------------------------------------------------

Standardized measure
  of discounted future
  net cash flows of
  equity companies(1)           --          --          --         460       1,845       1,585        483        1,880       2,668
------------------------------------------------------------------------------------------------------------------------------------

Total                    $   2,807   $   4,013   $   2,869   $   2,952   $   6,624   $   6,362  $  14,082    $  23,868   $  17,822
------------------------------------------------------------------------------------------------------------------------------------

<FN>
(1) Represents Mobil's share of standardized measure of discounted future net cash flows of investees accounted for on the equity
    method.  
(2) Reflects the impact of the California heavy-oil alliance with Shell.
</FN>
</TABLE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
TABLE 7: CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (In millions)
--------------------------------------------------------------------------------------------------------------------
Year ended December 31                                                                1995        1996        1997
--------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>         <C>         <C>     
Beginning of year                                                                 $ 13,371    $ 14,082    $ 23,868
Changes resulting from:
  Sales and transfers of production, net of production costs                        (4,822)     (6,571)     (6,404)
  Net changes in prices and in development and production costs                        862      15,191     (16,579)
    Extensions, discoveries, additions and purchases, less related costs             1,078       2,577       1,533
  Development costs incurred during the period                                       1,925       2,069       2,351
  Revisions of previous quantity estimates                                             731         633         672
  Accretion of discount                                                              2,406       2,625       4,277
  Net change in income taxes                                                        (1,477)     (8,135)      8,095
  Other                                                                                  8       1,397           9
--------------------------------------------------------------------------------------------------------------------
End of year                                                                       $ 14,082    $ 23,868    $ 17,822
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
 
SUPPLEMENTARY
    INFORMATION


<TABLE>
<CAPTION>
FIVE-YEAR OPERATING HIGHLIGHTS (unaudited)

                                                                       1993    1994    1995    1996    1997
-------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>     <C>     <C>     <C>     <C>  
NET PRODUCTION OF LIQUIDS (thousands of barrels daily) (1)
Consolidated companies
  United States                                                         305     300     282     262     186
  International
    Australia                                                            --      23      20      29      39
    Canada                                                               58      57      53      50      49
    Equatorial Guinea                                                    --      --      --       8      37
    Indonesia                                                            90      77      77      66      46
    Nigeria                                                             169     175     157     209     253
    Norway                                                               95      95      91      83      79
    Papua New Guinea                                                     --      --      --      11      12
    United Kingdom                                                       58      70      75      65      75
    Other countries                                                       9      10      10       9      13
-------------------------------------------------------------------------------------------------------------
  Total International                                                   479     507     483     530     603
-------------------------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED COMPANIES                                            784     807     765     792     789
-------------------------------------------------------------------------------------------------------------
Mobil's Share of Production of Equity Companies (2)
  U.S. (Aera)                                                            --      --      --      --      58
  Abu Dhabi                                                              44      43      41      42      42
  Kazakhstan                                                             --      --      --      18      36
  Other                                                                  10       4       4       2       2
-------------------------------------------------------------------------------------------------------------
  Total equity companies                                                 54      47      45      62     138
-------------------------------------------------------------------------------------------------------------
WORLDWIDE LIQUIDS PRODUCTION                                            838     854     810     854     927
-------------------------------------------------------------------------------------------------------------
NET PRODUCTION OF NATURAL GAS (millions of cubic feet daily)
Consolidated companies
  United States                                                       1,529   1,568   1,439   1,333   1,141
  International
    Argentina                                                            --      --      --      30      77
    Australia                                                            --      10      12      25      25
    Canada                                                              492     461     432     416     397
    Germany                                                             362     368     404     463     455
    Indonesia                                                         1,658   1,654   1,542   1,556   1,571
    Netherlands                                                          84      61      66      53      60
    Norway                                                               51      49      51      53      50
    United Kingdom                                                      390     470     577     618     668
-------------------------------------------------------------------------------------------------------------
  Total International                                                 3,037   3,073   3,084   3,214   3,303
-------------------------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED COMPANIES                                          4,566   4,641   4,523   4,547   4,444
-------------------------------------------------------------------------------------------------------------
Mobil's Share of Production of Equity Companies  (2)
  U.S. (Aera)                                                            --      --      --      --      20
  Austria                                                                13      12      13      12      13
  Indonesia                                                              31      17      18      --      --
  Kazakhstan                                                             --      --      --      24      35
  Qatar                                                                  --      --      --       4      44
-------------------------------------------------------------------------------------------------------------
  Total Equity Companies                                                 44      29      31      40     112
-------------------------------------------------------------------------------------------------------------
WORLDWIDE NATURAL GAS PRODUCTION                                      4,610   4,670   4,554   4,587   4,556
-------------------------------------------------------------------------------------------------------------
  Barrels of oil equivalent ( thousands of barrels daily)(3)            837     847     826     831     826
-------------------------------------------------------------------------------------------------------------
Total Production ( thousands of barrels daily of oil equivalent)(3)   1,675   1,701   1,636   1,685   1,753
-------------------------------------------------------------------------------------------------------------
<FN>
See footnotes on page 61.
</FN>
</TABLE>

[Bar Chart - Page 60]

NET PRODUCTION
(Thousands of barrels daily of oil
equivalent)
             Equity Companies, International & U.S.
97                           1,753
96                           1,685
95                           1,636
94                           1,701
93                           1,675

E&P'S WORLDWIDE PRODUCTION  
INCREASED 4% IN 1997,  
ON TRACK WITH ITS LONG-TERM GOAL.
<PAGE>
 
SUPPLEMENTARY
    INFORMATION


<TABLE>
<CAPTION>
FIVE-YEAR OPERATING HIGHLIGHTS (unaudited)

                                                              1993      1994      1995      1996      1997
------------------------------------------------------------------------------------------------------------
<S>                                                         <C>       <C>       <C>       <C>       <C>   
NET RESERVES OF LIQUIDS (millions of barrels) (1)
Consolidated companies
  United States                                              1,116     1,052       986       902       539
  Europe                                                       357       401       373       366       368
  Asia-Pacific                                                 204       175       103       123       108
  Other Areas                                                1,132     1,291     1,426     1,538     1,652
------------------------------------------------------------------------------------------------------------
  Total Consolidated Companies                               2,809     2,919     2,888     2,929     2,667
------------------------------------------------------------------------------------------------------------
  Mobil's share of reserves of equity companies (2)            534       525       531       853     1,438
------------------------------------------------------------------------------------------------------------
WORLDWIDE RESERVES OF LIQUIDS                                3,343     3,444     3,419     3,782     4,105
------------------------------------------------------------------------------------------------------------
NET RESERVES OF NATURAL GAS (billions of cubic feet)
Consolidated companies
  United States                                              5,372     5,055     5,061     4,399     3,792
  Europe                                                     4,021     4,251     4,188     4,201     4,265
  Asia-Pacific                                               6,058     5,607     4,896     4,071     3,088
  Other Areas                                                1,508     1,744     1,784     1,974     2,135
------------------------------------------------------------------------------------------------------------
  Total Consolidated Companies                              16,959    16,657    15,929    14,645    13,280
------------------------------------------------------------------------------------------------------------
  Mobil's share of reserves of equity companies (2)            724     1,018     2,039     2,460     3,676
------------------------------------------------------------------------------------------------------------
WORLDWIDE RESERVES OF NATURAL GAS                           17,683    17,675    17,968    17,105    16,956
------------------------------------------------------------------------------------------------------------
  Barrels of oil equivalent (millions of barrels)(3)         3,212     3,204     3,261     3,099     3,072
------------------------------------------------------------------------------------------------------------
TOTAL RESERVES (millions of barrels of oil equivalent)(3)    6,555     6,648     6,680     6,881     7,177
------------------------------------------------------------------------------------------------------------
RESERVES REPLACEMENT PERCENTAGE(3) (4)                          91%      115%      105%      133%      146%
------------------------------------------------------------------------------------------------------------
AVERAGE U.S. SALES PRICE/TRANSFER VALUE(5)
  Crude Oil (per barrel)                                    $13.54    $12.91    $14.52    $17.40    $17.27(6)
  NGL (per barrel)                                           11.25     10.37      9.94     13.16     11.96
  Natural Gas (per thousand cubic feet)                       2.01      1.72      1.41      2.17      2.38
------------------------------------------------------------------------------------------------------------
AVERAGE INTERNATIONAL SALES PRICE/
  TRANSFER VALUE(5)
  Crude Oil (per barrel)                                    $16.99    $15.66    $16.94    $20.81    $18.94
  Natural Gas (per thousand cubic feet)                       2.62      2.44      2.47      2.66      2.72
------------------------------------------------------------------------------------------------------------
<FN>
(1)  Crude oil and natural gas liquids (NGL).
(2)  Represents Mobil's share of investees accounted for on the equity method.
(3)  Natural gas volumes have been converted to oil equivalent  barrels on a BTU
     basis with  5,506,  5,516,  5,510,  5,519,  and 5,519 cubic feet of gas per
     barrel in 1993, 1994, 1995, 1996 and 1997, respectively.
(4)  Reserves   replacement   percentage  is  calculated  by  dividing  the  net
     adjustments  to  reserves  for the year plus the annual  production  by the
     annual production.
(5)  Transfer values are essentially equal to third-party sales.
(6)  Excludes  the  impact of heavy  crudes  from June 1997  forward  due to the
     implementation of the California  heavy-oil alliance with Shell.  Excluding
     heavy crudes,  prices in 1993,  1994,  1995,  1996 and 1997 would have been
     $14.84,  $13.86,  $15.27,  $18.54  and  $17.61  per  barrel,  respectively.
     Alternatively,  the inclusion of California  heavy crudes for the full-year
     1997 would have realized a price of $16.59 per barrel.
</FN>
</TABLE>

[Bar Chart - Page 61]

TOTAL PRODUCTION VS.
RESERVE ADDITIONS
(Millions of barrels of oil equivalent)
                Total           Reserve
             Production        Additions
97               640              936
96               617              818
95               597              629
94               621              714
93               611              558

IN 1997, MOBIL'S WORLDWIDE 
PRODUCTION WAS UP 4% AND NET 
RESERVES REPLACEMENT WAS 146% OF PRODUCTION.
<PAGE>
 
SUPPLEMENTARY
    INFORMATION


<TABLE>
<CAPTION>
FIVE-YEAR OPERATING HIGHLIGHTS (unaudited) (concluded)

                                                             1993           1994           1995           1996           1997
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                       <C>            <C>            <C>            <C>            <C>    
PETROLEUM PRODUCT SALES(1) (thousands of barrels daily)
  United States                                             1,080          1,172          1,286          1,362          1,435
  Europe(2)                                                   810            810            807            804            679
  Asia-Pacific(3)                                             730            777            799            800            815
  Other Areas                                                 314            316            330            379            414
------------------------------------------------------------------------------------------------------------------------------------

  Worldwide                                                 2,934          3,075          3,222          3,345          3,343
------------------------------------------------------------------------------------------------------------------------------------

PETROLEUM PRODUCT SALES(1) (millions of dollars)
  United States                                           $10,181        $10,492        $11,904        $14,254        $14,848
  Europe                                                   14,555         14,395         15,421         17,008          2,900
  Asia-Pacific(3)                                          10,619         11,466         12,426         13,258         12,802
  Other Areas                                               3,382          3,707          3,974          4,708          5,412
------------------------------------------------------------------------------------------------------------------------------------

  Worldwide                                               $38,737        $40,060        $43,725        $49,228        $35,962
------------------------------------------------------------------------------------------------------------------------------------

AVERAGE UNITED STATES PRODUCT PRICE (per gallon)(4)          61.5(cent)     58.4(cent)     60.4(cent)     68.1(cent)     67.5(cent)
------------------------------------------------------------------------------------------------------------------------------------

REFINERY RUNS (thousands of barrels daily)
  United States                                               836            857            895            921            956
  Europe(2)                                                   466            440            420            333            371
  Asia-Pacific(5)                                             607            622            657            705            678
  Other Areas                                                 163            163            149            183            186
------------------------------------------------------------------------------------------------------------------------------------

  Worldwide Runs for Mobil                                  2,072          2,082          2,121          2,142          2,191
------------------------------------------------------------------------------------------------------------------------------------

CHEMICAL SALES BY PRODUCT CATEGORY (millions of dollars)
  Petrochemicals                                          $ 1,608        $ 2,088        $ 2,914        $ 1,876        $ 2,151
  Films Products                                              580            653            764            766            707
    Chemical Products                                          81            101            115            126            136
    Plastics/Other                                          1,139          1,193          1,155             78             --
------------------------------------------------------------------------------------------------------------------------------------

  Net sales to trade                                      $ 3,408        $ 4,035        $ 4,948        $ 2,846        $ 2,994
------------------------------------------------------------------------------------------------------------------------------------

NUMBER OF EMPLOYEES (year-end)
  Petroleum Operations-United States                       21,600         20,300         18,400         13,200         13,200
                      -International                       25,200         25,200         24,300         20,000         19,500
  Chemical            -United States                        9,700          8,100          3,500          2,500          2,600
                      -International                        2,100          1,800          1,600          1,600          1,300
  Other               -United States                        2,800          2,700          2,200          4,400(6)       4,700
                      -International                          500            400            400          1,300(6)       1,400
------------------------------------------------------------------------------------------------------------------------------------

  Total                                                    61,900         58,500         50,400         43,000         42,700
------------------------------------------------------------------------------------------------------------------------------------

<FN>
(1) Includes supply/other product sales 
(2) Includes Mobil's share of the downstream alliance with BP that commenced in late 1996.
    Full-year 1996 sales volumes have been restated.
(3) Includes primarily Australia, China, Hong Kong, Japan, Malaysia, New Zealand and Singapore.
(4) Represents the average amount Mobil charges dealers, service stations, etc. for petroleum products, including gasoline.
    Excise taxes and other items  included in the "pump" price  consumers  pay for gasoline are not reflected in this amount.
(5) Includes Australia, Japan, New Zealand and Singapore.
(6) In 1996, Mobil reorganized its staff support groups, now shown in Other.
</FN>
</TABLE>

Mobil markets  autogasoline  through over 15,000 Mobil-branded retail outlets in
over 50 countries.  Mobil's  primary  product  supply comes from 25  refineries.
Petroleum  product sales  (including  supply and other sales) have increased 14%
based on daily volume since 1993.
    Mobil  operates 29 chemical  facilities in 11 countries,  and chemical sales
extend to more than 100 countries.  Mobil is a 50% partner in a complex in Saudi
Arabia that produces polyethylene and ethylene glycol.

[Bar Charts - Page 62]

REFINERY RUNS VS.
PETROLEUM PRODUCT SALES
(Thousands of barrels daily)
                 Petroleum              Refinery
              Product Sales          Runs by Mobil
97                3,343                   2,191
96                3,345                   2,142
95                3,222                   2,121
94                3,075                   2,082
93                2,934                   2,072

REFINERY RUNS INCREASED IN 1997,
REFLECTING IMPROVED OPERATING PERFORMANCE,
WHILE PRODUCT SALES WERE ABOUT EQUAL TO 1996.


NUMBER OF EMPLOYEES
(At year-end)
                  Petroleum Operations
                    Chemical & Other
97                      42,700
96                      43,000
95                      50,400
94                      58,500
93                      61,900

REDUCTIONS IN THE NUMBER OF 
EMPLOYEES DUE TO ALLIANCES AND 
OTHER INITIATIVES WERE PARTLY OFFSET 
BY INCREASES RELATED TO NEW BUSINESS DEVELOPMENT.
<PAGE>
 
SUPPLEMENTARY
    INFORMATION


<TABLE>
<CAPTION>
FIVE-YEAR FINANCIAL SUMMARY

(In millions, except for per-share amounts)                         1993          1994             1995          1996         1997
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                            <C>           <C>              <C>           <C>          <C>      
REVENUES                                                       $  63,975     $  67,383        $  75,370     $  81,503    $  65,906
------------------------------------------------------------------------------------------------------------------------------------

SEGMENT EARNINGS:
Petroleum Operations
  Exploration & Producing -United States                       $     363     $     125        $    (107)    $     737          697
                          -International                           1,289           951              952         1,372        1,515
------------------------------------------------------------------------------------------------------------------------------------

  Total Exploration & Producing                                    1,652         1,076              845         2,109        2,212
------------------------------------------------------------------------------------------------------------------------------------

  Marketing & Refining    -United States                             151           241              226           407          542
                          -International                             554           647              447           506          483
------------------------------------------------------------------------------------------------------------------------------------

  Total Marketing & Refining                                         705           888              673           913        1,025
------------------------------------------------------------------------------------------------------------------------------------

Total Petroleum Operations                                         2,357         1,964            1,518         3,022        3,237
Chemical                                                              44           102            1,164           306          403
------------------------------------------------------------------------------------------------------------------------------------

Segment Earnings                                                   2,401         2,066            2,682         3,328        3,640
Corporate and Financing                                             (317)         (307)            (306)         (364)        (368)
------------------------------------------------------------------------------------------------------------------------------------

Income Before Change in Accounting Principle                       2,084         1,759            2,376         2,964        3,272
Cumulative Effect of Change in Accounting Principle                   --          (680)(1)           --            --           --
------------------------------------------------------------------------------------------------------------------------------------

NET INCOME                                                     $   2,084     $   1,079        $   2,376     $   2,964    $   3,272
------------------------------------------------------------------------------------------------------------------------------------

PER COMMON SHARE(2)
  Income Before Change in Accounting Principle                 $    2.54        $    2.14     $    2.93     $    3.69    $    4.10
  Net Income                                                   $    2.54        $    1.28     $    2.93     $    3.69    $    4.10
PER COMMON SHARE-ASSUMING DILUTION(2)
  Income Before Change in Accounting Principle                 $    2.53        $    2.12     $    2.88     $    3.62    $    4.01
  Net income                                                   $    2.53        $    1.29     $    2.88     $    3.62    $    4.01
NET INCOME AS PERCENT OF
  Average shareholders' equity                                      12.3%            10.4%(3)      13.5%         16.0%        17.0%
  Average capital employed(4)                                        9.7%             8.4%(3)      10.9%         12.7%        13.4%
  Revenues                                                           3.3%             2.6%(3)       3.2%          3.6%         5.0%
------------------------------------------------------------------------------------------------------------------------------------

INVESTMENT SPENDING                                            $   3,687     $   3,927        $   4,525     $   7,019    $   5,306
------------------------------------------------------------------------------------------------------------------------------------

BALANCE SHEET POSITION AT YEAR-END
  Current assets                                               $  11,217     $  11,181        $  12,056     $  12,895    $   9,722
  Net properties, plants and equipment                            25,037        25,503           24,850        27,479       24,556
  Total assets                                                    40,733        41,542           42,138        46,408       43,559
  Current liabilities                                             12,351        13,418           13,054        15,248       12,421
  Long-term debt                                                   5,027         4,714            4,629         4,450        3,670
  Shareholders' equity                                            17,237        17,146           17,951        19,072       19,461
      Per common share(2)(5)                                   $   21.37     $   21.30        $   22.35     $   23.81    $   24.41
------------------------------------------------------------------------------------------------------------------------------------

DEBT-TO-CAPITALIZATION RATIO(6)                                       32%           31%              27%           29%          25%
------------------------------------------------------------------------------------------------------------------------------------

AVERAGE COMMON SHARES OUTSTANDING (thousands of shares)(2)       798,308       795,910          790,888       788,292      786,294
AVERAGE COMMON SHARES OUTSTANDING--
  ASSUMING DILUTION (thousands of shares)(2)                     822,922       820,902          817,705       815,748      815,057
------------------------------------------------------------------------------------------------------------------------------------

COMMON SHARES OUTSTANDING (thousands of shares, year-end)(2)     796,336       791,974          789,120       787,589      783,364
SHAREHOLDERS OF COMMON STOCK (year-end)                          200,100       193,900          188,800       185,600      186,200
COMMON STOCK DIVIDENDS                                         $   1,298     $   1,353        $   1,434     $   1,547    $   1,667
  As percent of net income less preferred dividends                   64%           80%(3)           62%           53%          52%
  Per share(2)                                                 $    1.63     $    1.70        $    1.81     $    1.96    $    2.12
------------------------------------------------------------------------------------------------------------------------------------

YEAR-END MARKET PRICE PER COMMON SHARE(2)                      $39 9/16      $42 1/8          $55 7/8       $61 1/8      $72 3/16
------------------------------------------------------------------------------------------------------------------------------------

<FN>
(1) Accounting change: LCM in 1994.
(2) Shares  Outstanding  and  per-share  amounts  for  all  years  reflect  the two-for-one stock split in 1997.
(3) Excludes cumulative effect of change in LCM policy in 1994 ($680 million).
(4) Net income plus income applicable to minority interests plus interest expense, net of tax, divided by the sum of average
    shareholders' equity, minority interests and debt. 
(5) Shareholders' equity less the effect of the ESOP-related accounts (preferred stock and unearned  employee compensation),
    divided by the number of common shares outstanding at year-end.
(6) Total debt divided by the sum of total debt, shareholders' equity and minority interests.
</FN>
</TABLE>

[Bar Charts - Page 63]

YEAR-END MARKET PRICE PER COMMON SHARE*
(Dollars)
97              72.19
95              55.88
93              39.56
91              33.94
89              31.31
87              19.56

*Share prices reflect the two-for-one stock split in 1997.

OVER THE PAST 10 YEARS,  
MOBIL'S STOCK PRICE HAS 
INCREASED AT AN ANNUALIZED RATE OF 14%.


DEBT-TO-CAPITALIZATION RATIO
(In percent)
97              25
95              27
93              32
91              32
89              30
87              37


MOBIL'S DEBT-TO-CAPITALIZATION 
RATIO DECLINED TO  25% IN 1997, 
PROVIDING FLEXIBILITY TO INVEST 
IN GROWTH  OPPORTUNITIES, TO 
INCREASE DIVIDENDS AND/OR TO REPURCHASE STOCK.
<PAGE>
 
SHAREHOLDER
      INFORMATION


    THE TICKER SYMBOL FOR MOBIL on the New York Stock Exchange is MOB.
    THE 1998 ANNUAL MEETING for shareholders will be held Thursday,  May 14, at
10 a.m. in the Grand Ballroom, Hyatt Regency Reston, Reston, Virginia.
    DIVIDEND PAYMENTS on common stock are paid quarterly  following  declaration
by the Board of Directors.  The next four tentative  payment dates are: June 10,
1998; September 10, 1998; December 10, 1998, and March 10, 1999.
    DIRECT   REGISTRATION   SYSTEM  offers  new   investors  and   participating
shareholders  another way to register  their  shares  without  having a physical
certificate issued. For information call ChaseMellon Shareholder Services at
1-800-648-9291.
    MOBIL'S STOCK PURCHASE AND DIVIDEND  REINVESTMENT  PLAN allows new investors
to buy Mobil  common stock for as little as $250 and  existing  shareholders  to
automatically  reinvest  dividends-both  without  paying  commissions or service
fees.  Once  enrolled,  you can make  purchases  through  monthly cash  deposits
ranging from $10 to $7,500. Optional cash deposits are invested weekly. For more
information,  request a  prospectus  on  Mobil's  Stock  Purchase  and  Dividend
Reinvestment  Plan from:  ChaseMellon  Shareholder  Services,  L.L.C.,  Dividend
Reinvestment Services,  P.O. Box 3336, South Hackensack,  New Jersey 07606-1936.
Telephone 1-800-648-9291, or visit Mobil's Internet site.
    QUESTIONS ABOUT DIVIDEND  CHECKS,  electronic  payment of dividends,  stock
certificates,  address changes,  account consolidation,  transfer procedures and
year-end tax  information?  Write:  ChaseMellon  Shareholder  Services,  L.L.C.,
Shareholder Relations,  P.O. Box 3315, South Hackensack,  New Jersey 07606-1915.
Telephone    1-800-648-9291    (Telecommunications    Device    for   the   Deaf
1-800-231-5469).
    SHAREHOLDERS   OR  OTHERS  WANTING   GENERAL   INFORMATION   should  write:
Secretary's  Department,  Room 7D2135,  Mobil  Corporation,  3225 Gallows  Road,
Fairfax, Virginia 22037-0001. Telephone 1-703-846-3898.
    PUBLICATIONS AVAILABLE TO SHAREHOLDERS:
    o Mobil's  Annual  Report  on Form  10-K,  filed  with the  Securities  and
      Exchange Commission.
    o 1997 Mobil Fact Book, a supplement to the annual report with additional 
      financial and operating data.
    o Quarterly Earnings Press Releases.
    o The People Behind the Commitment: Mobil's EHS Performance Report, an 
      account of Mobil's environmental, health and safety performance.
    For  copies,  visit  Mobil's  Internet  site,  call Mobil  Publications  at
1-800-293-5796,   or  write:   Secretary's   Department,   Room  7D2135,   Mobil
Corporation, 3225 Gallows Road, Fairfax, Virginia 22037-0001.
    ANALYSTS AND INSTITUTIONAL INVESTORS wanting information about Mobil should
write:  Investor  Relations,  6th floor, Mobil  Corporation,  3225 Gallows Road,
Fairfax, Virginia 22037-0001. Telephone 1-703-846-3955.
    INTERNATIONAL  SHAREHOLDERS  should  call  201-329-8660  (Telecommunications
Device for the Deaf 201-329-8354).
    AUDITORS: Ernst & Young LLP, Fairfax Square
Tower II, 8075 Leesburg Pike, Vienna, Virginia 22182-2709.
    TRANSFER AGENT AND REGISTRAR IN THE U.S.: ChaseMellon  Shareholder Services,
L.L.C.,  Overpeck Centre, 85 Challenger Road, Ridgefield Park, New Jersey 07660.
Telephone    1-800-648-9291    (Telecommunications    Device    for   the   Deaf
1-800-231-5469).
    TRANSFER  AGENT AND REGISTRAR IN CANADA:  Montreal Trust Company of Canada,
151 Front Street West, 8th Floor,  Toronto,  Ontario M5J 2N1, Canada.  Telephone
1-416-981-9500.  Montreal  Trust Company of Canada,  Western Gas Tower,  530 8th
Avenue, S.W., Calgary, Alberta T2P 3S8, Canada. Telephone 1-403-267-6800.
    BENEFITS  AND  CONTRIBUTIONS:  Information  on  employee  benefits  plans is
contained in plan  descriptions,  annual reports and other  materials  regularly
furnished to  employees  under the Employee  Retirement  Income  Security Act of
1974.  A statement  of  charitable  contributions  by Mobil  Foundation  Inc. is
prepared annually.



 An  important  part of the  operations  covered by this report is carried on by
 operating  divisions,  subsidiaries  and  affiliates  under the  direction  and
 control of their own managements. Except as otherwise indicated by the context,
 this  report  uses such terms as "Mobil,"  "corporation,"  "company,"  "we" and
 "our,"   sometimes  for  the  parent   corporation   and  all  such  divisions,
 subsidiaries  and  affiliates  collectively,  and  sometimes for one or more of
 them.  Duplicate  mailings of this annual report may be eliminated by sending a
 written  request to:  ChaseMellon  Shareholder  Services,  L.L.C.,  Shareholder
 Relations, P.O. Box 3315, South Hackensack, New Jersey 07606-1915.  Eliminating
 duplicate mailings will not affect your dividend, proxy statement or proxy card
 mailings.

 Mobil's Internet address: http://www.mobil.com
<PAGE>
 
                                    BOARD
                                       OF DIRECTORS


[Photograph of Board of Directors]

Lewis M. Branscomb
Elected 1978, Aetna Professor, Public Policy and Corporate Management, Emeritus,
John F. Kennedy  School of Government,  Harvard  University.  Committees:  Audit
(Chmn.), Public Issues

Donald V. Fites
Elected 1990, Chairman and Chief Executive Officer, Caterpillar Inc. Committees:
Management Compensation and Organization, Directors and Board Affairs, Finance

Charles  A. Heimbold Jr.
Elected  1995,  Chairman  and Chief  Executive  Officer,  Bristol-Myers  Squibb.
Committees: Audit, Directors and Board Affairs, Finance

Allen F. Jacobson
Elected 1988,  Former  Chairman of the Board and Chief  Executive  Officer,  3M.
Committees:  Directors and Board Affairs  (Chmn.),  Management  Compensation and
Organization

Samuel C. Johnson
Elected  1981,  Chairman of the Board,  S. C.  Johnson & Son,  Inc.  Committees:
Management Compensation and Organization, Public Issues (Chmn.)

Helene L. Kaplan
Elected 1989, Of Counsel,  Skadden,  Arps,  Slate,  Meagher & Flom.  Committees:
Audit, Directors and Board Affairs, Finance

J. Richard Munro
Elected 1989,  Chairman of the Board,  Genentech,  Inc.  Committees:  Management
Compensation and Organization, Public Issues

Lucio A. Noto
Elected 1988,  Chairman of the Board and Chief Executive  Officer.  Joined Mobil
1962. Committee: Executive (Chmn.)

Aulana L. Peters
Elected 1992, Partner,  Gibson,  Dunn & Crutcher.  Committees:  Audit,  Finance,
Public Issues

Eugene A. Renna
Elected  1986,  President  and  Chief  Operating  Officer.  Joined  Mobil  1968.
Committee: Executive

Charles S. Sanford Jr.
Elected  1990,  Former  Chairman  and Chief  Executive  Officer,  Bankers  Trust
Company. Committees: Directors and Board Affairs, Finance (Chmn.)

Robert G. Schwartz
Elected  1987,  Former  Chairman  of the Board,  President  and Chief  Executive
Officer, Metropolitan Life Insurance Co. Committees: Management Compensation and
Organization (Chmn.), Public Issues

Robert O. Swanson
Elected 1991, Executive Vice President. Joined Mobil 1958. Committee: Executive

Iain D.T. Vallance
Elected 1996,  Chairman,  British  Telecommunications  plc.  Committees:  Audit,
Finance, Public Issues


                           MOBIL CORPORATION OFFICERS


Lucio A. Noto
Chairman of the Board and Chief Executive Officer

Eugene A. Renna
President and Chief Operating Officer

Robert O. Swanson
Executive Vice President

Thomas C.DeLoach,Jr.
Senior Vice President and
Chief Financial Officer

Robert F. Amrhein
Vice President

Aldis V. Liventals
Vice President

Samuel H. Gillespie III
Vice President and General Counsel

Walter R. Arnheim
Treasurer

Carole J. Yaley
Secretary

Steven L. Davis
Controller
<PAGE>
 
APPENDIX TO FORM 10-K FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:

 (1) Boldface typeface is displayed with capital letters, italic typeface is
     displayed in normal type.

 (2) Because the printed page breaks are not reflected, certain tabular and
     columnar headings and symbols are displayed differently in this filing.

 (3) Bullet points and similar graphic signals are omitted.

 (4) Page numbering has been omitted.

 (5) The registered mark symbol has been replaced by (R).

 (6) The trade mark symbol has been replaced by (TM).


                                                   
<PAGE>
 
                          GRAPHIC APPENDIX LIST - 1997
 
Front Cover - Photogragh of head and upper portion of embroidered Mobil Pegasus
              logo, in red, fills most of the page. In the upper portion of the
              page, centered above the Pegasus' head, are the words, "Mobil" and
              "The energy to make a difference". At the bottom of the page,
              centered below the Pegasus' head, are the words "1997 Annual
              Report".
 
Inside front cover - Upper Left Side are the words, "About the cover: The
                     embroidered Pegasus introducing this annual report
                     represents Mobil and its employees worldwide, many of whom
                     wear the image daily as a patch on their clothing."
 
                     One Graph - middle left side.
                     Words "Average annual return to shareholders" above
                     graph.  Graph--Average annual returns to shareholders,
                     Mobil share-price appreciation plus reinvested dividends
                     vs. Competitors, and S&P 500-1 year, 5 years, 10 years.

                     Upper right side.
                     Words "Table of contents".  Table of contents appears on
                     the upper right side under words.

                     Center of page are words "Financial highlights" appearing
                     above a table of "Financial Highlights".

Page 1 -  Top.  Enlarged letters, "Letter to Shareholders".

          Photo.
          Center of page: Lucio A. Noto, Chairman and Chief Executive 
          Officer.

Page 3 -  Upper left side. Enlarged letters, "New exploration and
          acquisitions could raise our production beyond our current goals."

Page 4 -  Center left side are enlarged letters, "Mobil at a glance".

          Upper middle are enlarged letters, "Mobil Corporation" and "Red
          Pegasus" logo in white circle background.

          Right middle-page are enlarged letters, "Exploration & Producing".

          Photo.
          Lower middle-page: Modern, floating production platform.

Page 5 -  Upper left-page are enlarged letters, "Marketing & Refining".

          Photo.
          Upper left: Porsche with Mobil 1 logos.

          Middle left-page are enlarged letters, "Chemical".

          Photo.
          Lower left: chemical molecule.

Page 6 -  Enlarged letters, "People" in middle left of page.

          Photo.
          Upper middle-page: researchers at Mobil Technology Company's
          laboratories in Paulsboro, New Jersey.
<PAGE>
 
Page 7 -  Middle left-page: enlarged letters, "Business units around the world
          made progress on promoting inclusion".

          Photo.
          Upper right-page: Mobil employees in Melbourne, Australia.

          Photo.
          Lower center-page: Mobil employees in Stavanger, Norway.

Page 8 -  Middle left-page are enlarged letters, "Performance"

          Photo.
          Upper right-page: Customers servicing car at BP-branded service
          station.

          Lower left-page are enlarged letters, "The venture is a platform to
          grow in key markets in Eastern Europe, Russia"

Page 9 -  Middle right-page are enlarged letters, "The Technology Edge:"

Page 10 - Middle left-page are enlarged letters, "Growth"

          Photo.
          Upper center-page: Mobil employee at work on Hibernia platform.

Page 11 - Photo.
          Upper left-page: Worker at Tengiz oil field in Kazakhstan.

          Lower right-page are enlarged letters, "The Technology Edge:"

Page 12 - Photo.
          Upper center-page: Construction site at RasGas liquefaction plant in
          Qatar.

Page 13 - Upper right-page are enlarged letters, "Familiar areas, new ones offer
          potential beyond year 2000"

          Middle right-page are enlarged letters, "The Technology Edge:"

Page 14 - Photo.
          Center right-page: Employee at Mobil's lubricant blending plant in
          China, near Shanghai.

Page 15 - Photo.
          Upper center-page: Construction site at petrochemicals expansion in
          Yanbu, Saudi Arabia.

          Lower right-page are enlarged letters, "The Technology Edge:"

Page 16 - Middle left-page are englarged letters, "Environment"

          Photo.
          Lower left-page: The American Progress, a double-hulled vessel.

Page 17 - Photo.
          Upper center-page: Mobil employe converts the sludge from storage
          tanks into fertilizer.

Page 18 - Enlarged letters, "Financial" in center of page.
<PAGE>
 
Page 19 - One Bar Graph:
          Net Income of Mobil (millions of dollars) for years 1993 through 1997
          (excludes the LCM accounting policy change in 1994).

Page 20 - One Bar Graph:
          Total return to shareholders (per $100 invested on 12/31/92), S&P 
          500 and Mobil -- share price appreciation plus reinvested 
          dividends --for years 1993 through 1997.

Page 21 - One Bar Graph:
          Annual dividends per share of common stock (dollars) for years 1987
          through 1997.

Page 22 - Two Bar Graphs:

          Top
          Mobil's Upstream Net Income and Operating Earnings (millions of
          dollars), for years 1995 through 1997.

          Bottom
          Mobil's U.S. and International net production of oil and gas
          (thousands of barrels daily of oil equivalent) for the years 1995
          through 1997.

Page 23 - Two Bar Graphs:

          Top
          Crude oil average spot market prices (dollars per barrel) for Brent
          and West Texas Intermediate for years 1995 through 1997.

          Bottom
          Mobil's U.S. and interantional average natural gas sales prices
          (dollars per thousand cubic feet), for years 1995 through 1997.

Page 24 - Two Bar Graphs:

          Top
          Mobil's Downstream Net Income and Operating Earnings (millions of
          dollars), for years 1995 through 1997.

          Bottom
          Mobil's U.S. and interantional refinery runs (thousands of barrels
          daily), for years 1995 through 1997.

Page 25 - Two Bar Graphs:

          Top
          Mobil's U.S. and international Downstream petroleum product sales
          volumes (thousands of barrels daily) for years 1995 through 1997.

          Bottom
          Mobil's U.S. and international Downstream petroleum product sales
          revenues (millions of dollars) for years 1995 through 1997.
<PAGE>
 
Page 26 - Two Bar Graphs:

          Top
          Mobil's Chemical segment Net Income and Operating Earnings (in
          millions of dollars) are presented for years 1995 through 1997.

          Bottom
          Mobil's Chemical segment net sales to trade (Petrochemicals and Other
          in millions of dollars) are presented for years 1995 through 1997.

Page 32 - One Bar Graph:

          Mobil's return on average shareholders' equity (in percent) for years
          1995 through 1997.

Page 34 - Two Bar Graphs:

          Top
          Total Debt of Mobil, U.S. and international (millions of dollars) for
          years 1995 through 1997.

          Bottom
          Mobil's return on average capital employed (in percent) for years 1995
          through 1997.

Page 36 - Two Bar Graphs:

          Top
          Proceeds from sales of assets (in millions of dollars) for years 1995
          through 1997.

          Bottom
          Mobil's capital expenditures, exploration expenses and equity
          investments (in millions of dollars) for years 1995 through 1997.

Page 60 - One Bar Graph:
          Mobil's net production (in thousands of barrels of oil equivalent) 
          for equity companies, U.S. and international for years 1993 
          through 1997.

Page 61 - One Bar Graph:
          Mobil's total production vs. reserve additions (millions of barrels of
          oil equivalent) for years 1993 through 1997.

Page 62 - Two Bar Graphs:

          Top
          Refinery runs vs. petroleum product sales (thousands of barrels 
          daily) for years 1993 through 1997.

          Bottom
          Number of employees (at year-end) for Mobil for years 1993 through
          1997, split between Petroleum Operations segment, Chemical segment 
          and Other.
<PAGE>
 
Page 63 - Two Bar Graphs:

          Top
          Mobil's year-end market price per common share (in dollars) for 
          years 1987, 1989, 1991, 1993, 1995 and 1997.

          Bottom
          Mobil's debt-to-capitalization ratio (in percent) for years 1987,
          1989, 1991, 1993, 1995 and 1997.

Page 64 - Enlarged letters appear in upper left-page, "Shareholder information".

Page 65 - Enlarged letters appear in upper right-page, "Board of Directors".

          Photo.
          (Inside Back Cover: Fourteen-member group photo of Mobil's Board 
          of Directors.

Back cover - Photograph of the wings of Mobil Pegasus in red fills most of the
             page.  Centered above the Pegasus' wings are the words, "Mobil
             Corporation," the address, the telephone number, and Mobil's  
             internet address.